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(72 N. J. E. 580)

davits, and cross-examination in open court MITCHELL v. UNITED BOX BOARD & Granted. PAPER CO. et al.

Griggs & Harding, Richard W. Morrison, (Court of Chancery of New Jersey. May 14, and James Todd, for complainant James E. 1907.)

Howell and Frank R. Lawrence, for defend1. CORPORATIONSSALE or CORPORATE PROP ants.

ERTY-VALIDITY AS AGAINST DISSENTING
STOCKHOLDERS.

EMERY, V. O. This is an injunction bill An existing corporation agreed to sell its property to a new corporation organized by the

filed by a stockholder of the United Box Officers of the existing corporation, the presi Board Company against the company and its dent and vice president being the underwriters directors, and also against another corporafor 25,000 shares of capital stock of the new corporation, being all of the stock except

tion, the American Box Board Company, and $1,000, subscribed for organization purposes.

its directors, to enjoin the execution of an The agreement gave to the stockholders of the agreement between the two defendant comexisting corporation the prior right to subscribe

panies for the sale of certain assets of the for the stock of the new corporation, and stipulated for a cash installment and for the pay.

United Company to the American Company. ment of the balance in installments. To what The defendant companies are corporations of extent stockholders of the

existing company had this state. The agreement for sale is attacksubscribed to the new stock, or whether any

ed as a fraud on the United Company, and stockholders other than the president and vice president had so subscribed, did not appear.

the bill is filed to protect its rights in the Held, that a dissenting stockbolder could ques assets proposed to be sold. Application is tion the validity of the sale, notwithstanding now made for a preliminary injunction re the offer to sell stock, since the condition of subscription for stock in the new corporation

straining the sale. made the stockholder liable for additional pay

The affidavits disclose substantially the ments, and required his participation in an following facts: The United Box Board Comother company.

pany (which I shall call the United Company) [Ed. Note.-For cases in point, see Cent. Dig.

is the owner of 42,980 shares of the stock of vol. 12, Corporations, $ 783.]

the American Strawboard Company, of the 2. SAME.

par value of $100 per share, which stock is A sale by a corporation of its property

pledged with the Trust Company of America, may be adjudged voidable as against it, at its suit or at the suit of a dissenting stockholder, as security, for $1,302,400 collateral trast by reason of constructive fraud, arising from bonds issued by the United Company, and is the fact that the sale was made to its director's

also the owner of 1,975 shares of Strawboard or to a buyer controlled by them in making the purchase, or that the sale was not at a fair

Company stock not pledged as such security. price.

It has also in its treasury, for sale, general (Ed. Note.-For cases in point, see Cent. Dig. mortgage bonds to the amount of $975,000; vol. 12, Corporations, $$ 1401, 1402.)

these bonds being secured on property of the 3. SAME.

United Company, other than the Strawboard Contracts with a corporation for the serv Company stock. The United Company has a ices of a director, to be performed in the man

floating debt of about $850,000, and of this agement of the ordinary business of a corpora

about $765,000 has for some time been adtion, are valid, subject to judicial review, so far as the amount of compensation is concern vanced by, or carried on the credit of, Mr. ed, either on behalf of stockholders of a going Barber, the president, and Mr. Fleming, the corporation, or the creditors of an insolvent

vice president of the company, both of them one.

directors of the company, by indorsements of (Ed. Note.-For cases in point, see Cent. Dig. vol. 12, Corporations, 88 1401, 1402.]

the company's paper. As security for these

advancements and indorsements, they hold 4. SAME. Advances of money to a corporation by a

the $975,000 bonds above referred to. Whethdirector thereof may be secured, and a sale of er any others of the directors are creditors property to the director to pay the debt is valid, or indorsers does not clearly appear. The so far as the transfer is concerned, subject to

United Company, on December 20, 1906, made review on the question of the fairness of the price.

an agreement with the American Box Board (Ed. Note.-For cases in point, sec Cent. Dig.

