Zinc Carbonate Co. v. First National Bank of Shullsburg

79 N.W. 229, 103 Wis. 125, 1899 Wisc. LEXIS 178

• Court: Wisconsin Supreme Court
• Decided: April 25, 1899
• Status: Published

Opinion

Marshall, J.

The complaint in this case appears to be free from novelty except for the magnitude of the fraudulent scheme set forth, its completeness, the boldness with which it was consummated, and the fact that a national bank was one of the guilty parties. But, waiving for the moment the question of whether a corporation can be charged as such in the form attempted in the complaint, no reason is perceived by reading such complaint why it is open to the objections raised by the demurrer. The well-known ability of the judge-who passed upon the complaint below precludes belief that he condemned it except upon some well-defined theory of insufficiency within the scope of respondent’s objections. What that theory was is not disclosed by the order, or in the return, or discoverable by our own reading of the pleading. The appellant has favored us with the result of much research and learning upon the theory that the learned circuit court condemned the complaint because the wrongful acts charged, though sufficient to bind a natural person, are not to bind a corporation in a matter beyond the scope of its corporate powers. This and other courts have so often held that a corporation cannot violate its charter for pecuniary gain and retain the benefits of its illegal conduct by putting up the shield of ultra vires, or a person set himself up as the champion of the state in a court of justice to either punish or defend a corporation by an appeal to such doctrine in order to enable him or it to obtain or retain an unconscionable advantage, that we may safely reject the idea that it was thought a contrary view ruled the issue of law in the case adversely to appellant. The doctrine of ultra vires is a most powerful weapon to keep private corporations within their legitimate spheres and to punish them for violations of their corporate charters, and it probably is not invoked too often; but to place that power in the hands of the corporation itself, or a private individual, to be used by it or him as a means of obtaining or retaining something of value which belongs to another, would turn an instrument intended to effect justice between the state and corporations into one of fraud as between the latter and innocent parties. Such is the .modern doctrine, evolved and settled in the progress of events, reaching from the time when private corporations were few and the doctrine of ultra vires invoked quite as freely as to them as to public corporations, to.a time when substantially all restrictions to the formation of such private bodies were removed, and they were authorized and commenced to exist, great and small, everywhere, for the purpose of conducting almost every kind of legitimate business. If such a body transcend its powers it commits a wrong against the state, and ordinarily it is for the state, only, to call it to account for such violation. John V. Farwell Co. v. Wolf, 96 Wis. 10; Winterfield v. Cream City B. Co. 96 Wis. 239; McElroy v. Minnesota P. H. Co. 96 Wis. 317; Hubbard v. Haley, 96 Wis. 578; Davis v. O. C. R. Co. 131 Mass. 258; Bensiek v. Thomas, 66 Fed. Rep. 104; Railway Co. v. McCarthy, 96 U. S. 258; Wright v. Pipe Line Co. 101 Pa. St. 204; Nashua & L. R. Corp. v. B. & L. R. Corp. 164 Mass. 223.

With what has been said we may dismiss from consideration the doctrine of ultra vires as affecting this case, and it is so near akin to the idea that a corporation cannot commit or be liable for a tortious act that we will spend no time on that. Counsel for respondent freely admit that a corporation may be liable for a tortious act and as a co-conspirator in a scheme to commit fraud, but insist that unless the fraud be a wrongful means resorted to, to accomplish something which the corporation has a lawful right to do by lawful means, fraud cannot be attributed to it unless its officers or agents who assumed to act in its behalf were specially authorized to so act, and that a statement of the cause of action to remedy such a wrong requires the special authorization to be pleaded. We need not, for this appeal, determine whether the special authorization is necessary. If it be admitted, for the purposes of the discussion, that such is the case, yet the complaint charges that the corporation did the wrongful acts. That is repeated over and over again. How it became involved in the transactions complained of is a matter of proof in respect to which an issue need not necessarily be tendered by the complaint. If the allegations charging the corporation are open to any criticism, it is upon the ground of indefiniteness to be reached by motion and not by demurrer. From the allegation that the corporation conspired with Savage and Hayden, it is reasonably inferable that everything was done by its governing body necessary to the authority of those who assumed to act in its behalf. Necessary facts, reasonably inferable from those pleaded, under our liberal rules of pleading, must be considered as pleaded by way of such inference. Miller v. Bayer, 94 Wis. 123. It may properly be said, in addition, on this point, that the complaint fairly shows ratification by the corporation of the scheme entered upon and carried out in part by its officers and agents assuming to act in its behalf with knowledge of the facts. That is sufficient to render it liable by ratification, the same as if such officers and agents were originally authorized to represent and act for it.

The foregoing covers the ground upon which the demurrer was sustained below, so far as it can be discovered from appellant’s brief, but respondent calls our attention to several other supposed defects, most of which, we apprehend, did not receive attention below because not there suggested; yet as the demurrer must be sustained here if sustainable at all, though the point which ruled the matter in the original jurisdiction be untenable,— a practice quite unfair to a trial-court, though' too well intrenched in’ our system to be disturbed,— all the points made by respondent’s counsel have , received careful attention, yet without discovering any cause for condemning the complaint on any of the grounds stated, in the demurrer. The more important of respondent’s suggestions will be treated in detail.

