author: Emery, V. C.

text:
    Edwin J. Morris v. Hussong Dyeing Machine Company et al.
    [Decided April 22d, 1913.]
    1. A claimant of certain' shares of stock in a corporation under two assignments, the first executed by H., as assignor and record holder, to one W., constituting him attorney of H., irrevocable with power to transfer on said books, and “with power of substitution, and the second executed by W. to the, claimant, in identical terms with the first, is entitled to make and is entitled to access to the company’s transfer books for the purpose of making the actual transfer thereon.”
    2. A by-law of the corporation providing that “shares of capital stock may be transferred by endorsement of the certificate and its surrender to the secretary for cancellation, whereupon a new certificate shall be issued to the transferee by the board of directors,” cannot be so construed as to require an actual transfer on each assignment.
    3. Under the decisions of this state the holder of a certificate of stock accompanied by an irrevocable, power of attorney, either filled up or in blank, may fill up the letter of attorney, execute the power and thus obtain legal title to the stock, and such power is not limited to the person to whom it was first delivered, 'but enures to each liona fide holder into whose hands the certificate and power may pass.
    4. The failure or refusal by a secretary to accept the certificate tendered, or act in the matter as required by the by-law, is such a refusal as entitled the transferee to compel a transfer.
    5. H., as secretary, and also as still the shareholder on the books under the assignments is a proper party defendant in a suit to compel such transfer, as is also the treasurer under section 19 of the General Corporation act, who is required to sign the new certificaté.
    6. Upon a bill by the transferee against the corporation and its treasurer, and H., as assignor, to compel the company to transfer said shares to complainant on the books of the company and to issue to him a new certificate therefor, the bill 'alleged that such by-law was invalid and prayed that it be declared void, the demurrant as ground of demurrer claimed that under said by-law the board of directors has the right in its discretion to refuse to admit a transfer of shares ‘ as a stockholder.— Held, that section 20 of the General Corporation statute, declaring shares to be personal property and to be made transferable on the books in such manner and under such regulation as the by-laws prescribed, gives to the directors only power to regulate or approve the formalities of transfer of the cei’tificate or evidence of ownership, and not power to restrict the absolute right of transfer.
    7. In the absence of clear express provisions either in the articles or by-laws lawfully restricting or qualifying this absolute right of property and transfer, the owner has the same right to transfer his shares as to transfer any other property. If, however, this by-law should be construed as not confined merely to approval of the formalities of transfer, but as giving the directors the right to refuse, in their discretion, a transfer by one stockholder to another, then the by-law is illegal.
    S. The right to equitable relief is based on the fact that the complainant’s title under the assignments is' an equitable title only, as between him and the company, and equitable relief is necessary to acquire the legal title and rights to the shares transferred.
    9. H., as the assignor, is a proper party defendant to a suit against the company, being interested as the alleged assignor, and is entitled to have the transfer made on the books relieving himself and subjecting the complainant’s obligations to the company as the legal and record holder of the stock.
    On demurrer to bill.

      Messrs. Grey & Archer, for the demurrants.

      Messrs. French & Richards, for the complainant.
   Emery, V. C.

This bill, which is demurred to, is filed by the purchaser of shares of stock in a corporation against the corporation, itself, The Hussong Dyeing Machine Company, and two" individual defendants, William McK. Monis and Joseph Hussong. The general object of the bill is to compel the company to transfer these shares to complainant on the books of the company and to issue to him a new certificate therefor. The following facts appear in the bill:

The corporation was organized: under the general corporation law on October 12th, 1907, and the complainant, Edwin J. Morris, and the said William McK. Morris and Hussong, were stockholders and tire only directors of the company from the time of the organization of the company. At the time of the filing of the bill, the other officers of the company were, the complainant, president, William McK. Morris, treasurer, and Joseph Hussong, secretary. Complainant, in August, 1911, purchased of Hussong all his stock, being two hundred and fifty shares, and received the certificate thereof, with the transfer thereon endorsed “duly made and executed,” as alleged in the bill, and transferring the shares to one David Wiley and constituting him attorney of Hussong to transfer the shares on the books of the company, with full power of substitution in the premises. Complainant applied to the company and to defendant, Morris, the treasurer, and Hussong, the secretary, demanding that they transfer these shares on the books of the company from Hussong to- Wiley, and they refused. Complainant also requested the issue of a new certificate to Wiley, which request defendant Morris refused. On February 23d, 1912, Wiley assigned and transferred the certificate to complainant-and constituted complainant his attorney to make the transfer on the books of the corporation, and on February 24th, 1912, complainant presented the original certificate with these transfers to Hussong, as secretary of the company, and demanded a new certificate tendering the original certificate for surrender. Hussong declined to act, claiming that he had no longer anything to do with the company, and referred complainant to defendant Morris and his counsel. Demand was subsequently made on defendant Morris for the transfer to complainant upon the surrender of the old certificate which was tendered for that purpose. This demand was made and subsequently refused through defendant Morris’s counsel. The assignment -to Wiley was filled up on the printed form endorsed on the certificate and, as appears by the bill, the assignment by Wiley to Morris is in identical terms with the first assignment. Jn reference to the transfers of stock a by-law, section 3, provides:

“Shares of capital stock may be transferred by endorsement of the certificate and its surrender to the secretary for cancellation, -whereupon a new certificate shall be issued to the transferee, if approved by the board of directors.”

The certificate in this case was tendered for cancellation to the secretary, and as the new certificate is to be issued on the surrender of the old certificate, he is presumably the proper officer to supervise the transfer on the books and 'the delivery of the new certificate. There axe, so far as appears, no express provisions of the articles of incorporation or by-laws restricting ox attempting to restrict the ownership of stock, or the personnel of the membership in the corporation, or fixing the terms or conditions of the directors’ approval. It- appears moreover by the bill, that there has never been a meeting of the directors since about the time of the organization. Complainant-attacks the by-law as null and void, so far as it requires the approval of directors to- a transfer, and the bill is filed to compel the transfer of the stock to him, as well as to set aside the by-law as null and void.

The first substantial ground of demurrer set up is that complainant was not entitled, under these two assignments, to an issue of stock directly to himself, but that a transfer to Wiley himself on the books of the company and an issue of the new certificate to Wiley was first necessary under the first assignment. This claim overlooks the fact that the first assignment to Wiley constituted him attorney irrevocable with power to transfer on the books and “with power of substitution.” This gave Wiley power,, on his subsequent assignment, to substitute complainant as his agent to make the actual transfer on the books, and by the bill it appears that Wiley did so. This transfer, under the second assignment, complainant is entitled to make, and is entitled to access to the transfer book for that purpose. Authorities referred to- by counsel as holding that where a corporation requires that the power of attorney run directly from the former holder and not from an intermediate one — -there must be an actual transfer on each assignment— are not applicable, for this by-law cannot be.so construed.

Under our decisions, the holder of a' certificate of stock accompanied by an irrevocable power of attorney, either filled up or in blank, may fill up the letter of attorney, execute the power and thus obtain legal title to the stock, and such power is not limited to the person to whom it was first delivered, but enures to each bona fide holder into whose hands the certificate and power may pass. Prall v. Tilt (Court of Errors and Appeals, 1877), 28 N. J. Eq. (1 Stew.) 479, 483, 484 The failure or refusal of the secretary to accept the certificate tendered, or act in the matter as required by the by-law, is such a refusal by the company as entitled the transferee to compel a transfer. Hus-song, as secretary, and also as still the shareholder on the books under the assignment alleged in the bill, is properly a defendant in the suit, as is also William McIL Morris, who as treasurer must, under Corporation act, section 19, sign the new certificate along with the complainant, the president.

The second and main ground of demurrer relied on is, that under this by-law all transfers of stock to any transferee are subject to the approval of directors, and that until such approval is given by the board of directors no transfer can be compelled. The bill alleges that this by-law is invalid, and prays that it be declared void. It is claimed by defendants that under this by-law- the board of directors has the right in its discretion to refuse to admit a transferee of shares as a stockholder.

Shares of stock in a corporation are, by the Corporation act, section 20, declared to be personal property, and are made transferable on the books in such manner and under such regulations as the by-laws prescribe. But the certificates of stock, regulation for the transfer of which may be made by the by-laws, are only the evidence of the shareholders’ rights in the company, and are not themselves the property of the company in-which the shareholder has rights. Bijur v. Standard Distilling and Distributing Co. (1905), 74 N. J. Eq. (4 Buch.) 546; affirmed on appeal for reasons stated, 78 N. J. Eq. (8 Buch.) 582.

