made by the company to the policy holders. The first four concessions were made at intervals of five and six years, and it appears that none was made from 1897 until 1906. It is therefore extremely unlikely that this feature of the company's method of conducting its business was within the contemplation of the Legislature when the act was passed. The twelfth section of the act requires the board of directors by resolution "to elect whether it will carry on its business in the form of participating business or nonparticipating business," and then concludes: "And it shall not be lawful for such company to thereafter conduct both the participating and nonparticipating forms of life insurance."

What the Legislature manifestly had in view was the character of the business conducted by domestic insurance companies, and not the business methods adopted by them in the conduct of such business.

It was the business of participating and nonparticipating forms of life insurance with which the Legislature dealt. Both forms of life insurance constituted the business which the company conducted, and both kinds of insurance were subjects of contractual relations between the company and the takers of policies. Nothing can be clearer than that it was the sole design of the Legislature to separate the two forms of life insurance business and to compel such life insurance companies to elect to conduct either form, but not to conduct both.

trol, they are clearly not amenable to judicial supervision. Judicial interference can only be invoked when it appears that some clear statutory policy or some legal rule has been violated. No claim has been made that the directors in making these concessions acted fraudulently or in bad faith. It seems to us that the making of these concessions was purely a business matter which called for the exercise of the sound discretion of the directors of the company. They have exercised it, and there is nothing before us to show that they have not fairly exercised such discretion. It seems to us that it would have been unconscionable on the part of the directors when, from statistics and from actual experience, they had ascertained that the premiums which had been fixed and paid by policy holders of straight out policies were unreasonably excessive, for the insurance which they carried, for them to have converted such excess of premiums into profits and continued to exact the same, instead of returning such excess of premiums, in some shape or other, to the policy holders who had paid them. It seems rather more consonant with business probity, equitable principles, fairness, and justness that those who have overpaid and who are overpaying for the insurance which they are carrying, should be made whole, than that such excess of premium should be retained by the company to swell its profits for the benefit of the stockholders and for policy holders because contractual relations with the The defendant company concedes that, it company entitle them to participate in the having elected to do a nonparticipating busi-profits. ness, it is therefore not authorized to con- It is not in violation of the contractual duct a participating form of insurance business. The complainants maintain that the concessions made by the company to its policy holders, though made at irregular intervals, is practically the doing of a participating business. We cannot accede to this for the reasons already pointed out. It was not in any sense a participation in the profits. Participation in the profits by the contractual relation imports a right to and a certainty of participation in the profits, if there are any, and in no wise is made dependent upon an act of grace. The concessions made appear to have been a necessary outlay from the earnings of the company which must be considered as entering into the cost of conducting the business, and though, as a result, the profits are diminished and policy holders receive the benefit of such concessions, it is not tantamount to a participation in the profits. Net profit is the gain which remains after all the costs and expenses of the business have been paid. Whether the company should have made or make these concessions involves a purely business proposition. Upon what business basis the company has made these concessions has already been amply shown. While these transactions may be the subject of legislative con

rights of policy holders holding dividendpaying policies, because their contracts are subject to the fair business methods adopted by the company to maintain its business, to expand it, and to use all other legitimate business means adopted by it to increase its stability and prosperity.

For the reasons given, the decree denying the relief prayed for by the complainants is affirmed.

[2] We now turn to a consideration of the appeal of the defendant company from that part of the decree directing it to distribute $2,500,000, by way of dividend. The fact has already been adverted to that, prior to 1907, the company issued both participating and nonparticipating policies, and up to that period no apportionment was required by law; the surplus earnings of the company being carried in its general surplus until the dividend period of the participating policy arrived. It has also been commented upon how, in the course of the conduct of its business, the defendant designedly charged a high rate of premium for insurance, in order to meet every possible emergency that may arise, and how it had become the custom of the company at irregular intervals to return the excess of premium charg

