Pennsylvania Iron Works Co. v. Mackenzie

Loring, J. [After the foregoing statement of the case.] 1. The evidence was ample that the corporation was rendered insolvent by the action of the defendants in declaring a dividend. The company had property which it sold for §70,000; it owed §12,000. It paid the whole §70,000 to its one stockholder, on his leaving with the corporation §3,500 in bills receivable. A distribution of the proceeds of a sale of all the property of the corporation is a dividend within R. L. c. 110, § 58, cl. 1. The object of that statutory provision is to secure to creditors their right to be paid out of the funds of the corporation, and its provisions apply even more to a final distribution of the proceeds of sale of the whole property than to a division of supposed earnings. The defendants’ contention is that the company was rendered insolvent by the act of the president in not retaining enough property to pay the debts, and not by the distribution of the §70,000. But the distribution among stockholders of the property of the corporation whether made out of profits or supposed profits while the corporation is going on or out of the proceeds of a realization of the. property in winding up its concerns, must be made by directors and cannot be made by any one else. The statute here in question (R. L. c. 110, § 58, cl. 1,) makes them personally liable for a failure to perform that duty. It is a duty which cannot be delegated, or, to speak directly to the case before us, it is a duty for which they are liable if it is performed by a delegate. If the directors had voted to authorize the president to distribute so much of the §70,000 as he found was not needed to pay the debts of the corporation, they would not have performed the duty imposed upon them by this act. It is equally true that they could not do the same thing indirectly by voting to distribute all the purchase price of so much of the property as was left after the president had retained enough to [64] pay the debts. Much evidence was gone into at the trial as to whether notes of $7,000 had been voluntarily retired by the president before the vote in question. The judge found that they had not, and we are of opinion that he was justified in so finding. But the issue was an immaterial one. If the notes had not been retired the debts were $5,000 and the assets retained were about $3,500. This disposes of the first, second, fourth and fifth rulings requested by the defendant. 2. The third request was rightly refused. The distribution of the purchase money originated with the directors. The stockholders’ vote went no further than to fix the price in case the directors sold. 3. Without going through it in detail, the evidence warranted the findings, and the sixth and seventh rulings requested were rightly refused. 4. The statement of Freeston “ that he had sufficient property in his hands to pay all the indebtedness of the Hygeian Co., including the payment ” of the debt due the plaintiff, was immaterial apart from the fact that it was incompetent as hearsay. What the plaintiff is complaining of here is that the property was in the hands of Freeston in place of being in the hands of the corporation to answer his debt. Exceptions overruled.