This section of the act must therefore be considered as giving to the directors only power to regulate or approve the formalities of transfer of the certificate or evidence of ownership, and not as giving power to restrict the absolute right of transfer. In the absence of clear express provisions either in the articles or by-laws lawfully restricting or qualifying this absolute right of property and transfer, he has the same absolute right to transfer his shares as to transfer any other personal property. If, however, this bj'-law should be construed as not confined merely.to approval of the formalities of transfer, but as giving the directors the right to refuse, in their discretion, a transfer by one stockholder to another, then the by-law is illegal. It is clearly in restraint of trade and violates the general laws relating to the right of transfer of personal property, and is void as unreasonable. 5 'Am. .& Eng. Encycl. L. (£d ed.) 93. Some authorities are cited sustaining provisions in charters or by-laws, expressly providing for a prior offer of sale to the company, or submitting to directors the name of the transferee for approval. But the weight of authority and' — in my judgment — the better rule, seems to be against the validity of such provisions, as being an unreasonable restraint of alienation. And no case has been cited which sustains any restriction of this character as giving power to the directors or stockholders to refuse transfers by one stockholder to another existing stockholder. So far as restrictions provide for giving directors control over the membership of a corporation, by requiring their approval of the name of a transferee, they are manifestly applicable only to an original membership. If applied in the discretion of directors for the purpose of controlling or affecting the right of an existing stockholder to acquire further stock, such restrictions are not only unreasonable restraints of trade, but are unreasonable and illegal for the additional reason, that such application of the by-law would put it in the power of a board of directors to continue indefinitely their own control of the management.

The right to relief in this court, if the directors under this by-law are not entitled to withhold approval, and complainant is entitled to a transfer, was not disputed at the hearing. The right to equitable relief is based on the fact that the oomplainanfis title under the assignments is an equitable title only, as between him and the company, and equitable relief is necessary to acquire the legal title and rights on the shares transferred. Hussong, as the assignor, is a proper party defendant to a suit against the company, being interested as the alleged assignor, and as entitled to have the transfer made on the books, relieving himself and constituting complainant to the obligations to the company as the legal and record holder of the stock.

The demurrer will be overruled.


source: Caselaw Access Project

license: Public Domain

text:
    Christian Dolan v. Mary E. Brown and William Dolan et al.
    [Decided May 1st, 1913.]
    1. After the devise to the widow during widowhood, with remainder to his heirs, the testator directed “that if at any time during the period my wife shall be entitled to the estate as hereinbefore given and devised the same shall be insufficient if used in accordance with said devise, to comfortably support and maintain my said wife and children, and a comfortable support and maintenance for them can better be provided by a sale of such real estáte as I may leave, or a portion thereof, then and in that event, I hereby authorize and empower my said wife in conjunction — m3' other executor hereinafter named to sell and dispose of the same for the best price they can obtain and either invest the proceeds and appropriate the income thereof to the support and maintenance of my wife and' family, or if necessary, 'the principal money derived from any such sale or sales may be judiciously and providently used and applied for the support and maintenance of my said wife and children.” The proofs showing that the contingency had arisen for the exercise of the power, if it- existed — Held, that the testator’s widow, who vías the survivor of his two executors, has.not power of sale in view of the death of the other executor.
    2. The power given by this will was a special power of sale given to the wife to be exercised by her in conjunction with the other executor and with no provision for its exercise by the wife alone.
    3. Unless it can be exercised under the conditions given, the power of sale given to the wife cannot operate.
    Heard on bill, answer, replication and proofs.

      Mr. Charlton A. Bead, for the complainant.

      Mr. Willard Cutler, for the defendant William Dolan.
   Emery, V. C.

The point reserved at the hearing in this case related to the ■ power of the widow of the testator, who was the survivor of his two executors, to sell in fee lands which had been devised to her during her widowhood. After the devise to the widow during widowhood, with remainder to his heirs, the testator directed

“that if at any time during the period my wife shall be entitled to the estate as hereinbefore given and devised the same shall be insufficient if used in accordance with said devise, to comfortably support and maintain my said wife and children, and a comfortable support and maintenance for them can better be provided by a sale of such real estate as I may leave, or a- portion thereof, then and in that event, I hereby authorize and empower my said wife in conjunction — my other executor hereinafter named to sell and dispose of the same for the best price they can obtain and either invest the proceeds and appropriate the income thereof to the support and maintenance of my wife and family, or if necessary, the principal money derived from any such sale or sales may be judiciously and providently used and applied for the support and maintenance of- my said wife and children.”

At the hearing I concluded that the proofs showed that the contingency had arisen for the exercise of the power, if it existed, • but that in view of the death of the other executor, a question arose whether the wife could exercise the power.

On further consideration I conclude that she has not the power of sale. It is not a question of whether powers given to executors as such or in trust survive to the surviving executor either at common law or under our statute. For the power to sell was not given to the executors as such, nor was the power in its nature one which involved the question of the right of the other executor to sell on his survival of the wife. After the death or marriage of the wife the real estate was devised to the testator’s heirs and assigns, and no power of sale at all was vested in Sullivan, the other executor, as survivor. The power given by this will was a special power of sale given to the wife to be exercised by her in conjunction with the other executor, and with no provision for its exercise by the wife alone. Unless it can be exercised under the conditions given the power of sale given to the wife cannot operate. The death of a person whose consent to the execution of a power of sale is required terminates the power. Peirsol v. Roop (Vice-Chancellor Grey, 1898), 56 N. J. Eq. (11 Dick.) 739, 747; 22 Am. & Eng. Encycl. L. (2d ed.) 1122.

The wife has made a contract of sale which so far as its terms arc concerned seems to be a benefit to the estate, but inasmuch as the power to sell has been brought in question by one of the heirs to whom the estate in remainder is devised, tire decision of this court as to the power to sell is sought by the wife on this bill filed by her individually and as executor.

In my judgment, she has not the power of sale under the will.


author: Emery, Y. O.

text:
    Foster F. Birch v. William H. Baker et al.
    [Decided May 9th, 1913.]
    1. Upon a bill filed to reform a written contract made between complainant and five of the defendants as parties of the first part, on the one hand, and the other defendant Mirabeau Sims, on behalf of the Sims-Kent Company, a corporation then in-process of organization, as party of the second part, on the other, the issues related (1) to the existence of an alleged oral agreement between complainant and the other parties of the first part to the contract, for the payment by the latter to complainant of a portion of the value of the land conveyed by him to the company, and whether this can be proved by parol evidence, and (2) to the further understanding or agreement that this agreement as to compensation was intended by all parties to the contract to be inserted in the written contract actually signed. Upon examination of the evidence — Held, that the complainant had failed on the proofs to support either of these issues and that his bill must be dismissed.
    2. As to the character of proofs required, courts of equity are as much bound by the provisions of the statute of frauds in this respect as courts of -law, and are not at liberty to disregard them. In determining what contracts come within its scope, courts of equity and law follow the same rules, and in these matters of construction of the statute equity follows law.
    3. The decision of Birch v. Baher, 79 N. J. Law (50 Vr.) 9, followed as a binding authority controlling this case as to the application of the statute to the agreement for payment now in question, and grounds for equitable relief, notwithstanding the statute, must appear.

      4. As respects the second issue — the alleged omission of the agreement from the written contract by mistake, which is the equitable ground of relief relied on for protection against the statute — Held, that the evidence shows that the agreement in its present form was the agreement intended to be signed by the complainant as well as by the other parties of the first part and the defendant Sims, and that if there was any misapprehension or mistake on the part of the complainant in reference to the agreement with the other parties as to the compensation for his lands, it was not a mistake as to the promise for payment being either intended to be or actually being in the agreement at the time it was signed.
    5. The mistake which is equitable ground for reformation of a written contract must be clearly shown to have been a mutual mistake, and the mistake must be established by such force of proof as leaves no rational doubt of the fact of mistake.
    6. Upon the question of reformation of a written contract for mutual mistake, due weight must always be given to the sworn statement of defendants as to their intentions in reference to the form of the contract. The reason is, that otherwise, under the form of reformation or correction, a new contract may be in fact made by the court. And where the entire preliminaries to the signed contract are oral and there is no writing of any kind to appeal to for the purpose of correction, the court must require proofs that will be sufficient to overcome the effect of the defendants’ oaths.
    Heard on bill, answer, replication and proofs.-

      Mr. Elmer King, for the complainant (Messrs. Vreeland, King. Wilson & Lindabury, solicitors).

      Mr. Benjamin W. Ellicott and Mr. Willard W. Cutler, for the defendants.
   Emery, Y. O.

Complainant’s bill is filed to reform a written contract made between complainant and five of the defendants as parties of the first part, on the one hand, and the other defendant Mirabeau Sims on behalf of the Sims-ELent Company, a corporation then in process of organization, as party of the second part, 'on the other.

At the time of the execution of the contract, complainant was the owner of a tract of land in the town of Dover, and previous to the execution of the contract, negotiations had taken place between Sims on the one hand and complainant and the five other defendants, or some of them, on the other, for the erection and operating on this land of complainant of a manufacturing plant by Sims or a company he was forming. As the result of these negotiations an understanding was reached that this tract of land owned by the complainant was to be conveyed to the company without pajnnent of any consideration on its part, and that upon its -erection of the plant according to plans proposed and commencing operations, a sum not exceeding $10,000 should be advanced to the company on first mortgage. It was also agreed that another strip of land ten feet in width and belonging to William H. Baker, one of the defendants, should also be conveyed to the company without payment on its part. In the course of the negotiations, which resulted in the written contract, a price or valuation of $2,500 had been fixed for the complainant’s land, and a valuation of $100 for the strip of land of defendant William H. Baker. These values, however, were not fixed with Sims, but between complainant and the other-defendants, or some of them.

