Opinion
05-06-1898
COGGSWELL & BOULTER CO. v. COGGSWELL.
William B. Guild, for complainant. John R. Hardin, for defendant.
Bill for relief by the Coggswell & Boulter Company against Charles Coggswell. Heard on bill, answer, replication, and proofs taken orally. Granted.
William B. Guild, for complainant.
John R. Hardin, for defendant.
EMERY, V. C. The defendant, Coggswell, and one Boulter carried on from the year 1886 a manufacturing business in Newark, and in June, 1892, formed a corporation for the general purpose of taking over the property of the firm, and continuing the business. The capital stock of the company was made $200,000, which was all paid up by the purchase of the property, the good will being estimated at a valuation of $125,000, and real estate at $32,000, and other items made up the total amount. Upon the organization the entire capital stock was divided equally between the parties, with the exception of two shares issued to Mr. John Dane, counsel for the firm and company, for the purpose of organization, and to qualify him as stockholder and director. By mistake, the original issue was only $75,000, but in July, 1895, this stock was retired, and an issue of $200,000 made. The company, about the time of its organization, in July, 1892, took actual possession of all the property, real and personal, which belonged to the firm at that time, and has since continued in possession of all the real estate which the firm then occupied or used for the purposes of the business. No agreement, in writing, or appearing of record on the minutes of the company, was made previous to taking possession of the property, and the only written evidence relating directly to the transfer of either personal or real property is a deed executed by both partners to the company. By this deed, dated September 17, 1892, made three months after the organization of the company, for the expressed consideration of one dollar, the partners conveyed to the company a tract of land at the northwest corner of High street and Eighth avenue, Newark, on which the factory was located; the property fronting about 57 feet on Eighth avenue, and 175 feet on High street. The Eighth avenue frontage, as owned by the firm at the time of the conveyance, extended back the same width (about 55 feet) for a distance of about 93 feet, at which point the entire lot becomes L shaped, by an extension towards the west of about 72 feet, on a line parallel with Eighth avenue, and from High street the entire depth of this extension is about 130 feet. The tract immediately south of this L or extension, and between it andEighth avenue, had originally been partnership property; and the firm built upon it four houses, which, with the lots upon which they were erected, were taken from the firm assets, and divided between the partners, as individuals, on April 19, 1892, by deeds then mutually executed. On the division, defendant, Coggswell, received the two houses and lots next the factory; and at the time of the organization of the company, and the execution of the deed to the company now in question, the factory, as built up to the eastern line of his lots, extended from Eighth avenue 72 feet, and about 8 feet beyond the rear line of his houses, and a window in each of the three stories of the west side of the factory opened on his lots. At this point (72 feet from Eighth avenue) the entire width of the factory was about 55 feet, and covered the whole width of the lot; but from this point the factory was only about 35 feet wide, and extended along High street at this width for a distance of 15 feet. There was thus a small vacant lot, about 20 by 15 feet, adjoining part of defendant's rear lot, belonging to the firm and to the factory property. This vacant lot was at the time of the deed overlooked by windows erected in the rear and in the side of the High street extension of the factory, and was used and occupied by the firm, who had located in the center of it a tank or cemented cistern, 4 or 5 feet in diameter, and 5 feet deep, used for the purpose of blowing off steam, and connected by pipes with the boiler room of the factory. There was also a pipe leading to the roof of the factory, which projected from the factory a few inches over the reserved lot. Towards the defendant's lot, and the north, this vacant lot was at the time of the conveyance inclosed by fences. The deed to the company for its factory property did not include this small vacant lot, the legal title to which, therefore, after the deed, remained in the partners, Coggswell and Boulter, as tenants in common. All the residue of the real estate composing factory property at the time of the deed is comprised in the deed, and there is no express reservation or exception of this vacant lot, or any express reference thereto; the description of the property being merely by metes and bounds, which run around the vacant lot, and exclude it, for the reason that the description fails to include it. Nor is there anything in the description Itself which, by reference to boundaries or monuments, would clearly indicate, from the mere reading it, or without following the description on a map or survey, that the vacant lot was not included. The charge of the bill is that about June 14, 1892, Coggswell and Boulter agreed upon the organization of the company, and that the partnership business, and all the partnership property and effects, should be transferred to it for $200,000 paid-up capital stock, to be equally divided; that the company was thereupon organized, and that, Immediately upon its formation, Its directors (being the former partners and Mr. Dane) purchased all the partnership real estate and personal property, and the partners undertook to consummate the sale, and actually place the company in possession of all their property; that afterwards, by the deed of September 17, 1892, they pretended to convey to the company, in fee All the