On appeal from the former Court of Chancery.
For modification -- Chief Justice Vanderbilt, and Justices Case, Heher, Wachenfeld and Burling. Opposed -- None. The opinion of the court was delivered by Vanderbilt, C.J.
The present appeal arises out of a decree of the former Court of Chancery surcharging the former directors of the defendant, The Matawan Tile Company, as a result of their administration of the affairs of the corporation during its voluntary dissolution.
The Matawan Tile Company was incorporated in 1902 for the purpose of engaging in the manufacture and sale of floor tile. Over the years it acquired a sizable business in Matawan. Although the company had withstood and recovered from the losses attendant on World War I, the shrinkage of business and profits during the 1930's seriously affected its financial condition. With the advent of World War II, the classification of its business as a nonessential industry, the accompanying governmental restrictions on its operations, and the consequent losses, it early became apparent that the company could not survive. Accordingly on December 2, 1942, at a special meeting of the board of directors a resolution was adopted recommending voluntary dissolution and at a special meeting of the stockholders on December 14, 1942, called for the purpose of acting upon the recommendation, dissolution was approved and the necessary written consents prescribed by the statute were executed, R.S. 14:13-1. A certificate of dissolution, signed and attested by the president and secretary, was filed on December 15th with the Secretary of State, who issued his certificate of filing the same day.
At the time of the meeting on December 2d, the board of directors consisted of Bennet K. Eskesen, Eckardt V. Eskesen, Alfred Mathiasen, Karl Mathiasen and Peter A. Sondergaard. For a number of years prior to the dissolution of the corporation, the active management of its affairs was chiefly in the hands of Bennet K. Eskesen as president and Alfred Mathiasen as secretary of the corporation. On the occasion
of the stockholders meeting of December 14th, however, they presented their written resignations as directors and officers, to become "effective as of the date of the filing of the certificate of dissolution." Almost immediately following the filing of the certificate, they were employed by the remaining former directors, now trustees under the statute, R.S. 14:13-5, to take charge of winding up the corporate affairs at monthly salaries of $325 for Eskesen and $328 for Mathiasen.
The decision to liquidate the company had not been reached without efforts having been first made to interest new capital and, this failing, to sell the business as a going concern. New capital, however, proved unobtainable and the highest offer of purchase, amounting to only $45,000, was rejected. Although the corporation was then at the least on the verge of insolvency, the efforts of the directors to preserve the business or to dispose of it as a going concern did not cease upon dissolution but were, if anything, more vigorously pursued during 1943 and the early months of 1944, and doubtless would have continued indefinitely had not some of the creditors protested. With insignificant exceptions not the slightest attempt was made to liquidate the assets separately or in lots, even though there was machinery, office and other equipment, and stocks of steel, dyes, chemicals and other materials, all of which were in great demand and which would have brought a good return.
In this plan of salvaging the company, but without seeking the instructions of the court, the directors continued the operation of the business in much the same fashion as before the dissolution. After completing the few orders unfilled at the date of dissolution, new business was actively solicited and orders thus received were filled. Some relatively small quantities of bulk tile were manufactured for a period, but the major activity consisted of processing for sale at least one-third of a sizable inventory of bulk tile by pasting the tile in desired design and color -- a finishing operation without which the tile was virtually unmarketable. The extent of the post-mortem enterprise may be measured in part from the fact that between December 15, 1942, and June 23, 1944,
gross sales approximated $40,000 and wages paid amounted to well over $20,000, not including the salaries received by Bennet K. Eskesen and Alfred Mathiasen which aggregated in excess of $8,000.
The depletion of the stocks of materials and supplies and the reluctance of the Reconstruction Finance Corporation to consent to the further postponement of payment of the indebtedness due it combined to slow manufacturing and processing operations in the latter part of 1943 and brought forth fresh efforts to raise new capital or alternatively to procure an advantageous price for the business as a going concern. Although no offers to purchase the plant exceeding $45,000 were obtained during 1943, the suit brought by the Reconstruction Finance Corporation in October, 1943, to foreclose the mortgages it held on the plant and equipment of the company was not pressed so as to permit still further exertions to be made. In February, 1944, an offer of $50,000 was received which was followed in the succeeding month by an offer of $60,000. After consultation with the Reconstruction Finance Corporation and one or two other creditors, including the complainant, the directors determined to submit the offer to the court for instructions.
Thus for the first time after more than a year and one-quarter of continued business operations subsequent to dissolution did the directors seek judicial direction, and then only because of the compulsion of surrounding circumstances. The petition for instructions was filed on April 14, 1944, by Karl Mathiasen as "surviving statutory trustee of Matawan Tile Company, in dissolution," Mr. Sondergaard and Mr. Eckardt V. Eskesen having died June 14, 1943, and December 13, 1943, respectively. The receipt of the $60,000 offer was set forth in the petition, together with the assertion that the book value of the plant, equipment and stock of inventory and supplies exceeded $220,000, and prayed for instructions as to whether or not the offer should be accepted ...