1. The statutory authority of the court of chancery to order a sale free and clear of encumbrances in the case of an insolvent corporation owning the real estate, is found in section 81 of the General Corporation act.
2. To warrant an order to sell free and clear of existing encumbrances, two facts must exist; there must be an existing question as to the legality of the encumbrances and the property must be of a character likely to deteriorate in value. Held, that both these facts exist in the present case.
3. The contention that the income from the building has been, and will be sufficient to take care of the repairs is beside the point, even if true, where the building is such as to deteriorate in value; it is not a factor in the statutory requisites.
4. It is not necessary that the legal validity of the mortgages, as such, should be attacked; it is sufficient if there be question as to the validity, extent or priority of their liens.
PER CURIAM.
The order under review will be affirmed, for the reasons stated in the conclusions filed by Vice-Chancellor Buchanan on April 5th, 1932.
The order is attacked on two main grounds. The first is that it does not appear that the legality of the prior trust mortgage is brought in question. The conclusions of the learned vice-chancellor sufficiently show the contrary; and if we had any doubt on this score, the lengthy and somewhat labored argument in the appellants' brief, directed to showing that there can be no question about the status of that mortgage, would be sufficient to satisfy us that there is serious question about it.
The second principal argument is that there is nothing to show the property is of a character materially to deteriorate pending the litigation. If leaky roofs and ceilings due to improper construction both in material and design, forming puddles in time of rain and dripping into the interior, and leaky walls letting moisture through to the inside of the building, requiring to rectify the conditions an expenditure of some thousands of dollars, do not show that "the property is of a character materially to deteriorate in value pending the litigation," we have difficulty in seeing that the statute is of any practical use.
The third point made is in two parts.
(a) That the receiver has no substantial interest in the premises.
One answer is that he is backed by about forty per cent. of the first mortgage bondholders.
(b) That the sale would prejudice the first mortgage bondholders.
The court below seems to have taken rather special care to permit them to foreclose the first mortgage as against the receiver and other parties, and to use their bonds in bidding at a sale. Their application for a receiver in foreclosure was premature, as no foreclosure had been begun and, so far as we are aware, has not yet been begun.
We find no merit in the appeal, and the order under review is affirmed.
For affirmance — THE CHANCELLOR, PARKER, LLOYD, CASE, BODINE, DONGES, BROGAN, HEHER, KAYS, HETFIELD, WELLS, KERNEY, JJ. 12.
For reversal — None.