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Branch v. Kaiser
Pennsylvania Supreme Court
140 A. 498 (1928)
Girard Grocery Company (Girard) was a successful company until 1920, when Girard suffered a loss of $1 million due to postwar market conditions. Girard’s management (defendants) did not record that loss, however, and instead engaged in a scheme to hide the loss from investors and the public. Specifically, management overvalued assets, falsified financial statements, and used profits for dividends rather than recovering from the loss. Regarding the overvaluation of assets, the company valued its inventory at cost even though the inventory’s value had significantly decreased due to market conditions. Girard’s trustee in bankruptcy (plaintiff) filed suit to recover the dividends paid out. The trial court ruled that management’s scheme amounted to fraud and held Girard’s directors personally liable for the repayment of the dividends. The management appealed.
Rule of Law
Holding and Reasoning (Frazer, J.)
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