Boyd v. Mutual Fire Ass'n

Lead Opinion

Cassoday, O. J.

The numerous claims made against the very numerous defendants; the variety of questions involved, and the mixed condition of the things alleged, have called for and received the very careful consideration of all the members of the court. For the delay in deciding the case the writer assumes the responsibility. Counsel for the plaintiffs have, in their brief, classified the thirteen demurrers according to the nature of the claims made against the respective demurrants, and numbered them from- one to thirteen, consecutively, as they appear in the record. Counsel for the defendants have acquiesced in such classification, and given their views in respect to the same. For convenience; and to avoid confusion, we shall keep in view such classification, but not in the order stated by counsel. The most important question presented is whether the amended complaint states a cause of action, not barred by the statute of limitations, against any of the defendants.

1. Six of the demurrers call upon us to answer the question as to whether such amended complaint states such cause of action against the parties named as demurrants who at one time held policies in the corporation. Under the repeated and recent adjudications of this court there can be-no question but that this must be regarded as a creditors’ suit, brought in equity, under the statutes, to wind up the affairs of an insolvent- corporation. Secs. 3216-3228, Stats. 1898. Such being the nature of the action, all the rights and liabilities of creditors, officers, stockholders, and members were to be worked out in this suit. Gager v. Bank, 101 Wis. 593, 77 N. W. 920; Gager v. Marsden, 101 Wis. 598, 77 N. W. 922; Foster v. Posson, 105 Wis. 99, 81 N. W. 123; Finney v. Guy, 106 Wis. 256, 82 N. W. 595; Killen v. Barnes, 106 Wis. 546, 82 N. W. 536; Gores v. Field, 109 Wis. 408, 84 N. W. 867, 85 N. W. 411; Gager v. Paul, 111 Wis. 638, 87 N. W. 875. Under such statutes the corporation was adjudged insolvent, and a receiver was appointed November 15, 1890. The statute provides :

“Whenever any corporation . . . authorized by law to make insurance shall become insolvent or unable to pay its debts or shall neglect or refuse to pay its notes or evidence of debts on demand or shall have violated any of the provisions of its act of incorporation or of any other law binding on such corporation, any court having jurisdiction may, by injunction, restrain such corporation and its officers,” etc. Sec. 3218.

The statute further provides:

“Such injunction may be issued upon the commencement of an action for the purpose of closing up the business of such corporation ... by any creditor or stockholder of such corporation, or at any time thereafter upon proof of the facts required to authorize the issuing of the same. The court may in any stage of such action appoint one or more receivers to take charge of the property and effects of such corporation and to collect, sue for and recover the debts and demands that may be due and the property that may belong to such corporation, who shall in all respects possess the powers and authority conferred and be subject to all the obligations imposed upon receivers in other cases, and in all respects be subject to the control of the court.” Sec. 3219.

So the statute further provides:

“Whenever any creditor of any corporation shall seek to charge the directors, trustees or other officers or stockholders thereof on account of any liability created by law he may commence and maintain an action for that purpose in the circuit court and may at his election join the corporation in such action.” Sec. 3223.

In such an action the statute further provides:

“If the property of such corporation shall be insufficient to discharge its debts the court shall proceed to compel each stockholder to pay in the amount due and remaining unpaid on the shares of stock held by him or so much thereof as shall be necessary to satisfy the debts of the corporation.”' Sec. 3226.

A member of such mutual insurance corporation must be regarded in a similar position to a stockholder of such association. The corporation having been adjudged insolvent, and a receiver thus appointed, the right to enforce any liability against its members thereupon accrued. Sucb, in effect, is a recent ruling of this court. Booth v. Dear, 96 Wis. 516, 519-521, 71 N. W. 816. Thus, in an opinion by Mr. Justice Bbeweb, in the federal court, it was held:

“Where an insolvent corporation ceases to do business, and assigns all its property, including unpaid stock subscriptions, to trustees for the benefit of its creditors, the liability of its stockholders at once becomes absolute, and the statute of limitations begins to run in their favor, and against such creditors and trustees, immediately.” Glenn v. Dorsheimer (C. C.) 23 Fed. 695.

If a cause of action accrued against any of such members at that time, then the statute of limitations began to run in favor of such member at that time. Secs. 4219, 4222, Stats. 1898. Thus it is stated by a standard text writer:

“Where the liability of the shareholder is immediate and primary, and not contingent on the obtaining of a judgment against the corporation, it is clear that the statute of limitations begins to run in favor of the shareholder when the debt matures against the corporation.” Cook, Stockh. (3d Ed.) p. 301, § 225.

It is held in Ohio:

“Where a company has become insolvent, and made an assignment of all its property for the benefit of its creditors, the right of the creditors, or any of them, then accrues to commence suit against the stockholders on their liability under the statute, without any prior proceeding against the company, and the statute of limitations begins to run from that time against the right of action.” Barrick v. Gifford, 41 Ohio St. 180, 24 N. E. 259.

To the same effect, Younglove v. Lime Co. 49 Ohio St. 663, 33 N. E. 234; Davidson v. Rankin, 34 Cal. 503; Stilphen v. Ware, 45 Cal. 110; Bank of San Luis Ohispo v. Pacific Coast S. S. Co. 103 Cal. 594, 596, 31 Pac. 499; Corning v. McCullough, 1 N. Y. 41; Hollingshead v. Woodward, 107 N. Y. 96, 13 N. E. 621; Washington Sav. Bank v. Butchers’ & Drovers’ Bank, 107 Mo. 133, 17 S. W. 644.

