(72 N. J. Eq. 637)

OLDEN v. SASSMAN.

turned on the previous day, the sheriff's power to further execute it by an additional

1907.)

1. EXECUTION-LIEN-PRIORITY.

Where no levy is made under a writ of execution before its return, power to perfect the lien of the writ is lost, and any personalty not levied upon before such return may be subjected to a subsequent judgment creditor's execution.

[Ed. Note.-For cases in point, see Cent. Dig. vol. 21, Execution, § 230.]

2. SAME-EXTENT OF LEVY.

A sheriff's levy upon personalty particularly described, "and all other goods and chattels belonging to" defendant, did not cover a leasehold interest not part of the personalty particularly described, the officer who executed the writ not knowing of the property until he was asked to and did levy upon it under another writ after power to levy under the first writ had expired, and hence the subsequent execution creditor was entitled to the proceeds of the sale of the leasehold interest.

Bill by Charles H. Olden against Uriah Sassman. Complainant applies for an order directing the application of moneys raised by the sheriff from the sale of defendant's property under an execution for complainant. Granted.

John T. Bird, for applicant. Edwin R. Walker, for respondent.

BERGEN, V. C. The sheriff of the county of Mercer had delivered to him November 20, 1906, an execution issued out of the Mercer county circuit court in favor of Charles H. Mather against the defendant. By virtue of this execution the sheriff on the same day levied upon certain personal property, a particular inventory of which is attached to the writ, and concludes as follows: "All other goods and chattels belonging to Newton Uriah Sassman." This writ was returnable to the January term, 1907, of the Mercer county circuit court, which opened on the third Tuesday in January, which in the year 1907 fell on the 15th day of the month. On December 29, 1906, a writ of execution was Issued out of this court in favor of the complainant and against the defendant, returnable to the February term, 1907, which opened on the first Tuesday of the month. This execution was delivered to the sheriff' of Mercer county on January 2, 1907, and on the same day the sheriff levied upon the same personal property which was subject to the levy already made by him by virtue of the execution placed in his hands in favor of Mather, but on the 16th day of January, 1907, the sheriff made an additional levy upon the leasehold interest of Sassman in and to certain real estate in the county of Mercer. This levy was made after the return of the Mather writ; and, unless the chattel interest is included in the closing words of the sheriff's levy in the Mather Case, it was not levied upon by the sheriff under that writ, because on the 16th day of January, the Mather writ having been re

ceeded with the execution of his writ, and under it the sheriff sold to the complainant whatever rights the defendant had under the lease for the sum of $1,200. The complainant now asks to have the purchase price, less the sheriff's costs and expenses, applied towards the satisfaction of his writ, which application Mather resists, claiming that, as his writ of execution was placed in the sheriff's hands prior to that of the complainant, it bound all the chattel interest and personal property of the defendant from the time it was delivered to the sheriff, and, as such delivery preceded that of the complainant, he is entitled to have the money realized applied towards the liquidation of his writ, insisting, first, that, even if no actual levy had been made on the disputed property, nevertheless all the personal estate was made subject to his writ from the moment it reached the sheriff's hands; and, second, that the concluding clause in the sheriff's levy is a sufficient levy upon all personal property without a particular statement or inventory.

In support of the first proposition, counsel for Mather relies upon Evans v. Walsh, 41 N. J. Law, 281, 32 Am. Rep. 201, but this case does not go to the extent claimed by counsel. It only determines that the delivery of the writ binds the personal property from that time until its return day, and that the officer holding the writ may levy at any time during that period upon defendant's property, and that a subsequent execution issued during that period, under which a particular levy is made, does not acquire priority during the life of the previous writ, for under it the sheriff may, at any time before the return day levy upon defendant's property, and the levy becomes binding from the time the writ was delivered to the sheriff. The language of Mr. Justice Van Syckle, in delivering the opinion of the court in the Evans Case, is: "The lien acquired by the delivery is inchoate, and becomes perfected by actual levy. If no levy is made before the return of the writ, the goods of the defendant are free from its burden, either in the hands of a purchaser with notice, or as to subsequent execution creditors. But, if the levy is made, the lien dates from the delivery of the writ so as to maintain its rank against all intermediate incumbrances. Therefore no such title vests in the sheriff by a mere delivery of the writ as will maintain trover; for it may be that he will not pursue and perfect his right by making a levy, but, when the levy is duly made, the writ binds the property by the doctrine of relation from its delivery." In the case which we are considering the sheriff had the right, at any time before the return of the writ, to levy on the property in dispute to satisfy the prior execution, and in my judgment the lien of the

writ must be perfected before its return by a levy, and therefore, if no levy was made by the sheriff under the Mather writ before its return, his power to perfect the lien was gone, and any personal property not levied upon before the return of the writ might be disposed of to a purchaser with notice, or subjected to the execution of a subsequent Judgment creditor.

