Opinion
Submitted February 14th, 1941.
Decided April 25th, 1941.
1. Defendant stockholder objects to the confirmation of the sale of the assets of the defendant company in dissolution to the general guardian of the infant judgment creditor of the company, for $65,000, made pursuant to an order of the Court of Chancery. Held, the cases of Federal Title and Mortgage Guaranty Co. v. Lowenstein, 113 N.J. Eq. 200, and Young v. Weber, 117 N.J. Eq. 242, are not precedent or authority for the objector in the instant case, which is one of a sale of corporate assets in liquidation, and a purchase thereat by one of the creditors of that corporation.
2. Assuming, as the objector to the confirmation of the sale herein contends, that the present case is substantially one of a sale in execution by a judgment creditor, no case is cited or known where the principles of the Young and Lowenstein Cases have been applied in such instance.
3. Assuming that the principles of the Young and Lowenstein Cases should be applied to cases of sales in liquidation or sales in execution by a judgment creditor, where circumstances exist similar to those forming the basis for the equitable relief granted in those cases, nevertheless, the objector here has not established the existence of such circumstances. The burden is upon him to establish them. The bid of $65,000 is certainly not a mere nominal bid, especially where the alleged actual value is only approximately double that amount. Neither has the objector established that the bid is unconscionably low or inadequate; nor is it true in the real sense of the term that there was an absence of competitive bidding in this case. Further, the objector has not established any condition of economic emergency at the time of the sale, and his affidavits as to his inability to raise capital are in nowise detailed or explicit.
4. Confirmation of the sale of the assets of the defendant company in dissolution ought not to be withheld under all the circumstances and proofs before the court. There is no evidence, nor even intimation, of any probability that any higher price could be obtained on a resale, if such should be ordered; rather the contrary. On the proofs it is not established that $65,000 is not the present fair actual value of the property.
5. All equitable relief to which the objecting stockholder herein can possibly be entitled can be preserved by reserving to him the right to apply hereafter, if and when proper circumstances arise, for some additional credit against his liability under the original decree adjudging the defendant company, the objector and another defendant jointly and severally liable to the infant, as, for example, if the present purchaser should re-sell the assets for a sum much greater than $65,000, or other facts should develop sufficient to establish that the judgment creditor had in fact obtained by these assets a value greater than $65,000 which should be credited against the original decree; and by providing that the confirmation of the present sale should be without prejudice or controlling effect if and when such later election be made.
6. The objecting defendant stockholder paid certain premiums on an insurance policy which was assigned to the defendant corporation as security for a debt due to the corporation from one of its debtors. The policy was sold as part of the corporate assets. Held, the defendant is entitled to an equitable lien on the policy for the amount of the premiums paid by him. If the purchaser of the corporation assets desires to keep the policy, she must pay him the amount of such lien.
On appeal from an order of the Court of Chancery advised by Vice-Chancellor Buchanan, who filed the following opinion:
"This matter comes up on application to confirm the sale of the assets of the defendant company, Smith Kanzler, Inc., as reported by the special master appointed to conduct such sale. The sale was made, at public sale, to the defendant, Mary A. Smith, general guardian of the infant for $65,000. Objection to confirmation is made by defendant, George Kanzler, on the ground (1) that the sale price is unconscionably lower than the actual value of the assets; (2) that the price bid is only a nominal price and that there was an absence of competitive bidding; (3) that an economic emergency existed at the time of sale, because of which George Kanzler was unable to protect himself by refinancing; (4) that at the time of sale George Kanzler was without resources to enable him to bid and purchase for a price higher than the $65,000 bid.
"The facts of the situation are briefly as follows: By the final decree in this cause, entered June 6th, 1939, it was adjudged that the defendant company and Kanzler and Mrs. Smith individually, were all jointly and severally liable to the infant and money decree was entered accordingly in the sum of $99,657.06, with interest and costs, — with the provision however that no execution should issue without leave of court until after the dissolution and liquidation of the defendant company; it was further decreed that the company should be dissolved and liquidated and its directors were constituted trustees in dissolution to sell the assets and out of the proceeds of sale pay first the amounts due the creditors of the company, including the amount decreed to be due to the infant, and distribute any balance among the stockholders. The stockholders, for all practical purposes are Kanzler and Mrs. Smith, — who are also two of the four trustees in dissolution.
