Reed v. Helois Carbide Specialty Co.

• Decision Date: 07 January 1903
• Citation: 64 N.J.E. 231,53 A. 1057
• Parties: REED et al. v. HELOIS CARBIDE SPECIALTY CO.
• Court: New Jersey Court of Chancery

53 A. 1057

64 N.J.E. 231

REED et al.

v. HELOIS CARBIDE SPECIALTY CO.

Court of Chancery of New Jersey.

Jan. 7, 1903.

(Syllabus by the Court.)

Bill by Peter B. Reed and others against the Helois Carbide Specialty Company. Decree for complainants.

The bill of complaint in this cause is filed by Peter B. Reed and Henry Boice to foreclose a bond and mortgage made to them, dated the 25th day of May, 1898, conditioned for the payment of $14,000 within five years from the date thereof, with interest thereon, payable semiannually, with a special condition that if at any time default should be made in payment of interest for the space of 30 days after any semiannual payment thereof should fall due, the whole principal debt should, at the option of the said mortgagees, become immediately due and payable. The mortgaged premises consist of tracts of land in the county of Atlantic, and were conveyed to the mortgagor, the Helois Carbide Specialty Company, by the complainant Peter B. Reed, by conveyance bearing even date with the mortgage; and the mortgage also purports to include the buildings, machinery, or fixtures then on the mortgaged premises, or thereafter to be placed on said premises, it being agreed that all machinery, fixtures, and buildings are real estate. The mortgage was acknowledged on the 27th day of May, 1898, and recorded on the 28th day of May, 1898. The bill of complaint makes defendants John J. Rochford and others, holders of a mortgage made by the carbide company to secure the payment of $23,000, dated September 16, 1898; also Frank A. Souder in respect to a Judgment recovered by him against the carbide company on mechanic's lien for $4,002.08 on the 3d day of December, 1898. The bill of complaint further alleges that on the 25th day of November, 1898, an installment of interest to the amount of $420 came to be due, and remained unpaid for more than 30 days thereafter; and that the complainants, holders of the mortgage, have elected that the whole principal sum of $14,000 should come to be immediately due and payable. The bill prays for payment of the mortgage, or, in default thereof, a foreclosure sale. The defendant company answers the bill, and admits that its officers executed and delivered to complainants the bond and mortgage in the name of the company, but denies that the company owed the mortgage money, or any other sum, and that it authorized the execution of the bond and mortgage. It admits that it executed and delivered the mortgage for $23,000 to Rochford and others, and that Souder, on December 3, 1898, recovered and entered the judgment for $4,002.08 set forth in the bill. The company then by way of cross-bill complains that on May 24, 1898, the complainants were both stockholders, and the complainant Reed was director and treasurer, of the company; that they procured the stockholders, at a special meeting held on that date, to pass a resolution directing the president and secretary to execute to them, the complainants, bond and mortgage; that immediately after the passage of that resolution Reed resigned as director and treasurer, and on the following day procured the bond and mortgage to be delivered to the complainants; that at the time of the execution and delivery of the bond and mortgage the defendant company was in embarrassed circumstances, and in view of that fact the complainants procured it to be made to them; that at the time of the passage of the resolution Reed was the holder of 205 shares of the capital stock of the company, of the par value of $100 per share, which he obtained from the company without any consideration, and for which he was indebted to the company in the sum of $20,500; that the complainant Boice was the holder of 50 shares of a like par value, which he had obtained from the company without consideration, and for which he owed the company $5,000; that, to escape the said stock liability, the complainants, immediately after the passage of said resolution, assigned their said stock to Elias Wright as trustee; that at the time of the making of complainants' mortgage the complainant Reed held title to the mortgaged premises as trustee for the defendant company, the property having been purchased by him as its agent, with its funds, and he refused to convey this property to the company unless its officers would consent to the making of the complainants' mortgage, and to the releasing of the complainants from liability on their said stock by a formal transfer thereof to Wright; that the making of the mortgage and the transfer of the stock were never duly authorized or sanctioned by the board of directors of the company; and that at the date of the bond and mortgage the company was not indebted to the complainant beyond the sum of $3,100. The defendant company insists that the bond and mortgage are void, and prays that the complainants may be decreed to