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paid; that depositors may, however, properly petition the court for an order requiring the receiver to bring an action to recover from the directors the dividends wrongfully paid out. But if the statute merely makes directors liable to creditors for wrongful declaration and payment of dividends, it seems that the corporation may have no right of action.270 Of course, in any case, the statutory provision as to who may maintain the action may preclude a suit by the corporation.271

2. Stockholders,

It has been stated that a stockholder cannot, either directly or indirectly, be allowed to recover against directors for money already once paid him in the shape of dividends. 272 But the New Jersey court has taken the posi

270 In Collins v. Penn-Wyoming Copper Co. (1912; D. C.) 203 Fed. 726, the court (arguendo) expresses the view that a statute providing that, if directors of a company declare and pay dividends when the company is insolvent, or authorize the payment of a dividend when the payment of the same would render it insolvent or would diminish the amount of its capital stock, they shall be jointly and severally liable for all debts of the company then existing or thereafter contracted while they remain in office, should be strictly construed, and that, unless it provides that the directors shall be liable to the corporation, it cannot maintain a suit thereunder.

271 It has been held that a manufacturing company organized under the New York Statute of 1848 cannot maintain an action to hold the trustees of the company liable for the statutory penalty for declaring a dividend which diminishes the amount of the capital stock, the provisions of the Revised Statutes relating to such liability being inapplicable, in view of the provisions of the special act. Excelsior Petroleum Co. v. Lacey (1875) 63 N. Y. 422.

272 Wallace v. Lincoln Sav. Bank (1891) 89 Tenn. 630, 24 Am. St. Rep. 625, 15 S. W. 448. This was a bill by a shareholder and creditor in behalf of himself and other shareholders and creditors against the directors for various acts of malfeasance and misfeasance. The opinion by Lurton,

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It has been held in England that a shareholder complaining of an act of directors which is ultra vires, such as the payment of dividends when there were no profits out of which the same could properly be paid, cannot maintain the action if, at the time he brings it, he is in possession of some of the proceeds of the ultra vires act, which he has received with knowledge of all the facts; also that this conclusion is not affected by the fact that he represents himself as acting on behalf of himself and others, nor that, after the bringing of the action, he offers to repay the money so received.278 HowJ., however, states that the complainant did not seek a recovery of the deficit attributable to improper payment of dividends, and, the court observed, that it was obvious that he could not, directly or indirectly, be allowed to again recover money already once paid in the shape of dividends.

That a receiver cannot recover for the benefit of stockholders money paid as dividends, see notes 286 and 287, infra.

That a liquidator of a company who represents creditors only cannot recover dividends from a director, see City of Glasgow Bank v. Mackinnon (Scot.) and Turquand v. Marshall (Eng.) note 305, infra. But see Stavert v. Lovitt (Can.) note 306, infra.

272a See Appleton v. American Malting Co. (1903) 65 N. J. Eq. 375, 54 Atl. 454, note 199, supra. See also New Jersey cases in notes 277 and 278, infra; also note 306, infra.

273 Towers v. African Tug Co. [1904] 1 Ch. (Eng.) 558-C. A. It was said that the reason which required the court to say that he ought not to bring such an action equally required it to say that he ought not to be a peg upon which such an action is to be hung for the benefit of others. To the same effect is Crawford v. Bathurst Land & Development Co. (1916) 37 Ont. L. Rep. 611 (see opinion to same effect on appeal to Supreme Court of Canada (1919) 59 Can. S. C. 315, 30 D. L. R. 457, on appeal from decision of Ap

ever, it seems that, to prevent a failure of justice, a stockholder may in that country, under some circumstances, maintain such a suit.274

It has been held that any right of action by stockholders against directors for exceeding their authority in paying dividends from capital must depend upon statute, if the solvency of the corporation is not affected by the distribution, since the stockholders are the beneficial owners of the capital, and no common-law or contract right on their part is infringed by the payment of dividends from capital.275 But it has been held that the fact that a stockholder receives money paid as a dividend on his stock will not estop him from subsequently maintaining a suit to enforce the statutory liability of directors for declaring dividends out of capital, unless he pellate Division of Supreme Court of Ontario (1916) 42 Ont. L. Rep. 256, 43 D. L. R. 98).

274 It is said in Stroud v. Lawson [1898] 2 Q. B. (Eng.) 44-C. A. (opinion of Chitty, L. J.) that an action in respect of unlawful payment of dividends out of capital, by defendants as directors of the company, ought prima facie to be brought by the company itself; but that, inasmuch as a difficulty might often arise from directors inculpated having a preponderating voice in the management of the company, in order to prevent a failure of justice, courts of equity have allowed a shareholder to bring actions of this kind on his own behalf and that of the other shareholders, making the company a defendant in order to receive the proceeds of the suit.

