Caldwell v. Eubanks

• Decision Date: 04 September 1930
• Docket Number: No. 28811.,28811.
• Citation: 30 S.W.2d 976
• Parties: C.D. CALDWELL ET AL., Appellants, v. C.F. EUBANKS ET AL.
• Court: Missouri Supreme Court

30 S.W.2d 976

C.D. CALDWELL ET AL., Appellants, v. C.F. EUBANKS ET AL.

No. 28811.

Supreme Court of Missouri. Division One.

September 4, 1930

Appeal from Carroll Circuit Court. — Hon. Ralph Hughes, Judge.

AFFIRMED.

Roy McKittrick and P.M. Marr for appellants.

The demurrer to the petition should have been overruled, because: (1) The court had jurisdiction of the persons of defendants and of the subject-matter of the action. (2) The plaintiffs have capacity to sue; the defendant directors being the guilty parties and in control of the bank, refused and failed to bring any action for the stockholders' protection. Hannerty v. Theater Co., 109 Mo. 305; Dorrah v. Pemiscot Co. Bank, 213 Mo. App. 541, 256 S.W. 560; Proctor v. Farrah, 213 S.W. 469; Continental Securities Co. v. Belmont, 206 N.Y. 7, Ann. Cases 1914A, 777, 51 L.R.A. (N.S.) 112; 3 Cook on Corporations (7 Ed.) art. 701. (3) There is no defect of parties plaintiff or defendant. (4) The petition states only one cause of action. (5) The action is not barred by the Statute of Limitations, because: (a) The suit is one in equity. (b) The suit was filed within five years after the bank closed. (c) The petition charges fraudulent concealment of facts by defendants, so that plaintiffs did not know the actual facts until long after bank closed. Secs. 1315, 1334, R.S. 1919; Fichtner v. Mohr, 16 S.W. (2d) 739; State ex rel. v. Yates, 231 Mo. 284; Maynard v. Doe Run Lead Co., 305 Mo. 356, 264 S.W. 94; Shelby Co. v. Bragg, 135 Mo. 291; 37 C.J. 971, 972.

U.A. House, Kitt & Marshall, M.D. Campbell and John Campbell for respondents.

(1) The period of limitation on a cause of action against directors for the negligent management of a bank is five years. Stone v. Rottman, 183 Mo. 552; Wallace v. Lincoln, 15 S.W. 448; Sec. 1317, R.S. 1919. Counsel in brief tacitly concede limitation has run unless saved by fraudulent concealment or because the damages were not susceptible of ascertainment. The petition is drawn upon the theory that concealment did toll the statute. Of course, the action is based on negligence and not on fraud and, therefore, concealment of the facts does not prevent the statute from running. Sec. 1317, R.S. 1919, sub. div. 5; 37 C.J. 936, sec. 305; Davis v. Howe, 213 S.W. 609; McLain v. Parker, 229 Mo. 68. (2) Directors of a corporation are liable for their negligence in the discharge of their duties. The cause of action, however, is in the corporation and not in the individual stockholders. Bank v. Hill, 148 Mo. 393; Utley v. Hill, 155 Mo. 259; Dorrah v. Bank, 213 Mo. App. 541. And before a court of equity will open its doors to a stockholder he must show there is no other road to redress. And he does not show this until he shows that all of the remedies within the corporation itself has been exhausted. He must show a state of facts from which the court can conclude that he has exhausted all reasonable efforts to induce corporate action and his pleading must set forth the effort made. Albers v. Merchants Exchange, 45 Mo. App. 206; Blades v. Mercantile Co., 154 Mo. App. 350; Loomis v. Ry. Co., 165 Mo. 487; Hall. v. O'Reilly, 306 Mo. 196; Dorrah v. Bank, 213 Mo. App. 541; 14a, C.J. 154, sec. 1931; Vogeler v. Punch, 205 Mo. 576; Hingston v. Montgomery, 121 Mo. App. 451. And the matter should be brought to the attention of the stockholders for action before suit is commenced by the stockholders. When the business and property of the Milan Bank was taken over by the Finance Commissioner, then such commissioner was the proper person to sue for any wrong theretofore committed by the bank directors. Sec. 11724, R.S. 1919; Thompson v. Greeley, 107 Mo. 590; Alexander v. Reefe, 74 Mo. 516; Gill v. Davidson, 89 Mo. 445. There is no allegation that plaintiffs requested the Finance Commissioner to sue. There can be no question that under the provisions of Section 11724 the commissioner could have brought the suit. Before a stockholder can maintain any suit with relation to the corporate affairs it is necessary that there should be a demand made on the receiver (Commissioner of Finance) to bring suit and a refusal by him to do so. 14 C.J. 977, sec. 3219, note 14. (3) The alleged negligence of defendants give rise, if at all, to a cause of action in the Milan Bank. The damages recovered from defendants are assets of the bank to be first applied to payment of the debts of the corporation, the residue if any to the stockholders. The bank or the Commissioner of Finance are the real parties in interest. In this suit plaintiffs ask the aid of a court of equity to compel defendants to account to them and all other stockholders (not the bank) similarly situated for the loss of their stock. Such an action cannot be maintained. Dorrah v. Bank, 213 Mo. App. 541; 3 Cook on Corporation (7 Ed.) sec. 701; Stone v. Rottman, 183 Mo. 552; State ex rel. v. Tindle, 199 S.W. 1095; Trust Co. v. Ferguson, 195 Mo. App. 330; 14a C.J. sec. 1940; Mfg. Co. v. Wilhite, 233 S.W. 711.

