HOWE tI. BARNEY
(Otrc'IJ,it Oourt, So D. OMo, W. D. April' 24, 1891..)
NATIONAL BJ.1IlX!l-INSOLVENoy:-MISCONDVOT OF DIRECTOJIS-RIGHT OF STOCKHOLDERS TO BVE.
A stcJckholder in an insolvent national bank for which a receiver has been appointed cannot sue its directors to make them personally liable for the mismanagement of the bank, as the right of action is in the receiver, and not in the individual stockholder.
MiltonSaterand Follett KeUy, for plaintiff. Paxton It Warrington, Harmon Colston, Gold8mith Jordan &: O'Hara, and O. W. Baker, for defendants.
SAGE, J. The plaintiff sues as the owner and holder of 100 shares of 8100 each, of the capital stock of the Metropolitan National Bank, a corporation organized under and by virtue of the laws of the United States for the purpose of carrying on the banking business, which business it did carryon in the city of Cincinnati, Ohio, from the 1st day of January, 1884, to the 1st day of February, 1888, its capital stock being $500,000. The petition sots forth that the defendants constituted the board of directors of said bank, and by reason of their mismanagement, carelessness, neglect, bad faith, and unlawful conduct in the administration of their office, permitted and caused the money, property, assets, and capital of the bank to be squandered, wasted, and loaned llpon insufficient security or without security, and the capital stock to become almost worthless, to such an extent that the bank become embarrassed and insolvent, by reason whereof the comptroller of the treasury of the United States, on the 6th day of February, 1888, seized upon and took possession of the bank, displaced the defendants from the management and control thereof, and turned over its money, property, and assets to a receiver duly appointed, who proceeded to close out and wind up its affairs according to the laws of the United The petition sets forth in detail the acts of the directors complained of, and alleges that from the property and assets of the bank sufficient money was realized to pay its creditors and depositors in full; and that dividends at different times have been declared an<;l paid to the stockholders, including the plaintiff, of 49 per cent. of the face value of the stock held by them, the dividend to the plaintiff amounting to $4,900. . The petition further alleges that by reason of the acts of the defendants complained of the plaintiff h!Jj:i lost 51 per cent. of the stock so owned and held by him as aforesaid,-that is to say, the sum of $5,100, -for which he prays judgment, with interest and costs. Four of the defendants have filed answers. The cause is now before the court upon general demurrer on behalf of the defendants Charles M. Holloway and Edward N. Roth. The demurrer is upon the ground that, admitting the facts alleged in the petition, the right of action is in the receiver, and not in the individual stockholders. The precise point
was' before the court in BrunJe v. Peters, 44 Fed. Rep. 13, (circuit court of the United States, eastern division of Virginia,) where it was held that a creditor of an insolvent national bank, for which a receiver has been appointed, cannot sue its directors for the purpose of making them personally liable for the mismanagement of the bank, but that the suit must be instituted by the receiver. This decision is in harmony with the entire line of authorities upon the subject. Smtith v. Hurd, 12 Mete. (Mass.) 371, is a leading case on this point. It was there held: First. That there is no privity, relation, or connection between the holders of shares in a bank, in their individual capacity, on one side, and the directors of the bank on the other, and that the bank is a corporation and body politic. having a separate existence as a distinct person in law, vested with the entire stock and property thereof, and that its agents, debtors, offiQers, and servants are responsible to it for all contracts made in reference to its capital, and for all torts and injuries diminishing or impairing it. Second. That the individual members of the corporation have no right or power, jointly or severally, 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. Third. That injury done to the capital stock by wasting, impairing, and diminishing its value is not, in the first instance, necessarily a damage to the stockholders. All sums which could in any form be recovered on that ground would be assets. of the corporation, and would be held in trust to pay the debts of the bank; and it would be only after those debts were paid, and in case any surplus should remain, that the stockholders would be entitled to receive anything. FOU1·th. That, strictly speaking,. shares in a bank do not constitute a legal estate and property, but rather confer a limited and qualified right upon the stockholders to participate, in the proportion of their holdings, in the benefit of the common fund vested in the corporation for the common use; that the stockholder's interest is a qualified and equitable one, manifested usually by a <Jer,tificate, which is transferable, and that an injury done to the stock and capitaL:by :negligence or misfeasance, is not an injury to such separate interest, but to the whole body of stockholders in common. The opinion was by Chief Justice SRAw. He said that if an action could be brought by one stockholder it might be brought by the holder of a single share, so that for one and the same default of the directors there might be as many actions as there were shares. In Craig v. Gregg, 83 Pa. St. 19, it was held that an individual stockholder could not maintain a separate action at law against the directors of a corporation for damages by reason of the negligence of the directors, and that the remedy must be in a form to protect the interests of the corporation as the trustee for all its stockholders and the creditors. So in AUen v. Curtis, 26 Conn. 455, it was held that the directors are the agents of the corporation, and liable only to it, their principal, for their acts. In Evans v. Brandon, 53 Tex. 56, a petition by a stockholder in a corporation for a recovery of damages for himself, and not on behalf of
FEDERAL >ll.EI'ORTER,' vol.
