
    Rochester and Kettle Falls Land Company, Respondent, v. John O. Roe, Appellant.
    
      Specific perfoi'mance — the fact that the plaintiff has a remedy at law must he pleaded—effect of a failure to plead upon a motion to dismiss — specific performance is discretionary and is not enforced where the contract is unfair ■—the decision of a referee as to specific performance is not final.
    
    In an equitable action the defendant cannot avail himself of the defense that the plaintiff has an adequate remedy at law unless that defense is set up in the answer; the refusal of the court to dismiss the complaint upon that ground, where that defense is not pleaded, cannot be urged as an error upon appeal.
    
      It is discretionary with, the court whether to order the specific performance of a contract; and the court may refuse to do so in a case where, although nothing appears which amounts to fraud, there is a want of equality and fairness in the contract.
    o
    In an action brought by a corporation organized under the laws of the State of New York to enforce the specific performance of two contracts to purchase three lots in Kettle Falls, Stevens county, in the State of Washington, the answer alleged that a large tract of land, of which the lots in question were a part, had been purchased for §25,000 by John W. Goss, who also acted for other promoters; that Goss and his wife purported to sell the tract to a promoter of the corporation, Charles W. Robinson, for §135,700, of which Goss received §105,750 by a mortgage from Robinson; that two days later the plaintiff purported to purchase this land of Robinson for §450,000, the purchase price consisting of the mortgage and of §300,000 of the capital stock of the plaintiff, and of §40,250 which it was agreed should be paid in cash. It was further alleged that Goss, through Robinson, conveyed the tract to William C. Wait, also a promoter, the plaintiff assuming the mortgage; and that Wait, with whom the defendant contracted, was designated by the plaintiff to hold the title, because, under the laws of Washington, the corporation could not hold the title to lands, and that Wait subsequently transferred the title to George H. Smith, manager of the plaintiff. The answer further alleged that it was agreed that the prices of lots were to be maintained by the plaintiff; that this was not done, but that, on the contrary, a large number of lots were sold at very low prices to a syndicate formed by the promoters, and that false representations had been made to the defendant in respect to the land. It was alleged that the enterprise had been abandoned; that the few settlers who had located at Kettle Falls were leaving it, and that the lands were wild and uncultivated. The defendant had made payments upon the contract, but he alleged in his answer that the fraudulent dealings of the plaintiff were not known to him when he made the payments. The defendant had never gone into possession of the land, and there was a reservation in the contract permitting the plaintiff at any time to cut off all the timber upon the lots. Evidence was given tending to establish the facts of the answer.
    
      Held, that the decision of a referee upon a question of specific performance was subject to review;
    That under the circumstances of this case the court ought not to enforce performance of.the contracts, as they were unfair to the defendant.
    
