Anderson v. Anderson Food Co.

66 N.J. Eq. 209 | New York Court of Chancery | 1904

Grey, V. C.

The first question to be determined in this cause is that raised by the defendant’s cross-bill, seeking to cancel the chattel mortgage set up in the complainant’s original bill of complaint or to reform it by striking out the words “stock manufactured, unmanufactured and in the process of manufacture.” If the defendant is entitled to this relief, it will so alter the chattel mortgage upon which the complainant bases his equity that he could not be entitled to any injunction which would restrain the defendant mortgagor company from removing and pledging the stock of canned goods, &c., now included within the chattel mortgage. Has the defendant mortgagor shown that its chattel mortgage, as it is now expressed, was made to include the clause affecting the stock of goods by either fraudulent contrivance, or by such a mistake as is correctible by this court?

I think it may be safely said that there is not a particle of evidence in this cause which either shows or tends to show that the mortgagee, the Anderson Preserving Company, or those who acted for it, either as its officers or attorney, ever had any purpose, or even thought of fraudulently introducing the clause in question into the chattel mortgage, and obtaining it to be executed by the defendant mortgagor company, or those who acted for it, without its knowledge or consent. All of the evidence touching the execution of the instrument goes to show that it. came into existence with the clause in question, not by the contrivance or planning of the mortgagee, or those who acted for it, but that the whole mortgage was a subject of conference and examination, at first, between the several attorneys of the mortgagor and the mortgagee; that the challenged clause was particularly referred to between those attorneys before it was inserted in the chattel mortgage, and the draft of that clause was actually made by the attorney for the defendant mortgagor. The instrument was thereafter, by the consent of all parties, retained in his possession unexecuted, with the most abundant opportunity for inspection, correction, change or rejection. It was yet unsigned when brought to the place of meeting for settlement by the attorney for the mortgagor company, and although there is some contradiction as to the definite words used in making known the contents of the instrument at the time it was signed, acknowledged, proven and delivered, yet I am satisfied that its contents were in fact then and there declared and made known in good faith to the parties who, acting for the defendant mortgagor, executed it, and those wlm acted for the defendant mortgagee accepted it, as it is presently expressed.

So far as the crossbill charges or intimates that the mortgagee, or those who acted for it, had any fraudulent intent to insert in that mortgage the clause which the defendant mortgagor now seeks to have excised, or that it was inserted by any fraudulent contrivance, the evidence entirely fails to sustain the allegation.

There is a prayer in the cross-bill which should be shortly noticed. It is asked, as an alternative mode of relief, that the complainant may bo compelled to deliver up the chattel mortgage for cancellation. A decree that the mortgage shall be canceled is impossible under the circumstances of this case. This would require a restoration of the status of the parties which existed when the mortgage was delivered which the cross-bill does not tender. There is nowhere in this case any offer to return to the mortgagee the property which the mortgagor purchased. The evidence shows that this is probably impossible. All parties, since the mortgage was given, have irretrievably changed their positions touching the subject-matter then dealt with. No claim has been made in argument that a cancellation of the mortgage is equitably possible, and this mode of relief must be rejected.

The cross-bill also asks that the chattel mortgage may be reformed by striking therefrom the clause “stock manufactured or unmanufactured and in the process of manufacture,” or any other words of like import wherever they may occur in the mortgage, because it is alleged those words were inserted in the mortgage by a mistake.

The mortgage in question came to be made as follows: The complainant, Mr. Abraham Anderson, was the largest stockholder, so that he entirely controlled the Anderson Preserving Company, which in the year 1901 was engaged in the packing of fruits and vegetables in cans, and the sale of the same. Mr. Anderson and Mr. John T. Cox, in the latter part of the summer of that year, entered into negotiations for the sale by Mr. Anderson of the Anderson Preserving Company to a company, not yet incorporated, to be known as the Anderson Food Company, which would be controlled and managed by Mr. Cox.

Several written agreements were made between Mr. Anderson and Mr. Cox, which, because of disagreements between them, were abrogated, and new contracts made in their stead.

