author: Reed, V. C.

text:
    John P. Stockton, attorney-general of New Jersey, at the relation of John R. Miller and Frank W. Miller, informants, and John R. Miller and Frank W. Miller, v. The American Tobacco Company et al.
    1. A court of equity does not possess the power to restrain a corporation, organized under the forms of law, from performing acts within its corporate power merely because some of the steps taken in organizing the company may liave been irregular, or because the purpose of the incorporators may have been to establish a monopoly.
    2. Under these conditions quo warranto is the appropriate procedure to challenge the right of the corporation to exercise its franchises.
    3. A trading or manufacturing corporation, until its charter is annulled by such a proceeding at law, has the same authority as an individual trader or manufacturer to sell or consign its goods, to select its selling agents and to impose conditions as to whom they shall sell and the terms upon which they shall sell.
    4. A decree restraining the officers and agents of a corporation from executing corporate acts is the same as a decree enjoining the corporation itself.

      This suit is brought for the purpose of restraining the defendants from transacting their business, and from conducting it in a manner prejudicial to the complainants and injurious to the people of the State of New Jersey.
    The bill sets out that for many years prior to January 21st, 1890, William S. Kimball and James T. Hart, under the firm name of W. S. Kimball & Company, of Rochester, New York ; Charles G. Emery, under the firm name of Goodwin & Company, of the State of New York; Allen & Ginter, a corporation of the State of "Virginia; W. Duke’s Sons & Company, a corporation of the State of North Carolina, and the Kinney Tobacco Company, a'corporation of the State of New York, had been, independently of each other, engaged in the business of manufacturing and selling paper cigarettes, and had competed with each other in the sale of their products in all of the United States; that they sold ninety-five per cent, of'all the paper cigarettes manufactured and sold in the United States; that these firms and corporations, to destroy competition and crush out opposition and maintain prices, entered into an agreement on October 17th, 1889. By the terms of this agreement the parties were to be incorporated under the name of the American Tobacco Company, the capital stock to be $25,000,000, eighty per cent, of which was to be divided in fixed proportions between the parties in payment for the good will, plants, trade-marks, machinery, leases, patents, patent rights and office fixtures and all other property of a personal nature. The remaining twenty per cent., to the necessary extent, was to be issued to the parties-in payment for the real estate owned by them, at a value to be' appraised, and also in payment of live assets, embracing stock oh hand, manufactured and unmanufactured, cash on hand, bills receivable and book accounts, and all dues to the parties. Any residue of said twenty per cent, not required for these purposes-was to be divided between the parties in the same proportion as-the eighty per cent. It provided for the leasing of any of the' real estate agreed to be transferred, in case there was any law to-prevent a conveyance thereof. It provided that the articles of incorporation or the by-laws thereof should be amended by a vote of seventy-five per cent, of the entire capital stock, and directors should be elected by the same vote; that the directors or trustees might assign one of their own number to the management of any one óf the properties agreed to be transferred.
    It was further agreed that no one of the officers, without the unanimous consent of the board of directors, should engage, directly or indirectly, in any business similar to that in which the company was to be engaged, but should at all times use. his best endeavors to promote the welfare and interests of the company ; also that the provisions of the agreement should be carried out under the direction of certain counsel.
    It is then charged that, pursuant to said agreement, "William ;S. Kimball & Company formed themselves into a corporation in New York, under the name of W. S. Kimball & Company; that Goodwin & Company incorporated themselves under the laws of some other state, under the name of Goodwin & Company; that the parties to these agreements caused to be prepared and executed a certificate of organization of the American Tobacco Company. The certificate certified that certain persons associated themselves into a company under an act of the State of New Jersey, entitled “An act concerning corporations,” approved April 7th, 1875, the business to be conducted in Newark, New Jersey, with a principal office in New York city. The objects are to cure leaf tobacco in all its forms and to establish factories, agencies and depots for the sale and distribution thereof, and to transport or to cause the same to be transported as an article of commerce, and to do all things incidental to the business of trading and manufacturing aforesaid; that the portion of the business which is to be carried on within said state is to cure leaf tobacco and to buy, manufacture and sell tobacco in all its forms; to establish factories, agencies and depots for the sale and distribution thereof, and to transport the same as an article of commerce, and to do all other things incidental to the business of the company, which must necessarily be transacted within the state; that the company proposes to carry on its operations in. all the other states and territories of the United States, in Ganada and Great Britain and in all foreign countries. The total amount of capital stock is $25,000,000, to be divided into four hundred thousand shares, of which $15,000,000, divided into three hundred thousand shares of $50 each, shall be common stock, and $10,000,000, divided into one hundred thousand shares of $100 each, shall be preferred stock, eight per cent, to be paid upon the preferred stock before any dividends shall be paid upon the common stock, dividends not to be accumulative, but payable out of the profit of each year. The certificate sets out the names and numbers of shares held by the stockholders, provides that the directors shall be classified in respect to the time for which they shall hold office, and fixes January 21st, 1890, as the period at which the company shall commence, and January 20th, 1940, as the time when the company shall terminate. The certificate was recorded in the clerk’s office of Essex county and filed in the office of the secretary of state.
    The bill charges that the incorporators never intended to establish any factories or depots, nor have they or the company established any in this state; that they have no office or place of business in this state, and that the only business that the company has done here is to make sales and consignments of their goods to jobbers and dealers in paper cigarettes, citizens doing business here, from the incorporators’ office in New York, and from their warehouses established at other points outside of this state, they having, before such attempted corporation, competed with each other in selling their goods to many of the same jobbers and dealers; that the attempted incorporation was in fraud of the laws of this state.
    The bill further charges that the issue of stock was in violation of the Corporation act for the reasons above stated, and Also because the eighty per cent, of the stock was issued for the purchase of property at a price fixed by the parties to the preliminary agreement was not limited to the true and actual value -of the property for which it was issued; because the twenty per cent, of the stock was not equal in value to the amount of stock issued; because none of the stock was issued for money, and that it was not lawful to organize a corporation on the basis that the whole stock was to be issued for property purchased.

      Tlie bill sets out that deeds were made which purported to convey to the American Tobacco Company the real estate and personal property, and charges that they were void because the Corporation act does not authorize the association of individuals into a company for the purpose of carrying on a business which is not intended to be prosecuted wholly or partly in this state, nor does it authorize persons or incorporations engaged in business in other states to merge their respective properties into a combination designed only to enable them under the form of law to create a monopoly and crush out competition.
    The bill charges that the property so conveyed was, after the execution of the conveyance to the American Tobacco Company, used in the same localities by substantially the same persons, firms or corporations as before, and that no part of the property has been removed to New Jersey.
    The bill then charges that the incorporators of the American Tobacco Company, after said transfers were made, have directed its operations from a central office in New York city, and have acquired, by purchase and compulsion or otherwise, the property and interests of nearly every person and company engaged in the production of paper cigarettes, and now produces about ninety-five per cent, of said entire production.
    The bill then sets out in detail the method by which the cigarettes are to be put upon the market, for the purpose of exhibiting the device by means of which it is alleged the American Tobacco Company has monopolized the trade and destroyed competition.
    It states that it has been the custom for manufacturers to sell to jobbers, who sold to the retail dealers; that previous to the organization of the American Tobacco Company jobbers bought, from the various manufacturers, the prices being regulated by competition; that the complainants, the Millers, are jobbers who so bought goods of the manufacturers unconditionally; that the American Tobacco Company has refused to furnish them goods, except under the terms of a paper issued by the American Tobacco Company, of all material parts of which the following is a transcript:

      “The Amebican Tobacco Company,
    “No. 45 Beoadway,
    “P. O. Box 2591. New Yoek, March 1st, 1892.
    “We will be glad to consign to you, for sale on commission, cigarettes of the various brands manufactured by us, such cigarettes to be sent by us, and . received, sold and accounted for by you, upon the terms hereinafter stated:

      “First. The selling prices are at all times to be such as we may fix in our selling list sent you, and no sales shall be made by you at lower prices than those so fixed.

      “Second. You are to guarantee all sales made by you. An extra commission of two per cent, will be allowed and can be deducted by you on all consignments remitted for us within ten days after the date of shipment to you.

      “Third. All cigarettes consigned to you are to remain our property until sold by you, subject to your lien thereon for all advances.

      “Fourth. The cost of freight from our factories is to be paid by us or allowed to you by us on account.

      “Fifth. You are to guarantee us against loss by any cigarettes consigned to you, by fire or any other cause, and agree to return to us the cigarettes in good condition or their selling price as above stated. You are also to pay all charges and other expenses of every nature connected with the storing, keeping and selling the cigarettes after delivery thereof to the common carrier, including all state, county and municipal taxes and license fees.

      “Sixth. Your commissions for selling and for all expenses made or incurred by you in connection with the business will be thirty-five cents per thousand cigarettes on all cigarettes sold at not less than two dollars and fifty cents per thousand, provided you shall fully comply with all the conditions herein contained, and shall co-operate with the company and promote its interests, and handle its cigarettes to its satisfaction. It is our intention not to consign any cigarettes for sale at less than two dollars and fifty cents per thousand.

