Page images
PDF
EPUB

This question is considered in a subsequent chapter dealing with the law relating to dividends.

§ 2639. Division, withdrawal or reduction of capital stock. Statutes in some states, in addition to making directors personally liable for illegal dividends, also impose such liability where they divide, withdraw or in any way pay to the stockholders or any of them, any part of the capital stock of the company, or reduce its capital stock except as authorized by law.96 Under such a statute, where a

ital stock. Witters v. Sowles, 31 Fed. 1; Van Dyck v. McQuade, 86 N. Y. 38; Excelsior Petroleum Co. v. Lacey, 63 N. Y. 422; Rorke v. Thomas, 56 N. Y. 559.

The statute is intended as a provision for indemnity against the loss which the corporation or its creditors may sustain by reason of the wrongful payment of dividends, and therefore it does not render the directors or trustees liable if, as matters have turned out, no loss or injury has resulted. Thus, although the directors of a bank, at the time of declaring a dividend, may have failed to class certain notes remaining overdue more than a year as losses, as required by the New York Banking Law (Laws 1892, c. 689, § 26), and although, if they had done so, there would have been no surplus profits for payment of the dividend, they may defeat an action by creditors on the ground that payment of the dividend was unlawful, by showing that the notes were afterwards paid, so that there has been no actual injury or loss from payment of the dividend. Dykman v. Keeney, 160 N. Y. 677, 54 N. E. 1090, 10 N. Y. App. Div. 610, 42 N. Y. Supp. 488, 16 N. Y. App. Div. 131, 45 N. Y. Supp. 137. See also Dykman v. Keeney, 34 N. Y. App. Div. 45. 54 N. Y. Supp. 1.

Procedure in Wisconsin to enforce

statutory liability, see Williams v. Brewster, 117 Wis. 370, 93 N. W. 479. 96 See Audenried v. East Coast Mill

ing Co., 68 N. J. Eq. 450, 59 Atl. 577; Shaw v. Ansaldi Co., N. Y. App. Div. 165 N. Y. Supp. 872.

In New York, section 28 of the Stock Corporation Law is as follows: "The directors of a stock corporation shall not make dividends, except from the surplus profits arising from the business of such corporation, nor divide, withdraw or in any way pay to the stockholders or any of them, any part of the capital of such corporation, or reduce its capital stock, except as authorized by law. In case of any violation of the provisions of this section, the directors under whose administration the same may have happened, except those who may have caused their dissent therefrom to be entered at large upon the minutes of such directors at the time, or were not present when the same happened, shall jointly and severally be liable to such corporation and to the creditors thereof to the full amount of any loss sustained by such corporation or its creditors respectively by reason of such withdrawal, division or reduction."' This statute was amended in 1901 so as to confine the liability to "the amount of any loss sustained" thereby. Shaw v. Ansaldi Co., IN. Y. App. Div. -, 165 N. Y. Supp. 872.

In North Carolina a statute forbids any division, withdrawal or reduction of the capital stock except as provided for therein, and makes directors personally liable in case of its viola

corporation is dissolved and the assets divided by the directors among the stockholders, without paying a creditor, he may hold the directors personally liable for his debt.97 So the statute is applicable where a corporation purchases at par value its stock from stockholders and pays therefor out of the capital as distinguished from the surplus of the corporation.98

§ 2640. Loans to stockholders or officers. In some states, corporate officers who disobey the statute forbidding loans to stockholders are expressly declared by statute to be personally liable for such loans or for corporate debts to the extent of such loans.99 However, such a statute has been enacted in only a few of the states. In New York, such a statute is construed to be in the nature of a penalty, and it is held that it is necessary thereunder to show that there was both in law and in fact "a loan of money," i. e., an actual loan of money in such form as to create an indebtedness to be at some time repaid, so that a liability for repayment by the borrower is created.1 And in Maryland it is held that taking security for debts previously contracted is not the making of a loan.2

In Massachusetts, a statute provides that directors shall be liable for debts contracted between the time. "of making or assenting to a loan to a stockholder and the time of its repayment, to the extent of such loan." This statute has been applied where stockholders paid for their stock in full and then three-eighths of the amount paid was lent to them by checks payable to the order of the respective stockholders.3

In case of a director not present when a loan is made, it is necessary to show his consent to the loan.4 "Consent" to a loan is not

tion. McIver v. Young Hardware Co., 144 N. C. 478, 119 Am. St. Rep. 970, 57 S. E. 169.