Company, a third company, for the sale to vol. 12, Corporations, 88 1401, 1402.)

the latter of all of the Strawboard Company 5. INJUNCTION-PRELIMINARY INJUNCTION.

stock and $562,500 of its general mortgage Where the proofs show that a dissenting bonds. The entire purchase price of the stockholder, suing a corporation to restrain it stocks and bonds is fixed together at the sinfrom carrying out a contract for the sale of its gle sum of $850,000, payable in three install. property, may make out a case entitling him to avoid the sale on behalf of the corporation, he

ments of $250,000 each, on the 15th days of is entitled to such a preliminary injunction as

January, April, and July, 1907 respectively, will render a decree in favor of the corporation and the balance of $100,000 on October 15, effective, if one should be finally made.

1907. The American Box Board Company [Ed. Note.-For cases in point, see Cent. Dig. vol. 27, Injunction, 88 86, 89.]

agrees, in addition, to execute an agreement

assuming the payment of the outstanding colSuit by Sidney Mitchell against the United lateral trust bonds, with interest, after JanuBox Board & Paper Company and others. ary 15, 1907, together with the sinking fund On application for preliminary injunction. payments. The deliveries of the bonds and Heard on bill and affidavits, answering affi stock are, however, separated, and on the

payment of the first installment of $250,000 and requiring his participation in another on account of the whole purchase price, mort company subject to other control, precludes gage bonds to the amount of $300,000 are to this offer from being considered as substanbe delivered, and on payment of the second tially an offer of an equitable share as on installment of $250,000 on account, the re a division of the assets of the United Commaining $262,500 of bonds are to be delivered. pany, and entitles the United Company, or a On payment of the third installment of $250, dissenting stockholder suing in its right, to 000, the 1,975 unpledged shares of the Straw question the sale without regard to such offer. board Company stock are to be delivered to The 34 per cent. cash subscriptions make up the American Company, and the United Com- the $850,000 required for the cash payments pany is then to deliver to the Trust Company of the agreement, which are proposed to be (which holds the 42,980 shares of Strawboard used by the directors of the vendor company Company stock) an assignment to the Ameri to pay the floating debt of the vendor company can Company of the equity in these shares, due to or guarantied by the two directors subject to the collateral trust mortgage. The of the vendor company. The underwriting Trust Company is to deliver this assignment agreement of these two directors seems to be to the American Company upon payment to at present practically the sole asset of the the Trust Company (for account of the United vendee company, and, in view of this situaCompany) of the last installment of $100,000, tion, it should, on the present application, be and upon the delivery to the Trust Company considered that the validity of the sale must for account of the United Company of a due or may be inally determined under the as. and sufficient instrument in writing of the pect of a sale to the two directors of the American Company, assuming and agreeing vendor company, who control the vendee to pay the collateral trust bonds, with in company, and whose claims against the ven. terest. The agreement contains two provi dor company are proposed to be satisfied from sions, inserted, as is now claimed by the de the proceeds of sale. Counsel on both sides fendant directors, for the purpose of specially have argued the case from this standpoint, protecting the rights of the United Company and complainant claims (1) that on the admitand all its stockholders. The first is a clause ted facts the sale is illegal and void, and in the agreement by which the United Com should be altogether restrained, without repany has the right to repurchase all of the gard to the question of fairness of price; (2) property and rights to be sold to the American that the sale of the Strawboard Company Company at any time before January 2, stock is for a grossly inadequate price; and 1908, upon repayment by the United Company (3) that the proposed sale is a scheme or conof the purchase money which has been paid, spiracy to deprive the United Company of with 10 per cent. interest, and surrendering its most valuable asset, and secure its benefit for cancellation any agreements assuming to the directors making the sale. On the payments on the collateral trust mortgage. part of the defendant directors it is claimed The second is a provision by which the Amer (1) that the sale is made by the directors, as ican Company gives to the stockholders of managers of the business of the company, the United Company the prior right to sub and, in the absence of fraud or dishonest exscribe for its stock, for the purpose of carry ercise of judgment, cannot be questioned by ing out this agreement of sale between the the company or stockholders suing in the two companies, and the terms of subscription right of the company; (2) that the sale was offered by the American Company for its full for a full and fair price, and, in the present paid shares of $100 are cash installments of circumstances and financial condition of the 34 per cent., three installments of 10 per cent. company, is the best and only method of reeach, payable on the 10th days of January, lieving it of pressing debts, and assuring a April, and July, 1907, and 4 per cent. on Oc more satisfactory financial condition; (3) tober 10, 1907, th balance as ca for by that the charge of actual fraud and conthe directors of the American Company (not spiracy to obtain the stock for the directors more than 10 per cent. a year) until fully is without any foundation or warrant. paid.