Before the parties had come to an abiding agreement the Anderson Food Company was, on August 15th, 1901, incorporated by Mr. Cox, wlm subscribed for eight shares as an incorporator; Mr. David A. Henderson, who subscribed for one share, and Mr. Yoorhees S. Anderson, who also subscribed for one share. The whole trend of the evidence in the cause shows that the Anderson Food Company was incorporated and controlled by Mr. Cox for the purpose of taking over all of the assets of the Anderson Preserving Company. Mr. Cox elected himself president of the Anderson Food Company; Mr. Henderson, secretary, and Mr. Yoorhees S. Anderson, treasurer.

There were several recessions and changes, and perhaps temporary abandonments of the plan, but the negotiations were as often resumed between‘the parties.

Tlie first action taken by the newly-organized Anderson Food Company, the mortgagor, looking towards the taking over of the property of the Preserving Company, was, by a resolution of the stockholders of the Anderson Food Company, adopted by them-at a stockholders’ meeting held on September 5th, 1901. The resolution is as follows:

“Upon motion, it was resolved and ordered that the board of directors be authorized to purchase from the Anderson Preserving Company its entire plant, including all of its assets, and subject to its liabilities, for a consideration of $1,000 in cash, $149,000 in capital stock for this Anderson Food Company, and a bond and mortgage be given by this Anderson Food Company upon said plant for the sum of $100,000, payable at the expiration of 10 years, with interest at the rate of 5i per annum.”

It will be noted that this resolution, in speaking of the thing to be purchased, refers to the entire plant of the Anderson Preserving Company, including all of the assets, and to a bond and mortgage to be given by the Anderson Food Company upon said plant. It is the fair construction of this resolution that the stockholders of the food company, in directing the making of the mortgage in question (obviously a purchase-money mortgage), intended and expected that the mortgage which they directed to be given upon “said plant" referred to the previously-mentioned preserving company’s "entire plant, including all of its assets." That accords with the recitals of the mortgage itself, which declare it to be “given to secure a part of the purchase-money of the said real estate and personal property.”

It should lie observed that this resolution of the stockholders of the mortgagor company continued in force up to and at the time when the mortgage in question, including the clause now challenged, was executed and delivered.

On the same September 5th the directors of the Anderson Food Company adopted a resolution that the Anderson Food Company purchase the plant and assets of the Anderson Preserving Company, and “make the mortgage authorized by the stockholders," and authorizing the proper officers of the food ■company to execute said bond and mortgage. On September 16th, 1901, the directors rescinded their resolution of September 5th, but the stockholders’ resolution of the same date was never rescinded. Negotiations appear to have been again broken off and renewed between the parties after the food company directors had rescinded their purchase resolution of September 5th, 1901, for there are several later agreements which were abandoned.

Finally, on the 20th of September, 1901 (the same day on which the purchase and giving of the mortgage were concluded), the board of directors of the Anderson Food Company readopted a resolution to purchase, under which the mortgage now criticised was made. The reinstating resolution of the directors is as follows:

“The president stated that this meeting was called to take action with a view of purchasing the plant of the Anderson Preserving Company, and upon motion it was ordered that the hoard of directors purchase the plant and assets of the Anderson Preserving Company and issue therefor $149,000 in capital stock, pay $1,000 in cash, and make the mortgage authorized by the stockholders of $100,000 to the Anderson Preserving Company, and the proper officers are authorized to execute said mortgage.”

This was the final action of the hoard of directors respecting the matter of the purchase and execution of the mortgage. It should bo noted that this directors’ resolution, like the previous one, refers to the stockholders’ resolution, as fixing the character of the mortgage which was to be given, that is, as is above shown, a mortgage upon the entire plant of the Anderson Preserving Company, including all its assets.

These resolutions and agreements to purchase, &c., Mr. Cox and Mr. Anderson appear to have referred to their respective attorneys. Mr. Anderson’s attorney was Mr. John F. Earned, who acted for him and tire preserving company. Mr. Cox’s attorney was Mr. Samuel W. Beldon. Mr. Henderson conducted the active part of the negotiations for Mr. Cox. Mr. Henderson testifies that Mr. Beldon was employed by the Anderson Food Company to draw all the papers.