Complainant and all of the other defendants, except William H. Baker, met Sims at complainant’s office on the 13th day of February, 1906, for the purpose of preparing a written contract. A draft or memorandum of the contract was first made by Sims himself and then a lawyer, Mr. Ellicott, was sent for to put the contract in form. The form of the contract was dictated in the presence of all the parties (except William H. Baker), copies were prepared and handed to all the parties present, and the contract was either read by each one or read aloud, and afterwards exe- . cuted by all except William H. Baker, in Mr. Ellicott’s presence and as the subscribing witness. On the following day Mr. William II. Baker also signed the contract in Mr. Ellicott’s presence. This written contract was in form, only one between complainant and the five- defendants other than Sims, as parties of the first part, on the one hand, and Sims, on behalf of the Sims-Kent Company, as a corporation then in process of organization, on the other, as sole party of the.second part. It was provided that in consideration of Sims or the company erecting and equipping buildings for operation upon a lot 'in Dover, therein described (being in fact the complainant’s lot), and equipping, occupying and operating these buildings and premises as a steel casting plant as per plans agreed on, and also of a deposit of $2,000 asa guarantee to carry out'the undertaking — then the parties of the first part (including complainant, Foster F. Birch, who owned the land, and the five defendants who had ho title thereto) agreed "to secure and convey to said company in fee-simple the title of said lands and premises from the said Foster F. Birch,” and the parties of the first part also agreed that they, upon the completion of the buildings and the commencement of operations therein, would loan and advance to the company the amount it desired not exceeding $10,000, to be secured by a first mortgage on the lands, and also that they would secure an additional strip of land ten feet in width belonging to William H. Baker, extending from Bast Blackwell street, in Dover, back to the lairds of Birch; to be conveyed to the company. This strip of land, in connection with, twenty feet adjoining, which belonged to Birch, was for a right of way to the steel plant to be erected. Provision was also made that upon the completion of the buildings the sum deposited as a guarantee might be withdrawn by the company.

By this contract no provision was made for any payment by the .company for the conveyance to it of the lands either of Birch or Baker, nor was such payment by the company contemplated as part of the contract to be entered into by the company. The complainant’s present claim by his bill is, that it was a part of the entire contract between himself and the other defendants except Sims; that it was agreed between them all that the value of his land to be conveyed to the company was to be fixed at $2,500; that the complainant himself should make a contribution toward its value of the sum -of $500, and that the remaining $2,000 should be paid to him by the other five parties of the first part, each of these five persons agreeing to pay complainant $400.

The bill seeks to rectify or reform the contract with Sims by having this agreement between him and the other five parties of the first part, as to the payment to him for his land, inserted as part of the contract, and the bill charges that it was the intention of all the parties to. the contract that this agreement between them should be incorporated in the written contract, and that complainant erroneously believing it to be incorporated, conveyed his lands to the company without receiving any monejr compensation therefor. The company on its part took possession of the land, erected the buildings and performed its part of the contract. One of the defendants, William F. Birch, a son of complainant, has paid $-440 as his share of the $2,000 and interest thereon, but none of 'the other parties of the first part have paid. Decree pro confesso has been taken against Sims, and all of the other defendants, except William E. Birch (who has not answered), deny in their answer any agreement on their part, or on the part of any of them, that they should be each liable for the sum of $400, or any other sum. and also deny that any such agreement was to form part of the contract in question, and insist that the contract was drawn and signed in the. form intended.

The issues between the parties relate — first, to the existence of the alleged oral agreement between complainant and the other parties of the first part- to the contract, for the payment by the latter to complainant of a portion of the value of the land conveyed by him to the company, and whether this can be proved by parol evidence, and second, to the further understanding or agreement that this agreement as to compensation was intended by all parties to the contract to be inserted in the written contraer actually signed.

Without going into the details of the evidence my conclusion is, that complainant has failed on the proofs to support either of these issues and that his bill must be dismissed. As to the character of proofs required, courts of equity are as much bound by the provisions of the statute of frauds in this respect as courts of law, and are not at liberty to disregard them. Brewer v. Wilson, 17 N. J. Eq. (2 C. E. Gr.) 180, 184; 1 Story Eq. Jur. 753; 29 Am. & Eng. Encycl. L. (2d ed.) 845. In determining what contracts come within its scope, courts of equity and law follow the same rules (8 Pom. Eq. Jur. § 129S), and in these matters of construction of the statute equity follows the law. 1 Pom. Eq. Jur. § 426. The decision of the supreme court in Birch v. Baker (1909), 79 N. J. Law (50 Vr.) 9, upon the application of the statute, is therefore a binding authority controlling this case as to the application of' the statute to the agreement for payment now in question, and grounds for equitable relief, notwithstanding the statute, must appear. Had the complainant’s lands been conveyed to the defendants alleged to have promised to contribute to their payment, the statute would not have been applicable, because the action for unpaid purchase-money would then be based upon the debt which arose upon the conveyance. Murray v. Schuldt, 73 N. J. Law (44 Hr.) 489.

On the second issue, the alleged omission of the agreement from the written contract by mistake, which is the equitable ground of relief relied on for protection against the statute, I conclude on the proofs that the evidence shows that the agreement in its present form was the agreement intended to be signed by the complainant, as well as by the other parties of the first part and the defendant, Sims, and that if there was any misapprehension or mistake on the part of the complainant in reference to the agreement with the other parties as to the compensation for his lands, it was not a mistake as to the promise for payment being either intended to be or actually being in the agreement at the time it was signed. The mistake which is equitable ground for reformation of a written contract must be clearly shown to have been a mutual' mistake, and the mistake must be established by such force of proof as leaves no rational doubt of the fact of mistake. Green v. Stone (Court of Errors and Appeals, 1896), 54 N. J. Eq. (9 Dick.) 387, 399, 400. The evidence offered by complainant upon this issue of mistake falls far short of this requirement. Complainant’s own evidence on this point is indefinite and unsatisfactory, and the account given by his son, William E. Birch, called on his behalf, of the conversation in reference to the payment for the land at the time the agreement was drawn and signed) justifies the inference that for payment by any of the defendants the complainant relied expressly on the word or implied consent of the defendants-then present, and not on the insertion in the agreement of any provisions for payment of ■ the land. Mr. William Birch says that to the persons around the desk in his office, when the contract was brought in by Mr. Ellieott for signing, he asked if it was all right and in proper form, and on his reply that it was, his father then said, "Gentlemen, understand that you are to pay an equal share of this $2,000,” and they said “Yes,” and Mr. Pierson, one of the defendants, said, “Whether we sign this or not, Mr. Birch, our word is as good as our bond,” to which complainant replied, “I always considered it so.” The contract, according to this witness, was then signed by all of the defendants except William PI. Baker, who was not present and who signed it on. the following day, without any interview with complainant. Mr. Ellicott denies that the conversation referring to the payment for the land took place at that time, but says that at the earlier meeting of the parties, which took place in the office in the morning, and while getting directions for drawing the formal contract, he said to the parties present that the paper did not make any provision for the payment for the property, and inquired whether they wanted anything put in the contract showing the amount to be paid and by whom. To this inquiry, as Mr. Ellicott says, the complainant replied, “We will arrange for that other ways,” and that they said nothing was wanted in the contract showing how the property was to be paid for, but it was simply an agreement to satisfy Sims or his company. He does not state which one of the parties made this remark. It appears also that at the time the contract was signed each of the parties had a typewritten copy tq look over while Mr. Ellicott read the contract, and each of the defendants, William H. Baker, Thomas Baker and G-eorge Pierson, signing the contract as one of .the parties of the first part, swears substantially that the contract as signed was the contract he intended to sigu, and that he did not at the time of signing the contract intend that any agreement as to his payment of $400, or any other part of the purchase price of the land, should be inserted. Andrew K. Baker, one of the defendants, was not sworn, but he has answered denying the agreement alleged. Hpon the question of reformation of written contract for mutual mistake, due weight must always be given to the sworn statement of defendants as to their intentions in reference to the form of the contract. The reason is, that otherwise, under the form of reformation or correction, a new contract may be in fact made by the court. And where the entire preliminaries to the signed contract are oral and there is no writing of any kind to appeal to for the purpose of correction, the court must require proofs that will be sufficient to overcome the effect of the defendants’ oaths.

The substantial claim of the defendants now resisting payment to the complainant, is that the money to be paid to complainant for his lands was to be raised by or through the agency of the Dover Improvement Company and by subscription from the defendants, or some of them, and other citizens and persons interested in the establishment of the manufactory in the town. They claim that their participation in the contract in question was solely for the purpose of joining with complainant in protecting the- Sims company in undertaking the establishment of its factory, and that the matter of their payment or contribution toward payment for complainant’s land, to be conveyed by him to the Sims company, was not and was not intended by any of the parties to be included in the agreement. My conclusion on the proofs is that the contract was executed in the form agreed on and intended.

