Metzger v. Joseph

• Decision Date: 03 April 1916
• Docket Number: 17823
• Court: Mississippi Supreme Court
• Parties: METZGER ET AL. v. JOSEPH

71 So. 645

111 Miss. 385

METZGER ET AL. v. JOSEPH

No. 17823

Supreme Court of Mississippi

April 3, 1916

APPEAL from the chancery court of Wilkinson county, HON. R. W CUTRER, Chancellor.

Suit by I. S. Joseph, receiver against August Metzger and others. From a decree overruling demurrers to the bill, defendants appeal.

Decree affirmed, and cause remanded.

Green &amp Green, A. H. Jones and Bramlette & Bramlette, for appellant.

Longino & Ricketts, for appellee.

OPINION

STEVENS, J.

This action was instituted by I. S. Joseph, receiver of the Bank of Woodville, by a bill in chancery seeking to recover from appellants, as defendants in the court below, a five per cent. dividend declared by appellants as directors of said bank at a time when the bank was insolvent. The suit is brought by authority of the chancery court appointing and having jurisdiction of the receiver and the administration of the affairs of the defunct bank. The bill avers that appellants on the 17th day of February, 1912, were the directors of the Bank of Woodville; that the bank was at that time, and had been for a long time, totally insolvent; that the directors knew that the bank was insolvent, but notwithstanding this knowledge, that they proceeded to declare and disburse on said date a dividend of five per cent. upon the par value of twenty-thousand dollars of the capital stock of said bank, less the sum of forty-five dollars which was not claimed by or paid to any person; that each of the directors assented to and participated in the declaration of said dividend, and received and accepted their individual share as a stockholder, all in violation of section 923, Code 1906. It is averred that by force of the statute the defendants are jointly and severally liable to all creditors of the bank whose debts existed on February 17, 1912, for the said sum of nine hundred and fifty-five dollars and that the complainant, as representative of all the creditors, has the right, in his capacity or office of receiver, to sue for and recover the said sum for the benefit of the creditors entitled thereto and as a fund to be paid and distributed to them in the administration of the estate, under proper supervision of the chancery court. Separate demurrers were filed to the bill by the defendants. The demurrers were overruled, and from the decree overruling the demurrers, the chancellor granted an appeal to settle the principles of the case. The demurrers challenge the jurisdiction in equity, and submit that the remedy at law is complete; that the bill does not state any cause of action; that the receiver has not the right to maintain this suit; that the cause of action is barred by the statute of limitation of one year (section 3101, Code 1906); and that the allegations of the bill are too vague and indefinite, and do not show in detail what creditors are interested nor for what amount the alleged liability of the several defendants exists.

The first point argued by counsel is the contention that the bill seeks to recover purely a statutory penalty, and that a court of equity will not assume jurisdiction of a suit to recover penalties. The chancellor overruled the several demurrers to the bill, and thereby assumed jurisdiction of this cause; and, aside from the question whether equity has original jurisdiction of this particular cause, under section 147 of our Constitution, we could not reverse the decree of the chancellor. This constitutional provision has a manifest beneficent and remedial purpose to accomplish. There are many causes of action appearing in the twilight separating common-law and equity jurisdictions; and, when the chancery court has jurisdiction of the parties and has assumed jurisdiction of the subject-matter, this constitutional provision must be construed to mean exactly what it says, and absolutely to forbid a reversal simply because the complainant has misjudged his forum. Much valuable time of litigants and courts is wasted in a preliminary contest over jurisdiction before the real merits of the litigation are reached.

Aside from the constitutional provision, however, we cannot say that equity has no jurisdiction of this cause. Our court, in the recent case of Ventress et al. v. D. H. Wallace, Receiver, 111 Miss. 357, 71 So. 636, is committed to the holding that equity has original jurisdiction of a suit on the part of a receiver against directors of a bank for gross negligence in the discharge of their official duties. We fail to appreciate why equity should not be a proper forum for this action, instituted by the receiver of an insolvent banking establishment to recover a dividend disbursed in violation of the express provisions of the statute, and when the fund to be recovered should equitably be prorated amongst that class of creditors whose debts existed at the time the dividend was declared, and whose interests are in a large measure now represented by the receiver. This court is committed to the holding that the receiver, to a large extent, represents creditors as well as the defunct corporation, whose estate is being administered upon by him under the direction of the court. Payne Hardware Co. v. International Harvester Co., 110 Miss. 783, 70 So. 892. The liability sought to be recovered is expressly imposed by section 923 of the present Code. It provides that the directors who declared and paid such dividend "shall be jointly and severally liable to creditors whose debts then existed, to the extent of such withdrawal or dividend and interest." It is true that the right of action is given to creditors, but the liability is limited to the amount of the dividend declared and paid, and this constitutes a single fund in which many of the creditors have an equity, and should in equity be prorated amongst the several creditors beneficially interested. This can best be accomplished in a court of equity. One payment of this dividend by the directors would discharge once and for all time the liability. The declaration of a dividend when a corporation is totally insolvent impairs the capital stock, and "such a distribution of the assets of a corporation is in the nature of a fraud upon its creditors, and is remediable in equity. . . ." 10 Cyc. 883. Many of the courts hold that the personal liability of directors for declaring dividends in excess of the net profits or surplus cannot be enforced in a court of law, but that equity is the proper and exclusive forum.

"Equity has jurisdiction where the effect of the statute is to create a common fund for the security of creditors, although there may be a concurrent remedy at law." Thompson on Corporations (2d Ed.) vol. 4, par. 5078.

Our court had this statute in review in the case of Kretschmar, Receiver, v. Stone, 90 Miss. 375, 43 So. 177, and in that case expressly upheld the right of the receiver to recover from stockholders dividends paid them by the corporation when it was insolvent. It will be remembered that the statute imposes liability upon the stockholders who receive the dividend as well as the directors who declare and pay it.

In answer to the criticism that the bill does not give a list of the creditors, or show what the exact amount of their several claims is, it is sufficient to say that the bill does...