In a Michigan case it is held:

“The statute of limitations begins to run as against such right of action immediately upon the dissolution of the corporation and the appointment of a receiver.” Webber v. Hovey, 108 Mich. 49, 65 N. W. 619.

Thus it has been held in the supreme court of the United States:

“The statute of limitations is a bar to a suit, brought four years after a bank in South Carolina had permanently suspended specie payments, by a holder of its notes, to enforce-the individual liability, of the stockholders.” Terry v. McLure, 103 U. S. 442.

We must hold that the statute of limitations began to run. in favor of the policy holders in question November 15, 1890. All of such policies were issued between October 14, 1885,. and August 1, 1890. None of the defendants who joined in ,the six several demurrers mentioned were made parties to this-action until after May 8,-1900. Until they were so made parties, and the summons issued against them, the statute of limitations did not stop running in their favor; and this is-so as to each of the six groups of such defendants. This has-recently, in effect, been so decided by this court. Gager v. Paul, 111 Wis. 638, 647, 648, 87 N. W. 875. It is unnecessary to add anything to what is there said in the opinion of' Mr. Justice Dodge.

As indicated in the statement of facts, twenty-five of such policies were issued and paid for at the time of delivery in-cash, and continued for one year or less. The others, and by far the greater number, were issued on the mutual plan, and' to continue for three or five years, for which premium notes-were given, liable to assessments for losses and expenses from time to time as they accrued. This court has held, in effect,, that, where insolvency occurs during the defendant’s insurance in such mutual fire insurance company, the action of the-court, under the statutes cited, in adjudging such insolvency and granting an injunction and appointing a receiver, operates to cancel sncb policy and all other existing policies in such company. Davis v. Shearer, 90 Wis. 250, 255, 62 N. W. 1050; Dewey v. Davis, 82 Wis. 500, 52 N. W. 774. The principle upon wbicb those two cases were decided seems to-be applicable here. So there is an additional reason why the-statute of limitations began to run against all of such policy holders November 15, 1890; and the right of action was completely barred, as to them, before they were made parties to the action. The nine defendants who joined in demurrer No.

3 at one time held such cash policies which were surrendered before the expiration of the year, and it is here sought to recover from them the unearned premium. We must hold that the complaint fails to state facts sufficient to constitute a cause of action, not barred by the statute of limitations, as against such nine demurrants; and for that reason such demurrer was properly sustained. The same is true with demurrer No. 4, where it is sought to charge the non-resident demurrants with liability on such premium notes given by them for such mutual policies. The same is true with demurrer No. 5, where it is sought to charge a large number of resident demurrants by reason of assessments made upon such premium notes. The same is true with demurrer No. 6, where it is sought to-recover from such demurrants unlawful dividends paid to them at various times between 1887 and 1890. The same is true with demurrer No. 11, where it is sought to charge certain resident demurrants by reason of assessments made upon such premium notes, and also to recover back from some of them moneys paid as pretended dividends and unearned premiums. The same is true with demurrer No. 13, where it is sought to charge the demurrant by reason of an assessment upon such premium note for a. policy dated December 10, 1888.

2. Five of the demurrers call upon us to determine whether the amended complaint states facts sufficient to constitute a cause of action, not barred by the statute of limitations,. against tbe officers and directors of tbe corporation. There can be no question but that tbe allegations of their miscon.'duct and malfeasance do constitute a cause of action against them. Tbe important question is whether such cause of action is barred by the statute of limitations. Counsel for the plaintiffs claim that the cause of action did not accrue in favor of the creditors who are plaintiffs until they discovered the facts •constituting the fraud. Stats. 1898, sec. 4222, subd. 7. To this counsel for the defendants reply that, if there were any facts to prevent the running of the statute, the burden was on the plaintiffs to plead and prove them. Howell v. Howell, 15 Wis. 55; Tucker v. Lovejoy, 73 Wis. 66, 40 N. W. 627. Put there is another view of the question, which seems to be a complete answer to the contention that the statute is a bar to such cause of action. A learned and able text writer states, in effect, that the correct view, as clearly deduced from the mass of decisions on the subject, is that the officers and directors of a corporation are, in equity, trustees of’ an express trust for the benefit of shareholders and creditors, and hence •are within the principle that the statute of limitations does not run in favor of such trustees as against the cesiui que irusl. 3 Thomp. Comm. Law Corp. § 4128. That such officers and directors are such trustees seems to be well established. Simons v. Yulcan O. & M. Co. 61 Pa. St. 202; Pearson v. Concord R. Corp. 62 N. H. 537; Sweeney v. Sugar Refining Co. 30 W. Va. 443, 4 S. E. 431; Farmers’ & Mer. Bank v. Downey, 53 Cal. 466; Wickersham v. Critenden, 93 Cal. 17, 28 Pac. 788; Bank of Mut. Redemption v. Hill, 56 Me. 385; Ellis v. Ward, 137 Ill. 509, 25 N. E. 530. This court has expressly held:

“The directors and officers of an insolvent corporation are trustees for the creditors, and must manage its property and assets with strict regard to their interests.” Haywood v. Lincoln L. Co. 64 Wis. 639, 26 N. W. 184.