Mr. Henderson and Mr. Cox, with Mr. S. W. Beldon as their counsel; Mr. Abraham Anderson, and Mr. John F. Harned as his counsel, and Mr. Anderson’s two sons, met on the 20th day of September, 1901, at Mr. Harned’s office for the execution of the conveyances and mortgage in question and the settlement to be made of .the transaction. Previous to this meeting the deed and bill of sale from tire Anderson Preserving Company to the Anderson Food Company, and the mortgage now criticised, had been drawn by or under the supervision of Mr. Beldon, the attorney for the Anderson Food Company, so as to be ready for execution on the 29th of September, 1901. The bill of sale included all of the chattels and personal property belonging to the Anderson Preserving Company, and specially, anrorrg other items, the “stock manufactured or unmanufactured, or in process of manufacture.” The words “stock manufactured and unmanufactured and in process of manufacture,” Mr. Beldon says, were included in the mortgage after a conference with Mr. Harned, and he thinks, but cannot positively say, that there was some independent action of his own touching that clause. Mr. Beldon testifies that “so far as the consummation of the matter is concerned, I rvas practically its engineer, and in consequence of that I drew the papers.” The mortgage, lie says, was drawn in his office, under his supervision and direction, including that part of the mortgage which is now in dispute in this case. Mr. Beldon also says that his impression is that the papers, while yet unexecuted, were left with Mr. Plenderson, but he cannot be sure that the mortgage was one of those papers. Mr. Beldon also testifies that after a conversation with Mr. Harned, he, Mr. Beldon, took the bill of sale (which conveyed the personal property to the Anderson Food Company) and dictated tire portion referring to the personal property which was to be included in the mortgage; and, speaking of the papers in question, which he had thus prepared, Mr. Beldon says: “I don’t think it is possi ble that papers of this importance would have gone out of my office without having been read by me, either every word or substantially through.”

Mr. Cox and Mr. Henderson both deny that the contents of the mortgage were made known at the time of its execution. Mr. Beldon says, regarding the mortgage, that he cannot say that he has any extremely distinct recollection of the execution of the mortgage, but that, according to the best of his recollection, it was not read to Messrs. Cox and Henderson by him, or in his presence, before its execution. Messrs. Cox and Henderson also say that neither they, nor any officer of the Anderson ’Pood Company, to their knowledge, ever consented to the inclusion of the'goods and chattels and the personal property of the company in the mortgage.

Mr. Cox testifies that the protest that he makes is, that the mortgage includes in it the stock manufactured and unmanufactured, or in process of manufacture, and that he thinks the mortgage in all other particulars to be correct. Mr. Henderson, however, seems to contend that the mortgage ought not to have included any chattels whatever. That is the tenor of his letter of November 11th, 1901, to Mr. Anderson and of his present testimony.

These gentlemen, representing the defendant company, do not seem to agree as to what was actually intended and understood by them to have been included with the mortgage. Mr. Henderson appears to object at one time to including any chattels within the mortgage, and at another time, by his,later letter of March 10th, 1902, he only objects To the including the specific chattels, the stock, &c. Mr. Cox objects only to the inclusion of the stock and makes no objection to the other chattels named in the mortgage.

Mr. Hamed’s testimony agrees with that of Mr. Beldon, that the deed,, the bill of sale and the mortgage were prepared by Mr. Beldon. While they were in course of preparation, he called on Mr. Beldon and the following conversation took place between them. Mr. ITarned says:"

“We took up the subject of inserting in the mortgage a description of the personal property. I told him [Beldon] that I understood that under a fair interpretation of the intention of the parties it [the mortgage] was to cover the property that was being sold; that it was necessary to give any validity to the mortgage; it would necessarily have to be a purchase-money mortgage, as no money was passing between the parties, only property, and that.it should cover the property that was actually being transferred; he agreed with me in that; he understood that to be the intention of the parties, and called a stenographer, picked up the bill of sale, which he had lying with the other papers, and read from the bill of sale a description of the personal property in the bill of sale and directed that that be inserted in the mortgage; he then said that a mortgage of that kind would interfere with the management of the business unless they were authorized in some way to dispose of it; I said that seems reasonable, and then he added the form authorizing the disposal of the property in the ordinary course of business, remarking at the time that he had some kind of a form of his own that he used in those cases.”