The defendant company claims that it is necessary to retain this fund in order that the solvency of the company may be amply secured. This at once gives rise to a question which appertains to the wisdom of business management and foresight, and does not call for the interference of the court. The complainants are practically seeking to have the business management of a life insurance company put into the hands of the court. Upon what basic legal principle the court is asked to substitute its judicial sense for the business sense and discretion which must rest with the directors of the company has not been made clear. The complainants do not claim that the directors, in their action, were actuated by a fraudulent or improper purpose. They do not seriously attack the good faith of the directors in passing the resolutions adding the earnings assigned to the stockholders, to the surplus contingency fund. The burden

ed by it, to the policy holders. It is selfevident that, in order to determine the cost of insurance, it was necessary in the case of a stock company to determine how much should be paid to the stockholders for their investment, and very large profits were paid, until the $93,000, originally contributed, had increased to $2,000,000. The company subsequently adopted the policy of taking only 10 per cent. of $2,000,000, each year, as representing the share of the stockholders. By section 1 of the Laws of 1907 (P. L. p. 132), it required that domestic insurance companies doing business in this state, conducted on the mutual plan, or in which policy holders are by the terms of their policies entitled to share in the profits or surplus to annually ascertain the amount of surplus to which all such policies (participating policies), as a separate class, are entitled, and to "annually apportion to such policies as a class the amount of surplus so ascertained and carry the amount of such apportioned of their complaint is that the directors are surplus, plus the actual interest earnings of unnecessarily overcautious, because they say such fund, as a distinct and separate lia- there is ample safety in the amount reservbility to such class of policies on and for ed and in the contingency surplus to guarwhich the same was accumulated." antee the future solvency of the company. In the judgment of the directors, it is not deemed sufficient. Out of more than $200,000,000, more than $150,000,000, called the "reserve," is held by the company in trust for the policy holders and is money held by it for the purpose of meeting the contracts it has made as they mature by death. This fund is a sacred one for the benefit of its policy holders, and is not subject to be diverted from the purpose for which it was established without a breach of trust on the part of the company. These large sums, being represented in the shape of securities for the moneys received by the company, must be invested, and it is a matter derived from everyday observation that there are and will be fluctuations in value of securities and property in the market. And therefore the company, for the protection of its policy holders, and to insure the meeting of its contractual obligations, retains more than this actual reserve, for securities may go down, property may decrease in value, and consequently how much this contingency surplus should be is a matter for the good judgment of the directors of the company.

It appears that in compliance with the provision of the act the defendant company on February 10, 1908, made apportionment of the surplus earnings which had accrued upon the participating policies prior to December 31, 1907; and it further appears that the total earnings on such policies to the end of the year 1909 amounted to $40,765,214. The division made of this sum by the company was to set aside about $22,000,000 to meet what were called deferred dividends on participating policies, nearly $5,000,000, to policy holders in the form of dividends and concessions; $10,000,000, was set aside for a contingency surplus; and over $3,000,000 went for the benefit of the stockholders. It appears that the exact total amount of the earnings which was assigned to the stockholders during the three years out of the earnings of the deferred dividend policies, as their portion, was $2,429,655.95, which with interest on the investment amounted at the time of the decree to $2,536,722.69. It is in regard to this sum set aside for the stockholders and the refusal to distribute the same among them by way of dividend that has given The directors in this case seem to have rise to this controversy. The directors, it thought, and we cannot say unjustifiably so, further appears, in setting aside these earn- that the nature of the company's business ings for the benefit of the stockholders, ac- subjected it to additional hazards from companied it with a resolution that the earthquake, plague, war, and other similar same be added to the contingency surplus, disasters. But it is claimed that the direcand not to be paid to the stockholder except tors have exercised their judgment when by future action of the board. The com- they have set apart $2,500,000 for the stockplainants hold about 20 per cent. of the stock holders. We think not. The resolutions asand insist that their share of $2,500,000 signing the several sums to the stockholdshould now be distributed to them in the ers, which aggregate the sum of $2,500,000, form of dividends. Since the capital stock are conditional. The resolution must be of the company is only $2,000,000, this would read as a whole. Each resolution, where

