The opinion of the court was delivered by: FORMAN
In 1933 the Jersey Materials Company, the bankrupt, was formed by D. Herbert Schweyer, who became its president, and Israel Krohn, its secretary and treasurer. It dealt in marble chips, talc, crayon and chalk, owning a quarry located at Phillipsburg, New Jersey.
It bought its property from John Wagner Green and Henry Green, giving in part payment a real estate mortgage in the sum of $3.500, dated July 1, 1933, payable in four years. The mortgage was not paid at maturity and, in fact, the bankrupt ceased to pay interest which is due from July 1, 1936, at the rate of six per cent.
In 1941 the affairs of the bankrupt were in a precarious state but an agreement was concluded between it and the owners of the mortgage, the pertinent terms of which are as follows:
"Whereas, the Party of the First Part [Jersey Materials Company] proposes to refinance its business, for which purpose it has caused its charter to be amended so that it may be authorized to issue preferred stock to the amount of $25,000.00, the proceeds whereof to be used for the purpose of retiring existing liens and encumbrances against the property, its outstanding loans and business indebtednesses, and the balance thereof to be employed as working capital; and
"Now, therefore, in consideration of the premises and of the covenants hereinafter expressed, the said Parties to this Agreement do hereby mutually agree as follows:
"(1). That the authorized preferred stock of the company shall not be increased over $25,000.00 without the consent of the Parties of the Second Part.
"(2). That the Party of the First Part will pay and satisfy all tax liens against the said mortgaged property, as well as pay and satisfy the outstanding tax title by procuring either the cancellation thereof, or re-conveyance of the title to the Jersey Materials Company, so that the title to the said premises shall be free and unencumbered.
"3. The Party of the First Part shall place no mortgage against the said real estate without the consent of the Parties of the Second Part.
"4. The Party of the First Part shall re-assign to the Parties of the Second Part, all that certain stock of the Alm Syndicate originally delivered to the Party of the First Part by the Green Estate.
"5. The Parties of the Second Part agree to accept preferred stock of the Jersey Materials Company, at par, to the amount of the principal and accumulated interest due upon the Bond and Mortgage held by them against the property of the Party of the First Part, and upon the receipt thereof, will satisfy and cancel of record in the Clerk's Office of Warren County, New Jersey, the Bond and Mortgage in the principal amount of $3,500.00 hereinbefore referred to and held by them, the said Parties of the Second Part."
Schweyer and Krohn were practically the sole owners of the bankrupt corporation except for shares held by other members of their families. They were at odds and the feeling between them intensified after the execution of the foregoing agreement.
On October 17, 1941, the mortgage was assigned by the Greens to Walter L. Connor for the sum of $1,600. Connor also paid the sum of $100 for attorneys' fees and ...