Court Opinion

ID: 7129562
Source: CourtListenerOpinion
Date Created: 2022-07-24 15:17:18.374059+00
Date Added: 2024-06-11T16:14:25.104234
License: Public Domain

Judge Simpson
delivered the opinion of the court:
On the first of November, 1851, the Lexington Fire, Life and Marine Insurance Company made an assignment of the whole of its effects to R. A. Buckner, in trust, to pay off the debts of the company according to the order therein specified.
In the spring of 1849, and previous to that time, the company had declared several semz-annual dividends of what was deemed by the board of directors to be its profits, some of which dividends were credited upon the notes which had been executed by the stockholders for the payment of their stock subscriptions.
This action was brought by Page & Richardson, who claim to be the creditors of the company for advances made by them in the payment of losses, *437and for their commissions in acting as the agents of the company.
The plaintiffs, in their petition, presented their claim to relief in a double aspect, They attempted to impeach the validity of the assignment to Buckner on the ground of fraud; but, if the deed be valid, they prayed that they might have the benefit of its provisions so far as they would operate in their favor. They also charged that the dividends which had been declared by the company were illegal, having been made when in fact there were no profits to divide; and prayed that the stockholders might be compelled to refund enough thereof to pay their demand, unless the right to reclaim them had passed to the trustee, in which event they prayed that he might be required to collect them and account for them as part of the assets of the. trust. The insurance company, Buckner the assignee, and the individual directors and stockholders who declared and received the dividends, were all made defendants to the petition.
By an amended petition, the plaintiffs alledged that they had not discovered the illegality of the dividends until within five years next preceding the commencement of the action.
The defendants filed separate demurrers. The President, directors and trustee, also answered and denied that the deed of trust was fraudulent. The trustee insisted that the right to reclaim these dividividends passed to him by force of the assignment. The stockholders denied the illegality of the dividends, and set up the following grounds of defense in the event that they should be adjudged to have been illegally declared.
They relied upon the statute of limitations : presented various demands against the company, for which they claimed credit by way of set-off, and denied that the plaintiffs were in a position to entitle them to a judgment against them, inasmuch as a *438court of equity had no jurisdiction, upon the allegations contained in the petition.
The circuit court overruled the demurrers; adjudged that the assignment was valid; that the dividends were illegal; that the right to reclaim them did not pass to the trustee; that the statute of limitations was no bar to their recovery; and that the court had jurisdiction to subject them directly to the payment of the plaintiffs’ demand; but that the stockholders had a right to retain out of the dividends any demands they had acquired against the company before this action was instituted.
From this judgment the defendants have appealed, and the plaintiffs have prayed a cross-appeal.
The validity of the assignment to Buckner is the first question that we will consider.
The extrinsic evidence of fraud is so very slight, and is so far from sustaining the charge, that we do not deem it necessary to make any further reference to it. Indeed, the principal objection made to the assignment is, that it. furnishes on its face, as is contended, intrinsic evidence of a fraudulent intent.
Previous to the execution of the deed of trust to Buckner, many of the stockholders had advanced to the company, either in money or negotiable paper, twenty-five per cent, on the amount of their stock, to enable it to continue its business. The advancements thus made were treated as debts by the company ; their payment was secured in the deed of trust, and precedence given to them over numerous other demands held by other creditors. It is contended that these advancements were made by the stockholders as such, and should not have been considered as debts due by the company, but as part of the capital advanced by the stockholders, on which the company was to operate for their benefit. And further, that the stockholders were in reality trustees, and having, in the management of the trust, previously converted to their own use a larger amount of the trust funds than the sums advanced *439by them, that under these circumstances the deed of trust made to secure the repayment of these advancements was fraudulent and illegal.
1. A stockholder in a corporation may deal with the company as an individual, and become a creditor as any other individual, and may be secured as a preferred creditor in an assignment by the corporation, without, on that account, incurring the imputation of fraud.
