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East Ridgelawn Cemetery v. Winne

Decided: February 16, 1953.

EAST RIDGELAWN CEMETERY, A CORPORATION OF NEW JERSEY, PLAINTIFF-APPELLANT AND CROSS-RESPONDENT,
v.
WALTER G. WINNE AND TOBY FURST, SUBSTITUTED TRUSTEES, ETC., DEFENDANTS-RESPONDENTS AND CROSS-APPELLANTS, AND ADAM FRANK AS EXECUTOR, ETC., H. JEROME SISSELMAN, ET AL., CERTIFICATE HOLDERS, DEFENDANTS-RESPONDENTS AND CROSS-APPELLANTS, AND STATE OF NEW JERSEY, AND VIVIAN D. BELL, ET AL., AND MABEL L. SMITH, DEFENDANTS-APPELLANTS AND CROSS-RESPONDENTS



For modification -- Justices Heher, Oliphant, Wachenfeld, Burling and Jacobs. Opposed -- None. The opinion of the court was delivered by Jacobs, J.

Jacobs

The Appellate Division (19 N.J. Super. 413 (1952)) modified the judgment which had been entered in the Chancery Division (11 N.J. Super. 555 (1951)) and remanded the cause for further proceedings; pursuant to cross-applications this court granted certification in the perhaps vain hope that the protracted controversy between the parties may be justly and finally determined.

Early in 1905 Adam Frank and his associates planned the establishment of a cemetery in Acquackanonk Township, now the City of Clifton, Passaic County, and obtained options in the name of Herbert B. Gruber, nominee of Frank, on land exceeding 250 acres. Since the governing statute restricted cemeteries to 125 acres, two corporations were thereafter formed, the plaintiff-appellant, East Ridgelawn Cemetery, and West Ridgelawn Cemetery, not a party to this action. East Ridgelawn was incorporated on October 3, 1905 and its trustees were selected by Frank and his attorneys, and on December 12, 1905 a cemetery franchise was granted to it by the Township Committee of Acquackanonk. Thereafter Frank offered to convey the land to the cemeteries. His offer did not, however, embody any fixed valuation as the fair purchase price; instead, it provided that the land would be paid for by the cemeteries' joint issuance of 13,500 certificates of interest in the proceeds of their sale of burial plots. The offer was accepted by the cemeteries.

In 1906 Frank, through Gruber, acquired title to the land and allocated to East Ridgelawn 121 acres which had been obtained for the purchase price of $73,380. On December 21, 1906 Gruber conveyed the 121 acres to the Passaic Trust & Safe Deposit Company subject to the terms of a declaration of trust. This declaration provided that the land would be conveyed to East Ridgelawn; that East Ridgelawn would, jointly with West Ridgelawn, issue 13,500 certificates of interest to the Trust Company; and that East Ridgelawn would pay to the Trust Company, after deductions for a perpetual care fund, one-half of the proceeds from its sale of

burial plots plus what remained of the other half after payment of operating expenses. On January 3, 1907 the Trust Company conveyed the land to East Ridgelawn by deed bearing the same terms as the declaration of trust. The 13,500 certificates were issued and reached Frank, who returned 2,000 shares to East Ridgelawn for improvements and working capital. See Bittles v. West Ridgelawn Cemetery Co., 94 N.J. Eq. 808, 809 (E. & A. 1923). East Ridgelawn realized the sum of $50,505 from the sale of these certificates and additional certificates which were later delivered to it.

In 1910 Vice-Chancellor Stevens dealt with the validity of the certificates and the dividend fund, representing proceeds from the burial plots, payable under the terms of the deed to East Ridgelawn. See East Ridgelawn Cemetery Co. v. Frank, 77 N.J. Eq. 36 (Ch. 1910). He pointed out that cemetery associations were in the nature of charitable trusts, had been granted, in the public interest, special powers and tax exemptions, and had properly been subjected to special limitations in their allocation and use of the proceeds of their sale of burial plots. He expressed the view that the Frank plan, which would enable extraordinary profits through payment of the land by a dividend fund from the proceeds of the burial plots, was contrary to the policy and letter of the controlling legislation and was illegal. Later decisions by the Court of Errors and Appeals took the same position. Atlas Fence Co. v. West Ridgelawn Cemetery, 119 N.J. Eq. 552 (E. & A. 1936); Passaic National Bank & Trust Company v. East Ridgelawn Cemetery, 137 N.J. Eq. 603 (E. & A. 1946), 139 N.J. Eq. 488 (E. & A. 1947). In the Atlas Fence case the court, after holding the dividend plan illegal, stated (at p. 555) that "the Trust Company is now entitled to receive the fair value of the estate conveyed to the Cemetery Association at the time of the conveyance, with interest, but without priority over other creditors." Similarly, in the Passaic Bank case the court's opinion, while rejecting the attempt to obtain any payment under the illegal dividend