275 Johnson v. Nevins (1914) 87 Misc. 430, 150 N. Y. Supp. 828; Hutchinson v. Stadler (1903) 85 App. Div. 424, 83 N. Y. Supp. 509.

276 Gaffney v. Colvill (1844) 6 Hill (N. Y.) 567. The statute prohibited the declaration of dividends except from surplus profits, and made directors violating it personally liable to stockholders and creditors, respectively, for any loss which they sustain.

277 Siegman v. Maloney (1902) 63 N. J. Eq. 422, 51 Atl. 1003, affirmed on other grounds in (1903) 65 N. J. Eq. 372, 54 Atl. 405. The statute forbade the making of dividends except from

knew that the dividend was made from capital, and not from surplus, a stockholder having a right to presume in such a case that the dividend was legally declared.276 And it has been held in New Jersey that, as stockholders in bringing suit against directors of a corporation to recover dividends illegally declared and paid sue for the benefit of the corporation, and they are acting for the benefit of all of the stockholders, and not for themselves or any particular class of stockholders, they can maintain a suit without offering to pay back dividends which they have received,277 and any previously existing remedy which there might have been in equity in behalf of a corporation against directors for wrongfully declaring dividends out of capital was held in that state to have been superseded by the amendment of surplus or net profits, or the withdrawing, or paying to stockholders of any part of the capital stock, and declared that, for violation of the act, the directors under whose administration the payments occurred should be jointly and severally liable to the corporation and to its creditors, in the event of its dissolution or insolvency, to the full amount of the dividends made or capital stock withdrawn.

And in Appleton v. American Malting Co. (N. J.) supra, which supports the same proposition, the court said that the contention that the complainants were disqualified from maintaining the suit because they, or those from whom they had purchased the stock, participated in the distribution of the illegal dividend, was based upon a misconstruction of the real situation; that the complainants did not bring the suit to establish any right of their own, or because they were personally entitled to the relief sought; that they were permitted to sue ex necessitate rei, because the interests of those in control of the corporation were hostile to the interests of the corporation itself; that although on the record the corporation was a party defendant, in reality the complainants represented it, the suit being, except in name, an action by the corporation and being maintainable solely for its benefit, and the final relief when obtained belonging to it, and not to the complainants.

the Corporation Act of 1904, under which the directors were made liable for wilful or negligent violation of the statute, and the right of action against them was given to the stockholders severally to the full amount of any loss sustained by them.278

It has been held, also, in a Federal case involving the New Jersey statute, construed as making the liability of the directors assenting thereto an absolute one, that a succeeding board of directors has no legal right to refuse to bring suit against a former board to recover dividends illegally declared, even though the action of said subsequent board in refusing to bring suit is taken in good faith as being for the best interests of the company, and is approved by the majority of the stockholders; and where the succeeding board of directors, and the majority of the stockholders, have so refused to bring suit against the former directors to recover dividends

278 Fleisher v. West Jersey Securities Co. (1914) 84 N. J. Eq. 55, 92 Atl. 575.

279 Siegman v. Electric Vehicle Co. (1905; C. C.) 140 Fed. 117. See also, supporting in effect this principle, Siegman v. Electric Vehicle Co. (N. J.) in note 191, supra.

280 If the capital of a corporation is depleted by the payment of unearned dividends to one class of stockholders, to the injury of another class, any one of the latter class may, by appropriate proceedings, compel the corporation itself to recover the funds so unlawfully withdrawn. Detroit Trust Co. v. Goodrich (1913) 175 Mich. 168, 141 N. W. 882, Ann. Cas. 1915A, 821. 281 United States. Hayden Thompson (1895) 17 C. C. A. 592, 36 U. S. App. 361, 71 Fed. 60; Hayden v. Brown (1899; C. C.) 94 Fed. 15; Hayden v. Williams (1899) 37 C. C. A. 479, 96 Fed. 279.

V.

Arkansas.-Corn v. Skillern (1905) 75 Ark. 148, 87 S. W. 142. Connecticut. Davenport v. Lines (1899) 72 Conn. 118, 44 Atl. 17. Delaware. Cahall v. Lofland (1920) 12 Del. Ch. 162, 108 Atl. 752. Idaho.-McTamany v. Day (1912) 23 Idaho, 95, 128 Pac. 563.

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Indiana. Bingham v. Marion Trust Co. (1901) 27 Ind. App. 247, 61 N. E. 29.

