Bridgens v. Dollar Sav. Bank

• Decision Date: 07 January 1895
• Docket Number: 1,916.
• Parties: BRIDGENS v. DOLLAR SAV. BANK OF KANSAS CITY, MO., et al.
• Court: U.S. District Court — Western District of Missouri

66 F. 9

BRIDGENS v. DOLLAR SAV. BANK OF KANSAS CITY, MO., et al.

No. 1,916.

United States Circuit Court, W.D. Missouri, Western Division.

January 7, 1895

Scroggs & McFadden, McGrew, Watson & Watson, and Karnes, Holmes &amp Krauthoff, for complainant.

Lathrop Morrow, Fox & Moore and Teasdale, Ingraham & Cowherd, for defendants.

PHILIPS District Judge.

The principal question raised by the demurrer to the bill is whether or not the complainant has a full and adequate remedy at law for the grievances complained of. The contention on the part of the defendants' counsel is that a court of equity in the federal jurisdiction will not sustain a bill in a case of fraud to obtain only a decree for the payment of damages in money, when the like amount might be recovered in an action at law. This is predicated of the fact that under the judiciary act of 1789, under which the first congress established the courts of the United States, and defined their jurisdiction, it was enacted that 'suits in equity shall not be sustained in either of the court of the United States in any case where plain, adequate and complete remedy may be had at law'; and, further, because five days after the enactment of this statute the same congress proposed to the legislatures of the several states the article afterwards ratified as the seventh amendment of the constitution, which declares that 'in suits at common law where the value in controversy shall exceed twenty dollars, the right of trail by jury shall be preserved.' It may also be conceded that it is now the settled rule of the law in the federal courts that an insolvent corporation, prior to dissolution and the cessation of business, may, the same as a natural person, dispose of its property by way of preferences among its creditors in payment of debts, and make sales to bona fide purchasers, so that the preferred creditor or bona fide purchaser will hold the property transferred as against the other creditors of the corporation and its stockholders. But it is just as true as ever that such transfers and purchasers must be in good faith, and so as not to secure any unjust advantage to the managing officers of the insolvent corporation; and it is just as true as it ever was that the directors and managing officers of corporations sustain a trust relation to the corporation for the use and benefit of its creditors and stockholders, and that courts of equity will, as between such officers and those dealing with them, enforce a strict observance of their duties in favor of the stockholders and creditors of the corporation, and will interpose to prevent a misapplication and perversion of the trust property committed to their keeping and management. And it is the especial province of a court of equity to undo their acts and restore the status quo whenever and wherever, by fraudulent collusion with other parties, they misapply the trust property so as to work a fraud upon the cestuis que trustent. To this end, in order to work out the trust for the benefit of the wronged creditors and stockholders, a court of equity will pursue the trust property into whosesoever hands it may pass with notice of the wrong, and either restore it in kind or compel the participant to make equivalent restitution. This rule is clearly recognized in Wardell v. Railroad Co., 102 U.S. 658, where Mr. Justice Field observed:

'They (the officers and directors) cannot, as agents or trustees enter into or authorize contracts on behalf of those for whom they are appointed to act, and then personally participate in the benefits. Hence all arrangements by directors of a railroad company to secure an undue advantage to themselves at its expense, by the formation of a new company as an auxiliary to the original one, with an understanding that they, or some of them, shall take stock in it, and then that valuable contracts shall be given to it, in the profits of which they, as stockholders in the new company, are to share, are so many unlawful devices to enrich themselves to the detriment of the stockholders and creditors of the original company, and will be condemned whenever properly brought before the courts for consideration.'

The bill of complaint alleges, and the demurrer admits, that one Brent was the president and one of the directors in the active management of the Citizens' Bank of Kansas City Kan., and that through its officers and agents the defendant bank 'had full control and management of the business and affairs of said Citizens' Bank. ' It further charges, and the demurrer admits, that Brent, the president and director of the Kansas bank, 'persuaded, induced, and compelled Charles S. Squier (cashier of the Citizens' Bank) to accede to said Brent's demand' to make the pretended contract and transfer of said stock in the Citizens' Bank, and to cancel the certificate of deposit held by the Citizens' Bank against the defendant bank. It is the settled rule of equity jurisprudence that the directors and agents of two companies are disqualified from representing both companies in a transaction where the interests of the two companies are opposed, nor will one corporation be permitted to form a company ancillary to the original one, and contract with it to the disadvantage of the creditors and stockholders of one of the companies. Mor. Priv. Corp. Secs. 529, 530. And a court of equity will, in such case, notwithstanding the...