The next question to be considered is whether the disputed property, which was sold under complainant's execution, was levied upon by the sheriff under the Mather writ by the words contained in this levy, "All other goods and chattels belonging" to the defendant; for it is admitted that, although the sheriff made a very detailed and particular levy, the property sold under the complainant's execution is not specially mentioned, and, if subject to the writ, it is only because the expression, "All other goods and chattels," includes it. I am of opinion that It does not. The deputy sheriff who executed this writ was produced as a witness, and testifies that at the time the levy was made under the first writ, and even when the first levy was made under the second writ on January 2, 1907, he had no knowledge of the special property which he levied upon under the complainant's writ on the 26th day of January, on which date it was brought to his attention by the counsel of the complainant with request that he levy upon it, and that he did so. It was held by Vice Chancellor Pitney in Nelson v. Van Gazelle, etc., 45 N. J. Eq. 594-597, 17 Atl. 943, that, in order to make a valid levy on chattels, the officer having the writ must do some act in relation to them in the way of taking actual possession, or asserting dominion over them, and in Lloyd v. Wyckoff, 11 N. J. Law, 218, Mr. Justice Ford said that it was a well-established principle that if an officer receiving an execution makes a just and true inventory of the debtor's goods, and files it at the return of the writ, it amounts to a constructive seizure, and in this case, while the officer could not see, or perhaps actually seize, the chattel interest, an inventory of it attached to the writ before its return would amount to a constructive seizure. That was done under the complainant's writ, it was not done under the Mather writ, and in the case last cited the entry in the sealing docket was "levied on the goods and chattels of the defendant to the value of $5," regarding which Judge Ford said: "This does not specify one item for which the judgment creditor could recover value in case it was lost, consumed, embezzled, or wasted. There is no evidence to the debtor of what goods were taken away, nor to the creditors of what goods were left for them. It is not that inventory which in the decisions of the court (conformably to

the meaning of the statute) has been recognized and established as a constructive seizure. They have allowed great efficacy to such an inventory as the statute requires to be made. They have allowed it to avail an officer as much as actual seizure would have availed him, but, if he does not comply with the statute, he must show an actual seizure." Again, in Watson v. Hoel, 1 N. J. Law, 136, the sheriff, instead of indorsing a particular inventory of the articles upon which he had levied, had recited a levy upon one or two specified articles of property and added, "and upon all the household goods," etc. This the court held not to be a sufficient levy to protect the sheriff from amercement, and was held to be a direct breach of his duty. Mr. Justice Drake, in Lloyd v. Wyckoff, supra, said: "The duty of the sheriff to the plaintiff requires that he should make a sufficient levy, and his duty to the defendant as strongly requires that he should not make an oppressive levy. He ought, then, for both these purposes to have the means of knowing the value of the goods he levies on. He must make the money of the goods and chattels levied on, and he must have them to show to purchasers at the sale. and to deliver when sold. sheriff should know exactly what he has levied on, and be able to furnish information to parties interested. For this purpose. whenever the sheriff does not take and keep the goods and chattels levied on in his immediate possession, he should take a true list or inventory of them. From what has been said the requisites to a good levy, in all ordinary cases, may safely be laid down to be (1) that the officer should see the goods and have them in his power; and (2) that he should, in addition to this, do some act demonstrating his intention from that time forward to appropriate them in obedience to the commands of his writ."

The

In the present case, for aught that appears, the goods and chattels actually levied upon by the sheriff under the Mather execution may be more than sufficient to satisfy that writ, and the sheriff may have intended not to levy on more property, because to have done so would have been oppressive. I am satisfied from the testimony taken in this case that the sheriff returned the Mather writ without intending to or in law effectively levying upon the property afterwards particularly levied upon and sold under complainant's writ, that the power to take further proceedings under the Mather writ expired on the 15th day of January last, and that thereafter the complainant discovered property not included in the levy under the Mather writ, and procured the sheriff to levy upon it under his writ, and that he is entitled to the proceeds of the sale of this special property.

(72 N. J. Eq. 708) ISERMAN et al. v. INTERNATIONAL

STOKER CO.