This argument is fallacious in several of its assumptions. The capital of the company consisted in the amount paid for stock by the shareholders, and any money which they advanced to it beyond that which was due on their stock, became in reality a debt. Although called an advancement, it was substantially a loan, and was so regarded by the parties. And as it was made to enable the company to pay off debts which it had incurred, so that it might sustain its credit and carry on its business, it constituted a debt as meritorious in every respect as any other demand against the company. The stockholders, instead of being trustees, were substantially the cestui que tnsts. They furnished the capital which was to be used and managed by the board of directors for their benefit and advantage. They were not trustees in any sense of the term. Individually they had as much right to deal with the company as third persons. They could contract with and sue the company, and in all other respects deal with it as if they' were strangers. The board of directors did not derive its authority from them, nor act, properly speaking, as their agent. Its powers were derived from the charter of the corporation, and were wholly independent of the action of the stockholders. The stockholders were members of the corporation, but its business was conducted by instrumentalities created by the charter, and its powers were derived from the same instrument, aud not from the corporators.
If the corporation had an available claim against the stockholders for illegal dividends which they had received, still, as that claim was not asserted, nor its existence even recognized at the time of the assignment, it was not fraudulent to secure to them the payment of the money which they had advanced, and which was an existing and acknowledged liabil*440ity. No inference of a fraudulent intent can be deduced therefrom, nor does it subject the assignment to any suspicion of unfairness, any more than such a preference would have done had no such claim against the stockholders existed on the part of the corporation. The demands were wholly independent of each other, and therefore there was no such connection between them as rendered it necessary in securing the one, to refer to the other, even had its existence been known at the time. Consequently, the conveyance to the trustee must be deemed legal and valid.
2. A corporation is not justifiable in treating as profits, subject to be divided,premiums received upon nnexpired risks, when it had not a fund sufficient, independ ent thereof, to meet all liabilities that might acerueon the pending risks. (6 Paige, 486; 7 lb. 198.) And dividends thus made maybe reclaimed by the corporation.
The next question that properly presents itself for consideration, is that which involves the legality or illegality of the dividends which were made by the board of directors.
By the seventh section of the charter by which the company was incorporated, it was enacted “that it shall be the duty of the president and directors, on the first Mondays of May and November in each and every year, to make a dividend of so much of of the profits of said corporation as to them, or a majority of them, shall appear advisable.”
The boai’d of directors, in making the dividends in question, considered as profits the premiums on unexpired risks, and unless this was proper, the dividends which were made were not authorized by the charter, inasmuch as independent of these premiums the means of the corporation, over and above its liabilities, were insufficient for their payment. We think it is very evident that these premiums could not be properly regarded as profits. Only so much thereof as might remain after paying the amount of such losses as should occur, would in reality constitute the actual profits on the insurances upon which they had been paid. This was the decision of the court in the cases of De Peyster vs. American Insurance Company, 6 Paige 486, and in Scott vs. Eagle Fire Insurance Company, 7 Paige, 198, which were cases very similar to the present one. We cannot, indeed, *441very well perceive any plausible ground on which this position can be controverted. The losses must, in every case, be deducted before the profits, in any kind of business whatever, can be ascertained. This propositton is so self- evident, that argument to sustain or illustrate it is wholly unnecessary.
So much of these premiums might possibly have been regarded as profits, as the previous business of the company, for a series of years, would have demonstrated could be safely considered as a surplus that would remain after all losses, were paid ; but upon no imaginable hypothesis could it be right or admissible to treat the whole amount of premiums, which resulted from risks that were still pending, as actual profits. The most safe, and, indeed, only allowable principle to act upon in such cases, would be to exclude from the computation of profits altogether, all such unearned^premiums. Excluding such premiums, some of the dividends were made when there were no profits on hand to divide among the stockholders, and such dividends were obviously unauthorized and illegal. It is, however, difficult to determine, either from the commissioner’s report, or any evidence in the cause, which of the dividends should be regarded as subject to reclamation. It is necessary to a correct decision of this question, that the condition of the company at the time each one of the dividends was made should appear. Two dividends might be made without there being on hand a sufficiency of profits to have authorized either at the time they were respectively declared, and still the last one might have been proper, if the first one had not been made. In such a case it would be manifestly wrong to treat both of the dividends as illegal in the hands of the stockholders. The last one might have been retained by the corporation to satisfy its claim against the stockholders for the first one, which was illegal; but when it has been paid over, a different question is presented. The question then is, which one of the two is subjectjto *442reclamation? The first one the stockholders have no right to retain because it was unauthorized, and therefore it is undoubtedly subject to reclamation. If, then, the corporation has a right to reclaim the last one also, it might be able to compel both of them to be refunded.