      Semble, that the Supreme Court may compel the specific performance, by a resident of this State, of a contract for the conveyance of land lying without the State.
    Appeal by the defendant, John O. Roe, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Monroe on the 28th day of May, 1895, upon the report of a referee bearing date the 25th day of May, 1895.
    The action was brought to enforce the specific performance of two contracts set out in the complaint, executed by the defendant with one William 0. Wait for the purchase, by the defendant, of three several lots, one, lot No. 49, in block 29 in the central addition to Kettle Falls in Stevens county, State of Washington, for the sum of $500, payable in three equal installments of $166.66 each, bearing date the 20th day of November, 1890. The other contract was dated on the 29th day of November, 1890, and was for the purchase of lots 7 and 8 in block 16 in the central addition to Kettle Falls in Stevens county, State of Washington, for the sum of $800, payable in three equal installments of $266.66 each. On the first contract two installments of the purchase price of said lot had been paid, with accrued interest to May 20,1891, leaving the last installment of $166.66, with interest from May 20, 1891, unpaid. On the second contract the first two installments of the purchase price of lots 7 and 8 were paid, with accrued interest to May 26, 1891, leaving the last installment of $266.66, with interest from May 26,1891, unpaid.
    The referee finds that on the 10th of April, 1891, Wait, by two instruments in writing, assigned to the plaintiff all his right, title and interest in and to the two several contracts aforesaid; and also finds that, at the time of the execution of the contracts, Wait had title to the land described in the contracts, and that on the 22d of February, 1892, by deed, he conveyed the same to George H. Smith, in whom the title vested, and on the 25th of November, 1893, the plaintiff tendered to defendant a warranty deed of said three lots, executed by George IT. Smith, and at the same time tendered the defendant a release of said lots from the lien of a mortgage thereon executed by the mortgagee, and offered to deliver them to defendant upon payment of the amount due on said contracts; that the defendant ■ refused to accept such deed and release, or to make the payment due from him to the plaintiff under his said contracts. The referee found as conclusions of law: “ (1) That the plaintiff is entitled to enforce against the defendant all the rights of said William O. Wait under the said contracts. * * * (3) That the plaintiff is entitled to judgment in its favor and against the defendant for the specific performance of the said two contracts by the defendant, and requiring the defendant to pay to the plaintiff the unpaid installments thereon with accrued interest, together with the taxable costs of this action, upon the tender to him of the deed and release aforesaid. * * * ”
    The defendant filed exceptions to the several conclusions of law stated by the referee.
    The plaintiff is a domestic corporation orgainized in September, 1S90, at Rochester, under chapter 40 of the Laws of 1848, and the acts amending the same, for the purpose of “ purchasing, taking, holding and possessing real estate and buildings, and selling, leasing' and improving the same,” with a capital stock fixed at $500,000, in shares of $100 each, with thirteen trustees. Soon after its organization it purchased, through its promoters, 905 acres of land at Kettle Falls upon the Columbia river, in the State of Washington.
    The defendant, in his answer, admits that he executed two contracts, copies of which are annexed to the complaint and marked Schedule A and Schedule B ; and he alleges that, shortly prior to the execution thereof, the defendant entered into an agreement with the plaintiff, acting through its officers and agents, whereby the company agreed to sell the defendant the building lots described in said contracts, and he alleges that he has paid on the lots $533.33, and that the lots were sold to the defendant by the plaintiff “ through said Aris, Ranger and Morley, and others of its officers, managers and agents, who represented. to defendant that this plaintiff owned said property and lots, and defendant knew nothing of said Wait, or that he held the titles to the lands of the plaintiff until after defendant had agreed, to buy said lots, and when the contracts were presented by said plaintiff for execution.”
    The answer also alleges that “ in the year 1890, one John W. Goss, in connection and associated with William B. Aris, Harvey Hoag, W. H. Dick, L. C. Huber, Charles W. Robinson, George S. Horley and others, obtained the option upon a tract of uncultivated, wild and forest lands situated in Stevens county, in the State of Washington, for the purpose of converting said lands into a town site and dividing them into building lots, and with the view of organizing and promoting a stock company at Rochester, R. Y., for developing and selling of the same. That said tract of land consisted of about 1,000 acres, and was purchased through said Goss for about the sum of $25,000. That on or about the 20tli day of October, 1890, said John W. Goss. and Flora A. Goss, his wife, purported to sell said tract of land to said Charles W. Robinson for the sum of $135,750, and executed a deed of said lands to said Robinson, and said Robinson thereupon executed to said Goss in return a mortgage upon said land in the sum of $105,750, and it was agreed between them that $30,000 of said purchase price was to be paid in money, and said deed and said mortgage were thereupon recorded in said Stevens county,' State of Washington, and the name adopted by said promoters for said lands and town site was Kettle Falls, and said town site has since been known by that name. * * * That on or about the 22d day of October, 1890, said Rochester and Kettle Falls Land Company, through said Aris, Dick, Hoag, Robinson, Goss and others, purported to purchase said tract of land at Kettle Falls of said Goss for the sum of $450,000, as appears by the minutes of the secretary of said company, and said purchase price consisted of the mortgage on the property of $105,750, anpt capital stock of the company to the amount of $300,000 was to be paid to said Goss and others, and the balance of about $40,250 was agreed to be paid in money; that said lands were purchased by said company upon the above conditions, and in order to carry out said purchase said Goss, through said Charles W. Robinson, on or about the date aforesaid, executed and delivered a deed of said lands to one William C. Wait, subject to said mortgage, said company assuming said mortgage, and said Wait was designated by said company, by resolutions of its directors, to hold the title to said lands, for the reason that said company, being a corporation, could not legally hold title to lands in the State of Washington, and that said plaintiff has not, at any time, held title to said lands or any part thereof, and has not acquired through said Wait, or otherwise, a clear and merchantable title to said lots in question, or to said lands, or any portion thereof.”
    The answer enumerates several false and fraudulent representations alleged to have been made “for the purpose of inducing people generally, and this defendant in particular, to purchase lots, and did induce this defendant to make the purchases aforesaid.” The answer further alleges that the lands, at the time they were purchased by the plaintiff, were not worth the amount said promoters agreed to pay for them, “ and have not since been worth that amount, nor are said lands worth more now than the mortgage upon them of about $28,0t)0, and said lands have no value other than that of ordinary wild and uncultivated land in the State of Washington.” It is also alleged that the plaintiff ceased to develop or improve said lands, and that what improvements had been made were allowed to fall into decay, “ and the few people and settlers who have located in said town, owing to the desertion of said enterprise by this plaintiff, are rapidly leaving and deserting the same.” The answer further alleged, viz.: “ That said plaintiff represented to the purchasers of lots, and to this defendant in particular, and agreed with said plaintiff, through its directors and managers, that the schedules of prices for lots fixed by said company at the time this defendant purchased said lots were to be maintained by the company until its lots were sold; while, on the other hand, said company, soon after this defendant purchased said lots, entered into fraudulent arrangements with its directors, whereby special prices and enormous discounts were given its directors and said promoters, and said company entered into a further fraudulent contract with certain of its directors and said promoters, who formed a syndicate called and known as the Xortliwestern Investment Company, to which company this plaintiff sold a large portion of its highest-priced lots at a small percentage of the schedule prices of said lots, thereby enabling said purchasers to offer lots at prices far below the price agreed to be paid by this defendant. * * * That said Wait, who held the title to said lands, for the plaintiff, was one of its promoters, and also its secretary (and a member of said fraudulent syndicate, said Rortliwestern Investment Comjiany), and at all times acted as the agent and representative of said plaintiff, and that said George II. Smith, to whom it appears said Wait transferred the title to said lands for said company, has since said transfer been a director and officer and manager of this plaintiff. That the contracts upon which this action is brought were at the time they were executed the property of said company, this plaintiff, and have at all times belonged to this plaintiff, and that said Wait was said plaintiff’s agent in taking said contracts, and that this defendant, on divers occasions prior to the beginning of this action, demanded of this plaintiff that said contracts be rescinded, and that he be relieved from the obligations under the same. That the facts above stated as to the fraudulent management, dealings and representations of said plaintiff were not known to this defendant until after he had made the payments aforesaid upon said contracts.”
    
