Miller v. Bradish

• Decision Date: 21 June 1886
• Citation: 28 N.W. 594,69 Iowa 278
• Parties: MILLER v. BRADISH.
• Court: Iowa Supreme Court

69 Iowa 278

28 N.W. 594

MILLER

v.BRADISH.

Supreme Court of Iowa.

June 21, 1886.

Appeal from Winneshiek district court.

The defendant was a stockholder in an insolvent corporation, and this action was brought at law to recover of him a debt of the corporation. Trial by jury. Judgment for the defendant, and the plaintiff appeals.C. Wellington and Chas. P. Brown, for appellant.

Willett & Willett and S. P. Adams, for appellee.

SEEVERS, J.

1. There are three counts in the petition. The issue under the first was, by consent, withdrawn from the jury, and submitted to the court, and the court found for the defendant. It is provided by statute that “the diversion of the funds of the corporation to other objects than those mentioned in their articles, and in the notices published, as aforesaid, if any person is thereby injured, and the payment of dividends, which leave insufficient funds to meet the liabilities of the corporation, shall be deemed such frauds as will subject those concerned to the penalties of the preceding section; and such dividends, or their equivalent, in the hands of the individual stockholders, shall be subject to such liabilities.” Code, § 1072.

The first count in the petition is based on this statute, and it states that dividends were declared by the corporation, and paid to the defendant, when the funds of the corporation were insufficient to meet the liabilities. It will be conceded that the plaintiff is entitled to recover if such dividends were of the character stated. The corporation was organized, and the dividends were declared, in 1875 and 1876; and one material question is as to the meaning of the word “funds,” used in the foregoing statute. Counsel for the appellant contend that it means “cash on hand,” and it is said that when one is in funds to meet all obligations, it would not be understood that such funds consisted of notes and accounts and real estate; and Bouvier's Law Dictionary and Webster are referred to. That such is the restricted meaning of the word, and that it should be so construed in some cases, will be conceded. But it is quite clear that it has a broader meaning, and, in some cases, should be construed to include property of every kind, when such property is specially contemplated as something to be used or applied in the payment of debts. The word “funds” occurs twice in the foregoing statute, and as first used it undoubtedly means that if the property of the corporation be diverted, and any one is thereby injured, the person causing such diversion will be liable to the penalties provided in the statute. As thus used, the word means and includes something more than cash on hand. It evidently includes all the resources of the corporation, and no sufficient reason has been given why it does not mean the same thing when it is used the second time in the same section of the Code. “Diversion of funds” and “insufficient funds,” in so far as the meaning of the word “fund” is concerned, must, it seems to us, be construed to mean precisely the same thing. A corporation may, we think, lawfully declare and pay a dividend, although it does not have cash on hand to pay all its liabilities. Necessarily this must be so, for there is not a national bank in the state that has been in business over a year that has at any time cash on hand sufficient to pay all its liabilities, and this must be true of other corporations engaged in active business. The assets, resources, and funds of the corporation must consist of cash on hand and other property, and if such assets exceed the liabilities, a dividend can be lawfully declared.

2. It was stipulated that in 1875, when the dividend was declared, that the value of the assets, funds, and resources of the corporation was $156,904.65, and the liabilities were $56,065.23. The capital stock was $106,860, and a dividend of 10 per cent. on the capital stock was declared, amounting to $10,686. It will be observed that the statute declares the “payment of dividends which leave insufficient funds to meet the liabilities of the corporation” shall be deemed a fraud. It will be also observed that the indebtedness and the capital stock exceeds the assets of the corporation; and counsel for the appellant contend that the capital stock is a liability, and therefore the dividend was unlawfully declared and paid. Counsel for the appellee contend that the liabilities of the corporation contemplated by the statute is the indebtedness other than the capital stock. We incline to think that the capital stock, in one sense, is a liability of the corporation, and yet it is not a debt. The interest of a stockholder consists of his right to participate in the profits, and it is only upon the dissolution of the corporation that he becomes entitled to any portion of the assets other than the dividends. He cannot bring an action against the corporation for the amount paid for stock during the existence of the corporation. The corporate liability for the payment of the capital stock is remote and contingent. The object of the statute is the protection of creditors other than holders of stock. If the whole capital stock is returned to the stockholders in the form of dividends, a creditor has no right to complain if there remain sufficient funds belonging to the corporation to pay him. The word “liability,” as used in the statute, should be construed to mean existing indebtedness at the time the dividend is declared, the payment of which could be enforced. That such is the proper construction we think is apparent from other sections of the Code in which the word “liability” is used as synonymous with “indebtedness.” See sections 1061-1063.

Deducting the dividends paid in 1875, the remaining assets of the corporation were of the value of $146,218.65; the debts amounted to $56,065.23;...