A dismissal of the bill will be advised.


author: Eitehy, 7. C.

text:
    Lisette Wirtz v. Thomas H. Guthrie et al.
    [Decided May 17th, 1913.]
    1. The amended bill having set up new facts and prayed a relief not within the scope of the original bill, a demurrer may be filed thereto, notwithstanding defendant’s answer to the original bill.
    2. The statute of frauds (Gen. Stat. p. 1608 ¶ 5; Clomp. Stat. p. 2612) provides that “no action shall be brought upon any contract or sale of lands unless the agreement upon which the action is brought or some memorandum or note thereof shall be in writing,” and inasmuch as the lack of such writing appears on the face of the bill, the defence of the statute may he made by demurrer.
    3. This provision of the statute covers actions in equity as well as at law, but while the decisions of courts of law upon matters of legal title and right are absolutely controlled by the terms of the statute, courts of equity, acting by personal decrees based on obligations equitably arising on the circumstances of the case, have deprived the defendants of the protection of the statute in cases where the effect of giving such protection would be to allow the defendant to perpetrate a fraud, the principle acted on by the courts of equity in these cases being that a fraudulent use shall not be made of the statute.
    4. Whether mistake alone, distinct from fraud, is also a ground in equity for depriving a defendant of the protection of the statute, is a vexed question.
    5. The question whether the agreement of which reformation is sought is executory or has been executed, is a vital matter as to denying the protection of the statute. If by mutual mistake the executed agreement is contrary to the previous parol agreement of the parties, the party who had received the benefit of the mistake and insists upon holding this benefit under the executed contract, commits a fraud by so insisting, and relief against mistakes thus resulting in fraud are not within the protection of the statute of frauds any more than frauds against the statute of other kinds. Belief against the statute in the whole class of cases involving part performance of parol contracts, or of parol variation of written contracts, is expressly based on this ground of preventing the accomplishment of fraud and this is one of the requirements for relief.
    6. On this bill the complainant shows a case where, if the statute prevails, she may possibly be deprived of the benefit of a bargain, but where any bargain relating to lands is oral the statute by its terms gives such protection if invoked, and its enforcement in this case accomplishes no fraud, for defendants have not received and do not retain any benefit derived from the mistake.
    7. Where land is the subject of the erroneous instrument, the reformation of an executed conveyance on parol evidence is not precluded by the statute of frauds, for otherwise it would be impossible to give relief. And where a mistake in an executory agreement relating to land is alleged, parol evidence may be admitted in opposition to the equity for specific performance. But it does not appear that where the defendant has insisted on the benefit of the. statute, the court has ever reformed such an executory agreement on parol evidence and specifically enforced it with the variation.
    On demurrer to amended "bill.
    Tire question now to be decided is the validity of the demurrer to an amended bill, "bnt by reason of the possible relevancy of the proceedings on the original bill, the whole ease will be stated.

      The original bill was filed by the vendor against the purchasers for the specific performance of a written agreement dated May 15th, 1911, for the purchase and sale of lands on Halsey street in the city of Newark. The lands mentioned in the agreement consist of two lots, the description of which by metes and bounds was given in the agreement, a copy of which was set out in the bill. The purchase price was to be $72,000, $1,000 to be paid upon the signing of the agreement and the balance to be paid or secured on the delivery of the deed. The conveyance,' which was to be made on November 15th, 1911, was to be subject to the rights of five specified tenants, their, leases expiring May 1st, 1912, and the agreement stated that these leases call for the payment of a gross rent of $5,640 per annum. Tender of performance on complainant’s part and refusal of defendants to carry out the agreement was alleged, and offering to perform the agreement on her part, complainant prayed specific performance of the written agreement by the defendants, with the usual prayer for general relief. Defendants answered this bill admitting'entering into the agreement in writing set out in the bill, and as a defence to its specific enforcement set up false representations made by complainant in the agreement as to the gross rent which "said premises” yielded, which representations induced defendants to execute the agreement. By cross bill with their answer, the defendants set up their entering into the written agreement set up in the bill, allege that previous to and at the time of the execution of the agreement and in the agreement the complainant represented to defendants' that the premises described therein were occupied by five named tenants, all under leases expiring May 1st, 1912, and that said leases called for the payment of a gross rent of $5,640 per year, which representations "made as aforesaid” by complainant, induced defendants to execute the agreement, and were relied on and material to the contract. The defendants charge that the gross i;ent for said premises is considerably less than $5,640, and therefore said representations were false and made for the purpose of inducing defendants to enter into an agreement which they otherwise would not have done. The cross bill prays that the agreement may be decreed to have been fraudulently and unduly obtained and be set aside as void and may be canceled, and that the vendor ma}1' be directed to repay the money paid on the execution of the agreement with interest. A prayer for general relief is added. Complainant filed replication to the answer, and answering the cross bill, says that previous to the execution, of the agreement and in the agreement the complainant did represent to the defendants that the premises therein described were occupied by the persons named in the agreement, and that the representations in the agreement as to the gross rents called for by the leases of these tenants are true, and denies that the gross rent for said premises is considerably less than $5,640. Issue on this answer was joined by defendants.
    . At the healing on the bill and cross bill it appeared by oral evidence that, by a. mistake in drafting the agreement, a lot located between the tw-o lots described'in the agreement, also belonging to complainant, and which was part of the premises intended to be sold and purchased, was not included in 'the description of the premises to be sold. Complainant thereupon applied to amend her bill, and has now tiled an amended bill, repeating substantially, or in ha.ee verba, the allegations of the original bill, and adding allegations to paragraph 3, that the premises ini ended to be sold consisted of a plot on Halsey street, with a certain light of way over an alley from the rea'r thereof to William street; that the premises were conveyed to complainant in three distinct parcels, and that the descriptions contained in the agreement included but two of the three parcels, and that through inadvertence and mistake the tract known as the middle tract was omitted; that the premises so intended to be sold and conveyed by complainant- were well known to the defendants, and that they well knew that it was conrplainant’s intention to convey the whole of the said curtilage with right of wajr, and it was their intention to purchase the same. It is further alleged (paragraph 4) that certain of the tenants mentioned in the said agreement were in possession of that portion of the whole curtilage, the description of which was accidentally omitted, and that the defendants before and since the agreement well knew that the tenants named in the agreement were together in possession of the whole of the premises intended to be sold and conveyed by complainant, including the portion accidentally omitted from the description of the agreement. It is also alleged that at the time fixed for closing the title neither defendants nor their counsel informed complainant of this omission, and that complainant did not discover the omission until after the time fixed for closing title; that she supposed this tract was included when she executed the agreement, and that the defendants have admitted that fit was the intention of complainant to convey and their intention to purchase for the consideration mentioned in the agreement, as well the tract omitted as the tracts described.
    By a further amendment to the amended bill and added to paragraph 3, it is expressly alleged that
    "the only contract in writing between complainant and defendants is the contract particularly set forth, and that the intention of complainant to convey and the defendants to purchase the tract inadvertently omitted, is not manifested by any instrument in writing.”
    Comp] aiu ant in the amended bill offers to convey the omitted as well as the described tract on the terms for payment of the ■written agreement, which offer defendants refuse to accept and complainant tenders such conveyance.
    Complainant therefore prays a reformation of the contract so as to include the omitted tract in the description of premises to be conveyed, and a specific performance of the agreement as reformed, with a prayer for general relief.
    To this amended bill, the defendants have demurred, assigning three causes of demurrer, only one of which, the second, is relied on, the others having been abandoned at the hearing and on the brief.
    This second ground is, “that neither the promise or contract, alleged by the bill, as to the third tract (the omitted tract), and of which complainant by the amended bill seeks to have the benefit, nor any memorandum or note thereof was ever reduced to writing or signed by the defendants or either of them, or any person authorized thereunto within the meaning of the statute for the prevention of frauds and perjuries.
    Dismissal of the amended bill is prayed by the demurrer.

      Messrs. Lintoti, Kafirs & Young, for the demurrants.

      Messrs. Lum, Tamblyn & Qolyer, for the complainant.
   Eitehy, 7. C.

(after statement).

The amended bill having set tip new facts and prayed a relief not within the scope of the original bill, a demurrer may. be filed thereto, notwithstanding defendant’s answer to the original bill. 1 Dan. Gh. Pr. (6th ed.) *409. ’'The statute of frauds (Gen. Stat. p. 4603 5; Comp. Stat. p. 2612) provides that

