poration to sue would be useless. But on the other hand it has been decided without qualification, that suit may be brought by a stockholder, on behalf of his corporation, against the directors and others, for frauds, wrongs, and breaches of trust, and for the recovery from them of money of which the corporation has been defrauded, and the corporation be joined as a defendant. Such suit may be brought by one or any num or other officer of a corporation, having general superintendence of its concerns, to bring an action against the officers to set aside an alienation of corporation property made by them contrary to law, or foreign to the business of the corporation, apply to a stockholder. Stromeyer v. Combes, (1888) 18 N. Y. St. Rep. 154. 1 As where the complaint alleges that the corporation is under the control of the defaulting directors. Moyle v. Landers, (1889) 78 Cal. 99. So where plaintiff wrote to one W., as president of a corporation in which he was stockholder, requesting that action should be taken against two of the directors for misconduct and neglect of duty. W. wrote that he had resigned the presidency two years before. There was no evidence that he ever had resigned, and there had been no meeting of the corporation since his election. The two directors were most active in the management of the company. These facts were sufficient to entitle plaintiff to sue as a stockholder in his own Averill v. Barber, (1889) 55 Hun, 636. But in an action on a note, defendant pleaded that stock in a corporation of which plaintiff was an officer was delivered to secure the note; that by plaintiff's negligence and misconduct as such officer the stock depreciated in value, to defendant's damage. But this defense was held not available, as it would in effect be an action against name. a corporate officer by a stockholder, to hold him responsible for his official misconduct, without request and refusal of the corporation to bring the action. Palmer v. Hawes, (1889) 73 Wis. 46. 2 Beach v. Cooper, (1887) 72 Cal. 99. And where plaintiff alleged that, as owner and lessee of certain valuable coal lands, he contracted with defendants to develop the same; that a corporation was formed, of which defendants and plaintiff were directors, and the lands deeded to the same, plaintiff receiving in exchange certain stock of the company; that defendants, as directors, undertook the development of the mines, expended about $15,000, and, after a period of four months, discharged the force employed, stopped the work, and sold the machinery to one of their number, whereby plaintiff had been damaged a certain amount by the depreciation of his stock, and also a certain amount by failure of the lands to increase in value as they would have done. The petition showed no fraud or oppression on the part of defendants, nor did it state that the work of development could have been accomplished by a reasonable expenditure, or that there 3 ber of stockholders. And the directors who are charged with having connived at such defaults are proper parties defendant in such action.2 An averment that the plaintiffs have been holders of the stock since a date several years prior to bringing the suit, sufficiently alleges ownership of the stock. Defendants can not deny upon information and belief, and when matters alleged in the complaint are all within the knowledge of the defendants, a denial upon information and belief is insufficient. Independently of statute, a court of equity in New York has no jurisdiction at the suit of the people to compel the officers of a private business corporation to refund property of the corporation illegally disposed of. And the fact that the action was brought on the relation of a trustee, is insufficient, where neither the complaint nor the title of the action shows that it was so brought. In an action by stockholders against the directors of a corporation for a loss incurred by their unauthorized acts, where the State court refuses to permit the receiver either to sue or to be made a party defendant, the jurisdiction of the federal court fails.® 257. (c) To creditors.-The directors of a corporation are the custodians of a fund which American courts of equity have impressed with the character of a trust fund for the security of creditors. The directors are not trustees for the 7 no such abuse of defendants' powers as directors was shown as would authorize a suit against them by an individual stockholder. Cates Sparkman, (1889) 73 Tex. 619. 99. 99. 