real estate, and the deed was received as such transfer by Coggswell and Boulter, as directors, officers, and trustees of the company. It further charges that the defendant, Coggswell, was intrusted with the preparation of the conveyance, and Boulter, relying on Coggswell's good faith, joined perfunctorily in the execution of the deed, supposing that it embraced all the partnership real estate; that Coggswell fraudulently, and with the intent to prevent this small lot from being built on, so that his adjoining lot might have the benefit of light, so prepared the deed as to omit the lot; that the company actually took possession of this vacant lot, and has ever since occupied it, and paid the taxes on it, and that it was only recently before filing the bill, and when it desired to extend its factory by building over the lot, that Coggswell informed the company of its lack of title to the lot, and objected to the building; that Boulter, at complainant's request, has conveyed to complainant all his right in the omitted lot, but Coggswell refuses to do so. The bill prays a decree that the tract was fraudulently excepted; that Coggswell may be decreed to hold the legal title to one-half in trust for complainant, and to convey the same to the complainant; and a prayer is added for general relief. The answer of the defendant admits the ownership of the lands in question as partnership property, the formation of the corporation, and the distribution of the stock, as alleged in the bill, and that after the formation of the company the interests of Coggswell and Boulter were the same as before, except as to third persons; Dane being joined as a corporator merely because of legal requirements. He denies that the company purchased all the manufacturing plant, embracing all the partnership real estate and personal property, for $200,000, and that the partners undertook to consummate such sale, and actually placed complainant in possession of all partnership property, but admits that all the partnership property, real and personal, was transferred to the company, "except as they reserved, as stated in the bill." And defendant claims that he and Boulter, being the absolute owners of the stock, except Dane's two shares, had a right to convey on such terms, and so much, as they chose, and to reserve such portions as they saw fit; that, in the exercise of this right, Boulter and defendant did actually reserve the lot in question. He denies that he was intrusted with the preparation ofthe deed, and that Boulter relied on his good faith, and joined perfunctorily in its execution, supposing that it embraced all the partnership real estate, and says that the deed was submitted to Boulter, read over by him, and the contents made known to him. He admits that the lot was excepted from the conveyance, and that the intent was to preserve the light and air to the property belonging to him individually. He further says that such reservation for light and air was necessary and essential to his lot, that he had a legal right to reserve the same, and that complainant took the deed with knowledge of the reservation.
The answer fails altogether to notice a charge in the bill which is vital in the case, viz. that before the formation of the company the partners agreed to transfer to it all the partnership property. The answer simply denies that the company did in fact purchase all the property. Nor does the answer set up a defense bearing directly upon this point which is now made upon the hearing, viz. that the reservation was made by virtue of an express oral agreement made between the partners before the preparation of the deed. In view of this evidence at the hearing, the failure to answer this direct charge of the bill, upon a matter which was within defendant's personal knowledge, may not, perhaps, under the decisions, be taken as an admission of the fact charged. Sanborn v. Adair (Err. & App., 1878) 29 N. J. Eq. 338, 345, and Jones v. Khauss (1879) 31 N. J. Eq. 609 (Van Fleet, V. C), establish that if the fact charged is within the knowledge of the defendant, and there is neither answer nor evidence, the fact charged must be taken as admitted. But the failure to answer is a point to be borne in mind in considering the weight to be attached to defendant's present evidence. So far as the facts are concerned, the case depends, in my judgment, upon the question whether, prior to the conveyance, it was orally agreed between the partners that the lot should be reserved. Upon the other facts put in issue by the pleadings, the evidence, as offered on both sides, raises little or no dispute. The only direct evidence as to the alleged prior agreement is that of the defendant, on one side, and Boulter, on the other. Defendant's account is as follows: "Before we transferred the land, Boulter and I stood out here at about this point, out on the vacant lot, back of the present High street extension, about the center of that tract, and I showed him the land we proposed to sell to the new company. As he made no objection, I sent for the surveyors to survey the boundary line, and made a map to send to Mr. Herr's office, in order that he might make out the title deed correctly." He further says: "We had some talk about that small plot of land, and the understanding was to keep that out, to protect our houses so that an extension could not be put out at that end;" and "in discussing the object that this piece of land, which was not sold to the Incorporated company— It was for the purpose of preventing a depreciation of our property; and, as I remember the conversation, Mr. Boulter had no objection, as I had given him the choice of the houses, and he took the two furthest from the factory, and I considered it only equitable that that should be reserved." Defendant fixes this conversation as before the survey, which, by the surveyor's book, appears to have been made before July 18, 1892. Mr. Boulter, on