"After nearly a year in office as trustees in dissolution, without having been able to negotiate a satisfactory private sale of the assets, the trustees reported to this court on May 7th, 1940, an offer by Kanzler to purchase the assets subject to the liabilities, the offer being to pay the amount due to the infant, such payment to be made $5,000 in cash and the balance of $90,000 by way of bond and mortgage on the assets, payable in installments over a term of 9 or 10 years. After a hearing, order was entered May 23d 1940, instructing the trustees not to accept this offer, and directing a public sale of the assets by a special master, (since the four trustees were equally divided in opposing interests).
"Such public sale was duly had, as hereinbefore set forth. The report sets forth, and all parties concede, that everything proper and possible was done in the way of advertising the sale and endeavoring to get the highest and best price possible. It further appears that the conditions of sale permitted purchase price to be paid half in cash and half by bond and mortgage at 4% payable over a period of 10 years; that the assets were put in bulk and also in parcels; that the highest aggregate amount bid for the parcels was $11,450, and the only bid in bulk was the bid of $65,000; that there were 31 persons present at the sale; that there were several other prospective purchasers willing to pay $50,000, but no more, for the entire assets, and one willing to pay $30,000, but no more for the real estate, but that these persons did not make their bids because the $65,000 bid made by Mrs. Smith was much higher than they were willing to pay.
"It is contended by the objector that the actual fair value of the assets was more than twice $65,000, and he presents affidavits by real estate appraisers fixing the fair value at about $110,000. He also refers to testimony of experts presented by the Smith interests at the final hearing in 1937, to the effect that the assets were worth approximately $160,000 at that time and says there is nothing to show any depreciation in value between 1937 and the present, but rather an appreciation. His theory is that the fair actual value at the time of sale was between $125,000 and $175,000, and that the situation is analogous to the situations before the court in the cases of Federal Title and Mortgage Guaranty Co. v. Lowenstein, 113 N.J. Eq. 200, and Young v. Weber, 117 N.J. Eq. 242; that the rule set forth in those cases should be adopted and applied in the instant case, i.e., that where there is a sale at a nominal or unconscionably low bid, plus the absence of competitive bidding, plus the existence of an economic emergency preventing refinancing, plus lack of financial ability by the mortgagor himself, a mortgage foreclosure purchase by the mortgagee will not be confirmed unless the mortgagee consents to the ascertainment of the actual fair value of the premises and to the credit of such amount upon his decree.
"In fact, although the written and filed objections to confirmation of the sale are unconditional, it appeared at the argument and by the briefs, that the actual object, sought by the objector, is a refusal of confirmation unless the judgment creditor will consent to an ascertainment of fair value and a corresponding credit on the judgment indebtedness. If such be done, there is no objection to the confirmation.
"Now in the first place the two cases cited are certainly not precedent or authority for the objector in the instant case. Those cases were cases of mortgage foreclosures, and purchase by the mortgagee at an inordinately low price, and objection by the mortgagor in order to prevent the mortgagees receiving a double or excessive amount in satisfaction of the mortgage debt, by buying the mortgaged property for far less than its actual value and then proceeding to sue for the deficiency on the decree. The instant case is not such; it is a sale of corporate assets in liquidation, — similar to a sale by a receiver of an insolvent corporation, — and a purchase thereat by one of the creditors of that corporation. No case is cited, or known by this court, where the principles of the Young and Lowenstein Cases have been applied in the circumstances of the present case.
"Moreover, — assuming (as the objector contends) that the present case is substantially a case of a sale in execution by a judgment creditor, — no case is cited or known where the principles aforesaid have been applied in the case of a sale in execution by a judgment creditor.
"In the third place, — assuming for the sake of argument that the principles of the Young and Lowenstein Cases should be applied to cases of sales in liquidation or sales in execution by a judgment creditor, where circumstances exist similar to those forming the basis for the equitable relief in the Young and Lowenstein Cases, — the objector here has not established the existence of such circumstances; and the burden is of course upon him to establish them.