99. v. v. Grant, 16 Mass. 9, 15; Baker v. Atlas Bank, 9 Metc. 192; Mumma v. Potomac Co., 8 Pet. 286; Curran v. Arkansas, 15 How. 304; Tarbell v. Page, 24 Ill. 46; Ogilvie v. Knox 1 Moyle v. Landers, (1889) 78 Cal. Ins. Co., 22 How. 387. Payson v. 2 Meyle v. Landers, (1889) 78 Cal. 298. Moyle v. Landers, (1889) 78 Cal. Stoerer, 2 Dill. 431; Sawyer v. Hoag, 17 Wall. 610; Burke v. Smith, 16 Wall. 390; New Albany v. Burke, 11 Wall. 96; Hightower v. Thornton, 8 Ga. 486; Robison v. Carey, 8 Loveland v. Garner, (1888) 94 Cal. Ga. 530; Reid v. Etonton Co., 40 Ga. 102; Slee v. Bloom, 19 Johns. 456; 5 People v. Ballard, (1889) 3 N. Y. Briggs v. Penniman, 8 Cow. 395; Supl. 845. Porter v. Sabin, (1888) 36 Fed. Rep. 475. 7 Wood v. Dummer, 3 Mason, 308; Vose v. Grant, 15 Mass. 506; Spear Mann v. Pentz, 3 N. Y. 422; Hurd creditors in the sense, however, in which an agent is trustee for his principal,' and hence are not liable to them for mere nonfeasance, but only misfeasance. But they are liable to the creditors of the corporation, where their wrongful acts have resulted in diminishing the fund to which the latter have a right to look for the payment of their claims. judgment creditor may sue directors for illegal preferences.' Paschall v. Whitsett, 11 Ala. 472; Allen v. Montgomery R. Co., 11 Ala. 437; Bassett v. St. Albans' Hotel Co., 47 Vt. 313; Adler v. Milwaukee Patent Brick Co., 13 Wis. 57; Miers v. Zanesville &c. Turnpike Co., 11 Ohio, 274; s. c. 13 Ohio, 197; Henry v. Vermillion &c. R. Co., 17 Ohio, 187; Marsh v. Burroughs, 1 Woods, 467; Payne v. Bullard, 23 Miss. 90. In Tinkham v. Borst, 31 Barb. 407, the court proceeded on the idea that the creditors have an equitable lien upon the assets of a dissolved corporation in the hands of one of its members. 1 Pool's Case, 9 Ch. Div. 322, 328. 2 Fusz v. Spaunhorst, 67 Mo. 256, 264. See in support of the same view, Smith v. Hurd, 12 Metc. 371; Smith v. Poor, 40 Me. 415; Zinn v. Mendel, 9 W. Va. 580. 3 Penobscot &c. R. Co. v. Dunn, 39 Me. 587; Bedford R. Co. v. Bowser, 48 Pa. St. 29. And where Laws Minn. 1873, ch. 11, § 23, (Gen. St. ch. 34, § 142) declares that "if any corporation organized and established under the authority of this act shall violate any of its provisions, and shall thereby become insolvent, the directors ordering or assenting to such violation shall be jointly and severally liable in an action founded on this statute for all debts contracted after such violation as aforesaid." It was held, that where a series of acts, or a continuous course of conduct, on part of the directors in violation of the stat An unsecured ute, finally producing the insolvency of the corporation, is begun before the debt of a creditor is contracted, the debt is one contracted "after such violation," although the series of acts or course of conduct is not completed, or the insolvency of the corporation consummated, until afterwards. Patterson v. Minnesota Manuf. Co., (1889) 41 Minn. 84; s. c. 6 Ry. & Corp. L. J. 351. And this case further decided that the ultra vires acts of the directors in executing accommodation paper in the name of the corporation, or in lending its funds to others, constitute a violation of the act "by the corporation" within the meaning of the statute. The directors of a company, holding property of an insolvent company in trust, who misapply such assets, are individually liable to the creditors of the insolvent company to the extent of the assets so misapplied. National Bank v. Texas Investment Co., (1889) 74 Tex. 421. 4 As where the directors of a corporation known to be insolvent granted a preference to the estate of a deceased director and president. The board, at the time, consisted of but three persons, two of whom were brothers of deceased, and one was agent of deceased's estate, and voted his stock. One brother was also a creditor of the estate. The preference was held illegal, and that an unsecured judgment creditor of the corporation could recover of § 258. Liability for debts of the company.- Trustees of a corporation are not ordinarily liable individually for the debts of the corporation, they not having made themselves so.1 So the facts that the directors of a corporation have mismanaged its business, and contracted an indebtedness in excess of the limit prescribed by its charter and the published notice of incorporation, do not render them liable to creditors of the corporation, unless made so by the provisions of the charter, or some general statute; and it is immaterial that the creditors allege that credit was extended in reliance on the business character and responsibility of the directors. But the directors of a corporation may be held individually liable for debts contracted by