Boyd v. Mutual Fire Ass'n

94 N.W. 171, 116 Wis. 155, 1903 Wisc. LEXIS 180

• Court: Wisconsin Supreme Court
• Decided: January 13, 1903
• Status: Published

Opinions

Cassoday, O. J.

The numerous claims made against the very numerous defendants; the variety of questions involved, and the mixed condition of the things alleged, have called for and received the very careful consideration of all the members of the court. For the delay in deciding the case the writer assumes the responsibility. Counsel for the plaintiffs have, in their brief, classified the thirteen demurrers according to the nature of the claims made against the respective demurrants, and numbered them from- one to thirteen, consecutively, as they appear in the record. Counsel for the defendants have acquiesced in such classification, and given their views in respect to the same. For convenience; and to avoid confusion, we shall keep in view such classification, but not in the order stated by counsel. The most important question presented is whether the amended complaint states a cause of action, not barred by the statute of limitations, against any of the defendants.

1. Six of the demurrers call upon us to answer the question as to whether such amended complaint states such cause of action against the parties named as demurrants who at one time held policies in the corporation. Under the repeated and recent adjudications of this court there can be-no question but that this must be regarded as a creditors’ suit, brought in equity, under the statutes, to wind up the affairs of an insolvent- corporation. Secs. 3216-3228, Stats. 1898. Such being the nature of the action, all the rights and liabilities of creditors, officers, stockholders, and members were to be worked out in this suit. Gager v. Bank, 101 Wis. 593, 77 N. W. 920; Gager v. Marsden, 101 Wis. 598, 77 N. W. 922; Foster v. Posson, 105 Wis. 99, 81 N. W. 123; Finney v. Guy, 106 Wis. 256, 82 N. W. 595; Killen v. Barnes, 106 Wis. 546, 82 N. W. 536; Gores v. Field, 109 Wis. 408, 84 N. W. 867, 85 N. W. 411; Gager v. Paul, 111 Wis. 638, 87 N. W. 875. Under such statutes the corporation was adjudged insolvent, and a receiver was appointed November 15, 1890. The statute provides :

“Whenever any corporation . . . authorized by law to make insurance shall become insolvent or unable to pay its debts or shall neglect or refuse to pay its notes or evidence of debts on demand or shall have violated any of the provisions of its act of incorporation or of any other law binding on such corporation, any court having jurisdiction may, by injunction, restrain such corporation and its officers,” etc. Sec. 3218.

The statute further provides:

“Such injunction may be issued upon the commencement of an action for the purpose of closing up the business of such corporation ... by any creditor or stockholder of such corporation, or at any time thereafter upon proof of the facts required to authorize the issuing of the same. The court may in any stage of such action appoint one or more receivers to take charge of the property and effects of such corporation and to collect, sue for and recover the debts and demands that may be due and the property that may belong to such corporation, who shall in all respects possess the powers and authority conferred and be subject to all the obligations imposed upon receivers in other cases, and in all respects be subject to the control of the court.” Sec. 3219.

So the statute further provides:

“Whenever any creditor of any corporation shall seek to charge the directors, trustees or other officers or stockholders thereof on account of any liability created by law he may commence and maintain an action for that purpose in the circuit court and may at his election join the corporation in such action.” Sec. 3223.

In such an action the statute further provides:

“If the property of such corporation shall be insufficient to discharge its debts the court shall proceed to compel each stockholder to pay in the amount due and remaining unpaid on the shares of stock held by him or so much thereof as shall be necessary to satisfy the debts of the corporation.”' Sec. 3226.

A member of such mutual insurance corporation must be regarded in a similar position to a stockholder of such association. The corporation having been adjudged insolvent, and a receiver thus appointed, the right to enforce any liability against its members thereupon accrued. Sucb, in effect, is a recent ruling of this court. Booth v. Dear, 96 Wis. 516, 519-521, 71 N. W. 816. Thus, in an opinion by Mr. Justice Bbeweb, in the federal court, it was held:

“Where an insolvent corporation ceases to do business, and assigns all its property, including unpaid stock subscriptions, to trustees for the benefit of its creditors, the liability of its stockholders at once becomes absolute, and the statute of limitations begins to run in their favor, and against such creditors and trustees, immediately.” Glenn v. Dorsheimer (C. C.) 23 Fed. 695.

If a cause of action accrued against any of such members at that time, then the statute of limitations began to run in favor of such member at that time. Secs. 4219, 4222, Stats. 1898. Thus it is stated by a standard text writer:

“Where the liability of the shareholder is immediate and primary, and not contingent on the obtaining of a judgment against the corporation, it is clear that the statute of limitations begins to run in favor of the shareholder when the debt matures against the corporation.” Cook, Stockh. (3d Ed.) p. 301, § 225.