FRANK, J.

This action was brought by appellants as stockholders of the Milan Bank to recover from the individual defendants the value of their stock in said bank, upon the ground that the bank became insolvent and the stock worthless through the alleged carelessness and negligence of said defendants while acting as directors of said bank.

The suit was instituted in the Circuit Court of Sullivan County on May 11, 1925. On May 8, 1926, the venue of said cause was changed to the Circuit Court of Carroll County. On July 29, 1927, plaintiffs filed their third amended petition, to which a demurrer was sustained and judgment rendered for defendants on October 6, 1927, and plaintiffs appealed.

The petition alleges, in substance, the following facts: That the Milan Bank was a banking corporation organized under the laws of Missouri and was engaged in a general banking business in Milan, Missouri. On May 12, 1920, this bank was insolvent and its business and property was placed in charge of the State Finance Commissioner; that on May 25, 1920, the Milan State Bank was organized and took over the business and property of the Milan Bank; that at the times in question, defendants were the duly elected, qualified and acting directors of the Milan Bank, and plaintiffs at said times were owners and holders of stock in said Milan Bank and brought this suit for the benefit of themselves and all other stockholders of said bank; that defendants constituted a majority of the board of directors and they together with their friends and relatives held and controlled a majority of the stock of said bank; that defendants as directors of said Milan Bank failed to bring this or any other suit on behalf of said bank or protect the interest of plaintiff and other stockholders therein.

That the last certified statement made by the officers of the Milan Bank prior to May 12, 1920, the statement made by them on the day said bank closed and the statement made by them at the time the assets of said bank were taken over by the Milan State Bank, all showed that the capital stock, surplus and undivided profits totaled the sum of $62,549.84.

That plaintiffs owned forty-five and defendants owned eighty-nine of the three hundred and fifty shares of the capital stock of said bank and the remainder of said stock was owned by other persons whose names appear in the petition.

The petition also alleges facts which, if true, would authorize a finding that the bank became indebted in large sums of money and was rendered hopelessly insolvent long prior to May 12, 1920, by the carelessness and negligence of defendants as directors of said bank, and that defendants at said times knew the bank was insolvent but fraudulently concealed that fact from plaintiffs and the creditors of said bank who had no knowledge thereof until after the bank closed. As we view the case, it is not necessary to determine the sufficiency of the petition in these respects; therefore, we will not burden our opinion with a reproduction or discussion of the pleaded facts touching the alleged negligent and fraudulent acts of defendants.

The petition further alleges "that said Milan Bank has no property or assets out of which plaintiffs and others as stockholders thereof can recover the said shares of stock."

The prayer of the petition is that defendants be compelled to account to plaintiffs and other stockholders similarly situated, for the loss of their capital stock, surplus and undivided profits in the sum of $62,549.84, and that said sum be paid to the stockholders in proportion to the number of shares held by each stockholder, and for such other and further relief as might seem to the court just and proper.

Defendants demurred to the petition on the following grounds:

"1. That the court has no jurisdiction of the persons of these defendants.

"2. That the court has no jurisdiction of the subject-matter of the action.

"3. That plaintiffs have no capacity to sue in this action.

"4. That there is a defect of parties plaintiff.

"5. That there is a defect of parties defendant.

"6. That several causes of action have been improperly united in said petition.

"7. That the petition does not state facts sufficient to constitute a cause of action.

"8. That these parties defendant are not necessary parties to a complete determination of the action.

"9. That the alleged cause of action mentioned in the petition did not accrue within five years before the commencement of this action and that the plaintiffs are precluded and estopped from maintaining this suit by the provision of Section 1317 of Revised Statutes of Missouri of 1919."

The demurrer was sustained and judgment was rendered in favor of defendants. Plaintiffs appealed.

Respondent contends that the demurrer was properly sustained (1) because the cause of action attempted to be stated in the petition was in the bank and not in the stockholders, and (2) because it does not appear from the petition that plaintiffs made...