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7 Buch,

Schuler v. Southern Iron & Steel Co.

I think that this complainant is in a similar situation to the one dealt with by Chancellor Williamson in the case of Philhower V. Todd (1855), 11 N. J. Eq. (3 Stock.) 54, where he held the complainant, by refusing to commit himself upon the vital point, had failed to state a case for relief. And the same chancellor, in the case of Herbert v. Scofield (1853), 9 N. J. Eq. (1 Stock.) 492, adverts to the fact that the complainant must state his case

and holds that if the bill is so framed as to be dis ingenuous, it is obnoxious, and deprived the complainant of the benefit of doubts which might otherwise be resolved in his

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It is quite clear, in the consideration of the case at bar, the complainant, as a party to the plan and agreement of reorganization, feared that the same would be carried out, so far as any right to object thereto by him was concerned. It is perfectly apparent that there were no misstatements, misrepresentations or fraud which would permit him to rescind, or to retire from the plan and his agreement. He therefore feared to charge

as a fact, that the value of the property was less than the amount of the stock to be issued, because if he so committed himself in this suit and was not successful in preventing the plan being carried out, such admission might be used against him in the future, in the event that creditors of the new company should pursue the stockholders for unpaid balances on their stock.

The bill being an injunction bill would be sworn to and might, therefore, be used against the complainant.

If, without committing hiniself to anything in this respect, and by merely referring to the appraisement made in the bankruptcy proceedings, he could cast the whole burden upon the defendant and obtain a decree either that the value was sufficient to found the stock issue upon, or that it was not, he would have procured protection upon an issue which he never tendered or assumed any responsibility concerning.

As will be observed from the most casual reference to this bill, the complainant assumes no responsibility of proving any fact excepting the appraisement in bankruptcy. He does not assume the responsibility of proving that this was more or less than the

Schuler v. Southern Iron & Steel Co.

77 Eq.

value of the property, or that it had any real relation to the actual value of the property.

Apparently, the pleader's theory was that the entire burden, by this bill, could be shifted to the defendants to prove that the value of the property equaled the amount of the stock about to be issued for it. Without deciding anything more than the case before me, I am clear that one who has joined in an agreement such as this complainant has, is not in a position to cast any burden upon the defendants with whom he has contracted until after he has charged, and thereby undertaken to prove, such facts as make it improper, as to him, to hold him to his agreement and have it carried out.

While the word "fraud" is used in the bill, and the word "misrepresentation," I am utterly unable to perceive their signification or relevancy to the facts charged. I cannot find anything in the plan or agreement which, by any proper use of language, can be said to represent or state the value of the property of the Southern Steel Company, and, consequently, no proof as to its value could possibly show any misrepresentation or misstatement in the said plan or agreement.

It is entirely settled that the mere use of the word “fraud" is futile, and that a complainant who desires to complain of fraud must set forth the facts which he claims constitute the fraud upon him. Byard v. Holmes (Supreme Court, 1870), 34 N. J. Law (5 Vr.) 296; Smith's Administrator v. Wood (ViceChancellor Van Fleet, 1887), 42 N. J. Eq. (15 Stew.) 567; affirmeủ, 44 N. J. Eq. (17 Stew.) 603 (1888); Davis v. Davis (Chancellor McGill, 1896), 55 N. J. Eq. (10 Dick.) 37; Hageman v. Brown (Vice-Chancellor Leaming, 1909), 75 Atl. Rep. 862; see also, State v. Minnesota L. and I. Co., 20 Mont. 198; 50 Pac. Rep. 420; Equitable Life Association Society v. Brown, 213 U. S. 25.

In the case at bar, the complainant, who was a holder of a very large amount of stock in the old company, had every source of information open to him before he went into the agreement. The committee refrains from making any statments of the value of the property, and further explicitly informs all concerned that whatever they have said is not to be taken as if its accuracy

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7 Buch.

Schuler v. Southern Iron & Steel Co.

Pomeroy

Was guaranteed, but is only to be taken as having been obtained from the best sources available to the committee.

The only other thing, besides the agreement in question which has happened, so far as the complainant's bill shows, which has any relevancy at all, is an appraisement in the bankruptcy proceedings and a sale. As to the sale, it cannot be possible that any court will hold that the price obtained at a sale of assets in bankruptcy, bought in by the creditors by agreement, is so conclusive upon the value of those assets that the mere proof of the amount brought at such a sale is conclusive of such value. This is too clear upon reason to require authority, but it has the latter.

v. New York Smelting and Refining Co. (Vice-Chancellor Emery, 1991), 48 Atl. Rep. 395.