The trust-fund doctrine, so called, recognized in that case, must be regarded as modified so far as creditors of a going corporation are concerned. Ballin v. Merchants Ex. Bank, 89 Wis. 286, 61 N. W. 1118; Hinz v. Van Dusen, 95 Wis. 503, 507-509, 70 N. W. 657; Black v. Northwestern Nat. Bank, 103 Wis. 57, 79 N. W. 51. But there is no doubt but that the managing officers of a corporation are at all times trustees for the corporation and its stockholders, and also forth© creditors after the corporation is adjudg’ed insolvent. Id. In fact, our statute on the subject, which is much broader than in some states, provides, among other things, that:

“Express trusts may be created: . . . (5) Eor the-beneficial interests of any person or persons when such trust is fully expressed and clearly, defined upon the face of the-instrument creating it.” Stats. 1898, sec. 2081, subd. 5.

The trust in the case at bar was necessarily and from the-very nature of the corporation, “fully expressed and clearly defined” in the articles of incorporation. We must hold that the officers and directors of the association were trustees of an express trust. It follows that the'statute of limitations did not run in their favor against the creditors of the corporation. This court has expressly held:

“The statute of limitations has no application in the case of an express trust where there has been no denial or repudiation of the trust.” Bostwick v. Dickson’s Estate, 65 Wis. 593, 26 N. W. 549; Williams v. Williams, 82 Wis. 393, 399, 52. N. W. 429; Fawcett v. Fawcett, 85 Wis. 332, 55 N. W. 405; Taylor v. Hill, 86 Wis. 99, 106, 56 N. W. 738.

Counsel for the defendants cite a large number of cases-said to be to the contrary, but, so far as'we have examined them, they are in actions by the corporation, or its receiver, or-are otherwise inapplicable or distinguishable. We must hold that the statute *of limitations did not run in favor of any of' such officers or directors. The result is that the amended' complaint states a good cause of action against the two defendants who joined in demurrer No. 1, since both were directors and one was treasurer. The same is true as to the-defendants who joined in demurrer No. 7, including the ex■ecutors of tbe will of D. R. Moon, deceased; and also tbe defendants wbo joined in demurrer No. 8, including tbe administrators of tbe estate of George B. Shaw, deceased; and •also tbe defendants wbo joined in demurrer No. 10; and also tbe defendants wbo joined in demurrer No. 12, including tbe executors of tbe will of Ralph E. Rust, deceased, — since in -eaeb case such defendants were sought to be charged as officers and directors, or simply as directors, or as tbe representatives of such officers and directors. We perceive no good reason why such executors and administrators stand in any ■different position as to tbe statute of limitations pleaded than fbe deceased officers whom they represent. True, tbe defendants wbo joined in each of tbe two demurrers last named were ■only directors from October 15, 1885, to January 13, 1886, but they were liable for whatever malfeasance they were .guilty of while in office, notwithstanding they bad ceased to be directors before tbe commencement of tbe action. 1 Mor. Priv. Oorp. § 563. Tbe mere fact that tbe amended' complaint seeks to charge tbe two defendants wbo joined in demurrer No. 1 as members of tbe corporation, upon which -claims the statute of limitations bad run, does.not prevent their being held liable as directors.

“A demurrer to tbe entire complaint is properly overruled where it is not good as to one of tbe causes of action stated.” Pinkum v. City of Eau Claire, 81 Wis. 301, 51 N. W. 550.

So it is held:

“Where a complaint states a good cause of action as to certain failures of duty on tbe part of defendant, a general demurrer thereto will not be sustained merely because it attempts, but fails, to state other failures of duty.” Drefahl v. Connell, 85 Wis. 109, 55 N. W. 160.

Each of tbe five demurrers last mentioned is based upon •another ground, which will hereinafter be considered, and may be sustained.

3. A large number of tbe members of tbe corporation, in cluding tbe Northwestern Lumber Company, joined in de•murrer No. 2. Tbe Northwestern Lumber Company was one -of the plaintiffs which, commenced the action November 1-3, 1890; and May 8, 1900, by order of the court, it was made ■defendant instead of plaintiff. Manifestly, the statute of limitations did not run in favor of that company, since it has "been a party to the action ever since the suit was first commenced, — more than eleven years ago. This being so, the .•amended complaint stated a good cause of action against that •company. Thus it appears that one of the demurrants against whom a good cause of action is stated is joined with a large .■number of members of the corporation in whose favor the •statute of limitations had run. This court has repeatedly held:

“A joint general demurrer to a complaint for insufficiency ■on behalf of several defendants is bad if the complaint states •a cause of action against any one of them.” Mark Paine Lumber Co. v. Douglas County Imp. Co. 94 Wis. 322, 325, 68 N. W. 1013, and cases there cited.

The result is that we must hold that the amended complaint •states a cause of action against the defendants who joined in -demurrer No. 2. But that demurrer is based upon another •ground, which will hereinafter be considered, and may be ■sustained. It will be observed that each and every of the twelve causes of action mentioned was in favor of the creditors of the corporation.

