Summary
On appeal from a decree advised by the late Vice-Chancellor Stevens.
The litigation began in 1909 and arose out of a situation created in 1892 by deeds of the Villa, Site Compány and the Haworth Improvement Company, to the appellant, Copeland, and a contemporaneous trust agreement executed by him. The first step in the suit wasi a bill by the Villa Site Company praying an account by Copeland as trustee and his removal by the court. Later, Copeland filed a cross-bill praying a lien for his alleged advances under the trust, and a sale of the trust property to satisfy the same. The late Vice-Chancellor Stevens, who> heard the c'ase throughout, discovered that the aifairs of the Haworth Improvement Company were necessarily involved, and directed that as that company had been, adjudicated insolvent; and a receiver had bear appointed, such receiver he brought into, the suit, which was done. An account of the trust was talten before Oscar Keen, Esq., as special master, and on the coming in of Ms report complainant Villa Site Company excepted and the exceptions w.ere generally sustained. A further account was taken before another special master, who restated the first account as revised b}r tire court and dealt with other items accrued later. Copeland excepted to this account and by the decree now appealed from his exceptions were in effect overruled. They related to tire refusal of the master, under rulings of the court, to allow certain credits, claimed by Copeland, who, moreover, denied the existence of a trust and .set up a claim of absolute ownership.
The foregoing indicates in a general way the dispute between tire parties and should facilitate an understanding of the details as set out in. the following opinion by the learned vice-chancellor, one of several delivered in the course of the suit:
\ “This suit was commenced ou November 19tlr, 1909, and has been litigated with unusual acrimony ever since.
“Stated in veiy general terms, it is a suit brought by a small land company in Bergen county to compel defendant, Copeland, who holds the legal title to its lands on an alleged trust, to convoy to a new trustee to be appointed by the court. The bill prays for an account and general relief.
“In April, 1892, the Villa. Site Company, formed for the purpose of cutting up a farm property in Haworth, Bergen county, into- lots and selling them, was in financial straits. The defendant, Copeland, was a New York banker who had theretofore lent it money. He was applied to' for a further loan, and to secure him both, for what he had already advanced, or become responsible for, and for what he was about to advance, the Yilla Site Company, ou April 9th, 1892, conveyed to him by deed absolute in form all of its real estate. Within one month thereafter an agreement in writing was executed by it and by Copeland which provided that Copeland would ‘hold in trust for and convey to said Yilla Site Company, or to- any other person or company whom it might name by proper deeds of conveyance containing usual covenants against grantor’s acts,’ the premises described in the deed of April 9th, 1892, and in another deed made to him by the Haworth Improvement Company, according to the terms .•and conditions thereinafter mentioned. These conditions were, •.that he would make conveyance of such parcels as should be sold by the general agents of the company, and that he would apply the net amounts received ‘immediately upon its receipt by him in payment and satisfaction, or part payment and satisfaction pro- temió, of the debts and claims set forth’ in the schedule thereto annexed, and that upon payment of the last of such claims, he.would reconvey the residue then remaining to the company or to any other person or corporation it might name, provided ■ that prior to the conveyance there should be transferred to him one hundred shares of its stock, and that there should be transferred to Wilbur E. Herrick and Kate M. Holbrook ninety-eight shares each.
“Schedule A, appended to this agreement, provided that the application of the moneys received by Copeland should ‘be made in the following order as nearly as practical
“1. All commissions and expenses to the selling agents.
“2. All taxes, all interests and other payments on mortgages now or hereafter on said property and sufficient sums to> procure releases of lots when sold from the lien of mortgages thereon.
“3. All money loaned by Copeland to the company with interest and two notes for $1,800 and $1,000 specifically described.
“4. Eour thousand dollars due to Wilbur E. Herrick from Kate M. Holbrook with interest.
“5. Humorous notes specifically enumerated which seem to have been debts contracted by Mrs. Holbrook’s husband in promoting the company and improving its property.
“Simultaneously with the making of the foregoing agreement the Villa Site Company entered into an agreement with Wilbur E. Herrick and Kate M. Holbrook, whereby they were employed as its sole and exclusive agents to sell the land referred to in the trust agreement. They were to receive commissions of thirty-three and one-third per cent, on gross sales. If these commissions should amount to more than enough to pay all commissions tó subagents and all other expenses of sale, ‘including advertising, office rent, printing, stationery, incidentals, &c., and in addition thereto' the sum of $150 per month to- each-of said Herrick and Holbrook, then the balance-of said commissions was to be paid and returned into the treasury of the Villa Site Company,’ not, it may be observed in passing, to Copeland. The selling agents’ contract was to continue in force for a term of two years, and should Herrick and Holbrook he unsuccessful in disposing of the lots, then it was to continue ‘until such time as all other property was sold and the liability canceled and the assets divided.’
“Holbrook and Herrick appear to have. been, the promoters of the company and to have owned or controlled its stock. The scheme was to. secure first to Copeland and then creditors of Holbrook and his wife, and while the land was being disposed of, to keep down charges, such as taxes, &c., and to give to Herrick and Holbrook a salary of $150 a month, each, payable only out of the receipts from sales if large enough.