      Charles Roe, for the appellant.
    
      James G. Greene, for the respondent.
   Hardin, P. J.:

Newton v. Bronson (13 N. Y. 587) holds that the Supreme Court may compel the specific performance by a resident of this State of a contract for the conveyance of land lying out of its jurisdiction, and numerous cases are cited in support of the proposition by Denio, J., at page 591 in the opinion. That case was cited and approved in Gardner v. Ogden (22 N. Y. 327).

The power to enforce the specific performance of a contract was asserted and exercised in Rochester & Kettle Falls Land Co. v. Davis (79 Hun, 69).

In Tucker v. Manhattan Railway Company (78 Hun, 442) it was held : “ A defendant, in an equitable action cannot avail himself of the defense that the plaintiff has an adequate remedy at law, unless it is pleaded in the answer,” and numerous cases are cited in support of the proposition.

In Metropolitan R. Co. v. Johnston (84 Hun, 90) the rule was reasserted, and it was said, viz.: “ This rule simply prevents the defendant from availing himself as a matter of right of the existence of the defense that the plaintiff has an adequate remedy at law. When the defendant has failed to interpose this defense, and the trial court refuses to dismiss the equitable action on that ground, the refusal cannot be urged by the defendant as error on appeal. But the trial court may, in its discretion, dismiss an equitable action on the ground that the plaintiff has an adequate remedy at law though the defendant failed to interpose that defense, but since legal and equitable remedies have been administered in the same court, this discretion has seldom been exercised.”

The answer in the case in hand does not contain a defense that the plaintiff has an adequate remedy at law. And, therefore, according to the doctrine laid down in Metropolitan Elevated R. Co. v. Johnston (supra), if the trial court refused to dismiss the action on that ground, the refusal cannot be urged by the defend ant as error on appeal.”