I do not understand Mr. Beldon’s testimony to contradict this testimony of Mr. Iiarned as to the manner in which the clause which is now questioned came to be inserted in the mortgage. There are portions of it which Mr. Beldon says he does not recall. .

Mr. Hamed further narrates the manner in which these papers, having been prepared by Mr. Beldon, were executed. Mr. Harned testifies that in' the presence of Mr. C-ox, Mr. Henderson and Mr. Beldon, he held up the bond and mortgage, and said that it was a purchase-money bond and mortgage upon the real estate and personal property that had just been transferred by the preserving company to the food company. The mortgage was then proven by the affidavit of Mr. Henderson, as secretary of the food company, Mr. Iiarned taking his affidavit as master.

I do not understand the testimony of Mr. Beldon 'to contradict this narrative of Mr. Harned as to the mode in which the chattel mortgage in question was executed. Mr. Beldon says he knew the paper was a chattel mortgage; knew that as such it required an affidavit.

The foregoing narrative of the evidence shows that the mortgage in question was drawn by the defendant company’s own attorney as a purchase-money chattel mortgage, and the very clause regarding the stock, &c., which the defendant now seeks to strike out was specially considered and inserted by that attorney because he agreed that it was understood to be the intention of the parties. The mortgage, after it was so drawn and before it was executed, was in all probability left with Mr. Henderson, the defendant’s acting business man, for examination and approval. Its contents were openly declared in the presence of all the parties and their attorneys at the time it was executed, and its execution was proven by the same Mr. Henderson, by his sworn affidavit annexed to the mortgage.

Is it reasonable to declare that a paper so prepared, examined, considered and approved was executed in mistake ?

There certainly was no mutuality in any mistake. Mr. Anderson declares he made no mistake. The Anderson Preserving Company got what it expected — a purchase-money mortgage for a part only of the price upon all the property which it conveyed. Mr. Anderson swears he never agreed to accept, nor would he have accepted, anything else than a mortgage which covered the whole of the property which was conveyed by the preserving company to the food company.

Before the preserving company’s sale, all its stockholders, including Mr. Cox as one, gave a written consent. Mr. Henderson witnessed it. It is in these words:

“We, the undersigned, nil of the stockholders of the Anderson Preserving' Company, do hereby agree and consent to a sale by the Anderson Preserving Company of all its personal property and real estate, buildings, improvements, good will, stock, fixtures, machinery and assets to the Anderson Food Company, for the sum of $250,000, and to receive back in part payment therefor a purchase-money mortgage of $100,000 upon the Anderson Food Company assuming all the indebtedness and obligations of the Anderson Preserving Company.

“.Toxin T. Cox,

“V. S. Anderson,

“A. Anderson,

“L. W. Goldy,

“R. Li. Anderson.”

“Witness — David A. I-Ienderson.”

On obtaining the written consent of its stockholders, the preserving company adopted this resolution:

“Resolved, That this company sell to the Anderson Food.Company all its personal property and real estate, buildings, improvements, good will, fixtures, machinery and assets, for the sum or price of two hundred and fifty thousand dollars, one hundred thousand dollars of which is to be paid by a purchase-money mortgage -upon the property above sold; one thousand in oasli, and one hundred and forty-nine thousand dollars in stock of the Anderson Food Company at par, upon the Anderson Food Company assuming all the indebtedness and obligations of the Anderson Preserving Company.

“Resolved, That the officers of this company be and they are hereby directed to carry out the terms of this resolution.

“Resolved, That the mortgage of $100,000 made by the Anderson Food Company to the Anderson Preserving Company, when executed, be assigned to Abraham Anderson, in payment to him for one thousand shares of the capital stock of this company by him held and surrendered.”

It is very difficult to believe that Mr. Cox, who consented in writing, that the Preserving- Company should have a purchase-money mortgage of $100,000 upon the Anderson Food Company, was under a mistake in giving for the food company precisely such a mortgage to the preserving company. Yet that is what he presently claims was done.