Similarly, I cannot believe it possible that a filed appraisement in a bankruptcy proceeding is conclusive proof of the value of the assets thus appraised. Whether it is an instrument of proof at all I do not decide.

And yet this appraisement and sale are the only faets set forth in the bill which in any way affect the vital question involved.

I cannot conceive how, under any proper principles of equity pleading, it would be possible under this bill to raise the only issue which could be beneficial to the complainant. That issue, as above pointed out, is an affirmance upon his part of the fact that property of a certain value is about to have stock of a much larger amount issued for it.

Since the bill, as above stated, utterly fails anywhere to aver what the value of the property is, the issue is not even suggested, much less tendered.

For him to charge or state or show (whichever this bill may be claimed to do) that in a bankruptcy proceeding appraisers, appointed for some purpose in that proceeding, estimated the property as having a certain value, is merely to plead, at most, a portion of his evidence; and is certainly not a pleading of what the actual value is, which is the only thing with which we could be possibly concerned in this suit.

With respect to the responsibility assumed by the complainant under this charge, all that he assumed to do was to produce the Schuler v. Southern Iron & Steel Co.

77 Eq.

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appraisement and prove that it was filed in the bankruptcy proceeding

In the case of Brokaw v. Brokaw (1880), 41 N. J. Eq. (14 Stew.) 215, there was a demurrer to the bill.

One question sought by the complainant to be raised was whether the defendant executors had neglected to perform a duty enjoined upon them by the will. In dealing with the bill upon this point, ViceChancellor Van Fleet said (at p. 220): “The bill, it is true, says that the father complained to the complainant

that he was not receiving the support

he was entitled to under the will, but this averment

does not affirm the truih of any actionable fact. Under an averment in this form, the complainant would not be required to prove that the father had been deprived of anything which the will gave him, but he would maintain the issue tendered by his pleading by simply proving that the father had complained that he was not receiving what he was entitled to. Such proof would, of course, show no right of action. It is an elementary rule of pleading that a bili must state all the facts on which the complainant's right to relief rests with certainty and clearness, and positively.” Story Eq. Pl. § 241. Surely, the appraisement filed in the bankruptcy case, which could not be subjected to the customary test by crosscxamination, could not be held to be conclusive; and yet that is all that the complainant tenders in this case.

Unless, therefore, the complainant could maintain that which seems to me to be an impossible contention, le cannot succeed upon the facts averred.

If he could maintain that because this property was appraised in a bankruptcy proceeding at a certain sum, such sum must, in this court, be taken as conclusive proof of the value of the property, so that an issue of stock by a New Jersey corporation to a larger amount than such sum would be an overissue to the amount of the excess, he might then succeed in this suit. But I have not found, nor was I furnished with any authority for any such principle. And I cannot conceive that any court could reach such a conclusion.

Whatever the functions of the appraisers in bankruptcy may be, and whether their appraisement is evidential or not in other

7 Buch.

Schuler v. Southern Iron & Steel Co.

proceedings, it does not seem to me that it can be reasonable to hold such appraisement to be anything more than evidence. I feel that I would waste time were I to indulge in elaboration with respect to what seems to me to be so plain and clear a proposition.

The vital determining question in this case is whether the complainant has averred, shown or stated that a New Jersey corporation is about to issue more stock than certain property is worth. And the only way he can do that is to show what that property is werth.

Unless the appraisement in the bankruptcy proceedings is conclusive, he has nowhere in his bill charged any facts raising this question. I find that the appraisement in the bankruptcy proceedings is not conclusive; that it may be (although I do not decide that it is) evidential, but it is nothing more than evidential; and therefore the complainant, by merely pleading that, has not pleaded the facts which he must plead to raise the question which he seeks to raise.

Upon this ground, my judgment is clear that the demurrer must be sustained.

The demurrant urged with equal insistence many other grounds.

It insists that this bill is defective because it is brought by the complainant on behalf of himself and others, whereas the charge seems to be a fraud perpetrated upon him. Chester v. Halliard (Court of Errors and Appeals, 1982), 36 N. J. Eq. (9 Stew.) 313.

If the pleader's apparent theory of his own case were adopted, there would be much in this objection. But, as above pointed out, I do not think that theory can possibly be tenable. I cannot see how, from any of the facts that he alleges, it would be possible to find a fraud perpetrated upon him or upon anyone. The sole cause of complaint which I see it possible to urge, if the facts were properly pleaded, would be that under the law of New Jersey it is against public policy to issue more stock than the value of property paid in for it; and therefore these parties who had agreed to put in property at a certain price had agreed to do a thing prohibited by the law of New Jersey; and therefore any

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