plan, set forth the contention of the cemetery and the Attorney-General that the trustee was entitled to receive only the fair value of the land at the time of its conveyance with interest but without priority.

Following the decision in the Passaic Bank case East Ridgelawn instituted the present action in which it primarily sought a determination as to the nature and extent of its present obligation, if any, for the 121 acres conveyed to it. After hearing, the Chancery Division entered judgment of $167,245.59 with interest against the cemetery and in favor of Walter Winne and Toby Furst as trustees substituted for the former trustee Passaic Trust & Safe Deposit Company (later called Passaic National Bank and Trust Company). In reaching its judgment the court: (1) found that the fair value of the land payable to the trustees was $138,510, representing its cost of $73,380 plus $65,130 as promoter's profit; (2) allowed $50,505 to the trustees, representing the sum received by the cemetery from the certificates returned to it, and (3) credited the cemetery with the sum of $16,691.98 paid by the cemetery to the Trust Company and $5,077.43 representing an adjusted amount due to the cemetery. On the appeal before the Appellate Division these amounts credited to the cemetery were not questioned or disturbed. Similarly, that Court refused to disturb the allowance to the trustees of the $50,505 actually realized by the cemetery from the sale of the certificates. However, it disallowed the promoter's profit of $65,130 and remanded the cause to the Chancery Division for a new determination as to the purchase price payable for the land "measured by the value, at the time, of the lands to the cemetery" holding the exclusive cemetery franchise, with interest at 3%. On the issue of value two expert witnesses for the plaintiff-appellant had testified that the farm land conveyed to the cemetery was worth less than the sum of $73,380 paid for it by Frank and a third had testified that its value was not increased by its transfer to the cemetery. Two expert witnesses for the defendants cross-appellants had testified that the price paid

by Frank was the fair value of the farm land without considering the cemetery franchise, but that its fair value as cemetery land of the association holding the cemetery franchise was in excess of $650,000; their position was that the pre-existing fair value of land generally increases ten-fold when attached to a cemetery franchise.

Frank, the promoter and first president of East Ridgelawn, clearly dominated the cemetery association at inception; he was a fiduciary and as such was subject to recognized trust responsibilities in his dealings with the association. See Bigelow v. Old Dominion Copper Mining & Smelting Co., 74 N.J. Eq. 457, 496 (Ch. 1908); Arnold v. Searing, 78 N.J. Eq. 146, 157 (Ch. 1910). His was the affirmative obligation to deal openly and fairly with the association and with due regard for the protection and advancement of its proper interests. Cf. Ballantine, Corporations (rev. ed. 1946), 832; 1 Fletcher, Corporations (rev. ed. 1931), 617. This was particularly true where, as here, the association was a charitable trust which the Legislature had authorized to be operated in the public interest but not for private profit. See East Ridgelawn Cemetery Corp. v. Frank, supra; Burke v. Gunther, 128 N.J. Eq. 565, 571 (Ch. 1941), affirmed 133 N.J. Eq. 609 (E. & A. 1943); Geo. Washington, &c., v. Memorial, &c., Co., 139 N.J. Eq. 280, 288 (Ch. 1947), s.c. 141 N.J. Eq. 47, 60 (Ch. 1947). As Vice Chancellor Stevens pointed out in the Frank case, the statute conferred "immunity from taxation and levy, coupled with the power of eminent domain," and it was evident that this was not done to enable operation of the cemetery for individual gain. It seems clear from the provisions of the governing statute that the Legislature contemplated that the ...


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