      “Seventh. Settlements and payments of commissions are, for convenience, to be made as follows:
    “Thirty-five cents per thousand on July 1st, 1892, or as soon thereafter as practicable, on all cigarettes consigned you from the date of your signing this contract to April 1st, 1892, which have been sold by you and paid for prior to July 1st, 1892.
    “Thirty-five cents per thousand on October 1st, 1892, or as soon thereafter as practicable, on all cigarettes consigned to you during the three months ■ending July 1st, 1892, which have been sold by you and paid for prior to October 1st, 1892.
    “Thirty-five cents per thousand on January 1st, 1893, or as soon thereafter as practicable, on all cigarettes consigned to you during the three months ending October 1st, 1892, which have been sold by you and paid for prior to January 1st, 1893.
    “Thirty-five cents per thousand on April 1st, 1893, or as soon thereafter as practicable, on all cigarettes consigned to you during the three months ending January 1st, 1893, which have been sold by you and paid for prior to April 1st, 1893.

      “And so on from quarter to quarter thereafter in the same manner for the subsequent consignments, sales and payments.

      ‘'Eighth. If at any time we shall be informed and believe that you have, directly or indirectly, made any sale of our cigarettes at prices lower than those fixed by us, or have not complied with the conditions of paragraph sixth or the other provisions of this agreement, we shall have the right, at our option, to determine and declare that you have surrendered to us all right to be paid or to claim any commission not previously actually paid over to you, and if we exercise such right or option you will not be entitled to claim or receive any commissions on any part or future sales.

      “ Ninth. The right is reserved to us at any time to decline to consign to you any more cigarettes, and to withdraw the cigarettes already consigned to you after repaying to you all your advances thereon, and the right is reserved to you at any time to decline to act further for us after having accounted for the cigarettes already in your hands.

      “Tenth. The amount of cigarettes which we shall at any time consign to you is, of course, to be determined by us before or after receiving requests or reports from you, and we shall expect such reports and account sales whenever called for.
    “Consignments will be made from our several factories and depots, and advances and returns of sales must be made with New York exchange to the factory or depot from which the cigarettes were received, but all commissions will be settled and paid from this office.

      “ Your signature to this paper will be considered as an agreement by you to act for us on the terms and conditions hereinbefore stated.
    “Should you not care to avail yourself of the above terms and act as our consignee, we shall be glad to sell you our cigarettes at list price net, without discount, commission or allowance whatever, except allowance on prepayment of freight.
    “ No one has any authority whatever to change any agreement, circular, letter or price list of this company.”
    The bill charges that while the pretended object of the agreement is to procure a disposition of the goods satisfactory to the consignor, its real object is to restrain jobbers and others from selling any paper cigarettes except those manufactured by the combination; that if jobbers undertook to sell any other paper cigarettes, the combination, in some cases, summarily withdraws its goods, and in other cases threatens to do so, and if jobbers disregard such threats, the goods are withdrawn and the combination refuses to consign any other goods on commission or even to sell, and that, inasmuch as much the larger part of paper cigarettes manufactured and sold are produced by the combination, the withdrawal of its goods is a great injury to jobbers and will result in the destruction of their business. •
    The bill further charges that in June, 1892, the National Cigarette and Tobacco Company was incorporated to make paper cigarettes, and has established factories and has created a large demand for its cigarettes; that the complainants began, about the 26th of January, 1893, to make purchases thereof from the maker with the view of selling them to retail dealers, as was the case with other jobbers; and had such jobbers been permitted to sell and dispose of these cigarettes, their earnings would have been largely increased. Since said combination, if the jobbers were purchasing these cigarettes, the American Tobacco Company threatened them with the total stoppage of their consignments and with the refusal to deal with them in any manner, and compelled the jobbers to refuse to receive any more cigarettes of the National Cigarette and Tobacco Company; that less than a month after the Millers had commenced to purchase the Admiral cigarettes, the American Tobacco Company discontinued to make consignments to them, and refused to deal with them further; that the American Tobacco Company has pursued a similar course in the case of many other jobbers in the United States.
    The bill then charges that these are steps taken in execution of the unlawful purpose to prevent competition in the articles of commerce and in furtherance of the original design of the corporations and incorporators in forming the American Tobacco Company; that the agreement gave to the transactions the form of a consignment, while they were in fact sales, and the method was a device to enable them to carry out their scheme to secure a monopoly of the trade in cigarettes and in crushing out the National Cigarette and Tobacco Company or any rival who may endeavor to put cigarettes on the market in competition with the said corporation.
    The prayer of the information and bill is that it may be decreed that the American Tobacco Company was organized, or attempted so to be, for an unlawful purpose and in an unlawful manner, and that it has no legal power or authority to use its corporate franchise for the purpose of destroying competition in the business of the manufacture and sale of cigarettes, or for the purpose of taking in its hands or carrying on in its name the business of the firms and corporations mentioned in paragraphs 1, 2 and 3 of the bill, or for the purpose of injuring and destroying the business of the National Cigarette and Tobacco Company, or of complainants, or any jobbers and dealers who may determine to become customers or dealers with the National Cigarette and Tobacco Company, and that the defendants may be restrained from using the corporate organization of the American Tobacco Company in the conduct of their business of making and selling paper cigarettes, and from carrying on any portion of their business in the name of or by the instrumentality of the said American Tobacco Company, or from refusing to sell to complainants the cigarettes manufactured by said combination while using the name and franchise of the American Tobacco Company, and from using the corporate franchise of the American Tobacco Company to stifle competition in the business of manufacturing paper cigarettes, or to injure and destroy the business of the National Cigarette and Tobacco Company, or of complainants, or other jobbers or dealers who may desire to become customers or dealers with the National Cigarette and Tobacco Company, and for further relief.

      Mr. Thomas N. McCarter, Jr., Mr. Felix H. Levy, Mr. Thomas N. McCarter and Mr. B. F. Mnstein (of New York), for the complainants.

      Mr. Richard V. Lindabury, and Mr. W. W. Fuller and Mr. Joseph II. Choate (of New York), for the defendants.
   Reed, V. C.

The bill is filed for a double purpose. The attorney-general, as the representative of the people of the state, asks for an injunction restraining the defendants from doing that which it is alleged amounts to a public injury; and the relators ask for an injunction restraining the defendants from doing that which they allege inflicts upon them a special injury.

It is entirely settled that the bill may be maintained in both its aspects, or that it be maintained at the instance of the attorney-general and dismissed as to the relators. Attorney-General v. Cockermouth Local Board, L. R. 18 Eq. 172 ; Attorney-General v. Vivian, 1 Russ. 228; Attorney-General v. East India Co., 11 Sim. 380.

The questions propounded in the cause I will first consider in connection with the bill as one filed by the attorney-general.

The charge of the bill is that the corporation, or the incorporators of the American Tobacco Company, are conducting the business of manufacturing and selling tobacco cigarettes in a manner which destroys competition in that business and tends to create a monopoly; that this conduct is inimical to public policy, and therefore a court of equity, at the instance of the representatives of the public, will intervene to prevent any injury to the public springing out of such illegal conduct. The specific acts charged against the defendants may be ranged into two classes.

Those within the first class attack the method by which, and the purpose for which, the incorporators organized the defending corporation.

Those within the second class, as it is charged, exhibit an illegal exercise of corporate power by the American Tobacco Company since its organization.

Those acts within the first class which attack the manner in which the corporation has been organized are, first, that neither money nor property was turned over to the corporation by its shareholders in payment of their capital stock, in the manner required by the Corporation act, and second, that there was no intention in the minds of the incorporators to transact any of their corporate business or to have an office within the limits of this state. Those other acts within the first class, which are exhibited for the purpose of displaying an illegal purpose in creating the corporation, consist of the antecedent steps taken by the three corporations and two firms, they being then the leading competitors in the business of tobacco cigarette manufacturing, by which they agreed to coalesce their property interests so as to control the trade, fix prices and paralyze competition by assuming a single corporate shape, over to which should be turned all the aggregation of property and good will, so that it would be thereafter controlled by one corporation.

I will, in the first place, consider those proved acts which it is alleged display an illegal exercise of corporate power. The corporation has adopted a scheme, which is properly designated the consignment plan, for the disposition of that part of the output of its manufactories which consists of paper cigarettes. Of the whole body of jobbers in these goods it has selected certain dealers to whom it has tendered a contract for their subscription. This contract, when signed by such jobbers, by its sixth section, obliges such jobbers, in consideration of their receiving from the American Tobacco Company a commission of thirty-five cents for each one thousand cigarettes sold, to sell them at a price of not less thán $2.50 a thousand, and to co-operate with the American Tobacco Company to promote its interests and to handle its cigarettes to its satisfaction. The penalty of a failure on the part of the jobber to perform his part of the'contract is designated in the eighth section of the consignment contract. The provisions of this section, already set out, are that if the company, at any time, shall be informed or believe that the jobber has directly or indirectly made any sale at prices lower than those fixed, or shall not have complied .with the conditions of paragraph 6 or the other provisions of the agreement, the company shall have the right, at its option, to determine and declare that the jobber has surrendered all right to be paid or claim any commissions not previously actually paid.

The substance of the plan, as is perceived, is this: The company will put its goods into the hands of those jobbers who sign the agreement to maintain the prices fixed, and to handle the goods to the satisfaction of the company, and will pay to such jobbers the prescribed commission. To such jobbers as do not promise to perform the provisions by signing the consignment agreement, no commissions are allowed.