made, reads thus: "Resolved, further, that | from restraint, they are at liberty to exerthe amount so apportioned to the stockhold- cise a very liberal discretion as to what disers be held and added to the contingency position shall be made of the gains of the surplus of the company and be not paid out business of the corporation. Their power to the stockholders in the form of dividends, over them is absolute so long as they act in or otherwise, except by the further action the exercise of their honest judgment. They of the board." Reading the resolution as a may reserve of them whatever their judgwhole, the meaning is unequivocal to the ment approves as necessary or judicious for effect that the amount set apart will event- repairs or improvements, and to meet conually, if everything goes well, belong to the tingencies, both present and prospective. stockholders; but, in view of possible con- And their determination in respect to these tingencies, it should not be paid out to the matters, if made in good faith and for honstockholders now, but should be retained est ends, though the result may show that for the purpose of making more secure the it was injudicious, is final, and not subject payment of the company's contracts with to judicial revision." The same subject reits policy holders, which may run from 50 ceived consideration in Laurel Springs Land to 75 years yet. And the reason that the Co. v. Fougeray, 50 N. J. Eq. 756, 26 Atl. directors may do this with propriety is that 886, by this court, by Mr. Justice Garrison, the company is handling for profit the mon- where he clearly states the legal rule to be ey of the policy holders, and they are bound "that the authority of the directors is abto see that the policy holders are protected. solute so long as they act in the exercise of This sum of $2,500,000 belongs to the stock- an honest judgment." This rule was folholders, only provisionally, in that it is sub- lowed with approval, by this court, in Murject to the risk of the business. The com- ray et al. v. Beattie Mfg. Co., 82 Atl. 1038, plainant's proposition contemplated the act- at the last term, in an opinion, by Mr. Jusual withdrawal from the company and from tice Swayze. future possibility of its being reached for the protection of the policy holders, this whole sum of $2,500,000. It became, therefore, a matter of pure business policy, and the conservation of the sacred trust reposed in the directors, which called for the exercise of their highest and wisest discretion, in dealing with the matter. The directors having exercised their discretion in the matter, their judgment is not open to a successful attack, unless it appears that it was the result of fraud or bad faith on their part. It was not seriously contended, on the part of the complainants, that the directors were actuated (Court of Errors and Appeals of New Jersey.

by fraud or bad faith. The Vice Chancellor did not find that there was any fraudulent conduct or bad faith on the part of these directors. From the evidence before us, we do not find any fraud or bad faith on the part of the directors in refusing to distribute now the $2,500,000 among the stockholders. On the contrary, it seems to us that the directors, in order to protect the policy holders, have exercised no more than that degree of wisdom, caution, and foresight which was incumbent upon them in dealing with a fund in which thousands of poor persons and of limited means are vitally interested.

We do not find that the conduct of the directors was not in the exercise of an honest judgment, and therefore that part of the. decree, directing and declaring of the dividend of $2,500,000 and to distribute the same to the complainants and other stockholders of the defendant company and to pay to the said complainants their costs and a counsel fee of $5,000 each, should be reversed, with costs.

(80 N. J. Eq. 240) SANFORD v. KEER.

April 26, 1912.)
(Syllabus by the Court.)

1. COVENANTS (§ 78*)-ACTIONS - JURISDIC-
TION OF EQUITY.

A restrictive covenant in a conveyance of a part of a tract of land, beneficial to the value or use of the remainder of the tract, will be enforced in equity in favor of the covenantee owning such remainder against the covenantor's grantee, with notice of the covenant, of the restricted part.

[Ed. Note.-For other cases, see Covenants, Cent. Dig. § 77; Dec. Dig. § 78.*]

2. COVENANTS (§ 78*) - MODIFICATION - EF

FECT.

The right of such covenantee to enforce the unmodified portion of the covenant is not defeated by the fact that it, with other like covenants imposed upon neighboring lots, forms a general or neighborhood scheme, which has been modified by the elimination of some of the prohibitive provisions thereof by general consent or acquiescence, in a manner, however, not destroying the essential mutual benefit enscheme, nor the benefit to the covenantee's remaining property to be derived from performance of the covenants of the general scheme as so modified.

[3] As to when and under what circumstances the court of this state will interfere with the exercise of the discretion of a board of directors in the conduct or managing of a business is not an open question. The rule of law is well stated by Vice Chancellor Van Fleet in Park v. Grant Lo-joyed by the lot owners from the general comotive Works, 40 N. J. Eq. 114, 3 Atl. 162, affirmed on opinion, by this court, in 45 N. J. Eq. 244, 19 Atl. 621, as follows: "In cases where the power of the directors of a corporation is without limitation, and free •For other cases see same topic and section NUMBER in Dec. Dig. & Am. Dig. Key No. Series & Rep'r Indexes 83 A.-15

[Ed. Note.-For other cases, see Covenants, Cent. Dig. § 77; Dec. Dig. § 78.*]

3. COVENANTS (§ 79*)-CONSTRUCTION-GEN- [ mansion house portion of the tract, where ERAL OR NEIGHBORHOOD SCHEME.

Where a tract of land is divided into building lots and a plan exhibited, showing the prospective purchasers the streets and lots thereof, and such purchasers are induced to buy the lots by and in reliance upon representations either public or private, that all conveyances would contain protective restrictions of a designated character and purpose, the restrictive covenants inserted in the conveyances of the lots in accordance with these representations constitute a general or neighborhood scheme, and may be enforced between the lot purchasers inter sese.