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illegally paid, a minority stockholder who opposed the majority action in approving the board's refusal to bring suit, may himself maintain an action against one or more members of the board to recover the dividends; and the fact that he appealed from the action of the board to the stockholders, and was defeated in the stockholders' meeting, will not prevent his maintenance of the action.279

The right of stockholders of a different class to compel a refund of dividends wrongfully paid is sustained by a Michigan case.280

3. Receiver.

The right of a receiver of a corpoation to maintain an action against stockholders for the recovery of dividends wrongfully paid to them out of capital is supported by various cases, in which it has either been expressly so held, or the right has been apparently assumed.281 Where a corpora

Kentucky.—See Reid v. Owensboro Sav. Bank & T. Co. (1911) 141 Ky. 444, 132 S. W. 1026. Michigan. Detroit Trust Co. v. Goodrich (1913) 175 Mich. 168, 141 N. W. 882, Ann. Cas. 1915A, 821.

Minnesota. Minnesota Thresher Mfg. Co. v. Langdon (1890) 44 Minn. 37, 46 N. W. 310. See also Frederick v. McRae (1923) 157 Minn. 366, 196 N. W. 270.

Mississippi.-Kretschmar v. Stone (1907) 90 Miss. 375, 43 So. 177.

Missouri. Hodde v. Nobbe (1920) 204 Mo. App. 109, 221 S. W. 130.

New Jersey. Mills v. Hendershot (1905) 70 N. J. Eq. 258, 62 Atl. 542. New York.-Osgood V. Laytin (1867) 3 Keyes, 521, affirming (1867) 48 Barb. 463.

Pennsylvania. McGinniss V. Schneebeli (1918) 28 Pa. Dist. R. 368.

Among the rights which pass to the receiver of an insolvent corporation as the representative of the creditors is the right to recover capital withdrawn and refunded to the stockholders without provision for full payment of the corporate debts; this right of the receiver does not depend upon any express statute granting it, but rests upon the general equitable doctrine that the capital of a corporation is a trust fund for the benefit of its creditors, and that those to whom it has

tion is in the hands of a receiver, it is not only his right, but his duty, as the representative of all concerned, to proceed to collect dividends illegally paid, so that the same, when recovered, may be distributed among all the creditors

been refunded will be held trustees for their benefit. Minnesota Thresher Mfg. Co. v. Langdon (Minn.) supra.

A receiver of an insolvent national bank may maintain a suit in equity against all of the shareholders to recover dividends which have been unlawfully paid to them out of capital at a time when the bank was insolvent, without showing that the Comptroller of the currency ever ordered or directed him to bring the suit, the basis thereof being a claim of the bank for a part of its capital pledged to, but diverted from, its creditors, and it being one of the primary duties of the receiver to collect all the dues and claims of the bank. Hayden v. Thompson (Fed.) supra, followed in Hayden v. Brown (1899; C. C.) 94 Fed. 15.

So, to the effect that dividends paid to stockholders out of assets at a time when the corporation. was insolvent may be recovered by the receiver for the benefit of creditors, is Corn v. Skillern (Ark.) supra.

And it is held in Davenport v. Lines (Conn.) supra, that a receiver, as the representative of the creditors of a corporation, is entitled to sue for and recover back money illegally paid as dividends at a time when the corporation was insolvent and its capital thereby impaired.

A receiver may, in an action at law, recover from directors of a corporation dividends fraudulently received. Cahall v. Lofland (Del.) supra (recognizing rule).

And it is held in McGinniss v. Schneebeli (Pa.) supra, that a receiver of a corporation may maintain an action against a director thereof for paying to himself under the guise of dividends sums of money from the capital of the company when it was insolvent.

The receiver of an insolvent building and loan association may recover dividends and withdrawals which have been wrongfully paid to the holders of paid-up stock from the capital stock of the association. Bingham v. Marion Trust Co. (Ind.) supra.

The remedy provided by the Mich

of the corporation as the law or the court may direct, the amount paid, if recovered, being a part of the assets of the corporation; and, if the receiver fails or refuses to do his duty in collecting such claims, the matter should igan statute, enabling creditors to pursue the capital of a corporation where impaired by the unlawful payment of dividends to the stockholders, exists also in favor of a receiver appointed in voluntary dissolution proceedings, for the benefit of the creditors generally. Detroit Trust Co. v. Goodrich (Mich.) supra.

And the liability created by a statute which provides that no part of the capital stock in any corporation shall be withdrawn or diverted from its purpose, nor a dividend declared when the company is insolvent or would be rendered insolvent by such withdrawal or the payment of such dividends, and that the stockholders receiving it shall be jointly and severally liable to creditors whose debts then existed, to the extent of such withdrawal or dividends and interest, may be enforced by a receiver of the insolvent corporation. Kretschmar v. Stone (Miss.) supra..

