268 Mass. 233 | Mass. | 1929
These cases, one at law and the other in equity, come before us on reports from the Superior Court under the provisions of G. L. c. 231, § 111, and G. L. c. 214, § 30, respectively. They were brought simultaneously for the same cause of action, the plaintiff alleging that he is in doubt whether his remedy is at law or in equity. The declaration alleges that the plaintiff believes the suit in equity to be well-founded, and concedes that, if he should recover thereon for
In the action the defendant seasonably filed a motion to dismiss and a plea in abatement, each based upon the pending of the suit in equity. The judge denied the motion to. dismiss and overruled the plea in abatement, and reported, the case to this court.
In the suit in equity the defendant seasonably filed a motion to dismiss and a plea, each based upon the pending of the action at law. He also filed a demurrer and assigned twenty causes therefor. The judge dismissed the motion and overruled the plea. He overruled all the assigned causes of demurrer except that of the pending of the action, ruled that the demurrer be sustained unless within thirty days the plaintiff should discontinue the action, in which case the demurrer should then be overruled. Subsequently, on the representation of the plaintiff that he was willing to discontinue the action, but, if he should do so and thereafter this court should decide that his right is at law and not in equity, the statute of limitations would bar his recommencing to prosecute his action at law, the judge entered an interlocutory decree upon the demurrer, in substance as follows: “that the demurrer be sustained unless the plaintiff discontinue his action at law in this court against the same defendant for the same cause of action, being number 212845 on the court docket, within thirty days after rescript from the Supreme Judicial Court, and upon proof satisfactory to this court that said action at law has been discontinued, this demurrer is to be overruled.” The case was then reported to this court upon the “‘rulings and orders,’ the motion to dismiss, the decree dismissing such motion, the plea, the decree overruling the plea, the demurrer, and the decree upon the demurrer.”
The declaration is on an account annexed for money had and received to the use of the plaintiff, and received under the “guise of dividends,” by the defendant while a stockholder of the then insolvent New England Guaranty Corporation. ,The declaration, in substance, alleges that the action is based upon the same facts as are stated in a complaint in equity simultaneously filed.
In each case, disregarding the form adopted by the de
We shall consider the grounds assigned as reasons for the demurrer in the order in wMch they are argued on the defendant’s brief. The first ground argued has to do with the dismissal of the law action or the suit in equity. It was within the power of the judge to sustain the demurrer unless the plaintiff shall discontinue his action at law within tMrty days after rescript from the Supreme Judicial Court; and that power was properly exercised.
Under the second and fifth assigned grounds of demurrer the defendant contends that the bill of complaint does not allege sufficient facts to show the first four dividends paid between March 15, 1922, and February 1, 1923, at a time when the corporation was insolvent or on the verge of insolvency, were illegal. He bases tMs contention on Ms assertion that the term “verge of insolvency” is very indefimte and
The defendant in the third assigned cause argued contends that the plaintiff has an adequate remedy at law, and that the aid of a court of equity cannot be invoked where the relief sought is exactly the same as-that which would be afforded by a judgment at law; citing Jones v. Newhall, 115 Mass. 244, Maguire v. Reough, 238 Mass. 98, and Morse v. International Trust Co. 259 Mass. 295. It is, however, well settled that creditors of an insolvent corporation may recover in a suit in equity against stockholders dividends paid to them by an insolvent corporation and have them applied in payment of their claims. Vose v. Grant, 15 Mass. 505. Spear v. Grant,
The defendant, on the sixth, seventh, eighth, nineteenth and twentieth grounds assigned as causes of his demurrer, contends that the demurrer should be sustained because the bill does not allege bad faith on the part of the defendant, nor that the defendant had knowledge as to the financial condition of the corporation, and that the good faith of the defendant must be presumed on demurrer in the absence of an allegation to the contrary; citing Hatch v. Bayley, 12 Cush. 27, 30, Barron v. International Trust Co. 184 Mass. 440, 443, Ayers v. Farwell, 196 Mass. 349, 352, and McDonald v. Williams, 174 U. S. 397. As it is admitted by the demurrer that the corporation was insolvent when it declared eleven dividends and paid them to the defendant, that creditors of the corporation then existing still remain unpaid, and that the corporation is now insolvent and in bankruptcy, it follows that the payment of the dividends was fraudulent as to such creditors. The good faith of the defendant in receiving the dividends, his belief that they were earned and were paid out of profits, his absence of knowledge that the corporation was insolvent or that the payment of the specific dividends would defeat, delay or defraud any existing creditor of the corporation, could not change the fact that the dividends received were mere gifts, nor operate to relieve him from the obligation to return them .to the corporation or to its creditors on demand. Norton v. Norton, 5 Cush. 524. Blake v. Sawin, supra. Clark v. Chamberlain, 13 Allen, 257, 260, 261. Gray v. Chase, supra. Matthews v. Thompson, 186 Mass. 14, 21. Cushman v. Noe, 242 Mass. 496, 502. Dorr v. Tracy, 248 Mass. 201. See County of Morgan v. Allen, 103 U. S. 498, 508, 509; McDonald v. Williams, supra, page 404; Wood v. Dummer, 3 Mason, 308, 321; Lexington Life, Fire & Marine Ins. Co. v. Page & Richardson, 17 B. Mon. 412. It is to be noted that in the case of McDonald v. Williams, supra, and in the remaining cases relied on by the defendant, the dividend was declared and paid by solvent cor