“no -action shall be brought upon any contract or sale of lands unless the agreement upon which the action is brought or some memorandum or note thereof shall be in writing,”

and inasmuch as the lack of such writing appears on the face of the bill, the defence- of the statute may be made by demurrer. Van Duyne v. Vreelmd (Chancellor Williamson, 1857), 11 N. J. Eq. (3 Stock.) 370, 378; 1 Dan. Ch. Pr. (6th ed.) *365, *561. This provision of the statute, covers actions in equity as well as at law, but while the decisions of courts of law upon matters of legal title and right are absolutely'controlled by the terms of the statute, courts of equity, acting by personal decrees baséd on obligations equitably arising on the circumstances of the case, have deprived the defendants of -the protection of the statute in cases where the effect of giving such protection would be to allow the defendant to- perpetrate a -fraud. The principle acted on by the courts of equity in these cases is that a fraudulent use shall not. he made of the statute. Fry Spec. Perf. (4th ed.) § 567'. Upon the same principle the court of equity has, from a very early period, dealt with the statute of wills as well as tire statute of frauds, and by its decrees imposed personal obligations on defendants setting up the statute for the purpose of accomplishing' a fraud. 1 Pom. Eq. Jur. § 431; McCormick v. Grogan, L. R. 4 H. L. 82, 97; Williams v. Vreeland (Court of Errors and Appeals, 1880), 32 N. J. Eq. (5 Stew.) 734, 737; Yearance v. Powell (Court of Errors and Appeals, 1897), 55 N. J. Eg. (10 Dick.) 577, 579. Whether mistake alone, distinct from fraud, is also a ground in equity for depriving a defendant of the protection of the statute, is a vexed question, j The status of the controversy is given in the leading text books and in many of the decisions, especially with reference to the. precise point now involved, viz., the admissibility of parol evidence of mistake, in suits by a plaintiff for reformation of a written contract by proof of a parol variation and specific performance of the written contract with the variation where there has been no part performance. The English rule is that such relief cannot be given in a suit by plaintiff for specific performance unless there has been a part performance of the parol variation. ¡ 2 Pom. Eg. Jur. 861. rXt is said by(this author (Ibid. § 862) that the American courts'have adopted the better and more-' enlightened rule that the plaintiff in such a suit may allege and by parol evidence prove, the mistake or fraud, and the modification in the written- agreement made necessary thereby and obtain decree for the specific performance of the corrected agreement.^ j A great number of cases are cited as authority for this statement, among others Keisselback v. Livingston, 4 Johns. Ch. 144, 146, and two cases from our own court. Smith v. Allen, 1 N. J. Eq. (Saxt.) 43, and Hendrickson v. Ivins, 1 N. J. Eq. (Saxt.) 562. I Smith v. Allen (Chancellor Vroom, 1830), 1 N. J. Eg. (Saxt.) 43, which was heard on demurrer, the bill was filed. against principal and sureties on a bond for prison limits to correct a mistake made by complainant inadvertently in drawing the recitals of the bond, after the giving of the usual bond in legal form had been' agreed on by the. parties. The general jurisdiction in equity to correct documents which by mistake were not put into the .form agreed on was asserted, and the authority of the leading American case (Gillespie v. Moon, 2 Johns. Ch. 585), followed in preference to what was claimed to be the English rule. In Gillespie v. Moon a deed by mistake included in the description of its bounds a tract containing fifty acres which, as Chancellor Kent found on the parol evidence, was not intended to be included as the property to be purchased, which was a tract of about two hundred acres. Chancellor' Kent (at p. *595, &e.) characterizes the conduct of the purchaser in attempting to retain the possession of this fifty acre tract after his discovery of the mistake in the deed, as fraudulent, and’ says (at p. 596) : "It would be a great defect in what Lord Eldon terms the moral jurisdiction, of the court, if there was no relief in such a case.” In Hendrickson v. Ivins (1832), 1 N. J. Eq. (Saxt.) 562, on a bill by grantor, a deed was corrected upon prooí by parol that by mistake or inadvertence a reservation which had been agreed on was not inserted, and an injunction against enforcing the deed in this .respect was granted, on. the authority of Smith v. Allen. And it may be said .that ^ our equity courts havej since these early decisions always*proceeded on the assumption that where there is a- mistake in a deed or other written contract delivered as the final execution of the contract or agreement intended to be made between the parties, and where the party setting up the deed or contract will receive a benefit not in1 tended by either party and a fraud will result if the mistake be not corrected; then the correction of-the executed contract will be made on the plaintiff’s application.j Recent cases in which this assumption has been acted on in cases otherwise within the terms of the statute as actions on contracts or sales of land, are Cummins v. Bulgin (Vice-Chancellor Van Fleet, 1883), 37 N. J. Eq. (10 Stew.) 476, and Green v. Stone (Court of Errors and Appeals, 1896), 54 N. J. Eq. (9 Dick.) 388. But these were all cases of the reformation of executed contracts, deeds or other contracts, and in such contracts an element o£ fraud manifestly arises when the party, after knowledge of the mistake, which has given him a benefit, to which he knows he was not entitled, insists upon holding this benefit to the loss of the' other party. This fraudulent aspect of the case arising originally from mistake was clearly the real basis, I think, of Chancellor Kent’s decision in Gillespie v. Moon, andfthe decisions in this class of cases therefore must really be considered as only extending to deny the protection of the statute of frauds in those cases of mistake where a fraud would be accomplished if the statute were a protection. ^ The general expression in these decisions, that mistake as well as fraud is ground for denying the protection of the statute, must be construed with reference to the circumstances of the case in which the equitable remedy in case of, mistake was given, and in each of the above cases referred to, the mistake relieved against and made the basis for affirmative relief, was a mistake which had been made in the deed or contract which carried into execution the previous agreement, and by- reason of execution of the agreements without the. variations which were omitted by mistake, a fraud resulted, if the statute were available in defence.

Story’s authority^ which is also cited as excepting from the statute cases of mistake as well as fraud, appears to. base the right to protection on the intolerable mischief worked contrary to the intention; of the parties. “It would be intolerable,” he says^-Z Story Eq. Jur. § 155)j “to allow an act, originating in innocence, to operate ultimately as a fraud, by enabling the party, who receives the benefit of a mistake, to resist the claims of justice, under the shelter of a rule to promote it. It would be a great defect in the moral jurisdiction of the court, if under such circumstances it were incapable of administering relief.” This language applies where the party setting up the statute has received the benefit of the mistake (that is, to executed' contracts which give him the benefit), and by insisting on its retention because of the statute, works the intolerable mischief of making the statute operate as a fraud. ItfcToes not reach, in my judgment, to executory contracts, within the terms of the statute, where there has been no part performance and the party who sets up the statute has not received and does-not retain any benefit derived by him from the mistake, but merely denies the right to bring an action on the parol contract because of the statute.

The question whether the agreement, of which reformation is sought is executory or has been executed, is the vital matter as to denying the protection of the statute. If by mutual mistake the executed agreement is contrary to the previous parol agreement of the parties, the party who had received the benefit of the mistake and insists upon holding this benefit under the executed. contract, commits a fraud by so insisting, and relief against mistakes thus resulting in fraud are not within the protection of the statute of frauds any more than frauds against the statute of other kinds. Belief against the statute in the whole class of eases involving part performance of parol contracts, or of parol variation of written contracts, is.expressly based on this ground of preventing the accomplishment of fraud, and this is one of the requirements for relief, Fry Spec. Perf. (4th ed.) § 580, 3 Pom. Eq. Jur. 1297, note (Vice-Chancellor Pitney, 1905); O’Brien v. Paterson Brewing, &c., Co., 69 N. J. Eq. (3 Robb.) 132, and cases cited.

TOn this bill the complainant shows a case where, if the statute prevails, she may possibly be deprived of the benefit of a bargain, but where airy bargain relating to lands is oral the statute by its terms gives such protection, if invoked, and its' enforcement in this case accomplishes no fraud, for defendants have not received and do not retain ahy benefit derived from the mistake. This distinction between executory and executed agreements in reference to the enforcement of parol valuations on application of the plaintiff, is clearly brought out in'several decisions. Macomber v. Peckham (Rhode Island, 1889), 17 Atl. Rep. 910; Safe Deposit Co. v. Diamond, C. & C. Co. (January, 1912), 83 Atl. Rep. 54, 59. The rule as stated (Ad. Eq. (5th Am. ed.) 171) is approved in the latter case: “Where land is the subject of the erroneous instrument, the reformation of an executed conveyance on parol evidence is uot precluded by the statute of frauds, for otherwise it would be impossible to give relief. And where a mistake in an executory agreement relating to land is alleged, parol evidence may be admitted in opposition to the equity for specific performance. But it does not appear that where the defendant has insisted on the benefit, of the statute, the court has ever reformed such an executory agreement on parol evidence and specifically enforced it with the variation.” Prof. Pomeroy (2 Bq. Jur. 866) states that executory as well as executed contracts may be reformed, on the application of the complainant and then specifically enforced where such relief was given, but the cases he refers to are (including Hendrickson v. Ivins, supra), so far as I have examined them, all cases of executed contracts. His statement by way of argument (Ibid.) is, that

“if the doctrine [of reformation] can be applied to deeds which have actually conveyed the title, then a fortiori may it be applied to mere executory contracts which do not disturb the legal title.”

. The statute in terms applies to all contracts or sales of lands, to equitable as well as legal titles, and the withdrawal of its protection in equity in certain cases involving a title which may be either legal or equitable, is no basis for extending, a fortiori, the exception sustained in a case involving legal title,- to a class of equitable interests not within the reason of the exception. If I have correctly apprehended the real equitable ground for reforming executed contracts, as being -the one stated by Chancellor ICent in the leading case (Gillespie v. Moon) viz., the prevention of fraud by the setting up of the statute,- this argument of the learned writer wholly fails.

