(67 N. J. E. 641)

BRADY V. CARTERET REALTY CO. (Court of Errors and Appeals of New Jersey. April 20, 1905.)

JUDICIAL SALES-CAVEAT EMPTOR-INTEREST ACQUIRED SLANDER OF TITLE - ESTOPPEL -STATEMENTS AS TO TITLE-INJUNCTION.

1. At a judicial sale the rule of caveat emptor applies, and the purchaser buys only such estate or interest as the debtor has.

[Ed. Note. For cases in point, see vol. 31, Cent. Dig. Judicial Sales, §§ 97, 99.]

2. A sheriff's deed passes the same title which a deed of bargain and sale executed by the judgment debtor would pass.

3. A person claiming to have an interest in land being sold at a judicial sale, whether such person be a judgment creditor or otherwise, may at such sale state facts as to the property about to be sold, when such facts relate to the title, possession, or the alleged right of posses sion thereof. Such statements cannot be deemed inequitable, oppressive, or a slander of the title; but a failure to so do will not work an estoppel of the assertion of any right or remedy which such judgment creditor or other person in interest may have in such land.

4. But it is inequitable for a judgment creditor or other party in interest in the land sold to not only state facts, but to express an opinion, as to the title, which injures and prejudices the sale of the interest which the debtor has, or which will pass under the conveyance by the sheriff or other officer.

5. It is inequitable for a judgment creditor, while using the process of a court of law to collect its debt, to avail itself of the occasion of the sale to start a question of title, to cheapen what it proposes to sell, and a court of equity will enjoin it from pursuing the legal process until such question of title is settled.

(Syllabus by the Court.)

Appeal from Court of Chancery.

Bill by Michel Brady against the Carteret Realty Company. Decree for plaintiff, and defendant appeals. Affirmed.

Collins & Corbin, for appellant. Emprim Cutter and Willard P. Voorhees, for respondent.

FORT, J. This is an appeal from an order of the Court of Chancery awarding an injunction, pendente lite, in accordance with the prayer of the bill. The bill is filed under the statute to quiet titles. Gen. St. p. 3486.

With the order awarding the injunction we agree. But we think the reasons. given therefor by the vice chancellor are in some respects erroneous.

The case was heard on the bill and affidavits, no answer or answering affidavits being filed. The defendant purchased of the executor of Zabriskie a judgment against the complainant, which it was seeking to enforce by execution, through a sale by the sheriff of Middlesex county, and at the same time giving out at such sale, or threatening to so do, that the judgment debtor had no interest in the land being sold. On this point the allegation of the bill is: "That, at the time and place at which said sale was advertised, Edward S. Savage, an attorney at law of the state, who is a director of said Carteret Real

ty Company, and the attorney acting for said company, in selling said lands under said execution, although his name does not appear as attorney of record, stated to the sheriff and those present, in opposing an adjournment, that your orator had no title to said tract of land, and was not the owner thereof, and that an adjournment should not be granted, because his interest in said tract by possession was not worth anything; and that the said Edward S. Savage has stated the same thing to other persons, and has stated it in a letter written to said sheriff, and has also stated to your orator that he intends to give notice of the same thing on the day of sale of said lands under said execution." The affidavits to the said bill support this allegation, and, among other things, say that, at an interview with the complainant, Savage, the agent and attorney of the defendant, said: "That he intended, on the day to which the sale of said tract had been adjourned, to again announce that deponent had no title whatever to said tract, and did not own it, but was a mere tenant, and that the Carteret Realty Company was the true owner of said tract." And by another affidavit it is further stated that: "Deponent heard Edward S. Savage state to the sheriff and those present, in opposing the granting of an adjournment, that said Brady had not title to the lands advertised for sale, and was not the owner thereof, and that the interest of said Brady in said lands was only by possession, and was not worth anything, and that the Carteret Realty Company was the true owner of said lands." And it is further sworn that, at an interview with said Savage, held after the adjournment of the sale, on the first advertised day, he said that: "He intended, on the day to which the sale of said tract had been adjourned, to again announce that deponent had no title whatever to said tract, and did not own it, but was a mere tenant, and to state that the Carteret Realty Company was the true owner thereof." Savage was a director of the defendant company, and was acting for it.

