139 A. 118 | Pa. | 1927
Submitted May 23, 1927.
The Mount Union Water Company was duly chartered for the purpose of supplying water to the inhabitants *359
of the borough named. With the consent of the Public Service Commission, the latter contracted to purchase, on April 1, 1918, all the property and franchises of the corporation, agreeing to assume its bonded indebtedness, pay claims outstanding to an amount not in excess of $9,000, and turn over $60,000 in cash. The sale was consummated at the time fixed, possession of the plant was taken in May, and it has since been continuously operated by the municipality. In September, the cash consideration paid, — after liquidating certain notes, — was, by agreement of all the stockholders, divided pro rata among them. The appellants, Kunz and Langdon, were two of those interested. Each owned shares of the par value of $5,000, and each received in liquidation $3,750. It was, at the time, believed that all claims due by the corporation had been satisfied either by direct payment, or provided for by the agreement of the borough to satisfy. On or before December 18, 1918, the latter settled with outstanding creditors, but found, when its accounts were balanced in the May following, that it had paid out approximately $2,000 more than the $9,000 agreed on. No claim was made for the excess payment, as far as the record discloses, until suit was brought, on March 24, 1924, against the company, which had long since ceased to function. Judgment was obtained by the borough for the amount claimed, on the ground that the additional sum had been voluntarily advanced under mistake of fact, and the judgment is binding as to the amount thereof: Pocono Ice Co. v. American Ice Co.,
An execution issued against the water company, and a return of nulla bona was made by the sheriff in September of 1925. Two months later, and nearly seven years after the last bill was paid, the present proceeding was instituted to charge the defendants with the amount of the judgment, on the theory that they had improperly in their possession assets of the corporation. The provisions of the Act of April 14, 1828 (P. L. 439, *360 10 Sm. L. 213), were invoked, which legislation permits, under designated circumstances, the calling in of officers and members of a private corporation in default, to discover if they have concealed its effects for the purpose of avoiding the payment of debts. It further permits proceedings in the nature of a foreign attachment to be pursued against such parties if property is found in their hands belonging to the corporation. In this case, the plaintiff charged a concealment of funds, representing the balance of the purchase price, distributed in entire good faith among the shareholders, when it was believed all debts had been provided for. It was insisted that the division of the remaining assets was irregular, in view of the fact that there had been no formal dissolution of the corporation, and that the money paid still remained its property, the return of which could be demanded.
It is true that the assets of a company cannot ordinarily be divided among those entitled until the corporate existence ceases, since they constitute a trust fund for the protection of creditors, and an attempt to improperly divert the funds of the continuing organization may be restrained: Cornell's App.,
The court below was of opinion that a distribution of assets without dissolution, as provided by the Act of 1856 (April 9th, P. L. 293), was illegal, and that the money paid over remained a part of the company's assets, which could be reached by the process provided in the Act of 1828. Though the common pleas was not asked to formally wind up the company's affairs, yet sight has been lost of the fact that the Act of 1876 (April 17th, P. L. 30, amending section 23 of the Act of 1874), permitting the sale of the property and franchises of a water company (Greensburg v. Westmoreland Water Co.,
If the company was dissolved, then an action against it would not lie: Zimmerman v. Puro Coal Co.,
Chief Justice MITCHELL, while sitting in the common pleas (Bickley v. Paul, 11 Phila. 256, 257), said of the legislation in question: "It is extremely doubtful whether the Act of 1828 is an existing remedy. It would seem to have been supplied fully by the various sections of the Act of 16th June, 1836, and, though the process of sequestration given by the latter act is taken away by the Act of 1870, and a writ of fi. fa. is substituted for it, the act so amended appears to afford all the remedy that is intended by the Act of 1828." No appellate decision construing the statute has been called to our attention, nor have we discovered one. Assuming its applicability, two facts, amongst others, must appear before its provisions can be taken advantage of.
The corporation in question must be a private one, and the appellants insist the water company was not of *363
that character. Undoubtedly it was quasi public in nature, as is indicated by the grant of the power of eminent domain: Reeves v. Water Co.,
If the act is to apply, however, it must appear that the property sought was concealed, with the intent to hinder creditors. The word "conceal" is one of plain interpretation, defined as a hiding or withdrawing of something from observation, and implies some affirmative action more than a mere failure to disclose: 12 C. J. 373. Concealment means the act of "hiding or keeping secret, the improper suppression or disguise of a fact, circumstance or qualification, which rests within the knowledge of one only of the parties to the contract, but which ought in fairness and good faith to be communicated to the other, whereby the party so concealing draws the other into an engagement which he would not make but for his ignorance of the fact concealed. . . . . . The term implies design and purpose. A mere silence is not of itself a concealment": 12 C. J. 375; Shoesmith's Case, 135 Fed. *364
684; United States v. Violin, 188 Fed. 542. "To constitute [such] within the meaning of the attachment statutes, it is necessary that there should be a physical hiding or secreting of property": 6 C. J. 68. The Act of 1828 does not apply unless there is not only a secreting of property of the corporation, but it also further appears the same was knowingly received, with intent to hinder creditors. As in the case of alleged fraudulent conveyances, the question of the honesty of the grantee's conduct must be considered: Littieri v. Freda,
The necessary jurisdictional facts were averred in the petition forming the foundation of this proceeding, but proof of them was utterly lacking. The learned court below instructed the jury that the acceptance of a part of the purchase price by the defendants was in perfect good faith, but declared the mere receipt of a share of the assets before a formal dissolution constituted a constructive concealment with intent to hinder creditors, and, therefore, was within the statute. It held that had there been a formal winding up of the corporation and payment then made, no seizure in execution would have been possible, but, since this did not appear, the funds could be reached in the manner proposed. The fact was found that "there is absolutely no evidence in this case of any fraudulent concealing of property or assets of the Mount Union Water Company by these defendants for the purpose of avoiding the payment of its debts," but, notwithstanding the bona fides of the transaction, the court held the creditor might still invoke the provisions of the Act of 1828. We are unable to agree with this proposition. To do so would be to extend the statute beyond its expressed meaning, which is not permissible. The facts do not bring the proceeding within the terms of the legislation forming its basis, and it must therefore fail, and the judgment entered against both defendants be reversed. This conclusion renders unnecessary consideration of the effect of the statutes of limitation *365 (March 27, 1813, 1 Sm. L. 76, as amended and extended in corporate actions, March 28, 1867, P. L. 48), and further reference to this defense asserted below is unnecessary.
The judgments in both cases, argued together, are reversed, and here entered for the defendants.