Vice-Chancellor Pitney, in Lindley v. Keim, 54 N. J. Eq. (9 Dick.) 418, on a bill by the purchaser against vendor for specific’ performance of an executory contract, reviewed to some extent the decisions upon the general question of proof of parol variations and specific performance of the reformed contract on behalf of the complainant, and this opinion is relied on extending relief to executory contracts. But the learned vice-chancellor seems to disclaim, extending his decision to cases like -the present, for he says (at p. 1081) that in the case before him “the statute of frauds was not infringed; that it was not a case of introducing parol evidence to add to the thing agreed by the written contract to be conveyed and then asking the court to decree performance of it so amended as against a vendor who would be injuriously affected by the addition, but it was the showing by parol that something was included in the written description of the thing to be convejred which does not properly belong there and asking the court to eliminate it and to perform the contract without the improper addition.” The decree was reversed — 54 N. J. Eq. (9 Dick.) 41-8 (1896) — upon the ground that the contract.in question was made by an agent without authority, and the construction of the statute on the point now involved was not reached. In Miller v. Chetwood (Chancellor Pennington, 1839), 2 N. J. Eq. (1 Gr. Ch.) 199, where a vendee set up the .defence, it was said that parol evidence, although admissible in defence, was not admissible in behalf of complainant, and in National Iron Armor Co. v. Bruner (1868), 19 N. J. Eq. (4 C. E. Gr.) 331, Chancellor Zabrislde denied the right of a purchaser to introduce parol evidence to lay ground for specific performance against the vendor with compensation for deficiency.

In another class of cases, where complainant set up a parol contract, or a parol variation of a written contract in suits for specific performance, and. defendant denied the contracts as alleged, but admitted in his answer contracts which he offered to perform, the court has allowed the complainant the option of taking decree for performance on the .contract as admitted. Wallace v. Brown (Chancellor Williamson, 1855), 1.0 N. J. Eq. (2 Stock.) 308, 312; Ryno v. Darby (Chancellor Zabriskie, 1869), 20 N. J. Eq. (5 C. E. Gr.) 231. These cases all involve questions arising under the statute different from those arising on this .demurrer. There is no decision in our courts which controls the present case or which brings the ease presented by the bill within the settled exceptions to the operation of the statute, and on principle I find no reason for so extending the exception. The demurrer to the amended bill will be sustained, and I will hear counsel as to the order or decree to be made on the original bill.


author: Emehy, V. O.

text:
    Peter Merkel v. Albert Capone.
    [Decided May 19th, 1913.]
    1. Where a testator by bis will devised as follows: “To my son Peter Merkel or his lawful heirs I hereby give and bequeath all the tracts and parcels of land and premises conveyed to me by George T. Smith and wife, and known as Numbers 38, 40; 42, 44 and 46 Prince street, Nevrark, New Jersey, subject to all and every encumbrance thereon, for his own private use forever, under the express condition and restriction that should my son Peter die without leaving any children or grandchildren or should all his children or grandchildren die without leaving any lawful issue, then and in such case I hereby give and bequeath all the property above bequeathed to my son Peter, to my son John and the children of my daughter Elizabeth M., viz.: one half to my son John and one half to the children of my said daughter Elizabeth M., or their several lawful heirs, for their private use forever,” and at the time of the making of the will and at testator’s death his son had two children living, each having children from after testator’s death, the son has not an absolute title in fee-simple in the devised premises and cannot convey the same free of limitations over.
    -2. The testator intended to provide throughout for two separate contingencies. The opening clause devised “To my son Peter or his lawful heirs,” &e., the tracts in question. This devise to the heirs of Peter was substitutionary for the primary devise to Peter and took effect to them as a direct devise only in case of Peter’s death in the lifetime of the testator. The subsequent limitations over were intended to apply respectively to the two contingencies of' the original devise, and were in continuation of the general plan of the testator to further provide for the existence of either contingency which occurred to his own death, viz., Peter’s then taking the estate or the “lawful heirs” of Peter then taking the estate.
    3. Unless it appears that the testator clearly intended such inseparable connection of the two limitations, the court will more probably carry out the testator’s real intention by holding them to be separable.
    On demurrer to bill for specific performance of agreement for sale of lands.

      Mr. Otto A. Stiefel, for the demurrant.

      Mr. Casimiro Scoppettone,, for the complainant (Messrs. Sweeney & Scoppettone, solicitors).
   Emehy, V. O.

John Merkel, the father of Peter Merkel, the complainant, by his last will devised as follows:

“To my son Peter Merkel or his lawful heirs I hereby give and bequeath all the tracts and parcels of land and premises conveyed to me by George T. Smith and wife, and known as Numbers 38,40,42, 44, and 46 Prince street, Newark, New Jersey, subject to all and every encumbrance thereon, for his own private use forever, under the express condition and restriction that should my son Peter die without leaving any children or grandchildren or should all his children or grandchildren die without leaving any lawful issue, then and in such case I hereby give and bequeath all the property above bequeathed to my son Peter, to my soá John and the children of my daughter Elizabeth M., viz., one half to mj' son John and one half to the children of my said daughter Elizabeth M., or their several lawful heirs, for their private use forever.”

The will was dated June 11th, 1884.; testator died November 30tb, 1888. Peter, the son, had, at the -date of making the will, and at the death of his father, two children living, John and Bertha, who are still living, and each has children horn since testator’s death. John having three and Bertha one, all infants. Peter Merkel, by written agreement, contracted to convey 38 Prince street, one of the tracts mentioned in the devise, to the defendant, Albert Capone, the conveyance to be by deed of warranty, free from all encumbrance, for $5,000. To the bill for specific performance of the agreement defendant demurs solely on the ground of defect of title in Peter Merkel, and the question which has been argued on the demurrer is, whether Peter Merkel has an absolute title in fee-simple and can convey the lands, free of limitations over, complainant claiming that- he has and can convey such title. This claim is based on two propositions — first, that one of the limitations over of the estate, viz., the one providing that should "all his [Peter’s] children or grandchildren die without leaving any lawful issue,” is void, because it cannot be limited to-a life or lives in being at the death of the testator and twenty-one years after, and is therefore within the rule against perpetuities and void, and second, that this void limitation over is so inseparably connected with the other and previous limitation, viz., on the deáth of Peter without leaving children or grandchildren, that this limitation over is also void on that account. It is admitted that the limitation over on Peter’s death without children or grandchildren standing alone, or if separable from the void limitation, would he valid, and if valid, then it is admitted that Peter’s estate is not an absolute fee-simple such as he agreed to convey.

The dispute between counsel in their briefs hinges on this question of separability of the two limitations, defendant contending that they are separable, and that the first limitation over being clearly valid, no good title can-he given by the complainant. This principle of separability of limitations is illustrated in the decisions cited on both sides, and its correctness may be assumed. Tts application is a matter rather for the construction of each will than for searching for controlling precedents in the construction of other wills. On considering this devise, it seems to me that the testator intended to provide throughout for two separate contingencies. The opening clause devised “to my son Peter or his lawful heirs,” &c., the tracts in question. This devise to the heirs of Peter was substitutionary for the primary devise to Peter and took effect to them as a direct devise only in case of Peter’s death in the lifetime of the testator. The subsequent limitations over were intended, in my judgment, to apply respectively to the two contingencies of the original devise, and were in continuation of the general plan, of the testator, to further provide for the existence of either contingency which occurred at his own death, viz., Peter’s, then taking the estate or the “lawful . heirs” of Peter then taking the estate. As to the first contingency (Peter taking), then “should Peter afterwards die without leaving -any children or grandchildren,” the estate should go over, and as to the second contingency (Peter’s heirs taking the estate by way of substitution at testator’s death), then should ' Peter’s children or grandchildren who so took at that time as his heirs die without issue; the estate should also go over. The substitutionary devise was, it is true, to the “lawful heirs of Peter,” and the second limitation over in the contingency of “the lawful heirs” taking, was “on the death of Peter’s children and grandchildren without issue,” and while this difference in the description of the persons thus taking and afterwards dying, might possibly have prevented the devise and the limitation over operating together in every possible ease, yet it must be considered that the real question now is what was the testator’s intention as to the separability of the limitations made in case of Peter taking and afterwards dying, and his intention as to the second limitation. And inasmuch as Peter’s two children, who survived testator, were also living at the date of the will, I think it may be, for present purposes, properly assumed that in using the words “or the lawful heirs of Peter,” the testator certainly had in his mind Peter’s children and grandchildren, and probably had no other heirs oí Peter in mind. If this view be correct, that by “lawful heirs” of Peter in the substitutionary devise, the testator meant children or grandchildren, then, of course, it would not be clear that the second limitation over was void, for it would take effect on the death of the children or grandchildren living and taking as lawful heirs of Peter, at the testator’s death. However this may be, the vital question now is. upon the validity of the first limitation as not being intended by the testator to be inseparably connected with the second limitation. Hnless it appears that the testator clearly, intended such inseparable connection of the two limitations, the court, in my judgment, will more probably carry out the testator’s real intention by holding them to be separable. With this view of the separability of the limitation over on Peter’s death, I must advise that he cannot give such absolute title in fee as is required by the agreement and the demurrer on that ground is sustained.


author: Stevens, Y. O.