It is held in Ohio:

“Where a company has become insolvent, and made an assignment of all its property for the benefit of its creditors, the right of the creditors, or any of them, then accrues to commence suit against the stockholders on their liability under the statute, without any prior proceeding against the company, and the statute of limitations begins to run from that time against the right of action.” Barrick v. Gifford, 41 Ohio St. 180, 24 N. E. 259.

To the same effect, Younglove v. Lime Co. 49 Ohio St. 663, 33 N. E. 234; Davidson v. Rankin, 34 Cal. 503; Stilphen v. Ware, 45 Cal. 110; Bank of San Luis Ohispo v. Pacific Coast S. S. Co. 103 Cal. 594, 596, 31 Pac. 499; Corning v. McCullough, 1 N. Y. 41; Hollingshead v. Woodward, 107 N. Y. 96, 13 N. E. 621; Washington Sav. Bank v. Butchers’ & Drovers’ Bank, 107 Mo. 133, 17 S. W. 644.

In a Michigan case it is held:

“The statute of limitations begins to run as against such right of action immediately upon the dissolution of the corporation and the appointment of a receiver.” Webber v. Hovey, 108 Mich. 49, 65 N. W. 619.

Thus it has been held in the supreme court of the United States:

“The statute of limitations is a bar to a suit, brought four years after a bank in South Carolina had permanently suspended specie payments, by a holder of its notes, to enforce-the individual liability, of the stockholders.” Terry v. McLure, 103 U. S. 442.

We must hold that the statute of limitations began to run. in favor of the policy holders in question November 15, 1890. All of such policies were issued between October 14, 1885,. and August 1, 1890. None of the defendants who joined in ,the six several demurrers mentioned were made parties to this-action until after May 8,-1900. Until they were so made parties, and the summons issued against them, the statute of limitations did not stop running in their favor; and this is-so as to each of the six groups of such defendants. This has-recently, in effect, been so decided by this court. Gager v. Paul, 111 Wis. 638, 647, 648, 87 N. W. 875. It is unnecessary to add anything to what is there said in the opinion of' Mr. Justice Dodge.

As indicated in the statement of facts, twenty-five of such policies were issued and paid for at the time of delivery in-cash, and continued for one year or less. The others, and by far the greater number, were issued on the mutual plan, and' to continue for three or five years, for which premium notes-were given, liable to assessments for losses and expenses from time to time as they accrued. This court has held, in effect,, that, where insolvency occurs during the defendant’s insurance in such mutual fire insurance company, the action of the-court, under the statutes cited, in adjudging such insolvency and granting an injunction and appointing a receiver, operates to cancel sncb policy and all other existing policies in such company. Davis v. Shearer, 90 Wis. 250, 255, 62 N. W. 1050; Dewey v. Davis, 82 Wis. 500, 52 N. W. 774. The principle upon wbicb those two cases were decided seems to-be applicable here. So there is an additional reason why the-statute of limitations began to run against all of such policy holders November 15, 1890; and the right of action was completely barred, as to them, before they were made parties to the action. The nine defendants who joined in demurrer No.

3 at one time held such cash policies which were surrendered before the expiration of the year, and it is here sought to recover from them the unearned premium. We must hold that the complaint fails to state facts sufficient to constitute a cause of action, not barred by the statute of limitations, as against such nine demurrants; and for that reason such demurrer was properly sustained. The same is true with demurrer No. 4, where it is sought to charge the non-resident demurrants with liability on such premium notes given by them for such mutual policies. The same is true with demurrer No. 5, where it is sought to charge a large number of resident demurrants by reason of assessments made upon such premium notes. The same is true with demurrer No. 6, where it is sought to-recover from such demurrants unlawful dividends paid to them at various times between 1887 and 1890. The same is true with demurrer No. 11, where it is sought to charge certain resident demurrants by reason of assessments made upon such premium notes, and also to recover back from some of them moneys paid as pretended dividends and unearned premiums. The same is true with demurrer No. 13, where it is sought to charge the demurrant by reason of an assessment upon such premium note for a. policy dated December 10, 1888.

