536 Brd. St. Corp.. v. Valco Mortg. Co. Inc.

• Decision Date: 15 August 1944
• Docket Number: 139/547.
• Citation: 38 A.2d 903
• Parties: 536 BROAD STREET CORPORATION v. VALCO MORTG. CO., Inc., et al.
• Court: New Jersey Court of Chancery

38 A.2d 903

536 BROAD STREET CORPORATION

v.VALCO MORTG. CO., Inc., et al.

139/547.

Court of Chancery of New Jersey.

Aug. 15, 1944.

COPYRIGHT MATERIAL OMITTED.

Suit by 536 Broad Street Corporation against Valco Mortgage Company, Inc., and others to restrain the enforcement of the payment of a bond and mortgage on premises held by complainant subject to such mortgage.

Decree for complainant.

See also 134 N.J.Eq. 224, 34 A.2d 801.

Benjamin M. Weinberg, of Newark, for complainant.

John Warren, of Jersey City, pro se (Julius Lichtenstein, of Hoboken, of counsel), for defendants.

KAYS, Vice Chancellor.

The bill of complaint in this case was filed by the complainant for the purpose of restraining the enforcement of the payment of a bond and mortgage in the principal sum of $150,000 given by one Fred M. Barnet to Tillie O. Barnett and assigned by the said Tillie O. Barnett to the defendant, Valco Mortage Company. After the said mortgage was given, Fred M. Barnet conveyed the premises covered by the said mortgage to the complainant, 536 Broad Street Corporation, subject to the said mortgage.

The bill of complaint alleges that the defendant, John Warren, was the treasurer, attorney and manager of the complainant and also owned or controlled the defendant, Valco Mortgage Company. It is charged that the said Warren secretly and surreptitiously and without the knowledge of complainant purchased the said mortgage for $55,000 and caused it to be assigned to the Valco Mortgage Company for his or his wife's benefit and to the detriment of complainant and now is endeavoring to enforce the payment of the whole principal amount of the mortgage and interest by complainant.

The evidence disclosed that the property covered by the mortgage in question consisted of a lot in the City of Newark on which was erected an automobile showroom and garage. The property was acquired by Fred M. Barnet as a result of a settlement of litigation over the will of James G. Barnett, an uncle of Fred M. Barnet and the husband of Tillie O. Barnett. The settlement resulted in the conveyance of the property to Fred M. Barnet and the said mortgage covering said premises to Tillie O. Barnett, the widow of James G. Barnett. At the time of the said settlement Fred M. Barnet had no cash with which to pay his lawyers and, therefore, by agreement formed the complainant company, 536 Broad Street Corporation, and distributed the shares of stock of said company as follows: Fred M. Barnet, 2,333; John Warren, 739; Percy Britt, 185; Thomas J. Stanton, 185; and Edward Maxon, 58.

The law firm of Warren, Britt and Stanton represented Fred M. Barnet in the litigation and settlement and Edward Maxon was associated with them. The stock was distributed in May, 1927. Fred M. Barnet was elected president; Stanton, vice president and secretary, and Warren, treasurer. The management remained unchanged until 1933 or 1934. Between 1927 and 1930 the company had no income for the reason that it was in litigation with the tenant, which was a Cadillac agency, over possession and rents. The company, therefore, was financed by borrowing on its notes endorsed by Barnet and, in some instances, also by Warren. A settlement of the litigation with the tenant was made early in 1931. As a result of the settlement the company was benefited by the payment of a substantial amount of cash and an adjustment of taxes with the tenant.

At the time of the hearing of this case, Tillie O. Barnett, Fred M. Barnet and Rachael Barnet, his wife, were dead.

On January 21, 1933, Warren filed a report in writing at a meeting of the directors of the corporation. The report stated that consideration should be given to the fact that the lease on the building expired the next November and that the mortgage of Tillie O. Barnett would fall due on May 1, 1934. He suggested that the corporation should endeavor to purchase the mortgage at a substantial discount; and at the same time, stated that he had talked to her about it and that she would not accept less than the principal amount due. He also said that it was absolutely essential that the company keep on hand liquid assets to care for carrying charges over a period of two or three years in case the property was not rented.

The premises were vacated by the tenant on October 31, 1933. Warren testified that, during 1933 and the early part of 1934, he endeavored to obtain an extension of the mortgage, without success, and that Tillie O. Barnett would accept nothing except full payment of the mortgage.

Warren was declared a bankrupt in 1933 and was discharged as such in the fall of that year.

