Kisterbock's Appeal

| Pa. | Feb 19, 1866

The opinion of the court was delivered, by

Agnew, J.

The doctrine of constructive fraud has nothing to do in this case. An act innocent in the intention may be so injurious in the consequences, that the law declares it to be a fraud and forbids it. Such 'are the acts prohibited b¡y the statutes of 13 and 27 Elizabeth. Out of the act the law constructs the fraud, though not tainted with actual fraud. But legal presumptions lie thickly strewn in the pathway of evidence. A state of facts being proved, the law makes its own inference and from it pronounces that another fact must have existed. Thus from a receipt for one year’s rent in full, a prior year’s rent is presumed to be paid.- This is the precise character of the auditor’s finding. He presumes no constructive fraud, but from certain facts infers Kisterbock’s knowledge of the fraudulent insolvency of the association, and this knowledge being found as a fact, he thence finds his participation in the fraud.

As a matter of evidence was he not justified in this finding ? The facts from which he draws his conclusion were that the financial condition of the association was one of fraudulent insolvency, as far back as 1856 ; that this was caused by the fraudulent acts of the directors, in declaring dividendswhen there were no profits to be divided; that Kisterbock was an active director from March 1857 till July 1859, and attended regularly to the discharge of his duties in the board; that on the 20th August 1858 the board declared a dividend of $7092.41, for the payment of which there were no surplus profits, but a large deficiency existing on account of former payments. He then finds that on the day following the dividend of August 20th 1858, Kisterbock lent to the association the money for which he took the note of August 21st 1858, and this money he finds was lent by him to pay upon this fraudulent dividend. On this evidence had the question of Kisterbock’s knowledge of the fraud been submitted to a jury and found, would a court set aside the verdict ? We think not. But the report of an auditor, like the verdict of a jury, is presumptively right. If Kisterbock, being a director himself, knew of the fraudulent insolvency, and that this dividend was declared out of the capital to the wrong and injury of the stockholders, and lent his money to carry the fraud into effect, he participated in it; and the real .question then is, shall he now be permitted to take his money out of the remnant of the capital of the stockholders ? for this is what the fund represents, the association being insolvent.

The question is not whether he might enforce his demand against the corporation, if it were solvent, but he here seeks to have satisfaction out of a fund which belongs to the stockholders, whose interests he has betrayed. The corporation is insolvent, and some one must lose. Shall it be the innocent stockholders, or the .guilty participant in the fraud which caused the insolvency ? It is not a mere' set-off, or a counter-claim by reason of simple liability of the corporation, but it is a claim to come in on the remnant of the corporate effects, constituting a fund to be distributed justly upon the evidence. Pie assisted by fraud to reduce the association to insolvency, and thereby to bring the wreck of its fortunes into distribution, and now he seeks to put in his hand and withdraw from this fund the very money he gave to carry out the fraud. Every principle of justice .requires him to be postponed until the stockholders whom he defrauded are satisfied.

Nor can we see that the difference of time in making the deposits which created the depositors stockholders changes the result. The fraud which produced the insolvency was- running for months, while Kisterbock was a director, and before the dividend of August 1858 was declared, to pay which he lent this money. The stockholders who received a portion of their dividends (about one-seventh) out of his money, received it in ignorance of the source, and on the faith it was a bond fide dividend. What compensation is this portion for the fraud which has continued for months, and ended in the ruin of the association in which their capital was risked ? What merit has he to demand an investigation and analysis of the relations of the prior and subsequent stockholders to enable us so to distribute this money as to equalize their claims, and if he had, how can we reach it either conveniently or justly ? Like one who unlawfully mixes his goods with mine so that I cannot distinguish his, he must suffer, not I. And notice, too, that the money he asks to withdraw is not his own identical money, but it is the wreck of the capital of the stockholders; and it is this remnant he seeks to take to pay a debt which, as the trustee and guardian of their interests, he fraudulently contracted with himself. His money was paid out, and it would be most difficult to settle the equities of prior and subsequent stockholders as they existed at the time the assignment was made. The property and assets assigned belonged to all the stockholders then, and the account must be settled and the equities adjusted as of that time. Upon the whole case we think he is without merit, and is not-entitled to share in this fund.

The decree is therefore affirmed, and the appellant ordered to pay the costs of the appeal.