Lile v. Kefauver

• Decision Date: 14 June 1932
• Citation: 51 S.W.2d 473,244 Ky. 486
• Parties: LILE et al. v. KEFAUVER et al.
• Court: Kentucky Court of Appeals

51 S.W.2d 473

244 Ky. 486

LILE et al. v. KEFAUVER et al.

Court of Appeals of Kentucky

June 14, 1932

Appeal from Circuit Court, Grayson County.

Action by John Lile, R. A. Byers, and another against Ed Kefauver and others. From a judgment dismissing the action as to the plaintiffs named without prejudice, and directing that the action be prosecuted for and on behalf of plaintiff C. S Shartzer, the plaintiffs named appeal.

Judgment affirmed.

James &amp James, of Elizabethtown, and Woodward, Hamilton & Hobson, of Louisville, for appellants.

Faurest & Faurest, of Elizabethtown, and A. P. Cubbage and John Campbell, both of Leitchfield, for appellees.

CREAL C.

The sole question presented for decision by this appeal is whether two or more creditors of an insolvent bank may jointly for themselves and for all other creditors of such bank maintain an action against the directors thereof to enforce the liability of the directors arising under the provisions of section 548, Ky. St. The statute in question reads: "If the directors of any incorporated company shall declare and pay any dividend when the corporation is insolvent, or any dividend the payment of which would render it insolvent, or which would diminish the amount of its capital stock, they shall be jointly and severally individually liable for all debts of the corporation then existing, and for all that shall be therafter incurred while they, or a majority of them, continue in office."

C. S Shartzer, John Lile, and R. A. Byers, for themselves and for all other depositors and creditors of the Grayson County State Bank, filed their petition in equity against Ed Kefauver and other directors of that bank, alleging, in substance, that on or about the 10th day of March, 1930, the banking commissioner of the state of Kentucky, because of the insolvency of the bank, took charge of its property and effects for the purpose of liquidation. In December, 1929 the directors of the bank declared and paid a dividend of 3 per cent. on its capital stock; that at the time the bank was insolvent and the payment of the dividend diminished the amount of its capital stock; that the directors knew, or should have known, of its insolvency. At the time the dividend was declared and paid, and at the time the bank was placed in the hands of the commissioner for liquidation, plaintiffs Shartzer, Lile, and Byers were depositors and creditors thereof in the sums of $5,745.25, $551.95, and $827.86, respectively and there were more than 1,500 other depositors and creditors whose aggregate deposits amounted to more than $400,000, and no part of the claims of plaintiffs and other depositors had been paid. It is further alleged that, when all the resources and assets of the bank are converted into money and applied to the legal indebtedness of the bank, not more than 15 per cent. of the claims of its creditors and depositors will be satisfied; that they represent a class of more than 1,500 persons, all of whom are and were creditors of the bank when the dividend was declared, and at the time the bank was closed and their right to have the defendants pay their claims is based on the same law and fact, and they have a common right and interest in the payment made; that to require each creditor to prosecute his claim separately will result in a multiplicity of suits; and that no adequate remedy at law is afforded to the several depositors and creditors.

Defendants entered a motion to require plaintiffs to elect whose cause of action they would prosecute and in whose name same would be prosecuted. Plaintiffs entered a motion for permission to prosecute the action for and on behalf of all creditors and depositors of the bank and for an order enjoining all creditors and depositors from suing except in this action. There was also filed in the action a writing signed by over 700 depositors of the bank in which it was stated that the signers had given no authority to plaintiffs to file the action for them against the directors, and that they did not desire to have it prosecuted in their behalf.

The chancellor sustained the motion of defendants to require plaintiffs to elect, and overruled motion of plaintiffs to be permitted to prosecute the action on behalf of all other creditors and depositors, and also overruled motion for order enjoining other creditors and depositors from suing except in this action. Plaintiffs declining to make election pursuant to the court's orders, it was adjudged that the claims of John Lile and R. A. Byers be dismissed without prejudice, and that the action be prosecuted for and on behalf of plaintiff Shartzer. From that judgment and order Lile and Byers have appealed.

Counsel for appellants first argue that the directors of a bank who declare and pay a dividend when they know, or under the circumstances should know, that the bank is insolvent, become and are jointly and severally liable for all its debts, and in support of this argument section 548 of the statute and Cunningham v. Shellman, 164 Ky. 584, 175 S.W. 1045 are cited. That liability will impose upon directors violating that section of the statute is not questioned by counsel for appellees.

It is further argued that the court should have either required plaintiffs to bring before it as plaintiffs or defendants all the creditors of the bank under section 23 of the Civil Code of Practice, or else should have made an order permitting plaintiffs to prosecute the action for and on behalf of all the creditors under section 25 of the Civil Code of Practice. And further that equity having acquired jurisdiction will give complete relief and may bring before it all parties that may be necessary to a full, final and complete adjudication, and therefore will permit the liability of the directors to be enforced in a single suit, because the creditors do not have an adequate remedy at law, and such action will prevent a multiplicity of suits. On the other hand, it is asserted by counsel for appellees that section 83 of the Code must be read and considered in connection with the other sections in question, and that, if the several causes of action are of such a nature as that they may not properly be united under the provisions of section 83, then the other sections have no application.

In a well-considered opinion found in the record, the chancellor reviews at length or cites practically all the numerous cases bearing on the questions presented for determination. The cases are so aptly applied or so clearly distinguished therein and the factors determining his conclusions are set forth with such clear and cogent reasoning that a strong inclination to embody the opinion in toto here would not be denied but for the fact that it would unreasonably lengthen this opinion. We shall, however, refer to and quote excerpts from that opinion. After setting out sections 25 and 83 of the Civil Code of Practice, it is said:

"The two sections of the Code must be considered together. Before some can sue for others, manifestly it

...