The charges of conspiracy and actual It is admitted in defendant's affidavits that fraud seem to be fully and fairly answered the vendee company, the American Box Board by the, affidavits; but, in order to have reCompany, was organized at the instance of lief on this bill, it is not necessary, in my the officers and directors of the United Com judgment, to prove such actual fraud. Ir pany, and also that Messrs. Barber and Flem the sale should be held voidable as against ing are the underwriters for 25,000 shares of the vendor company, by reason of legal or its capital stock, being all of its stock ex constructive fraud arising from the fact that cept $1,000 subscribed for organization pur the sale was made to its directors, or to a poses. To what extent stockholders of the vendee controlled by them in making the pur United Company have subscribed to the chase or that the sale was not at a fair price. American Company stock, or whether any the sale might be set aside on this bill. The stockbolders other than the defendant direct application will therefore be disposed of from ors have so subscribed, does not appear. The that view of the scope of the bill. condition of the subscription making the As to the validity of a contract made by a stockholder liable for additional payments, corporation, through its directors, with one

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or more of their body, a distinction seems to Comm. 1887). In this case a director sold be made in the decisions of our courts, de one of his own vessels to a shipping company, pendent to some extent or the nature of the and the sale was affirmed by the stockholdcontract. Contracts for the services of a di ers, with the aid of his own vote. Sir Richrector, to be performed in the management of ard Bagally says on this point: “The general its ordinary business, are valid, but subject principle is well established that, in the abto judicial review, so far as the amount of sence of charter provisions, a director of a compensation is concerned, and this either company is precluded from dealing on be on behalf of stockholders of a going corpo half of the company, with himself, and from ration, or the creditors of an insolvent cor entering into engagements in which he bas a poration. I examined all the decisions of personal Interest, conflicting, or which possiour courts on this point in Lillard v. Oil, etc., bly may conflict, with the interests of those Co., 56 Atl. 254, 69 N. J. Eq. (1903). whom he is bound by fiduciary duty to proAdvances of money by a director to the cor tect, and this rule is as applicable to the case poration may be secured, and á sale of prop of one of several directors as to a managing erty to the director to pay such debt is val or sole director. Any such dealing or engage id, so far as the transfer is concerned, but ment may, however, be affirmed or adopted the price must be a fair one, and the price by the company, provided such affirmance or actually fixed is not final, but is subject | adoption is not brought about by unfair or to review. Wilkinson v. Bauerle, 41 N. J. Eq. | improper means, and is not illegal or fraudu635, 643, et seq., 7 Atl. 514 (Err. & App. 1886). lent or oppressive towards those shareholdIn Stewart v. Lehigh Valley R. R. Co., 38 ers who oppose it.” N. J. Law, 505, 522 (Err. & App.), the In the present case the agreement for sale language of Mr. Justice Dixon, while saving was not communicated to the stockholders to the director of a corporation rights not until after its execution. It has not been afarising out of express contract, including the firmed by the stockholders at any meeting, right to the repayment of money loaned, is and if no such affirmance takes place, one broad enough to exclude all express con of the questions at final hearing will be tracts, and, if applicable to the circumstances whether the company (or complainant suing of this case, might make this sale altogether on its right) can avoid the transaction as voidable by the company. For, while the being substantially a sale of the company's transaction in one aspect of it was, or may assets to one or more of its directors, and be claimed to be, a sale of the company's as not merely, as in Wilkinson V. Bauerle, an sets for the purpose of paying its debts, yet, exercise in good faith of the power of the in view of the fact that these debts and lia directors to sell or transfer assets of the combilities appear to be already secured by the pany for the purpose of paying its debts, deposit of mortgage bonds, the transaction leaving the fairness of the price to be de in other aspects may be taken to be sub termined. If the sale should be beld to be a stantially an independent sale of the Straw proper exercise of the power of the directors, board Company stock, as to the advisability the further question will then arise as to the and terms of which the directors were so se fairness of the transaction and of the price. sponsible to the company in their fiduciary If the sale is to be treated as a sale to the capacity that a sale to any of their number directors, then the burden of showing such could be avoided by the company, without in fairness is on the directors. These questions quiry as to its terms or its favorable or un cannot be properly decided until all of the favorable character. The general rule that facts relating to the sale and to the value directors cannot lawfully enter into a con of the Strawboard Company stock, and the tract, in the benefit of which even one of probable effect upon the United Company of their number participates, without the knowl the permanent withdrawal of the Strawboard edge and consent of the stockholders, was re Company stock from its assets and from its stated in United States Steel Corporation v. control, are developed at final hearing. But, Hodge, 64 N. J. E. 813 (Err. & App. 1902) inasmuch as the proofs now presented show 54 Atl. 1, and declared to be so firmly en that the complainant may at the hearing trenched as not to be open to debate. The make out a case, entitling him to avoid the power of the stockholders to affirm the con sale on behalf of the company, he is entitled tract made with a director was recognized in to such preliminary restraint as will render this case, and for the reason that such con a decree in the company's favor effective, if tracts are voidable only as against the com it should finally be made. This can be se pany considered as composed of the whole cured, I think, by enjoining the final delivery body of stockholders, not voidable by each of the shares of Strawboard Company stock, stockh in his own individual right. Lil and the execution and delivery of the assignlard v. Oil, etc., Co. (N. J. Ch.) 56 Atl. 254, ment of the shares of this stock now in the 257 (Emery, V. C., 1903). This view of the custody of the Trust Company, until the final voidability of a contract of sale by a director hearing, or further order. to a corporation, and its affirmance by a As to the delivery of the bonds, the situastockholder's vote, is affirmed in a leading | tion is different. In the circular letter of DeEnglish case. North Western Transportation cember 20, 1906, issued by the directors, anCompany v. Beatty, 12 App. Cas. 589 (Jud. / nouncing the sale to the American Company,