Now, it is charged that the American Tobacco Company has, by its conduct, so construed the sixth section of the agreement that whenever a jobber has bought and sold paper cigarettes manufactured by others than the American Tobacco Company, he has been cut off from the benefit of the consignment agreement, on the ground that he had not handled the cigarettes of the American Tobacco Company to its satisfaction. It is charged that the brands of cigarettes manufactured by the American Tobacco Company are so well and favorably known in the trade that no jobber can afford to forego the advantage of the commission to be derived from the sale of cigarettes manufactured by that company; that he is thus precluded from dealing in the cigarettes made by other manufacturers, and is deprived of the profit which he could derive from the sale of other cigarettes if he were permitted to sell them as well as those of the American Tobacco Company. Besides this complaint of injustice to the jobbers, there is the complaint that other manufacturers are, by this scheme, prevented from getting a footing in the market, because jobbers who deal in the brands manufactured by the American Tobacco Company will not handle the goods of other manufacturers. This is the complaint of the National Cigarette Company the most, indeed the only, formidable competitor of the American Tobacco Company.

Now, suppose it be assumed that all these charges are proved; assume that it appears in the testimony that the American Tobacco Company has so enforced its consignment agreement as to make it practically impossible for any jobber to handle its goods:, and at the same time to deal in goods made by others, and assume that from such conduct the alleged consequences flow, the query remains, what power has this court to interfere at the instance of either the attorney-general or of any jobber?

If the conduct now the subject of complaint had been that of an individual manufacturer instead of a corporation, I do not imagine that any lawyer would think of pressing before any court the proposition that such conduct could be enjoined. An individual manufacturer can sell his manufactured stock to whom he pleases, on any terms he pleases, and can refuse to sell to anyone with whom, for his own reasons, however capricious, he does not care to deal. He can select his agents to sell his goods, and fix any rate of commissions. He can accompany his consignment to such agent, with such restrictions as to the price or the terms of sale, or in respect to the parties to whom he may sell, as he pleases. Within these limits the power of an owner of manufactured goods is absolute. No court would possess a semblance of authority to annul or enjoin, at the instance of any third party, any arrangement between such an owner and his agent,' similar to that existing between the American Tobacco Company and its jobbers.

Now, conceding for the present that the American Tobacco Company is a legally-existing corporation, with the power to manufacture and sell paper cigarettes, in what respect does its power to deal with its manufactured goods differ from the power of an individual manufacturer to deal with similar goods, or in what respect does the power of a court of equity to control the business of such corporation differ from its authority to superintend the business of an individual ? The fact that a corporation is an entity, representing an aggregation of skill and capital, does not curtail its right to transact the business which the state’s charter empowers it to conduct with exactly the same freedom as a citizen. So long as by the policy of this state the formation of corporations is permitted, so long will the right of such artificial persons to act within the scope of their franchises be in no sense different from the right of an individual. The control of a court of equity over the business conduct of either is exactly the same. The contracts of either will be rectified, annulled or specifically enforced, and the duties of either as trustee or its right as cestui que trust will be enforced and protected. Any illegal conduct of either leading to irreparable injury will be enjoined. A nuisance created by either will be restrained. Indeed, whenever either an individual or corporation becomes related to any other individual or corporation, so that equitable jurisdiction arises to remedy some wrong or secure some right, it matters not whether both parties are individuals or both corporations, or that one is a natural and the other an artificial person. The cases cited upon the argument, wherein a court of equity has enjoined the acts of a. corporation, will be found to be cases where gmst-public corporations have acted outside of the scope of their charter privileges, or have violated an implied limitation upon its general power, so as to create a nuisance or a public injury. I now exclude those cases where a corporation has combined with some other corporation or corporations, or person or persons, to create a monopoly. I will allude to those cases hereafter. I am now speaking of the cases in which the acts of a single corporation, in respect to their effect upon public, private and civil property rights, have been judicially considered. The following are cases where the acts of a gmsi-publie corporation were restrained because they were not within the powers conferred upon it and were presumed to be inimical to the public weal.

In Attorney-General v. Great Northern Railroad Co., 1 Drew. & S. 154, upon an information filed by the attorney-general, the railway company was restrained from dealing in coal because it had not been authorized by parliament to conduct this business.

In Attorney-General v. Great Eastern Railroad Co., 11 Ch. Div. 450, upon an information filed by the attorney-general on the relation of a dealer in locomotives, the company was restrained from letting and hiring engines and rolling stock. The restraint was put upon the ground that the act of parliament did not authorize it, and it therefore was contrary to the.public weal.

Then there are a numerous class of cases where such ultra vires acts of corporations threatened a public nuisance. Among these is that of Attorney-General v. Middle Kent Railway Co. et al., 3 Ch. App. Cas. 100, where a bill was filed to compel the defendants to carry a public road over defendants’ railway at the proper statutory slope; the obvious ground was that any other slope would interfere with the public use of the road.

In Attorney-General v. Cockermouth Local Board, supra, a similar bill was filed to restrain the defendants from discharging sewage into a river from which the town received its water for domestic use.

Mayor &c. of Georgetown v. Alexandria Canal Co. et al, 12 Pet. 91, was a suit to restrain the defendant from constructing an aqueduct across the Potomac, a public highway, and so creating a public nuisance.

In Penn v. Wheeling and Belmont Bridge Co. et al., 13 How. 518, defendants had injured the state’s line of railroads and canal by building a bridge at Wheeling, and so caused a public nuisance.

District Attorney v. Lynn and Boston Railroad Co., 16 Cray 242, was a suit to prevent defendants from laying a track within the limits of the town of Saugus.

People v. Vanderbilt, 26 N. Y. 287, was a bill to prevent defendants from erecting a pier in the North river. It was upon the ground of restraining a public nuisance that the injunction was sustained.

In the case of Raritan and Delaware Bay Railroad Co. v. Delaware and Raritan Canal and Camden and Amboy Railroad and Transportation Co., 3 C. E. Gr. 547, “ the road established by the defendants in excess of their legitimate power is a public nuisance and an usurpation of the rights of sovereignty in the body politic” was the language in the opinion of the court of errors, and as the complainants were specially injured by the establishment of the competing line through the exercise of the usurped powers, it had the right to invoke the aid of a court of equity.

The case of Attorney-General v. Delaware and Bound Brook Railroad Co., 12 C. E. Gr. 631, involved the question whether the erection of a bridge across the Delaware created a public nuisance and caused injury to public property.

These cases and others cited in the brief of counsel, as is perceived, were instances of public nuisances or public injuries; they were threatened acts interfering with roads, streets, highways, state property or acts likely to foul public waters. It may be regarded as settled that where a gwasi-public corporation exceeds its corporate powers, and its acts involve a nuisance or otherwise tend to a public injury, a bill may be exhibited against such corporation in the court of chancery.

But it is perfectly obvious in this case that, upon the assumption that the American Tobacco Company is a legally-organized corporation, there is not the least ground for imputing to their conduct since their organization an ultra vires character, for, as already observed, it has by force of its corporate existence under the general Corporation act the power to manufacture and sell its goods, and it became thus invested with the same control over its business as if it had been an individual. Measured by this standard, it was acting within the limits of its legal right when it adopted its method of putting or refusing to put its cigarettes into the hands of the dealers in those goods. Indeed, if the corporation is to be treated as a single entity, it is admitted by the counsel for the complainants that the language of Mr. Justice Russell, in the case of John D. Park & Sons Company v. Wholesale Druggists’ Association (still unreported), correctly states the law. The judge remarked: “It is lawful for each manufacturer to refuse to sell to any customer, for any reason however capricious, any goods manufactured by him.”

But the contention of the counsel for complainants is that while this may be true, yet a combination of manufacturers having control of a given- trade cannot refuse to sell to any customer on the ground that he deals also with a competitor, or because he sells at a price lower than that fixed by the combination. Now, it may be conceded that if this corporation had entered into an agreement with other manufacturers of these goods, whether those manufacturers were individuals or corporations, by which agreement prices were to be fixed and competition paralyzed, such an arrangement would be a subject of equitable cognizance. Such was the case of Stockton, Attorney-General, v. Central Railroad Co. and Philadelphia and Reading Railroad Co., 5 Dick. Ch. Rep. 52.

In that case the defending corporations had entered into a contract to lease the Central railroad to what was substantially the Philadelphia and Eeading railroad. The lease was declared not only to be ultra vires, but to be made for the purpose of creating a monopoly in coal. The right of either of these companies to regulate its own business, whether it involved the fixing of the price for which coal should be sold or to whom it should be sold, was not involved, nor were the corporate powers of the company curtailed. What was done by the court of chancery was to annul a contract made by one company with another corporation, entirely aside from its corporate power and executed for an illegal purpose. Viewing the American Tobacco Company as a corporation legally organized under the laws of this state, with the power to manufacture and dispose of paper cigarettes, it has not exceeded the limits of its corporate rights, and therefore has not been guilty of acts akin to a nuisance, either public or private. This result seems to be the logical conclusion from the promise that so long as a person or corporation acts within its legal right, it cannot be guilty of a legal wrong.

It follows from this that the power of this court to deal with the defendants, if it exists at all, must rest upon the conduct of the incorporators preceding and leading up to the incorporation of the company, or must rest upon the power of this court to regard the acts of the incorporators, after the company came into existence, as distinct from the acts of the corporation itself.

The attack upon the acts of the incorporators preceding the organization of the company is, as I have already observed, made upon the several grounds that the capital required by the Corporation act was not paid in, and that there was no purpose to have any of the corporate business transacted in this state nor to have an office here, and that the purpose of the corporate organization was to erect a monopoly, of which purpose the consignment plan and the method of its enforcement are the sequences.