4. The remaining demurrer, No. 9, is interposed by James A. Smith, who was appointed receiver November 15, 1890, but who was never an officer or director of the corporation. The amended complaint seeks to charge him with having, prior to May 15, 1891, and while he was such receiver, wrong-fully converted to his own use $500 belonging to the corporation; and also with having obtained; without consideration, on November 12, 1890, and before his appointment as receiver, $281.13, belonging to the corporation, and converting the same to his own use; and also with gross misconduct in managing the receivership, whereby large sums of money were lost to the corporation. The facts alleged in the amended complaint are sufficient to constitute a cause of action against James A. Smith and in favor of the receiver Boyd, but not in favor of the creditors of the corporation. It therefore stands as an independent action in favor of the receiver and against Smith. His demurrer, however, like the other demurrers, is based upon another ground, which will now be considered.

5. Each of the several demurrers is in part upon the ground that it aj>pears upon the face of the amended complaint that several causes of action have been improperly united. As indicated, the amended complaint fails to state facts sufficient to constitute a cause of action as against the defendants named in any one of the six demurrers first considered. It is well settled that they are not to be considered in determining whether several causes of action have been improperly united. Bassett v. Warner, 23 Wis. 673; Truesdell v. Rhodes, 26 Wis. 215; Willard v. Reas, 26 Wis. 540; Lee v. Simpson, 29 Wis. 333; Schiffer v. Eau Claire, 51 Wis. 385, 8 N. W. 253; Hiles v. Johnson, 67 Wis. 517, 30 N. W. 721. It is only where the complaint states two or more good causes of action that a demurrer will lie for misjoinder. Id. As indicated, the amended complaint states a good cause of action in favor of the creditors and against the defendants named in six of the demurrers', and also states a good cause of action in favor of the receiver Boyd and against the defendant James A. Smith. Is this independent cause of action in favor of Boyd properly joined with the causes of action in favor of the creditors? Under the repeated rulings of this court we must answer in the negative. Barnes v. Beloit, 19 Wis. 93; Pier v. Fond du Lac Co. 53 Wis. 432, 10 N. W. 686; Shanahan v. Madison, 57 Wis. 276, 283, 15 N. W. 154; Linden Land Co. v. Milwaukee E. R. & L. Co. 107 Wis. 493, 508, 509, 83 N. W. 851. It follows from what has been said, that demurrers numbered 1, 2, I, 8, 9, 10, and 12 were each and all properly sustained, but only upon the ground that several causes of action are improperly united.

By the Court. — The appeal from the order of the circuit court refusing to state the grounds upon which such demurrers were sustained is dismissed. The several orders of the circuit court sustaining such demurrers are each and all affirmed, and the cause is remanded for further proceedings according to law.

On motion of respondent a rehearing was granted September 23, 1902, and the cause was reargued October 24, 1902.

L. A. Doolittle, for the appellants.

C. F. Bundy, for the respondents.

The following opinions were filed January 13, 1903:.

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Rehearing

Babhekn, J.

A rehearing of this case was granted on the sole question of whether the statute of limitations had run in favor of the officers and directors of the defendant corporation. In the opinion, ante, p. 155 (90 N. W. 108Y) this court held that such statute had not run, basing such holding upon the proposition that such officers and directors were trustees of an express trust. We are now urged to reconsider and recede from that position.

It abundantly appears from the complaint that more than six years had elapsed between the time of the commission of the acts for which such officers and directors are sought to be held liable and the date they were made parties' to this action, so that, unless they are brought within some rule which prevents the running of the statute, they may invoke it, and thus resist the claims sought to be enforced against them. Strictly speaking, this action is not one in which the creditors-are seeking to hold the officers of the corporation as trustees for themselves. It is rather an action in the right of the corporation itself, and brought by the creditors on its behalf because the corporation cannot or will not sue. It was not intended, nor can it be fairly inferred from the former opinion that we held, that the officers of a going corporation were trustees of creditors. We do not intend to abate one jot or tittle from the rule now firmly established in this state on the so-called “trust-fund doctrine.” The recent cases of Slack v. Northwestern Nat. Bank, 103 Wis. 57, 79 N. W. 57; Killen v. Barnes, 106 Wis. 546-572, 82 N. W. 536, and Hamilton v. Menominee F. Q. Co. 106 Wis. 352, 81 N. W. 876, sufficiently indicate the position of this court, and by that position we are still disposed to- stand. This action, being one in the right of and on behalf of the corporation, is open to any defense which the defendants might have urged, had the corporation itself brought the suit. The acts alleged against the officers are of misfeasance and malfeasance. No doubt can reasonably be entertained but that the corporation might have brought an action at law at any time within sis years after the commission thereof. As between the corporation and its officers, the latter were liable in a straight action at law any time during the six years nest after their shortcoming. It is not perceived how the fact that creditors must bring their suit in equity, when the corporation cannot or will not act, changes the relations of the parties. The creditors possess no greater right than the corporation. They are bound by the legal status of the parties, and cannot maintain this action unless the relation between the corporation and its officers is held to be such as to render the six-year statute of limitations inapplicable.

We have now reached the very heart of the controversy between the parties. The general rule of law was correctly stated in the opinion that “the statute of limitations has no application in the case of an express trust, where there has been no denial or repudiation of the trust.” If, therefore, the officers and directors of a corporation are indeed trustees of an express trust, as heretofore held, that ends the controversy. We are convinced, however, that we stated the rule too broadly in the former opinion. The rule quoted from Thompson on Corporations is not fully supported by the authorities. It is not easy to define with exactness the precise relation existing between a corporation and its stockholders, on the one side, and the officers and directors, on the other. The latter are certainly not trustees of an express trust, under the statute mentioned in the opinion. In Lamberton v. Pereles, 87 Wis. 449, 459, 58 N. W. 776, this court, by the present Chief Justice, said:

“In this state we have no statute making the chapter on uses and trusts, or any part of it, applicable to personal property.”

