Lyman v. Bonney

118 Mass. 222, 1875 Mass. LEXIS 341

• Court: Massachusetts Supreme Judicial Court
• Decided: September 3, 1875
• Status: Published

Opinion

Colt, J.

The funds of the insurance company of which the

individual defendants were directors were held in trust to pay the debts of the company. The bill charges that the directors negligently and fraudulently applied these funds to other purposes by distributing them among themselves and other stockholders, and these allegations, as already held in this case on demurrer, are sufficient to give the court jurisdiction in equity. 101 Mass. 562.

The case was sent to a master to report the facts, and is reserved upon his report. It appears that the plaintiff is the holder of a judgment against the company, in part unsatisfied, which was recovered upon a policy of insurance held by her, at the end of a protracted litigation in which the company denied all liability. While that litigation was in progress, the business of the company was closed up by vote of the directors, the outstanding policies were cancelled and dividends paid to policy holders. The master finds that the plaintiff’s claim was contested in good faith by advice of counsel; that a sum was reserved by the directors which was thought in good faith to be sufficient to meet expenses and all claims against the company, including the plaintiff’s ; that the defendants did not intend to deprive the company of the means to pay the plaintiff, if ultimately adjudged liable but that the dividends paid and the expenses incurred in keeping the office of the company open for so long a time had alone produced that effect, so that the company is now without means to pay the amount of the plaintiff’s judgment.

The master further finds that the directors did not estimate with proper care the amount which would be required for the payment of outstanding claims with the costs and expenses thereafter to be incurred, and states that it was not necessary, in his opinion, to have kept open the office and to have continued the president’s salary for so long time.

These findings do not support the allegations necessary to maintain the bill.' The plaintiff’s claim is based upon the alleged fraud of the directors, or such misconduct as amounts to fraud. They are charged with intentionally and knowingly dividing the assets so as to deprive the plaintiff of her debt, and that charge is not proved. As directors of an insurance company, they aré not responsible for the debts of the corporation, provided they have complied with the requirements of the statutes defining their duties, and have managed its affairs without fraud. They are not responsible for mere errors of judgment or want of prudence in conducting or closing up its business.

Bill dismissed, with costs.