The preserving company’s sale, as is shown by its above-quoted resolution, was to be made on the terms that it was to be paid in part “by a purchase-money mortgage upon the property above sold/’

The defendants make their claim of a mistake because in collateral agreements made between Mr. Anderson and Mr. Cqx, not between the mortgagor and mortgagee companies, the reference to the mortgage to be made, did not specifically mention that it was to be a purchase-money mortgage upon all the goods sold. These collateral agreements of the individual parties certainly cannot lie permitted to alter the terms of the corporate contracts executed with all the formalities pursuant to written resolutions of the contracting companies.

In Aller v. Crouter, 19 Dick. Ch. Rep. 381, Chancellor Magie declared that reformation of a conveyance will not be decreed except on clear proof that by mutual mistake of the parties thereto the conveyance expresses something which they did not intend, or omits to express something which they did intend.

In the present case there is scarcely a pretence that there was any mutuality in the alleged mistake. The above-quoted resolutions of the respective acting companies show that both intended to make the mortgage what it presently is.

The defendant mortgagor has proven no such certainty of mistake or agreement of its own witnesses of what was intended to be done as will support a decree of reformation. Courts of equity do not grant the high remedy of reformation upon a probability, or even upon a mere preponderance of evidence, but only upon a certainty of the error. 2 Pom. Eq. Jur. § 859; 1 Story Eq. Jur. § 157. The weight of the evidence tends to show that the instrument challenged does in fact, in the particular in which it is criticised, express what the parties thereto intended it should, when it-was made and delivered.

The cross-bill must therefore be dismissed.

The mortgage remaining unchanged and forceful as a lien upon the personal property of the defendant mortgagor, it is still to be considered whether the complainant is, on his original bill, entitled to restrain the defendant from removing any of that personal property, &c., according to the pra3'er of his bill.

The clause under which the defendant justifies its removal of the cases of tomato soup referred to in the bill of complaint, is as follows:

“It, however, being particularly understood and agreed that the party of the first part may conduct its ordinary business, and in so doing dispose of any of the foregoing personal property.”

Under this clause the defendant company admits that it had deposited a portion of its manufactured goods in warehouses outside of the State of New Jersey, and that it intends to raise money thereon by using warehouse receipts as collateral to its commercial paper.

The question turns in -great part upon the meaning of the words “conduct of its ordinary business.” These do not relate, as has been argued for the complainant, to the business previously done on the same premises by the Anderson Preserving Company. The context shows that it is the business of the party of the first part, the Anderson Food Company, which is referred to. When the mortgage was made, this company had never conducted any business. Therefore, the permission authorizes the mortgagor to conduct such ordinary business as it might do in the future. Necessarily, the character of the business to be done must be regulated by its nature, and the persons with whom and the places where, and the circumstances under which it must in the future be conducted.

It clearly appears that the quantity of canned goods produced by the mortgagor was so great that it was impossible that all or even a major part of them could be sold or disposed of in this state. The places of sales of such products were practically the whole of the-United States. In conducting such a business there would naturally and ordinarily be periods when sales would be very slow and prices low, and when at the same time cash money must necessarily be instantly had. Such a condition of affairs would seem to invite the holder of a stock of such goods to store them and use the storage receipts as a means of temporarily raising the needed cash. When prices revived and sales again became brisk, the goods thus saved from compulsory sacrifice might be advantageously disposed of.

This was almost precisely the situation which has provoked the complainant’s action. He insists that by the terms of the mortgage the defendant mortgagor can only dispose of the stock by an absolute sale. This course would much more effectually take the goods from the complainant’s control than would a pledging of them. Under the circumstances above noted, it might ruin the defendant’s business.

The proof is substantially undenied that the course pursued by the defendant was free from any fraudulent intent to remove the goods. Only about one-tenth of the stock was stored. There was a sudden exigency, and no cash. The course taken was the usual one among manufacturers -who have more stock on hand than money at call.

It must be held that the disposal made of the cases of tomato soup by the defendant was in the conduct of its ordinary business. The complainant’s original bill of complaint must therefore be dismissed.