The officers of a corporation have no title to its real property, so that they do not become express trustees under the statute. Neither have they the legal title to either the personal property or the stock of the corporation. Their relation to the corporation is thus defined in 2 Pomeroy, Eq. Jur. § 1089:

“The directors and supreme managing officers of corporations are constantly spoken of as trustees. They are not, however, true trustees, with the corporation or the stockholders as their true cestuis que trusteñt, since they hold neither the legal title to the corporate property, nor that to the stock. In fact, directors are clothed at the same time in a double •character — that of quasi trustees and that of agents.”

The English court, in Ex parte Chippendale, 4 De Gex, M. & G. 19-52, speaking of this relation, says:

“Although directors undoubtedly stand in the position of agents, and cannot bind their companies beyond the limits of their authority, they also stand, in some degree, in the position of trustees.”

The supreme court of Pennsylvania, considering this same question, said: as I apprehend, is only in a general sense, as we term an agent or any bailee intrusted with the care and management of the property of another. It is certain that they are not technical trustees. They can only be regarded as man-dataries,” etc. Spering’s App. 71 Pa. St. 11.

“It is by no means a well-settled point what is the precise relation which directors sustain to stockholders. They" are undoubtedly said in many authorities to be trustees, but that,

The Tennessee court speaks of the matter thus:

“Directors are not express trustees. . . . They are mandataries. They are agents. They aré trustees in the sense that every agent is a trustee for his principal, and bound to exercise diligence and good faith.” Wallace v. Lincoln S. Bank, 89 Tenn. 680—649, 15 S. W. 448. See Pearson v. Concord R. Corp. 62 N. H. 537; Bank of Mutual Redemption v. Hill, 56 Me. 385; Landis v. Saxton, 105 Mo. 486, 490, 16 S. W. 912.

Expressions of this kind without number might be cited without getting any nearer exactitude of definition of this relation. No- court that we are aware of has ever defined the relation as broadly as was stated in the former opinion by this court. We therefore withdraw the statement that such officers and directors are trustees of an express trust, as defined by sec. 2081, Stats. 1898.

We will now take up the question of whether their relation is such that, under the circumstances alleged in the complaint, they cannot avail themselves of the benefit of the statute of Imitations. At this point we are met by a divergence in the authorities. One line of cases, of which Williams v. McKay, 40 N. J. Eq. 189, is a type, holds that the managers of a savings bank stand in the relation of trustees to depositors,, so that the statute of limitations will not be a bar against a charge of mismanagement on their part which had occurred more than six years before the filing of the bill. See Ellis v. Ward, 137 Ill. 509, 25 N. E. 530; Southern M. Ins. Co. v. Pike, 32 La. Ann. 483; Coxe v. Huntsville C. L. Co. 106 Ala. 373, 17 South. 626; Hightower v. Thornton, 8 Ga. 486. The ruling in the New Jersey case seems to have been based expressly upon the holding that the relation between the directors and depositors (wbo were mere creditors) was similar to that of trustee and cestui que trust, and that the right of the depositor was a purely equitable one, which he could not enforce in a court of common law. 40 N. J. Eq. 198. It is perfectly evident that this court cannot follow this decision without overruling a large line of cases repudiating the trust-fund doctrine. Neither the corporation nor its governing body, so long as it is a going concern, holds its property in trust for creditors. The officers or directors occupy a fiduciary relation, demanding care, vigilance, and good faith. If they violate their duty, they at once become responsible to the corporation. If they are guilty of misfeasance or malfeasance, the latter may at once bring an action at law to enforce such liability. If the corporation refuses to act, the stockholders before insolvency, and the creditors after insolvency, may enforce such liability in the right of the corporation, and not otherwise. Such right is not based entirely upon the relation of trusteeship sustained to the creditors, but rather upon the legal right of the corporation to compel them to make reparation for their wrong. The right of the creditor to enforce the rights of the corporation may be said to rest upon the so-called fiduciary relation which the officers sustain to the corporation, and indirectly to them. The fact that the creditor must sue in equity does not alter the situation. The application of the statute of limitations in equity is determined by the cause of action stated, rather than by the nature of relief demanded. Hughes v. Brown, 88 Tenn. 578, 587, 13 S. W. 286. The cause of action stated in the complaint being one in the right of the corporation, and one which it might have enforced in an action at law, it becomes susceptible to such objections as the recalcitrant officers might have urged, had the corporation brought the suit.

The case of Ellis v. Ward, 137 Ill. 509, 25 N. E. 530, much relied upon, is bottomed upon two facts which this court cannot recognize as substantial. One is “that the assets of a corporation are, in equity, a trust fund,” and the other is that the relation between the officers and the corporation bas “all the elements of an express trust.” Tbe case of Southern M. Ins. Co. v. Pike, 32 La. Ann. 483, was one where the directors intrusted the accounts and assets of the company to one wbo united in bimself the offices of president and casbier, and wbo died without rendering an account of bis trust. Tbe court held that prescription did not run on a demand for a return of the property until the heir bad done some act equivalent to a repudiation of the trust. We have no quarrel with the bolding. Coxe v. Huntsville G. L. Co. 106 Ala. 373, 17 South. 626, simply bolds that the right of a corporation to require an accounting from its president, wbo was also its general manager and controlled and managed all its affairs for many years, cannot be barred by the statute of limitations when it is shown that the failure to assert the right sooner was due to the refusal of said officer to allow an examination of bis boobs, and to bis deception and misrepresentation as to the condition of corporate affairs. Tbe decision rests upon the fraud of the officer, and misrepresentation to the governing body. Tbe case of Hightower v. Thornton, 8 Ga. 486, may be dismissed with the following quotation from the opinion:

“As to tbe statute of limitations, it need only be said that this is a case of a direct trust, purely technical, not cognizable at law, but falling within tbe proper, peculiar, and exclusive jurisdiction of a court of equity.”