the other hand, says that neither prior to the formation of the company, nor at the time, was anything ever said by Coggswell to him about reserving any portion of the real estate, and, in reference to this particular conversation detailed by Coggswell, says that no such conversation took place before the delivery of the deed, and that the subject of the reservation of the lot was not talked about at all. And he further says that it was two years later, and in 1894, that he first knew the plot had been reserved; that he was then on the land with Mr. Coggswell, over the property, talking generally about how they could increase the factory, and, for the first time, Coggswell told him that that part had been reserved, and did not belong to the corporation. As to why he reserved it, he said something about interfering with his light, or injurying his property; and he (Boulter) simply said that was the company's property, to which Coggswell made no reply, according to his recollection. Coggswell neither affirms nor denies this conversation subsequent to the deed. This is the entire direct evidence upon this point of express previous agreement between the partners to exclude the lot, and, independently of the question of the corroboration of either party by other facts appearing in the case, and the application of any rules relating to the burden of proof, my judgment, as between these two witnesses, is that Boulter's statement is rather to be relied on. Boulter's denial cannot be set down to a probable or possible lack of memory, for the suggestion of the reservation of a lot in the middle of a factory property, for the express purpose of preventing its extension, could scarcely be forgotten by a person adversely interested. Nor does it seem probable that, if any reservation of this particular lot for the purpose Coggswell had in view had been spoken of at all, the conversation would have been so meager and vague as Coggswell now represents it to be, and that neither he nor his partner had anything to say about the protection of the company on such reservation of the lot, which would take with it land actually occupied and in use by the company, and leave it without any assurance or protection for its own light or air over the reserved lot. The reservation, even if only for light and air over the lot, was practically for Coggswell's sole benefit; and the reservation of the absolute title in the lot, not merely right to light and air, although nominally to himself and Boulter,was an actual, positive right against the company, to prevent, if Coggswell chose, the use of its property in the condition it was when conveyed. Boulter had no access whatever to the land reserved. Coggswell's retention of the title to the lot, not merely the reservation of light over it, was therefore for his personal benefit, and such a serious injury to the factory plant that I cannot believe, in the face of his denial, that Boulter understood that any such reservation was to be made, or that he made any such agreement. As a matter of fact, and upon consideration of the entire evidence in the case, I reach the conclusion that there was not, previous to the execution of the deed, any agreement between the partners that this lot was to be reserved.
The next question of fact is whether Boulter knew, or ought to have known, that the lot was in fact excluded by the deed. Boulter's present statement is positive that he had no such knowledge, and that when he executed the deed he supposed that it conveyed the entire factory plant and real estate of the company. He fails to recall the particular circumstances as to the execution of the deed; not recalling even the place of execution, and only recollecting generally that Cogswell had charge of its preparation, and that he executed it with Cogswell, relying on the latter for its correctness. The preparation of the deed was in fact intrusted to Cogswell, as is shown by his evidence, although it was denied in his answer; and the evidence of Coggswell and his attorney, Mr. Herr, as to all the details connected with the execution of the deed, is precise and positive. Their evidence shows that the deed was actually executed by the parties in Mr. Herr's office, and in the presence of both partners; that, before the execution, Mr. Herr, who was sitting at his desk, read aloud the description in the deed; and that Mr. Coggswell, who also sat at his desk, followed the description upon a map which was on the desk. Mr. Boulter sat near, or in the rear of Mr. Coggswell, and, as Mr. Herr says, where he could see the map. Coggswell, as Herr says, had some difficulty in following the description, because of the peculiar lines and courses; this difficulty, as he afterwards specifies, being in taking the right direction on the map at the very places where the description ran around the excluded lot. Neither of these witnesses says that Mr. Boulter in fact followed the description, or had his special attention directed to the map, or that anything was said at that time which would directly call Mr. Boulter's attention to the fact that the lot in question was not included. Mr. Herr says that, the description having been read in Mr. Boulter's hearing, he told him briefly what the deed was, and asked him whether he signed it as his voluntary act and deed. Neither Mr. Herr nor Mr. Coggswell states that anything was then said about the reservation of any part of the firm land; and that nothing was expressly said at that time about any reservation or omission of the lot appears from Mr. Herr's further statement that he did not know why it was omitted at that time. The map which Coggswell then had has not been produced. He says that he put it afterwards in the company's safe, and never took it out. Boulter's statement is that, although there may have been a map there, he is positive he never saw a map which showed the reservation; and the company's officers