2. Five of the demurrers call upon us to determine whether the amended complaint states facts sufficient to constitute a cause of action, not barred by the statute of limitations,. against tbe officers and directors of tbe corporation. There can be no question but that tbe allegations of their miscon.'duct and malfeasance do constitute a cause of action against them. Tbe important question is whether such cause of action is barred by the statute of limitations. Counsel for the plaintiffs claim that the cause of action did not accrue in favor of the creditors who are plaintiffs until they discovered the facts •constituting the fraud. Stats. 1898, sec. 4222, subd. 7. To this counsel for the defendants reply that, if there were any facts to prevent the running of the statute, the burden was on the plaintiffs to plead and prove them. Howell v. Howell, 15 Wis. 55; Tucker v. Lovejoy, 73 Wis. 66, 40 N. W. 627. Put there is another view of the question, which seems to be a complete answer to the contention that the statute is a bar to such cause of action. A learned and able text writer states, in effect, that the correct view, as clearly deduced from the mass of decisions on the subject, is that the officers and directors of a corporation are, in equity, trustees of’ an express trust for the benefit of shareholders and creditors, and hence •are within the principle that the statute of limitations does not run in favor of such trustees as against the cesiui que irusl. 3 Thomp. Comm. Law Corp. § 4128. That such officers and directors are such trustees seems to be well established. Simons v. Yulcan O. & M. Co. 61 Pa. St. 202; Pearson v. Concord R. Corp. 62 N. H. 537; Sweeney v. Sugar Refining Co. 30 W. Va. 443, 4 S. E. 431; Farmers’ & Mer. Bank v. Downey, 53 Cal. 466; Wickersham v. Critenden, 93 Cal. 17, 28 Pac. 788; Bank of Mut. Redemption v. Hill, 56 Me. 385; Ellis v. Ward, 137 Ill. 509, 25 N. E. 530. This court has expressly held:

“The directors and officers of an insolvent corporation are trustees for the creditors, and must manage its property and assets with strict regard to their interests.” Haywood v. Lincoln L. Co. 64 Wis. 639, 26 N. W. 184.

The trust-fund doctrine, so called, recognized in that case, must be regarded as modified so far as creditors of a going corporation are concerned. Ballin v. Merchants Ex. Bank, 89 Wis. 286, 61 N. W. 1118; Hinz v. Van Dusen, 95 Wis. 503, 507-509, 70 N. W. 657; Black v. Northwestern Nat. Bank, 103 Wis. 57, 79 N. W. 51. But there is no doubt but that the managing officers of a corporation are at all times trustees for the corporation and its stockholders, and also forth© creditors after the corporation is adjudg’ed insolvent. Id. In fact, our statute on the subject, which is much broader than in some states, provides, among other things, that:

“Express trusts may be created: . . . (5) Eor the-beneficial interests of any person or persons when such trust is fully expressed and clearly, defined upon the face of the-instrument creating it.” Stats. 1898, sec. 2081, subd. 5.

The trust in the case at bar was necessarily and from the-very nature of the corporation, “fully expressed and clearly defined” in the articles of incorporation. We must hold that the officers and directors of the association were trustees of an express trust. It follows that the'statute of limitations did not run in their favor against the creditors of the corporation. This court has expressly held:

“The statute of limitations has no application in the case of an express trust where there has been no denial or repudiation of the trust.” Bostwick v. Dickson’s Estate, 65 Wis. 593, 26 N. W. 549; Williams v. Williams, 82 Wis. 393, 399, 52. N. W. 429; Fawcett v. Fawcett, 85 Wis. 332, 55 N. W. 405; Taylor v. Hill, 86 Wis. 99, 106, 56 N. W. 738.

Counsel for the defendants cite a large number of cases-said to be to the contrary, but, so far as'we have examined them, they are in actions by the corporation, or its receiver, or-are otherwise inapplicable or distinguishable. We must hold that the statute *of limitations did not run in favor of any of' such officers or directors. The result is that the amended' complaint states a good cause of action against the two defendants who joined in demurrer No. 1, since both were directors and one was treasurer. The same is true as to the-defendants who joined in demurrer No. 7, including the ex■ecutors of tbe will of D. R. Moon, deceased; and also tbe defendants wbo joined in demurrer No. 8, including tbe administrators of tbe estate of George B. Shaw, deceased; and •also tbe defendants wbo joined in demurrer No. 10; and also tbe defendants wbo joined in demurrer No. 12, including tbe executors of tbe will of Ralph E. Rust, deceased, — since in -eaeb case such defendants were sought to be charged as officers and directors, or simply as directors, or as tbe representatives of such officers and directors. We perceive no good reason why such executors and administrators stand in any ■different position as to tbe statute of limitations pleaded than fbe deceased officers whom they represent. True, tbe defendants wbo joined in each of tbe two demurrers last named were ■only directors from October 15, 1885, to January 13, 1886, but they were liable for whatever malfeasance they were .guilty of while in office, notwithstanding they bad ceased to be directors before tbe commencement of tbe action. 1 Mor. Priv. Oorp. § 563. Tbe mere fact that tbe amended' complaint seeks to charge tbe two defendants wbo joined in demurrer No. 1 as members of tbe corporation, upon which -claims the statute of limitations bad run, does.not prevent their being held liable as directors.