The first question which concerns us is whether these attacks upon the manner of creating the company do not directly challenge the existence of the corporation itself, for if this be so, it is entirely settled in this state that a court of equity has no jurisdiction to consider the matter at all. From the time of' the decision of Chancellor Vroom, in Attorney-General v. Stevens et al., Sax. 369, where he held that the existence of a corporation could not be questioned in a suit in equity, on the ground that the stock had not been subscribed according to law, the rule then laid down in that case has been followed as the law of this state. It was so recognized by the court of appeals in National Docks Railway Co. v. Central Railroad Co., 5 Stew. Eq. 755, and Elizabeth Gaslight Co. v. Green et al., 1 Dick. Ch. Rep. 118.

Now, conceding that the capital stock of the American Tobacco Company was not properly paid in, or admitting that any other step in the process of its organization was defective, yet, in the words of Chancellor Vroom: “Here is a set of men claiming to be a legally-incorporated company under the act of the legislature, exercising all the powers and functions of a corporation. They are a corporation de facto, if not de jure. Everything necessary to constitute them a corporation has been done colorably, at least, if not legally. I do not feel at liberty, in this incidental way, to declare all their proceedings void, and treat them as a body having no right or powers. * * * The corporation is now organized, and if acting without authority is liable to be brought at any time before a competent tribunal in a mode, the legality of which cannot, as I apprehend, be questioned.55

Nor does the corporate existence of this company seem to be amenable to equitable cognizance because the purpose of its organization may have been unlawful.

In National Docks Railway Co. v. Central Railroad Co., supra, the suit was to restrain the National Docks and its incorporators from erecting a railroad on the ground that the corporation was the mere agent of the National Storage Company, and that that road was designed to be only a means of providing the storage company with transportation for its merchandise, and that this was for a private and not a public purpose. In delivering the opinion of the court of errors and appeals, Mr. Justice Dixon said: “ These reasons, if they have any force, go directly to the legality of the organization of the railway company. If they should prevent the exercise by the company of the powers which the General Railroad law confers upon corporations created under it, it is because the company should not have been created in the mode and for the purposes in and for which it has been organized, and should be disbanded. It is not denied that every formal requirement of that law has been complied with, and that, to all external appearance, this company is a corporation by virtue of its provisions, but it is claimed that the motives and purposes of its corporators being what they are, they have usurped a corporate existence which the law did not authorize them to assume, and hence, while they may retain the form, they cannot excercise the functions of a corporation. Not because this corporation threatens to assail any rights of the complainants which, if lawfully organized, it would not be permitted to invade, but because it is a corporation de faoto merely, and not de jure, does the chancellor prevent it from doing what only a legal corporation may do.”

In that case, it is perceived, the court held that although the National Docks Railway Company may have been organized with the object of accomplishing an end subversive of the purpose of the General Railway act, yet a court of equity would not enjoin the exercise of a power it possessed as a corporation having a dejado existence under the law of the state.

Now, in the case at bar, it is charged that the purpose of the five concerns, the owners of which projected a scheme of incorporation, was to coalesce their separate competing businesses into one organization, for the purpose of destroying competition and controlling the trade in cigarettes.

Whether the contracts preceding the act of incorporation by which these concerns agreed to capitalize their five businesses at $25,000,000, each to put in its good will, plant, trade-marks, machinery, leases, patents, patent rights and property, and the stock to be distributed in the manner fixed by the agreement was inimical to public.policy, I shall not stop to consider. If so, the agreement or agreements would have been unenforceable in any court, and it may be that upon a bill filed by the attorney-general such contract would have been annulled. But that contract has been executed. As a contract it has ceased to have any efficacy whatever. All that can be said of it in this case is that its provisions exhibit the purposes for which the corporation was organized, and the sole question here is whether, if such purpose appears to have been to establish a monopoly through the instrumentality of this corporate organization, this court can, upon that ground, restrain any act done by the corporation itself within its corporate power. Now, that such an exertion of power by a court of equity would strike at the authority of the corporation to act at all as a corporation, is perfectly clear. The corporation must be either a legal or illegal entity. If legal, then, as I have already observed, it possesses the right to dispose of its goods in its adopted manner. If illegal, it has no right to transact any business at all as a corporation. An injunction which would, in the language of the prayer of the bill, restrain the company from using the corporate organization in the conduct of their business of making and selling paper cigarettes, and from carrying out any portion of their business in the name of the American Tobacco Company, “would be as efficient an annulment of their franchise as would be a judgment against them upon quo warranto

Nor does the alternative decree proposed upon the argument elude this difficulty. The proposed injunction would restrain the company

“from selling, consigning or otherwise disposing of any cigarettes manufactured. or owned by it to any person or persons, by any arrangement, contract or device, by which such purchaser or consignee shall be restricted or controlled in the price for which he may sell such goods, or which shall hinder or prevent such purchaser or consignee from dealing in or selling the goods of other manufacturers or dealers.”

It is apparent that such an injunction must rest upon proof that the company has no legal right to adopt the method enjoined. Regarding the corporation as a legal entity, it has such legal right. The company in thus acting is, as has been observed, moving in the lines of the powers conferred upon it by the certificate of incorporation. An order, therefore, which strips it of the power to exercise its franchise in this particular is, pro tanto, an annulment of its charter.

Nor, in my judgment, is this result evaded by enjoining the officers individually instead of restraining the corporation. It is perfectly obvious that what has been done since the organization, and what is intended to be done in the future, are corporate and not individual acts. The power of the corporation to select its officers ánd agents in the manner prescribed by the Corporation .act or permitted by law is plenary. Now, it seems a paradox to say that a corporation can do, through its agents, what the agents cannot do. Inasmuch as corporate existence can only be manifested through its officers, and corporate privileges can only be utilized by means of agents, it is impossible to detach the corporation from those who represent it and deny to the latter what is conceded to the former. An injunction which ties the hands of the officers and agents of a corporation from transacting any corporate business is the exact equivalent of an injunction which prevents the corporation from transacting any business, which, as already remarked, is the equivalent of a judgment on quo warranto.

It will be perceived that in National Docks Railway Co. v. Central Railroad Co., supra, the prayer, in part, was to restrain the incorporators of the National Docks Railway Company, but the idea of regarding the acts of the incorporators as distinct from the incorporation was not even noticed in the decision of the cause.

Counsel for the complainants, in answer to the objection taken that this court was without jurisdiction in this case to question the de facto existence of the American Tobacco Company, insist that the attack here made is not a direct but a collateral attack, and that the rule is that a court of equity can determine a question of corporate existence whenever it becomes necessary to determine some other matter of equitable cognizance. The cases cited in support of this view are Johnston et al. v. Jones, 8 C. E. Gr. 216; Mechanics’ National Bank of Newark v. Burnett Manufacturing Co., 5 Stew. Eq. 236 ; Kean v. Union Water Co., 7 Dick. Ch. Rep. 813. Neither of these cases involved the existence of a corporation. They all concerned the legality of the election of the officers of a de facto corporation. In these cases the doctrine is announced that no officer of a corporation can be ousted from his office except by a direct proceeding at law to try his title, and an exception to that doctrine is stated to be that if some other ground for equitable jurisdiction arises, as where the office is obtained by fraud, by breach of trust, by concealment or treachery, then a court of equity will restrain the acts of such officer. When persons pretend to act for a corporation, then, in a suit to enjoin an act of such pretended officers which threatens irreparable injury, a court of equity will intervene and decide the question of agency. Johnson v. Jones, supra. So when the question involves the agency of officers of a corporation to bind the corporation by a contract enforceable in equity, the court will decide the question of power to make the contract. Doremus v. Dutch Reformed Church, 2 Gr. Ch. 332. So when it became necessary to decide who were the officers of a corporation entitled to file an answer for it, on objection taken to the answer by complainant, a stranger, the question of agency was necessarily determined by the court, the court, however, refusing to examine the legality of the election of the officers who had filed the answer, they being clearly de facto officers.

On the other hand, as in Owen v. Whitaker, 5 C. E. Gr. 122, and Kean v. Union Water Co., supra, where no matter of equitable cognizance was involved, the court refused to decide the legality of the election of one or the other of two competing boards of directors.

It is perceived that neither of these cases involved the question whether, if the acts of the corporation presented a matter of equitable cognizance, a court of equity would determine whether a corporation having a colorable existence was a legal corporation. They were cases where certain acts were done by persons who pretended to represent existing corporations. The question was not whether there was a legal corporation, but whether the officers pretending to act for it were really officers and agents of the corporation.

In National Docks Railway Co. v. Central Railroad Co., supra, as already remarked, the bill was filed to restrain the former company from constructing its road across the land and tracks of the latter company and from condemning and taking such land. The injury threatened was one which courts.of equity have time and time again enjoined when the illegality of the proposed acts was apparent. Therefore, upon the theory propounded by the brief of counsel, these facts would present a ground for equitable interference, and so would confer upon a court of equity a right to inquire incidentally concerning the legality of the existence of the corporation which, by force alone of its corporate franchise, could claim the power to build its road across the land of the Central Railroad Company.

So, in Elizabeth Gaslight Co. v. Green, 1 Dick. Ch. Rep. 118; S. C., 4 Dick. Ch. Rep. 329, the complainant was injured in a manner which admittedly entitled it to an injunction against the defendant, if the latter had exceeded its corporate power; but it having acted within the powers conferred upon it, the court would not permit the legality of the corporation existing under the forms of law to be impugned.