97 Keen v. Maple Shade Land & Improvement Co., 63 N. J. Eq. 321, 50 Atl. 467, rev'g 61 N. J. Eq. 497, 48 Atl. 596.

98 Jesson v. Noyes, 245 Fed. 46, 50. 99 See, for instance, section 29 of the Stock Corporation Law of New York, under which recovery was sustained in Hemsley & Co. v. O. C. Duncan Co., 98 N. Y. Misc. 338, 164 N. Y. Supp. 282.

1 Billings v. Trask, 30 Hun (N. Y.) 314.

2 Murphy v. Penniman, 105 Md. 452, 121 Am. St. Rep. 583, 66 Atl. 282. 3 Old Colony Boot & Shoe Co. v. Parker-Sampson-Adams Co., 183 Mass. 557, 67 N. E. 870.

4 Thomas v. Penniman, 105 Md. 475, 66 Atl. 291.

"His mere absence from the meeting, if it be assumed he had notice, cannot be fairly said to be 'consenting thereto, directly or indirectly,' to an act for which the statute imposes a penalty on parties so consenting." Murphy v. Penniman, 105 Md. 452, 121 Am. St. Rep. 583, 66 Atl. 282.

necessarily shown by the absence of a director from the special meeting or the next regular meeting when the loan was approved.5

§ 2641. Transfer of property to corporate officers and other acts constituting a preference when corporation is insolvent or has refused to pay any of its obligations when due. In New York, a statute provides that no corporation which shall have refused to pay any of its obligations when due, nor any of its officers or directors, shall transfer any of its property to any of its officers or stockholders for the payment of any debt, and if it does so, the directors and officers participating therein shall be personally liable to the creditors and stockholders for any loss sustained by them. Under such

5 Murphy v. Penniman, 105 Md. 452, 121 Am. St. Rep. 583, 66 Atl. 282.

6"No corporation which shall have refused to pay any of its notes or other obligations, when due, in lawful money of the United States, nor any of its officers or directors, shall transfer any of its property to any of its officers, directors or stockholders, directly or indirectly, for the payment of any debt, or upon any other consideration than the full value of the property paid in cash.

* Every

director or officer of a corporation who shall violate or be concerned in violating any provision of this section, shall be personally liable to the creditors and stockholders of the corporation of which he shall be director or an officer to the full extent of any loss they may respectively sustain by such violation." Stock Corporation Law of New York, § 66.

In Pennsylvania R. Co. v. Peddrick, 222 Fed. 75, 80, in construing the statute, it is held that the injured creditor is not obliged to seek his remedy through the medium of a creditor's or stockholder's or trustee's action in equity, but may bring his independent suit to recover damages which he has sustained.

Liability is limited to loss sustained.
Shaw v. Ansaldi Co., N. Y. App.
Div., 165 N. Y. Supp. 872.
Amount recoverable by single cred-

itor is merely his pro rata share of
property transferred. Trustees of
Masonic Hall & Asylum Fund v. Fon-
tana, 99 N. Y. Misc. 497, 164 N. Y.
Supp. 370.

There must be a "refusal to pay.
Shaw v. Ansaldi Co., N. Y. App.
Div. -
165 N. Y. Supp. 872.

"In Cæsar v. Bernard, 156 App. Div. 724, 732, 141 N. Y. Supp. 659, 665, we held that the provisions of section 66 were enacted 'to prevent those occupying confidential and fiduciary relations toward corporations from profiting directly or indirectly by information thereby acquired, and to prevent unjust discrimination and preferences among creditors of insolvent corporations, or those bordering on insolvency,' and the Court of Appeals affirmed on our opinion. That section has therefore, I think, been authoritatively construed as relating to corporations which are financially embarrassed or in danger of so becoming. This company was not financially embarrassed when it made default in the payment of interest on the mortgage. Down to the time it closed the restaurant business for the summer, it had sufficient funds with which to pay the interest and all other current obligations, and only became financially embarrassed when it suspended business and the plaintiff elected to declare the entire indebtedness due and

statute, there is no "loss" by reason of transfers, so far as a con-` tingent liability, such as liability for subsequent instalment of rents, is concerned, where not accruing until after the transfer.7

In the same section of the New York statutes, liability is imposed. on officers for violation of the provision forbidding transfers of property or other acts with the intent of giving a preference where the corporation is insolvent or its insolvency is imminent. It has been held thereunder that a creditor suffers "loss," within this statute, where execution is returned unsatisfied on his judgment because of such transfers, notwithstanding the transfers are void and that the creditor may sue the person or persons receiving such preference for an accounting; that the remedy is by an action at law rather than in equity; that there need not be an accounting to ascertain the loss before suing at law; and that the "loss" sustained is the sum plaintiff creditor would have received had the corporation been wound up, and its property, so far as improperly transferred, converted into money and applied to the payment of its debts pro rata.9

