The Saint Paul globe. (St. Paul, Minn.) 1896-1905, 1898-10-31
HELD HIN LIABLE
Continued From First Page.


cages and other securities, the issuance and
sale of bonds or other evidence of indebted
ness, and the guaranteeing OF the payment
of notes, mortgages and other securities
that on May IS, 1893, It was insolvent and
made assignment for the benefit Of its cred
itors; that its Indebtedness was then $780,
000 besides mortgage of $4,000 on the
building in Minneapolis known as the Guar
enty Loan Building, and once owned by it.
1t is further alleged that over 81 900 Of this
Indebtedness consists of the so-called de-
benture bonds, to secure which collateralS
were deposited with trustees in amounts
somewhat in excess of the amount Of the
debenture bonds at the time they were issued
by the company; that three-fourths OF these
coNaterals were worthless notes and mort
cages made by Louis +. Menage, the president
of the company, or by irresponsible persons
procured by him to make them for his bene-
fit; and that the company turned over the
proceeds of the bonds to Menage for his own
use and benefit. 1t is further alleged that,
besides the debenture bonds, over So, 100000
of said Indebtedness consists of guarantees OF
the company on commercial paper disposed
of by it; that over S2,50O,000 of this paper
was made by irresponsible PARTS; and that
none of the proceeds of the pa ser was ever
paid to the makers thereof, but all such pro-
ceeds were paid to Menage, for his own use
and benefit.
HAD FULL NOTICE.
cit is further alleged that each and all
Of the defendants, except the company, are,
and for mere than three years before it made
said assignment, were, stockholders and mem
bers OF the board OF directors Of said COM
pany, and had full notice and knowledge of
the manner in which the business of the
company was being carried on; that the
company was insolvent during ell of that
time, and the directors knew, by the eXer-
else of reasonable care should have known it,
and that during all that time they held the
company out to the world a solvent insti-
tuition, and induced plaintiff and others to
deal with it as such; that on June so, 1892,
and in IlnR GO Ipnaf rI~.
did declare, and, Immediately after each of
said times, pay, semi-annual dividend of
$4,000 upon the capital stock of said COM
pany to themselves and other stockholders,
amounting in all to 100000. 1t is a!s0 al
legged that Menage is insolvent, and has abb
seconded.
HAD HIM EITHER WAY.
''There are two grounds stated, either Of
which would support an action for such neg
lgent unfaithfulness:
''First-lt Is to be gathered from the COM
plant that by the negligence and unfaithful-
ness Of the defendant directors the company
was, for three years after it became insol-
vent, held out to the world as solvent and
fit to be trusted; that, by reason Of such
negligence and unfaithfulness, plaintiff was
at the end CT said three years, induced to,
and did, trust it, and in consequence thereof
lost the money he paid it; that If said di-
properly performed their duties they would
long before plaintiff was so induced to trust
II, nave QiSc0Ver6Q us insolvency, ana caused
1t to suspend business.
PERMITTED THE FRAUD
'Second-It is to be gathered from the COM
plant that these directors negligently per-
mitted the other officials of the company
to practice a system OF fraud on persons
dealing with the company, which fraud con-
sisted in guaranteeing the notes of irresponsi-
bic persons, and selling them to innocent
parties by means of false representations
that the same kind of fraud was prac!iced
on plaintiff; that the defendant directors
either had knowledge Of these things, or
were negligent in falling to have such knowl-
edge; that If said directors had exercised
ordinary care, and properly performed their
duties, they would, long before plaintiff was
SO defrauded, have discovered these fraud{1-
lent practices and put stop to them
We are all of opinion that under section
$500 superior officer of corporation is liable
to its creditors for loss caused by the failure
OF such superior. officer to properly superir-
tend the acts Of its inferior officer or off,
GERS under his control, and that such su-
perior officer is liable not only for the loss
caused by such failure but for the whole
debt of the creditor thereby specially In
jured. -
For the reasons stated, we are OF the
opinion that the plaintiff is entitled to main
tain this action to recover the amount of his
| debt, and that it was error to sustain the
demurrer to the complaint