Killen v. State Bank of Manitowoc

• Decision Date: 27 April 1900
• Citation: 82 N.W. 536,106 Wis. 546
• Parties: KILLEN v. STATE BANK OF MANITOWOC ET AL.
• Court: Wisconsin Supreme Court

106 Wis. 546

82 N.W. 536

KILLEN

v.STATE BANK OF MANITOWOC ET AL.^*

Supreme Court of Wisconsin.

April 27, 1900.

Syllabus by the Judge.

1. A creditor of a corporation, under sections 3237, 3239, Rev. St., if, looking to the interests of its creditors, the ends of justice require or the court direct, may maintain an action in equity to redress wrongs to such corporation growing out of the misconduct of its officers, resulting in loss or waste of the corporate assets.

2. If the officers of a banking corporation misrepresent its condition, whereby a person is led to deposit his money therein and lose it, by reason of the unsafe condition of such bank, they are liable to such depositor directly to make good such loss, only upon the ground of deceit.

3. An action for damages for deceit does not survive at the common law, nor under any statute of this state, and therefore is not assignable.

4. Section 4253, Rev. St., which provides that actions for damages done to real and personal estate shall survive, refers only to damages to specific property, not to cheats and frauds resulting in pecuniary loss.

5. There is no trust or fiduciary relation between the creditors of a banking corporation and such corporation or its officers. Such relation exists between such officers and the bank, but that between the bank and its creditors is merely the relation of debtor and creditor.

6. The trust-fund doctrine, so called, under which it is held in some jurisdictions that officers of a bank are liable directly to its depositors as quasi trustees, does not prevail in this state.

7. Officers of a bank are liable to it for official misconduct resulting in loss or waste of its property, and as a fiduciary relation exists between such officers and the corporation, such liability survives and is assignable; and the result of that doctrine is that all such liabilities pass to an assignee for the benefit of creditors by a general assignment of its property for that purpose.

8. If the stockholders of an insolvent bank that has made an assignment for the benefit of its creditors, voluntarily pay into the trust fund thus created the full amount of their double liability created by law, and such additions to such fund be distributed to and received by the creditors according to their right to participate in the benefits of such liability, it is thereby discharged.

9. Liabilities for unpaid subscriptions to the capital stock of a corporation pass to an assignee under a general assignment of its property for the benefit of its creditors, and they cannot participate therein in any other way than by becoming parties to such assignment.

10. An assignment by an insolvent corporation, for the benefit of its creditors, does not constitute an action for the enforcement of liabilities of its stockholders for unpaid subscriptions to its capital stock.

11. Section 1755, Rev. St., relating to the liability of stockholders of a corporation to its directors, can be invoked only by creditors existing at the time of the commission of the act upon which the liability depends, and to the extent the capital stock is diminished by such violation.

12. The joint and several liability of the directors of a corporation for all of its indebtedness under section 1765, Rev. St., resulting from a violation of its provisions respecting the payment of dividends, is penal in character. A right to the benefits of it does not survive at the common law or by any statute of this state, and is not assignable.

13. The rule stated in Association v. Childs, 52 N. W. 600, 82 Wis. 460, respecting the degree of care the officers of a corporation owe to their principal, affirmed under the doctrine of stare decisis.

14. Where the interests of all creditors who desire to invoke equity jurisdiction to enforce liabilities of officers and stockholders of a corporation are trifling in amount, or there is no good reason appearing why such interests cannot be adequately protected otherwise than by means of the exercise of such jurisdiction, the court may properly deny any right thereto.

Appeal from circuit court, Brown county; Samuel D. Hastings, Judge.

Action by William H. Killen against the State Bank of Manitowoc and others. Judgment for defendants, and plaintiff appeals. Affirmed.