The defendant in the first, the eighteenth and nineteenth causes assigned for his demurrer contends that these causes should be sustained because it does not appear that there were outstanding at the time of the payments of the alleged dividends any obligations upon which claims were proved in the bankruptcy proceedings. It is not denied, and it sufficiently appears in the bill of complaint, that the plaintiff as trustee in bankruptcy of the corporation is the present representative of creditors of the corporation, who were such when the payments were made and who are still unpaid. The demurrer admits the allegation of the bill that “At the time of each such payment of dividend or reduction of capital the corporation owed debts which are still due and unpaid to an aggregate amount greater than the aggregate amounts withdrawn and paid to the stockholder as aforesaid.” The trustee in bankruptcy is vested by operation of law with the title of the bankrupt to all property transferred by him in fraud of creditors. Bankruptcy act, § 70(a). The trustee represents all the creditors, and under bankruptcy act, § 70(e), may maintain an action to set aside any transfer which any creditor could or might acquire by any process taken by him, even though the complaint does not show that any creditors were in position to attack the transfer. Bailey v. Wood, 211 Mass. 37. Baldwin v. Kingston, 247 Fed. Rep. 163. Bingaman v. Commonwealth Trust Co. 15 Fed. Rep. (2d) 119, 120. Beasley v. Coggins, 48 Fla. 215. Southard v. Benner, 72 N. Y. 424, 429. Ryker v. Gwynne, 21 Am. Bankr. Rep. 95. Federal Mining & Smelting Co. v. Wittenberg, 55 Am. L. R. 1, note (page 120) and cases collected. The contention of the defendant, that a recovery in this case by the plaintiff would not prevent those creditors whose claims were outstanding at the time the dividend was paid, and who have not filed proof of claim, from instituting proceedings in their own right, and that the defendant might thus be subjected to a number of other suits for the recovery of the same dividends by persons who would not be barred by this suit of the
The defendant, on the third and fourth grounds assigned as causes of his demurrer, contends that the bill does not allege that the remedy against the directors has been exhausted; that, under the laws of Delaware (General Corporation Law for the State of Delaware, § 35, and Del. Rev. Sts. c. 65, § 35), if the directors are liable and . are financially able to respond to such liability, then to permit the plaintiff to recover against the defendant is to encourage multiplicity of action and to impose a liability upon the innocent stockholders which should be borne by the guilty directors. If it is assumed that under causes 9, 10 and 11 judicial notice is taken of the laws of Delaware, the statutory liability of the directors does not exonerate the defendant who has received dividends from liability to repay them for the benefit of the creditors. “The statute does not transfer the liability from the stockholders to the directors, but it creates a liability on the part of the latter in favor of the corporation or the creditors in certain events .... The stockholder who has received part of the capital by way. of dividend, without legislative authority, has no right to it as against the creditors of the corporation, and no wrong is done him if he be compelled to repay it when it is required to pay the debts of the corporation .... But that provision does not, either in terms or by implication, exonerate the stockholders .... The remedy given by the statute is cumulative. The Legislature does not say that the stockholders shall be at liberty to keep the money, and that the creditors must have recourse to the directors alone.” Williams v. Boice, 11 Stew. (N. J.) 364, 369. Hayden v. Thompson, 71 Fed. Rep. 60, 66. Wood v. National City Bank, 24 Fed.
The defendant, in support of the ninth, tenth and eleventh causes assigned, contends that his demurrer should be sustained because it does not appear that the dividends were illegal under the laws of the State of Delaware. There is no force in this contention. It is true that “Where the rights sought to be passed upon and determined are those which arise from the relation between a corporation and its members, they depend upon the local law which exists at the place of its creation.” New Haven Horse Nail Co. v. Linden Spring Co. 142 Mass. 349, 353. The right which the plaintiff now seeks to enforce is not one “peculiar to corporation law, but merely an instance of a payment from an insolvent estate.” Wood v. National City Bank, supra. This suit is not based upon the statutory liability of stockholders to creditors, but is brought to enforce the common law right of creditors to follow and recover back money fraudulently conveyed by the corporation and received without consideration by the defendant. See Manning v. Campbell, 264 Mass. 386, Calkins v. Wire Hardware Co. 267 Mass. 52, 60.
No cause of demurrer is found upon which to rest the argument that a stockholder’s right to a dividend which has been declared is superior to the rights of creditors whose claims accrue subsequently.
Causes numbered 12, 13, 14, 15 are not argued and are treated as waived. Commissioner of Banks v. Cosmopolitan Trust Co. 247 Mass. 334, 346.
. We have examined and considered every cause assigned as a ground of demurrer that has been argued, and the cases cited by the defendant in support of his contention. No error is discovered in the action of the trial judge. The orders denying motion to dismiss and overruling plea in abatement are affirmed in the action at law. The interlocutory decrees dismissing motion to dismiss and overruling plea and the interlocutory decree on demurrer are affirmed in the suit in equity.
Ordered accordingly.