9 W. Va. 580 | W. Va. | 1876
This is an action of trespass, on the case commenced and determined in the circuit court of the county of Ohio. The action is against the defendants, who were directors of the Wheeling Savings Institution. The declaration is very lengthy, and to set it out in full in this opinion is unnecessary.
The action was commenced on the nineteenth day of February, 1872. On the second day of November, 1872, the defendants, on whom the process was served, appeared to the action in court, and filed their demurrer to the plaintiff’s declaration, and to each count thereof, and the plaintiff joined in the demurrer. Afterwards, on the sixteenth day of May, 1873, the cause was heard upon the demurrer, and was argued by counsel, and the court sustained the demurrer to the declaration, and in its judgment, says: “And the plaintiff, not desiring to amend his declaration, and having nothing further to say or allege, it is further ordered and adjudged, that this cause stand dismissed, and that the defendants go hence, without day, and recover of the plaintiff their costs in this behalf expended.” To this judgment the plaintiff has obtained a supersedeas, and it is now to be determined whether the circuit court erred in its judgment, so as to require this Court to reverse it. .
The second section also provides that, the “ nine directors to manage the affairs of said institution,” shall be elected for twelve months thereafter, and until a new election shall take place.
The fourth section provides that said corporation shall be capable of receiving from any free person, or persons, any deposit, or deposits, of money, and that all moneys so received shall be invested in public stocks, or other securities, at the discretion of the directors, and in the manner deemed most safe and beneficial: Provided, always, That such investment of the funds of the corporation shall be in the manner provided by the by-laws, and that no director or member shall be liable, in his person or property, for any debts, contracts, or engagements, of said corporation; but that the money, property, rights, and credits, of said corporation, and nothing more, shall be liable for the same.
On the 28th day of February, 1835. the legislature of Virginia passed an act amending said act of incorporation. See Acts of 1834 and 1835, page 159. This act made no amendment material to notice here, further than by reference.
The fifth section of the act of incorporation provides, “That it shall be the duty of the directors, at least once every six months, to appoint, from the members of said corporation, three competent persons, whose duty it shall be to investigate the affairs y>f said corporation, and to make and publish a report thereof, in one or more newspapers printed in the town of Wheeling; and it shall also be the duty of the directors, on the first Monday in January, and on the first Monday of July, in each and every year, to make and declare a dividend of the interest and profits of said corporation, after paying its expenses, and the same to pay over to the members, or their legal representatives, within ten days thereafter.
The charter of said institution was extended by an act of the legislature of Virginia, passed twelfth of January, 1858, to 1884.
This action is brought to recover from the defendants the sum of $3,853.59, deposited in money by the plaintiff, as alleged, in the said Savings Institution, on the first day of January, 1870, and on different days in the declaration mentioned, between the said first day of January, 1870, and the twenty-fourth day of February, 1870, inclusive, for the causes and reasons alleged and set forth in the declaration. I think it may be safely stated, that a great part of the gravamen of the action, as against the defendants, as alleged in the declaration, in legal effect, is for the grossly negligent, and the wilfully negligent, discharge of their duties to the corporation, as these duties are expressly proscribed, or (in view of the declaration) implied, by the charter. It is true, that, in some of the counts, or parts thereof, there seems to be an effort at something more, but it seems to me that it is not accomplished, in legal effect. There is no distinct and sufficient allegation, in any count of the declaration, of such fraudulent conduct, or deceit, upon part of the defendants, as would entitle the plaintiff to maintain this action against the defendants. To arrive at the proper conclusion upon the questions presented, the authorities bearing, thereon, and determining principles analagous to those here involved, may be consulted with profit, especially, as the questions involved are of great public ¿nd private interest. In arriving at conclusions in matters of so much interest, wc should not be controlled simply by a blind instinct of justice, without regard to well established legal principles.
