Corporation, Dissolution, Officers and agents. Trust, Fiduciary relation.
Although the directors of a domestic manufacturing corporation, that is conducting business, stand in a fiduciary relation to the corporation, yet, after such a corporation has been dissolved by a decree under St. 1903, c. 437, § 51, and receivers have been appointed under § 53 of that statute, and after the directors have been enjoined until further order of the court, which never has been given, from interfering with or selling or disposing of any of the property of the corporation and from interfering in any way with the management of any part of the property or of the business of the corporation, one of the directors thus enjoined commits no breach of trust by buying for himself claims against the corporation at a discount and afterwards collecting them in full.
The same is true where, as in the present case, the director in question was the treasurer and the general manager of the corporation up to the time of its dissolution.
BRALEY, J.
It is undoubtedly true as contended by the intervenors that directors of a corporation act in the discharge of the duties of their office in a fiduciary capacity. A director is not permitted to serve two masters; his personal pecuniary interests in whatever form they may arise are as between himself and the company subordinate to his paramount obligations as trustee, to the faithful performance of which he is strictly accountable in a court of equity. Hayes v. Hall, 188 Mass. 510, 511. Quinn v. Burton, 195 Mass. 277, 279. American Circular Loom Co. v. Wilson, 198 Mass. 182, 206, 207. United Zinc Co. v. Harwood, 216 Mass. 474, 476, and cases there collated.
Obviously, Allen, while a director of the company charged with the duty of conserving its monetary welfare for the benefit of all concerned, could not lawfully buy at a discount claims against it and afterwards collect their full value or participate upon this basis in any distribution of corporate assets by way of dividends if the company became insolvent.
But, having been a domestic manufacturing corporation, the company by the decree of dissolution is within St. of 1903, c. 437, § 51, which provides that, "A corporation so dissolved shall be held to be extinct in all respects as if its corporate existence had expired by the limitation of its charter." Or as phrased in R. L. c. 109, § 52, of which St. 1903, c. 437, § 51, is a recodification, "as if its corporate existence had expired by its own limitation." The corporation having thus ceased to exist, creditors and stockholders would have to assert whatever rights they had against its property in a court of equity, if it were not for § 52. Thornton v. Marginal Freight Railway, 123 Mass. 32, 34.
By this section however the corporation is continued "as a body corporate for three years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established." If upon dissolution the assets had been marshalled and liquidation had been effected through its officers, the corporation might have been obliged to exercise all necessary corporate functions "incident to this limited and restricted action, including the holding of meetings, passing votes, electing directors and other agents." Commonwealth v. Commonwealth Bank, 22 Pick. 176, 180. Crease v. Babcock, 23 Pick. 334, 345, 346. Richards v. Attleborough National Bank, 148 Mass. 187, 191, 192. And we should hesitate to hold, if Allen had continued to act as a director under such conditions, that he could speculate for his own gain in the purchase of claims against the company to the detriment of other creditors as well as of the stockholders who would be entitled to share in whatever corporate property remained after the company's debts had been satisfied. Andrews v. Tuttle-Smith Co. 191 Mass. 461, 467, 468.
But the record shows that, instead of the company's affairs being wound up under corporate management, receivers were appointed under § 53, with authority to prosecute and defend suits and to do all other acts which might be done by the corporation if in being and might be necessary for the final adjustment of its unfinished business. The company's directors also were not only commanded to turn over to the receivers all books of account, leases, deeds, contracts, bills, notes, accounts, merchandise, moneys or other property of the corporation in their possession or control, and to execute and deliver all necessary deeds or other instruments to perfect the delivery and transfer of the property of the corporation to the receivers, but were enjoined until the further order of the court, which has never taken further action, from interfering with, transferring, encumbering, selling or disposing of any of the property of the corporation, or in any way interfering with the possession or management of any part of the property or of the business of the corporation, except through or under the receivers or their agents.
This decree having ended all further corporate management, the receivers alone were empowered to settle and close the company's affairs, to sell and convey its property and to distribute the proceeds as ordered by the court. Stone v. Old Colony Street Railway, 212 Mass. 459, 462. Eastern Bridge Structural Co. v. Worcester Auditorium Co. 216 Mass. 426. And the directorate having been shorn of all corporate powers by the decree which rendered their further exercise impossible, the fiduciary obligations of its members were also terminated. We are accordingly unable to perceive that in acquiring a part of the indebtedness of the company, after the receivers had been appointed and were administering the estate, Allen committed a breach of trust.
It follows, that the receivers' report wherein the claims bought by Allen are admitted to participation in the dividend for the full amount having been properly allowed, the decree should be affirmed with costs in accordance with the terms of the report.
So ordered.