In Union Ice Co. v. Hulton, 291 Pa. 416, 140 A. 514 (Pa. 1928), the president of a corporation, Huton, loaned the corporation funds.
Prior to filing a lawsuit against the corporation, Huton's attorney, who was also the vice president of the corporation, orally informed the board of directors that, at some point in the future, Huton would "have to reduce his notes to judgment, and that eventually he would have to sell the property." 140 A. at 514.
Without providing additional notice, Huton filed suit, obtained a judgment, and executed the judgment by means of a sheriff's sale, where he allegedly purchased the corporation's property at less than fair market value. Id.
The corporation filed an action for an accounting, in which it sought a determination of the fair market value of the property.
Finding that Huton failed to notify the directors or stockholders of his intention to execute the judgment, the trial court granted the corporation relief.
On appeal, Huton argued that the notice provided by his attorney was sufficient. Alternatively, he claimed that he was not required to provide notice of the execution and sale because, "when he began legal proceedings to reduce his claim to judgment, that was notice of all the consequences that might result from such proceedings, including notice that the property of the company would be sold after judgment if it was not paid." Id. at 515.
Concluding that the oral notice provided by Huton's attorney was deficient, the Supreme Court of Pennsylvania explained that the board of directors "were entitled to know when the execution issued, and the time and place of the sale in order that they might take steps to protect the interests of the stockholders for whom they and Huton were trustees." Id.
According to the court, Huton's notice was "vague and indefinite, only indicating a possible future intention." Id. at 514.
With regard to Huton's second contention, the Union Ice Court explained that, surely in enforcing a judgment against his or her corporation, a director or officer was entitled to utilize "the same methods as are open to other creditors." Id. at 515.
When doing so, however, the corporate officer or director "must take no unfair advantage" and "be scrupulous to see that some one on the corporation's behalf knows what is being done so that its interests may be safeguarded." Id.
The court affirmed the trial court's order of an accounting.