say that the only map of the surveyors which was in the safe was a map they now produce, which was found inclosed in the deed to the company, and is a map made in July, 1800, of the entire property of the company. In reference to Boulter's knowledge of the reservation of the lot by the deed, the entire evidence, in my judgment, establishes the fact that, at the time of the execution of the deed, Boulter's attention was not expressly called by Coggswell to the fact that the lot was reserved, and that Boulter executed the deed without actual knowledge that it was reserved, or intended to be reserved, and supposing that the entire factory plant and property had been conveyed. The equities arising from this state of facts, as between Boulter and Coggswell, I take to be these: At the time of the execution of this deed they were both still partners, legally and equitably, in reference to the disposition of the entire partnership property, real and personal, and were still subject to the inflexible rule requiring the utmost good faith and fairness between the members. This rule is said to be the basis of the law of partnership (Lindl. Partn. 304), and extends to persons who have actually dissolved the partnership, and are settling its affairs. And the enforcement of this rule is effectually secured by imposing upon any partner, who has derived a peculiar personal benefit in any transaction relating to partnership affairs, the burden of showing that his conduct towards his partner has not only been legal, but in accordance with good faith, and, as one case expresses it, the highest standard of honor. Lindl. Partn. *303; Blisset v. Daniel, 10 Hare, 522, 536; Nicholson v. Janeway (Green, Ch., 1863) 16 N. J. Eq. 285, 287. The organization of the corporation in this case was for the purpose of discontinuing the partnership, and the conveyance of the partnership property to it in exchange for company stock was, in effect, and was intended as, one step in the dissolution of the partnership and the settlement of its affairs, as between the partners. This was its legal operation. Francklyn v. Sprague (1887) 121 U. S. 215, 228, 7 Sup. Ct. 951. The reservation from the transfer of the lot in question gave Coggswell, evidently, a peculiar personal benefit, which he could use for the advantage of his individual property, and to the manifest disadvantage of the company, if he was so disposed. Coggswell, therefore, in order to hold this as against Boulter, must satisfy the court that he has acted throughout the transaction with entire good faith andfairness to Boulter, and that Boulter knew and fully understood that the reservation was made. Not only has he failed to show this, hut, in my judgment, all the evidence, fully considered, establishes that the deed was executed without any such knowledge on Boulter's part, and under circumstances which, if they do not indicate positive intention on Coggswell's part to adopt a method of reserving the lot which would be likely to escape Boulter's attention, show that he made no effort to explain to Boulter, or direct his attention to, the omission in the deed. By reason of the form of the description, by metes and bounds alone, such omission could only have been known by a person whose attention was specially called to the lines of the description on the map showing the reservation, which up to that time, at least, Boulter had never seen. Such conduct on Coggswell's part in making the reservation, with its peculiar personal benefits to himself, without calling it specially to the attention of his partner, was a fraud upon the latter; and, as between them, Coggswell cannot be allowed to retain the personal benefit which he secured.
The bill, however, is filed by the complainant company, not by Boulter, the partner; and on the assumption that Coggswell would not be entitled, as against his former partner, Boulter, to retain the personal advantage which he secured by the omission of the lot from the deed, the next and the vital question in the case is whether the complainant company is entitled to have the benefit of the vacant lot secured to it by conveyance or otherwise, as being part of the partnership to which it was entitled. And I am of opinion that it is. The complainant's rights are based, in the bill, on the oral agreement, prior to the conveyance, for the purchase by it of all the partnership property, including all its real estate and factory plant, and the issue therefor of its entire capital stock as fully-paid stock, and the actual possession of the entire property of the former partnership, including the real estate in question, which possession was taken immediately on the organization of the company, and three months before the actual delivery of the deed, and has continued to the present time. This oral agreement, and the possession thereunder of all the property, Including the lot in question, are satisfactorily proved by the evidence of Boulter and Dane. Their statements are corroborated by the fact that the possession was taken without any written agreement, which was, I think, a strong indication that it was a general transfer of everything belonging to the firm, which needed no previous writing for the purpose of determining just what property was intended to be conveyed, and by the fact that on the company's books, in its valuations (the only place where any record appears), the real estate was entered generally, without any reservation. The lot in question is manifestly a part of the factory plant proper, and was used as such; and the omission of any written agreement of reservation, or reference to its reservation, taken in connection with its actual occupation and use for the purpose of the factory, is strong evidence that for three months, and up to the time of the execution of the deed, it had not been, and was not intended to be, reserved. The deed, however, conveying the real estate, and omitting