Loan Society v. Eavenson

Citations

• 248 Pa. 407
• 94 A. 121
• 1915 Pa. LEXIS 586

Syllabus

<p>Corporations — Directors — Mismanagement — Declarations of dividend out of capital — Over-issue of stock — Negligence—Discovery — Accounting.</p> <p>1. The directors of a corporation are required to exercise reasonable and ordinary care, skill and diligence in conducting its business and the failure to observe this standard of care imposes liability on a defaulting director.</p> <p>2. Where directors of a corporation by the want of ordinary care have permitted the corporation to be defrauded by a third person and have employed a person under suspicion, in a responsible position whereby the theft of valuable property from the corporation has been made possible and have permitted the over-issuance of stock resulting in loss to the corporation, they may be required to account to the corporation for the injuries which such conduct has caused.</p> <p>3. The directors of a corporation who have impaired its capital stock by declaring dividends therefrom although informed of the company’s financial condition can be compelled by the corporation to reinstate the capital where the corporation is a going concern and is not in liquidation. The contention in such case that the dividends declared out of the capital were received by the stockholders and that the corporation representing the stockholders cannot claim reimbursement for that which the stockholders received is without merit, as the corporation represents only the interests of its creditors and the capital may in future be required for the payment of the corporate debts.</p> <p>4. The directors of a corporation engaged in the business of loaning money on jewelry declared and paid dividends out of the capital and made large loans to a party who in collusion with the company’s appraiser was permitted to defraud the company of large sums of money by depositing insufficient collateral for his loans; the appraiser was discharged under suspicion, but subsequently reappointed and stole property worth $16,000 from the compan