53 Ind. App. 140 | Ind. Ct. App. | 1913
— This action was brought by appellant Louis E. Fricke, trustee in bankruptcy of the Evansville Implement and Farmers Supply Company, against appellees, the stockholders of said corporation, to collect from them certain dividends alleged to have been unlawfully paid. An answer
From the complaint it appears, in substance, that the Evansville Implement and Farmers Supply Company is a corporation which was duly organized under the laws of Indiana on November 21, 1903, with an authorized capital stock of $10,000, divided into shares of the par value of $100 each. On September 25, 1905, the capital stock was increased to $40,000, and afterward, on December 31, 1907, to $100,000. On November 18, 1908, said corporation was adjudged bankrupt in the District Court of the United States for the District of Indiana, and on December 19, 1908, appellant, Louis E. Fricke, was appointed trustee in bankruptcy. As such trustee, for the benefit of the creditors of the bankrupt corporation, he brought this action against appellees, who were, at all times stated, stockholders in said corporation. This action was brought by appellant against all of the stockholders instead of each of them individually, to prevent a multiplicity of actions. The total amount of indebtedness of said corporation is $31,377.28, and appellant has converted all of the available assets of the company, consisting of merchandise, accounts, notes and choses in action, into cash, the total amount of which is $5,922.48, leaving a balance due and unpaid the creditors of $25,454.80. For the year ending December, 1905, there was a loss of $6,671.49 in said business, and a net deficit of $6,813.26. At the close" of the year’s business, December, 1905, dividend No. 1, of 6%, amounting to $528 was declared and paid to the stockholders during the ensuing year. For the year ending December, 1906, there was a loss of $4,583.78 in the business of said corporation, and at that time a total deficit of $11,-397.04. Dividend No. 2, of 7%, amounting to $1,426.12 was declared at that time, and during the ensuing year was paid to the stockholders out of the capital stock of the corpora
The reasons urged in support of the motion for a new trial are that the decision of the court is contrary to law, and is not sustained by sufficient evidence. The undisputed evidence set out in appellant’s brief is shown by the minutes of the meeting of the stockholders, December 31, 1907, to be as follows:
“Assets.
Stock of Merchandise on hand............ $32,598.92
Bills Rec. (note & com. Acets.)........... 6,069.80
Accounts owing Company................ 4,002.93
Capital Stock........................... 40,000.00
Cash on hand and in bank............... 763.94
$83;435.59
Liabilities.
Capital Stock issued.....................$37,650.00
Stock surrendered and cancelled.......... 1,050.00
Bills payable (notes).................... 14,133.40
Accounts owing to manufacturers......... 11,880.18
Other accounts owing................... 5,380.78
Dividends unpaid....................... 188.28
Stock unsold............................ 3,400.00
$73,682.64
Total liabilities......................... 73,682.64
Net gain......................... $9,752.95
Per cent of gain, twenty-four and thirty-five one hundredths per cent.”
Appellant argues that in order to make this showing, the capital stock of $40,000 is put in as an asset, when it should have been shown only as a liability; that the property of a corporation represented by its capital stock, or by obligations of stockholders to pay the amount subscribed by them, are liabilities of the company, and the stockholder possesses only the right to participate in the earnings of the corporation during its existence; that on dissolution he is entitled to a distributive share of what remains, only after payment of all debts, and where dividends are illegally paid from the capital stock, or when there has been a fraudulent distribution of corporate property before the payment of debts, ¿x court of equity, wil^ at the instance of the defrauded corporate creditors follow the fund into the hands of the stockholders and require its application to the payment of those debts. It is appellant’s theory that illegal dividends were paid appellees, and at the time such dividends were paid, the corporation was insolvent, therefore the payment was equivalent to a withdrawal of the capital stock, to the injury of the creditors of the company. It was announced in court at the trial of this cause that dividend No. 1 is not claimed by appellant, consequently the question was whether dividends Nos. 2 and 3 only, could be recovered. It is contended by appellees that the evidence shows when dividend No. 2 was paid, there was a surplus of $20,759.96, and when dividend No. 3 was paid, a surplus of $12,887.00, over and above the debts of the corporation at that time; that in estimating the profits for a year for the purpose of declaring a dividend, it is not necessary to take into account the decrease in the value of the assets, and the impairment of the
In the case of First Nat. Bank, etc., v. Dovetail Body, etc., Co. (1896), 143 Ind. 550, 553, 41 N. E. 370, 52 Am. St. 435, it is said: “The expression that ‘the property of a corporation constitutes a “trust fund” for its creditors,’ only means that when the corporation is insolvent and a court of equity has taken possession of its assets for administration, such assets must be appropriated to the payment of its debts before distribution to its stockholders, but as between the corporation itself and its creditors, the corporation does not hold its property in trust or subject to a lien in favor of the creditors in any other sense than does an individual debtor. Hollins v. Brierfield Coal, etc., Co. (1893), 150 U. S. 371, 385 [14 Sup. Ct. 127, 37 L. E. 1113], and eases cited; Sanford Fork, etc., Co. v. Howe Brown & Co. Limited [1895], 157 U. S. 312 [15 Sup. Ct. 621, 39 L. Ed. 713] ; Fogg v. Blair [1890], 133 U. S. 534, 541 [10 Sup. Ct. 338, 33 L. Ed. 721].” See, also, other cases cited. In the case of Levering v. Bimel (1897), 146 Ind. 545, 553, 45 N. E. 775, it is said: “As between the corporation and its creditors, it cannot, in reason,
In the ease of Mobile, etc., R. Co. v. Tennessee (1894), 153 U. S. 486, 14 Sup. Ct. 968, 38 L. Ed. 793, it is said: “The term ‘dividend’ in its technical as well as in its ordinary acceptation means that portion of its profits which the corporation, by its directory, sets apart for ratable division among its shareholders. Lockhart v. Van Alstyne, supra;
Judgment reversed with instructions to grant appellant’s motion for a new trial.
Note. — Reported in 101 N. E. 329. See, also, under (1) 10 Cyc. 1252, 1253; (2) 10 Cyc. 546; (3) 10 Cyc. 551; (4) 10 Cyc. 549; (5) 10 Cyc. 550. As to stockholders’ rights and remedies in regard to dividends, see 99 Am. Dec. 761. As to the nature corporate stock has as property in the hands of the stockholder, see 57 Am. St. 379. As to the right of an insolvent corporation to prefer creditors, see 15 Ann. Cas. 1218.