and inviting stockholders to participate, the vit upon which the judgment was entered consideration price of the bonds and of the does not state the true consideration of the Strawboard Conipany stock is separated, bond as required by the statute, or, rather, $100,000 being fixed as the value of the stock, that it does not state any consideration at in the directors' judgment, and $450,000 as all, because it does not show an enforceable the value of the $562,500 bonds, being 80 debt. The affidavit is in these words : "Ella per cent. of the par value.

In the agree Etta Smith, being duly sworn, saith she is ment, as above stated, on the first two pay the plaintiff named below, and that the true ments, aggregating $500,000, the bonds are to consideration of the bond of which the prebe delivered. No objection is made to the price ceding is a copy on which judgment is about of 80 per cent. fixed for the bonds, or to their to be confessed was and is the sum of two sale to the American Company at that price. thousand four hundred and seventy-five dolIt would seem, therefore, that no injunction lars and forty-nine cents, being the amount should be issued against carrying out this of money due from the said Josepbine T. portion of the agreement of sale, if the Amer Weaver to this deponent on account of monican Company and the directors of the Unit ey which came to her hands as the executrix ed Company choose to do so, and, upon set of the will of Samuel W. Weaver, and intertling the order for preliminary injunction, est due on the same, and that the debt for I will hear them as to the necessity or pro which judgment is confessed is justly and priety of imposing as a condition of granting honestly due and owing to Ella Etta Smith, the injunction such terms as will protect de and that the judgment is not confessed to fendants, if this portion of the contract be answer any fraudulent intent or purpose or carried out.

to protect the property of the defendant from any other creditors."