Statements, such as those in the bill and affidavits, are more than a mere recital of an alleged claim of the defendant; they amount to an expression of opinion as to the title of the judgment debtor, and an affirmance that he is without any legal right whatever. At a judicial sale the rule of caveat emptor applies, and the purchaser buys only such estate or interest as the debtor has. Boorum v. Tucker, 51 N. J. Eq. 135, 26 Atl. 456; Hartshorne v. Boorum, 52 N. J. Eq. 587, 33 Atl. 50; Campbell v. Parker, 59 N. J. Eq. 342, 45 Atl. 116; Snell's Principles of Equity, p. 389. The vice chancellor, in the opinion below, on this point states the true legal rule, when he says: "The sheriff's deed passes the same title which a deed of bargain and sale executed by the judgment debtor would pass." Gen. St. p. 2980, § 7; Laws 1799, p. 386, § 17 (Paterson's Laws, p. 371); 1

Nevill, p. 280, § 6; Hackensack Sav. Bank v. Morse, 46 N. J. Eq. 161, 18 Atl. 367; Morse v. Hackensack Sav. Bank, 47 N. J. Eq. 279, 20 Atl. 961, 12 L. R. A. 62; Voorhis v. Westervelt, 43 N. J. Eq. 642, 646, 12 Atl. 533, 3 Am. St. Rep. 315; Den v. Winans, 14 N. J. Law, 1.

It is undoubtedly within the right of a person claiming to have an interest in the land being sold at a judicial sale, whether such person be the judgment creditor or otherwise, to state any facts as to the property about to be sold, when such facts relate to the title, possession, or the alleged right of possession thereof. Such statements can in no sense be deemed inequitable or oppressive or as a slander of the title. Am, & Eng. Enc. of Law, vol. 25, p. 788. But it is not essential to a preservation of the rights of a judgment creditor, or other person in interest in the lands of the judgment debtor being sold, that he shall state facts within his knowledge, relative to the title or possession of such land, at such judicial sale. His failure to do so will not work an estoppel of any rights or remedies which such judgment creditor or other person in interest has in such lands. Judicial sales are involuntary sales. The officer of the law is the agent of the debtor in effecting the same. He does not estop the judgment creditor by his conveyance. Den v. Winans, supra. The equitable rule, so general and so salutary, which declares "that, where a man has been silent when in conscience he ought to have spoken, he shall be debarred from speaking when conscience requires him to be silent," as applied to the sale of lands, will be found in all the cases to have been so applied in cases of conveyances inter partes, and in no case to have been so extended as to embrace a judicial sale-a sale in invitum.

But we think, that an entirely different rule applies from the one just stated when a judgment creditor, or other party in interest in the land sold, not only stands by or states facts, but expresses an opinion as to the title which injures and prejudices the sale of the interest which the debtor has or which will pass under the conveyance by the sheriff or other officer. To state facts cannot injure; to express an opinion upon the facts, or without stating the facts, may be oppressive and prejudicial. It is certainly inequitable. In the case sub judice Mr. Savage did not content himself, as the rep resentative of the judgment creditor, with merely standing by, or with a statement of the facts, but he said, in effect: "It is my opinion, now given, for the benefit of all purchasers at this sale, that the defendant has not title. He is a mere squatter. A purchaser will take nothing by the sale. The judgment debtor's interest is not worth anything; the Carteret Realty Company is the true owner." To permit a judgment creditor to so conduct a sale, under his execution, is to permit him to defeat the right of the judg

ment debtor to sell, at a judicial sale, whatever will piss under the conveyance to the purchaser, and thereby secure thereat what an unalarmed purchaser may be willing to pay.

A judgment creditor will not be permitted to assume to sell real estate and declare, as a conclusion of law or as an expression of opinion upon facts, that nothing will pass by any conveyance which may be made by the sheriff to the purchaser at the sale. Whether anything passes by a sale and conveyance of real estate at a judicial sale is a matter in which only the debtor and purchaser are concerned, and they must be allowed to determine that question for themselves from the records, or from facts otherwise stated or ascertained. The defendant, while using the process of a court of law to collect its debts, has availed itself of that occasion to start a question of title to cheapen what it proposes to sell; it therefore is inequitable that the legal process be pursued until such question be set at rest; the complainant having tendered, by its bill, a prompt opportunity to that end. The defendant should be restrained from making the sale until the case made by the complainant's bill as to the question of title is determined.

For these reasons, the decree of the Court of Chancery should be affirmed.

(69 N. J. E. 468)

PODESTA v. MOODY. (Prerogative Court of New Jersey. April 4, 1905.)

ADMINISTRATOR'S SALE-ORDER TO COMPLETEAPPEAL-RIGHTS OF PURCHASER.

Where an order directed a purchaser of lands at an administrator's sale to complete the purchase, and also directed the issue of an attachment for contempt on failure to complete the purchase within a given time, the first portion of the order, being appealable, entitled the purchaser to appeal, irrespective of the appealability of the second portion of the order.

