Platner v. Hughes

• Citation: 206 N.W. 268,200 Iowa 1363
• Decision Date: 15 December 1925
• Docket Number: 36399
• Parties: GEORGE W. PLATNER, Appellant, v. J. F. HUGHES et al., Appellees
• Court: United States State Supreme Court of Iowa

206 N.W. 268

200 Iowa 1363

GEORGE W. PLATNER, Appellant, v. J. F. HUGHES et al., Appellees

No. 36399

Supreme Court of Iowa, Des Moines

December 15, 1925

Appeal from Pottawattamie District Court.--THOMAS C. WHITMORE Judge.

ACTION at law, brought by the plaintiff as a creditor of a corporation, against the defendants, as officers and directors of such corporation, to recover the amount of the corporate indebtedness from such defendants, under the provisions of Section 1622 of the Code of 1897, and Section 8380 of the Code of 1924, on the ground that said defendants had knowingly consented to an indebtedness of the corporation in excess of the legal limit. The defense was a general denial, and a somewhat specific denial of the right of the plaintiff to maintain an action at law in his own behalf. At the close of the evidence, the trial court directed a verdict for the defendants, which, in effect, dismissed the plaintiff's case. The plaintiff has appealed.--Modified and affirmed.

Modified and affirmed.

Kimball Peterson, Smith & Peterson, for appellant.

George Wright and A. G. Kistle, for appellees.

EVANS J. FAVILLE, C. J., and ALBERT and MORLING, JJ., concur.

OPINION

EVANS, J.

I.

It is made to appear that the plaintiff was a creditor of the Standard Manufacturing Company, an alleged corporation, to the amount of more than $ 23,000. After such indebtedness was incurred, such corporation was adjudged bankrupt. Its assets, totaling about $ 51,000, were applied as a dividend upon its indebtedness, amounting to about $ 225,000. Plaintiff alleged that the corporation was organized upon a paid-up capital of $ 20,000, and no more; that the defendants were its directors and general managing officers; and that they knowingly incurred the indebtedness in excess of the limits permitted by statute. The statute upon which the suit is predicated provides:

" If the indebtedness of any corporation shall exceed the amount of indebtedness permitted by law, the directors and officers of such corporation knowingly consenting thereto shall be personally and individually liable to the creditors of such corporation for such excess." Section 1622, Code of 1897 (Section 8380, Code of 1924).

The principal question presented to us is one of construction of the foregoing statute. The contention of the plaintiff is that such statute subjects the consenting director to an action at law by every creditor to the extent of the excess of indebtedness over the legal limit. The contrary contention by the defendants is that the liability thus created is one in favor of the creditors collectively, and that the enforcement of such liability creates a trust fund in which all creditors become potential beneficiaries; that such liability can be adjudged and enforced only in equity, and in a proceeding wherein all creditors have an opportunity to be heard. The argument for the plaintiff is that he has no interest or concern in the claims of other creditors; that his claim will be neither greater nor less on account thereof; that his rights are fixed by the express terms of the statute; and that the enforcement of such rights works no prejudice to any other creditor. This argument has in it much plausibility. It appears, however, that statutes virtually identical with ours are, and have been, in force for many years in many states of the Union, and that these statutes have been quite uniformly construed in accordance with the contention of the defendants. The Federal statute, substantially identical, has been so construed by the United States Supreme Court. Such, also, has been the holding in Illinois, in New York, in Massachusetts, in Tennessee, in Vermont, and in California. No case is cited to us, holding to the contrary, unless it be that of Patterson v. Stewart, 41 Minn. 84, wherein the case under consideration is distinguished in its facts from the holdings of other courts to which we here refer. In the following division hereof, we shall set forth a few excerpts from the opinions of other courts which will sufficiently indicate the ground upon which the holding is made. Sufficient here to say that the cases are predicated on the theory that the underlying purpose of the statute is to provide a remedy which shall be applied alike to all creditors who come within its provisions; that the enforcement of the liability created by the statute presumptively involves an accounting both as to the extent of relief to which each creditor is entitled and to the extent of liability to which each managing officer or director is subject; that it involves also a question of equitable distribution of the sums which may be realized by the enforcement of the statute; that one creditor should not be permitted to absorb the solvency of those who are thus subject to liability; that such a course would presumptively result in a race of creditors which would operate to the detriment of the great body of creditors and to the detriment of their debtors as well; in short, that this statute is not intended as a prize in a race of creditors, and its remedy is not to the swift, to the exclusion of another having equal equity; but that the statutory liability thus created is deemed a constructive asset of the bankrupt corporation. As such, it becomes available for distribution, subject to any particular equity which may prevail in favor of any particular creditor. It might be an interesting query whether this remedy could have been pursued by the trustee in bankruptcy.

II. This division will be devoted to the quotation of excerpts from the opinions of other courts on this subject.

In Hornor v. Henning, 93 U.S. 228, 23 L.Ed. 879, the United States Supreme Court construed the following Federal statute:

"If the indebtedness of any company organized under this act shall at any time exceed the amount of its capital stock, the trustees of such company assenting thereto shall be personally and individually liable for such excess to the creditors of the company."

The holding in that case is indicated by the following syllabus thereof:

"1. That an action at law cannot be sustained by one creditor among many for the liability thus created, or for any part of it, but that the remedy is in equity.

"2. That this excess constitutes a fund for the benefit of all the creditors, so far as the condition of the company renders a resort to it necessary for the payment of its debts."

In Stone v. Chisolm, 113 U.S. 302, 28 L.Ed. 991, 5 S.Ct. 497, the same court said:

"To ascertain the existence of the liability in a given case requires an account to be taken of the amount of the corporate indebtedness, and of the amount of the capital stock actually paid in; facts which the directors, upon whom the liability is imposed, have a right to have determined, once for all, in a proceeding which shall conclude all who have an adverse interest, and a right to participate in the benefit to result from enforcing the liability. Otherwise the facts which constitute the basis of liability might be determined differently by juries in several actions, by which some creditors might obtain satisfaction and others be defeated. The evident intention of the provision is that the liability shall be for the common benefit of all entitled to enforce it, according to their interest, an apportionment which, in case there cannot be satisfaction for all, can only be made in a single proceeding, to which all interested can be made parties. The case cannot be distinguished from that of Hornor v. Henning, 93 U.S. 228, 23 L.Ed. 879, the reasoning and result in which we reaffirm. It is immaterial that in the present case it does not appear that there are other creditors than the plaintiffs in error. There can be but one rule for construing the section, whether the creditors be one or many. To the question certified, therefore, it must be answered that an action at law will not lie, and that the only remedy is by a suit in equity."

Construing an identical statute in the state of Illinois in Low v. Buchanan, 94 Ill. 76, the Supreme Court of that state said:

"The right of appellant to recover in the action instituted by him in based upon the hypothesis that, where a corporation...