The transaction thus succinctly stated is (75 N. J. L. 31)

that, the sum named in the affidavit being in SMITH V. WEAVER.

the hands of the obligor as executrix and due (Supreme Court of New Jersey. June 10, to be paid to the obligee by her in that ca1907.)

pacity, she agreed in her personal capacity 1. JUDGMENT - BY CONFESSION - DEBTS FOR

to pay to the obligee the sum so due. It is Which JUDGMENT MAY BE CONFESSED.

not contended that this is not a true stateA judgment was entered upon a bond by virtue of the warrant of attorney upon an affi

ment of the actual transaction between the davit which stated that the consideration of the parties, and, this being so, it does not lie in bond was the sum of $2,475.49, being the the mouth of a stranger to the bond to say amount of money due from the obligor to the

that the debt created by it is without condeponent on the account of money which came to the obligor's hands as the executrix of the sideration. The consideration stated by the will of one Weaver and interest due on the affidavit is the retention by the obligor as same, and that the debt for which judgment is

executrix of the precise sum that she agrees confessed is justly and honestly due and owing to deponent, and that the judgment is not con

to pay to the obligee, and the consideration fessed to answer any fraudulent purpose, etc. detrimental to the obligee is her forbear

Held, that judgment was properly entered on ance with respect to the sum so due to her this affidavit.

from the obligor as executrix. “So due" in 2. SAME.

this context, it should be noted, means that The obligee of a bond given for a valid consideration may enter judgment by virtue of the

which ought to be paid and not that which is warrant of attorney for any debt or demand legally actionable, and it should further be that would sustain an action under the bond noted that the statute with respect to bonds against the maker thereof, provided such de

and warrants of attorney treats the conmand at the time such judgment is confessed is justly and honestly due and owing in the sense

sideration of a bond and the debt for which that it is an unpaid indebtedness, and not in judgment is confessed as two separate and the sense that a fixed day of payment has been distinct things. In the opinion adopted by reached and passed.

the Court of Errors and Appeals in the case 3. SAME. The case of Strong V. Gaskill, 53 N. J.

of Strong v. Gaskill, 53 N. J. Law, 665, 25 Law, 665, 25 Atl. 19, affirmed on the opinion Atl. 19, it was said, touching the statute in contained in 59 Atl, 339, followed.

question: (Syllabus by the Court.)

"That act, in speaking of the debt to be Certiorari by Josephine T. Weaver against

recovered, concerns itself solely with the debt

in existence at the time of the recovery of Ella Etta Smith. Rule to show cause why

the judgment. While it requires a true state a judgment on bond and warrant of attor

ment of the consideration of the bond, it ney should not be set aside. Rule discharged.

leaves all matters appertaining thereto as Argued February term, 1907, before GAR

they were before its passage. The debt it RISON, SWAYZE, and TRENCHARD, JJ.

speaks of is the one in existence at the time John J. Crandall, for prosecutor. Melosh of the making of the affidavit by virtue of & Morten, for defendant.

which the judgment is entered. The con

sideration of the bond is required to be stat. GARRISON, J. A judgment entered upon ed, in order that it may be seen whether the a bond by virtue of the warrant of attorney original transaction was a valid one and cais attacked upon the ground that the affida- | pable of sustaining the debt for which judg

referred to is not, however, officially report ed, and is to be found in accessible form only in 59 Atl. 339. We have sufficiently in. dicated the grounds for our conclusion that the'attack upon the judgment in the present case is without force.

The rule to show cause is discharged.

ment is to be entered, not whether the debt itself was in existence at the time the bond was given. In other words, it does not prescribe that judgments may be entered for such debts only as antedated the delivery of the bond.

"In prescribing what the affidavit shall contain, the act says that it shall state the true consideration of the bond. It then adds, in a separate clause, 'and shall further set forth that the debt or demand for which judgment is confessed is (not "was"] justly and honestly due and owing.' The first clause has reference to the validity of the bond; the second to the legal propriety of the judgment. It treats them as two different things, leaving the connecting links to be controlled by the principles ordinarily applicable to these two distinct subjects of adjudication. The latter requirement is not that the original debt, or so much thereof as remains unpaid, may be set forth and re covered, but that judgment may be confessed for any debt honestly due and owing under said bond; that is, any honest debt supported by the consideration upon which the validity of the bond itself depends. Reading the whole section together, it confers upon a party holding a bond given for a valid consideration the right to enter judgment for any demand which is of such a nature that it would sustain an action under the bond against the maker thereof, provided such demand, at the time of the confession of judg. ment, is honestly due and owing.

