Hurlbut v. Marshall , 62 Wis. 590 ( 1885 )

ORtokt, J.

Two of the defendants demurred to the complaint separately, and both demurrers were overruled and stricken out as frivolous, on the motion of the plaintiff, and each of said defendants has appealed to this court from the order so overruling and striking out his demurrer. The two demurrers involve the same questions, and both appeals will be disposed of together.

As to the first point made in the respective briefs of the learned counsel of the appellants, and urged with great force of argument and pungency of criticism, it is sufficient to say that this court is perfectly satisfied with the ruling in Diggle v. Boulden, 48 Wis. 477; Lerdall v. C. O. L. Ins. Co. 51 Wis. 426; Magdeburg v. Uihlein, 53 Wis. 165; Krall v. Libbey, 53 Wis. 292; Straka v. Lander, 60 Wis. 115; and Hoffman v. Wheelock, ante, p. 434, “ to make no distinction between an order striking out a demurrer as frivolous and one overruling it on argument.”

The following is a concise statement of the allegations of the complaint as substantially made in the excellent brief of the learned counsel of the appellant Kelly, and proper to be reproduced here in elucidation of the objection made to the complaint on the demurrers:

(1) Strong’s Bank of Green Bay is a banking corporation, with banking powers, doing business as such in the city of Green Bay, under and by virtue of the laws of this state.

(2) That it owes the plaintiff $101.56, a balance of deposits made by him in the usual course of business between May 3 and May 23, 1884, and that payment thereof has been demanded and refused; that it owes other persons, whose names and the respective amounts due each are unknown to the plaintiff, more than $200,000; and that this action is brought in behalf of plaintiff and all other creditors who choose to become parties thereto or become interested therein.

(3) That said bank has closed its banking office and is insolvent; has assets unknown in amount, but less than the aggregate indebtedness, which ought to be applied to the payment of the indebtedness.

(4) That said bank has been insolvent ever since January 1, 1878, during all 'of which period the defendants Strong, Neese, L. M. Marshall, D. M. Kelly, and M. P. Skeels had been its directors, owning stock in the bank.

(5) That the capital stock of said bank is $50,000, in shares of $100 each.

(6) That these directors, including the appellants, knowing of the insolvency of the bank, semi-annually from January 1, 1878, to January 1, 1884, voted, paid, and each received a dividend of five per cent, of the par value of the stock held by him, without having reason to believe that there were sufficient net profits properly applicable to such payments.

(7) That said votes of said directors declaring said dividends when said corporation was insolvent as aforesaid, diminished and impaired the capital and capital stock of said bank, and that there were never any net profits of said bank or its business applicable to the payment of said dividends, or either of them..

(8) In a schedule, which forms a part of the complaint, is stated the amount of stock held by each defendant stockholder, and the amount of dividends so received by each, and it is stated therein that the demurrants each owned ten shares out of 500 of stock, and had regularly so received dividends, amounting in all in each case to $650.

(9) That when these dividends were so declared and re-eeived, a large portion of the debts of the bank now existing, existed and was due to the same creditors as now, such claims having exceeded $100,000 ever since January 1,1879.

(10) That during all the time since January 1, 1878, to the commencement of this suit, said Henry Strong was president and said Louis Neese was cashier of said bank, and that Strong fraudulently converted more than $100,000 of the funds of the bank to his own use, and replaced the same with worthless securities, known to the president and cashier to be so' worthless, and that they reported to the state treasurer, etc., said worthless securities as of par value.

(11) That during all the time from January 1, 1878, to the commencement of this suit, said directors of the bank grossly neglected to perform their ■ official duties, and negligently permitted the money and effects of the bank to be stolen, wasted, and squandered; that they allowed insolvent and irresponsible persons and corporations to overdraw their accounts, and negligently allowed the moneys of the bank to be loaned to irresponsible persons without adequate security, whereby said money was lost, and that they negligently permitted the president of said bank to steal and embezzle the funds and securities of the bank, by which $100,000 of the funds of the bank were lost, and the bank thereby became insolvent, and,unable to pay its creditors more than twenty cents on the dollar of their claims.

The prayer for relief is appropriate to these several causes of complaint.

The brief of the learned counsel of the respondent is elaborate and very able, and should be preserved in the report of the case as a complete vindication of the complaint in all particulars. It would seem, however, that every point made in the brief of the learned counsel for the appellants is answered by the nature of this suit under the statute, and by the clear statutory and common-law liability of the directors and stockholders of an insolvent banking corporation.

1. It is not disputed that this suit is brought under the statute, in case where a corporation having banking powers has become insolvent, by one of its creditors, and in behalf of all other creditors of the bank, “ for the purpose of closing up the business of such corporation,” and to charge the directors, trustees, or other officers or stockholders thereof on account of their liability created by law. In such a case an injunction issues to restrain further action of the bank,, and a receiver is appointed to take charge of the property and effects of such corporation.