This review of tbe authorities cited in support of tbe appellants’ position is sufficient to show tbe difficulty this court must experience in attempting to follow them. On tbe other hand, there is a clear line of authorities taking a contrary view. In tbe case of Kane v. Bloodgood, 7 Johns. Ch. 90, Chancellor Kent speaks on tbe subject as follows: tbe main object of discussion in tbe cause; and there is ground for a good deal of embarrassment in tbe examination of tbe question, arising from tbe loose manner in wbicb tbe rule is often mentioned in tbe boobs, and tbe want of consistency, as well as precision, in tbe series of cases applicable to tbe point. I cannot assent to tbe proposition that all cases of direct and express trust, and arising between trustee and cestui que trust, are to be withdrawn from tbe operation of tbe statute of limitations, notwithstanding a clear and certain remedy exists at law. The word trust is often used in a very broad and comprehensive sense. Every deposit is a direct trust. Every person who receives money to be paid to another, or to be applied to a particular purpose to wbicb be does not apply it, is a trustee, and may be sued either at law for money bad and received, or in equity, as a trustee, for a breach of trust. Scott v. Suman, Willes, 404. Tbe reciprocal rights and duties founded upon tbe various species of bailment, and growing out, of those relations^ . . are all cases of express and direct trust. . . . Are all such eases to be taken out of tbe statute of limitations, under tbe notion of a trust, when one of tbe parties selects bis remedy in this court ? A review of tbe decisions will enable us, as I apprehend, to deduce from them a safer and sounder doctrine, and to establish upon tbe solid foundations of authority and policy this rule:

“Tbe objection that the society held tbe money in question in tbe character of trustees, and that it was a trust which, upon equity principles, was not within tbe statute, has been

“That tbe trusts intended by the courts of equity not to be reached or affected by the statute of limitations are those technical and continuing trusts wbicb are not at all cognizable at law, but fall within tbe proper, peculiar, and exclusive jurisdiction of this court.”

Erom his view of tbe authorities, it may be said that as long as there is a continuing and subsisting trust, acknowledged or acted upon by tbe parties, tbe statute does not apply, but if tbe trustee denies tbe right of bis cestui que trust, and tbe bolding becomes adverse, lapse of time from that period may constitute a bar in equity, but other trusts wbicb are tbe ground of an action at law are not exempted from tbe operation of tbe statute. Mason v. Henry, 152 N. Y. 529, 46 N. E. 8 37, was an action by tbe receiver of an insolvent insurance company to compel a trustee (bolding tbe same office as a director under our statutes) to account for assets fraudulently misapplied by him. The court held that the receiver, as the representative of tbe corporation, might have sued the defendant, in an action at law, for the damages sustained from his misconduct, or in equity, as he did, to compel an accounting as to the property wasted and lost; that such action was barred by the lapse of six years between the misapplication and the commencement of the suit. Pierson v. McCurdy, 33 Hun, 520, affirmed in 100 N. Y. 608, 2 N. E. 615, holds pretty much the same doctrine. Wallace v. Lincoln Savings Bank, 89 Tenn. 630, 15 S. W. 448, was a suit against the officers and directors of a corporation for losses caused by their neglect and mismanagement of the corporate affairs. The following propositions were decided: That primarily such a suit was maintainable at law by the corporation alone, but creditors might maintain the action in equity when the corporation was disabled to sue or wrongfully refused to sue; that such suit, whether brought at law by the corporation itself, or in equity by a creditor, was alike subject to the bar of the statute of limitations; and that the six-year statute was the one that was applicable. So in a later case (Cullen v. Coal Creek M. & M. Co. [Tenn.] 42 S. W. 693) a demurrer to a bill against directors of a corporation for malfeasance in office was sustained after the lapse of six years, on the ground that such directors were not such direct or technical trustees as to take the case without the statute. See Hughes v. Brown, 88 Tenn. 578, 13 S. W. 286. The supreme court of Missouri followed substantially the same rule in an action brought against the secretary of a corporation for withholding money of the concern. Landis v. Saxton, 105 Mo. 486. In Indiana the rules above mentioned were applied in an action against public officers to recover moneys received by them under color of their offices; the court holding that, when money can be recovered in an ordinary action at law, the statute of limitations was a valid defense. Newsom v. Comm’rs, 103 Ind. 526, 3 N. E. 163. In Baxter v. Moses, 77 Me. 465, 1 Atl. 350, it is said tbat tbe directors of a corporation bold tbe corporate property under an implied or constructive trust, and tbat one wlio is not actually a trustee, but upon whom tbe character is forced by a court of equity, may avail himself of tbe statute of limitations. See Link v. McLeod, 194 Pa. St. 566, 45 Atl. 340. Upon mature deliberation, we are disposed to adopt tbe view of tbe latter line of cases. It is plain tbat, however tbe relations of corporate officers to their corporation and its stockholders may be defined, such relations are not “technical and continuing trusts,” cognizable solely in a court of equity, which Chancellor NeNT declares are the only trusts not affected by the statute of limitations. The various causes of action stated in the complaint for misapplication of funds were rights of action in favor of the corporation, upon which actions at law could have been commenced when the act was done. The plaintiffs here are simply seeking to enforce the right of action of the •corporation. They have no greater right than it possessed.