Nor can I regard as tenable the suggestion that in the case of National Docks Railway Co. v. Central Railroad Co., supra, the doctrine in regard to the immunity of corporations from attack in a court of equity was limited to suits between private parties, and so contained an implication that, as to suits by the attorney-general, as the representative of the public, a different rule might be recognized.

In the opinion of the learned justice in the last-named case, the case of Attorney-General v. Stevens, supra, was cited as an apposite precedent, and attention was called to the fact that in the cited case the attorney-general was the informant, as well as to the fact that the information was to restrain the erection of a bridge over South river, in Middlesex county. In that case, it is perceived, the design of the defendants was to create what, if done without corporative authority, would be a public nuisance, and yet the question of the corporate existence of the defendants, Chancellor Vroom refused to entertain upon grounds which seem to have met the entire approval of the court of errors in National Docks Railway Co. v. Central Railroad Co., supra.

I am constrained to the conclusion, therefore, that by the law entirely settled in this state, a court of equity does not possess authority to enjoin an act done by a corporation organized under the forms of law, within the scope of the powers conferred upon it by its charter or certificate of incorporation, merely because of defects in the method of organization of the company, or because it was organized with a design of exercising its powers illegally.

ISTor have I found, in the exhaustive briefs of the learned counsel for the complainants, any satisfactory authority in the judgment of the courts of other jurisdictions in support of the equitable power now claimed by the complainants, for this court, in this action. The class of cases in which the right of the attorney-general to come into a court of equity to restrain, as ultra vires, acts of gucm-public corporations, or to restrain acts which have created or threatened to create public nuisances, have been already mentioned. Those cases, as already observed, have no pertinency to the facts of this case.

Then there is a class of cases involving actions brought for violation of contracts, suits to specifically enforce contracts, suits brought to annul contracts, where the contracts were agreements between two or more persons or two or more corporations, or between persons and corporations to fix prices, regulate the output of manufactories, create monopolies and destroy competition. Of the numerous cases of this class cited, the following are the most important: Hooker & Woodward v. Vandewater, 4 Den. 349; Central Ohio Salt Co. v. Guthrie, 35 Ohio St. 666; Morris Run Coal Co. v. Barclay Coal Co., 68 Pa. St. 173; Craft v. McConoughy, 79 Ill. 346; Emery v. Ohio Candle Co, 47 Ohio St. 320 (May 6th, 1890); Texas and Pacific Railroad Co. v. Southern Pacific Railroad Co., 41 La. Ann. 970; Judd v. Harrington, 19 N. Y. Supp. 406; Nester v. Continental Brewery Co., 161 Pa. St. 473; Chicago Gaslight Co. v. People’s Gaslight Co., 121 Ill. 530.

These cases would be pertinent if this suit had been an action for a breach of the agreement entered into for the incorporation of the American Tobacco Company, or if it were a suit to enforce such agreement, or a suit attacking an agreement entered into by this corporation with some other person or corporation to fix prices and defeat competition. But as this court, for the reasons already stated, is bound to assume the legality of the corporation, and as there has since its organization been no illegal agreement made by it to combine with any other corporation or person to fix prices or establish a monopoly, there is no ground for equitable interference with its corporate acts.

Then there are cases in which independent parties have been held indictable for conspiracy for entering into combinations to fix prices and creating monopolies by killing competition. For reasons similar to those just mentioned, these cases are irrelevant. For admitting that the agreements for organization were not only void, but were also criminal, either at common law or under the Sherman Anti-trust act, such an assumption could not affect the existence of this corporation when attacked in a collateral proceeding. While the corporation stands as a legal body, its acts must be regarded in the light of its charter rights. So long as its acts are within the purpose of its corporation, it would be absurd to say that, at common law, its officers or its agents are indictable for conspiring to do that which the corporation as a single entity is entitled to do. Whatever may have been said by the courts of other states concerning indictments under local statutes can be of no service here, for the question in hand is whether the defendants have done something under the law of this state to inflict wrong upon a private citizen or upon the body of citizens of this state, which wrong is remediable by injunction. In' regard to the attitude of this company toward the federal anti-trust statute, it cannot be pretended that, since its organization, the company has violated the provision of that statute.

The last class of cases cited upon the argument to which I shall allude are those in which the existence of corporations has been directly attacked by informations in the nature of quo warranto, brought to annul charters on the ground that a corporation was organized for the purpose, or was using its franchises for the purpose, of establishing a monopoly and stifling competition. The important modern cases in which these questions have arisen in this way are the following: People v. North River Refining Co., 54 Hun 354; S. C., 121 N. Y. 582; People v. Milk Exchange, 145 N. Y. 267; State v. Standard Oil Co., 49 Ohio St. 137; People v. Chicago Gas Trust Co., 130 Ill. 268; People v. Distilling and Cattle Feeding Co., 156 Ill. 448 ; State v. Nebraska Distillery Co., 29 Neb. 700.

In each of these eases, by the form of the proceeding, the corporate organization of the defendant was on trial. It was a proceeding at law brought to directly test the right of the corporation to further employ its franchises. In each of those cases the court extended its inquiry into the circumstances surrounding the inception, the growth and the consummation of the scheme for incorporation, as well as into the manner in which the corporation had used or abused its charter privileges after incorporation. These cases, it is perceived, are also entirely irrelevant to the point involved in the present suit. These were the cases employed by the counsel of complainants in laboring to establish the very important proposition that this court would look behind the American Tobacco Company and see several corporations or firms really operating behind the corporate mask; that the court would strip off disguises and regard the substance of things, and that the court would impute to the corporation the acts of the incorporators. The authorities advanced in support of the proposed line of judicial conduct consisted, with one exception, of the language used by judges in cases where the court was trying the right of corporate existence under quo warranto proceedings. In quo warranto proceedings, the power of the court to adopt this line of conduct would be entirely clear; therefore, the language of the judge used in that class of cases proved nothing respecting the power of this court in a proceeding for injunction. The exceptional case to which I have just alluded is that of Stookton v. Central Railroad Co., supra, and the language cited was that of the learned chancellor in delivering his opinion in that important case.

But the question under consideration in that case was whether the Central Railroad Company had violated the terms of the statute which forbade the execution of a lease by it to any foreign corporation except under certain unperformed conditions. The company had executed a lease in form to a domestic corporation, and the chancellor was speaking of the circumstances which disclosed to him the fact that while the lease was in this form, yet the domestic corporation was a mere agent of another corporation, and that the real undisclosed principal in the transaction was the Philadelphia and Reading Railroad Company, a foreign corporation. Now, the propriety of disregarding the form of the lease in that case is perfectly obvious, for it is not only always competent for anyone concerned in a contract except the party agent himself to show that a party who, although appearing as a principal, is in fact an agent, with a real principal behind him, but it is always competent to show that a statute which prohibits such a transaction is being violated by an ill usory arrangement. It was in respect to this point that the chancellor spoke of the power of the court to strip off disguises- and look at the substance rather than the form of the transaction. The inquiry involved no attack on the corporate existence of either of the three corporations concerned in the affair. Regarding each as a distinct entity, having the contractual ability and liability of individuals, the court was quite as competent to hold that one corporation was acting as the agent for the other as it would be to hold that one individual was the agent of another; If there had been a statute prohibiting any two or more persons of corporations from combining to lease joint property to one lessee, and a question had arisen whether a lease made by the corporation was to be regarded as a lease made by two or more of the incorporators, it would have presented a proposition analogous to that involved in the present suit. In a suit in chancery to annul such a lease it seems to me but one answer could have been made, namely, that the lease having been made by a corporation organized under the forms of law, with a power to make the lease, must be regarded as an instrument of the corporation alone.

I am constrained to the conclusion that the questions discussed in this case cannot receive judicial consideration in this proceeding, and that the only method by which they can be raised and decided is by an information in the nature of a quo warranto instituted in a court of law. While I have in my discussion alluded to the case as exhibited by the attorney-general, it'is perceived that the same defective jurisdiction which exists in respect to his bill exists also in respect to the bill of the relators. This is entirely apparent from the fact that the only ground of equitable jurisdiction is public injury, which has specially injured the relators. If there was no public injury, so far as can be inquired of in this suit, then there was no injury to any one of the public.

I will advise a decree dismissing the bill.


source: Caselaw Access Project

author: Stevens, V. C.

license: Public Domain

text:
    Thomas T. Eckert v. James H. Peters et al.
    G., owning a tract of upland and also a separate tract fronting on the sea, conveyed to S. and his heirs, by warranty deed, the tract of upland, and, after describing it by metes and hounds, continued as follows: “ Together with the free use and full right of sufficient land on my sea front for bathing purposes, with the right to enter thereon, erect bath-houses and use the same free of charge, undisturbed at any time.” — Held, that by this deed G. gave to S. an easement of way over his land to the sea, and also that the right given to erect bath-houses and use the same free of charge, undisturbed at any time, was a license merely which was revoked both by the death of the parties and by a subsequent conveyance.
    On bill &c.
    This is a suit to quiet title. The material facts are these: In the year 1868, Charles H. Green was the owner of two tracts of land in that part of Long Branch known as West End. One of these tracts was a fifteen-acre tract of upland lying on the westerly side of Ocean avenue, and the other a sea-front tract about half as large, lying on the easterly side of Ocean avenue, between that avenue and the sea. This latter tract lay to the south of and did not adjoin the former, there being a distance of at least five hundred feet between them. The upland tract had been farm land and was entirely unimproved; the sea-front tract, having a depth of six hundred feet between Ocean avenue and ordinary high-water mark, was, much of it, low and wet. The only structures upon it were three or four small bath-houses, a fish-house and a life-saving station.

