## Facts

- Kent Iron & Hardware Company, a Delaware corporation, was insolvent.
- On July 1, 1891, the corporation declared and paid a \$9,000 dividend (6% on \$150,000 capital stock).
- The dividend was alleged to have been paid not from net earnings or surplus, but by reducing capital stock.
- Mode was a director when the dividend was declared and allegedly participated in declaring and paying it.
- John A. Roebling’s Sons Company was a judgment creditor of the corporation for \$630.60 plus interest (from March 10, 1894) and costs.
- Because the corporation could not satisfy the judgment due to insolvency, the creditor sued Mode personally under a Delaware statute imposing director liability for dividends paid out of capital.

## Issues

1. Whether the action against a director for an unlawful dividend was governed by the general three-year limitation for actions on the case or by the statute’s special six-year limitation.
2. Whether the existence of other corporate creditors entitled to “share” in any recovery barred a single judgment creditor from suing a director for the amount of its own judgment.
3. Whether a director’s good-faith belief that a dividend was paid from profits, or ignorance that it reduced capital, stated a defense to statutory liability.

## Decision

- The court sustained the creditor’s general demurrer to the director’s pleas asserting (a) a three-year limitations bar, (b) the existence of other creditors as a bar, and (c) good-faith belief/ignorance as a defense.
- The court applied the statute’s special six-year limitations period to this statutory director-liability action.
- The court held that other creditors’ existence did not defeat the creditor’s statutory right to sue for its own claim.
- The court held that good faith and ignorance did not constitute a defense under the statute when the alleged dividend was paid from capital and the director participated.
- The case proceeded with only the general denial (“not guilty”) remaining.

## Legal Principles

- When a statute creates a specific director-liability cause of action and supplies its own limitations period, that special limitations period governs rather than a general limitations statute for actions on the case.
- Under the Delaware unlawful-dividend statute, a judgment creditor may sue a participating director personally for the amount of the creditor’s claim when dividends are paid out of capital rather than net earnings or surplus.
- The presence of other creditors does not, by itself, bar or reduce a judgment creditor’s statutory action against a director.
- A director’s asserted good-faith belief or ignorance regarding the dividend’s source does not, standing alone, defeat statutory liability premised on participation in a dividend paid in diminution of capital.

## Conclusion

The court rejected defenses based on a shorter general limitations period, the existence of other creditors, and the director’s claimed good faith or ignorance, holding that the statute’s six-year limitations period and its creditor-enforcement mechanism controlled and allowed the judgment creditor’s action against the director to proceed.


John A. Roebling’s Sons Co. v. Mode, 17 Del. 515, 43 A. 480 (Del. Super. Ct. 1899)