On or about November 4, 1933, Warren says he told Fred M. Barnet that he would have to arrange other management as he was going to quit as treasurer of the company; that he had lost his stock and had no other interest in the company. However, on the same day he wrote Tillie O. Barnett asking her to reconsider her refusal to extend the mortgage. Warren had testified that Tillie O. Barnett did not like Fred M. Barnet and himself on account of the litigation over her husband's will. He said Tillie O. Barnett came to his office, in response to the above mentioned letter, demanded full payment of the mortgage and evidenced ‘bitter feeling against Fred and myself.’ Although Warren had told Barnet he had no incentive to serve the company, he wrote Barnet on January 2, 1934 that he had not paid the January 1st interest and saw no reason for postponing the time when Mrs. Barnett would be forced to make up her mind definitely as to what she would do with reference to the mortgage; and, that if there was to be a foreclosure it might just as well come then as in May. On January 5th he again wrote Fred M. Barnet concerning the 1933 and 1934 assessments and again referred to the non-payment of the January 1st interest stating it was the ‘best way to bring her to time.’

On January 10, 1934, the stockholders of Broad Street Corporation held an annual meeting. A list of the stockholders appended to the minutes of that meeting shows among the stockholders that John Warren held 454 shares. However, only 2,001 shares were voted; 2,000 by Mr. Barnet and 1 by Thomas J. Stanton. The directors elected were Fred M. Barnet, Rachael Barnet and Thomas J. Stanton. Warren was present and submitted his financial report for the year ending December 31, 1933. The statement showed that the liquid assets of the corporation consisted of $44,000 cash, $15,000 in income building and loan shares, and stocks of the value of $6,500. The building was carried at $455,000. Warren further reported that the tenant vacated the premises on October 31, 1933, and that a new lease could not be made for the reason that Tillie O. Barnett would not extend the mortgage which matured May 1, 1934. Warren said there was some discussion about the attitude taken by Tillie O. Barnett relative to her mortgage. He also testified that at this meeting, Fred M. Barnet offered to transfer stock to him in order that he might become a stockholder and officer. This offer, he said, he rejected because ‘we all anticipated that the property would be lost’ and the company wiped out by the foreclosure. On the same day the newly elected directors met and discussed the mortgage situation and adopted a resolution that no taxes or interest on the mortgage be paid ‘until some agreement is made for the extension of the said mortgage.’ Mr. Stanton was designated counsel. This appears to be the first time that the directors designated counsel for the company although Warren had been acting as such since its organization.

Warren claims that William C. Fiedler, a real estate broker, called on him in the early part of February, 1934, and told him that he was authorized to sell the Tillie O. Barnett mortgage at a substantial discount. He said that Fiedler also stated that he was not to offer the mortgage to the Broad Street Corporation, Fred M. Barnet or John Warren. Warren said Fiedler told him that the mortgage could be purchased for $50,000 by the payment of $30,000 in cash, $25,000 on a note for one year and that he Fiedler would charge a commission of $5,000.

Mr. Fiedler testified that he was a witness for Tillie O. Barnett in the will litigation. He said he was asked to come to the law office of Pitney, Hardin & Skinner and there talked to Mr. Carl Feick, who represented Mrs. Barnett. After that conversation he attempted to sell the mortgage by offering it to several parties without result. He further said that he was not permitted to offer it to the mortgage companies. He then testified as follows: ‘It was suggested to me by Mr. Feick, that, because of the family feud, that I do not bother anybody that owned the property or anybody connected with it, and I did not until I found that I could not sell this mortgage. Then I asked Mr. Feick, who represented Mrs. Barnett,-I said: ‘You are trying to get some money for this lady. What difference does it make whom I sell it to?’ I said, ‘Let us not be foolish about this thing.’' Fiedler said that Mr. Feick told him that Mrs. Barnett was willing to sell the mortgage for $30,000 but he told her not to sell for that amount. ‘He told me that the mortgage should bring $50,000.00. I then said to Mr. Feick, ‘Why can't I see John Warren? He is the man I have dealt with in the transactions.’'

Fiedler said Mr. Feick replied, “I don't see where there should be any objection.' I said, ‘Suppose I see John Warren. I have known him so long.” Mr. Fiedler further testified: ‘I saw Mr. Warren. I said, ‘I have no authority to offer it to you, but I wish you would come with me to see Mr. Feick and see whether we cannot do something.’ So we made an appointment with Mr. Feick and Mr. Warren then succeeded in selling that mortgage. That is all the interest I had in it.'

Mr. Fiedler testified in answer to a further question as to his first conversation with Warren about the sale of the mortgage, that: ‘I told...