      This being the situation of the respective lots, on November 19th, 1868, Charles H. Green and wife conveyed the fifteen-acre tract to Mayer Sternberger and his heirs by warranty deed. After describing the land by metes and bounds, he continued as follows:
    “ With the free use and right of sufficient land on my sea front for bathing purposes, with the right to enter thereon, erect bath-houses and use the same free of charge, undisturbed at any time; * * * to have and to hold the fifteen acres of land and right to bathe, hereditaments and premises hereby granted, and every part and parcel thereof with the appurtenances unto the said party of the second part, his heirs and assigns ” &c.
    On May 21st, 1881, Mayer Sternberger conveyed an equal undivided half interest in the fifteen-acre tract (with an unimportant reservation) to Simon Sternberger, “together with one equal undivided half interest in the sea-front rights granted and conveyed in and by the deed last aforesaid.” And very shortly afterwards Mayer and Simon plotted the property into eighteen building lots, many of which have since been sold and nearly all of which have been built upon. In some of the deeds conveying these lots there has been a conveyance of a
    “right in common with other owners, tenants and occupiers of the fifteen-acre tract to the bathing rights and privileges mentioned, described and granted in and by ”

    the Green deed ; in others, such rights and privileges are not mentioned.
    Green, the grantor, died in 1871. In 1875 the guardian of Ella Green, his sole heir-at-law, conveyed a portion of the seafront lot to one Howland. It is now owned by the defendant William Clark. In 1878, Ella conveyed another portion of it to the United States of America, and, in 1881, still another portion to Brokaw and Curtis.
    After these conveyances there remained of the sea-front land only the Eckert lot, the subject of the present bill, and a lot forty feet wide extending from Ocean avenue to the sea, which, it is claimed by the complainant, has been specially subjected to the burden cast upon the sea-front lot generally by the Green deed, and which, it is also claimed, is fully sufficient to sustain that burden.
    Ella Green (now Mrs. Peters) in her answer, in which her husband and Mrs. Green, the widow of Charles H. Green, join, says that she
    “has set apart and dedicated this forty-feet strip to and for the use of the said owners of said fifteen-acre tract, so that such owners and each of them should enjoy the free use of sufficient land on said sea front for bathing purposes, with the right to enter thereon and erect bath-houses.”
    She has not, otherwise than by this answer, herself attempted to designate the land in .which these privileges should be exercised by the owners of the fifteen-acre lot. In 1881, however, she conveyed to Leon Mandell a lot lying on the west side of Ocean avenue, and, as appurtenant thereto, a right of way over the forty-foot strip, and a right to erect a bath-house, expressly declaring that he was to hold the easement and privilege as an appurtenance to the other lot in common with the party of the first part, and of such other grantee or grantees of her (the said Ella) as she “ has heretofore or may hereafter grant a right of way and bathing privileges appurtenant to their lands now owned by them.”
    In 1892, Ella conveyed to Eckert the lot which forms the subject-matter of the present controversy. The deed contains full covenants of warranty and against encumbrances. Eckert now files his bill to quiet title against all the present owners of the fifteen-acre lot, including the devisees of Mayer and Simon Sternberger, both of whom are dead. His claim, like Ella’s, is that the forty-foot strip is ample to satisfy all the requirements of the original deed to Mayer Sternberger. The Sternbergers, on the other hand, and one of their grantees, Martha Hurtzig, insist that the Eckert lot, or a part of it, is subject to their so-called easement of bathing and that this court should so declare. They admit that they have never, since the date of the original conveyance in 1868, attempted to erect any bath-house on it, but they insist that they have at different times since then crossed portions of the Eckert lot for the purpose of bathing.

      Mr. John S. Applegate, for the complainant.

      Mr. William H. Vredenburgh, for Mrs. Peters.

      Mr. Alfred Walling, Jr., for Mr. Sternberger.

      Mr. Mahlon Pitney, for Mr. Hurtzig.

      Mr. J. Kearny Rice, for the United States.
   Stevens, V. C.

From the foregoing statement of facts it appears that, in 1868, one Green, being seized in fee of two lots — one a fifteen-acre lot not touching the ocean, and the other a sea-front lot, somewhat smaller — conveyed to one Sternberger. In his deed of conveyance, Green, after describing the fifteen-acre lot by metes and bounds, continued as follows:

“Together with the free use and full right of sufficient land on my sea front for bathing purposes, with the right to enter thereon, erect bath-houses and use the same free of charge, undisturbed at any time, to have and to hold * * * unto the party of the second part, his heirs and assigns ” &c.

The question to be determined is what kind of interest or estate in the ocean-front lot passed by this deed. By apt words, it first conveys to Mayer Sternberger, in fee-simple, the fifteen-acre tract, and then it purports to grant (1) the free use and full right of sufficient land on my sea front for bathing purposes, (2) the right to enter thereon, and (3) the right to erect bathhouses and use the same free of charge, undisturbed at any time.

What is meant by “the free use and full right of sufficient land on my sea-front lot for bathing purposes?” If it was intended to grant a right to ba’the in the waters of the ocean, the grant was nugatory, for the grantor did not own the land below high-water mark. If it was intended merely to give a right of passage to the water over the beach, so far as it lay above high-water mark, then this grant seems to be comprehended within tlie terms of the specific grant of the right to enter on the grantor’s “ sea front.” Giving to these two grants their utmost legal effect, they are fully satisfied by the appropriation of the strip of land forty feet in width — described in the Mandel deed— to the purposes of a way for bathers from Ocean avenue to the sea.. This way, ever since the year 1881, has been open and used without dissent on the part of anyone interested. Until this suit was commenced, no question was raised about its sufficiency or location. Then, for the first time, so far as the evidence shows, it was insisted by some of the grantees and devisees of Sternberger that they were entitled to a like way over the northerly side of the Eckert lot. I do not intend to assert that the grantees and devisees of Sternberger derive their title to this way under the Mandel deed, the language of which is not broad enough to include them. What I do assert is that a right to a way having been given by the deed from Green to Sternberger, its practical location was defined by Green’s daughter after his death, and that she, with the acquiescence of all parties interested, gave the benefit of it not only to Sternberger and his grantees, but, as she had a right to do, to Mandel and to others as well. So far, the case is free from difficulty.

I now come to the right to “ erect bath-houses and use the same free of charge, undisturbed at any time.” Nothing can be more vague and uncertain than this language. The bathhouses are to be erected on the grantor’s “sea front.” Does this mean on any part of the grantor’s land between Ocean avenue and the sea? If not, where is the line to be drawn, west of which there shall be no bath-houses? How many bathhouses and of what sizes may Sternberger and his heirs and assigns erect? There were no improvements on the fifteen-acre tract, and it was probably contemplated by both parties that Sternberger would do just what he afterwards did, viz., divide the property into lots. Was the number of bath-houses that might be erected to be equal to the number of lots into which the tract was to be divided by Sternberger and subdivided by Stern berger’s grantees ?

It is manifest that if the grant of this right attached not only to the fifteen-acre tract as a whole, but to every — even the smallest — subdivision of it, and the right to erect a bath-house passed, as it is claimed it passed, as an easement appurtenant to each parcel, the grantor practically granted to Sternberger, his heirs and assigns, at their election, for all time, the entire seafront lot, as well as the fifteen-acre lot. I cannot put this construction on the grant. I think it plain that what Green really gave, so far as the right to erect bath-houses is concerned, was not an easement, but a license. If so, then, by the well-settled rules of the common law, such license has been revoked, first, by the death of the licensor; second, by the death of the licensee, Sternberger, and third, so far as the Eckert lot is concerned, by the conveyance, by warranty deed, by Ella Green to Eckert.

The fact that an easement was given at the same time that this license was given does not alter the nature of the license. In Thomas v. Sorrel, Vaugh. 351, Chief-Justice Vaughan said : “A license to hunt in a man’s park and carry away the deer killed to his own use, to cut down a tree in a man’s ground and to carry it away the next day after, to his own use, are licenses as to the act of hunting and cutting down the tree, but as to the carrying away of the deer killed and the tree cut down, they are grants.” In like manner, the right of entry on land, given to enable bathers to reach the sea, may well be an easement, enjoyable either by the owner or occupier of the whole or part of the original tract (United Land Co. v. Great Eastern Railway Co., L. R. 17 Eq. Cas. 158; Newcomen v. Coulsen, 5 Ch. Div. 133), while the right to erect bath-houses may be nothing more than a license.

That this is so will appear from the following considerations: No present estate in the land was granted. There was given merely a privilege in the future to put up an indefinite number of bath-houses upon an indefinite site for an indefinite period. Such a privilege falls exactly within the definition of a license, viz., “ an authority to do a particular act or series of acts upon another’s land without possessing any estate therein.” East Jersey Iron Co. v. Wright, 5 Stew. Eq. 253. The following cases seem to be in point: In Webb v. Paternoster, Rolle 143, 152,. the right to stack hay on the close of Sir W. P. was granted in Wood v. Lake, Say. 3, the liberty to stack coals on defendant’s land for seven years. In each of these cases what was-given was held to be a license. Jackson v. Babcock, 4 Johns. 417, is another illustration. There, C. G., the owner of the land, by writing under his seal, gave to J. H.