Plaintiff, as assignee of a claim established against an insolvent banking corporation whose affairs were in process of being settled under a voluntary assignment for the benefit of creditors, commenced this action to recover it of the stockholders and officers of the bank because of the stockholders' liability and official misconduct of such officers. The court decided the issues of fact, in effect, as follows:

The First National Bank of Manitowoc was organized in 1865 and went out of business by being succeeded by the State Bank of Manitowoc June 2, 1892, which latter bank took all the assets of the national bank and assumed its liabilities. C. C. Barnes was the president, Charles Luling the cashier, and for the greater part of the time George B. Burnett was the bookkeeper and cashier of the national as well as the state bank, and they exclusively managed such banks. John W. Barnes purchased $2,000 of the stock of the national bank, paying par value therefor in cash, in 1886, and continued to hold it till the bank was succeeded by the state bank as hereinafter set forth. During the time John W. Barnes was a stockholder as aforesaid he was one of the directors of the bank and its vice president, but did not actively participate in conducting the business of the corporation or do anything in that regard except to sign some reports to the comptroller of the currency, represented to him to be correct by the other officers named, and by verifying such reports, or some of them, by the books. C. C. Barnes, Charles Luling and George B. Burnett all died insolvent before this action was commenced. The reputed and published capital of the bank, from the time of its organization, was less than its actual capital. Prior to 1882 the books of the bank were falsified so as to show $60,000 of deposits, evidenced by outstanding certificates of deposit, more than the true amount, but neither that fact nor the fictitious character in part of the bank capital was known to John W. Barnes till the suspension of the successor.

In 1891 the bank held $60,000 of paper of the Howell Lumber Company which it had taken through Chicago banking correspondents, supposing they held collateral security therefor. The lumber company failed at the time stated and the comptroller of the currency, supposing the event would necessarily cause such a loss to the bank as to absorb its surplus, reported at $16,000, and $10,000 of its capital, ordered a 10 per cent. assessment on the stock, to be carried, however, on the books of the bank as accounts receivable till the amount of loss on the Howell paper could be more definitely known.

The official bank examiner had regularly examined the affairs of the bank from the time of its organization, yet had failed to discover but that the capital of the bank and its surplus were actual, as reported to the comptroller's office or to discover anything to criticise in the management of the bank. The books showed, as above indicated, when the assessment was ordered, that the bank had a full paid up capital of $50,000, a surplus of $60,000, and no paper condemned by the comptroller except the Howell paper, and none other on which it was supposed there would be a loss. All the paper of the bank, including the Howell paper, was supposed to be good when taken, and was taken in the regular course of business. Nothing impairing the safety of the bank was brought to the attention of John W. Barnes, except the loss on the Howell paper, and there was no way of his determining that the situation of the bank was other than what its books indicated, except by a careful and extraordinary investigation of its affairs--such an investigation as would not be undertaken or suggested by a director of a bank without some well-grounded suspicion of dishonesty of the persons in the immediate charge of its affairs.

When the assessment was ordered John W. Barnes owned 20 shares of the capital stock of the bank, Fayette Armsby 20 shares, and J. F. Pritchard 60 shares, all of whom were entirely ignorant of the bank's true condition or of anything affecting its safety, other than the loss on the Howell paper. The balance of the stock was owned by the managing members of the corporation before indicated, C. C. Barnes, Charles Luling and George B. Burnett. Such active members, upon the comptroller of the currency ordering the assessment, proposed to the other stockholders that an assessment of 20 per cent. upon the stock should be made; that each stockholder should give his note for the amount of his assessment; that the assessment should be reported to the comptroller of the currency, and measures be immediately taken to organize a state bank to succeed the national bank, and that the affairs of the national bank should be liquidated through the means of the new organization. In support of their proposition to change from a national to a state bank, the managing members of the corporation said, among other things, that the comptroller of the currency was too cautious, that an assessment on account of the Howell paper was unnecessary as it would all be collected and that by changing to a state bank they would have greater liberty of action in accommodating their customers and handling their business.

The result was that all of the stockholders agreed to the proposed assessment and change. A certificate of organization of the new bank was accordingly made and signed by all of the stockholders of the old bank except Armsby, who was absent, but who thereafter consented to the arrangement. The law was fully complied with in respect to the formation of a state bank. No subscription for stock was made other than by signing the...