text:
    John Shields et al. v. The John Shields Construction Company et al.
    [Decided April 11th, 1913.]
    1. A contract between a railway company and a contractor for the building of a section of a tunnel (under section 34) provided that the latter should pay the former as damages in default of completing the works by the agreed date, “a sum equal to 1/50 of one per cent, of the amount paid or to be paid him for the entire work for each and every day the time consumed on said work and completion may exceed the time herein allowed for that purpose, which said sum, in view of the difficulty of ascertaining the loss which the Company will suffer by reason of delay in the performance of the work hereunder, is hereby agreed upon, fixed and determined by the parties hereto as the liquidated damages that the Company will suffer by reason of said delay and default, and not as penalty, and the Company shall and may deduct and retain the amount of such liquidated damages out of the moneys which may be due or become due to the. contractor under this agreement,” and in case the company should declare the contract at an end, as was done, it further provided (under section 35, subsection 2) that the company may make a new contract for construction with other parties upon such terms as the Company may deem proper; the same to provide among other things that the new contractor shall allow, for so much of construction as has been already completed, a reasonable amount to be prescribed in such new contract, or to be ascertained as in such new contract to be provided; and in such case the contractor shall pay the Company for all damages which the Company shall sustain by reason of such failure, including the excess, if any, of the amount which the Company shall pay the new contractor over the amount it would have had to pay the contractor party hereto for the same work and materials, together with the amount, if any, which shall he due the Company, hy reason of the delay in completion of the construction and completion of the entire work.” After the contractor had done a certain portion of the work, it became insolvent, and the railway company made a new contract with another contractor who completed it at the same rates as the original contractor had contracted for, and as far as appears, no damage in fact resulted from delay in construction, inasmuch as the other sections of the work had not been finished. Upon the railway company’s claiming liquidated damages, calculated according to section 34 — Held, that it is plain that the contract does not provide for liquidated damages in the event that has happened.
    2. Every line of paragraph 34 indicates that the case there provided for is that of the original contractor who fails to complete within the time agreed upon: The assumption is that such contractor is doing the work, up to the very time of completion, and that it is his delay which is causing the loss. In that event the company is authorized to deduct and retain from the contract price, stipulated to be paid, to him, the liquidated damages, calculated as section 34 provides. Under subsection 2 of section 35, on the other hand, provision is made for the possible loss that may ensue, where the company has been obliged to do the work itself or to employ and pay a second contractor. Here the conditions are different. The first contractor ought to be held for his own defaults but not for the acts of .the company or the possible defaults of the second contractor. He ought not in reason to be held to a greater or lesser liability according as the railroad sees fit to give the second contractor more or less time to finish.
    3. The damages called for are the damages that are sustained, that is, actually sustained, by reason of the failure. These it is said, may include the excess which the company may pay the new contractor and they may also include the amount, if any, due by reason of delay in completion. Under such a provision, damages arbitrarily ascertained have no place.
    4. The receiver is not entitled to compensation for the timbers or rings left in the tunnel under a clause of the contract providing that “timber left in the tunnels by order of the engineer will be paid for at the actual cost of the timber,” &c., the same being- included in the sale to the new contractor comprising “the plant, material and supplies used upon of in connection with its (the original contractor’s) works.”

      5. Upon the receiver’s claim for $7,125 for the removal by the original contractor of nine thousand five hundred cubic yards of earth and loose stone from the entrance to the tunnel (being at the rate of seventy-five cents per cubic yard), which in its last estimate of work done by the original contractor or its receiver, the railroad company retained out of the eighty cents per cubic yard payable for the completed job, handing over to the new contractor the whole amount retained — Hold, that the rights of the parties are determined by subsection 2 of paragraph 35. Under it the company had the right to make a new contract for construction, “upon such terms as the Company might deem proper," and to provide that the new contractor should allow for so much of construction as had been completed, “a reasonable amount to be prescribed in such new contract.” Here the original contractor expressly relegated the decision of how much the allowance should be to the judgment and good faith of the railroad and the new contractor.
    6. The reasonable allowance the new'contractor was to make was for completed construction. This' particular work was incomplete. Besides there is nothing to indicate that the seventy-five cent rate for complete disposal, not of this material alone, but of all undisposed of material, was not on the whole reasonable. It was the very rate stipulated for by the original contractor. As no unfair dealing is pretended, the contracts, as they stand, must decide the matter.
    7. The original contractor made an assignment to. the Hirst National Bank of Jersey Oity of any and all sums due and to grow due on account of retained percentages by the railroad under the original contract, “together with ail claims for extra work accruing in connection ioiih said work.” And by a supplemental contract the contractor for the sum of forty-nine cents per cubic yard, agreed to furnish all labor and materials necessary to complete, to the satisfaction of the ■ chief engineer of the railroad company,1 the placing of the waste material from the Bergen Hill tunnel on the line of Pennsylvania, New Jersey and New York railroad beyond a distance of one thousand feet from the portal. — Held, that work done under this contract, viz., eleven thousand one hundred and fifty-five cubic yards placed beyond the thousand feet, is “extra work” within the meaning of the above assignment, it appearing that the earth and rock ,-so placed were taken from the.section of the tunnel the original contractor was engaged in excavating under the original contract.

      Mr. Ghaunceif G. Parker, for the receiver.

      Mr. Albert Wall, for the Pennsylvania, New Jersey and New York Railroad Company.

      Mr. William, T). Edwards, for the First National Bank of Jersey Oity.
   Stevens, Y. O.

The questions here considered come up on the petition of the receiver of the John Shields Construction Company for instructions. _ Among other things, he asks that the Pennsylvania, New Jersey and New York Railroad Company be directed -to pay certain 'claims. The company resists their payment and insists that it lias a claim against the receiver for liquidated damages.

On March 16th, 1905, the railroad company entered into an agreement with the construction company for the construction of the westerly section of the Weehawken tunnel. After the latter had done a certain portion of the work it became insolvent, and on December 29th, 1905, a receiver was appointed. The receiver continued the work until January 21st, 1906, and then stopped. On March 2d, 1906, the railroad made a new contract with William Bradley, who completed it. I will drst consider the question of liquidated damages.

Section 34 of the Shields contract provides as follows:

“In case the contractor shall fail to complete the work hereunder in accordance with the specifications and to the satisfaction of the engineer within the time herein agreed upon, the contractor shall and will pay to the Company a sum equal to 1/50 of one per cent, of the amount paid or to be paid Mm for the entire work for each and every day the time consumed, on said work and completion may exceed the time herein allowed for that purpose, which said sum, in view of the difficulty of ascertaining the loss which the Company will suffer by reason of delay in the performance of the work -hereunder, is hereby agreed upon, fixed and determined by the parties hereto as the liquidated damages that the Company will suffer by reason of said delay and default and' not as penalty, and the Company shall and may deduct and retain the amount of such liquidated damages out of the moneys which may be due or become due to the contractor under this agreement.”

Section 35 (under which the railroad company proceeded) provides that if the engineer shall certify that in his opinion' sufficient plant and material and a sufficient number of workmen are not employed in the execution of the work or that the w.ork is not being carried on with due diligence, the company may give the- contractor written notice, and if the contractor shall not comply with its directions the company may do one of two -things — either (1) declare the contractor to he in default and forthwith procure'by contract or otherwise, either for the contractor, for his account and at his risk or otherwise as the company shall determine, the completion of the work, or (2) declare the contract at an end.

As the railroad company elected to take the latter alternative, and as the decision hinges upon the meaning of this subsec don, I give it in full (the italics being mine) :

“2. Declare this contract at an end, except as to liability of the contractor, hereinafter in this paragraph provided, and may make a new contract for construction with other parties upon such terms as the Company may deem proper; the same to provide among other things that the new contractor shall allow, for so much of construction as has been already completed, a reasonable amount to be prescribed in such now contract, or to be ascertained as in such new contract to be provided; and in such case the contractor shall pay the Company for all damages which the Company shall sustain by reason of such failure, including the excess, if any, of the amount which the Company shall pay the new contracto]- over the amount it would have had to pay the contractor party hereto for the same work and materials, together with the amount, if any, which shall he <toe the Company, hy reason of the delay in completion of the construction and completion of the entire work.”

The new contractor performed the work at the same rates the Shields company had contracted for, and, as far as appears, no damage in fact resulted from delay in construction, inasmuch as the other sections of the work had not been finished. The claim, therefore, is not .based upon any real injury suffered. If the railroad is entitled to liquidated damages (which, it is said, amount to about $50,000, calculated according to section 34), it is merely because the contract so provides.