Appeal from Orphans' Court, Hudson County.

Controversy between Angelo Podesta and John E. Moody, substituted administrator. From an order directing Podesta to complete a sale, he appeals. On motion to dismiss. Motion denied.

Samuel A. Besson, for appellant. Leon Abbott, for respondent.

MAGIE, Ordinary. The motion to dismiss this appeal cannot prevail. The order appealed from contains two distinct adjudications one, that appellant, as a purchaser of lands at a sale made by a substituted administrator with the will annexed, should complete his purchase within 14 days from the service of the rule; and the other, that, if appellant fail to complete said purchase within the time fixed, an attachment should issue against him for contempt, without further notice. The first of these adjudications

settles the liability of appellant upon his contract to purchase, and directs him to perform the same. It must be assumed from the recitals that this question was decided upon the proofs taken. If aggrieved by the adjudication, the purchaser may challenge its propriety by an appeal. The second adjudication, which directs the issue of an attachment for contempt for not completing the purchase, if contained in a separate order, made for disobedience to the former order, would probably not be the subject of an appeal. In re Doland (N. J. Prerog.) 59 Atl. 879. But the combination of the two adjudications in one order cannot deprive a person alleging himself aggrieved by that which fixes his liability on the contract of his appeal therefrom.

The motion must be denied.

1. Under clause "e" in section 70 of the federal bankrupt act of July 1, 1898, c. 541, 30 Stat. 566 [U. S. Comp. St. 1901, p. 3452], trustees in bankruptcy may avoid a mortgage made by a New Jersey corporation, which the creditors of the corporation might avoid under section 64 of the New Jersey corporation act (P. L. 1896, p. 298).

2. Under section 64 of the New Jersey corporation act (P. L. 1896, p. 298), insolvency denotes a general inability to meet pecuniary liabilities as they mature, by means of either available assets or an honest use of credit.

3. A mortgage given merely to secure antecedent debts is not given "for value," within the meaning of clause "e" in section 70 of the federal bankrupt act of July 1, 1898, c. 541, 30 Stat. 566 [U. S. Comp. St. 1901, p. 3452], or for "a valuable consideration," within the meaning of section 64 of the New Jersey corporation act (P. L. 1896, p. 298).

Pitney, Green, and Gray, JJ., dissenting. (Syllabus by the Court.)

Appeal from Court of Chancery.

Bill by the Empire State Trust Company against the trustees of William F. Fisher & Co. and the Broadway Trust Company. From a judgment of the Court of Chancery (57 Atl. 502) for plaintiff, the trustees appeal. versed.

Re

a debt created on May 20, 1902, was invalid against the creditors of the corporation, and should be so adjudged at the instance of the trustees. The decree complained of sustained the mortgage, and the trustees appeal.

The rights of the appellants must be ascertained by the provisions of the federal bankrupt act of July 1, 1898, c. 541, 30 Stat. 544 [U. S. Comp. St. 1901, p. 3418]. Dudley v. Easton, 104 U. S. 99, 26 L. Ed. 668. We agree with the learned vice chancellor in the opinion that when the mortgage was executed the corporation was not insolvent, within the meaning of that term as defined in the federal statute, and that there is no provision of the statute which of its own force would invalidate the mortgage. But clause "e" in section 70 of the act is as follows: "The trustees may avoid any transfer by the bankrupt of his property which any creditor of such bankrupt might have avoided, and may recover the property so transferred or its value from the person to whom it was transferred, unless he was a bona fide holder for value prior to the date of the adjudication." 30 Stat. 566 [U. S. Comp. St. 1901, p. 3452]. This brings up for consideration the question whether the creditors of the Fisher Company might have avoided the mortgage.

The sixty-fourth section of the New Jersey corporation act (P. L. 1896, pp. 277, 298) declares that "whenever any corporation shall become insolvent or shall suspend its ordinary business for want of funds to carry on the same, neither the directors nor any officer or agent of the corporation shall sell, convey, assign or transfer any of its estate, effects, choses in action, goods, chattels, rights or credits, lands or tenements: nor shall they or either of them make any such sale, conveyance, assignment or transfer in contemplation of insolvency; and every such sale, conveyance, assignment or transfer shall be utterly null and void as against creditors: provided, that a bona fide purchase for a valuable consideration, before the corporation shall have actually suspended its ordinary business, by any person without notice of such insolvency or of the sale being made in contemplation of insolvency, shall not be invalidated or impeached." In enforcing this statute we are not controlled by the definition of insolvency contained in the bankrupt act, but must accord to that term the meaning ascribed to it in the courts of this state. Here it denotes a general inability to meet pecuniary liabilities as they mature, by means of either available assets or an honest use of credit. National Bank of Metropolis v. Sprague, 21 N. J. Eq. 530,

from was rendered. The controversy arises from the claim of the trustees in bankruptcy of a New Jersey corporation styled William F. Fisher & Co. that the mortgage made by the corporation to the Broadway Trust Company on September 10, 1902, to secure

