Heidler v. Werner Co. , 97 N.J. Eq. 505 ( 1925 )

This is a suit to foreclose a mortgage given by defendant to complainant. Complainant was the owner of one hundred and ninety-five shares out of a total authorized capital of two hundred and fifty shares in the defendant corporation. Five of the one hundred and ninety-five shares stood in the name of complainant's son, the rest in his own name. He desired to sell out, and after some negotiations with one Rose, an outsider, it was agreed that Rose should take over the one hundred and ninety-five shares for $15,000. Rose did not have the cash. After further negotiation it was agreed that the defendant corporation should make a mortgage to complainant for $15,000, and this mortgage was to be the consideration for the transfer of the one hundred and ninety-five shares of stock. This arrangement was carried out, the stock was transferred, complainant's interest in the company ceased, and thereafter the mortgage was executed in due form. The present suit is to foreclose this mortgage.

The first defense set up in the answer was that complainant had agreed to loan the $15,000 to the defendant, but never did so. This was not even mentioned at the hearing.

The second defense was that complainant induced Rose to take over the stock by false representations as to its value. This was expressly waived at the hearing.

The third defense was that the complainant had agreed to pay for the remaining fifty-five shares treasury stock, which, in fact, were issued to one Werner, his original associate in the enterprise, and that he did not pay for them, so that the consideration for the mortgage failed to that extent. This is not borne out by the evidence. Whatever was done in this regard had to do with the original formation of the company, and not with the mortgage, as will presently appear.

The fourth defense is that, when the company was formed complainant acquired the stock interest held by him, by putting in real estate consisting of a machine shop and contents, and a small house adjoining, at an excessive and fictitious valuation. If this is relevant to the present issue, it is not supported by the evidence. It seems to be true that complainant received more in face value of stock for the property than it had cost him in cash a short time previously, but there is little or nothing to show that it was not worth fully what the corporation paid for it, and it is undeniable that at the time of the hearing in October, 1923, it was worth at least double what had been paid for it in 1919.

The precise arrangement at the time of organization, looking to the taking over of property and issue of stock therefor, is a little difficult of ascertainment. We have the usual resolution in that regard, unanimously adopted by the directors. This places a value of $19,500 on the property and authorizes issue of capital stock to that amount for the same. Then follows this unusual paragraph:

"Further resolved, That it having been heretofore agreed between the vendor of the property described in said agreement and the incorporators of this company that the stock to be issued to the vendor under said agreement should include the stock subscribed by the said incorporators as evidenced by the certificate of incorporation of this company; that payment of said subscription be deemed to be made by the property agreed to be sold by the vendor as set forth in the preceding resolution."

Now, Werner had subscribed for, and did actually receive, the other fifty-five shares, and the fair meaning of this additional resolution seems to be that Heidler's property is to be taken, not at $19,500, but at $35,000, including the Werner stock. Werner, at the time of the hearing president of the company, was unable to say that he had paid anything for these fifty-five shares, which, in fact, were issued to him. If complainant was to pay for the Werner stock, the evidence shows that he was not to pay for it in cash but in property, and did so by the very language of the resolution. If there was any fraud about the issue of these fifty-five shares, it was not that of complainant.

If we assume for present purposes, without deciding that this corporation, which has made its bond and pledged its property to secure a personal debt from Rose to complainant, may assert, by way of counter-claim, an item arising in connection with its organization, and wholly outside the mortgage, there are two answers — first, that such counter-claim is not set up in the pleadings, and secondly, because it is not substantiated by the evidence.

A much more serious question is not raised at all, either by pleadings, evidence or argument. We mention it to avoid any inference of our giving countenance, even sub silentio, to the idea that a corporation may lawfully execute a bond secured by mortgage on its property, to the detriment of its creditors and stockholders, as a pure accommodation to one of its officers or stockholders, or, indeed, anyone else. This is precisely what was done in this case; the corporation made the bond and mortgage to secure the debt of Rose. The law is settled to the contrary. 14-a C.J. 552; 2 Cooke Corp. (6th ed.) §681; 3 Cooke Corp. § 774; National Bank v. Young, 41 N.J. Eq. 531; Blake v. Domestic Co., 64 N.J. Eq. (at p. 500);Vogel v. Atlantic Tar Works, 3 N.J. Adv. R. 319 (at p.322).

But no stockholder nor creditor is a party to this suit, and the corporation itself does not raise the point. On the case as laid before him the learned vice-chancellor properly found for the complainant in the full amount of the mortgage and interest, and the decree brought up will therefore be affirmed, with costs.

For affirmance — THE CHIEF-JUSTICE, TRENCHARD, PARKER, MINTURN, KALISCH, BLACK, KATZENBACH, CAMPBELL, LLOYD, WHITE, GARDNER, VAN BUSKIRK, CLARK, McGLENNON, KAYS, JJ. 15.

For reversal — None.