Well established legal principles, ás a general rule, may, with safetj'’ and profit, be adhered to in the administration of justice — they are the most safe and sure guides. In fact, when they are cast aside and disre
The first case winch I shall notice, is the case of Vose v. Grant decided in 1819 by the supreme court of Massachusetts and is found in vol. 15 Massachusetts R. 505. The syllabus of the case is as follows: “The stockholders of an incorporated bank, after the expiration of their charter, made dividends of their capital stock amongst themselves, so that there were not corporate funds left sufficient to redeem, their outstanding notes or bills. It was holden that the possessor of their bills could not maintain an action as for a tort against an individual stockholder, who had received his proportion of such dividends. In this case the declaration alleged fraud against the defendant. The judge in delivering the opinion of the court, among other things, says : “To support an action against an individual on account of his note, or other like act done by him, as a member of a corporation, it is not enough to show that he acted erroneously or by mistake, but it must appear that he acted wilfully and milieiously, or fraudulently, with intent to injure the plaintiff.” In 1817, the supreme court of Missachuseits held in the case of Smith v. Hurd and others in 12 Metcalf R. 371, that “a stockholder in a bank cannot maintain an action against its directors for their negligence in so conducting its affairs that its whole capital is wasted and lost, and the shares, therein, rendered worthless; nor for the malfeasance of i(s directors in delegating the whole control of its affairs to the president and cashier, who waste and lose the whole capital.” In this case there was a demurrer to the declaration and the demurrer was sustained by the court. It was a spec
First, There is no legal priority between the holders of shares in a bank in their individual capacity, on the one side, and the directors of the bank on the other. The directors are not the bailees, the factors, agents or trustees of such individual stockholders. The bank is a corporation and body politic, having a separate existence as a distinct person in law, in whom the whole stock and property of the bank are vested, and to whom all agents, debtors, officers and servants, are responsible for all contracts, express or implied, made in reference to
“Two. The individual members of the corporation, whether they should all join, or each act severally, have no right or power to intermeddle with the property or concerns of the bank; or call any officer, agent or servant to account, or discharge them from any liability,” &c. But he proceeds, and says, “But we are pressed with the argument that for every damage which one sustains, which is caused by the wrongful act of another» he ought to have a remedy. This is far from being universally true-
Another maxim in regard to claims for damage, is causa próxima, non remota, spectatur. Thousands of .instances occur, in which one who sustains consequents and incidental damage from the misconduct of another is without a remedy at law.” In Smith v. Poor et als., 40th Maine 415, it was held, that “For the official misconduct of the directors of an incorporated company, and fraud in the discharge of their duties, they are responsible to. the corporation. An individual corporator, who has suffered damage in a contract made with such company,, through the fraudulent acts and votes of its directors, under color of their officers, can maintain no action against them to recover compensation. His remedy is against the company.” In this case, combination and fraud were charged, and the correctness of the decision in 12 Metcalf affirmed.
Appleton, Judge, in delivering the opinion of the Court, says, “The directors, who fraudulently abuse their trust, and misapply the funds of the corporation, are personally liable, as trustees, to make good that loss. But the stockholders cannot maintain a bill to compel them to account, unless it first appear, that the directors are the parties who made themselves answerable for the loss. In all cases, the corporation is a necessary party, either as complainants or defendants. Robinson v. Smith,
Farther on, the Judge says: “As a creditor of the corporation, the plaintaiff is entitled to the same remedies as its other creditors. His claims are directly against the corporation, and to be enforced against it.” In the case of Winter v. Baker, reported in 34 Howard's Practice Reports 183, it was held by the supreme court of New York, that “A creditor of a foreign corporation cannot maintain an action in this state against the director of a corporation for wilful and fraudulent mismanagement of its affairs, whereby the property of the corporation was wholly wasted, lost and embezzled, and the corporation reudered wholly insolvent, and the plaintiff's claims against the corporation rendered wholly worthless.” (Affirming Gardner v. Pollard, 10 Bosw. 674; Smith v. Poor, 40 Maine; Smith v. Hurd, 12 Met. 371; Allen v. Curtis, 26 Conn. 460.) The Judge, in delivering the opinion of the Court, in this, and o'ther cases, says: “But more especially applicable to these cases, is the rule well established, that a stockholder cannot sue directors for damages, on the ground their stock was made valueless by the misconduct of the defendant. If a stockholder cannot maintain such an action, a creditor certainly cannot do-uso.”