2. This suit, when commenced, is exclusive of all actions on behalf of the creditors of such an insolvent bank, and all the creditors are compelled to seek their remedy therein, and if there is any liability of the directors, stockholders, or officers of the bank to the bank, or to its creditors, “ in any event or contingency,” such liability must be enforced, if at all, in this one suit, which cannot be discontinued before final judgment without the consent of every creditor who chooses to appear and prosecute.

3. The suit is for the purpose of closing up the business of the insolvent bank, and of distributing its entire fund pro rata among its creditors. It is final bankruptcy, in which all the property, credits, and effects of the bank, or in which the bank has any interest as a chose in action, or otherwise, are gathered and brought to the possession of the receiver, to be applied to the payment of the debts.

This is the theory, nature, and comprehensive scope of this suit under the statute; and can it be that there is any class'of liabilities of the directors or other officers or stockholders to the bank, the enforcement of which would increase the fund or property of the bank applicable to the payment of its debts, to be excluded from it, and therefore forever left beyond the reach of the creditors, upon some technical ground of “ misjoinder of actions,” or some finely-wrought distinction between “liabilities b¶ statute and liabilities by law ? ” According to the complaint, the bank has been insolvent since January 1, 1878, and, within a year of that time, it owed present creditors over $100,000, and now owes the creditors over $200,000; and the directors, from that date on, declared semi-annual dividends to the defendant stockholders of five per cent., including the directors as such stockholders, and that said directors never paid up their stock subscriptions, and the stockholders are made liable by statute to the creditors to the amount of such stock. Part of this liability consists in the stockholders unlawfully appropriating to themselves the funds of the bank as dividends to which they were not entitled, and a part in their indebtedness to the bank for stock unpaid, and to the further amount of their stock.

It is objected that the present plaintiff instituting this suit had no claim against the bank as a creditor when this misappropriation of the funds was made, and cannot, therefore, be joined with the creditors existing at that time. But he must be joined with all the creditors in this suit, and cannot sue alone in another action. A large number of creditors are interested in that fund, and they are virtually plaintiffs in this suit; and if their claims are paid or lessened by the application .of that fund, the fund remaining applicable to the payment of the claims of the plaintiff and other subsequent creditors is correspondingly increased, and their chances of payment. Every one interested in the final “ closing up the business of such corporation ” is a proper party to such suit, either by reason of his liability or as a creditor of the bank, as we understand the statute. It may be that no one except the corporation itself may bring suit for unlimited and unliquidated damages against the officers and directors for their misfeasance in the management of the affairs of the bank; but there is no such claim in this complaint. The president, Henry Strong, is charged with the fraudulent misappropriation of $100,000 of the funds; and the directors are charged with gross negligence in permitting the assets to be squandered, stolen, and wasted by borrowers on worthless securities, and the president, Strong, to have so embezzled the $100,000. These are all amounts which can be ascertained and are certain, for which the directors are clearly liable by being parties to the squandering and embezzlement of the funds of the bank.

The defendants in this suit are asked to return to the fund or assets of the bank all they have illegally, fraudulently, or criminally diverted and converted to their own use, so that the creditors may be paid.' There is a unity and harmony in the suit which cannot be broken without defeating the -sole objects of the statute, and that is to finally and forever close up the business of the corporation, and to distribute and apply its assets to the payment of the debts. If the officers, directors, or stockholders, or any one else, have taken and carried away and converted the property or funds of the- bank wrongfully and unlawfully or criminally, they are trustees of the bank and remotely of the creditors,— trustees de son tort, it may be, but nevertheless trustees,— and may be compelled in this suit to account therefor. Hill on Trusts, § 173. All the principles involved in such a suit are -elementary, and not at all abstruse. The statutes of other states, similar in their provisions, are construed in harmony with these views. Thompson on Liability of Stockholders, §§12-18; Thompson on Liability of Officers, etc. 431, and notes; Cleaveland’s Banking Laws, 50 et seq.; Angell & A. on Corp. §§ 146, 246.

The point is made that our state banks have no statutory authority to have a board of directors. This power is inherent in ¿11 private corporations. Angell & A. on Corp. § 231. It may be added further that under sec. 3237, R. S., the circuit courts “have jurisdiction over directors, managers, trustees, and other officers of corporations, to compel them to account for their official conduct in the management and disposition of the funds and property committed to their charge; to order and compel payment by them to the corporation whom they represent, and to its creditors, of all sums of money and of the value of all property which they may have acquired to themselves or transferred to others, or may have lost or wasted by any violation of their duties as such directors, managers, trustees, or other officers.” This being the only suit which can be brought against an insolvent bank, the circuit court may well exercise therein this plenary jurisdiction.

This construction of the statute and these general observations sufficiently answer all the objections taken on the demurrer to the complaint.

By the Court.— The orders of the circuit court overruling the demurrers are affirmed, and the cause remanded for further proceedings according to law and equity;