131 N.J. Eq. 257 | N.J. Ct. of Ch. | 1942
This suit arises out of a proceeding brought under the New Jersey Securities Act, R.S. 49:1-11 (Wilentz,Attorney-General, v. Fairland Management Corp., Inc.
(unreported, docket 129/476); affirmed,
Fairland Memorial Park Association, organized under the Rural Cemetery Act, acquired a permit for the operation of a cemetery in North Brunswick, Middlesex County. Title to the cemetery lands was held by Fairland Management Corporation, organized under the General Corporation Act. The receiver's bill seeks to set aside a conveyance to the defendant of 560 cemetery plots, alleging that they were acquired as a result of fraud and breach of the defendant's obligations as a director of Fairland Management Corporation. It is further alleged that at the time of the transfer Fairland Management Corporation was insolvent, and at the hearing that fact was not disputed and adequately established.
The facts appear to be that in 1939 Vogel bought 60 fourgrave plots for $10,000. Fairland Management Corporation by its president, George G. Reining, promised Vogel that the company would repurchase a portion of his holdings at a profit each year. When it failed to do so after one year had passed Vogel wanted to get his money back. In an effort to do so and to make a profit in addition to the one which he had expected to realize from his purchase, Vogel and Reining worked out a transaction which was concluded by a group of papers executed and delivered on August 12th and August 13th, 1940. The deal was that Vogel was to loan Fairland Management Corporation $7,000 and in six months he was to get back $14,000. In addition, his cemetery lots acquired for $10,000 in 1939, were to be repurchased at a profit. To carry out this plan Reining transferred a majority of the stock of Fairland Management Corporation to Vogel on August 12th, and Vogel was elected a director of the company on that day. Under date of August 13th, 1940, the Management Corporation executed a note to Vogel for $6,000 payable six months after date. On the same day, by authorization of the Memorial Park Association, 560 plots in the heart of the cemetery were "sold" to Vogel for $800. Most of these plots contained sixteen graves each. They were located in a section more desirable and more valuable than the location in which Vogel had purchased plots of four graves each at an average price of $166. Vogel on the same day entered into an agreement with Reining by the terms of which Reining *259 was to purchase the 560 plots within six months for $7,820 and also was to buy back the $10,000 worth of plots purchased by Vogel in 1939, for which Reining was to pay $12,000 or more, depending upon the time when he bought them. The plan was that on the due date of the note Vogel was to receive the $6,000 due thereunder together with $180 in interest. He was also to receive $7,820 for the 560 plots, making a total of $14,000 for his loan of $7,000. The 560 plots were not to be reconveyed to either of the corporations, but to Reining individually, who was thus to be put in the position of acquiring for an infinite fraction of their worth a large block of graves.
From the testimony and exhibits it seems clear that the 560 plots were transferred to Vogel as a form of security. Near the conclusion of the final hearing in this matter, Vogel replying to a question directed to him by his solicitor said: "I offered to return the security, return the stock, return everything I had, providing I could get a lien on the property — that is the property for which I held the deed for the sum of $17,000 or some other legal way of protecting me and I would be happy to turn this all back. The court: You would give everything back if you could get your money. Is that right? The witness: That is right." "Mr. Glauberman: the defendant, Saul Vogel, hereby offers to the complainant to return to him all the properties that were conveyed to him by the cemetery, the ash section as well as the oak section, and he is willing to waive any profit of any interest which he is entitled to by virtue of an agreement entered into between him and the cemetery in which he wishes to have a lien on the property for the amount of $17,000, subject to all the restrictions set forth in the New Jersey Cemetery Act. * * * In the alternative he makes the following offer: he will return to the receiver the security received on August 13th, 1940, consisting of the oak section, as well as the stock and notes, and in return he wishes to have a lien for the sum of $7,000." (Italics mine.) Thus it is not disputed the promissory note and corporate shares of stock were held by Vogel as collateral and the deed for the cemetery plots as a mortgage to secure the repayment of the *260 money advanced by him. And from the testimony of Mr. Rand on cross-examination, Vogel's attorney at the time of the transaction, it appears that the 560 plots were transferred to Vogel to secure not merely the repayment of his loan but the profit of $7,000 which he was to make on that transaction.
The defendant filed an answer and a counter-claim to impress a lien upon the cemetery plots for $7,000 alleged to have been advanced to the Fairland Management Corporation. The counter-claim in the second paragraph reads that both corporations "were controlled and managed by said George G. Reining" and that "the defendant dealt with the said corporation and the said association and the said Reining as a single entity," and the defendant in his counter-claim refers to all three as the "cemetery." The theory seems to be that the court can at will disregard the separate entities of the two corporations because of Reining's control. Not only does the counter-claimant seek to impress a lien for his alleged loan of $7,000, but in the alternative a lien in the sum of $17,000 on all cemetery plots "conveyed to him at any time."
A cemetery is a charitable trust. Its directors are trustees in charge of the management and operation of a quasi public service corporation. Atlas Fence Co. v. West RidgelawnCemetery,
Treated as a transaction to secure Vogel the conveyance of the 560 plots to him was illegal and void and against public policy as an attempt to mortgage lands dedicated to use as a cemetery. Cemetery lands may not be thus mortgaged. The statute prohibits such a use of cemetery land. R.S. 8:2-11. Such lands are not liable to sale by virtue of any judgment, decree or execution out of any court in this state, R.S. 8:2-29. Reliance is placed by the defendant upon Fidelity-Union Trust Co. v. Union CemeteryAssociation,
The attempted mortgage was not for purchase-money and so the decisions in this state holding a purchase-money mortgage to be enforceable by sequestration of revenues are not applicable. The precise question presented here has not been passed upon in this state, although there are intimations in Atlas Fence Co. v.West Ridgelawn Cemetery,
Moreover the complaining receiver was appointed under the Securities Act (R.S. 49:1-1) et seq., which provides that property acquired by fraud shall constitute a fund for benefit of those who have been defrauded. For the reasons stated herein it would be inequitable and unconscionable to permit the defendant to enforce a mortgage against the numerous defrauded lot owners and creditors, even to a limited extent. By reason of the fraud, the breach of fiduciary duty, and independently the considerations springing from the fact that a charitable trust is involved, the deed conveying the 560 plots to the defendant will be set aside and the counter-claim will be dismissed. *263