"The bid of $65,000 is certainly not a mere nominal bid, — especially where the alleged actual value is only approximately double that amount. Neither has he established that it is unconscionably low or inadequate. It is possible that it is an inadequate price; but the contrary is at least equally possible, if not indeed probable. Nor is it true in the real sense of the term that there was an absence of competitive bidding. Although only the one bid, (of $65,000) was made, there were other prospective purchasers there; the fact that they did not bid was because the $65,000 bid was much greater than the bids (of approximately $50,000) which in their judgment was the full value of the assets to them. The inability of the trustees to negotiate any private sale at any higher price, during a whole year of effort seems of very considerable materiality and importance in any determination of fair value of the assets, — especially when it is borne in mind that a sale for cash was not required, but half the purchase price could be paid by a 10 year installment mortgage. Another factor of great importance is that the corporation has incurred operating losses aggregating over $48,000 during the last five and a half years, — the operating loss for the calendar year 1939 being nearly $15,000 and for the first five months of 1940 nearly $10,000. While it may well be true that some of this operating loss could be reduced by an efficient management not hampered by dissention and lack of control, it is not established how much of a reduction of loss could thereby be accomplished; and obviously, the income-producing ability of a manufacturing concern is a vital element in any determination of its sale value. Again, the objector has not established any condition of economic emergency at the time of sale. He has offered no proof of such, and it is common knowledge that business conditions in some lines of business are much better to-day than even in the "boom" period prior to the debacle of 1929, and that money is and for some time past has been loaned to business and manufacturing concerns by various financial agencies and institutions. The affidavits of the objector as to his inability to raise capital from financial institutions is in nowise detailed or explicit; he names only one such agency, (the R.F.C.), and does not say how much capital he endeavored thus to obtain. Very possibly his inability to obtain loans may simply mean that he was unable to persuade any financial institution that the value of the business and assets were as high as his own estimate, — that he was unable to procure a loan of the amount he desired; not that he could not obtain loans of some amounts. This also bears on the question of the fair actual value of the assets.
"It is concluded that under all the circumstances and the proofs before the court, confirmation ought not to be withheld. There is no evidence, nor even intimation, of any probability that any higher price could be obtained on a re-sale, if such should be ordered; rather the contrary. On the proofs presently before the court, it is not established that the present price is not the present fair actual value of the property, — certainly it is not established that the bid is "unconscionably" low. Cf. Fidelity Union Trust Co. v. Ritz Holding Co., 126 N.J. Eq. 148 and Fidelity Union Trust Co. v. Pasternack, 122 N.J. Eq. 180; affirmed, 123 N.J. Eq. 181.
"All equitable relief to which Kanzler can possibly be entitled can be preserved to him by reserving to him the right to apply hereafter, if and when proper circumstances arise, for some additional credit against his liability under the original decree, — such as, for instance, if the present purchaser should re-sell the assets for a much greater sum than $65,000, or other facts should develop sufficient to establish that the judgment creditor had in fact obtained by these assets a value greater than $65,000 which should be credited against the original decree; and by providing that the confirmation of the present sale should be without prejudice or controlling effect if and when such later application be made.
"There are one or two other matters which should be mentioned. One relates to an insurance policy assigned to the corporation as security for a debt due the corporation from one of its debtors. Some premiums on this policy admittedly were paid by Kanzler individually. The policy was sold as part of the corporate assets, subject however to the determination of Kanzler's claim to an equitable lien thereon for the amount of the premiums paid by him. It would seem that he is entitled to such lien, and that if the purchaser desires to keep the policy she must pay to Kanzler the amount of such lien.
"The matter of the compensation to be made to the special master was also discussed at the hearing. It seems doubtful that he is entitled to the same fees which would be payable to a sheriff under the statute. If the parties, (including the master) cannot agree on a proper allowance, it can be fixed on application to settle the terms of the order to be entered; and at the same time there can be fixed the amount which should be presently paid by the purchaser on account of the purchase price.
"Obviously not the entire $65,000 purchase price is to be credited against her money decree, but only such amount as she is ultimately entitled to receive on account of her money decree. Master's fees and costs and expenses of sale are of course to be deducted from the $65,000, before distribution.
"Moreover, it is obvious that the net amount receivable by the trustees in dissolution from the purchaser will not be sufficient to satisfy the corporation's judgment debt to the infant, but there are also other debts of the corporation for the trustees to pay. It seems clear that a condition of actual corporate insolvency exists. Consideration should be given by all parties to the question as to whether it is not incumbent for a decree of insolvency to be made, and the usual subsequent proceedings be taken as in the ordinary case of such insolvencies."
Mr. Samuel Koestler and Mr. Melvin J. Koestler, for the complainant-appellant.
Mr. Fred A. Lorentz, for the defendants-respondents.
The order under review will be affirmed, for the reasons expressed by Vice-Chancellor Buchanan.
For affirmance — THE CHIEF-JUSTICE, PARKER, CASE, BODINE, DONGES, HEHER, PERSKIE, PORTER, COLIE, DEAR, WELLS, WOLFSKEIL, RAFFERTY, HAGUE, THOMPSON, JJ. 15.
For reversal — None.