(72 N. J. E. 580) MITCHELL v. UNITED BOX BOARD & PAPER CO. et al.

(Court of Chancery of New Jersey. May 14, 1907.)

1. CORPORATIONS SALE OF CORPORATE PROPERTY-VALIDITY AS AGAINST DISSENTING STOCKHOLDERS.

An existing corporation agreed to sell its property to a new corporation organized by the officers of the existing corporation, the president and vice president being the underwriters for 25,000 shares of capital stock of the new corporation, being all of the stock except $1,000, subscribed for organization purposes. The agreement gave to the stockholders of the existing corporation the prior right to subscribe for the stock of the new corporation, and stipulated for a cash installment and for the payment of the balance in installments. To what extent stockholders of the existing company had subscribed to the new stock, or whether any stockholders other than the president and vice president had so subscribed, did not appear. Held, that a dissenting stockholder could question the validity of the sale, notwithstanding the offer to sell stock, since the condition of subscription for stock in the new corporation made the stockholder liable for additional payments, and required his participation in another company.

[Ed. Note.-For cases in point, see Cent. Dig. vol. 12, Corporations, § 783.]

4. SAME.

Advances of money to a corporation by a director thereof may be secured, and a sale of property to the director to pay the debt is valid, so far as the transfer is concerned, subject to review on the question of the fairness of the price.

[Ed. Note.-For cases in point, sec Cent. Dig. vol. 12, Corporations, §§ 1401, 1402.]

5. INJUNCTION-PRELIMINARY INJUNCTION.

Where the proofs show that a dissenting stockholder, suing a corporation to restrain it from carrying out a contract for the sale of its property, may make out a case entitling him to avoid the sale on behalf of the corporation, he is entitled to such a preliminary injunction as will render a decree in favor of the corporation effective, if one should be finally made.

[Ed. Note.-For cases in point, see Cent. Dig. vol. 27, Injunction, §§ 86, 89.]

Suit by Sidney Mitchell against the United Box Board & Paper Company and others. On application for preliminary injunction. Heard on bill and affidavits, answering affi

davits, and cross-examination in open court Granted.

Griggs & Harding, Richard W. Morrison, and James Todd, for complainant. James E. Howell and Frank R. Lawrence, for defendants.

EMERY, V. C. This is an injunction bill filed by a stockholder of the United Box Board Company against the company and its directors, and also against another corporation, the American Box Board Company, and its directors, to enjoin the execution of an agreement between the two defendant companies for the sale of certain assets of the United Company to the American Company. The defendant companies are corporations of this state. The agreement for sale is attacked as a fraud on the United Company, and the bill is filed to protect its rights in the assets proposed to be sold. Application is now made for a preliminary injunction restraining the sale.

The affidavits disclose substantially the following facts: The United Box Board Company (which I shall call the United Company) is the owner of 42,980 shares of the stock of the American Strawboard Company, of the par value of $100 per share, which stock is pledged with the Trust Company of America, as security, for $1,302,400 collateral trast bonds issued by the United Company, and is also the owner of 1,975 shares of Strawboard Company stock not pledged as such security. It has also in its treasury, for sale, general mortgage bonds to the amount of $975,000; these bonds being secured on property of the United Company, other than the Strawboard Company stock. The United Company has a floating debt of about $850,000, and of this about $765,000 has for some time been advanced by, or carried on the credit of, Mr. Barber, the president, and Mr. Fleming, the vice president of the company, both of them directors of the company, by indorsements of the company's paper. As security for these advancements and indorsements, they hold the $975,000 bonds above referred to. Whether any others of the directors are creditors or indorsers does not clearly appear. The United Company, on December 20, 1906, made an agreement with the American Box Board Company, a third company, for the sale to the latter of all of the Strawboard Company stock and $562,500 of its general mortgage bonds. The entire purchase price of the stocks and bonds is fixed together at the single sum of $850,000, payable in three installments of $250,000 each, on the 15th days of January, April, and July, 1907 respectively, and the balance of $100,000 on October 15, 1907. The American Box Board Company agrees, in addition, to execute an agreement assuming the payment of the outstanding collateral trust bonds, with interest, after January 15, 1907, together with the sinking fund payments. The deliveries of the bonds and stock are, however, separated, and on the