“Herrick and Holbrook were unsuccessful. Pew lots were sold and little was done until 1906, thirteen j^ears later, when a new agency contract was concluded with one Smith. He, in the years 1906-1908, was able to malee sales aggregating, according to Copeland’s answer, $48,000.
“Then the parties quarreled. The Villa Site Company, against Copeland’s protest, entered into a new agency contract with one May, and Copeland refusing to give deeds to those to whom May contracted to sell, this bill was hied.
“On July 10th, 1893, i. e., a year after the conveyance, at a stockholders’ meeting of the Villa Site Company, Copeland was elected a director to serve with four other directors, viz., Wilbur P. Herrick, Kate M. Holbrook, George Holbrook and William W. Pendleton. Prom the minutes of this meeting, it appears that three hundred shares of stock were then outstanding and that Wilbur P. Herrick and Kate and George Holbrook represented two hundred and ninety-seven of them. On the same daj7, at a directors’ meeting, Copeland was elected president and treasurer. These offices he held until 1908. No meeting of either stockholders or directors was held between January, 1895, and July, 1906. In 1903, tire company’s charter was forfeited by proclamation of the governor for non-payment of taxes, hut was reinstated in JuL, 1906.
“Mr. Copeland was in the progress of the litigation directed to account before Oscar Keen as master. According to the report, lie liad up to t-liat time received: From sales of land, $31,622.20 ; from other sources, $24,963.86.
“He had disbursed: Eor taxes, $14,339.90; for principal and interest of mortgages, $18,952.23; for other expenses, $39,-327.92.
“Copeland had on the hearing and before the reference resisted the application to account and denied the trust. He admitted that he had executed the agreement, but he insisted, notwithstanding, it imposed no legal obligation upon him. His position which was, and sti,ll is, unintelligible to me, is best expressed in the concluding paragraphs of his answer:
“ ‘Defendant admits that since the conve3rance to him of said property in bill of complaint; he- has treated said premises as his own, and has regarded himself as owner thereof in fee-simple, and that he has stated, and he now avers, that he does not hold same as trustee, but, on the contraiy, says that he is the legal owner thereof, and that the conve3rance thereof by said Villa Site Company and Haworth Improvement Company was absolute and vested in him the legal title, and in accordance with the agreement entered into at that time with, complainant, he was to take said property as the owner thereof as security for the advances made and to be made by him and in full satisfaction thereof and was to sell the same when andi upon the terms he should deem just, and that out of the said proceeds of the same, he was to reimburse himself for his said advances and the expenses chargeable against said property and was to pay over’the balance, if any, to certain persons agreed upon, and who are named, and in the order named ih Schedule A of the agreement of 1892.’
“The agreement which lie thus avers he made differs materially from the written agreement executed by him shortly afterwards which, of course, according to the settled rules of law, superseded it.
“Acting on the idea that he was, to all intents and purposes, absolute owner, he kept no proper account; and his failure to do so has made it difficult, if not impossible, to state with any degree of accuracy the sum which the company now owes him.
“To the account as .stated numerous exceptions have been filed by the Villa Site Company. They called in question the propriety of the allowance of many items of disbursements both on the ground that they are not supported by vouchers or proofs and on the ground that, if proved, they are not proper subjects of allowance.
“This necessitates an inquiry into the character of the so-called trust agreement. There is absolutely no proof that it has ever been modified or rescinded. It seems plain that the conveyance and agreement taken together are nothing more than a mortgage security. Out of the moneys received from the sales of the land, Copeland is to pay, first, the commissions of the selling agents, then taxes and interest; 'then to reimburse himself for advances, and then to pay certain notes contained in a schedule. The land, or what remains of it, is to stand as security in his hands until all these payments are made; after which he is to reconvey what is left to the Villa Site Company. In other words, the land is charged with, certain debts and expenses, and is to be reconveyed when these debts and expenses are paid.
“If this be so, it is obvious that the master in stating the account paid no regard to the dual character which Copeland occupied. As so-called trustee under the agreement, he held the land as security for the payment of debts; asi president and treasurer, he had those powers of management and disbursements which fire company’s by-laws gave him. If, as president or treasurer, he did acts o>r made payments justifiable in themselves, it does not follow that the land is to stand as security for them. Copeland must be able to show that they are covered by the mortgage agreement.
“For instance, he cut off valuable timber and admits that he incurred a loss in so doing. This loss he seeks to charge to the land. It is evident that it is not covered by the mortgage, yet the master allows him for it. Again, the master allows him compensation to the amount of $13,250. This he could only do on the theory that he was practically manager of the company'from 1893 to 1910, and that he should have compensation as such. If this be so, the compensation is not secured by the agreement.