[Ed. Note. For other cases, see Covenants, Cent. Dig. §§ 78-82; Dec. Dig. § 79.*] 4. COVENANTS (§ 103*)-MODIFICATION.

In a general or neighborhood scheme, the burden follows the benefit; and where, by reason of abandonment, acquiesced-in violation, change of character of the neighborhood, or other sufficient cause, the benefit to the property owners affected by the scheme is totally or partially destroyed or impaired, the accompanying burden undergoes a corresponding

modification.

[Ed. Note.-For other cases, see Covenants, Cent. Dig. § 169; Dec. Dig. § 103.*] 5. INJUNCTION (§ 62*)-SUBJECTS OF RELIEF BREACH OF COVENANT.

Where, by reason of a change of the charveter of a neighborhood, the enforcement of a restrictive covenant would be a burden upon the restricted property, without conferring any benefit upon the property of the covenantee, equity will refuse relief; but, where the change Roes not conflict with the essential purpose of the covenant, and the benefit therefrom remains unimpaired, a violation will be enjoined. [Ed. Note. For other cases, see Injunction, Cent. Dig. §§ 124-127; Dec. Dig. § 62.*]

complainant and her husband lived when the sales took place, and where she still resides, and which she now owns, occupies nearly the entire block on the west side of South Tenth street from Clinton avenue to Madison avenue, and the lots, nine in number, on the opposite, or easterly, side of South Tenth street in this block, including the lot in question now owned by defendant, have all been sold, except one, which complainant still owns, and conveyed, subject to the express restrictive covenants that the grantee, his heirs and assigns, will not erect, suffer or permit to be erected, thereon, within a period of 50 years, any building whatsoever other than a private dwelling house, such private dwelling house to be used only as and for a private residence and for one family only; that it should set back from the street line 30 feet to the piazza line, or 39 feet to the main building (except the one on the corner of Madison avenue, which had to set back 42 feet), and that it should cost at least $5,000, in all cases except two, one of which, that of the first lot sold, specified $4,500 as the minimum cost, and the other, the corner, $12,000 as the minimum cost of such dwelling house. In addition to these were contained in the provisions, which deeds for each of the eight lots sold in this block, and, in the same or a modified form, somewhat varying, seemingly, to suit different sections, were common throughout the entire tract, there appeared in the deed for four of the lots, including that of defendant, in the block in question, an additional restriction against stables or outbuildings of any description; whereas, in the deeds for three other of these lots, there is coupled The complainant and her husband (who with the restriction for the dwelling house is now deceased, and whose share has pass- permission for necessary or appropriate outed to her) were the owners, by the entirety, buildings, and, in the case of the corner lot, of a tract of land on the north side of Clin- a private garage is expressly permitted upon ton avenue, in the city of Newark, which the rear end of the lot furthest from South they laid out into building lots, opening up Tenth street. The evidence shows that pristreets (Shanley, formerly Sanford, avenue, vate garages have also been constructed South Tenth street, and South Eleventh upon the rear end of two of the other lots street, running north and south, and Madi- in this block upon which dwelling houses, in son avenue, running east and west) through accordance with the restrictive covenants, it, and of which they prepared a plan, show- had been constructed; and in one of these ing the streets and the building lots there- instances there is evidence that complainant on. They sold a very large portion of these consented to the insertion of the clause, "tolots, and conveyed them to the respective gether with necessary outbuildings," to enpurchasers under and subject to express re-able the purchaser to erect a private garage strictive covenants against their use for in the rear of his lot for use in connection other than residential purposes, and providing for improvements of a character indicated by the terms of the covenants, which The defendant owns a lot fronting on terms varied somewhat in the different sec- South Tenth street and directly opposite the tions of the tract, apparently in accordance mansion house owned and occupied by comwith the class of improvements intended to plainant, as aforesaid, and about the middle be promoted in each section. All the lots of the block in question, which lot he bought sold, however, were restricted for residen- from one Weston, a grantee from complaintial purposes and dwelling house improve- ant and her husband by a conveyance conments of one class or another. The originaltaining the following restrictive covenant:

Appeal from Court of Chancery. Bill in equity by Margaret J. Sanford against Ernest F. Keer. From a decree for defendant, complainant appeals. Reversed and remanded.

See, also, 74 Atl. 291.

with his dwelling house thereon, because he refused to buy, unless this were permitted.