“A demurrer to tbe entire complaint is properly overruled where it is not good as to one of tbe causes of action stated.” Pinkum v. City of Eau Claire, 81 Wis. 301, 51 N. W. 550.

So it is held:

“Where a complaint states a good cause of action as to certain failures of duty on tbe part of defendant, a general demurrer thereto will not be sustained merely because it attempts, but fails, to state other failures of duty.” Drefahl v. Connell, 85 Wis. 109, 55 N. W. 160.

Each of tbe five demurrers last mentioned is based upon •another ground, which will hereinafter be considered, and may be sustained.

3. A large number of tbe members of tbe corporation, in cluding tbe Northwestern Lumber Company, joined in de•murrer No. 2. Tbe Northwestern Lumber Company was one -of the plaintiffs which, commenced the action November 1-3, 1890; and May 8, 1900, by order of the court, it was made ■defendant instead of plaintiff. Manifestly, the statute of limitations did not run in favor of that company, since it has "been a party to the action ever since the suit was first commenced, — more than eleven years ago. This being so, the .•amended complaint stated a good cause of action against that •company. Thus it appears that one of the demurrants against whom a good cause of action is stated is joined with a large .■number of members of the corporation in whose favor the •statute of limitations had run. This court has repeatedly held:

“A joint general demurrer to a complaint for insufficiency ■on behalf of several defendants is bad if the complaint states •a cause of action against any one of them.” Mark Paine Lumber Co. v. Douglas County Imp. Co. 94 Wis. 322, 325, 68 N. W. 1013, and cases there cited.

The result is that we must hold that the amended complaint •states a cause of action against the defendants who joined in -demurrer No. 2. But that demurrer is based upon another •ground, which will hereinafter be considered, and may be ■sustained. It will be observed that each and every of the twelve causes of action mentioned was in favor of the creditors of the corporation.

4. The remaining demurrer, No. 9, is interposed by James A. Smith, who was appointed receiver November 15, 1890, but who was never an officer or director of the corporation. The amended complaint seeks to charge him with having, prior to May 15, 1891, and while he was such receiver, wrong-fully converted to his own use $500 belonging to the corporation; and also with having obtained; without consideration, on November 12, 1890, and before his appointment as receiver, $281.13, belonging to the corporation, and converting the same to his own use; and also with gross misconduct in managing the receivership, whereby large sums of money were lost to the corporation. The facts alleged in the amended complaint are sufficient to constitute a cause of action against James A. Smith and in favor of the receiver Boyd, but not in favor of the creditors of the corporation. It therefore stands as an independent action in favor of the receiver and against Smith. His demurrer, however, like the other demurrers, is based upon another ground, which will now be considered.

5. Each of the several demurrers is in part upon the ground that it aj>pears upon the face of the amended complaint that several causes of action have been improperly united. As indicated, the amended complaint fails to state facts sufficient to constitute a cause of action as against the defendants named in any one of the six demurrers first considered. It is well settled that they are not to be considered in determining whether several causes of action have been improperly united. Bassett v. Warner, 23 Wis. 673; Truesdell v. Rhodes, 26 Wis. 215; Willard v. Reas, 26 Wis. 540; Lee v. Simpson, 29 Wis. 333; Schiffer v. Eau Claire, 51 Wis. 385, 8 N. W. 253; Hiles v. Johnson, 67 Wis. 517, 30 N. W. 721. It is only where the complaint states two or more good causes of action that a demurrer will lie for misjoinder. Id. As indicated, the amended complaint states a good cause of action in favor of the creditors and against the defendants named in six of the demurrers', and also states a good cause of action in favor of the receiver Boyd and against the defendant James A. Smith. Is this independent cause of action in favor of Boyd properly joined with the causes of action in favor of the creditors? Under the repeated rulings of this court we must answer in the negative. Barnes v. Beloit, 19 Wis. 93; Pier v. Fond du Lac Co. 53 Wis. 432, 10 N. W. 686; Shanahan v. Madison, 57 Wis. 276, 283, 15 N. W. 154; Linden Land Co. v. Milwaukee E. R. & L. Co. 107 Wis. 493, 508, 509, 83 N. W. 851. It follows from what has been said, that demurrers numbered 1, 2, I, 8, 9, 10, and 12 were each and all properly sustained, but only upon the ground that several causes of action are improperly united.

By the Court. — The appeal from the order of the circuit court refusing to state the grounds upon which such demurrers were sustained is dismissed. The several orders of the circuit court sustaining such demurrers are each and all affirmed, and the cause is remanded for further proceedings according to law.

On motion of respondent a rehearing was granted September 23, 1902, and the cause was reargued October 24, 1902.

L. A. Doolittle, for the appellants.

C. F. Bundy, for the respondents.

The following opinions were filed January 13, 1903:.