“No doubt Copeland -when he advanced money insisted upon being put in a position to control expenditure, and so he was made president and treasurer. But the conveyance made and the agreements' signed do not warrant the inference that the company intended to do the ultra vires act of substituting Copeland for itself and for imposing upon him the obligations and duties which the law imposed upon it. This appears not only from the limited character of the powers conferred by the agreement itself, but by the significant fact that at the very time it was executed the company itself, not Copeland, made an agency contract with Herrick and Holbrook vesting them with large selling powers and giving them a commission intended to cover not only the usual agent’s commission for selling, but office rent, advertising, and, it is claimed, grading, &c. One of the provisions of this agreement was, that if the commission thirty-three and one-third per cent, should be more than sufficient to pay commissions of subagents, &c., and, in addition, $150 per month to Herrick and Holbrook, the balance should be'returned and paid, not to Copeland, but to the treasury of the company. This agreement was assented to by Copeland in writing. The plan was that the company should sell ‘at prices equaling or exceeding two cents per square foot for lots lying east of Herrick road and one cent for lots tying west.’ If thus sold Copeland wasi bound to make a deed just as any mortgagee is bound to make a release of parts of the mortgaged premises if -the ihortgage so provides.
“The various writings taken together make up a scheme harmonious in itself and within the powers of the company, at least to a certain extent, and the scheme was apparently pursued up to the time of the quarrel. The company improved the land and sold lots whenever sales could be effected. Copeland’s duties as mbrtgagee in trust were performed by his making conveyances when deeds were presented for hisi signature, paying out of the price commission, taxes and interest, and keeping the balance to reimburse himself and to pay the designated creditors. For this service the agreement provided that he was to have one hundred shares of the company’s stock, which have in fact been transferred to him. This compensation, adequate or inadequate in the final outcome, was the compensation agreed upon. If for performing the duties of president and treasurer he should receive more the allowance must be made by the receiver appointed in a winding-up- .proceeding.
“I have already stated that the master’s report shows that from January 5th, 1894, to November 1st, 1910, Mr. Copeland received from salesi of land $31,622.20.
“And that he paid for taxes, assessments, interest on mortgages and releases, $33,292.13.
“This is an overpayment of $1,669.93.
“Mr. Copeland says further that he lent, in addition, $10,-326.20. The master has allowed it. Its correctness was attested by both Herrick and Holbrook as far back as October, 1893. As these gentlemen knew more about it at the time¿ and had a greater interest in verifying the amount than anyone else, I see no reason to disagree with the master’s Ending. This money appears to have been lent before, or contemporaneously with, the making of the deed and agreement. Mr. Copeland has no account of the items that go to make it up, but the lack of them is, I think, fairly sup-plied bjr Herrick’s and Ho-lbrook’s written admission that it is correct.
“The master’s report shows that Mr. Copeland received from rents, $2,270.16; from sales of wood, $3,557.57; from sources other than sales of land, $19,136.13.
“I do not think he should be charged with these receipts in this account. The only moneys which, by the terms of the agreement he was authorized to- apply to the- payment of taxes, interest and other items mentioned axe the moneys derived from the sales of lots. He received the other money not as trustee- but as treasurer. Consequently, he cannot in this proceeding be charged with, them as mortgagee- in trust, nor can he, per contra, he credited with payments in Schedule H, amounting to $39,327.92, excepting the item $10,326.20 already referred to. They were not made by him under the trust agreement. Whether all the items in -this schedule should he allowed to- him as treasurer, notably the items, ninety-one checks-, $3,391.84; s-ixty-four checks, $1,-480.42, cannot now be- decided. Whether the receiver should allow them unless more satisfactorily explained, may require consideration on. the part of that officer
"It may be that in the greatness of figures presented I have overlooked items which ought to be included in the present account on the principle here laid down. If so, counsel may call my attention to them.
“I think that no interest should be charged against Mr. Copeland for money received from sales. It was proper to hold it for the purpose of disbursements, and a sum equivalent to the receipts up to the year 1903 was actually paid out for taxes, interest and releases that had accrued or been given by that time. He should he allowed interest on any balance due him after he began to advance his own money. He should also receive interest on $10,326.20 from the time when interest ceased to be paid to or taken by him.
"It is self-evident that the company’s affairs cannot he settled unless a receiver he appointed, but the bill is not drawn with that relief in view. It asks for the appointment of a new trustee in place of Mr. Copeland. If I have correctly apprehended the principle on which this case turns, such: an appointment would not he proper. With the limited powers conferred upon the mortgagee in trust, it would fail to meet the situation. Besides Mr. Copeland is entitled to’ hold his security until payment. If a stockholder will apply for the appointment of a, receiver, the whole controversy can he finally determined.
“To avoid misapprehension, I may sajr that I have not overlooked the fact that on the face of the agreement there appears to he an attempt to apply the land of both the Villa Site and the Haworth companies to the payment of the debts of the Villa Site Company and of individuals; and there appears to be a direction that any surplus remaining, whether it be surplus derived from the Haworth company’s lands or the Villa Site Company’s lairds, be transferred to the Villa Site Company. How far the agreement may in these respects he ultra vires and incapable of enforcement, must he left to future determination. This emphasizes the necessity for a receiver of the Villa Site Company. A receiver of the Haworth company has already been appointed.”
Syllabus and headnotes are prepared by the reporter or publisher, not the court, and are not part of the opinion.