Our statute (sec. 4206) is general and comprehensive, and 'in itself makes no exception as against trustees of any kind; •and, while we are not inclined to deny or question the authority of the precedents in this court importing into that statute certain exceptions, we are unwilling to assume a practically legislative function, by adding other exceptions which we might deem wise, which the legislature, in the exercise of its constitutional discretion, has not seen fit to make. "Those precedents are cited in the former opinion. Several •of them go nearly to the extent of exempting express trusts within the statute, but two of them suggest like exception in •certain other cases. Sowell v. Howell, 15 Wis. 55, and Fawceit v. Fawcett, 85 Wis. 332, 55 N. W. 405. The first of these is of but little significance, for in it was no attempt to declare how far the exemption from statutes of limitation •does extend, but merely that it does not extend beyond “express or acknowledged trusts,” and liability to account for proceeds of land wrongfully purchased with moneys of plaintiff was held barred by limitation. In Fawcett v. Fawcett, however, the limitation was extended to a resulting trust arising' upon purchase of land in his own name by a husband with his wife’s money; such resulting trust having been acknowledged by him, and having continued unrepudiated during-their cohabitation to his death. The statute was held not to-apply, because the trust was wholly beyond cognizance of courts of law, and had the characteristics of acknowledgment,, continuance, and certainty. Chancellor Kent’s classification of trusts in Kane v. Bloodgood, 7 Johns. Ch. 90, was adopted;, among other parts, the declaration being that “other trusts-which are the ground of action at law are not exempt.” It seems plain, therefore, that nothing in the prior decisions of' this court have established immunity from limitation statutes-in favor of any trusts, other than “those technical and continuing trusts which are not at all cognizable at law, but fall within the proper, peculiar, and exclusive jurisdiction of this; [chancery] court,” as classified by Chancellor Kent. Obviously corporate officers are not trustees holding upon such a trust. It is not meant by this that they may not be, in a-true sense, trustees of an express trust. While express trusts-in real property can only be such as are defined and limited by sec. 2081, Stats. 1898, there may be many express trusts-in personal property, as pointed out by Chancellor Kent in-the case above cited, which are entirely independent of the-trusts in real property referred to in sec. 2081. It may welt be that corporate officers, so far as they handle and control, the personal property of the corporation, may rightly be-called trustees of an express trust, of which trust the corporation and its stockholders are the beneficiaries. 1 Perry,. Trusts (5th Ed.) § 86. But so far as they may be sued at law, they do not come within the chancellor’s classification,, and hence the running of the statute of limitations is not interrupted. As already pointed out, tbeir misapplication of funds might at any time have been reached by an action at law by the corporation. The right to sue arose when the act was done. If the alleged conspiracy as to mismanagement continued down to the death of the corporation, still, as we understand it, the demurring defendants were not made parties to this suit until more than six years thereafter. An action at law might have been instituted by the receiver immediately after this appointment, as to all acts not then barred by the statute. Mason v. Henry, 152 N. Y. 529, 46 N. E. 837; Wallace v. Lincoln Savings Bank, 89 Tenn. 630, 15 S. W. 448.

We are fully impressed with the weight of the reasons supporting and opposing such exemption as is claimed in this-action against directors and officers of corporations. The peril to tire public in becoming either stockholders or creditors, in view of the ample practical opportunity enjoyed by such officers to cover their malfeasance from the knowledge of any person other than themselves, and to control the action of the corporation, whether by way of investigation or suit, until the period of limitations shall have run, is a cogent consideration. On the other hand, in absence of limitation, such officers, and their estates after them, may be held liable for mere negligence at remote periods after their acts, when witnesses may be dead and books and records lost, so that defense against a prima facie case may be impossible, contrary to the 'policy of the law in all analogous situations. But af ter all, these are considerations of policy, with which the legislature can deal freely; and we feel induced to hold that as-neither the statute nor the precedents of this court warrant exception from the protection of the limitation statutes of those who, though holding as fiduciaries and trustees, have at all times been liable to remedy by suit at law. for their misconduct as such, we may not with propriety take from them that protection which the statute, in terms, gives. We hold,. therefore, that the limitation has run, and the action, in the respects mentioned, is barred, upon the allegations of the ■complaint. The five demurrers mentioned in the former ■opinion, in snhd. 2, are therefore sustained on the ground herein stated, and such opinion is hereby modified accordingly.

By the Court.- — So ordered.

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Dissenting Opinion

Oassoday, C. J.