It is said the complaint alleges that Savage and Hayden, as officers of plaintiff, bought the mill property for the nominal consideration of $13,000, while they paid the bank therefor only $3,000.; that the conspiracy alleged was to sell the property, and the bank is not shown to have been connected with that. That overlooks the matters of inducement pleaded, to the effect that the bank, at the time the alleged fraudulent scheme was made, owned the worthless mill property which it had acquired, in due course of business in efforts to collect a bad debt, and that it became a party to such scheme as a means to collect its money, and, incidentally, to obtain fraudulent gains, and that when the complaint comes down to the fraudulent agreement it is alleged that tbe sale of the mill plant was to plaintiff for $10,000 more than it was worth and more than the cost to the conspirators, and that it was a part of the fraudulent agreement that Savage, the cashier of defendant, and Hayden, should obtain control of the proposed corporate organization, its books and papers, and then, while ostensibly handling its business in the interest of the-corporation, consummate the pre-arranged plan to swindle it for the benefit of all the defendants, and to manipulate its records so as to hide the facts. It needs no extensive discussion to show that the allegations which follow, to the effect that the scheme was consummated, are laid definitely within the original plan, to which it is very clearly alleged defendant bank was a party. The argument of counsel on this point, that at most the alleged conspiracy was to sell and that the allegations as to consummation include only Savage and Hayden, by charging that they, as officers of the defendant, bought, and that the two acts are not connected, hardly bears the test of reasonable analysis. The story told is, plainly, that Savage and Hayden, acting for the conspirators, pursuant to the agreement to sell the mill plant and the mine to the appellant, in a way to, fraudulently, secure gains for such conspirators, of which it is plainly said, over and over again, the bank was one, purchased the property for the corporation so as to make such gains to the amount of $10,000.

Again, it is suggested that as to the mine the allegations regarding the bank’s connection with it are subject to the same infirmity as those in regard to the mill plant, and that, as defendants obtained the option on the mine before the organization of plaintiff was thought of, they had a right, without fraud, to sell it in good faith at an advance. What has been said as to the alleged connection of the bank with the fraudulent sale of the mill plant, applies equally as well to the sale of the mine. True, if defendants or the bank owned the mine, either one or all had a right, acting in .good faith, to sell it at an advance, but the mischief of the matter was,., according to the complaint, that neither the bank nor either of the defendants acted in good faith. The bank did not own the mine, neither did the defendants. Savage and Hayden occupied positions of trust and confidence as to the subscribers to the stock of the corporation in the first instance, and after its organization they occupied such positions in regard to it as directors and officers. In that situation, for Hayden and Savage to pretend that the mine was the property of third persons and could be bought only for $1,000, while they and the bank secretly, controlled the right to purchase it for $2,-000 less, and, by thát means, acting for the buyers ostensibly, but secretly for the sellers, of whom the bank was one, to make the sale of the property to appellant, rendered all of the defendants'liable to refund the profits they made out of the transaction and without reference to the proportion which each received of the fruits of the fraud; and an equitable action to charge them as trustees of their ill-gotten gains and to compel an accounting for and restitution of the same, was proper, though not the exclusive remedy for the wrong. Fountain Spring P. Co. v. Roberts, 92 Wis. 345; Franey v. Warner, 96 Wis. 222; Hebgen v. Koeffler, 91 Wis. 313.

On that branch of the case which respondent treats as a separate cause of action to avoid a judgment, it is said that the neglect of Hayden, the secretary of plaintiff, to defend, was neglect of the corporation, and his knowledge its knowledge, therefore equity will not grant relief, citing Nye v. Sochor, 92 Wis. 40. That was a case involving the question of mere neglect. If an agent merely neglect the principal’s business, action or nonaction of the former constituting such neglect will be attributable to the principal. But the idea that an agent can collude with a third person to bring about such neglect for the purpose of obtaining the principal’s property for the joint benefit of the agent and such third person, and then shield themselves behind the doctrine that neglect of the agent is neglect of the principal, is not worthy of serious consideration. The mere statement of it is sufficient to show its absurdity.