11 the privilege, during his pleasure unmolested, to build a house near a pool, free from molestation, disturbance, injury or removal from or under me, for him, the said J. JEL, to inhabit and occupy peaceably during his necessity or pleasure.”

Hitchcock built a house and took possession of it, but afterward conveyed his interest. During his life, ejectment was brought against the tenant in possession under J. H.’s grantee. It was held that the writing was a mere license or personal-privilege to inhabit, and conveyed no title.

In East Jersey Iron Co. v. Wright, 5 Stew. Eq. 248, the agreement in writing under seal was to give to A. and his heirs and assigns the exclusive right to raise and remove ores from certain land of W. and to erect such works and buildings as were. necessary in conducting their business. It was held by 'Vice-Chancellor Van Fleet that the agreement did not pass any estate or property in the land or minerals, but was merely a license.' The reasoning in that case applies with much force to the ’ present. He says: What is the legal operation of the Rude-agreement? Is it a grant, a lease or merely a license.- The lan- , guage, it will be observed, is purely promissory or executory ‘ It is agreed that Rude and those who succeed to his rights shall-, have the exclusive right and privilege’ &c. Nothing passes presently as under technical words of grant, d'edi et- concessi. To constitute a grant, it is not indispensable that technical words shall be used, but they must be words that will manifest-the same intention. No such words are found- here. The lan-; guage of this instrument is equally inefficacious to manifest a purpose to make a demise. * * * They [the words] must clearly show that the lessor intends to divest himself of posses-' sion and that the lessee shall come into it. * * * Unless we attribute to them a significance much more extensive than they have-in legal science or can have in virtue of their own intrinsic force, it is plain that they pass no estate or property in the lands or the minerals deposited in them. They, at most, merely gave Rude authority — we may say exclusive authority — to enter upon the lands of Williams and do a series of acts there for his own profit without passing any estate or property in the land. Such an authorization is a license and not a lease.”

The above cases are illustrations of license. The right to erect bath-houses and use the same free of charge, undisturbed at any time,” is, in its essential features, strikingly like the authorizations there considered, and, on the other hand, it is •strikingly unlike the various kinds of easements mentioned in the books. This unlikeness would of itself seem to condemn it, for it is laid down that new species of incorporeal hereditaments cannot be created at the will of the owners of estates. Hill v. Tupper, 2 Hurlst. & C. 121; Keppel v. Bailey, 2 Myl. & K. 537. So long as the grantee named in the deed, his heirs and assigns, refrain from erecting these bath-houses, the grantor is to continue in the absolute and unqualified possession of his property. His enjoyment of it is to be without limitation. When, on the other hand, the grantee sees fit to build, all visible dominion of the grantor over the property, so far as built upon, ceases. The possession and enjoyment are then to become exclusive in the grantee, and to remain so as long as the buildings stand and are used by him, his heirs or his or their assigns. What, in such a situation, is there to suggest an easement ? In the words of Lord Campbell, in Race v. Ward, 4. El. & B. 709, a claim which leaves nothing for the owner of the soil is wholly inconsistent with the right of property in the soil. Furthermore, the possession and enjoyment carry with them the profits, but it is said to be one of the essential characteristics of an easement that it confers no right to a participation in profits. Washb. Easem. 3.

I am of opinion, therefore, that the authorization in question is not an easement, but a license.

If it had been, the intention of Green to grant, and of Sternberger to acquire, a stable right to a portion of the sea-front lot, words appropriate to that end might have been found in the very deed we are considering. The definite conveyance of the fifteen acres of upland stands in strong contrast to the vague and indefinite grant of the right to erect bath-houses at the will of the grantee, at any time, upon some indefinite portion of the sea front. Nothing can be gained by permitting parties to complicate titles by the creation of novel rights in real estate having-undefined but enduring incidents. Regarded as licenses merely, -these creations often subserve a useful purpose. They always, until revoked, protect the licensees from responsibility as trespassers. They may sometimes, by reason of equities growing •out of their execution, become irrevocable.

The fact that the instrument was under seal, and the fact that it, in terms, gave a license to Sternberger, his'heirs and assigns, •does not alter its nature. If, because it was in writing, it was not open to objection on the ground of the statute of frauds, it was still a license, and being such there was attached to it the necessary incident of being terminable both by the subsequent •conveyance and by the death of the parties. East Jersey Iron Co. v. Wright, 5 Stew. Eq. 253.

The complainant is entitled to relief.


text:
    Emmons B. Corby et al. v. Stephen H. Drew et al.
    The court will not, as against a married woman, decree specific performance of a contract entered into by her for the sale of her lands, she refusing to execute a conveyance for the same, whether her husband has signed the contract cf sale or has refused to sign it.
    On final hearing on pleadings and proofs.

      Mr. James M. Trimble, for the complainants.

      Mr. Robert II. McCarter, for the defendants.
   Stevens, V. C.

This suit is brought to enforce the specific performance of an agreement to convey fifty acres of mountain land, situate at Pompton, for the consideration of $500. The title was vested in Stephen H. Drew, Thomas E. Drew and Rhoda E. English, who each, at the time the agreement was made, owned an undivided sixth interest therein in fee-simple; in Cynthea M. Rowe, who owned an undivided two-sixths interest therein in fee-simple, and in Eliza Drew and her son George, who together owned the remaining one-sixth, Eliza having a life interest therein and George the remainder.

The agreement bears date on May 24th, 1893. Although it stipulates for a conveyance of the entire fee, it is signed neither by the wives of Stephen and Thomas nor by the husbands of Mrs. English and Mrs. Rowe nor by George. It is signed by Stephen and Thomas Drew, by Mrs. English and by Mrs. Rowe, who are brothers and sisters, and by Eliza Drew, who is the widow of Andrew Drew, a deceased brother.

Performance is resisted, first, on the ground that it Would be inequitable to enforce the agreement against the defendants, for the reason that between the day it bears date (May 24th, 1893) and the day fixed for its performance (July 24th, 1893), it was discovered that the land was much more valuable than. the owners supposed it was, and second, on the ground that the court cannot compel a conveyance from Mrs. English and Mrs. Rowe because they are married women; that it cannot compel a conveyance from George Drew and the • respective wives of Stephen Drew and Thomas Drew because they never signed the agreement, and that consequently there ought not to be any decree whatever against any of the parties, on the principle that where a large part of the property or a large interest in the property cannot be conveyed, the court will not decree a specific performance as to any of it, but will leave the parties to their remedy at law. Fry Spec. Perf. 14.1.

The first ground of defence is maintainable only upon proof that the land is really much more valuable than it was supposed to be by the vendors at the time they executed the agreement. I cannot find any such proof in the case. The proof amounts to no more than this : That the vendors, all but one of whom were brought up on an adjoining farnq knew this land to be rocky mountain land and believed it to be valuable only for the wood that could be taken from it; that whether the rock was granite or trap or limestone or anything else they did not know; that the vendees, who were quarrymen and known by the agent of the vendors to be such, knew that it contained a superior kind of granite, worth, according to the witness Brown, eighty-five cents a cubic foot delivered on the cars, and that the vendors bought it because of this knowledge. The defendants’ case goes no further.

USTo evidence was given as to what this stone was worth in the ground, and no attempt was made to show that land containing this stone was worth more per acre than complainants had agreed to pay for it. There was evidence to the effect that this same kind of granite was found in another quarry near by, and the defendant Corby testified, without much knowledge on the subject, however, that the whole of Pompton was underlaid with it. I think it is plain that this part of the defendants’ case is not sustained by the proofs.

It was also insisted on this branch of the case that the complainants should have communicated to the vendors all that they had discovered, and that their failure to do so was such concealment as would in itself prevent specific performance. I can find no proof of concealment sufficient to bar a decree for specific performance. The evidence is that before they entered into the agreement complainants received permission from Mr. Rowe, the husband of the defendant Cynthia, who was acting for the vendors, under powers extremely vague, to make blasts with a view of testing the character of the rock. These blasts, which they made before purchasing, proved satisfactory. Exactly what they told Mr. Rowe they had found is a matter in dispute. While they probably did ño more than say to him that the rock would answer their purpose, they did not conceal from him the fact that they were buying it to quarry on:

The letter of December 14th, written by Mr. Corby to Mrs. Rowe, on which counsel laid considerable stress in his argument, in wiew of the fact that Rowe was informed of the use which complainants proposed to make of their purchase, appears to me to be without significance: .

I now come to a question of considerable difficulty, viz., how far the court may, under bur statutes, compel a married woman specifically to perform a contract to convey land. This question is presented in two phases. The husband of Mrs. English, the owner of one-sixth, refused to sanction the contract ab initio. The husband of Mrs. Rowe, on the contrary, was the agent who effected the sale, and, while he did not join in the agreement, he so far committed himself to it in writing as to give a receipt for $100 of the purchase-money, which he declared to be

“ on acot. on sale of fifty acres of mountain land belonging to the estate of the late Henry Drew and being situate on Federal Hill, Pompton township. Contract price §500,”

and which he signed “ Francis Rowe.”

