Case ID: tenn_18/html/0218-01.html
Source: Caselaw Access Project
Author: {"author": "Reese, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Blake vs. Hinkle et al.
    
    Nashville,
    December 1836.
    It is the duty of a party before he sues the stockholders of the Fayetteville Bank, to pbtain a judgment at law, if he can, against the bank, and ascertain by the issuance and return of an execution that there was no corporate property out of which his judgment could be satisfied.
    A bill against the stockholders of the bank to subject them to individual responsibility, must aver and state facts from which it will appear that no judgment could have been obtained against the bank.
    The bill stated, “that complainant was informed and believed that the business of the bank had been so fraudulently and negligently conducted, that no suit at law could be commenced against it, as the stockholders had failed and refused to elect directois, as they were required to do by the charter, and done many other acts contrary to the charter, whereby the corporation is dissolved, and by reason thereof no legal process can be served upon said corporation or its ofiiceis, if any theie he"in existence.” The hill also avers, “that if a judgment could be had it would’afford no relief, as /here was no visible effects of said bank whereon to levy an execution:” Held, that these averments were insufficient to authorise a suit ag inst the stockholder individually.
    jyjie failuiq to elect officer or directors of a bank, does not produce a dissolution of the corporation.
    On the 27th of February, 1834, a bill was filed by William C. Blake against Joseph Hinkle, William Moore, Elliott H. Hickman, Charles McKinney and William Edmonson, in which it is stated that Blake is the owner of Fayetteville Tennessee bank notes, to the amount of $650, that the business of said bank has been so negligently and fraudulently managed, that no suit at law can be brought against it, as the stockholders have failed and refused to elect directors as required by the charter, and many other acts and doings have taken place contrary to the charter, whereby they are dissolved. For the reasons above set forth, no legal process can be served upon said corporation or its officers, and if judgment could be recovered at law; nothing could be obtained. The bill refers to the charter of the bank and the requisitions thereof. It avers that the defendants are five of the stockholders of said bank, that the stock was not paid in, hut stock notes given therefor, which were renewed payable in Fayetteville bank notes, and that aftewards, in 1820, the directors passed an order, that debtors to the bank might transfer their stock in payment, and that defendants did so, and no fund was created for payment of the notes of the bank; that the endorsers upon notes due to the bank have by the negligence and mismanagement of directors been discharged, and that the bank issued the above notes in 1818. The bill prays that defendants may be decreed to pay complainant the amount due him by thebank, with interest, &c. To this bill there is a demurrer which was sustained by the circuit court.
    
      j. Campbell, for complainant, contended,
    1st. that the capital stock of the bank was to be regarded as held in trust for ■.the payment of the corporate debts. Wood vs. Summer, 3 Mason’s Rep. 308. That in this case the defendants were guilty of fraud and combination with the directors, upon which ground alone the bill could be sustained.
    2d. That the facts stated in the bill, and admitted by the demurrer, showed that the corporation was dissolved, and no suit could be instituted against it as a body politic, and that in such case a bill would lie against the stockholders. Wood vs; Summer, 3 Mason’s Rep. 408: Fose vs. Grant, 15 Mass; Rep. 505.
    
      F. B. Fogg, for defendant.
    The Fayetteville bank waá chartered by the act of 1815, c°199; amended by act of 1817, c 146, § 31, 2 Scott’s Revisal, 287, and 415, The charter does not expire until the 1st of January, 1841. See § 33 of 1817, c 146. By the second section of the charter act o'f 1815, c!99, the directors chosen, hold their seats until others are elected. The forfeiture of the charter has never been judicially declared, and the corporation is a necessary party. See Robinson vs. Smith, 3 Paige’s Ch. Rep. 222: Wood vs. Summer, 3 Mason’s Rep. 308: Angel and Ames on Corporations, 510.
    2d. By the act of 1821, c 197, see acts of that year, p; 186, alegafremedy is provided against the bank and its funds, by service of process upon the late president, cashier or any director, and demand of payment is to be made of such person or persons. This bill does not allege any presentation of the notes to the cashier, or at the banking house, 01\ to any other person, and gives no excuse why he has not brought suit for more than fourteen years. This court as a court of equity 
      has no right to proceed against individual stockholders where there is a plain remedy at law.
    3d. By the I7thand 18th article of the charter, the directors are made personally responsible at law, and there is no allegation that the corporation, as such, have refused to proceed against them.
    4th. A court of equity has no jurisdiction during the existence of a charter to enquire as to its forfeiture, or to proceed against individual stockholders. Attorney General vs. Utica Insurance Company, 2 John. Cb. Rep. 371: also Hop-kin’s Ch. Rep. 354, do. 598. It has jurisdiction to proceed against directors for afraudulent breach of trust, and make them individually responsible. 2 Paige’s Rep. p. 438.
    5th. The statute of limitations is a good bar in this suit. Kinsdalevs. Lamed, 16 Mass. 65.
   Reese, J.

delivered the opinion of the court.

Various reasons have been urged in argument, why the decree of the circuit court for Lincoln county, which sustained the demurrer filed by the defendants and dismissed the bill, should be affirmed in this court. We deem it unnecessary to consider and decide upon all the grounds. We are of opin' ion, that the bill does not sufficiently aver and show that complainant could not have obtained a judgment at law against the bank. If he could, he ought to have done so, and by the issuance and return of an execution thereon, have ascertained that there was no corporate property out of which his judgment could be satisfied, before in this court, he sought upon the grounds stated in the bill, to render the stockholders sued individually responsible. The bill upon this point states, that the complainant has been informed and believes that the business of said Fayetteville Tennessee bank, has been so negligently and fraudulently managed and conducted, that no suit at law can be commenced against it, as the stockholders of said bank have failed and refused to elect directors of said bank, as they were required to do by the charter, and done many other acts contrary to the charter, whereby they are dissolved for the reasons above set forth; by reason thereof, no legal process can be served upon said corporation, or its officers, if any there be in existence. And the complainant adds, “that a judgment could be obtained at law it would not afford as there are no visible effects of the said Fayetteville bank J whereon to levy an execution.

By the charter of the bank granted in 1815, the existence of the corporation will continue till the year 1841. No dissolution is alleged in the bill, as the result of judicial or legislative action, but the corporation is stated to have been dissolved by the non-election of officers and other acts inconsistent with the charter. The failure to elect directors or other officers, could not produce a dissolution of the corporation, nor could it prevent the institution of an action at law. For it is provided, with regard to this bank, by the act of 1821, c 197, § 5, that i n such event, demand shall be made and process served upon the late president, cashier, or any director.

There is no averment in the bill that none of those persons who had so been officers or directors of the bank exists within the reach of process from a court of common law, but the statement is, that the failure and neglect to elect directors prevents the obtainment of a judgment at law.

Upon this ground, then, we sustain- the demurrer to the bill and affirm the decree of the circuit court.

Decree affirmed.