3. Dividends declared by the directors, and received by the s t o e k h olders, maybe reclaimed by the directors, if illegally declared under a misapprehension of the right to declare them; and if there be an¡ assignment by the corporation to a trustee, such right to reclaim dividends improperly declared and paid passes to the assignee, if the terms of the assignment are sufficiently comprehensive to embrace them.
It is evident, therefore, that it is indispensably necessary, in order that the court may be able to determine how many and which of the dividends were illegal, that is, how many of them were subject to reclamation, if any, that all the dividends that have been made, and the condition of the corporation when they were made, should appear.
The next subject of inquiry is, supposing some of these dividends to be illegal, did the right to reclaim them pass to the trustee by the deed of trust which was executed by the corporation ?
The solution of this question involves two matters of inquiry: First. Had the corporation a right to reclaim these dividends? And, in the second place, if the right existed, did it pass by the deed, under the ^peculiar circumstances in this case ?
) The declaration of these dividends was undoubtedly made in good faith, although it was made under a misconception of what constituted the profits of the company, out of which the board of directors were authorized to make dividends. This court, in the case of Gratz vs. Redd, 4 B. Monroe, 191, intimated an opinion, although the question was left undecided, that the company could reclaim dividends which had been made under similar circumstances. It would seem, according to well settled general principles, that if dividends were made under a misconception on the part of the directors of what constituted profits, and under a belief that there were profits to divide, when in fact there were none, they might be reclaimed; because the stockholders who received them were not entitled to them, and they had been paid over and received under the operation of a mutual mistake.
*443We are unable to perceive any reason why this equitable principle should not apply in the case of a mistake by a corporation, as well as when made by individuals. The stockholders do not act in a corporate capacity in receiving a dividend. They do not, therefore, ratify the illegal act of the board of directors by receiving it. Besides, as they were not apprised that the dividends were illegal, their censent to the act of the directors in declaring them, could not be implied from their receiving of them, even if in so doing they acted in a corporate capacity. We are, therefore, of the opinion that the corporation had a right to reclaim such dividends as were illegally declared, and which the stockholders had no right to retain.
Did, however, the right which the corporation had to the dividends which had been wrongfully declared, pass to the trustee by the deed of assignment ? The language of the deed is comprehensive enough to pass this right, as well as all others. By the granting clause therein, the company transferred and conveyed to Buckner, as trustee, “all of its property of every description, whether real, personal, or mixed; judgments, notes, bills, open accounts or other claims, or choses in action, wherever the same may be situated, and in whosesoever hands the same may be found.” It is argued, however, that as the president and directors of the company had not, at any time previously to the execution of the deed, asserted the right of reclamation, and did not even then admit that these dividends had been made unlawfully, it could not have been in the contemplation of the parties, that the right to reclaim them should pass by the deed ; and that it did not pass, unless it was the intention of the parties to the assignment that it should do so.
The words used by the parties are sufficient to pass the right, and we cannot perceive on what principle it can be excluded from the operation of the deed. It is not pretended that there was any mistake in its execution. There is no ambiguity in the *444terms used, nor any ground upon which parol testimony can be admitted to explain the intention of the parties, or to change the legal effect and operation of the deed. How then can any restriction be placed upon the legal effect of the written instrument? Not certainly from any thing contained in it, for its language is plain, comprehensive, and unambiguous ; not from any thing extrinsic, because a resort to such facts is, according to the well settled principles of the law, wholly inadmissible.
It is argued, however, that the extrinsic facts necessary to produce a change in the legal effect of the deed, are admitted by the parties, and therefore their admission in giving construction to the writing does not violate any settled principle of the law. This assumption is not wai’ranted by any thing contained in the record. The trustee did not admit that the right to these dividends did not pass to him, under the deed, nor that the company did not know, at the time of its execution, that such a right existed, although he stated that he was himself ignorant of the fact. Nor did the plaintiffs themselves state in their petition that the company did not know, when the deed was executed, of the existence, of this right of reclamation, or that it did not pass by the deed of trust; but on the contrary, charged expressly that it did pass to the trustee by the terms of the deed, if the deed itself was valid, and not fraudulent and void. So that in reality there was no issue between the parties, which required an acknowledgment or a denial of the extrinsic facts relied upon to limit the legal effect of the deed.
