Court Opinion

ID: 3554820
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:06:12.898185+00
Date Added: 2024-06-11T14:25:38.225992
License: Public Domain

If the Maynesboro Club is not a corporation whose officers may incur individual liability, the plaintiff's exception must be overruled. Whether it is such a corporation depends on the proper construction of section 1, chapter 150, Public Statutes, which provides: "The officers and stockholders of corporations whose object is a dividend of profits, except banks, shall be individually liable for the debts and contracts of the corporation in the cases and to the extent specified in this chapter, and not otherwise." If this language is given its ordinary meaning, the only corporations whose officers may incur individual liability are those which engage in business to make money for their shareholders. The test, therefore, to determine whether this club is such a corporation is to inquire why it carries on the business of "promoting social recreation and amusement." Is it to make money for its shareholders, or to promote the mental or physical welfare of its members? In other words, the test to determine that question is not to inquire under which of the subdivisions of section 1, chapter 147, Public Statutes, the club was organized, but as to the purpose which induced it to engage in business.
The defendant offered evidence tending to prove that the club was a purely social organization, and that the greater part of its income was derived from monthly dues paid by its members. The plaintiff, however, contends that the presumption that the club is not a corporation whose object is a dividend of profits, which may be drawn from this evidence, is rebutted by the facts that it has paid a dividend to one of its shareholders, and has made a contract with him by the terms of which he is to manage the club for one year and pay the shareholders a dividend of six per cent.
The weight to which this evidence is entitled depends on the purpose for which the stock was issued. If it was issued to provide the money the club needed to furnish its rooms, and to pay its debts of those of the partnership it was organized to succeed, the fact it has paid or intends to pay its shareholders a dividend equal to legal interest has no great tendency to prove that it is a corporation whose object is a dividend of profits, especially if the payment is made out of dues paid by all the members who are as well as by those who are not shareholders. Such a payment is more like a payment of interest than a dividend. The fact that those who furnished the club with money took shares of stock instead of notes has no effect on the nature of the transaction. In other words, notwithstanding the shareholders take *Page 250 
nothing until the other creditors are paid, the mere fact that the money they provided to pay the club's debts is represented by stock does not conclusively establish that the club is a corporation "whose object is a dividend of profits."
Plaintiff's exception overruled.
All concurred.