Wolff v. Heidritter Lumber Co.

• Citation: 163 A. 140
• Parties: WOLFF et al. v. HEIDRITTER LUMBER CO.
• Decision Date: 03 December 1932
• Court: New Jersey Court of Chancery

163 A. 140

WOLFF et al.

v. HEIDRITTER LUMBER CO.

Court of Chancery of New Jersey.

Dec. 3, 1932.

Syllabus by the Court.

1. A corporation organized under the General Corporation Act, may validly purchase shares of its capital stock from one of its stockholders, when all other stockholders consent thereto and such purchase is designed to benefit all stockholders, provided that the assets of the corporation over and above the purchase price of such stock are amply sufficient to pay its creditors.

2. In such case the corporation may either pay the purchase price contemporaneously with the purchase or give its obligation for payment in future; if the latter, the vendor becomes a creditor.

3. In such case, if the corporation gives to the vendor its obligation payable at a future date, and prior to the maturity of the obligation the corporation is declared insolvent and a receiver appointed to wind up its affairs, the debt due to the vendor creditor is a valid claim against the corporate estate and entitled to share equally with the claims of other general creditors on distribution.

Suit by H. Edward Wolff and others against the Heidritter Lumber Company, in which a receiver was appointed for the defendant corporation and Adolph U. Poppenga filed proof of claim as a creditor. From a disallowance of the claim, the claimant appeals.

Appeal sustained, and claim allowed as that of a general creditor.

Samuel Koestler, of Elizabeth, for appellant.

Donald H. McLean, of Elizabeth, for receivers.

BUCHANAN, Vice Chancellor.

The bill in this case was filed for the appointment of a receiver and the winding up of the defendant corporation, under the statute.

Adolph U. Poppenga filed proof of claim, as creditor, with the receivers, which was disallowed by them; from such disallowance, the claimant has appealed.

Poppenga's claim is based upon a written agreement, dated July 9, 1924, between himself and the defendant lumber company, whereby he agreed to sell and the lumber company agreed to buy from him 150 shares of the capital stock of the lumber company for $40,000.

The agreement provides that Poppenga "hereby sells" and the lumber company "hereby purchases" the said stock, and that the purchase price is to be paid by the lumber company in installments of $1,000 each, every three months, commencing October 9, 1924, together with interest on the balance unpaid from time to time; that upon final payment in full Poppenga will transfer the shares to the lumber company; that Poppenga shall have right to repurchase the said shares "at any time during the continuance of this agreement" by repaying to the lumber company the moneys theretofore paid by it.

Prior to the appointment of the receiver in this suit, the lumber company had paid $13,500, with interest, on account of the $40,000 purchase price. Poppenga's claim is for the balance, $26,500, together with interest from January 15, 1931.

The receivers concluded that, by reason of the determination in Hoover Steel Ball Co. v. Schaefer Ball Bearings Co., 90 N. J. Eq. 164, 106 A. 471, and the cases therein cited, the claim must be deemed invalid and unenforceable. The facts in the present case are different in several particulars from those in the Hoover Case, and it is contended by claimant appellant that these differences are of such materiality as to relieve the present claim from the interdiction of that decision. It is concluded that this contention is well founded, that the claim is valid, and the appeal must be sustained.

The holding in the Hoover Case is that a contract by a corporation with a purchaser of its stock, contemporaneously with such purchase, for the future repurchase of such stock by the corporation at the option of the purchaser, cannot be enforced against an insolvent corporation to the detriment of its creditors. In the instant case, 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.

The basic principle in the Hoover Case is that the assets of a corporation are primarily liable for the payment of its debts and that the stockholders cannot take the corporate assets to repay themselves the money they invested, if such action leaves the corporation without sufficient assets to pay its creditors; they cannot do so in prÆsenti, nor can they make an enforceable agreement to do so in futuro. On the other hand, however, the assets of a corporation over and above the amount required to pay its creditors, are the property of the stockholders, and can be withdrawn by them for their individual benelit in such manner as they agree on.

Suppose a corporation with assets of $100,000, debts of...