Passaic Plumbing Supply Co. v. Eastside Holding Corp.

• Decision Date: 21 January 1930
• Citation: 148 A. 637
• Parties: PASSAIC PLUMBING SUPPLY CO. et al. v. EASTSIDE HOLDING CORPORATION.
• Court: New Jersey Court of Chancery

148 A. 637

PASSAIC PLUMBING SUPPLY CO. et al.

v. EASTSIDE HOLDING CORPORATION.

Court of Chancery of New Jersey.

Jan. 21, 1930.

(Syllabus by the Court.)

Suit by the Passaic Plumbing Supply Company and another against the Eastside Holding Corporation. Decree in accordance with opinion.

Edmund G. Stalter, of Paterson, for David S. Koggan and Isadore J. Koggan.

Mendelsohn & Mendelsohn, of Paterson, for receivers.

Leon W. Kapp, of Newark, for Charles Lask.

Hood, Lafferty & Campbell, of Newark, for Fidelity Union Title & Mortgage Guaranty Company.

LEWIS, Vice Chancellor. Three distinct issues are presented in the instant case, viz.:

(1) The receivers' application for an order directing them to sell an unfinished apartment house of the insolvent corporation free of all liens.

(2) Their application for the advice and direction of the court with reference to the acceptance of bids for same submitted to them.

(3) The mortgagee's application for an order to vacate an order of the court directing the receivers to accept the bid of $250,000 in cash, made to them for said property by Isadore S. Koggan and David J. Koggan.

On January 11, 1929, the receivers of the Eastside Holding Corporation, an insolvent corporation, filed their duly verified petition praying for an order directing them to sell an unfinished apartment house of the defunct corporation, whereupon an order was made, returnable on January 21, 1929, requiring all parties in interest to show cause why such an order should not be made. On the return day, said application was resisted by no one other than the Fidelity Union Title & Mortgage Guaranty Company, which for convenience sake will hereinafter be referred to as Fidelity, and Charles Lask, both of whom held mortgages on the property in question.

The authority of this court in a case such as the instant one to order a sale, free of liens existing against the property at the time of the appointment of the receiver, is found in and conferred by section 81 of the General Corporation Act, P. L. 1896, p. 303 (2 Comp. St. 1910, p. 1649). In construing this statute, Court of Errors and Appeals, in the case of Randolph v. Larned, 27 N. J. Eq. 560, held that the power of this court to order such a sale is dependent upon the existence of the two prerequisites specified in that statute—first, the legality of the prior liens must be brought in question; and, secondly, the property must be of a character materially to deteriorate in value pending the litigation. The court in that case further declared that the statute should receive a liberal construction, and that the dispute bringing into question the legality of the liens was not to be limited to an objection to the validity of the mortgage itself, but might exist by reason of disputes touching the extent of the lien created by it, its relative priority to other incumbrances, or other equities raising substantial differences between the parties, the effect of which might lead to extended litigation.

Whenever the existence of these conditions is established, the mischief which the statute is intended to correct is threatened, and the application of the remedy which the statute applies is called for. The principles laid down in Randolph v. Larned, Id., are cited with approval in a number of later cases, amongst which are the following: Reilly v. Penn Cordage Co., 58 N. J. Eq. 459, 44 A. 161, and Bahler v. Robert Treat Baths, 100 N. J. Eq. 525, 135 A. 814.

An examination of the evidence in the instant case for the purpose of ascertaining whether these two statutory prerequisites are here present discloses that the receivers in their petition and affidavit state that the legality of all mortgages and lien claims incumbering the property at the time of the appointment of the receivers had been brought in question and that numerous suits at law and in equity were pending relative to the termination of their respective priorities and extent of priorities. This fact was uncontroverted and further established by the answers tiled on behalf of Lask and the Fidelity, wherein each of them denied the claim of priority over their respective mortgages by the lien claimants and asserted the priority of their respective mortgages over that of the lien claims. The existence of the first of these statutory prerequisites—the bringing in question of the legality of the prior incumbrances—in the case under consideration, cannot be questioned, and must be conceded in view of such evidence.

With reference to the existence of the second of these statutory prerequisites, the receivers' petition and affidavits state that the plumbing, roofing, heating, electrical, painting, masonry, carpentry, and other work, as detailed in a lengthy schedule annexed to their petition and embodied in their affidavit, on the building, are unfinished. That, by reason of holes in the wall of the building, lack of "flashing" or tightening on the roof, around the penthouse, scuttles, and skylights, and also because of the failure to have "bricked In" or inclosed the penthouse, and the neglect to have installed glass in the roof on the skylights, and the failure to have repaired the leaks in the roof over the vestibule entrance, the building was exposed to the elements, with the result that the plaster had disintegrated and cracked and the floors had bulged in almost every apartment throughout the building, necessitating all of the repairing of the plaster and the scraping of the floors throughout the building as detailed in the schedule incorporated in the receivers' affidavit.

As against this positive and direct evidence, the Fidelity and Lask produced nothing but their answers and the affidavits of Harry Jacobs and Max Jacobs. These answers were not verified, nor were they even signed by the Fidelity or Lask. They were signed by their respective solicitors only and without verification, and therefore were not evidential of the facts therein alleged. Moreover, these answers did not deny that the building was in the condition stated by the receivers, but merely alleged a want of "knowledge or information sufficient to form a belief on the part of the Fidelity and Lask, respectively, as to the matters contained in those paragraphs of the receivers' petition and affidavit" wherein are specified the respects in which the building was incomplete and deteriorating.

Nor is there any denial in the...