N. J. Eq. 179, 184, 40 Atl. 769. In this sense the Fisher Company was undoubtedly insolvent when the mortgage was executed. It then owned $12,943.57 of the accounts payable, $29,252.26 of promissory notes, of which notes amounting to $8,995 had been protest

ed, and $39,000 of business debts secured by mortgages upon its manufacturing plant. Its available assets were insignificant, its legitimate credit was practically exhausted, and within a month thereafter a petition was filled upon which it was adjudged bankrupt. Under these circumstances it is beyond question that the mortgage made by the directors of the Fisher Company to the trust company was rendered by our statute "utterly null and void as against creditors," unless it served as "a bona fide purchase for a valuable consideration," within the proviso of section 64. This saving clause is of the same import as the corresponding clause in the paragraph above quoted from section 70 of the bankrupt act,, as will presently be seen on reference to cited cases. I do not think the bona fides of the trust company has been successfully impugned, but the company does not hold the mortgage for "a valuable consideration." The general rule is that one who acquires property (outside of commercial paper) as mere security for antecedent debts is not a holder for value. See note to Basset v. Nosworthy, 2 White & T. Lead. Cas. Eq. 32. This rule prevails in New Jersey. Knowles Loomworks v. Vacher, 57 N. J. Law, 490, 31 Atl. 306, 33 L. R. A. 305, affirmed 59 N. J. Law, 586, 39 Atl. 1114; Protection B. & L. Ass'n v. Knowles, 54 N. J. Eq. 519, 528, 34 Atl. 1083, affirmed 55 N. J. Eq. 822, 41 Atl. 1116. The same doctrine is maintained in the United States tribunals. In Morse v. Godfrey, 3 Story, 364, Fed. Cas. No. 9,856, Justice Story, who, in Swift v. Tyson, 16 Pet. 1, 10 L. Ed. 865, had expressed the opinion that a person taking commercial paper as security for a pre-existing debt, in the usual course of business, became a holder for value, declared that there was a distinction in this respect between commercial paper and other kinds of property, and decided that a bank which had taken a mortgage upon stock in trade and real estate merely as security for old debts, without giving any new consideration upon the faith of it, was not a purchaser for value, within the meaning of the bankrupt law. This decision was followed by the Supreme Court of the United States in People's Savings Bank v. Bates, 120 U. S. 556, 7 Sup. Ct. 679, 30 L. Ed. 754, where Justice Harlan, delivering the opinion, said: "The rule established in the interests of commerce to facilitate the negotiation of mercantile paper, which for all practical purposes passes by delivery as money, and is the representative of money, ought not, in reason, to enhance instruments conveying or transferring real or personal property as security for the payment of money."

In the light of these adjudications, we must conclude that the trust company is not a "purchaser for a valuable consideration," or a "holder for value," within the true intent of the exceptions in section 64 of the New Jersey corporation act (P. L. 1896, p. 298), and section 70, cl. "e" of the bankrupt

1. Where the board of directors of a corporation unanimously passed a resolution placing the power to declare or withhold dividends in the board of directors, and, acting thereon, the board used the profits for expanding the business without the payment of dividends through a. series of years, there was a waiver of the right of the stockholders to invoke the aid of a court of equity to compel the declaration of dividends, in the absence of a showing that the policy of expansion being pursued by the board had become unreasonable.

2. Where the officers of a close manufacturing corporation, whose stock has no recognized market value, vote themselves increases in their salaries while pursuing a policy of expanding the business by the use of the profits for that purpose, to the exclusion of dividends on the stock, a court of equity has power to compel the restoration of excessive amounts so withdrawn, and to adjust the salaries to a reasonable basis.

Suit by Henry K. Raynolds and others against the Diamond Mills Paper Company and others. Decree in favor of complainants in part.

Charles H. Hartshorn, for complainants. Frederick T. Johnson, for defendants.