(Court of Chancery of New Jersey. March 19, 1907.)

CORPORATIONS-CLAIMS AGAINST-STOCKHOLDER OR CREDITOR.

Persons were stockholders and not creditors of a corporation, where they received stock under a resolution in the handwriting of one of them, directing its issuance to them for advances, and retained it over four months, when they attached the certificates to their respective claims filed with the corporation's receiver; the papers in a suit by one of such persons in which the receiver was appointed reciting that they were stockholders, and not disclosing the amount of such advances as debts of the corporation, though a schedule of the corporation's debts was set out.

Suit by Clarence B. Iserman against the International Stoker Company. From the receiver's determination disallowing parts of their claims, complainant and others appeal, and from his determination allowing parts of such claims, other creditors appeal. Determinations sustained.

The main suit was a proceeding under the corporation act to have the company declared insolvent and an injunction issued and a receiver appointed. The injunction was issued, and the receiver appointed, on the 13th of November, 1905. On the 26th day of February, 1906, Clarence B. Iserman and Harvey Iserman presented claims to the receiver; the former for the sum of $1,200, and the latter for the sum of $1,686.77. Attached to each claim was a certificate of stock of the defendant corporation. Clarence B. Iserman's, certificate called for 100 shares, and was dated October 20, 1905; and Harvey Iserman's certificate called for 270 shares, and was dated the same day. The receiver disallowed the claim of Clarence B. Iserman for $1,000, and allowed it for $200. He disallowed the claim of Harvey Iserman for $1,468.29, and allowed it for $218.48. Each of these claimants has taken an appeal from the determination of the receiver. Other creditors have taken appeals from so much of the receiver's determination as allows anything to either of the Isermans. The case was heard upon the testimony taken before the receiver, together with the exhibits and documentary evidence.

Geo. G. Tennant, pro se.

Cornelius Dore

mus, for Harvey Iserman and Clarence B. Iserman. Boyd McLean, for Paul L Crowe, a stockholder and creditor.

GARRISON, V. C. (after statement of issues). The reason given by the receiver for disallowing so much of the claim of each of these claimants as he did not allow was that they had each taken stock in the company in liquidation or satisfaction of so much of the claim as was disallowed. There is no dispute that each of these claimants advanced the amount of money each claims to have ad

vanced. Their contention, however, is that they are entitled to be considered as creditors for such sums of money; whereas, the contention of their opponents is that, with respect certainly to a portion of the moneys so advanced, they agreed to accept and did accept stock of the company in payment therefor.

Harvey Iserman was secretary and treasurer of this company during the period subject to inquiry. On the 9th day of August, 1904, an agreement in writing was entered into between Paul L. Crowe, Harvey Iserman, and Clarence B. Iserman. This agreement recites that Crowe is the owner of a large block of the stock of the International Stoker Company; that the Isermans desire to purchase stock of Crowe; that Crowe thereby agrees to sell to the Isermans 25 shares for $500, said money to be used in installing a stoker in the building of the Commercial Trust Company, in Jersey City; that, if said stoker is not a success, then the International Stoker Company is to return the money to the Isermans, and the stock is to be surrendered; that, if the stoker is a success, then Crowe agrees to sell to the Isermans 400 shares, or any part thereof, at any time within six months after the trust company accepts the stoker, the said stock to be sold at $20 a share. And it is further provided that, in case the said stoker is accepted by the trust company, and more money is required to develop and install other stokers before stock can be sold, the Isermans agree to furnish or obtain the money by taking the stock upon which they were given the option for the amount of cash they might advance, not exceeding $3,000; the judgment of the board of directors of the company to be binding as to the amount of money needed. There are other provisions in this contract which it is not necessary to recite. In June, 1903, it was determined to double the authorized capital of the company, and on the 17th of October, 1904, there is a resolution of the board of directors, of which Harvey Iserman was a member, in which it is provided that certain stock shall be returned to the treasury for sale for the benefit of the company. "Also, the option given to H. Iserman 200 shares, Clarence B. Iserman 200 shares, be doubled owing to the increase of capital stock and placed in the treasury for the purpose above stated; and if said options are not taken either in part or in whole by the said persons [naming them] the stock be sold and proceeds placed in the treasury as aforesaid." At this meeting the claim of Harvey Iserman for money advanced was audited, and he was shown to be a creditor for $700. Between that meeting and the 25th of September, 1905, Harvey Iserman advanced moneys which, in addition to the $700, made his total advance about $1,500; and Clarence E. Iserman advanced $500 on the 13th of February, 1905, and $500 on the 13th of May, 1905. On the 25th of September, 1905, the following preamble and

resolutions were adopted by the board of directors:

"Whereas, Clarence Iserman has taken up 100 shares of the option given to him according to a certain contract with Mr. Crowe, and having paid the treasurer $500 February 13th and $500 May 13th, for which he holds receipts with a statement that the certificates of stock will be given him when issued: Therefore, it was unanimously resolved that the certificates of stock be issued and given to him."