theco'liporatioJl., fortne wrongfulaets'of the directdry, was held bad on derriutter. No case bas been cited, nor do I'know of any, in which' has been 'Rroling 'to the contrary. There are Cases in which it bas been' held' that if the' corporation ig under the control of the parties 'Sought to be' oharged, or if it refused,tlpon the request of the stockholders, to bring suit,thestockltlolder himself may bring a suit in equity in his own behalf and in behalf of who may wish to come in, but the 'oorporationmust be imade a defendant, as well as the party sought to, be charged, and the decree, if it be against the defendants, must be to :compel them to make good to the corporation'the corporate money or property lost by their negligence. Such a suit was Robinson v. Smith, 3 Paige, 222,where, previous to the adoption of the Revised Statutes of New York, it was hali! that generally, where there was it waste or misapplication of thecorpdrate funds by the officel"S or agents of the company, 'a' suit to compel thenj·to account for such waste' or misapplication should be, in the name of the corporation. But, as the court n&ver permits a wrong to go unredressed merely for the sake of form, it was further held that, if it appeared that the directors of the corporation, by collusion with those who had made themselves answerable by their' negligence or fraud, refused to prosecute,or if the corporation was still under the control of those whop mnst be made the'defendants in the suit, the stockholders, who are the real parties in interest, would be permitted to file a bill in their own names, making the corporation a party defendant; and if the stockholders were so numerous 6S :to render it possible or ve.ry inconvenient to bring them all before toe court, a part may file a bill in hehalf of themselves and all others standing in the same situation. To the same effect, see Brinckerhoff v. Bostwick, 88 N. Y. 52; Evans v. Brandan, and AUen v. Ourt'is, citedswpra; Smith v. Poor, 40 Me. 415; Qlrter v. Glass Co., 85 Ind. 180. In all these cases, however, it was held that the corporation must he made a party defendant, and ill the real beneficiary if the suit be successfut So,, also, in Dewing v. Perdicaries, 96 U. S. 193, 197, 198, it was held that the avails of the litigation, if there be any, go to the corporation, and are a part of its mear.sas if it had itself sued and It is not necessary to pursue the subject further. Thedemnrrermuat be sustained, and the petition dismissed, at the costs of the plaintiff.
GRAND RAPIDS SAFE:i'Y DEPOSIT co. 'II.
SAFE & LOCK CO.
GRAND RAPIDS SAFETY DEPOSIT
Co. et al.
(C£rcuft Court, B. D. Ohio, W. D.
April 23, 1891.)
FalUD-CoLLtl8ION wiTH AGENT-RIGHTS OJ!' PRINCIPAL.
A,corporation which contracts With the agent of another corporation to furnish tbe, vault. for $7,250, but at ,tqe request of tbe agentexpre!lsesthe considerationin the contract to be '13,000. and afterwards gives the agent a stat.emenll ofacc011nt showing a false credit of 15,750 for a payment. purpOrting to hlive beeD.IIllfolle by the agent, is liable to the agent's principal for the amount realized lIy the Ipeans of the fraud.. The facti that the agent Is also a, stockholder in plaintiff corporation does nG1l' sf· to recover for the fraud perpetra.ted.· .
BAME-'RIGIlT OJ!' ACTION.
The f\ICt that. stock In lliaintiff corporation was Issued to tlle.agent for the amount of thefrandulent excess 1D the price of the safety vault, and that this stock Is worth les8tehaniw-Jace'value, dOElIl Dot the uability of defepdant for theface·valUe qf ,the being the
Wilbt/ &WaldandMontgl1meTY Follitt' & for defendants..
Bundy, for "
SAGEIJ. Thelu'gument by counsel for the defendant upon motion for: a ne.w trial omits the consideration of the rulesofJa.w which control the caSEl·.. Goodrich,.the agent of the promoters who subsequently organized the plaintiff corporation, and became its sole original stockholders, ·madea contract with the defenctant company for a safety vault ·for the uses of the corporation. The defendant agreed with him to fumishand put Up the vault for thestlmof $7,250 j but upon his request the consideration expressed,.in the c(.nttact was &13,000, which was the amount paid by the plaintiff company, as follows: $7,250 in cash, and the residue in capita:! stock! issued by; the company at par, to Goodrich, in cdnsideration of hissuppogedpayment of the amount thereof on account of said contract. 'fhecontract shows upon its face that Goodrich was acting fOr the plOmoterscon; behalf bfthe corporation about to be formed. There can be; nQ possible doubt\ either in law or in fset, that the defendants were chargeable with notice that Goodrich was acting as an agent. Now, there is lio proposition of law relating to agency better settled than that the agent must be. loyal to his trust, and that "he, may not deal in the business his agency for his own ,benefit. Whart. Ag. § 231et aeq.; Mechem, Ag. § 454 et 8eq. From this principle results the ot,her rule .that all,})rofrtsmadeandadvantages gained by the agent in the exeQtltion of his agency belong, to the principal. Ringo.v·.BinnB, 10 Pet. 269. Evenif'it be};i:llClWn that the principal was not in fact injured; by