Court Opinion

ID: 8199302
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:22:58.639055+00
Date Added: 2024-06-11T16:40:51.973820
License: Public Domain

Fowler, J.
(dissenting). If I could agree with the opinion of the court in this case that the court of Delaware in Roeblings Sons Co. v. Mode, 1 Pennewill (Del.), 515, 43 Atl. 480, construed the statute involved as denying the right of a trustee in bankruptcy to bring suit to recover such dividends as are herein involved I would agree with the decision herein. But that case does not expressly so hold, and in my opinion does not so hold by implication, and I therefore dissent.
The statute construed provides that directors of a corporation who have wilfully or negligently declared dividends *571which have not been paid out of net assets in excess of capital or net profits for the current and the preceding years or one of them, shall be liable' “in an action on the case, ... to the corporation and to its creditors, or any of them, in the event of its dissolution or insolvency to the full amount of the dividend so unlawfully paid.” Delaware Gen. Corp. Law, sec. 35 (§ 2067, Rev. Code Del. 1935).
The statute was amended to read as above quoted after the existing statute covering the matter was construed by the Delaware court in Roeblings Sons Co. v. Mode, supra. The legislature manifestly amended the statute to obviate the ruling of the court that an individual creditor could not under the statute sue to recover for his sole benefit a dividend paid contrary to the statute. The only change made in the statute was to insert the words “in an action on the case” and the words “or any of them” next after the word “creditors.” The purpose and intent of the amendment clearly was merely to give an individual creditor the right to sue in his own behalf, and the amended statute should not be given effect beyond that intent and purpose.
The language of the Delaware court which it is claimed construes the statute as not giving to the plaintiff trustee the right to sue for the dividends alleged to have been wrongfully paid by the defendant directors is the following: “If will be noted that by express language, the directors’ liability, is to the corporation first; but if it be dissolved or insolvent, then to the creditors.” The context of this statement clearly shows that all the court meant by the statement was that if dividends were declared by the corporation before its insolvency they belonged to the corporation, and if they were declared after insolvency they belonged to the creditors for distribution among all the creditors pro rata, and were not to go to any one creditor for his sole benefit as the action before the court assumed they might go. The court ruled that “it cannot be maintained that this declaration [complaint in the *572action] contemplates any such distribution” and the action was therefore held untenable. That was the whole point of the case. The inference is plain that under the statute as it then existed, and under the statute as it exists after its amendment, any creditor could sue in behalf of all creditors to recover dividends unlawfully paid as alleged for distribution pro rata among all the creditors. That is the precise function of a trustee in bankruptcy. Such trustee represents the creditors of the bankrupt. It is for him first tO' satisfy their claims against the bankrupt out of the bankrupt’s assets. It stands to reason that what a creditor may do in this regard, his representative, the trustee in bankruptcy, may do. Moreover, by section 110 (a), title 11, USCA, such trustee is vested by operation of law with the title of the bankrupt to all “(6) rights of action arising . . . from the unlawful taking ... of ... his property.” The dividends involved were property of the bankrupt unlawfully taken. The dividends involved were certainly property of the corporation at the time they were taken, and section 75 (a) (2) of title 11, USCA, vests in the trustee “all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied” as to all property not in the custody of the court. It is stated in 2 Collier, Bankruptcy (13th ed.), page 1730, regarding section 110, that “a right of action of a corporation to recover damages accruing because of the misconduct or neglect of duty of a corporate officer passes to the trustee of the bankrupt corporation.” In 4 Remington, Bankruptcy (4th ed.), p. 371, § 1547, it is stated that the trustee in bankruptcy as representative of the creditors is vested with “all the possible rights of creditors under state law.” Notes in 55 A. L. R. 120, and 76 A. L. R. 894, are to the same effect. It was held in Stratton v. Bertles, 238 App. Div. 87, 263 N. Y. Supp. 466, that a trustee in bankruptcy might sue in New York to recover under the Delaware stat*573ute involved, and in Irving Trust Co. v. Gunder, 234 App. Div. 252, 254 N. Y. Supp. 630, that such a trustee might sue to recover dividends under a New York statute identical with the Delaware statute as to who may sue. The same was held in Ulness v. Dunnell, 61 N. D. 95, 237 N. W. 208, under a North Dakota statute providing' for recovery of dividends paid out of capital. I perceive nothing in the Delaware statute to distinguish it from the North Dakota or New York statutes involved in these cases. The case of Rockwood v. Foshay (C. C. A.), 66 Fed. (2d) 625, 628, upon which the trial court and the opinion of this court relies, holds that the trustee in bankruptcy cannot bring suit under the Delaware statute involved, but the ruling is based on the proposition that the Delaware court has so construed the statute as to exclude that right, and in my opinion, as first stated, the Delaware court has not so done. To hold that it has so construed the statute is to impute to that court a ruling that defeats the purpose of the statute as declared by the court itself and one that is absurd in its implications. The Delaware decision, so construed, would deny to the corporation the right to bring suit after its dissolution to recover dividends unlawfully paid from capital. Section 40, Delaware Gen. Corp. Law (§ 2074, Rev. Code Del. 1935) expressly gives right to the corporation to bring suits within three years after dissolution to enable them “gradually to settle and close their business.” Is it to be inferred that the Delaware court intended to flout this statute and deny to a corporation the right to sue after its dissolution for dividends paid out of capital if such recovery is necessary to enable it to pay its creditors ? Also section 43 of the Delaware Gen. Corp. Law (§ 2075, Rev. Code Del. 1935), provides for winding up by the court of the affairs of a dissolved corporation and the appointing of a trustee or receiver “to take charge of the estate” of the corporation and “to collect the debts and property due and belonging to the *574company,” and to prosecute “all such suits as may be necessary” for those purposes. The construction of the statute involved imputed to the Delaware court would deny the right of a receiver or trustee appointed in such a proceeding to commence a suit to recover from directors dividends paid out of capital stock. Is it to be presumed that the Delaware court intended such effect of its decision? There is no reason to infer that the Delaware decision any more intended to deny the right of a trustee in bankruptcy to bring suit to recover from directors who have paid dividends out of capital than to deny the right to bring such suit in the instances next above cited.
For the reasons above stated, the judgment of the circuit court should in my opinion be reversed.
A motion for a rehearing was denied, without costs, on April 27, 1937.