STEVENSON, V. C. (orally). The bill is filed to secure two objects. One of these objects is to secure for all the stockholders of the defendant corporation, individually and severally, the benefit of a dividend; a distribution to be made to them severally and respectively of at least a portion of the accumulated profits of the corporate business. This remedy is one which is sought on behalf of each stockholder as an individual, and the natural defendant in the proceeding is the corporation-the stockholders collectively, taken as a body, engaged, not in individual pursuits, but in the pursuit of the corporate business for the common benefit of all. The effect of the declaration of a dividend, whether made voluntarily by a corporation through its board of directors, or made compulsorily by the decree of a court of equity, is at once the establishment of a debt due from the corporation to each stockholder, which debt may be sued for in a court of law. The interests of the individual stockholder who prosecutes this sort of

an action, and the interests of the corporation, the stockholders collectively, who defend it, are plainly hostile. The individual stockholder is enriched, and the stock holders collectively, the corporation, is to the extent of the dividend impoverished and crippled in its operations.

The other object of the bill is, to my mind, entirely different. It is to compel the officers and agents of the corporation, who have fixed their own salaries and drawn the amount of these salaries from the treasury of the corporation, to restore what a court of equity may find to have been an excessive amount drawn by them-an amount in excess of what they have fairly earned. If such an action is prosecuted successfully, it is manifest that the actor really is the corporation. The recovery is had for the benefit of the corporation. It is not an individual right of each stockholder which is enforced in such an action. It is a right of the stockholders collectively, of the corporation; and the recovery is for the benefit of the stockholders collectively. It is true that in cases like this the action is instituted and prosecuted by a stockholder on his own behalf and on behalf of all other stockholders who may come into the suit; 'but the right which is enforced is not the individual right of the stockholder, as I have said, but the right of the corporation, and the reason why the suit is allowed to be brought by the individual stockholder to enforce the right of the corporation is recognized and illustrated in a great many cases. The corporation is unable to institute this suit for the recovery of these moneys, because the defendants, who have taken the moneys, and who will resist the effort to have them surrendered to the treasury of the corporation, are in full control of the corporation. A request on the part of Mr. Raynolds, for instance, in this case, made in writing to the board of directors of the defendant corporation, that they institute a suit against these officers and directors to recover back excessive salaries paid to them, manifestly would be a vain form. The only way in which the right of the corporation in this class of cases can be vindicated is by the action of the individual stockholders, who are allowed to come into court and prosecute a suit in which the corporation is nominally a defendant, but in which the corporation is recognized practically as the complainant, and the recovery is for the benefit of the corporation.

Now, we have these two, as it seems to me, radically different causes of action combined in one bill. No objection has been made to the joinder of these two causes of action. The answer meets both claims with defenses. Both of these causes of action have, in one or more instances which are reported in our books, been joined, and no exception has been taken to the joinder. I find no difficulty in disposing of both of these

causes of action in one sult. There is no inconvenience in dealing with them one after the other, or dealing with them together. On the contrary, there is really a great dea! of advantage in joining these two different causes of action, and I am not prepared to say now, as I have not given the matter consideration, that, if objection had been made to the joinder of these two causes of action by a demurrer, the objection would have been sustained. A large part of the proof taken in this case bears equally upon the two causes of action; and then, too, when it comes to the decree, if, to suppose the situation which might possibly be embarrassing-certainly wo id be more embarrassing than any other-the decree should go in favor of the complainant in both causes of action, it does not appear to me that there would be any difficulty whatever in dealing fully with both causes of action, recognizing and enforcing all equities in each, in a single decree. The decree would direct the proceedings necessary to be taken in order to effect a distribution of the profits, or a part of the profits among the stockholders individually in the form of a dividend; and the same decree would go against these officers and compel them to restore any excessive salaries which they had received beyond what were fairly compensatory for the services rendered. I shall, therefore, take up these causes of action one after the other.

And, first, the complaint in the bill that the defendant corporation and its directors are unreasonably and wrongfully withholding the profits, piling them up, instead of distributing them, or distributing a portion of them, in the form of a dividend to the stockholders. The corporation was organized in the year of 1894, with a capital stock of $300,000. For some time past the entire capital stock has consisted of about $275,000 of common stock and about $25,000 of preferred stock, as I recall the figures. The preferred stock draws 7 per cent. annual dividends, and is a small factor in the case, and the dividend has been regularly paid. The real question relates altogether to the claim that greater dividends should be paid, and should have been paid for the year 1903-04, on the $275.000 of common stock. In 1894 the statutory law of New Jersey in regard to the distribution of dividends by business corporations was quite different from what it is to-day. Counsel have not argued closely in order to ascertain precisely what statute controls the situation of this corporation. Counsel for complainants claims that, whatever statute applies, the distribution of a substantial dividend, at least, should have been made, and should now be made by the decree of the court.

When the corporation was formed in 1894, undoubtedly the act which applied to it, and regulated the distribution of dividends, was the act of 1875, as amended by the act of