Opinion
09-26-1896
OSCILLATING CAROUSAL CO. v. McCOOL et al.
G. A. Bourgeois and D. J. Pancoast, for complainant. C. L. Cole, for defendants.
Bill by the Oscillating Carousal Company against William A. McCool and the Atlantic City Pavilion Company for an accounting, a receiver, and an injunction. There was a rule to show cause, with restraint against collection of subrents and paying out of money except for necessary expenses. Heard on bill, answer, and affidavits. Order to show cause dismissed, and restraint discharged.
The complainant is a corporation organized under the laws of this state to carry on the business of furnishing amusements, entertainments, etc. The complainant filed its bill in this cause against the defendants, praying for an account of the business hereinafter referred to, for a receiver to take charge of that business, and for an injunction restraining the defendants from interfering with it. An order to show cause has been allowed with restraint against the defendants, preventing them from collecting subrents, and from paying out moneys except for actual necessary expenses. The complainant had in February, 1894, rented from one Bacharach a lot of land in Atlantic City, near the board walk, on which, in May, 1895, it had a scenic railway and a carousal and other structures, and there were on the demised premises other small properties which were occupied by tenants. The defendant McCool had the control of a wheel known as the "MacKenzie Wheel," used for the amusement of those who would ride in it, which he wished to remove to Atlantic City. By an agreement, set out in full in the bill, between the complainant and McCool, it was recited that McCool desired to erect the wheel and "operate it in connection with the scenic railway," on the premises of the complainant. It was further agreed that such alterations should be made on the premises that McCool might operate the wheel and the scenic railway "in conjunction with" the complainant. McCool undertook to pay the past debts of the complainant for improvements on the property, to allow it to retain $400 of the rentals of 1895, and thereafter to pay the rents, taxes, licenses, and running expenses from the receipts of the business. The complainant should receive "for granting licenses" to McCool "to use said premises" the first $5,000 of net profit made each year, and the next $10,000 McCool should retain. Of all additional profits McCool should have two-thirds and the complainant one-third. The agreement should continue as long as the complainant retained control of the premises, and McCool desired to remain in Atlantic City, with an option to McCool to cancel the agreement, and remove the wheel. There was a provision that the business should be carried on by a board of directors, two elected by McCool and one by the complainant company; the board to select a manager, and to have free access to the books, but the members to have no salary. Shortly after this agreement was made, McCool and the president of the complainant company and several others organized under New Jersey laws the other defendant company, the Atlantic City Pavilion Company, and it received from McCool an assignment of all his interest under the agreement. The proposed changes were made, the new wheel was erected, and those who had incorporated the new company proceeded with the business of the scenic railway and the MacKenzie wheel. The complainant company turned over to them the leases for the small booths and shops on the premises, and, while this transfer is claimed by the complainant to have been made without its consent or knowledge, this is squarely denied by the pavilion company, which answers that the transfer to It, and its entering into possession of the premises, were with full knowledge and consent of the complainant. The complainant alleges that the MacKenzie wheel is a mechanical failure. This also is denied. It states that there was not enough money realized during 1895 to pay the rent, and that the complainant took steps to dispossess the pavilion company, and that the pavilion company obtained an injunction in this court restraining the complainant herein from attempting to take possession, etc. This suit is yet pending in this court, and the files were referred to by both parties on this hearing. The complainant alleged that the pavilion company claims the right to collect the rents due from the subtenants, which claim the complainant denies, and it asserts that because of this dispute the subtenants are withholding their rentals, and that it is necessary that some one be appointed to collect them; that the pavilion company is in exclusive possession of the premises, receiving all the income, and has failed to pay the rent to Bacharach, and has refused to account to the complainant for the receipts and expenses of the business; that the pavilion company had made two mortgages on all its available property for many times its value; that it was without financial responsibility, and was a mere tool of McCool, used to escape liability under the agreement, to collect the income from the property, and, without paying the expenses or rent, to cheat and defraud the complainant. The pavilion company answers these allegations, declaring that it claimed the right to collect the subrents under the agreement. The proofs show that the complainant company delivered the leases of the subtenants to the officer of the pavilion company, and the latter company, in its answer, explains that it had requested the complainant, who had forbidden the payment of these rents, either to collect them itself, and apply them on account of the rent due Bacharach, as provided in the agreement, or to permit the pavilion company to collect them. It admits it has possession under the agreement, but denies the exclusive possession. It admits it receives all the income of the business, but shows that ithas been used for the payment of the expenses of the business and on account of the rent, having paid on the latter item $1,800. It denies that it has refused to account, and declares that it has always been, and is now, ready to account with complainant. It declares that the two mortgages referred to were canceled before the complainant's bill was filed, and that there is now no lien on its property in Atlantic City, and that its property there is worth $25,000. It denies it is without financial responsibility, and that it is a tool of the defendant McCool to escape responsibility, or to cheat or defraud by taking income and avoiding payment of rent and expenses. It declares that the president of the complainant company joined in the organization of the pavilion company upon the understanding that the proposed company should be the bolder of the privileges granted McCool, and that on the faith of the agreement thus made the wheel was brought from Pittsburg, and the premises at Atlantic City improved, at an expense of $12,000; that the pavilion company's cashier at the end of the season exhibited the books and vouchers to Thompson, the president of the complainant company, the only representative of the complainant company who ever asked for such information; that the pavilion company, in good faith, and with honest purpose, is endeavoring to observe and carry out the terms of the agreement.