Upon the hearing before the referee a question for the exercise of judicial discretion as to whether there should be a specific performance of the contracts alleged in the complaint, was presented for determination.

In Margraf v. Muir (57 N. Y. 158) it was said : “When a contract for the sale of lands is fair and just and free from legal objection, it is a matter, of course, for courts of equity to specifically enforce it. But they will not decree specific performance in cases of fraud or mistake, or of hard and unconscionable bargains, or when the decree would produce injustice, or when such a decree would be inequitable under all the circumstances.” (Citing 1 Story’s Eq. Juris. § 769 ; Willard Eq. Juris. 262; Osgood v. Franklin, 2 Johns. Ch. 1; S. C., 14 Johns. 527; Seymour v. Delancey, 6 Johns. Ch. 222; S. C., 3 Cow. 445.)

In Sherman v. Wright (49 N. Y. 231) it was said: “ The specific execution of a contract, in any case, is a matter not of absolute right, but of sound discretion in the court. * * * ”

In Miles v. D. F. I. Co. (125 N. Y. 294) it was held: “ The right to a specific performance of a contract by the decree of a court of equity rests in judicial discretion, and may be granted or withheld upon a consideration of all the circumstances.”

It is said in section 233 of Fry on Specific Performance, viz.: “ There are many instances in which, though there is nothing that actually amounts to fraud, there is nevertheless a want of that equality and fairness in the contract which, as we have seen, are essential in order that the court may exercise its extraordinary jurisdiction in specific performance.” The same learned author says (§ 255), viz.: “ It cannot, however, be denied that there are cases in which the court has refused its interference, by reason of events subsequent to the contract.” And again the same author says (§ 256): “Wherethe subsequent events alleged for this purpose are acts of the plaintiff himself, or events in some sense within his power, the court may have regard to them in exercising its discretionary jurisdiction in specific performance.”

When the defendant entered into the contracts with Wait for the purchase of the lots, it is quite evident that the plaintiff was the beneficiary of the title. (Rochester & Kettle Falls Land Company v. Davis, 79 Hun, 69; S. C., 61 N. Y. St. Repr. 661.)

In the fourth and fifth subdivisions of the contracts is inserted the following language, giving options to the vendor, viz.: * * * IV. It is expressly agreed that time is the essence of this contract, and in case default shall be made by the party of the second part, Ms heirs or assigns, in any of the conditions above stipulated to be performed by him, then and in that case this contract shall become void, and the party of the second part have forfeited his rights hereunder, and any payments that shall have been made shall become forfeited to the party of the first part, as well as all buildings or other improvements upon said premises, which said payments and improvements and buildings, it is hereby especially agreed, shall in that case be deemed as damages hereby liquidated for the non-performance of this contract by said second party.

“Y. Nothing herein shall be construed to entitle said second party to possession of said premises until the delivery of a deed therefor as herein provided.”

The evidence does not indicate that the defendant ever had possession of the lots in question, or that he ever derived any benefits from or under the contracts. The land was forest land covered with timber which was expressly reserved to the vendor by the insertion in the contract of the following language: “ Tire party of the first part reserves all of the merchantable timber now standing upon said premises, with the right to enter upon said premises and cut and remove the same.” The language is so broad that it does not seem to limit the time within which the removal shall be made.

According to the testimony of the defendant his negotiation for the lots was with Aris and Ranger, who were connected with the corporation, and they represented to him that the company owned this tract of land; ” and the defendant did not learn that the title was in "Wait until the contracts were made out and presented to him to sign, and then the officers of the company “ explained that it was done in order to comply with the law, which prevented a corporation from owning lands there, and the title had to be vested in one person’s name.” He further testified : “ There was a great deal said about the value of the property. They described the property to me as having been laid out into streets and cleared off, and a great many stores going up there already, and that it was quite a large town at that time and growing very rapidly, and the property was increasing in value. That there was a water power which was a valuable adjunct to the town, and that there were valuable mineral deposits near the town. They said that one of the main trunk line railroads run near Kettle Falls, and that arrangements had already been made with the road to run a branch into Kettle Falls. They said that a ferry was to be constructed across the river and that they were going to have a court house right away and a large school building was to be built, and that it would be a city in a very short time. All the public improvements, laying out the streets, putting in the ferry across the river and utilizing the water power there. They said they proposed to have electric lights in a short time, and that the streets would be paved. * * * They said the schedule prices of the lots would not be any cheaper than they were at that time. Mr. Aris stated to me that the schedule prices would be increased.”