So, the liability created by a statute providing that, no dividends shall ever be made by any, company when its capital stock is impaired, or when the making of such dividend will have the effect of impairing its capital stock, and that any dividend so made shall subject each stockholder receiving the same to an individual liability to the creditors of the company to the extent of such dividends received by him, may be enforced by a receiver of the corporation by virtue of the power conferred upon him by statute to treat as void and resist all acts done, transfers and agreements made, in fraud of the rights of any creditor. Osgood v. Laytin (N. Y.) supra.

In Hodde v. Nobbe (Mo.) supra, it was contended that, as the corporation and stockholders assented to the payment of the dividends, the receiver could not complain; but the court said that he represented the creditors as well as the stockholders of the corporation, and, as representing the creditors, he surely could recover, and that it is settled that a receiver of a corporation may sue directors to recover dividends unlawfully paid.

Stockholders are liable to the re

be called to the attention of the court, which ought to compel him to act, or to remove him.282

It has been held, also, that a-receiver of a corporation may maintain an action against directors for wrongfully declaring and paying dividends out of capital.283 But the question of the right of a receiver of a corporation ceiver of a corporation for dividends paid out of the capital, so far as necessary for the payment of debts. Mills v. Hendershot (1905) 70 N. J. Eq. 258, 62 Atl. 542.

282 McTamany v. Day (1912) 23 Idaho, 95, 128 Pac. 563.

283 It is held in Coddington v. Canaday (1901) 157 Ind. 243, 61 N. E. 567, that a receiver of a corporation may maintain an action against directors of a bank for negligence in the management of its affairs, consisting in part of the declaration and payment of dividends when there were no profits out of which the same could properly be declared.

And in Stoltz v. Scott (1912) 23 Idaho, 104, 129 Pac. 340, it is held that, in an action brought against directors under the statute of that state for the illegal payment of dividends in fraud of creditors, the receiver, as the representative of the creditors, may maintain an action to recover the amount of dividends illegally paid.

That a receiver of a corporation may maintain an action against directors to recover dividends negligently and wilfully paid by them out of capital is held, also, in Cochran v. Shetler (1926) 286 Pa. 226, 133 Atl. 232, the court taking the view that it is not only the right but the duty of the receiver, acting for the creditors, to proceed to compel restoration of funds so improperly diverted.

See also Gaither v. Bauernschmidt (Md.) note 320, infra.

284 It was held in Butterworth v. O'Brien (1863) 39 Barb. (N. Y.) 192, 24 How. Pr. 438, that a receiver of a bank could not maintain an action against one who was its president and a director to recover for wrongful declaration of dividends, the court saying merely that the claim for dividends improperly declared belonged to credtors, and not to the receiver; that the right of action was in them, and the receiver could not collect such money for the benefit of the stockholders;

to recover from directors for wrongful declaration depends somewhat upon the particular provisions of the statutes involved, and the right has been denied in several cases.284 And, in the case of a receiver representing a single creditor, as distinguished from a general receiver of the corporation, the right to maintain the proceeding

also that it was not a cause of action that such dividends were paid to persons who were indebted to the bank. And in the case of a manufacturing corporation organized under the Pennsylvania Statute of 1874, the liability of directors who in good faith declare and pay a dividend when the company is insolvent or when such payment would render it insolvent was held in Childs v. Adams (1910) 43 Pa. Super. Ct. 239, not to be to the corporation nor to the receiver, but to the creditors who had suffered by their improvident act. The statute made the directors liable in such cases for all the debts of the corporation then existing or thereafter contracted while they remained in office, not exceeding the amount of the dividend, but did not apparently expressly provide the procedure for enforcing such liability; and the court regarded the statute as enforceable only in the manner provided by another statute, by judgment creditors, relying on Frank P. Miller Paper Co. v. York Coated Paper Co. (1907) 34 Pa. Super. Ct. 315, a case beyond the scope of the annotation.

In Childs v. Adams (Pa.) supra, the court observed that the conclusion reached did not militate against the principle that a receiver, generally speaking, represents not only the corporation, but its creditors, and that it is his duty to gather together all the assets of the corporation; that it was unable to regard the liability of the officers and directors of a corporation, specially imposed by the statute, as an asset of the company within the meaning of that principle.

See in this connection Cochran v. Shetler (Pa.) supra, holding that a receiver of a mercantile corporation might maintain a suit to recover from directors dividends wrongfully paid by them, in which the Adams Case and others of the kind were distinguished on the ground of special statutory provisions involved.

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