them for the company in excess of the limit of indebtedness fixed by a statute; and the remedy against them is in equity, not having been prescribed by the statute. The law prohibiting the directors of a corporation from creating debts "beyond their subscribed capital stock," the two brothers who had voted for the preference, such percentage of his debt as he would have received if the sum wrongfully paid had been divided pro rata among all the unsecured creditors, but could not charge the other director, who was not present at any of the directors' meetings, and did not vote for the preference. Adams v. Kehlor Milling Co., (1888) 36 Fed. Rep. 212. But a creditor at large can not, under S$ 1781, 1782, of N. Y. Code, maintain an action against directors of a corporation for their misconduct. A judgment creditor, only, is entitled to sue. Paulsen v. Van Steenbergh, 65 How. Pr. 342. And under the Missouri statute, a creditor of a dissolved corporation, the assets of which have been appropriated by the directors, can only maintain an action against them after an ascertainment in equity of the amount due him, unless his claim is the only one that the corporation owed at the time of its dissolution, or unless the assets appropriated by the directors exceed such claim in amount. Horner v. Carter, 3 McCrary C. Ct. 595. Though where, at the time of the loss of a policy-holder in a mutual assessment fire insurance association, there was a fund in the hands of the company, arising from dues and advance assessments, which was appropriated by the company to the payment of its privilege taxes and attorneys' fees, stripping it of its assets and rendering it insolvent, the directors and corporators of the company are personally liable to the assured for the loss, the sum misappropriated being in excess of the sum needed to satisfy his demand. Stewart v. Lee Mutual Fire Ins. Assoc., (1887) 64 Miss. 499. 1 Snyder v. Wiley, 59 Tex. 448. 2 Frost Manuf. Co. v. Foster, (1889) 76 Iowa, 555. 3 Stone v. Chisolm, (1884) 113 U. S. 302; Horner v. Henning, 93 U. S. 2 under penalty of being individually liable therefor, applies to all the subscribed capital stock, whether paid in or not, and regardless of the disposition made of it; and the debts do not include capital stock paid for corporate property.' But railroad directors, authorized by law to contract debts for construction and equipment, are not liable under the general statute for debts so contracted, though exceeding half the capital stock and assets. Under a law providing that persons, who, by articles of association in writing, associate themselves together, "and who comply with the provisions of this chapter, shall, with their successors and assigns, constitute a body politic and corporate," the defendants organized and drew up and signed articles of agreement with the understanding and agreement that they were not to take effect till certain things were done, which never were done. It was decided that they did not constitute a corporation, and that the president and directors could not be held liable for debts, under the law making such officers personally liable for debts contracted by corporations failing to comply with certain statutory requirements.3 259. For what debts liable.- A tax duly assessed against the corporation, and presently payable, is a debt, within the 228. By the statute of New York every officer, agent or stockholder of a company who knowingly assents to, or has any agency in contracting or incurring any debt, in excess of the limit of indebtedness prescribed by the statute, is held personally and individually liable to pay such debt; and also liable to arrest and imprisonment in any action for the same and on any execution issued on any judgment obtained thereon in the same manner as defendants in actions of trespass are liable, and is also deemed guilty of a misdemeanor. N. Y. Laws of 1845, ch. 230, § 1. Cf. N. Y. Laws of 1890, ch. 564, § 24. Pacif. Rep. 875; Shea v. Lent, (Cal. 1890) 22 Pacif. Rep. 876. 2 Niagara Bridge Works v. Jose, 59 N. H. 81. 3 Corey v. Morrill, (1889) 61 Vt. 598. But in this case one of such directors having visited plaintiff at his place of business, and represented that the corporation had been legally organized, and that he was a director in it, and plaintiff having on the strength of this representation sold goods to the corporation, and accepted notes, such director is estopped from setting up the defense that the corporation was never legally organized, and that, therefore, he could not be personally held 1 Moore v. Lent, (Cal. 1890) 22 liable for its debts. |