"Whereas, H. Iserman has advanced about $1,500 to carry on the business of the company, said money being payment on the options of stock given by Mr. Crowe as per a certain agreement: Therefore, be it resolved that certificates of stock be issued and given to H. Iserman for the amount advanced according to the terms of the option."

There are numerous provisions in the same resolution, among them one by which Clarence B. Iserman and Harvey Iserman give up the balance of their options, amounting, respectively, to 300 shares and 250 shares, so that the stock is to go into the treasury of the company and be sold by it, and the Isermans are to receive any sum realized over $25 a share; and there is a further provision that Crowe is to put 1,000 shares of stock in the treasury to be sold at an advance over $20 a share. The company failed to pay the fee for filing the amended certificate authorizing the increase of the capital stock, and therefore the company at this time had not the right to issue the additional stock, and did not acquire the right until some time after these resolutions were passed, when the fee was paid and the company then was authorized to issue the stock. The testimony is clear that all of the transactions between the Isermans and the company were carried on by Harvey Iserman. He is the father of Clarence B. Iserman, who was a young man just past his majority. It seems too plain to require extended consideration that by this resolution-which, in passing, it may be remarked is in the handwriting of Harvey Iserman-it was agreed and understood between the parties that each of the Isermans was to receive from this company stock for the advances made by them up to that time. And all of the oral testimony bears out the righteousness of this conclusion. Clarence B. Iserman was to receive 100 shares of stock for his $1,000, and Harvey Iserman was to receive the proper amount of stock for his $1,500. The reason why the stock was not then issued to them has just been stated. Stock was actually issued to each of the Isermans on the 20th day of October, 1905. It was retained by each of them until the 26th day of February, 1906, when they attached the certificates to their respective claims to the receiver, and delivered them with the claims.

On November 3, 1905, the main suit was instituted by Clarence B. Iserman. The bill recites that Clarence B. Iserman is a stockholder of the defendant corporation, holding 100 shares therein "for which he paid $1,000 cash." The bill refers to a schedule showing the debts of the company, and such schedule contains no item due Clarence B. Iserman, and recites a claim of Harvey Iserman for $353.48. In an affidavit annexed to the bill, | Harvey Iserman swears that he "now owns 270 shares of the stock of the said company, and that Clarence B. Iserman, the complainant in the foregoing bill of complaint, is now the owner of 100 shares of the stock of said company, and that said company is indebted to various creditors whose names are contained in the Schedule B annexed to the said bill, with the amount due in each case set opposite their respective names." As has just been stated, said schedule does not refer to Clarence B. Iserman as a creditor at all, and only claims on behalf of Harvey Iserman $353.48. As has been previously stated, the receiver was appointed on the 13th day of November, 1905, and on the 11th day of January, 1906, he sold all the assets of the company, and on the 26th day of February, 1906, the claims of the Isermans were filed; each having annexed to his claim the shares of stock issued to them.

The claimants seek to break the force of the facts just recited, which so clearly indicate that they were stockholders, and were not creditors, by claiming that their standing as stockholders or creditors should be determined with respect to certain agreements between them and Crowe and the company sought to be completed on the 20th of October, 1905. It is shown that there was a series of agreements which had been talked over between the parties, and which were intended to be executed on the 20th of October, 1905. I shall not take time to recite what these contemplated agreements were, or to consider whether the claim of the Isermans with respect to their rights under those agreements would have been well founded, or otherwise, if said agreements had ever been consummated. My reason for disregarding those agreements and the arguments based thereon is that I find as a fact that, prior to the time that those agreements were in contemplation, the Isermans had agreed with the company to accept stock for the sums of money advanced up to the 25th of September, 1905. I can find no evidence in the suit which even tends to prove that, at the time the Isermans agreed in September, of 1905, to take stock under their options for the moneys advanced, there was any qualification or contingency, or that the matters subsequently attempted to be included in the contracts of October 20th were even broached. In fine, I cannot see any connection whatever between the completed arrangement of September 25, 1905, and the unsuccessful and

uncompleted arrangement subsequently attempted to be consummated on October 20, 1905.