The national Bankruptcy Act, while it forbids preferences by an insolvent corporation, does not impose any liability upon the directors or other officers concerned in the preferential disposition of corporate assets. 10

payable. Nor is there any evidence of a refusal to pay the interest. It merely appears that the interest was demanded from time to time, and that Ansaldi promised to pay it, but failed so to do. It cannot be that this section is to be construed literally as rendering illegal every disbursement by a solvent corporation after it has failed to pay an obligation falling within the provisions of the statute." Shaw v. Ansaldi Co., N. Y. App. Div. -, 165 N. Y. Supp. 872.

[ocr errors]

7 Trustees of Masonic Hall & Asylum Fund v. Fontana, 99 N. Y. Misc. 497, 164 N. Y. Supp. 370.

8 The statute makes officers violating such statute personally liable to creditors to the full extent of any loss they may respectively sustain by such violation."

This statute providing that no corporation which shall have refused to

pay any of its notes or obligations when due shall make certain transfers of property, and that no transfer of any property of any "such" corporations when insolvent with intent to prefer creditors shall be valid, and making directors personally liable for violations thereof, has been construed as not limiting its operation to the first class of corporations by the use of the word "such." Cæsar v. Bernard, 156 N. Y. App. Div. 724, 141 N. Y. Supp. 659, rev 'g on this point 79 N. Y. Misc. 224, 139 N. Y. Supp. 974.

9 Pennsylvania R. Co. v. Peddrick, 234 Fed. 781, construing New York statute and following Cæsar v. Bernard, 156 N. Y. App. Div. 724, 141 N. Y. Supp. 659, aff'd without opinion in 209 N. Y. 570, 103 N. E. 1122.

10 Kinter v. Connolly, 233 Pa. 5, 81 Atl. 905.

§ 2642. Failure to file or publish reports or statements. The law in regard to this liability is fully stated in a following chapter in this volume.11

§ 2643. False certificate, notice or report. Under a statute' making the directors or other officers liable for corporate debts for failure to file or publish a report of the condition of the company, or other statement or certificate, the fact that a report or certificate is false does not render them liable, if it is filed and published as required by the statute.12 In some states, however, statutes impose personal liability on corporate officers where they make or publish a false certificate, notice or report; 13 but ordinarily such a statute merely reiterates the rule prevailing at common law independently of statute.14 In England, a statute imposes liability on directors for loss sustained by stockholders who became such by reason of any untrue statement in a prospectus of the company, with certain exceptions.15 Such a statute makes directors liable to persons who buy shares on the faith of a statement

11 Infra, Chapter 46.

12 Pier v. Hanmore, 86 N. Y. 95, and see infra, chapter on Reports.

13 Colorado. Matthews v. Patterson, 16 Colo. 215, 26 Pac. 812.

Maryland. Attrill v. Huntington, 70 Md. 191, 2 L. R. A. 779, 14 Am. St. Rep. 344, 16 Atl. 651, construing New York statute.

Massachusetts. Felker v. Standard Yarn Co., 150 Mass. 264, 22 N. E. 896; George Woods Co. v. Storer, 144 Mass. 399, 11 N. E. 662.

Montana. Giddings v. Holter, 19 Mont. 263, 48 Pac. 8.

New Jersey. Quimby v. Waters, 28 N. J. L. 533.

[blocks in formation]

Under a statute providing for liability of directors for publishing a false report of the financial status of the corporation, allegations in a complaint that a specified published report was false within the knowledge of the directors, and that it was intended to deceive and did deceive plaintiff so that credit was extended by plaintiff to the corporation to the damage of plaintiff, were sufficient, at least, to require an answer, there having been neither a demurrer to the complaint nor a motion to make its averments more certain. American Credit-Indemnity Co. v. Ellis, 156 Ind. 212, 59 N. E. 679. See also United States v. Lake, 129 Fed. 499.

14 American Credit-Indemnity Co. v. Ellis, 156 Ind. 212, 222, 59 N. E. 679.

For rules independent of statute, see §§ 2544-2555, supra.

15 Adams v. Thrift, [1915] 2 Ch. 21, [1915] 1 Ch. 557.

« ՆախորդըՇարունակել »