On appeal from the Supreme Court.
For the appellants, Dougal Herr.
For the respondent, Lionel P. Kristeller.
The opinion of the court was delivered by
HETFIELD, J. This suit was instituted in the Supreme Court to recover money alleged to have been paid as a deposit on account of the purchase price of real property, by reason of the appellant's refusal to perform their part of a contract entered into by them with the Recreation Development Corporation of June 11th, 1924, providing for the conveyance of approximately one hundred and fifty-seven acres of land in Caldwell, for the sum of $75,000. The agreement called for a payment of $500 on the execution thereof, $2,000 on December 11th, 1924; $2,500 on June 11th, 1925; $5,000 on December 11th, 1925, and $10,000 on June 11th, 1926, when deed was to be delivered, and the balance of $55,000 was to be represented by a purchase-money bond and mortgage. The vendee had the right to immediate possession, for the purpose of constructing golf links, tennis courts, and a clubhouse, and was limited to such purposes until the delivery of the deed. The first two installments were paid when due, but the payments of the third and fourth were extended to January 2d, 1926, at which time an agreement was entered into between the parties, further extending the time to March 1st of that year, and other extensions were made to the Recreation Development Corporation to April 20th, 1926. On January 2d, 1926, the same day that the written extension agreement was entered into, the Recreation Development Corporation contracted with the American Plaster Drill Company, to sell the land in question for $130,000, and a deposit of $7,000 was made by the vendee to the Development Corporation on that date. On January 4th, 1926, or two days after the Development Corporation entered into the sales agreement with the Drill Company, it assigned all its rights in the original contract with the appellants to the same company; and on July 17th, 1931, the Drill Company assigned all
of its right, title and interest in the transaction to the respondent, who instituted the present suit. The complaint alleges that at the time the deposit of $7,000 was paid by the Drill Company to the Development Corporation, it was forthwith delivered and paid to the appellants, on account of the purchase price, which, together with the first two installments, represented a total payment to the vendors of $9,500; and it is further alleged, that on April 20th, 1926, and at all times thereafter, the Drill Company as assignee of the Development Corporation, tendered itself ready and willing to pay the balance of the consideration money, pursuant to the terms of the agreement, but that the defendants refused and still refuse to deliver their deed for the premises, as provided in the contract, although the Drill Company in all respects had fulfilled its part. The appellants' answer, in substance, denied all the material averments in the complaint, and set up five separate defenses. The Circuit Court judge, sitting as a Supreme Court commissioner, on motion struck out the denials contained in the answer and the third defense, as sham, and the remaining defenses, as frivolous. Judgment was entered accordingly, from which this appeal is taken.
In our opinion, this action of the court below was erroneous, as the answer and the affidavits in support thereof, were sufficient to entitle the appellants to defend. The second defense, which the trial court struck as frivolous, alleges, in effect, that the appellants were prevented from performing the contract in accordance with its terms, by reason of the fraudulent conduct of one Donaldson, the incorporator of the Recreation Development Corporation; and in support thereof, refers to an opinion rendered by this court, in the case of American Plaster Drill Co. v. William H. Francisco, 108 N.J. Eq. 323. It appears that the Drill Company, after it had acquired all the rights of the Development Corporation, in its contract with the appellants, instituted suit in the Court of Chancery, seeking the specific performance of said contract. This court, in the case cited by the appellants, reversed the Court of Chancery, and
directed that the bill be dismissed; and in an opinion delivered by Mr. Justice Lloyd, found that the present appellants, without fault of their own, were unable to comply with the terms of the sales agreement, in that one Joseph W. Donaldson, who controlled the Development Corporation, had by his fraudulent conduct, created a condition making it impossible for the appellants to convey the property free and clear of all encumbrances. The fraudulent actions of the original vendee are clearly set forth in the opinion, which reads in part:
"The moving spirit in the whole transaction and substantially the only stockholder in the Development Corporation was Joseph W. Donaldson. That corporation was organized on the same day that the agreement was made. A month later Donaldson caused another corporation to be organized under the general corporation laws and named the Ferncliff Golf and Country Club, Incorporated, and in this also he was substantially the only stockholder. The golf club was formed to establish an association of members as a golf and country club, and to it a lease was made of the property by the Development Corporation for a term of twenty years at the yearly rental of $15,000. Donaldson then had the golf club adopt by-laws of its own and also adopt other by-laws 'for the association of members of Ferncliff Golf and Country Club,' the first section of the by-laws concerning the latter reading that 'this association shall be known as the Ferncliff Golf and Country Club.' It is to be noted that the only distinction in the names of the incorporated and unincorporated bodies is that in the latter name the abbreviated word, 'Inc.,' is omitted."
"Immediately after these steps were taken Donaldson began a campaign to obtain members of the unincorporated association, and, as the learned vice-chancellor aptly says, the evidence clearly indicated a campaign that might be more appropriately characterized as one to swindle the unwary. The campaign was successful and resulted in the securing of large numbers of ...