George Wash. Mem'l Park Cemetery Ass'n v. Mem'l Dev. Co.

• Decision Date: 29 January 1947
• Docket Number: 147/25.
• Citation: 51 A.2d 221
• Parties: GEORGE WASHINGTON MEMORIAL PARK CEMETERY ASS'N v. MEMORIAL DEVELOPMENT CO. et al.
• Court: New Jersey Court of Chancery

51 A.2d 221

GEORGE WASHINGTON MEMORIAL PARK CEMETERY ASS'N

v.MEMORIAL DEVELOPMENT CO. et al.

147/25.

Court of Chancery of New Jersey.

Jan. 29, 1947.

Suit involving validity of agreements relating to a cemetery by George Washington Memorial Park Cemetery Association, a corporation of New Jersey, against the Memorial Development Company, a corporation of New Jersey, and others.

Decree in accordance with opinion.

See also 50 A.2d 837.

Syllabus by the Court

1. The principle is well established in this state that directors of a corporation cannot lawfully enter into a contract, in the benefit of which even one of their number participates without the knowledge and consent of the stockholders.

2. The law is clear that a trustee cannot make a profit out of a trust relationship, and cannot take a position antagonistic to his trust.

3. Our courts hold to the principle that the contract of a trustee enures to the benefit of the principal. A promoter is a fiduciary.

4. In the instant case there is a charitable trust involved, the care of which is the peculiar function of this court. Its trustees are subject to all the restrictions placed upon trustees including the prohibition against a private profit in the exercise of their trust.

5. Since a cemetery association is a public or charitable trust, no action taken by the lot owners, or any one else, could make that legal which was clearly illegal, and the alleged approval, if there was such, is of no weight or value.

Major & Carlsen, of Hackensack, for complainant.

Breslin and Breslin, of Hackensack, for defendant.

Brogan, Hague & Malone, of Jersey City, for intervenor, Frank De Geeter.

Heine & Heine, of Camden, for intervenor, George E. Meagher.

Milton, McNulty & Augelli, of Jersey City, for intervening lot owners.

Walter D. Van Riper, Atty. Gen. of New Jersey, and Richard J. Fitz Maurice, of Orange, for the State.

EGAN, Vice Chancellor.

In March, 1939, George E. Meagher, one of the defendants herein, a professional promoter and operator of cemeteries, conceived the plan of establishing a cemetery in Paramus, Bergen County, New Jersey. In connection therewith he caused his counsel, Messrs. Heine & Heine, to organize a land company under the general corporation law of this state, known as the Memorial Development Company, which is also a defendant herein. The incorporators of the company were Meagher's attorney, Norman Heine, and two employees in his office, Lillian Lipkin and Hilda Schwartz. The Development Company had two classes of stock, 10,000 shares of common, with voting power, having a par value of one mill per share, and 1,000 shares of preferred, having a par value of $100 per share. Each incorporator subscribed to 35 shares of preferred stock and 5 shares of common stock.

At the first meeting of the incorporators on March 20, 1939, Heine assigned his stock subscription to Meagher; Lillian Lipkin assigned her subscription to Meagher's daughter, C. Mima Harper; and Hilda Schwartz assigned her subscription to Walter S. Wright, Jr. The assignees were thereupon elected directors. They held a meeting at which Meagher was elected president, Wright vice president and C. Mima Harper, secretary and treasurer.

Thereafter, Meagher succeeded in selling 140 shares of preferred stock and 140 shares of common stock in the Development Company to one Walter Bass, who paid therefor $13,839.80. The Development Company had no moneys other than that which it received from the sale of the stock.

Meagher then undertook to find a location for a cemetery and decided upon two tracts of land located within the Borough of Paramus, Bergen County, one known as the Brewster tract and the other called the Oakland tract. He procured options to purchase them from the owners.

He then met and interested Frank De Geeter in his enterprises. From that meeting a written agreement (C-11) resulted some time in August, 1939, whereby De Geeter agreed to advance $60,000 and Meagher to contribute the professional skill necessary to operate the cemetery. The common stock division in the Development Company was agreed upon: De Geeter was to get 51% and Meagher and others the balance. The agreement further provided that the De Geeter and Meagher interests should be equal with respect to the management and direction of both enterprises, the Development Company and the Cemetery Association, including the matter of salaries; and that Meagher should at all times have the right to name one director of the Development Company and one trustee of the Cemetery Association. It also appears that De Geeter received 600 shares of the preferred stock of the Development Company. In order to accomplish the stock distribution agreed upon by Meagher and De Geeter, it was necessary to get back the stock that had been previously sold to Bass. Meagher succeeded in doing this. Bass received in return for his stock a number of lots in the cemetery. Other provisions of the agreement need not be recited here-however, on the whole, it appears to be essentially a joint enterprise on the part of De Geeter and Meagher to operate, through the medium of the Development Company, a cemetery association for profit in a manner contrary to law.