"This contention receives support from the history of the legislation in question. At the time of the passage of the original act, in 1817, the language used was that the affidavit should state the true cause of action. In 1820 this language was altered so as to require a statement, not of the cause of ac. tion, but of the true consideration of the

bond. The significance of this change is apparent in the light of the view above in. dicated.

"Nor do the words 'justly and honestly due and owing' limit the indebtedness for which judgment can be entered to such only as present an accrued right of action. Debts now due and owing, in the sense that they are unpaid indebtedness, is what is meant, not that a fixed day of payment has been reached and passed. *

"If the affidavit state the consideration by giving truthfully the substance of the transaction, a judgment entered for an honest demand for an actual indebtedness, and without fraudulent purpose, will not be open to the attack of other creditors merely because the affidavit is inartificially drawn. The word 'true,' in this connection, means that which is frank and actual, rather that which is precise and technical."

Strong v. Gaskill was affirmed in 53 N. J. Law, 665, 25 Atl. 19, upon the opinion delivered in the circuit court from which the above excerpt is taken. The opinion thus

(75 N. J. L. 1) STATE V. LANG. (Supreme Court of New Jersey. June 10, 1907.) 1. CRIMINAL LAW-PLEA IN ABATEMENT-INCOMPETENCY OF GRAND JURORS.

One indicted by a grand jury, two members of which were disqualified by age, cannot, though barred from challenging the jurors, interpose a plea in abatement, but he may attack the legality of the jury by motion to quash the indictment.

[Ed. Note.-For cases in point, see Cent. Dig. vol. 14, Criminal Law, 640.] 2. CONSTITUTIONAL LAW_EQUAL PROTECTION

OF THE LAWS - CRIMINAL PROSECUTIONS
INDICTMENT-GRAND JURY.

Gen. St. p. 1833, $ 6, prescribing the qualid cations of grand jurors, and declaring that, where any person disqualified shall be summoned as a grand juror, it shall be good cause of challenge, provided that no exception to any such juror on account of his citizenship or age shall be allowed after he has been sworn, does not deny to one the equal protection of the laws in not being afforded an opportunity to challenge members of a grand jury disqualified by reason of age because the crime charged against him was committed while the grand jury was in session, for it operates alike on all persons under like circumstances.

[Ed. Note.--For cases in point, see Cent. Dig. vol. 10, Constitutional Law, 8 711.] 3. CRIMINAL LAW-PREJUDICIAL ERBOR-RE

FUSAL TO QUASH INDICTMENT-DISQUALIFICATION OF GRAND JURORS.

Where one charged with homicide was properly found guilty, the error, if any, in overruling a motion to quash the indictment be cause of disqualification of two members of the grand jury finding the indictment was not prejudicial.

[Ed. Note.-For cases in point, see Cent. Dig. vol. 15, Criminal Law, $ 3085.) 4. JURY — DISCRETION OF COURT - EXCUSING JUROR.

The court in a criminal case did not abuse its discretion in excusing from service as a juror a member of the National Guard of the state at a time when his regiment was in camp at the state camp ground.

[Ed. Note.-For cases in point, see Cent. Dig. vol. 31, Jury, 88 384-386.) 5. HOMICIDE-MURDER IN FIRST DEGREEINSTRUCTIONS.

An instruction on a trial for homicide that murder in the first degree consists in the taking of a human life with intent to kill and with deliberation and premeditation; that it is not necessary that deliberation and premeditation should continue for an hour or for a minute, but that it is enough that the design to kill be fully formed and purposely executed; and that the elements constituting the crime are an intent to kill and an execution of that intent with deliberation and premeditation-properly defines murder in the first degree.

(Ed. Note.-For cases in point, see Cent. Dig. vol. 26, Homicide, $ 12.] 6. CRIMINAL LAW-MISCONDUCT OF PROSECUTING ATTORNEY-ARGUMENT-EVIDENCE.

Where, on a trial for homicide, it appeared that accused killed his niece, whom he desired

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