the lot by its description, is strenuously relied on by the defendant's counsel as the only written evidence of any agreement for sale of the real estate, and as the final agreement between the two partners, who were also the two stockholders, and, as the only persons practically interested in the conveyance and reservation, were entitled to reserve to themselves what they chose. Ordinarily, and as between vendors and purchasers dealing at arm's length, such execution and acceptance of a deed in consummation of a previous parol agreement would be taken as the best, and perhaps only, evidence of the final agreement for purchase. But, for the reasons above stated, the parties were not dealing at arm's length. They were not only partners settling the affairs of the partnership, and therefore bound to the strictest fairness and good faith, but were also the directors of the corporation, receiving the deed on its behalf. The rule as to the necessity of fairness and good faith applies also to a director in reserving a peculiar benefit to himself in a transaction in which he also acts for the company. The acceptance of this deed by Boulter, as one of the directors of the company, cannot be considered as a final consummation of the agreement of sale on the part of the company, in view of the fact that the omission of the lot, in Coggswell's own interest, was not fully and fairly called to the attention of Boulter, who was the only person, other than the defendant, who assumed to act on behalf of the company in accepting the deed. And even if Boulter and Coggswell, who were interested as grantors, had both expressly agreed to change the previous oral agreement for a transfer of the entire property, and had agreed to reserve a part for their own benefit, without expressly informing Dane, the other director and stockholder, and securing his consent, I am inclined to think that the company would not have been concluded by the acceptance of the deed, as a final consummation of the agreement for purchase. But on the facts of the case, which show ignorance on the part of both Dane and Boulter that any reservation of property had been made by reason of the description in the deed, and the absence of any intention or agreement on their part, as directors, that there should be a reservation, the company is not concluded by the deed, but has the right to the transfer of the entire real estate and factory plant of the firm, according to the agreement, and as Itexisted on the organization, which includes this vacant lot. The possession of the lot taken under the oral agreement removes the case from the operation of the statute of frauds, on a bill to perform. Wharton v. Stoutenburgh (Err. & App., 1882) 35 N. J. Eq. 274, and cases cited.
At the hearing and at the argument some stress was laid by defendant's counsel upon the transfer of some of the shares of stock to the present holders thereof, by both Boulter and Coggswell, after Boulter's knowledge of Coggswell's claim to the lot; but the evidence fails to show any such estoppel against all of the stockholders of the company as could be claimed to be, in equity, an estoppel against the company from insisting on the performance of the agreement by the partners to transfer all the property of the firm, including the lot in question. Purchase of stock by a stockholder after knowledge of defendant's claim would seem to be no basis of estoppel against the company from afterwards setting up that the claim is unfounded, unless the company had previously abandoned its claim. Nothing in the way of estoppel against Dane has been shown, and he, who was the only director not personally interested, first knew of the reservation in the fall of 1890, a few months before filing the bill. Coggswell parted with all his stock in the same year. He denies that the company ever requested him to convey the lot, but it appears that on complainant's application to him, through his attorney, after Boulter had conveyed, he replied, through his attorney, that he would not part with his interest in the small lot unless he parted with his two houses also. This the company refused to consider, and they were entitled to consider the reply a sufficient refusal on which to file the bill. As Coggswell at that time had parted with his stock, the proposition made by him cannot probably be considered as evidence of the intention with which he originally made the reservation.
The fact that only $75,000 was originally issued, and that the actual issue of the entire $200,000 capital stock was not made until July, 1895, after Boulter knew of the reservation, is also relied on as affecting the company's right. But the original issue of $75,000 instead of $200,000 appears to have been the result of a mistake, and the $75,000 was recalled, and reissued as part of the intended issue of $200,000 for all the property originally purchased. This issue was not intended as a purchase of the assets in July, 1895, but to carry out the original agreement. At this time Dane did not know of the reservation, and the delay in the issue of the stock, under the above circumstances, did not affect the question now involved.
As to the form of relief, the bill prays a decree that the omission of the lot from the deed was fraudulent, that defendant holds the legal title to the undivided half in trust for complainant, and for a conveyance and for general relief. While the bill does not specifically pray the specific performance of the oral agreement, the facts charged by the bill, if proved, entitle complainant to relief of that character; and the complainant may, under the prayer for general relief, have special relief other than that prayed for, if consistent with the case made by the bill. Wilkin v. Wilkin, 1 Johns. Ch. 117, Miller v. Jamison, 24 N. J. Eq. 41, 43; 2 Daniell, Ch. Prac. (6th Am. Ed.) 380. Decree will be advised for conveyance by defendant as prayed in the bill.