Source: http://masscases.com/cases/sjc/325/325mass630.html
Timestamp: 2019-04-20 21:00:54+00:00

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ALLIED FREIGHTWAYS, INC. vs. ISADORE CHOLFIN & others.
One, who was the president, treasurer, and one of three directors of a corporation, the other two being his wife and a bookkeeper, and who dominated the conduct of the corporation's business to such an extent that it was hardly more than a form under which he conducted his personal business, was warrantably found to have caused corporate funds wrongfully to be expended for payment of personal obligations of himself and of his wife, and, in a suit in equity by the corporation, he was directed to repay the amount of such expenditures.
Evidence in a suit in equity by a corporation against one of its three directors, wife of a director and officer who dominated its affairs to such an extent that it was hardly more than a form under which he conducted his personal business, did not warrant a finding that neglect on the wife's part of her official duties as a director was a contributory cause of loss sustained by the corporation because of its funds being used for payment of personal obligations of her husband, and she was not chargeable jointly with him for such expenditures; but she was chargeable jointly with him for wrongful expenditures of corporate funds to satisfy her personal obligations.
BILL IN EQUITY, filed in the Superior Court with a writ of summons and attachment dated September 11, 1947.
S. Mondlick, for the defendants Isadore Cholfin and another.
M. Rosenthal, (A. P. Rudnick with him,) for the plaintiff.
Co. to which, it is averred, nothing was due from the plaintiff. The other defendants were named as holding in their names property belonging to one or both of the principal defendants or as having issued stock now held by either of these defendants, which property and stock were sought to be reached for the satisfaction of any indebtedness found to be due from either of the principal defendants to the plaintiff. A final decree was entered ordering paid to the plaintiff by the defendant Isadore Cholfin $16,587.25 and costs and by the defendant Sarah Cholfin $3,086.39 and costs, and dismissing the bill as to the remaining defendants. The plaintiff and the principal defendants appealed from this decree.
The plaintiff was organized in 1943 and conducted an interstate trucking business until the summer of 1946, when because of financial difficulties it ceased to engage in business and disposed of all its assets. Isadore Cholfin, hereinafter called Cholfin, was its president, treasurer and one of its directors. The defendant Sarah Cholfin was the wife of Isadore Cholfin and was one of the directors. The remaining director during the later years was the bookkeeper for the corporation. The plaintiff's business was conducted solely by Cholfin, and the corporation was hardly more than a form which Cholfin adopted to engage in business.
funds with the corporation in an exchange account and as an accommodation to him so that he could pay his individual creditors by means of checks of the corporation. Cholfin testified that "all . . . [he] did was pour money into it" from the time the corporation began to do business, but when such money was delivered to the corporation or the amount claimed to have been transferred by him to it does not appear. If any moneys were entrusted to the corporation, there is little to show that they were deposits belonging to Cholfin rather than loans or advances to the corporation. In any event, the question is not settled by showing that some of the money was withdrawn from an account entitled "Other Advances Payable" in view of the evidence of the accountant that he would not take the account at its face value until he had checked the nature of each item, and further in view of the testimony that some of the withdrawals were made from another account which was captioned "General Expense of Officers." The judge found that these defendants were liable for the sums withdrawn. He did not believe that these funds represented deposits made by Cholfin but he did believe that they were corporate funds, improperly disbursed for the personal benefit of Cholfin and his wife. An examination of the evidence readily shows that the judge was not plainly wrong in coming to that conclusion.
should be made by him. Dolphin v. A. C. Lewis Leather Co. 269 Mass. 132, 147. Proctor v. Norris, 285 Mass. 161. Lydia E. Pinkham Medicine Co. v. Gove, 303 Mass. 1, 9. Durfee v. Durfee & Canning, Inc. 323 Mass. 187, 202-203.
A careful examination of the testimony fails to show that Mrs. Cholfin participated with her husband in effecting these withdrawals for his benefit. A director of a business corporation is liable for his own misconduct and not for the wrongful conduct of other directors unless he joined with them in perpetrating the wrong. Corey v. Independent Ice Co. 226 Mass. 391, 393. Guay v. Holland System Hull Co. 244 Mass. 240. General Mortgage & Loan Corp. v. Guaranty Mortgage & Securities Corp. 264 Mass. 253, 261-263. American Agricultural Chemical Co. v. Robertson, 273 Mass. 66. Spiegel v. Beacon Participations, Inc. 297 Mass. 398, 411.
1946, and amounting to $761.39 were issued by the corporation for the payment of her personal debts. The balance of the indebtedness with which we think she was properly charged amounting to $2,325 arose from a transaction occurring on August 19, 1946, which was subsequent to the date when the company ceased to do business.
is more doubtful whether, if she even attempted to supervise the closing up of the affairs of the corporation, she could have prevented her husband from proceeding in the manner in which he did. Of course, she should not have permitted checks to be issued for her benefit, and she is liable to account to the corporation. Upon a careful reading of the evidence, we do not think that it can quite be said that the neglect of her official duties as a director was a contributing cause of the loss sustained by the corporation by the wrongful withdrawal of its funds, save only the amounts used for her personal benefit. In Dome Realty Co. v. Rottenberg, 285 Mass. 324, a director, whose husband, also a director, conducted the business as if it were his own, was held liable for funds withdrawn by him in payment of his personal debts where a master found that she knew or ought to have known of this wrongful conduct of her husband. The instant case resembles Hathaway v. Huntley, 284 Mass. 587, 591-593, where it was held that a wife director who was negligent in permitting management of the business to be entrusted solely to her husband, another director, was not liable to the trustee in bankruptcy of the corporation to make good the loss sustained by the corporation by reason of his conduct when it was not shown that her neglect was the proximate cause of the bankruptcy although she was held liable for payments out of corporate funds made for the benefit of property owned by her.
Rubin Epstein as a commission for the sale of the trucks. Epstein was one of the principal members of the Atlantic Finance Corporation. Cholfin denied giving her such a direction and testified that no commission was due to this concern. There was testimony that various transactions had been conducted between the corporation and these two concerns, and there was evidence that they were not indebted to the corporation. There was also testimony that some of the purchase price was used by the corporation in settling up a dump truck business in which the corporation was interested. Whether the corporation received all that was due it from the sale of the trucks rested upon conflicting testimony. The judge was in a much better position than we are to scrutinize the witnesses and to determine their credibility. Boston v. Santosuosso, 307 Mass. 302, 343. The question for us is not what conclusion we might come to on the printed record but whether it can be properly said that the finding of the judge, that the plaintiff has not sustained the burden of proving that the corporation received less than it was entitled to out of the purchase price of the trucks, was plainly wrong. American Employers' Ins. Co. v. Webster, 322 Mass. 161, 163. We see no reason to disagree with this conclusion.
It follows that the final decree must be modified by charging Isadore Cholfin in the principal amount of $19,673.64 with interest from the date of filing of the bill and charging the defendant Sarah Cholfin in the principal sum of $3,086.39 with interest from the date of filing of the bill. The plaintiff is to have costs. The decree as modified is affirmed.

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