But if it did appear in a legal and competent mode, that the authors of the deed, and the trustee likewise, were of the opinion at the time of its execution, that these dividends had been all legally declared, and no right of reclamation existed, it would not necessarily follow that the right, if it did exist, did not pass by the deed. It is apparent, from the language used, that it was the intention of the parties *445to the instrument, that all the claims and dioses of action of every description, which belonged to the company, should be transferred to the trustee. This intention is manifest on the face of the deed itself. Can it be defeated by showing that the authors of the deed were ignorant of the existence of some of the rights or claims of the company ? The deed does not transfer merely the known and acknowledged claims and dioses in action, but also those of every description, and embraces both the known and the unknown. So far, then, as the construction of the deed depends upon the question of intention, it is evident that it should be permitted to have its legal effect; for we think considering the language used therein, the proposition may be assumed as undeniable, that if the existence of the right had been known to the makers of the deed; it would not have been excluded from its operation. As then, the terms used clearly embrace the right, and the intention to exclude it cannot be deduced, even from the facts relied upon to change and restrict the operation of the deed, it must be regarded as having passed to and vested in the trustee for the benefit of the cestui que trusts.
This view is sustained to some extent by the decision in the case of Bayard vs. Hoffman, 4 John. Ch. R., 450. In that case a debtor made a voluntary settlement of United States stocks upon his wife and children, by conveying them to trustees for their benefit ; and he subsequently made an assignment “ of all his estate, real and personal, and of all books, vouchers, and securities relative thereto.” Chancellor Kent decided, that the general assignment for the benefit of creditors carried with it the stock thus voluntarily assigned, and the trustees under the voluntary settlement were decreed to hold the stock subject to the order of the trustees under the general assignment. Effect was there given to the same principle that has been applied in the present case. The words used were sufficiently comprehensive to *446embrace and transfer the stock, and it was therefore held to have passed by the general assignment.
4. Express continuing trusts, which are exclusively cognizable in chancery, are not embraced by the statute of limitations; but where there is a legal responsibility,and atrust by implication, the statute may be relied on with effect. (Dudley es. Price’s adm., 10 B. Mon. 84; 3J. G. R. 216; 5 lb. 531; 12 Vex. 87; Story’s Eg., sec. 1252; 7 J. C. R. 89; 5 Dana, 199; 16 Searg. S¡ Rawle, 379.)
Can the stockholders rely upon the statute of limitations to protect themselves against the recovery of these dividends? The only argument that has been urged against their right to avail themselves of the statute is, that the dividends were apart of a trust fund, and should be regarded as having been received by them as such, and held by them as trustees.
The doctrine is well settled that such express and continuing trusts as are within the exclusive jurisdiction of courts of equity, and are not cognizable at law, are not affected by the statute of limitations.
But here there was no express trust; if any existed, it resulted by implication, from the facts of the case. The money was received by the stockholders in their own right, as that to which they were legally entitled, and there is nothing which authorizes the inference, that they ever agreed to hold it in trust, or claimed it otherwise than as belonging to themselves.
Besides, the corporation could have maintained an action at law, for the recovery of the money received by them; and a court of equity would have had no jurisdiction to have adjudged its repayment to the corporation.
If, then, it constituted a trust at all in the hands of the stockholders, it was not an express trust, but received its character from legal implication, and was not such a trust as is within the exclusive jurisdiction of courts of equity, but was cognizable in a court of law, and consequently lacked the essential attributes of those trusts that are exempted from the operation of the statute.
Tt was held by this court, in the case of Dudley vs. Price’s administrators, 10 B. Monroe, 84, that the stockholders, in a similar case, were clearly entitled to the protection of the statute, and we still approve *447óf the principle laid down in that decision. Indeed r r ... we cannot perceive how any other result rs attainable, without a clear departure from the well settled and universally recognized doctrines of the law upon the subject.
“ Possible, eventual, or resulting trusts occur where a pai'ty, who took possession in his own right and was prima facie the owner, is afterwards converted into a trustee by evidence. In these latter cases it was never doubted that length of possession would be a bar, on the principle of the statute of limitations.” (Decouche vs. Savatier, 3 Johh. C. R., 216; Coster vs. Murray, 5 John. C. R., 531; Bedford vs. Wade, 12 Vez., 87.)
If these illegal dividends were a trust fund in the hands of the stockholders, they were made so by evidence which made it appear that they were declared at a time when there were no profits on hand to divide. The trust, if thus established, was clearly an implied trust, created by testimony, and arising out of the facts of the case.