(dissenting). It is well settled that so long as there is a continuing and subsisting trust, acknowledged or acted on by the parties, the statute of limitations are not available to a trustee. Kane v. Bloodgood, 7 Johns. Ch. 90, 123, 124. The reason for the rule is that the trustee being clothed with the legal title or possession of the property, and charged with the duty of caring for and preserving the same for the benefit of the cestui que trustj the latter has the right to assume that the trustee will perform such duty, unless he has knowledge that the trustee has denied his right, or claimed the possession of the property adversely to him. Id. Until such denial or adverse claim, the possession of the trustee is, in equity, deemed to be the possession of the cestui que trust. Smith v. Combs, 49 N. J. Eq. 420, 24 Atl. 9; Lindsley v. Dodd, 53 N. J. Eq. 69, 84, 30 Atl. 896. True, the officers and directors of a corporation are not regarded, in law, as having the title or possession of the property of the corporation, both of which are deemed to be vested in the corporation itself. Nevertheless they have the actual care and custody of such property, and are chargeable in equity with an active duty in respect to the same, not only for the benefit of the corporation, but also for the benefit of the cestui que trust. When, therefore, such officers and directors, in violation of such duty, convert a large portion of the property of the corporation to their own private use, and there is no publicity of the fraud, they necessarily become chargeable in equity, as trustees of the property so fraudulently converted, for the "benefit of the cestui que trust. As to-the property so converted, they hold the same as a continuing- and subsisting trust, assumed and acted upon by themselves-in violation of the duty to the cestui que trust. The mere-fact that an action might have been maintained in the name-of the corporation which was managed and controlled by the-wrongdoers, against such wrongdoers, to recover hack the-money or property so converted, immediately after the conversion took place, is no ground, in my judgment, for holding that the statute of limitations commenced running in-favor of such wrongdoers and against the plaintiffs at the-time of such conversion. Thus, it is held in New Jersey:

“The managers of a savings hank stand in the relationship of trustees to the depositors, so that the statute of limitations will not he a bar against a charge of mismanagement on their part which had occurred more than six years before the filing-of the bill.” Williams v. McKay, 40 N. J. Eq. 189.

Again: “The treasurer of a savings bank, who was at the-same time one of its managers, was charged by the receiver of the bank with dereliction and malfeasance in office. Held, that his position as manager made him a trustee, and that consequently the statute of limitations was not a defense to-the bill.” Williams v. Reilly, 41 N. J. Eq. 137, 3 Atl. 692.

These cases were followed in Somerset Co. Bank v. Veghte, 42 N. J. Eq. 39, 42, 6 Atl. 278; Williams v. McDonald, 42 N. J. Eq. 392, 396, 7 Atl. 866. So in a.case in Illinois it is-said in the opinion of the court:

“Ordinarily an express trust is created by a deed or will but there are many fiduciary relations established by law,, and regulated by settled legal rules and principles, where all the elements of an express trust exist, and to which the same legal principles are applicable, and such appears to be the-relation established by law between directors and the corporation.” Ellis v. Ward, 137 Ill. 509, 520, 522, 25 N. E.. 530. See, also, Coxe v. Huntsville Gaslight Co. 106 Ala. 373, 17 South. 626; European & N. A.m. Ry. Co. v. Poor,. 59 Me. 277, 278; Butts v. Wood, 38 Barb. 188; Williams v. Page, 24 Beav. 654.

In my judgment, there is less reason for holding that tbe statute of limitations runs in favor of sucb officers and directors in tbe case at bar than in a number of cases in this court wherein it has been held that tbe statute did not run by reason of sucb fiduciary or trust relation. Sheldon v. Sheldon, 3 Wis. 699; Spear v. Evans, 51 Wis. 42, 8 N. W. 20; Bostwick v. Dickson, 65 Wis. 593, 26 N. W. 549; Second Nat. Bank v. Merrill, 81 Wis. 151, 50 N. W. 505; Williams v. Williams, 82 Wis. 393, 52 N. W. 429; Fawcett v. Fawcett, 85 Wis. 332, 55 N. W. 405; Taylor v. Hill 86 Wis. 106, 56 N. W. 738.

Sucb is a brief statement of a few of my reasons for dissenting from tbe decision on tbe motion for a rehearing in this case.

Tbe following additional opinion was filed April 17, 1903 :

Pee Cueiam:.

One point suggested upon the rehearing is not mentioned in the foregoing opinion and deserves brief consideration. It is said that the defendant John S. Owen, a director of the corporation, who is charged with liability by the amended complaint, was a party to the action from the beginning, and hence that as to him the statute of limitations is not available as a defense. It is true that Owen was one of the plaintiffs in the action as originally brought in bis capacity as an alleged creditor of the corporation; but the difficulty with the contention is that the action as originally brought was simply a plain action to wind up the corporation and distribute its assets, and did not include any cause of action against Owen> or any other officer, for maladministration, or to recover assets converted. No sucb cause of action was incorporated into the complaint until the reorganization of the action in May, 1900, when Owen and bis co-plaintiff were made defendants, and the amended complaint was served. Therefore no action to enforce sucb liabilities •can logically be beld to have been commenced against Owen until such amended complaint was served. It is well settled that, when an amendment to a pleading introduces a new ■cause of action, the statute of limitations runs until the making of the amendment. 1 Ency. Pl. & Pr. 622, and cases cited in note 1; Gager v. Paul, 111 Wis. 638, 87 N. W. 875. See, also, C. R. I. & P. R. Co. v. Young (Neb.) 93 N. W. 922.

Case Details

Case Name: Boyd v. Mutual Fire Ass'n

Court Name: Wisconsin Supreme Court

Date Published: Jan 13, 1903

Citation: 116 Wis. 155

Court Abbreviation: Wis.