In July, 1939, Meagher formed the complainant corporation, the George Washington Memorial Park Cemetery Association, under the Rural Cemetery Act, R.S. 8:1-1 et seq., N.J.S.A. He selected its first board of trustees, seven in number. On this board were men who were interested in the Oakland Realty Company, which negotiated the sale of the Oakland tract to De Geeter, who, in turn, conveyed it to the Development Company.

When De Geeter agreed to advance the necessary moneys for Meagher's projects, Meagher procured the resignations of all of the trustees of the Cemetery Association, excepting Albert R. Winans, who was permitted to remain on the board to look after Meagher's interests. The vacancies caused by the resignations of the others were filed by De Geeter and his nominees. This took place on or about August 18, 1939, and resulted in De Geeter and Meagher having complete control of the cometery.

On August 29, 1939, the Borough of Paramus issued the cemetery permit for which De Geeter paid $45,000 by bank checks from his personal funds. That sum represented the balance due for the permit fee, $5,000 having been previously paid by Meagher by check of the Memorial Development Company.

Two days before the permit was issued, Meagher procured the resignation of two of the three dummies who constituted the board of directors of the Development Company. They were replaced by Frank De Geeter and his brother Julius. The directors then consisted of George Meagher and the two De Geeters. Meagher was named president; Frank De Geeter, treasurer and secretary, and Julius De Geeter, vice president. All of the issued and outstanding preferred stock of the Development Company, 600 shares, went to Frank De Geeter, and the common stock was divided so that Frank De Geeter had approximately 51% and Meagher 49%. Meagher subdivided his stockholdings and gave 500 shares to Winans, who was a trustee of the Cemetery Association, and some shares to Wright, who had been a director of the Development Company.

On September 27, 1939, the Cemetery Association and the Development Company entered into an agreement. That contract (C-2) was signed by Meagher and De Geeter for the respective corporations involved. It recited that the Development Company, by deed of even date, had conveyed to the Cemetery Association 98 acres of land, to constitute the cemetery. As a matter of fact conveyances were not made until a later date as will hereinafter appear. Under the terms of said agreement the Cemetery Association agreed to pay the Development Company, as the purchase price, 50% of all moneys received from the sale of all lots and plots in the property conveyed. The other 50% was to be applied as follows: 10% of the moneys realized from the sale of lots was to be set aside for a perpetual care fund, and the remaining 40% was supposed to be used for the purpose of employing a superintendent, managers, office and other help, the payment of commissions of all kinds, sales, advertising, etc. I say supposed because of what eventually transpired.

Both Meagher and De Geeter took care of that 40% by another agreement-a draft of which is annexed to C-11. They agreed to have the Cemetery Association enter into an exclusive sales contract with Meagher's son, George E. Meagher, Jr., or his assignees or nominees, which contract was to call for a commission of 40% of the sales price of all lots or plots sold thereunder. Such an agreement was in fact executed between the Cemetery Association and the George E. Meagher, Jr. Management Company, the assignee or nominee of George E. Meagher, Jr.

The Cemetery Association was without funds. After the contract with the management Company had been signed, an extensive campaign for the sale of cemetery lots took place which resulted in the payment of approximately $250,000 in commissions to Meagher or his Management Company. De Geeter participated in these commissions to the extent of 2 1/2% of all moneys collected.

The nominal head of the Management Company was, as stated, Meagher's son, a young man 21 years old, with little or no business experience. It was practically admitted that Meagher, Sr. was in fact the Management Company. In a proceeding before the Securities Exchange Commission, Meagher, Sr. so testified. The SEC criticized the sales methods employed by the Management Company, and this resulted in a consent decree which enjoined the practices employed by the company.

Thus, for every dollar that was received under this plan of operation, 50% was to go to the Development Company; 10% was to be set aside to create a perpetual care fund; and 40% went to Meagher under the exclusive sales agreement. How the parties ever expected a cemetery to result under such an arrangement is beyond...