In 2d Story’s Eq. Jur., sec. 1252, it is said: “ Perhaps to this same head of implied trusts upon presumed intention, (although it might equally well be deemed to fall under the head of implied trusts by operation of law,) we may refer that, class of cases where the stock and other property of private corporations is deemed a trust fund for the payment of the debts of the corporation; so that the creditors have a lien or right of priority of payment on it, in preference to any of the stockholders of the corporation. Thus for example : ‘the capital stock of an incorporated bank is deemed a trust fund for all the debts of a corporation ; and no stockholder can entitle himself to any dividend or share of such capital stock, until all the debts are paid ; and if the capital stock should be divided, leaving any debts unpaid, every stockholder receiving his share of the capital stock, would in equity be held liable, pro rata, to contribute *448to the discharge of such debts, out of the funds in his own hands.’ ”
If the corporation itself holds its property and effects only on an implied trust for the payment of its debts, most certainly the stockholders, if they receive part thereof by way of dividends, cannot be regard ed as holding it, if in trust at all, under an express trust, for the payment of debts, when it was not thus held by the corporation. Can the right of the latter, to rely upon the statute of limitations when sued by a creditor, be doubted ? If such a right exist, it proves conclusively that a corporation does not hold its assets under an express trust, for the payment of debts ; for if it did, the statute could not be used by it as a defense against any demand that a creditor might attempt to assert.
Thus it is fully established, both upon principle and authority, that the dividends in the hands of the stockholders, if a trust fund at all. were held by them under an implied, and not an express trust. And the doctrine is well settled, that the trusts which are not to be affected by the statute of limitations in a court of equity, are only those direct, express, and continuing trusts which fall within the peculiar and exclusive jurisdiction of courts of chancery, and not those created by implication merely. (Kane vs. Bloodgood, 7 J. C. R., page 89; Talbot vs Todd, 5 Dana, 199 ; Angel on Lim. 354; 16 Serg. R., 379.)
The decision in the case of Wood, &c., vs. Dummer, &c., 3 Mason, 308, instead of militating against, rather tends to fortify the conclusion, that the stockholders held the fund under an implied or constructive, and not an express trust. In that case, a dividend of the capital stock of a bank had been made among the stockholders, in pursuance of an order made at a meeting held by themselves. The corporation was dissolved, by the expiration of the time for which it had been chartered, and of the legislative limitation by which its existence had been subsequently continued for a limited time. A suit in *449equity was brought by the holders of the notes of the bank, against the stockholders, for the payment of them, out of the capital stock in their hands. The court decided, not that the statute of limitations would not apply to such a case, but only that the bar could not, on the facts of the case, be sustained. The court said, “therights of the plaintiffs accrued, as against the defendants, within six years; for until a refusal of payment by the bank of its notes, followed by an inability to discharge them, there was no cause of proceeding in equity against the defendants.”
How long the funds had been in the hands of the stockholders before the suit was commenced, does not appear; but all that the court did actually decide in relation to the operation of the statute was, that upon the facts, the time necessary to constitute a bar had not elapsed, and therefore the bar to a decree could not be sustained. The court, however, in the same case, held, that the simple fact that the defendants had the funds in their possession, could not alone entitle the plaintiffs to relief, without allegations of insolvency on the part of the corporation, or of the non-existence of other funds. Such an admission was a virtual concession that no express trust existed; for if the stockholders, by the reception of the fund, were thereby made the trustees of the creditors, and held it under a direct and express trust for the payment of the debts of the corporation, a suit in equity for the enforcement of the trust was the appropriate remedy; and no allegation of the insolvency, or dissolution of the corporation, or of the non-existence of other funds for the payment of its debts, was necessary to entitle the plaintiffs to relief.
But it is contended that if the statute does apply in a case like the present, that still the time of limitation had not run when this action was commenced by the creditors, and consequently the bar was not then complete. The right of action for the re*450covery of these funds was in the corporation; it existed as soon as they were paid over to the stockholders, and the time of limitation commenced running from that period. When the bar became complete against the corporation, it was also complete against its creditors. If the debtor cannot recover a demand because it is barred by the statute of limitations, most certainly the creditor of the debtor cannot compel its payment in discharge of his debt, on the ground that his cause of action had accrued within five years. His cause of action exists against his debtor, and he can only follow the funds of the latter into the hands of third persons, when it is his only remedy for the recovery of his debt; and his rights then, in the pursuit of such funds, do not exceed those that belong to his debtor.