The case of Abbott and others v. Merriam and others, 8 Cushing, 588, was a bill in chancery against the treasurer and secretary of a corporation, charging mismanagement of its affairs. The bill was demurred to, and the demurrer sustained. C. J. Shaw, in delivering the opinion of the court, says: “They (the plaintiffs) have no right, by any direct suit, legal or equitable, to call the directors, or other officers of the corporation, to an account for mismanagement. * * The directors, and other officers, and agents, are amenable only to the corporation; and to give every individual stockholder a right of action would lead to a multiplicity of suits.” In the case of Allen v. Curtis, 26 Connecticut, 456, it was
The Judge, further on, says: “The plaintiff has not favored the court with any authorities in support of such an action, though the case must have been of frequent occurrence, and the absence of authority in its favor is of much weight against the propriety of the action, while, on the other side, several adjudged cases have been read, of the best authority, which are directly in point, and quite decisive.” See also 2 Abbot’s New York Digest, new edition, page 334, section 585; Winter v. Baker, 34 Howard, 183.
In the case of French v. Fuller, 23 Pick. 108, it was
The Franklin Fire Insurance Company v. T. W. Junkins and others, was an action on the case by the directors of an insurance company against their predecessors for malfeasance in their office of directors. And in this case, it was held by the supreme court of New York, that, “The directors of a monied institution are responsible, in an action on the case, for improperly obtaining and disposing of the funds or property of the company ; that a general charge in a declaration that the defend
Of course I am now speaking of common deposits in banks, such as the plaintiff made in the Savings Institution in this case, and not of special deposits, where the property in the thing deposited remains in the depositor, and the institution, or bank, becomes the simple bailee. It also seems, from the authorities quoted, that the general rule is, “ that an action at law must be brought by the person having the title, or right, to the thing demanded, or to the damages which are sought to be recovered for the injury.”
I will now proceed to notice another class of eases, involving distinct and different principles from those I have been considering. The first case I will notice under this head, is the case of Salmon v. Richard, 30 Connecticut, 360. In this case, Judge Sanford, who delivered the opinion of the court, recognises the correctness of the decision ot the same court, in the case of Allen v. Curtis, 26 Con. 456. But, he says, “ No priority between the parties, other than that which is exhibited in this court, was necessary to the maintenance of the suit. The false and fraudulent statement of the condition of the insurance company is charged to have been made, and published to the world, by these defendants, (knowing it to be false), to induce people to effect their insurance in, and by, said company. And it is averred that the plaintiff, (being, of course, one of the persons to whom that false statement was addressed), giving credit to such false' statement, insured his property in said company; and that, by means of the false and fraudulent statement, so uttered by the defendants to the world, and the plaintiff’s belief in the same, and consequent insurance in said
' This is the doctrine laid down in Posley v. Freeman, where, for the first time, the cases on this subject were considered. In that case, Mr. Justice Grose differed from the rest of the court, and thought the law gave no remedy for fraud, unless there was a contract between the. parties. The court, however, held that if a person told that which was untrue, and told it for a fraudulent. purpose, and with the intention to induce another to do an act, and that act was done to the prejudice of the plaintiff, then an action tor fraud would lie. That case was followed up by Haycraft v. Creary, and a great variety of other cases, and it must now be considered as established law. But then it was said, that in order to constitute that fraud, it was not necessary to show that the defendants knew the fact they stated to be certain; that it was enough that the fact was certain, if they communicated that fact for a deceitful purpose; and to that proposition the court is prepared to assent. It is not necessary to show that the defendants knew the fact to be certain, if they stated a fact which was true for a fraudulent purpose, they, at the same time, not believing that fact to be true; in that case it would be both a legal and moral fraud.”
In the case of Mabry et al. admrs. v. Adams, 3 Bosworth’s Reports, page 346, it was held, that, “A complaint in an action to recover from a director damages for falsely and fraudulently representing that the stock of a bank is worth par, by which the plaintiff's intestate was induced to purchase stock from the bank, when, in truth, the stock was worthless, and of no value, and was wholly lost, is bad when it does not aver that the defendant knew that the stock was not worth what he represented it to be, nor that the defendant made the representations with the intent to induce the plaintiff's intestate to become a purchaser.” The Judge, in his •opinion in the case, on page 353, says: “We think it .defective in this, that it does not allege that the defendant
In the case of Bartholomew v. Bently and others, 15 Ohio R. 659-669, 670, it was held that, “A special action on the case may be maintained for fraud, resulting in damage, and it is no defence that the fraudulent acts were done in the capacity of corporators. If the design be to •defraud the public generally, any one suffering injury thereby may -maintain this action. The declaration should charge the fraudulent intent in positive terms, and not leave it to be inferred from the falsity of the facts •stated in the declaration.” 20 Geo. 848.