payment of the first installment of $250,000 on account of the whole purchase price, mortgage bonds to the amount of $300,000 are to be delivered, and on payment of the second installment of $250,000 on account, the remaining $262,500 of bonds are to be delivered. On payment of the third installment of $250,000, the 1,975 unpledged shares of the Strawboard Company stock are to be delivered to the American Company, and the United Company is then to deliver to the Trust Company (which holds the 42,980 shares of Strawboard Company stock) an assignment to the American Company of the equity in these shares, subject to the collateral trust mortgage. The Trust Company is to deliver this assignment to the American Company upon payment to the Trust Company (for account of the United Company) of the last installment of $100,000, and upon the delivery to the Trust Company for account of the United Company of a due and sufficient instrument in writing of the American Company, assuming and agreeing to pay the collateral trust bonds, with interest. The agreement contains two provisions, inserted, as is now claimed by the defendant directors, for the purpose of specially protecting the rights of the United Company and all its stockholders. The first is a clause in the agreement by which the United Company has the right to repurchase all of the property and rights to be sold to the American Company at any time before January 2, 1908, upon repayment by the United Company of the purchase money which has been paid, with 10 per cent. interest, and surrendering for cancellation any agreements assuming payments on the collateral trust mortgage. The second is a provision by which the American Company gives to the stockholders of the United Company the prior right to subscribe for its stock, for the purpose of carrying out this agreement of sale between the two companies, and the terms of subscription offered by the American Company for its full paid shares of $100 are cash installments of 34 per cent., three installments of 10 per cent. each, payable on the 10th days of January, April, and July, 1907, and 4 per cent. on October 10, 1907, the balance as called for by the directors of the American Company (not more than 10 per cent. a year) until fully paid.

It is admitted in defendant's affidavits that the vendee company, the American Box Board Company, was organized at the instance of the officers and directors of the United Company, and also that Messrs. Barber and Fleming are the underwriters for 25,000 shares of its capital stock, being all of its stock except $1,000 subscribed for organization purposes. To what extent stockholders of the United Company have subscribed to the American Company stock, or whether any stockholders other than the defendant directors have so subscribed, does not appear. The condition of the subscription making the stockholder liable for additional payments,

and requiring his participation in another company subject to other control, precludes this offer from being considered as substantially an offer of an equitable share as on a division of the assets of the United Company, and entitles the United Company, or a dissenting stockholder suing in its right, to question the sale without regard to such offer. The 34 per cent. cash subscriptions make up the $850,000 required for the cash payments of the agreement, which are proposed to be used by the directors of the vendor company to pay the floating debt of the vendor company due to or guarantied by the two directors of the vendor company. The underwriting agreement of these two directors seems to be at present practically the sole asset of the vendee company, and, in view of this situation, it should, on the present application, be considered that the validity of the sale must or may be finally determined under the aspect of a sale to the two directors of the vendor company, who control the vendee company, and whose claims against the vendor company are proposed to be satisfied from the proceeds of sale. Counsel on both sides have argued the case from this standpoint, and complainant claims (1) that on the admitted facts the sale is illegal and void, and should be altogether restrained, without regard to the question of fairness of price; (2) that the sale of the Strawboard Company stock is for a grossly inadequate price; and (3) that the proposed sale is a scheme or conspiracy to deprive the United Company of its most valuable asset, and secure its benefit to the directors making the sale. On the part of the defendant directors it is claimed (1) that the sale is made by the directors, as managers of the business of the company, and, in the absence of fraud or dishonest exercise of judgment, cannot be questioned by the company or stockholders suing in the right of the company; (2) that the sale was for a full and fair price, and, in the present circumstances and financial condition of the company, is the best and only method of relieving it of pressing debts, and assuring a more satisfactory financial condition; that the charge of actual fraud and conspiracy to obtain the stock for the directors is without any foundation or warrant.

(3)

The charges of conspiracy and actual fraud seem to be fully and fairly answered by the affidavits; but, in order to have relief on this bill, it is not necessary, in my judgment, to prove such actual fraud. If the sale should be held voidable as against the vendor company, by reason of legal or constructive fraud arising from the fact that the sale was made to its directors, or to a vendee controlled by them in making the pur chase or that the sale was not at a fair price. the sale might be set aside on this bill. The application will therefore be disposed of from that view of the scope of the bill.

As to the validity of a contract made by a corporation, through its directors, with one

and inviting stockholders to participate, the consideration price of the bonds and of the Strawboard Company stock is separated, $400,000 being fixed as the value of the stock, in the directors' judgment, and $450,000 as the value of the $562,500 bonds, being 80 per cent. of the par value. In the agreement, as above stated, on the first two payments, aggregating $500,000, the bonds are to be delivered. No objection is made to the price of 80 per cent. fixed for the bonds, or to their sale to the American Company at that price. It would seem, therefore, that no injunction should be issued against carrying out this portion of the agreement of sale, if the American Company and the directors of the United Company choose to do so, and, upon settling the order for preliminary injunction, I will hear them as to the necessity or propriety of imposing as a condition of granting the injunction such terms as will protect defendants, if this portion of the contract be carried out.