It seems to me plain that the contract does not provide for liquidated damages in the event that has happened. I have recently considered the question in the unreported case of Commonwealth Roofing Co. v. Board of Education of the City of Newark —a case involving a similar situation — and I see no reason for changing my views on the subject. There are in the paragraphs quoted two alternatives presented — first, the completion of the work by the original contractor, but not within the time specified. Such was the case of Flynn v. Jersey City, 74 N. J. Eq. (4 Buch.) 107; 76 N. J. Eq. (6 Buch.) 607; second, the completion of the work by the railroad company or a second contractor. Every line of paragraph 34 indicates that the case there provided for is that of the original contractor who fails to complete within the time agreed upon. The assumption is that such contractor is doing the work, up to the very time of completion, and that it is his delay which is.causing the loss. In that event the company is authorized to deduct and retain from1 the contract price, stipulated to be paid to him, the liquidated damages, calculated as section 34 provides. ;

Under subsection 2 of section So, on the other hand, provision is made for the possible loss that may ensue, where the company has been obliged to do the work itself or to employ and pay a second contractor. Here the conditions are different.. The first contractor ought to be held for his own defaults, but not for the acts of the company or the possible defaults of the second con: tractor. He ought not in reason to be held to a greater or lesser liability according as the railroad sees fit to give the second contractor more or less time to finish. The dealings of the company with Bradley illustrate this point. By the first contract, he .was to finish by July 1st, 1907; then the time for completion was extended to June 30th, 1908, and afterwards to December 31st; 1908. The company claims damages, calculated only from March 7th, 1907, up to July 1st, 1907, but why not up to December 31st, 1908, if in view of the situation or difficulties 'encountered it thought that a reasonable time? The question comes to this, does the contract allow the company to determine the amount of liquidated damages on considerations aside from the defaults of the Shields company? Subsection 2 seems to me to call for another way of estimating them — a way that accords with established rules. It provides, first, that the second contractor shall allow a reasonable amount for the work done by the first contractor ; second, that if damage be sustained by the company by reason of the first contractor’s failure to complete, such contractor shall pay it; and, that there may be no controversy as to what shall be considered damages, it is declared that they shall include the excess, if any, which the company shall pay the new contractor over the amount it would have had to pay the old,

“together with the amount, if any, which shall be due the Company by reason of the delay in completion of the construction and completing of the entire work.”

If by this last clause it had been intended to fix in advance an arbitrary sum, dependent for its amount upon 'the acts or defaults of persons other than the first contractor, it would have been easy to refer to section 34 as giving the rule for its ascertainment. The question would then have arisen whether such a sum, so fixed, could, under the authorities, be other than a penalty. But there is nothing that requires a construction so ill adapted to the situation. The damages called for are the damages that are sustained — that is, actually sustained, by reason of the failure. These, it is said, may include the excess which the company may pay the new contractor, and they may also include the amount, if any, due by reason of delay in completion. Under such a provision, damages arbitrarily ascertained have no place.

I will next consider the claim of the receiver to compensation Eot the timbers or rings left in the tunnel. The contract provides that “timber left in t-he tunnels by order of the engineer will be paid for at the actual, cost of 'the timber,” &c. The receiver contends that when the engineer permitted Bradle.y to lay concrete upon and around these timbers, instead of requiring him to remove them, Lhey' were left in the tunnel, at least, impliedly, by order of the engineer. The contention rests upon the misapprehension that they belonged to the receiver. The fact is that they were included in the sale to Bradley of “the plant, material and supplies used upon or in connection with its (the Shields construction company’s) works.” If anybody lias any claim, it is Bradley.

A more perplexing question relates to the receiver’s claim for $7,125 for the removal by the Shields company of nine thousand five hundred cubic yards of earth and loose stone from the entrance to the tunnel. This was dirt and not rock excavation. Under the Shields contract the company had the right, subject to the approval of the engineer, of adojfiing one of two methods of doing the work. He might either tunnel through the earth or resort to the so-called' “cut and cover” method — that is, he might make an open cut, and then after the portal had been built, throw back the earth upon the masonry of the tunnel roof. The option was thus provided for in paragraph 287 of the specifications:

“287. In the construction of the tunnels from the west face of Bergen. Hill and adjoining portals, the contractor, should he consider ic to his advantage, may construct such lengths of the tunnels by cut and cover work (subject to the approval of the engineer). This cut and cover work will be paid for at the rates quoted in the schedule for Bergen Hill tunnels, irrespective of methods of construction.”

Under the title “Hackensack Portal and Approach/'-' excava- ' tion is allowed at the so-called unit price of eighty cents per cubic yard.

For doing the work in either of the methods above indicated, the contractor was, therefore, entitled to eighty cents per cubic yard, and no more. The Shields company adopted the “cut and cover” method. It placed the .earth and stone taken ont on a spot near the site of the portal on the higher ground, intending, subsequently, to throw it back upon the masonry; but it became insolvent before it had done this. Consequently, Bradley, the new contractor, did it. In its last estimate of work done by the Shields company or its receiver the railroad company retained seventy-five cents out of the eighty cents payable for the completed job.

The evidence is that the cost of original excavation, and the cost of “back fill,” are about the same, and so, had the contract not otherwise provided, it would have seemed fair for the Shields company and Bradley to have divided the price between them. Such a division would have accorded with the evidence of the witnesses for the receiver as to the value of this particular work. Carley & Cutley say the reasonable cost of throwing back the dirt and stone was from thirty to thirty-five cents a yard, and Van Keuren says from forty to forty-five cents. On the other hand, Forgie, the railroad engineer, testifies that the actual cost was $4,299, or forty-five cents per cubic yard, to which he would add for depreciation and profit one-third more, making a total of sixty cents.

"What the railroad actually did was to hand over to Bradley the whole of the amount retained. • ’

Its right to clo so is sought to be justified, first, upon the' ground that the sum paid Bradley was a reasonable allowance; but even on Mr. Eorgie’s estimate, it seems to have been excessive, and secondly, upon the ground' of contract obligation.

In'seetion.22 of the Shields contract is the following clause:

“(h) If-the Company so elect, it may upon giving the contractor ten days’ written notice require the contractor to effect the complete disposal of all excavated materials or any part thereof, paying therefor at the rate of seventy-five cents per cubic, yard, measured as hereinbefore provided for measurements of excavation.”

This clause is also incorporated in the Bradley contract.

‘ As appears briny discussion of the question of liquidated damages, the' railroad company had the right to give the contractor notice to provide additional machinery and workmen, and on his failure to do so, either to proceed with the work on its (the eon-' tractor’s) account or declare the contract at an end. As the railroad adopted the'latter alternative, here, too, the right of the parties is determined by subséction 2 of paragraph 35. Under it the company had the right to make a new contract for'construction, "upon such terms as the company might cleem proper ” and to 'provide that the new contractor should allow for so much of construction as had been completed, "a, reasonable amount to be prescribed in 'such new contract.” Here the Shields company expressly relegated the decision of how much the allowance should he to the judgment and good faith of the railroad and the new contractor.

In the case in hand, no sum by way of allowance was expressly named in the Bradley contract, hut as Bradley was to complete at the figures contracted for by the Shields company, a method of ascertainment was indicated.

I am strongly inclined to think that even if the railroad’s engineer did not have in mind subsection 8 of paragraph 20 (i. e., the clause requiring complete disposal of excavated material) when he made the deduction of seventy-five cents, Bradley could, under this clause, have insisted, as against the railroad,'that if he had completely disposed of the excavated material in question by putting it on the tunnel roof, he was entitled to the seventy-five-cent rate. I cannot find any other rate applicable to the situation ; and the clause in question is in terms at least broad enough to include it. It does not follow that because the Shields company could not have claimed under this clause, therefore Bradley could not. Their situation in this regard was quite different. The Shields company, under the option given, had, presumably, because it thought it to its advantage, adopted the cut and cover method, for which it was to receive the stipulated eighty cents. Bradley had no option in the matter. Here was certain excavated material lying near the tunnel mouth, which he was obliged to dispose of, if the railroad so required, unless it was altogether outside of his contract. But with a clause fitting the situation as completely as subsection “h" does, I do not see how it could be so considered. Counsel for the receiver would limit its application to the waste material referred to in sections 304 to 307 of the specifications; but 307 is narrower than subsection “h.”

Section 307 refers in express terms to subsection 227i, and this-latter omits, and, as we must suppose, designedly, all reference to waste. If Bradley’s work was done under this clause; then the payment was such as the company was in law compellable to make him. If made, it had the right to deduct it from the balance due the receiver.

The reasonable allowance the new contractor was to make was for completed construction. This particular work was incomplete. Besides there is nothing to indicate that the seventy-five cent rate for complete disposal, not of this material alone, but of all undisposed of material, was not on the whole reasonable. It was the very rate stipulated for by the Shields company. As no unfair dealing is pretended, the contracts, as they stand, must decide the matter.

On October 5th, 1905, the construction company made an assignment to the First National-Bank of Jersey City of any and all sums due and to grow due on account of retained percentages by the railroad under the before-mentioned contract of March 16th, 1905, “together with all claims for extra work accruing in connection with said worlef’

On December 12th, 1905, by a supplemental contract, the construction company, for the sum of forty-nine cents per cubic yard, agreed to furnish all labor and materials necessary to complete, to the satisfaction of the chief engineer of the railroad company, “the placing of the waste material from the Bergen Hill tunnel on the line of Pennsylvania, New Jersey and New York railroad beyond a distance of one thousand feet from the portal.”

The question as between the receiver and the bank is whether the work done under this contract (viz., eleven thousand one hundred and fift}r-hve cubic yards placed beyond the thousand feet) is extra work within the meaning of the above assignment. As I understand,-the earth and rock so placed were taken from the section of the tunnel the construction ■ company was engaged in excavating under the contract of March 16th, 1905. If so, I think it was “extra work accruing in connection with” the work under that contract. Had the material not come from the part of the tunnel which the company was engaged in excavating, its removal would not have given rise to a claim that accrued in connection with the work, but it was taken therefrom, and' all that hapirened was that it was transported bjr the construction company a little further than it would have been under the contract as first made. The fact that the terms of the contract were broad enough to include other vrork done elsewhere, which might not have been extra work, does not alter the character of this work.