Fox v. Radel Leather Manufacturing Company, A Corporation

• Court: New Jersey Supreme Court
• Writing for the Court: PER CURIAM.
• Citation: Fox v. Radel Leather Manufacturing Company, A Corporation, 189 A. 366, 121 N.J.Eq. 291 (N.J. 1937)
• Decision Date: 22 January 1937
• Parties: OWEN E. FOX, complainant-respondent, v. RADEL LEATHER MANUFACTURING COMPANY, a corporation of the State of New Jersey, and FRANK J. RADEL, FREDERICK W. RADEL, CONRAD H. KOELLHOFFER and DENNIS F. O'CONNOR, individually and/or as trustees of Radel Leather Manufacturing Company, dissolved, defendants-appellants

189 A. 366

FOX

v. RADEL LEATHER MFG. CO. et al.

Court of Errors and Appeals of New Jersey.

Jan. 22, 1937.

Appeal from Court of Chancery.

Bill by Owen E. Fox against Radel Leather Manufacturing Company, and Frank J. Radel, Frederick W. Radel, Conrad H. Koellhoffer, and Dennis F. O'Connor, individually and/or as trustees of Radel Leather Manufacturing Company dissolved, wherein counterclaim was filed by defendant Frederick W. Radel. From a decree in favor of complainant and dismissing the counterclaim, defendants appeal.

Modified and affirmed.

On appeal from a decree of the Court of Chancery, advised by Vice Chancellor Stein, who filed the following opinion:

"Complainant's bill is founded upon a contract made with Radel Leather Manufacturing Company, dated March 26, 1929, by the terms of which complainant sold to Radel Leather Manufacturing Company 239 shares of the capital stock of that company at $112.33 per share, making a total of $26,846.87. The balance sheet of the defendant company as of December 31, 1929, reflected the following under "liabilities," "Owen E. Fox $23,846.87," and showed the company's surplus as of January 1, 1929, to be $48,298.76. The company thereafter partially performed its contract and paid to the complainant on account thereof $17,246.87, in installments extending over a period of years.

"The individual defendants herein, composing the entire board of directors and officers of the company, dissolved the company on May 13, 1932, and filed the certificate of dissolution with the Secretary of State May 23, 1933. Subsequently the same individual defendants by certificate dated August 14, 1933, incorporated a new company by the identical name of the dissolved company and turned over to the newly formed corporation all of the assets of the old corporation and issued to themselves the same number of shares of stock as each theretofore held in the dissolved corporation.

"Complainant prays decree for the unpaid balance due on the contract (stipulated to be $9,600), together with interest, charging that at the moment the company was dissolved, the defendants by virtue of the Corporation Act of this state became statutory trustees in dissolution for the purpose of winding up its affairs by converting its assets into money, and paying its debts, and that as such trustees they are jointly and severally liable for the payment of complainant's debt to the extent of the money and property of the dissolved company which came into their hands or possession.

"Practically all of the facts necessary to establish complainant's cause of action are admitted in the pleadings, or stipulated by counsel.

"At the time the contract was entered into, the defendants constituted all of the stockholders, directors, and officers and were closely related one to the other. The company was prosperous and had a large surplus. The admitted book value per share of the stock was $116.01, while the price agreed to be paid to complainant was $112.33 per share.

"No rights of creditors are involved. The issues raised are raised by the officers, stockholders, and directors of the old company, all of whom knew of and consented to the making of the contract and who have, for upwards of six years, taken the benefits thereof. They now seek to rid themselves of a trust imposed upon them by statute which obligated them to liquidate in accordance with the law.

"Under the circumstances the authorities are legion and their pronouncements emphatic that the corporation had a right to purchase its corporate stock. It was so held in Chapman v. Iron Clad Rheostat Company, 62 N.J.Law, 497,' 41 A. 690, approved by the Court of Errors and Appeals in Berger v. United States Steel Corporation, 63 N.J.Eq. 809, 53 A. 68, and thereafter many times cited with approval. Vice Chancellor Berry recently, in the case of Downs v. Jersey Central Power, etc., Co., 115 N.J.Eq. 348, 170 A. 835, 837, affirmed (Err. & App.) 117 N. J.Eq. 138, 174 A. 887, said: 'But irrespective of charter provisions, it is the settled law of this state that a corporation has implied power to purchase its own capital stock "provided, of course, no illegitimate design appears."'

"And so in Wolff v. Heidritter Lumber Co., 112 N.J.Eq. 34, 163 A. 140, 141, Vice Chancellor Buchanan held: 'Aside from the rights of creditors, which in the instant case were in nowise prejudiced or infringed, and the right of the state that no criminal or fraudulent act be perpetrated, which is in no wise intimated in the present case, it would seem that the stockholders are the only ones interested, and that any purchase might be made to which all stockholders expressly assented.'

"When the contract was executed complainant assigned his shares to the old company, and thereafter was recognized and considered as a creditor. His account was so set up in the books of the corporation and in every financial statement for a period of six years, from 1929 to 1938.

"The case of Wolff v. Heidritter Lumber Co, supra, presents a striking parallel both factually and legally with the case at bar. There one Poppenga entered into an agreement whereby he agreed to sell and the company agreed to buy from him 150 shares of the capital stock of the company for $40,000. The contract provided for the payment of the purchase price in stated installments. The lumber company became insolvent. Poppenga's claim as a creditor, filed with the receiver for the unpaid balance of the purchase price of the stock, was resisted. "In the instant case' said the Vice Chancellor, 'the contract was a presently operative purchase, not an executory contract to purchase in futuro; it gave no right to the stockholder to continue his status as a stockholder as long as he deemed it profitable and then later to convert himself into a creditor at the expense of other creditors; it converted him at once into a creditor and not a stockholder, although there was a clause giving him the option to repurchase the stock; and the corporation, at the time of making the purchase, was not insolvent but had a large net surplus.'

"Not only is the contract in this case free from the option to repurchase, extended to the vendor of the shares in the cited case, but in addition thereto the complainant, Fox, transferred and assigned his shares to the old company immediately upon the execution of the contract, thus immediately vesting title in the old company.

"Upon the dissolution of the corporation it is provided by our Corporation Act, C...