(75 N. J. L. 31)

SMITH v. WEAVER.

(Supreme Court of New Jersey. June 10, 1907.)

1. JUDGMENT BY CONFESSION - DEBTS FOR WHICH JUDGMENT MAY BE CONFESSED.

A judgment was entered upon a bond by virtue of the warrant of attorney upon an affi davit which stated that the consideration of the bond was the sum of $2,475.49, being the amount of money due from the obligor to the deponent on the account of money which came to the obligor's hands as the executrix of the will of one Weaver and interest due on the same, and that the debt for which judgment is confessed is justly and honestly due and owing to deponent, and that the judgment is not confessed to answer any fraudulent purpose, etc. Held, that judgment was properly entered on this affidavit.

2. SAME.

The obligee of a bond given for a valid consideration may enter judgment by virtue of the warrant of attorney for any debt or demand that would sustain an action under the bond against the maker thereof, provided such demand at the time such judgment is confessed is justly and honestly due and owing in the sense that it is an unpaid indebtedness, and not in the sense that a fixed day of payment has been reached and passed.

3. SAME.

The case of Strong v. Gaskill, 53 N. J. Law, 665, 25 Atl. 19, affirmed on the opinion contained in 59 Atl. 339, followed.

(Syllabus by the Court.)

Certiorari by Josephine T. Weaver against Ella Etta Smith. Rule to show cause why a judgment on bond and warrant of attorney should not be set aside. Rule discharged. Argued February term, 1907, before GARRISON, SWAYZE, and TRENCHARD, JJ.

John J. Crandall, for prosecutor. Melosh & Morten, for defendant.

GARRISON, J. A judgment entered upon a bond by virtue of the warrant of attorney is attacked upon the ground that the affida

vit upon which the judgment was entered does not state the true consideration of the bond as required by the statute, or, rather, that it does not state any consideration at all, because it does not show an enforceable debt. The affidavit is in these words: "Ella Etta Smith, being duly sworn, saith she is the plaintiff named below, and that the true consideration of the bond of which the preceding is a copy on which judgment is about to be confessed was and is the sum of two thousand four hundred and seventy-five dollars and forty-nine cents, being the amount of money due from the said Josephine T. Weaver to this deponent on account of money which came to her hands as the executrix of the will of Samuel W. Weaver, and interest due on the same, and that the debt for which judgment is confessed is justly and honestly due and owing to Ella Etta Smith, and that the judgment is not confessed to answer any fraudulent intent or purpose or to protect the property of the defendant from any other creditors."

The transaction thus succinctly stated is that, the sum named in the affidavit being in the hands of the obligor as executrix and due to be paid to the obligee by her in that capacity, she agreed in her personal capacity to pay to the obligee the sum so due. It is not contended that this is not a true statement of the actual transaction between the parties, and, this being so, it does not lie in the mouth of a stranger to the bond to say that the debt created by it is without consideration. The consideration stated by the affidavit is the retention by the obligor as executrix of the precise sum that she agrees to pay to the obligee, and the consideration detrimental to the obligee is her forbearance with respect to the sum so due to her from the obligor as executrix. "So due" in this context, it should be noted, means that which ought to be paid and not that which is legally actionable, and it should further be noted that the statute with respect to bonds and warrants of attorney treats the consideration of a bond and the debt for which judgment is confessed as two separate and distinct things. In the opinion adopted by the Court of Errors and Appeals in the case of Strong v. Gaskill, 53 N. J. Law, 665, 25 Atl. 19, it was said, touching the statute in question:

"That act, in speaking of the debt to be recovered, concerns itself solely with the debt in existence at the time of the recovery of the judgment. While it requires a true statement of the consideration of the bond, it leaves all matters appertaining thereto as they were before its passage. The debt it speaks of is the one in existence at the time of the making of the affidavit by virtue of which the judgment is entered. The consideration of the bond is required to be stated, in order that it may be seen whether the original transaction was a valid one and capable of sustaining the debt for which judg

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 recovered, 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 judgment, 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 action, but of the true consideration of the bond. The significance of this change is apparent in the light of the view above indicated. *

"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

(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. 1853, § 6, prescribing the qualincations 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 ju ry 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, § 711.]

3. CRIMINAL LAW-PREJUDICIAL ERROR-REFUSAL 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, §§ 384-386.]

5. HOMICIDE-MURDER IN FIRST DEGREE— INSTRUCTIONS.

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