Harvey Hoag was called as a witness for the defendant, and he testified to the organization of what was known as the Hortkwestern Investment Company, composed of several of the directors of the plaintiff, and the referee refused to allow him to state how lots were selling prior to the organization of the investment company, and an exception was taken to the ruling. The witness stated that he had knowledge that lots were sold prior to the formation of the investment company, and he adds: “ It was understood by the directors that the prices should be maintained.” And he states that no lots were sold after the organization of the investment company. The witness stated further : “ I think they were sold at all prices, without regard to schedule or anything.” Upon motion of the plaintiff’s counsel that was stricken out, however, and an exception was taken by the defendant.

It appeared by the evidence that Aris occupied the position of general manager and treasurer of the plaintiff, and was one of its directors and trustees; and that he was a member of the first board of directors, and that he continued so throughout the year. It was shown by the evidence that Robinson, Aris and Morley belonged to the Rorthwestern Investment Company. That company purchased a large number of the lots “at a price far below the schedule prices.” The evidence of the witness Roe on that subject, however, was, on motion of the plaintiff, stricken out, and an exception was taken by the defendant. It seems that all but two of the directors were members of the Northwestern Investment Company; that "Wait became secretary of that company, and that it purchased from the plaintiff 350 lots at $150 per lot, and payment therefor was made by crediting it on the $105,000 mortgage. It was not an incorporated company. It was a partnership or “ syndicate.” All of its members were stockholders of the plaintiff, except one. Some evidence was given tending to show that there was an arrangement among the board of directors, prior to the organization of the investment company, by which special discounts were allowed to the directors. According to an entry made in the journal of the plaintiff, under date January 23, 1891, the sale of the 350 lots was authorized by a resolution adopted December 11, 1890, for $35,000. There appears an entry also in the journal of that date, viz.: “ Mr. Morley represents a syndicate of buyers for which he acts as secretary. All the papers are only just being sent for record; the sale was consummated and lots selected Dec. 15th, 1890.” On the following pages of the journal are the numbers and designation of the lots sold to the syndicate.” It appears in the evidence that the plaintiff brought an action against the investment company, claiming some $100,000 for fraud in the sale to the investment company. That suit, however, was subsequently discontinued, and the appeal book does not indicate very clearly how it was disposed of. In the complaint in the action brought by this plaintiff against the syndicate is found an allegation: That when it became generally known that such a syndicate existed the public faith in this plaintiff and its said enterprise was greatly impaired, and the value of said real estate depreciated, and this plaintiff was greatly damaged in consequence.”

From the facts and circumstances which we have already quoted, as well as others appearing in the case, we are of the opinion that the learned referee fell into an error when he reached the conclusion that, according to the principles of equity, a proper case was made out for the enforcement of the contracts. (Stokes v. Stokes, 148 N. Y. 708.)

It is contended, however, by the learned counsel for the respondent that “ the propriety of specific performance is a matter for the discretion of the trial court, unreviewable on appeal,” and he calls our attention to Kelso v. Lorillard (85 N. Y. 184), where the remark was made, in the course of the opinion by Miller, J., viz.: “ It may also be remarked that this was a matter within the province of the court below to determine, and the exercise of its discretion in this respect should not be disturbed unless clearly wrong.” We think that that does not militate against the discretionary right of this court to review the discretion of the trial court.

Attention is also called to Dunckel v. Dunckel (141 N. Y. 434). In the course of the opinion there delivered it was said: There is a further rule that the specific performance of contracts rests largely in the discretion of the equity courts—not wholly, but in a discretion to be governed by rules which have become established for the guidance of such courts. That, again, is a rule to be generally administered in the equity courts. So far as they exercise their discretion, violating no fixed rules of equity, such discretion is not reviewable here.” That case falls far short of the position claimed by the respondent in the case in hand.

We think some of the rulings made by the learned referee, which have been incidentally referred to, were somewhat doubtful. However, as the views which we have already expressed lead to a reversal, we need not protract this opinion to discuss them.

All concurrred.

Judgment reversed and a new trial ordered, with costs to abide the event.  