It is beyond question, and is admitted, that what defendant has done is a clear violation of the terms of this covenant, and that he purchased with complete notice of these terms. Under these circumstances, standing alone, it is too well settled to require discussion that complainant, whose remaining property, still owned by her, is clearly injured by the breach, is entitled in equity to enforce performance of the covenant against the defendant. Tulk v. Moxhay, 2 Phil. 744; Coudert v. Sayre, 46 N. J. Eq. 386, 19 Atl. 190; Hayes v. Waverly & Passaic R. R. Co., 51 N. J. Eq. 345, 27 Atl. 648; and other cases too numerous to mention. The defendant, on the other hand, invokes in defense two principles, which, if substantiated by the facts, are almost, if not quite, equally well settled.

"That the said party of the second part, his | vendor and appearing in his chain of title. heirs and assigns, shall and will not at any time prior to the first day of April, 1955, erect, suffer or permit to be erected on the lands above described and hereby conveyed or on any part thereof any building whatever other than a private dwelling house, which said dwelling house shall be used only as and for a private residence and for one family only and for no other purpose whatsoever; that no part of said dwelling house, except the piazza, shall be erected or placed within 39 feet to the curb line of the street in front of said premises above described and hereby conveyed, and that the said party of the second part, his heirs and assigns, will not erect or permit to be erected on the premises hereby conveyed, prior to April 1, 1955, any dwelling house costing less than $5,000, which said dwelling house shall be erected and completed in a good workmanlike manner. It is also hereby further stipulated and expressly agreed by and between the parties hereto, their heirs and assigns, that no stable or outbuilding at any time hereafter, shall be erected or placed on the premises above described and hereby conveyed, and that the grade of said lot shall be made to correspond to the grade of the lots adjoining the lot hereby conveyed on which dwellings are now erected, and that the above restrictions and each of them shall run with the land hereby conveyed the same having been computed as a part of the consideration of this conveyance."

Defendant has constructed a garage, not upon the rear of his lot, but in substantially the exact location (40 feet from the curb line) thereon specified by the restrictive covenant for a dwelling house. He has not constructed any dwelling house on this lot, but resides in a dwelling house on another lot which he owns, fronting on Shanley avenue and abutting up to the lot in question in the rear; and he uses the garage in connection with his dwelling house on said other lot.

[4] The first is that the covenant in question formed part of a general or neighborhood scheme, and that this scheme, in so far as it is involved in this violation, has been abandoned by mutual consent and acquiescence of all parties in interest, including the complainant, not only by permitted violations of its requirement in several cases where it did appear in the covenants, but by its entire omission from the covenants upon some of the lots, and the substitution in place of it of express consent to such violation. This point, if applicable to the facts, is fatal to the relief asked by complainant. In a neighborhood scheme, the burden follows the benefit. It is the mutual benefit accruing to all and to each which makes it inequitable for any one so benefited to repudiate the burden to the injury of the others. If, therefore, the parties in interest, by express act or passive acquiescence, permit such violations of the plan or scheme as destroy, wholly or partially, the benefit therefrom, they have to a corresponding extent absolved each other from its burdens. Thus, in Roper v. Williams, 1 Turn. & R. 18, Lord Chancellor Eldon said: "Having lived in Gower street, I have often been in the habit of illustrating my view of such cases by reference to the stipulations contained in the Duke of Bedford's lease. In the lease of the houses on the east side of that street is contained a covenant that there shall be no erection behind them exceeding a certain height. The landlord in such a case is stipulating, not only for his own benefit, but for the benefit of all the tenants in that neighborhood. If, therefore, the landlord in some particular instance, lets loose some of his tenants, he cannot come into equity to restrain others WHITE, J. (after stating the facts as to whom he has not given such license, from above). [1] The complainant in her bill ex- infringing the covenant. He may have a pressly repudiates any general or neighbor- good case for damages at law; but, if he hood scheme of restrictive covenants, and thinks it is right for him to take away the bases her prayer for relief upon the individ- benefit of his general plan from some of his ual and particular covenant (above recited in tenants, he cannot, with any justice, come full) entered into with her by defendant's into equity for an injunction against those

The bill was filed promptly upon the commencement of the building of the garage, a restraining order was applied for and refused, and the defendant proceeded with and completed the garage at his peril. Upon final hearing, a decree was entered, refusing the injunction prayed for and dismissing the bill, and the present appeal is from that decree.

Frank E. Bradner, of Newark, for appellant. Raymond, Mountain, Van Blarcom & Marsh, of Newark, for respondent.