surrender the same for cancellation. The defendant Frank A. Souder also answers the bill of complaint He denies the indebtedness of the defendant company to the complainants, denies that the bond and mortgage of the complainants were authorized to be made by the company, admits the execution of the mortgage of September 16, 1808, to Rochford and others, denies that any mortgage money is due to the complainants, and sets up his own judgment on his mechanic's lien, entered December 3, 1898, as a prior lien to the mortgage of the complainants. By way of cross-bill the defendant Souder alleges that the complainants subscribed for 218 shares of the capital stock of the company, and on that subscription were indebted to the company in the sum of $21,800; that the complainants, before the making of the mortgage, purchased the mortgaged premises, and paid for it with part of the money due on their subscription for the capital stock, and took title thereto in the name of the complainant Reed, but the defendant Souder insists that it was in fact purchased with the moneys of the carbide company, and was held in trust for it by the complainant Reed; that the complainants had also advanced about $3,100 on account of the company, and, when the latter demanded that the title of the mortgaged premises should be conveyed to it, Reed refused to convey unless the company would give the complainants a mortgage for $14,000 to cover the moneys Reed had paid on account of his subscription to the capital stock of the company; that the matter was determined at a meeting of the board of directors held May 21, 1898, at which Reed was present, and through his influence and vote in the board a resolution was passed to execute and deliver to complainants the $14,000 mortgage held by them, and to take back the 218 shares of the stock of the company for which Reed had subscribed. The cross-bill further alleges that at that time the defendant Souder was a creditor of the company for labor performed and material furnished in the construction of a building on the mortgaged premises; that the company was in an insolvent condition, which was known to the complainant Reed; that Reed agreed with the company and with the defendant Souder that he would assume the indebtedness of the company to the defendant Souder. The defendant Souder charges that the complainants' bond and mortgage are void as against him, and prays the complainants may be decreed to deliver them up for cancellation, and that the complainant Reed may be decreed to pay to the defendant Souder the amount of the latter's judgment, with interest and costs. The complainants in the main suit join issue on the defendants' answers. They also answer the cross-bills, denying the facts therein advanced, and averring that the defendant company at the time of the passage of its resolution authorizing the making of the mortgage was indebted to the complainants in the sum of $12,539.90 for actual cash expended for and in behalf of the company at its request, and that at the time of the execution of the bond and mortgage the complainants advanced to the defendant company the further sum of $1,460.10. They admit that at the time of the making of the mortgage the title to the mortgaged premises was in the name of the complainant Reed; but they deny that he held the same in trust for the complainant company, and that they were purchased by Reed as its agent or with its funds, and that he refused to convey to the company unless its officers would consent to make a mortgage, and release the complainant from their liability on the stock; and they further deny that the mortgage and transfer of stock was not duly authorized by the board. They deny that the company was not indebted to the complainant, at the date of the bond and mortgage, beyond the sum of $3,100, and aver the fact to be that it was indebted to the complainant at that time in the sum of $14,000 actual cash paid to or for the defendant company at its request. On these pleadings the cause came to a hearing.

Geo. A. Bourgeois and Mark R. Sooy, for complainants.

Win. I. Garrison and Thos. E. French, for defendant.

Frank A. Souder. D. J. Pancoast, for defendant Helois Carbide Specialty Co.

GREY, V. C. This is a foreclosure case. The complainants' mortgage is disputed by the mortgagor company and by Frank A. Souder (a creditor of the mortgagor company), who holds a mechanic's lien judgment against that company, entered subsequently to the making and recording of the complainants' mortgage. The testimony in this cause covers a much wider scope than is necessary to settle the questions raised by the pleadings. The only matters which on this foreclosure suit may pertinently be determined are the validity of the complainants' mortgage; the amount due thereon, if it be found valid, and whether it is a prior lien to the judgment of the defendant Souder; and, on the cross-bill of that defendant, whether decree should be made that the complainant Reed should pay to the defendant Souder the balance remaining due on his judgment All questions...