But it is unnecessary to pursue this investigation any further, inasmuch as the right to the funds in the hands of the stockholders passed to the trustee, under the assignment, and the right thus acquired by him is subject to be affected by the statute, to the same extent it would be if it still belonged to the corporation; and there can be no pretext for considing it as a trust fund in the hands of the stockholders, for the benefit of the company.
In the case of Wood, &c. vs. Dummer, &c., supra, the corporation was dissolved, and the stockholders had disti'ibuted the capital stock among themselves. No right of action against them existed in favor of any person, except the creditors of the corporation. Hence the court decided that as the plaintiffs’ action accrued within six years, (the time of the limitation in that state,) the bar was not complete and could not be sustained. Between that case and this there is a marked and obvious distinction. Here the dividends were made, not by the stockholders, but by the board of directors. No part of the capital stock was distributed, but only a fund, which was erroneously supposed to constitute actual profits ; and which the corporation had a right to sue for and re*451claim immediately after the dividends were paid over. In addition to this, the stockholders in the one case received the capital stock, knowing that it was the proper fund for the payment of the debts of the corporation, and might be presumed to have held it subject to that charge; whereas, in the other, they received the dividends as a fund to which they believed themselves entitled; which they held and claimed as belonging to themselves exclusively, and the right to which, in any other person, was virtually denied by them.
The ignorance of the directors, with regard to the right of the corporation to retain the dividends, cannot be relied upon to prevent the running of the statute. The facts were all known to them, and by the exercise of reasonable diligence they could have ascertained — and it was their duty to do it — whether or not the dividends were authorized by the charter. Willful ignorance, or that which results from negligence and the want of that degree of vigilance which the law requires, cannot be deemed sufficient to prevent the operation of the statute.
Nor can the manner in which part of the dividends were used by the stockholders, have any effect on the rights of the parties, under the statute. The stock notes, upon which they were credited, having been voluntarily cancelled and delivered up, the right to sue upon them does not exist; and the only action that can be maintained is, one either for the recovery of the illegal dividends, or for relief in a court of equity, on the ground of mistake, upon the principle on which settled accounts are opened, and mistakes are corrected. In such cases, unless an action be commenced within five years after the discovery of the mistake, the remedy will be barred. It cannot be admitted that if a note be surrendered, upon a settlement between the parties, the payee can, on the ground of a mistake in the credits allowed, institute an action at any time within twenty years, regarding the note as the foundation of the *452action, and thereby entitle himself to all the rights he would have if the note were in existence. Such a principle might subject the payor of the note to great injury, from the loss of testimony by the lapse of time, and is not sanctioned by any of the adjudged cases to which we have been referred. The cases of the East India Company vs. Neave, 5 Vez. C. R., 173, and of the Same vs. Donald, 9 Vez. C. R., p. 275, only decide that where a written instrument has been delivered up, in ignorance of a matter which would have authorized its retention, and the assertion of a demand upon it, the party will be entitled to relief against the obligor in a court of chancery, on the ground that he has no legal remedy, in consequence of having parted with the written instrument, in ignorance of his rights. They do not decide any thing upon the subject of the time within which such relief will be granted; and as the principle laid down in Story’s Eq., sec. 167, that if an instrument be cancelled through a mistake, the obligee “ought to have the same benefit as if the instrument were in his possession, with its entire original validity,” is based upon the two cases just mentioned. The author should be understood as merely asserting the same doctrine upon which those cases were decided, and as referring, not to the time in which relief against the mistake might be obtained, but to the extent of the relief to which the party would be entitled under such circumstances. He would have a right to a decree for the same amount that he could have recovered at law, “if the instrument were in his possession, with its entire original validity.” Nothing more is decided by the cases referred to, nor should the author be understood as asserting a broader or more comprehensive principle.
But if we are mistaken in this view of the question, there is one aspect of it that is conclusive, as to the right of the stockholders to rely upon the statute. A court of equity will, as a general rule, *453only take jurisdiction and grant relief in cases where the instrument has been voluntarily delivered up, when the party has no legal remedy; and it is upon this ground alone that the court assumes jurisdiction, or interposes in his favor, even where the surrender of the instrument has occurred through mistake. Where a party has an adequate remedy at law, a court of equity will not entertain-jurisdiction. (Wanon’s trustees vs. McKinney, 1 Marshall, 479; Williams & Burch vs. Dorsey, 4 Litt., 265; Carlyle vs. Long, &c., 5 Litt., 167.)
