Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/773

 CHAP. XIV.] OFFICERS AND CREDITORS. [§ 757. enterprise, and by the right of directors in so doing to incur whatever risks may be reasonably necessary. 1 And, accordingly, directors will be liable to the persons for whom they hold the funds of the corporation in trust, in the number of whom creditors are to be included, if they commit either a positive breach of trust by misapplying the corporate funds, or a negative breach by grossly neglecting their duties. 2 § 757. In the first place, as to the liability of directors to creditors for positive misapplication or mismanage- „ , pi, For mi sap- ment of the corporate funds : " All creditors have plication of the right to look to it [the capital of the corpora- rate^unds. tion] and to its faithful administration for the payment of their debts .... and they have an interest in and claim upon the fund set apart by law for their payment, and may hold the directors responsible for its unfaithful distribu- tion, or may follow it into the hands of the distributees who hold it as volunteer recipients, having no rightful claim upon it." 8 There is no doubt that creditors may follow corporate 1 See Bank of Mutual Redemption v. Hill, 56 Me. 385. 2 Peun Bk. v. Hopkins, 17 Weekly Notes (Pa. ), 49; Brockway Mfg Co., In re, 89 Me. 121; see cases cited in fol- lowing notes and text. But in such suits judgment must first be had .against the corporation, and unless this is alleged the bill is demurrable. Van Weel v. Winston, 115 U. S. 228; Baxter v. Moses, 77 Me. 465. According to some decisions, to render directors liable to creditors, they must have beeu guilty of some fraudulent or malicious act. Fusz v. Spaunhorst, 67 Mo. 256; Zinn v. Mendel, 9 W. Va. 580; Minton v. Stahlman, 96 Tenn. 98. Two special term cases in "New York, both de- cided by the same judge, go even further, and hold that directors are not liable to creditors even for wilful and fraudulent mismanagement of the corporate assets. Winter v. Baker, 34 How. Pr. 183; Branch v. Roberts, 50 Barb. 435. But the rea- 48 soning in these two cases is palpably erroneous. Moreover, it is submit- ted that every breach of trust on the part of a trustee, whether it consist in a positive misapplication of the trust funds, or merely in wilful neg- lect of the duties of the trust, will be regarded as fraudulent by a court of equity. And it is thought that the weight of authority sustains the proposition in the text. Compare Lyman v. Bonney, 101 Mass. 562; S. C, 118 Mass. 222. The position of a treasurer is held to be different; and that he, being a mere ministerial officer having no control over corpo- rate funds, or discretion in paying them out, owes no duties to credit- ors. Taylor v. Taylor, 74 Me. 582. Still, semble, he would be liable to creditors if he embezzled the funds, and thereby rendered the corpora- tion insolvent. See Brockway Mfg. Co., In re, 89 Me. 121. "Grata v. Redd, 4 B. Mon. (Ky.) 178, 196 per Ewing, C. J. This case 753