Manning v. Campbell, 264 Mass. 386

264 Mass. 386 | Mass. | 1928

Sanderson, J.

The original plaintiffs were trustees in bankruptcy of Campbell Electric Company, a corporation hereinafter referred to as the company,, and they brought this bill against the directors to recover losses sustained by the company because of the failure of the defendants to administer its business with the care and fidelity required of directors. In the Superior Court the demurrers filed by five of the defendants were overruled and the case was reported.

The by-laws of the company place in the hands of the directors the management, control and direction of all the business affairs of the company and its undertakings, the fixing of values and the doing of all lawful acts to carry into effect the powers of the company.

This suit is not based upon the statutory liability of directors to creditors for debts or contracts of the corporation, G. L. c. 156, §§ 36, 37, 38,39, but is brought to enforce the common law right of a corporation to hold its officers liable for breach of their fiduciary duty to it. The statutes have fixed the bounds of liability of officers to creditors for debts and contracts of the corporation, but they have not taken away nor limited the right of the corporation to bring suit against its directors. Lyman v. Bonney, 118 Mass. 222. Ellis v. French Canadian Co-operative Association, 189 Mass. 566, 567. King v. Viscoloid Co. 219 Mass. 420, 425. Putnam v. Handy, 247 Mass. 406, 411. Bonner v. Chapin National Bank, 251 Mass. 401, 408. The right to maintain this suit does not depend upon any allegation as to debts or contracts of the company nor require the naming of any creditors.

The bill alleges that the defendants were directors of the company at the time the transactions occurred, one being its president and another its treasurer; that the president arbitrarily and fraudulently inflated the book value of a part of its assets in order that he might remain in office at a high salary and that the defendants negligently and carelessly assumed the figures to be true and declared a dividend; that they were grossly negligent in declaring and paying dividends when- they knew the company had no surplus but was laboring under a deficit; that before the last dividend was declared they carelessly and negligently disregarded transactions between the company and the treasurer in paying his debt to the company by selling its own stock to it at a price greatly in excess of that being paid by the public at the time, thereby fraudulently depleting the assets and making the company insolvent, and permitted its president to pay his debt to the company by transferring to it at par his stock therein when the company was insolvent; that they were negligent and completely unconcerned with the affairs of the company in permitting it to enter into an ultra vires transaction whereby the company took from the treasurer stock of a certain bank and assumed his obligation on a note given in payment therefor, and in permitting an ultra vires act in connection with the purchase of real estate from the treasurer; that they were indifferent and negligent in permitting the dissipation of the company’s assets in connection with certain stock owned by it, and in loaning its money without power or authority; that, acting in concert with the directors of a corporation in which the company owned a controlling interest, they permitted the assets of that corporation to be depleted, and stood idly by while the company suffered substantial loss which would have been avoided if the defendants had acted prudently and exercised due care.

A director of a corporation, although not responsible for errors of judgment, is “a fiduciary charged with the duty of caring for the property of the corporation and of managing its affairs honestly and in good faith. If this duty has been so violated as to result in impairment of assets, or loss of its property, or . . . [in] profit to himself, he can be compelled to make full restitution.” Putnam v. Handy, 247 Mass. 406, 409. Peabody v. Flint, 6 Allen, 52, 56. Elliott v. Baker, 194 Mass. 518, 523. Young v. Haviland, 215 Mass. 120, 123. Allen-Foster-Willett Co., petitioner, 227 Mass. 551, 556. Cosmopolitan Trust Co. v. Mitchell, 242 Mass. 95, 120. Directors of a commercial institution have the duty of reasonably protecting and conserving the interests of the corporatian. Putnam v. Handy, 247 Mass. 406, 411. Commonwealth v. Dow, 217 Mass. 473, 479. See Briggs v. Spaulding, 141 U. S. 132, 165. The alleged depletion of assets of the. company resulted in personal gain to the president and treasurer. They and all other defendants authorized or permitted all of the alleged wrongful acts and knew the financial condition of the company when they declared dividends. See Leeds Estate Building & Investment Co. v. Shepherd, 36 Ch. D. 787, 798. The court said in Greenfield Savings Bank v. Abercrombie, 211 Mass. 252, 258: “Even the decisions by which the directors of a private business corporation have been exempted from liability for bare errors of judgment or for mere ordinary negligence in the exercise of their authorized functions have almost invariably refused, when the question has been considered, to extend that exemption to acts which were ultra vires or in violation of law.”

The general allegations of negligence and mismanagement are sufficiently definite not to be demurrable. Upon these allegations the company before bankruptcy could have maintained a suit for reimbursement. Von Arnim v. American Tube Works, 188 Mass. 515, 520. See Young v. Haviland, supra; United Zinc Co. v. Harwood, 216 Mass. 474, 476. This right of action was an asset of the company and passed to its trustees in bankruptcy. Bankruptcy act, 30 U. S. Sts. at Large, 566, c. 541, § 70a, (6). Lazenby v. Henderson, 241 Mass. 177. Putnam v. Handy, 247 Mass. 406, 411. See Boucher v. Hamilton Manuf. Co. 259 Mass. 259, 270. The plaintiff stands in the place of the company in asserting rights which it had at the time of the adjudication of bankruptcy.

The facts upon which directors’ liability was held not to be established in General Mortgage & Loan Corp. v. Guaranty Mortgage & Securities Corp., ante, 253, and in Abbot v. Waltham Watch Co. 260 Mass. 81, distinguish those cases from the case at bar.

The question, whether upon the evidence the plaintiff will be able to establish the liability of each defendant, cannot now be decided.

In reaching the conclusion that the order of the Superior Court be affirmed, we have considered all grounds of demurrer argued. Those not argued are treated as waived. Commissioner of Banks v. Cosmopolitan Trust Co. 247 Mass. 334, 346.

Order overruling demurrer afirmed.