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Daloisio v. Peninsula Land Co.

Decided: December 14, 1956.


Goldmann, Freund and Conford. The opinion of the court was delivered by Goldmann, S.j.a.d.


[43 NJSuper Page 83] Plaintiffs, a minority of the stockholders of Callaghan Island Land Company, instituted this derivative suit to impress a trust upon certain lands, hereinafter described, for the benefit of Callaghan and to compel defendant Peninsula Land Co. to convey the property to that company. The Chancery Division entered judgment in plaintiffs' favor, with costs. Peninsula Land Co. appeals.

The property in question is part of a peninsula of some 22 acres jutting into the waters of Lake Hopatcong. The peninsula is commonly referred to as "Callaghan's Island" and is primarily a summer resort. The stockholders of the Callaghan Company are bungalow owners on Callaghan Island. They had constructed their dwellings on lands occupied under an oral lease arrangement with Daniel Callaghan, a life tenant. They feared that following his death they would be left at the mercy of the remaindermen, who might force them off the peninsula and lay claim to their bungalows. To protect their common interests they formed themselves into an unincorporated association, the Callaghan Island Group. In 1939 an opportunity arose to purchase from Consumers' Coal and Ice Co. a ten-foot strip along the outer perimeter of the peninsula, and also 75 feet of adjoining land under the waters of the lake. To strengthen their future bargaining position with the remaindermen, the bungalow owners incorporated Callaghan Island Land Company and through it acquired the ten-foot strip and the contiguous lands under water by deed of warranty.

Following the death of the life tenant in May 1950 the remaindermen indicated a willingness to sell their interest in Callaghan's Island for $125,000. The Callaghan Company was unable to meet this price, but did offer to buy about half the island for $55,000. The offer was rejected. Subsequently one William Buesing, a Callaghan stockholder, purchased the remaindermen's interest through his corporation, Wilomay Holding Co., after first informing a special meeting of Callaghan shareholders of his intention to do so.

Wilomay proceeded to lay claim to the property which is the subject matter of this suit -- a narrow wedge of land on the northern part of the peninsula, lying for the most part south of the ten-foot strip and comprising about an acre, commonly referred to as the "gore." The basis of the claim was that the gore was part of the property purchased from the remaindermen or, alternatively, that title had been acquired by adverse possession. The result was an action to

quiet title to the gore, ultimately decided against Wilomay. See Wilomay Holding Co. v. Peninsula Land Co. , 33 N.J. Super. 412 (Ch. Div. 1954), 34 N.J. Super. 121 (Ch. Div. 1955), affirmed 36 N.J. Super. 440 (App. Div. 1955), certification denied 19 N.J. 618 (1955).

The Callaghan Company had meanwhile, and since 1950, been negotiating with Consumers' Coal and Ice Co., the true owner, for the purchase of the gore. On August 31, 1952 the Callaghan stockholders formally voted unanimously, except for Buesing, to purchase the gore for $2,300, the money to come from the company treasury and no member assessments to be levied at that time. On December 22, 1952 the stockholders once more voted to purchase the gore, the only negative vote being that of Buesing, who was then prosecuting the Wilomay quiet title suit, claiming ownership of the gore. A contract between Consumers' and the Callaghan Company was entered into the same day. The agreed price was now $2,800, with a down payment of $300. April 1, 1953 was fixed as the date for closing title. By this contract Callaghan also agreed to release Consumers' from its warranties covering the lands under water which it had sold to Callaghan in 1939.

The Callaghan stockholders did not meet again until March 17, 1953. The contract to purchase the gore was discussed and the members arrived at a figure of $4,500 to cover the purchase price and certain incidental expenses, averaging $125 per member. It was then moved that Callaghan proceed with the purchase, "each stockholder wishing to participate to be assessed in the amount of one hundred and twenty-five dollars ($125)." The motion was carried by a vote of 17 to 8, with two abstentions. Those dissenting included Buesing and seven others, each of whom had, between the December 22 and March 17 meetings, purchased from Wilomay Holding Co. the lot on which his bungalow was situated. Several of these stockholders testified that they had opposed the motion, principally on the ground that each member was to be assessed a flat sum, rather than an amount proportionate to his stockholding, the practice previously followed.

As a result of the minority vote against the assessment, the majority of the shareholders, with three exceptions, failed to pay the assessment. The reason was that they were unwilling to contribute their funds to conclude a purchase which would redound to the benefit of those who had refused to pay. Two of the directors who had voted in favor of the assessment, Frank Gavlak, president of the Callaghan Company, and John Capelli, never sent in their checks. Realizing that the assessments were not going to be paid, and fearing (so it is claimed) that if the sale were not consummated by April 1, Buesing might purchase the property, these two directors proceeded to take matters into their own hands. They consulted counsel and two days later, on March 29, 1953, held a meeting at Capelli's restaurant. Some dozen persons attended, among them Gavlak, Capelli and several stockholders who had voted in favor of the assessment on March 17 preceding. No notice of the meeting was given to the stockholders generally. The other three Callaghan directors were not present. Gavlak presented a plan he and Capelli had discussed with counsel for protecting the interests of the majority of shareholders, involving the assignment of the Callaghan Company's contract to a dummy while a new corporation was formed which would subsequently take title to the gore from the assignee. Those present agreed to go along with the plan.

A board of directors meeting followed on March 31, 1953, Gavlak having mailed notice thereof to his co-directors six days before. The board, by a vote of three in favor, one against and one abstaining, Gavlak and Capelli voting with the majority, passed a resolution authorizing a release to Consumers' from its covenants under the 1939 deed to the Callaghan Company, and an assignment to Jennie D. Kuiken, a stenographer, of Callaghan's contract with Consumers', in consideration of her repayment to Callaghan of the $300 deposit it had made. Title was taken in Miss Kuiken's name on April 1, 1953 and subsequently transferred, on May 6, to Peninsula Land Co., a newly formed corporation wholly controlled by Gavlak, Capelli and a group of the majority

of the Callaghan shareholders. Gavlak and Capelli sit on Peninsula's board of directors. The money for the purchase of the gore was contributed by those Callaghan shareholders who had voted for the assessment and who ultimately became shareholders in Peninsula. A release of ...

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