G. A. Bourgeois and D. J. Pancoast, for complainant.
C. L. Cole, for defendants.
GREY, V. C. (after stating the facts). The complainant claims: (1) That the agreement with McCool was personal to him, and that he had no power to transfer its benefit to the pavilion company, defendant, and that the complainant company took action by its bill in this case to rescind, as soon as it was informed of the attempted transfer; (2) that the agreement creates a partnership or quasi partnership, and that it (the complainant) may dissolve this relation at its own will, as it claims to do by its bill in this case; (3) that the complainant has been denied an account, and that the defendants are seeking to cheat and defraud the complainant; (4) that the defendant company is financially irresponsible, and that it is necessary to wind up the business. So far as the bill bases the complainant's claim to the relief asked upon allegations of fact, the sworn answer of the defendant is responsive, and is a complete denial of every matter alleged upon which equitable relief is claimed on the third and fourth grounds above stated; and on this application for preliminary relief it must be given the same force as if called for under oath. As to the claim by the complainant that the privileges passing by the agreement were not transferable, the defendant company shows that it was organized almost coincidently with the making of the agreement, and for the express purpose of accepting the privileges secured to McCool by that agreement This was the only business it ever did. The president of the complainant company (apparently the only active officer of that concern) participated in the original formation of the pavilion company for this purpose. The answer shows that the leases of the subtenants were delivered by the complainant company to the new company's officers shortly after its formation; that since that time the complainant accepted its statements and dealt with the officers of the new company, treating it as the holder of the rights and privileges conferred upon McCool by the agreement. The answer further states that the action of the pavilion company has been in good faith under the terms of the agreement, and that it has always been, and is now, ready to exhibit an account of the receipts and disbursements of the business. The terms of the agreement (which, on this motion, need not be definitely interpreted) seem to contemplate a possession, whether exclusive or not, by McCool. Tbe control of the business was secured to him, as he had the power to nominate two of the three directors who should manage the business. All the incidents attending the formation of the pavilion company, the delivery of possession, the acceptance of its action in the subsequent conduct of the business, indicate that the original scheme contemplated by all the parties included the organization of the pavilion company for the management of the affair, and that McCool was understood to be a party to the contract to enable that purpose to be carried into effect when the new company should be formed. Nothing in the agreement or in the relation of the parties shows that the complainant agreed with McCool because he possessed, and the business to be done called for the exercise of, any special skill peculiarly his own. If, as above stated, the plan of the parties included a transfer of these privileges to the new company, which was subsequently executed and accepted by the complainant, it would be inequitable to permit this transfer to be questioned now. As to the power to rescind by the complainant alone, the case shows that large preliminary expenditures for the exclusive and immediate benefit of the complainant company were by the agreement required to be made by McCool, and these outlays, with other preparatory disbursements, have actually been made by him, or by the pavilion company, which he represented. Tbe complainant company has received and retains the benefit of many of these payments. It is obvious that the expectation of the parties was that these expenses of the pavilion company were to be reimbursed by subsequent profits, not of one season, but of the whole period during which the privileges could be enjoyed. But, aside from collateral incidents, as indications of their purposes the parties themselves, by the contract itself, considered and acted on the right to continuethe contract or to rescind, and in express terms bound the complainant company to the continuance of the agreement so long as it retained control of the premises, and reserved the option to cancel it to McCool only. I see no equity in the complainant's claim that it alone may now rescind, and thus nullify its own agreement, though retaining its benefits. I do not think this agreement can be treated as if it created a partnership or quasi partnership, which either party might dissolve at will. The complainant is a corporation, and is not shown to have had any power given to it to enter into a partnership. Such a power cannot be implied. It is in no way necessary for the conduct of the complainant's corporate business. It would prevent the management of the corporation by its responsible officers. The policy of the state regarding corporations, which requires the control of the corporation by its chosen officers, would be defeated. Any partner with a corporation might, in the partnership transactions, create a debt or transfer property without the action of the corporation or of its officers. The complainant company is not required, under the agreement, nor by the interpreting action of the parties under it, to do anything in the conduct of the business. Its principal function seems to have been to furnish the premises where the business was to be done, and to be compensated by a share of the profits. This does not constitute a partnership inter sese. It is not claimed that the business cannot be carried on because the parties are at enmity with each other and cannot confer. The answer and affidavits deny explicitly every fact on which the complainant bases its equity, and I find no support in the construction of the agreement for the claims which the complainant makes for equitable relief. Under such conditions the complainant is not entitled to a preliminary injunction, and certainly not to the appointment of a receiver to take from the pavilion company the property and business which it was formed to receive and manage. I shall advise that the order to show cause be dismissed, and that the restraint be discharged.