In re Eleventh Ward Bldg. & Loan Ass'n of Newark

• Decision Date: 19 September 1941
• Docket Number: Nos. 239, 241.,s. 239, 241.
• Citation: 21 A.2d 746
• Parties: In re ELEVENTH WARD BLDG. & LOAN ASS'N OF NEWARK.
• Court: New Jersey Supreme Court

21 A.2d 746

In re ELEVENTH WARD BLDG. & LOAN ASS'N OF NEWARK.

Nos. 239, 241.

Court of Errors and Appeals of New Jersey.

Sept. 19, 1941.

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CASE and COLIE, Justices, dissenting in part.

Appeal from Court of Chancery.

Proceeding in the matter of the reorganization of the Eleventh Ward Building and Loan Association of Newark, New Jersey. From a final decree approving as fair and equitable a plan of reorganization, dissident shareholders appeal, and a cross-appeal challenges the allowance of a fee to their solicitor and counsel.

Affirmed.

Jerome C. Eisenberg, of Newark, for appellants.

Halsey W. Stickel, of Newark (John E. Toolan, of Perth Amboy, of counsel), for respondents and cross-appellants.

David T. Wilentz, Atty. Gen., and Louis J. Cohen, Asst. Atty. Gen., for Commissioner of Banking and Insurance.

HEHER, Justice.

Dissident shareholders appeal from a final decree in Chancery approving as "fair and equitable" (with certain modifications) a plan of reorganization of the Eleventh Ward Building and Loan Association of Newark, New Jersey, formulated under R.S.1937, 17:12-105 et seq., as amended by Ch. 255 of the Laws of 1939, N.J.S.A. 17:12-105 et seq. The cross-appeal challenges the allowance of a fee to their solicitor and counsel.

First: Error is asserted in the "interpretation, construction, and application of the provisions of the statute."

It is said that the Legislature has not furnished "definitions or standards for determining 'fairness' and 'equitableness'"; that Chancery "is not limited in its power to do equity," and "the burden is placed squarely upon the conscience of the Chancellor"; that resort to the common usage of these statutory terms is merely "the substitution of one abstraction for another," and "leads nowhere"; that "what is fair and what is equitable will vary with innumerable circumstances", i. e. the "nature of the community in which the association is situated; the association's financial condition; the nature of its assets; the financial responsibility of those indebted to the association; the nature of the investments affected; the necessity to the community for the continuance of an association," and "the effect of reorganization upon the savings of members"; that the particular plan has "an indispensable provision", i. e. "the borrowing of $3,000,000 from the Reconstruction Finance Corporation and the pledging of assets of the Association to secure the loan"; that, for the court below "intelligently" to determine "whether the plan was fair or unfair, or equitable or inequitable, it should acquaint itself with the nature of the assets that would be answerable for the repayment of the debt"; that, "for all the Court knew, the assets were in such condition that they could be readily sold and in that manner afford the Association the cash which it deemed necessary to embark upon its new career," and, "if that were true, it would be unfair and inequitable to all those concerned to provide for the pledge of the assets, and thus incur interest charges of $10,000 a month, a considerable price to pay for the 'liquidity' of a new venture"; and that therefore the court below "failed and refused to carry out and perform the statutory duty imposed upon it," and hence erred in matter of substance.

The specific point is not now available to appellants. The petition of dissent did not explicitly raise the question of the necessity for the pledge thus made. In this respect, it averred merely that it was "impossible to ascertain from the information made available to members, whether the Plan is in fact in the best interest of members because" (a) "Exhibit C, the statement upon which the entire Plan is founded, is not included therein"; and (b) "Without complete information as to the present market value of the assets of the association, no determination whether the Plan is fair and equitable can properly be made." Exhibit C is the balance sheet of the association as of July 31, 1939; and the members were advised that it was open for inspection at the association's office "at any time during business hours."

Section 17:12-106 of the cited statute provides that "all members" of the association "who shall not have dissented from such reorganization plan in the manner" therein provided "shall be conclusively deemed to have assented thereto"; that "any member who shall dissent from the proposed plan, shall file a petition of dissent, in writing, in the Court of Chancery," setting forth "the grounds upon which such member dissents" therefrom, "at least five days before the day appointed for the meeting of members called to consider and vote upon such plan"; and that the court shall thereupon "hear and dispose of the matter summarily, and, if satisfied that the plan is equitable and fair, shall make an order approving the said plan, and dismissing such petition."