At common law the wife could only pass her freehold estate by fine-and common recovery. 2 Kent Com. 150. It was said by Chancellor Green in Moore v. Rake, 2 Dutch. 578, that previous to the year 1743 a feme covert could not make a valid conveyance of her interest in land in the then Colony of New Jersey; that, by' an act of that year, it was provided that all deeds of conveyance, made or to be made by a man and his wife of the estate of the wife, when acknowledged in a particular manner before certain officers, should be recorded, and should be good and sufficient to convey the lands thereby intended to be conveyed. The construction there put by the court of errors, upon that act and upon the act in Paterson’s Revision, was that the deed of a married woman, though duly acknowledged, made without the- co-operation of her husband, would not pass her title to real estate. The decision was placed not upon any defect in the acknowledgment of the deed then under consideration, but upon the fact that the husband had not joined with the wife in executing it. This appears to be decisive of the ease of Mrs. English, whose husband has always refused to join and who has never done anything which the court can take hold of in order to compel him to join. For it is expressly provided by the fourteenth section of the Married "Woman’s act that

“nothing in this act contained shall enable any married woman to execute any conveyance of her- real estate * * * without her husband joining therein as heretofore,”

except in those instances for which express provision is made, of which the present is not one. Surely the court will not compel a married woman to make a conveyance which she has always been under a disability to make, and which, when made in point of form merely, will be an absolute nullity.

Mrs. Rowe’s case is different. Mr. Rowe, as I have shown, has signed a receipt which would be sufficient to bind him. The court could, therefore, compel him to join with his wife in making a conveyance, and so the wife’s conveyance would not be open to the objection just stated. Notwithstanding this difference, I am of opinion that, upon another ground, the court must refuse a specific performance as against Mr. and Mrs. Rowe.

In Wooden v. Morris, 2 Gr. Ch. 65, it was held that the agreement of a-feme covert made with the assent of her husband, for the sale of her real estate, is absolutely void at law, and that courts of equity will not enforce it against her. In that case the contract was entered into under the hands and seals of both husband and wife. It arose before the act of 1852. The case of Pentz v. Simonson, 2 Beas. 232, arose after that act. There, too, the contract had the assent of the husband. Chancellor "Williamson decided that, notwithstanding the act of 1852, the old law remained unchanged.

The act of 1852 did not, therefore, vest in the married woman the power of making contracts, in regard to her real estate, enforceable in equity. It is, however, contended that the fifth . section of the Married Woman’s act of 1874 has done so; This section provides as follows:

“Any married woman shall, after the passing of this act, have the right to bind herself by contract in the same manner and to the same extent as though ’ she were unmarried, and which contracts shall be legal and obligatory and may be enforced at law or in equity by or against such married woman in her own name apart from her husband.”

The argument is that the right to bind herself by contract not being restricted to any particular species of property or to any particular subject-matter, is unlimited except as to promises .involving endorsement, suretyship and debts not her own, specially excepted by the act itself, and that, therefore, she has . the right to bind herself by a contract to convey land.

Now, so far as land is concerned, it is to be noticed that her power in respect of it is not unlimited. It is, in the first place, as I have already shown, restricted by the fourteenth section of the same act, which declares that nothing therein contained shall enable any married woman to execute any conveyance of her real estate without her husband joining therein as theretofore. But if she cannot convey without the concurrence of her husband, it would seem to follow that she cannot agree to convey without that concurrence. At all events it is true that if she can make herself liable in damages for non-performance at law, she cannot, acting alone, bind herself by an agreement which a court of equity will enforce by decreeing a conveyance.

In the second place, there is, as it-seems to me, another limitation upon the power of the court to compel a performance arising out of the act respecting conveyances. The ninth section of that act, revised and approved on the same day on which the Married Woman’s act was revised and approved, provides that no estate of a feme covert in any lands, tenements or heredita.ments shall hereafter pass by her deed of conveyance without a previous acknowledgment made by her, on a private examination apart from her husband, that she signed, sealed and delivered the same as her voluntary act and deed, freely, without any fear, threats or compulsion of her husband. It has long been'under-, stood, as one of the consequences of this legislation, that an acknowledgment by a feme covert is of the essence of her conveyance. In this respect it differs altogether in its operation and effects from other acknowledgments. Its object is the protection of the wife from the compulsion of the husband. But it is obvious that if it be held that, while the wife may not execute a conveyance without acknowledgment, she may execute an agreement to convey without acknowledgment, which agreement she will be compelled specifically to perform, the protection designed to be afforded by the ninth section of the act respecting conveyances is at an end.

The reason upon which Chancellor Williamson based his decision in Penz v. Simonson, supra, is still applicable. He says: “ The statute provides that a married woman shall convey her lands only by joining with her husband in a conveyance and by an acknowledgment upon a private examination apart from her husband that the deed was executed freely, without fear, threat or compulsion. * * * It is obvious that if a contract thus entered into [that is, entered into without the full consent of the wife, ascertained in the mode pointed out by statute] by a married woman is do be specifically enforced in equity, the statute [of 1852], so far from operating, as its title imports, * for the better securing the property of married women,’ will strip them of all the protection with which the jealousy of the common law guarded their rights against the authority and control of the husband. She will, in fact, be in a more unprotected condition against the control of her husband in regard to her separate property than she is in regard to her estate in the property of her husband.”

Conceding, therefore, that the married woman might, under section 5 of the Married Woman’s act, be liable at law for a breach of her contract, it does not follow that equity would be willing or able to compel a conveyance. If the wife affix her •hand and seal to a deed and deliver it unacknowledged, it is conceded that no estate passes. She must first declare, and declare, I should think, truly, that she signs and seals the paper as her voluntary act and deed. . Assuming that the court might, in, a proper case, compel a married woman, as it might compel anyone else, to put her hand and seal to a deed, will it go further and compel her to assert that to be true, in words, which is false in fact? Will the court say to her, we know you are unwilling to convey — you have so declared under oath; we know you will not convey unless the court directs you to do so under pain of imprisonment, still you must say that you do convey freely and voluntarily? Is not this kind of compulsion somewhat at variance with an act which declares that

no estate of a feme covert in any land * * _ * shall hereafter pass by her deed without a previous acknowledgment made by her * * * that she signed, sealed and delivered the same as her voluntary act and deed, freely ” &o. ?

How can it be asserted that this beneficial provision of the revised statutes, re-enacted on the same day on which the Married Woman’s act was enacted, was intended to be practically nullified by section 5 of the latter act?

It may be suggested that the court will inquire of the wife whether she signed the agreement voluntarily and without the compulsion of her husband, and that if it finds she has it will direct a conveyance. This would be substituting the discretion of the court for the express statutory requirement. It would, besides, fail to meet' the real difficulty. The question is not whether the agreement to convey was, as a matter of fact, entered into voluntarily, but' whether the deed to be given in pursuance of it shall have endorsed upon it a certificate which the attitude of the married woman brands as untrue;

Whether, on breach of a married woman’s agreement to convey, an action at law for damagés could be sustained, is a question not involved in this suit. It is manifest that the difficulty here so apparent would not arise and that the case would be decided on other grounds. As the agreement under consideration was not acknowledged, the effect of section' 23 of the “Act respecting conveyances” has not been considered.

In the case of Union Brick and Tile Manufacturing Co. v. Lorillard, 17. Stew. Eq. 1, another' phase of this same question was presented to this court. It was the case of a wife who had made an agreement to convey, her husband agreeing to join in the ponveyance.- Before performance was sought to be enforced the husband died. The chancello^ thinking that his death had removed the impediment to performance, decreed it. He was evidently of the opinion that if the husband had lived the agreement would have been incapable of performance in equity. He says: “At the death ‘ of the husband the limitation upon the execution of the contract by conveyance* and with it the objection to á specific performance of the contract, is removed.” When the case went to the court of errors the court affirmed the decree on the second ground upon which the chancellor rested his decision. It held that the wife had in effect re-executed the contract after her husband’s death, and was for that reason bound to perform it. It hesitated to go even as far as the chancellor had gone, declaring that it was not necessary to pass upon the validity or invalidity of the original contract, and it left the question as an open one. If, in the estimation of that court, it was doubtful whether the wife’s contract, made in his lifetime, could be enforced after' -his death, it must, T think, to say the least, be open to much greater doubt whether it could be enforced in his lifetime.

The conclusion thus reached is fortified by that line of cases in which it is held that where a married woman has attempted to convey her estate, but the conveyance is defective for want of compliance with statutory requisites, equity will not lend its aid to supply the defect, Hamar v. Medsker, 60 Ind. 413; Dickinson v. Glenny, 27 Conn. 104.

I am therefore of opinion .that the court cannot specifically enforce the contract against Mrs. Rowe.

The question then arises whether this is a contract which the court should enforce against anyone. The situation is this: As to an undivided three-sixths, there can be no performance whatever ; as to another sixth, there can only be performance against the tenant for life; as to the remaining two-sixths, there can be performance against the husbands in respect to their ownership of the fee, but not against the wives in respect to their dower rights.

In this situation it seems to me that the court, in the exercise of a reasonable discretion, ought to refuse to interfere at all. It should leave the parties to their remedy at law; more particularly as the agreement is that the entire fee shall be conveyed by warranty deed, and inasmuch as it is at least doubtful whether, under the very vague powers of the agent, he had any right to deliver to the purchasers an agreement by which the grantors bound themselves to convey the whole interest until he had secured the signatures of all who were interested and could be bound. Without reference to the fact that he did not sign himself, and did not obtain the signature of Mr. English or of the wives of the respective owners of two of the undivided sixths, he did not procure the signature of George Drew, who was the owner in fee in remainder of another undivided sixth, and whose signature was as necessary to a conveyance as was that of any other tenant in common.