The result is that the determination of the receiver is sustained with respect to the amounts disallowed, and the appeals of the Isermans are dismissed.

With respect to the sums of money advanced by either of the Isermans to the company after the 25th of September, 1905, I do not think it anywhere appears that they had agreed to take stock therefor, or that in advancing these sums they were exercising any option to take stock. I therefore think the receiver's determination is correct, in so far as it finds the Isermans creditors for sums advanced to the company after the 25th of September, 1905.

I have not sufficiently examined the accounts in detail to determine whether there are any sums allowed by the receiver to the Isermans which are not proper. It may be that some of the sums claimed were not advanced to the company, or were advanced to the company prior to September 25, 1905. If so, that matter can be adjusted upon settling the final decree or order with respect to these appeals. Such settlement may be made upon notice.

The owners of a number of paper mills combined and sold all of their properties to a newly organized company, taking in exchange therefor, besides certain bonds, all of the preferred and common stock of the new company at an admitted overvaluation. The new organization was prosperous, had no debts, and earned annually large sums of money in excess of the amounts advanced to produce and sell its output. It declared a dividend on the preferred stock, payable out of such annual earnings, and some of its stockholders sought to enjoin the payment of the dividends, upon the ground that there could be no surplus or net profits until the amount of the overvaluation had been earned, and the impairment of the capital stock resulting from such overvaluation, extinguished. Held, that as between the stockholders, no fraud being charged, the agreement to issue the stock as full paid for property purchased was binding upon the company and its shareholders, and that the stock so issued is not subject to further call either directly or indirectly by suppression of dividends declarable from annual net profits, and that if all of the assets for which the stock was issued still remain in the possession of the company, or, if exhausted, replaced, in kind or with money, a dividend ascertained by reserving for capital the actual cost of the assets for which the stock was issued, they being still in possession, is not a dividing of the capital of the corporation.

2. SAME.

A contract between the company and its stockholders that the stock issued to them as full paid and not subject to further call is, in the absence of fraud affecting other shareholders, binding upon the company and its stockholders, although subject to attack by creditors. (Syllabus by the Court.)

Bill by William Nelson Goodnow against the American Writing Paper Company. Heard by the Chancellor on demurrer. Demurrer sustained.

W. H. Corbin, for complainant. R. V. Lindabury, for defendant.

BERGEN, V. C. The complainant seeks to enjoin the payment of a dividend on stock issued for property purchased, upon the ground that, the property being overvalued, there can be no net profits or surplus from which dividends can be paid, unless the impairment of the capital, caused by the overvaluation, has been supplied, and until that is done the payment of dividends from "the surplus or from the net profits arising from its business," as provided in section 30 of our corporation act as amended (P. L. 1904, p. 275), is a division, withdrawal, or payment to stockholders by the corporation of a part of its capital stock.

The bill charges that the owners of certain paper mills, 28 in number, sold to the corporation their respective properties, and took in payment bonds of the defendant company for $17,000,000 preferred stock for $12,500,000, and common stock for $11,500,000, being all of the preferred and common stock issued by the company. The bill does not disclose in what manner the securities were divided among the respective vendors, but it is fair to assume from the manner of sale, and the manifest object of the parties, that the prices for the respective properties were agreed upon by all of the vendors, and distribution made accordingly, for the bill charges no fraud, concealment, or misrepresentation by any of the parties to the transaction. It admits that the company has no debts; that all of its current obligations incurred in the management of its business are met at maturity; that the affairs of the defendant corporation are well managed; that it is in receipt of large profits annually over and above the advancements made for producing its products and conducting the business; that the net earnings for 18 months prior to the 1st of July, 1906, exceeds $400,000, out of which it is proposed to distribute as dividends on the preferred stock $125,000, but charges that the amount paid for good will, patents, and trade-marks exceeds by $11,000,000 their value, which it is insisted shall be made up from earnings before any dividend can be paid, although all of the parties to the original transaction knew that the stock was issued to each shareholder as full paid for property purchased. The correctness of the complainant's contention is challenged by a demurrer, which confesses the truth of the allegation that the stock was issued for property at an overvaluation, and that the company did not receive for its stock money, or moneys worth; in other words, the stock was "watered" to the extent of $11,000,000. As the bill admits that there are no unsecured creditors, their rights are elim