Specification is of the essence of the statutory scheme, for a plan of reorganization of this character ordinarily deals with complex financial problems, and particularization is a constituent of the procedural order and expedition requisite to the effectuation of the statutory remedy.

Granting that the court may sua sponte, in the public interest, consider matters not so specified, it is plainly not under a duty so to do; and there is no adequate reason for such intervention here.

It is proved that the loan was designed "to increase the assets in the new Association and increase the percentage of share value insured or available to the shareholders in such new Association." Thus the association would be provided with means to meet the just demands of its shareholders without the substantial sacrifice of value that would necessarily be entailed by a sale of its real estate under conditions now obtaining. The evident purpose is to achieve an essential state of liquidity and to conserve the corporate assets in a manner that will at once subserve the interests of the shareholders and advance the public welfare; and the formula is reasonable and appropriate to that end. The plan received the approbation of the Federal Savings and Loan Insurance Corporation, the Federal Home Loan Bank, and the Reconstruction Finance Corporation as one fairly promotive of these objectives; and the evidence supports the findings of the Commissioner of Banking and Insurance and the court below that the plan in this respect is "fair" and "equitable," and wholly in keeping with the statutory policy. It provides that the "aggregate amount" of the assets of the old association transferred to the new (Bradford Savings and Loan Association), including the proceeds of the loan made by the Reconstruction Finance Corporation, "shall be at least sufficient to guarantee to the holders of shares of the Old Association, * * * shares of the new Association in an amount equal to not less than 45% of the value of their shares in the Old Association," and for the issuance of a "certificate of interest" equivalent to the remaining 55% in the old or liquidating corporation, and for insurance of the members' share accounts with the Federal Savings and Loan Corporation and membership in the Federal Home Loan Bank of New York.

Such associations have general power to borrow money on the security of their property. R.S.1937, 17:12-11, N.J.S. A. 17:12-11. And they are likewise empowered to borrow money "necessary or convenient to effect the reorganization, without limitation as to amount, and upon such terms and upon such security as the plan of reorganization shall provide." R.S. 17:12-107, as amended. In determining whether the proposal is "fair" and "equitable" in this behalf, it is not without significance that appellants comprise 1.57% of the total membership, and represent but 3.05% of the share liability of the association.

The terms "fair" and "equitable" connote means reasonably adapted to the exigency and equality measured by the contractual rights of the shareholders inter se and all of the other parties in interest.

It is frivolous to suggest that, for aught that appears, these realty assets are "readily salable," and so the pledge is "unfair" and "inequitable." It was proved that the pledge consists of "slow" or "frozen" assets that could not be liquidated without great loss. There was no evidence to the contrary; nor did appellants make a tender of such. Indeed, the court would have been justified in taking judicial notice of conditions warranting this conclusion. An inquiry into the value of these assets would necessarily have been prolonged and expensive, and the delay might well have been prejudicial. That would have been pure formalism utterly devoid of service to the substantial rights of the parties. In the circumstances, such proof having been introduced it was requisite that appellants make a specific offer of evidence to the contrary; and that they failed to do.

As stated, the court deleted certain provisions of the formula as "unfair and inequitable"; and it is also contended under this head that in such situation the sole function of Chancery is to disapprove the plan in its entirety, and therefore the action taken constituted an excess of power. It is said that the modifications thus made were not sanctioned either by the Commissioner of Banking and Insurance or the shareholders, and that each is a sine qua non. We do not share this view.

Provision was made for that eventuality. It was stipulated that the "unenforceability or invalidity of any one or more of the provisions, clauses, sentences and/or sections" of the plan "shall not render any of the other provisions, clauses, sentences and/or sections * * * unenforceable or invalid"; and it was declared that the "intention of those adopting and approving" the plan was "to permit the intent and purpose * * * to be carried out despite the unenforceability or invalidity of any one or more of the individual provisions, clauses,...