Further, as to the supposed separate cause of action, the point is made that under the Code of this state circuit courts have jurisdiction of what were formerly suits in equity, as well as actions at law, all distinctions between such suits and actions having been abolished, and that, under the new system, a direct action to open or vacate a judgment will not lie; that the only remedy is by petition at the foot of the judgment, and that in such a proceeding other parties may be brought in. To that point Stein v. Benedict, 83 Wis. 603, is cited. That was a case commenced in the circuit court to restrain the enforcement of a judgment rendered in another such court against one defendant who was really surety for another defendant who was solvent. There- was no question but that the judgment was properly rendered, and that the judgment creditor was legally and equitably entitled thereto. The complaint was merely of the inequitable use of the judgment in that threats were made to collect it out of property of the surety instead of that of the principal. The court decided that the action would not lie, first, because one circuit court will not restrain the enforcement of a judgment rendered in another circuit court.; second, because relief was obtainable by motion in the action in which the judgment was rendered. Said Justice PiNNEY, who wrote the opinion, in substance, the power of the court in which the judgment was rendered to grant the relief by petition, in cases Uke this, is wndoubted. The authorities cited to support that statement clearly indicate that the court had in mind only situations involving the inequitable use of a valid judgment, one free from attack originally, not one claimed to be invalid because of fraud in its rendition. Among the citations is Platto v. Deuster, 22 Wis. 482, where the wrong complained of was threatened enforcement of a judicial sale by writ of assistance against a person not bound by the judgment upon which the sale was based. Cardinal v. Eau Claire L. Co. 75 Wis. 405, is another, where the wrong sought to-be prevented was a second collection of a judgment, it having been once paid but not satisfied. What was said in the-Stein Case, and others of its class, particularly Endter v. Lennon, 46 Wis. 299, about applying by petition in the original cause, must not be read as authorizing such a proceeding to attack and annul a judgment on the ground of fraud or to prevent its enforcement on that ground, the fraud, reaching back to and entering into the proceedings which resulted in the judgment. There were some observations-made in the Stem Case, about the filing of a petition and its-having the nature of a cross bill or supplemental bill and the bringing in of new parties and there being substantially a new trial and the entry of a new or supplemental decree, referring to secs. 2610, 2883, R. S. 1878. What was thus said was outside the case. Such sections refer to the bringing in of parties, the formation of issues and the entry of judgments, so as to settle by a single decree the rights of all parties,— not to proceedings to review a judgment already entered. The method provided by the Code for opening a judgment, and for further proceedings in the cause, is exclusive. After the time limited by statute has expired, relief against a judgment on the ground that it ought not to-have been rendered, for some cause not presented and passed upon by the court, must be obtained by an independent auction in equity. Crowns v. Forest L. Co. 102 Wis. 97. In such independent action the complaint may be spoken of as a bill in the nature of a bill of review, in the sense that it is the-pleading on the part of a plaintiff to accomplish, in effect, the-purpose of the former bill of review. Strictly speaking bills-of review and bills in the nature of bills of review, as such pleadings were known to the old chancery practice, are not. known to the Code. The statutory method, by motion, for •opening a judgment after the term, at which it was rendered, in order to obtain relief from fraud or mistake, is regulated by sec. 2832, Stats. 1898, limiting the time to one year after notice of the judgment, and sec. 2879, which authorizes a new trial to be granted on an application made in whole or in part upon newly discovered evidence, within one year from the verdict or finding. This court said in Whitney v. Karner, 44 Wis. 563, overlooking sec. 2879, which was then new: “ A circuit court has no power to set aside its own judgment after the term at which it was entered, except where the judgment is void, or to correct clerical errors, •other than under the power granted by sec. 38, ch. 125, R. S. 1858,” now sec. 2832, Stats. 1898. The two sections referred to cover the only ways provided by the Code for the reopening of a cause after the judgment and the term, on account of matters not of record, and a retrial on the merits. But that does not militate at all against the power of the court by motion to prevent the inequitable use of a valid judgment, as instanced in case of an attempt to collect a judgment twice and the case of an attempt to collect the judgment of a surety where there was ample property in sight belonging to the principal out of which it could be readily collected. 'To such situations Endter v. Lennon and Stein v. Benedict apply. Neither does the limitation upon proceedings by motion to open a judgment upon some ground going to the right of plaintiff to the relief granted, militate at all against jurisdiction in equity to protect a person from a judgment obtained against him by fraud. So, if the facts upon which it is sought to avoid the effect of the alleged fraudulent judgment in this case constitute a pretended separate cause of action, the court has jurisdiction of it and of the parties, and obviously there is no defect of parties. Whether the relief sought in regard to the judgment is the proper relief, or whether the prayer suggests relief beyond the power of the court, it is not necessary here to decide. It is sufficient, on the demurrer, that the facts pleaded warrant substantial equitable relief as to the alleged fraudulent judgment.

The last two .points need not necessarily have been treated, because, in our view of the complaint, the pleader did not attempt to, and did not, state more than one cause of action. Such points are discussed because the subject covered is likely to have some material bearing on further proceedings in the cause. There is but one subject of action, — the conspiracy to defraud and its consummation to the damage of plaintiff. All the allegations of fact are parts of the presentation of that one subject. The test of whether there is more than one cause of action stated or attempted to be stated in a complaint is not whether' there are different kinds of relief or objects sought, but whether there is more than one primary right sought to be enforced or one subject of controversy presented for adjudication. Gager v. Bank of Edgerton, 101 Wis. 593; Bassett v. Warner, 23 Wis. 673. Measuring the complaint before us by that inflexible rule of equity pleading, it is easily seen that there is but one primary right which plaintiff is endeavoring to have vindicated, and that is the right to reimbursement for the damages which the corporation has suffered by the alleged consummated fraudulent scheme of defendants.

What has been said leaves nothing more that occurs to us which can be profitably discussed or need be decided. The complaint seems to be free from any of the objections urged against it by respondent and the demurrer to have been improperly sustained.

By the Court.— The order appealed from is reversed, and the cause remanded for further proceedings according to law.