From the foregoing authorities it may be clearly deduced that, (although the directors of a corporation are not liable to creditors thereof, in the cases before stated, for non-feasance, &c.), they may make themselves liable to ordinary depositors of money, for damages for false •and fraudulent representations, made by them, and, perhaps, some acts done by them, with intent to deceive and •defraud the public, or any person, and which have had the design and effect, and caused loss and damages to them. But it is clearly to be seen, that no count in the •declaration in this cause contains allegations showing •sufficient cause of action against the defendants, under ■this head, and it may be presumed, under the circum¡stances, that the various counts in the declaration were made equally as free by the pleader, as the facts would warrant As bearing on several of the counts of the
Upon the authorities cited, it seems to me that the plaintiff’s declaration, and each of its counts, fails to disclose any sufficient cause of action at law against the defendants. The declaration is, perhaps, justly open to other fatal objections, such as vagueness, and uncertainty, and otherwise, but it is unnecessary and immaterial that they should be now noticed.
I have thus far considered this case without reference to the provision in the fourth section of the act of incorporation, which exempts each director expressly from liability, “in his person or property, for any debts, contracts, or engagements, of said corporation.” This provision was inserted in the charter for some purpose, and it seems to me it is entitled to no inconsiderable consideration and weight, upon the consideration of parts of the plaintiff’s declaration in some aspects, though it might not protect and shield them from liability for damages for deceit and fraud, of the character to which I have alluded.
~We have not been furnished with any precedent for this action, in so far as it seeks a recovery for negligence, unless it is the case of the United Society of Shakers v. Underwood et al., and Davenport v. Same, decided by the Court of Appeals of Kentucky, which is reported' in Vol. 13, new series of American Law Register 211. In this case, it seems to have been held that, “Bank directors will be held responsible to the depositors for the loss or conversion by the bank of special deposits in
First,- It was a-special deposit of bonds, and not an ordinary deposit of money.
Second, The petition substantially alleges that the defendants converted the bonds to their own use. The Kentucky case, then, is not a precedent for this, even though the principles announced by the syllabus be cor-
Upon consideration, it seems to me that, if actions for the cause stated in the plaintiffs declaration against directors of banks and other corporations, were sustained by the courts of law, it would be highly detrimental to the public interest, and not conducive to justice. Thoughtless impulse and passions,1 might for a time justify it, but sober, sound thought and reason, must, and will condemn it; if not at once, surely in a reasonable time. Banking institutions, and other corporations, are essential to the welfare and prosperity of the country^ and these institutions cannot generally be operated, save through the agency of directors, and if the directors of such institutions were held liable at law to the creditors thereof, in damages for every act and negligence in the management and disposition of the moneys and property of the corporation, of which the corporation might lawfully complain, responsible men could not be found who would take upon themselves the perils and dangers of the position. Such a result would be most disastrous in its consequences, and should be avoided, unless its avoidance is not allowed by the common law, or some statute. I am not aware of any part of the common law, or of any statute, which authorizes such actions; no precedent for such actions has been produced to us. If there is any principle of common law authorizing such actions, it is passing strange that it has not been invoked and put in practice prior to this, in this country. Banks and other corporations have, not unfrequently, failed by reason of negligence and mismanagement of the moneys*
It is unnecessary to ascertain in this case what remedy, or remedies, creditors of an incorporated monied institution may have against the bank and its directors, or stockholders, in a court of equity, in any given 'state of facts or circumstances, as this is a case at law, and not a case on the equity side of the courts.
For the foregoing reasons, the judgment of the circuit court rendered in this cause, must be affirmed, with costs and $30 damages to the defendants in error, against the plaintiffs in error.
Judgment Affirmed.