Now, in this case, an action at law would have been maintained for the recovery of the dividends.
In such an action the remedy would have been as full and complete as it could be made in a court of equity, on the ground that the notes, on which the dividends were applied as credits, had been delivered up and cancelled through mistake. In both courts the dividends would be the subject matter in controversy, and the recovery would be limited by their amount. The remedy therefore being complete at law, there could be no necessity for a resort to a court of equity. But conceding it to be a case of* concurrent jurisdiction — which is all that can be con-| tended for — and that a remedy might be had in either ? court, then the well settled doctrine would apply, that in such cases, when the remedy at law has been barred by the statute, the limitation will be inflexibly applied in a court of equity, precisely as it operates at law, with the single exception that it will not be allowed to operate in cases of fraud or mistake, until they have, or should have been, discovered. (Gates and wife vs. Jacob, &c., 1 B. Monroe, 306.)
But it is contended that no action at law could be maintained for the dividends which were credited upon the stock notes, and that such an action could only be maintained for those dividends which had been paid in money. There are, however, cases where money is considered as received or advanced, where it is not actually done. This is a case of that *454kind. The dividends were declared, and the stockholders were, under the order of the board, entitled to the money. But as they still owed some part of their stock notes, they accepted a credit upon the notes, in lieu of the money. The transaction was substantially a payment of the money to the stockholders, and a repayment of it by them, on their stock notes. This principle was recognized in the case of Gray vs. Gray, 2 J. J. Marshall, 22, in which it was decided that the plaintiff, who had surrendered a note to the defendant, which he held upon him, could, if the consideration upon which the note rvas surrendered had failed, maintain an action of assumpsit for money had and received, for the amount due upon the note at the time it was surrendered ; the surrender of the note being deemed equivalent to the actual payment of the money. We are therefore of the opinion that an action at law could be maintained for such dividends as Avere credited upon the stock notes, as well as for those that were paid in money, whenever the dividends so credited or paid were subject to reclamation.
Where the remedy is at Haw as well as in chancery, the chancellor applies the statute of limitations.
The limitation of five years would bar the remedy at law; the statute must therefore have the same effect and operation if the remedy be pursued in a court of equity.
We do not deem it necessary to decide whether the debts against the corporation, which some of the stockholders purchased after the execution of the deed of trust, could or not be rendered available as a set-off, in an action by the trustee for the recovery of the illegal diAÜdends. No such action has been instituted, nor has the trustee asserted a claim to them in this action, in such a manner as to require it to be noticed by the stockholders. More than five years have elapsed since the last dividend was paid, and since the stock notes were surrendered to the stockholders. The claim is therefore bai'red by the statute of limitations, and consequently the validity of these debts as a set-off is immaterial. The trus*455tee, in his answer, prayed that he might be united with the plaintiffs, as a co-plaintiff in the action, and that the suit might progress in that form, so that if the dividends were illegal and he were entitled to them, the payment of them might be adjudged to him. But no such order was made, and if it had been made, the defendants would not have been bound to notice the claim, unless it had been asserted by an amended petition, upon which the service of process on them would have been necessary, inasmuch as the recovery of the dividends by him would have been based upon a different ground from that assumed by the original plaintiffs.
It is contended, however, that a cestui que trust may come into a court of equity, not only to enforce the trust itself, but also to compel the debtors of the assignor or grantor to pay their debts to the trustee, for the purposes of the trust; and to sustain this doctrine, the case of Bixler's trustee vs. Taylor, 3 B. Monroe, 362, is relied upon.
In that case the trustee had sold the trust property to a third person, and the object of the bill was to remove the trustee, and compel a surrender of the property to its proper custody. For that purpose it was decided that a court of equity had jurisdiction. The principle of that decision is obvious. The trustee had violated his duty and committed a breach of trust. On that ground the cestui que trust had a right to apply to a court of equity for relief. The same principle enables an heir or distributee to maintain a suit in equity for property belonging, or for a debt due to the estate, where the administrator or executor refuses to bring an action for it, or denies that the estate of his testator or intestate has any right to it. But that one beneficiary out of many, has a right to bring an action in his own name, against the debtors of the trust fund, without alledging any reason for bringing the action, except that he has an interest under the deed of assignment, is a position wholly untenable. Such a practice might lead to in ex trie a*456ble confusion, and an almost unlimited multiplicity of actions. If such an action can be maintained by one cestui que trust, of course the others have the same right, and yet none of them would have a right to collect the money, but only to have it paid over to the trustee. The trustee is the proper person to maintain the action, and none of the beneficiaries have a right to bring it in their own names, unless they show a sufficient reason for so doing. Under the Civil Code the trustee can bring the action, and prosecute it in his own name, without joining with him any of the beneficiaries, or making them parties to the action. He represents all the parties interested, and principle and convenience alike require that actions for debts due to the trust estate shall be brought by him, and not by any of the beneficiaries.
The plaintiffs did not, in their original or amended petitions, alledge that the trustee refused to bring suit for these dividends, or state any other ground upon which they claimed the right to sue for them, if the deed of assignment should not be vacated. On the contrary, in that event, they did *not claim the right to sue for them, but expressly called upon the trustee to do it. They brought their action to vacate the assignment on the ground that it was fraudulent, and only claimed the right to have the dividends appropriated to the payment of their demand, if they succeeded in their effort to set aside the assignment. If they failed to accomplish that object, they admitted that the right to collect the claims which the company had against the stockholders for illegal dividends, passed to the trustee by the terms of the assignment, and they alledged that he was in duty bound to collect them, and called upon him to do it. Consequently they neither asserted a right to maintain an action for these dividends, if the deed of assignment were valid, nor did they alledge the existence of any ground that would have *457enabled them to maintain it, if they had asserted a right to do so.
It has been contended in argument, that the trustee, by failing to bring suits for these dividends when called upon to do it, has violated the trust, and rendered himself liable for the amount of the dividends. We deem it only necessary to remark on this subject, that the pleadings do not contain any charge against the trustee of having violated his duty, nor has there been any litigation between the parties with respect to this matter in the court below, consequently the question attempted to be made in the argument, does not arise upon the record in this case, nor can we adjudicate upon it.
And as the right to the dividends passed to the trustee, under the; deed, it is not deemed necessary to decide whether the plaintiffs, as mere general creditors, not having obtained a judgment at law and an execution thereon with a return of nulla Iona, could come into a court of equity for the purpose of having this fund applied to the payment of their demand. It is perfectly manifest, however, that they did not claim the right to do so on the ground that the corporation was dissolved, and for that reason an action at law could not be maintained against it. Neither their original petition, nor their amended petitions, contain any such allegations; but, on the contrary, the corporation is made a defendant, and proceeded against as being still in existence; and it cannot be admitted that a general assignment of all its property and effects in trust for the payment of debts, will, of itself, have the legal effect of producing a dissolution of a corporation.
But the plaintiffs, as beneficiaries under the deed, had a right to come into a court of equity to obtain their ratable part of the trust fund. The effort which they made to impeach the validity of the deed was rather repugnant to the claim they asserted to the benefit of its provisions. But this claim was only relied upon by them in the event of their failure *458to have the deed vacated as fraudulent; and as that object has not been accomplished, they have, in our opinion, a right to maintain their action for the enforcement of the trust, and the recovery of that portion of the trust fund to which they may be entitled. (Repplier, &c. vs. Buck, Potter, &c., 5 B. Mon. 98.)
5. Beneficiaries in a deed of trust, having funds of the assignor in their hands, may retain, so far as is necessary to secure them for advances made, or personal liabilities incurred, as agent of the assignor, and liabilities incurred before notice of the assignment.
At the time the assignment was executed, the plaintiffs had in their hands a large amount of debts and securities which were the property of the company, and which passed to the trustee by the deed of assignment, subject, however, to the right of the plaintiffs to hold them as collateral security for the amount due to them by the company at the time they had notice of the assignment. After deducting therefrom the amount due to them at that time, the balance, if any, they must account for to the trustee. They have no right to retain it for the payment of subsequent advances, unless such advances were made in discharge of a previous personal liability, incurred by them for the company. Upon their subsequent collections they have a right to a reasonable compensation, which may be fixed at ten per centum, that being the commission which the company had agreed to allow them on their previous collections.
Wherefore, the judgment of the circuit court is reversed, and cause remanded, that a judgment may be rendered against the corporation for the debt due to the plaintiffs, and for further proceedings consistent with this opinion, whereby the amount of the trust fund to which the plaintiffs will be entitled may be ascertained, and its payment adjudged to them.