Court Opinion

ID: 8187476
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:10:10.490647+00
Date Added: 2024-06-11T16:40:28.507816
License: Public Domain

Babhekn, J.
A rehearing of this case was granted on the sole question of whether the statute of limitations had run in favor of the officers and directors of the defendant corporation. In the opinion, ante, p. 155 (90 N. W. 108Y) this court held that such statute had not run, basing such holding upon the proposition that such officers and directors were trustees of an express trust. We are now urged to reconsider and recede from that position.
It abundantly appears from the complaint that more than six years had elapsed between the time of the commission of the acts for which such officers and directors are sought to be held liable and the date they were made parties' to this action, so that, unless they are brought within some rule which prevents the running of the statute, they may invoke it, and thus resist the claims sought to be enforced against them. Strictly speaking, this action is not one in which the creditors-are seeking to hold the officers of the corporation as trustees for themselves. It is rather an action in the right of the corporation itself, and brought by the creditors on its behalf *178because the corporation cannot or will not sue. It was not intended, nor can it be fairly inferred from the former opinion that we held, that the officers of a going corporation were trustees of creditors. We do not intend to abate one jot or tittle from the rule now firmly established in this state on the so-called “trust-fund doctrine.” The recent cases of Slack v. Northwestern Nat. Bank, 103 Wis. 57, 79 N. W. 57; Killen v. Barnes, 106 Wis. 546-572, 82 N. W. 536, and Hamilton v. Menominee F. Q. Co. 106 Wis. 352, 81 N. W. 876, sufficiently indicate the position of this court, and by that position we are still disposed to- stand. This action, being one in the right of and on behalf of the corporation, is open to any defense which the defendants might have urged, had the corporation itself brought the suit. The acts alleged against the officers are of misfeasance and malfeasance. No doubt can reasonably be entertained but that the corporation might have brought an action at law at any time within sis years after the commission thereof. As between the corporation and its officers, the latter were liable in a straight action at law any time during the six years nest after their shortcoming. It is not perceived how the fact that creditors must bring their suit in equity, when the corporation cannot or will not act, changes the relations of the parties. The creditors possess no greater right than the corporation. They are bound by the legal status of the parties, and cannot maintain this action unless the relation between the corporation and its officers is held to be such as to render the six-year statute of limitations inapplicable.
We have now reached the very heart of the controversy between the parties. The general rule of law was correctly stated in the opinion that “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.” If, therefore, the officers and directors of a corporation are indeed trustees of an express trust, as heretofore held, that ends the con*179troversy. We are convinced, however, that we stated the rule too broadly in the former opinion. The rule quoted from Thompson on Corporations is not fully supported by the authorities. It is not easy to define with exactness the precise relation existing between a corporation and its stockholders, on the one side, and the officers and directors, on the other. The latter are certainly not trustees of an express trust, under the statute mentioned in the opinion. In Lamberton v. Pereles, 87 Wis. 449, 459, 58 N. W. 776, this court, by the present Chief Justice, said:
“In this state we have no statute making the chapter on uses and trusts, or any part of it, applicable to personal property.”
The officers of a corporation have no title to its real property, so that they do not become express trustees under the statute. Neither have they the legal title to either the personal property or the stock of the corporation. Their relation to the corporation is thus defined in 2 Pomeroy, Eq. Jur. § 1089:
“The directors and supreme managing officers of corporations are constantly spoken of as trustees. They are not, however, true trustees, with the corporation or the stockholders as their true cestuis que trusteñt, since they hold neither the legal title to the corporate property, nor that to the stock. In fact, directors are clothed at the same time in a double •character — that of quasi trustees and that of agents.”
The English court, in Ex parte Chippendale, 4 De Gex, M. & G. 19-52, speaking of this relation, says:
“Although directors undoubtedly stand in the position of agents, and cannot bind their companies beyond the limits of their authority, they also stand, in some degree, in the position of trustees.”
The supreme court of Pennsylvania, considering this same question, said: *180as I apprehend, is only in a general sense, as we term an agent or any bailee intrusted with the care and management of the property of another. It is certain that they are not technical trustees. They can only be regarded as man-dataries,” etc. Spering’s App. 71 Pa. St. 11.
*179“It is by no means a well-settled point what is the precise relation which directors sustain to stockholders. They" are undoubtedly said in many authorities to be trustees, but that,
*180The Tennessee court speaks of the matter thus:
“Directors are not express trustees. . . . They are mandataries. They are agents. They aré trustees in the sense that every agent is a trustee for his principal, and bound to exercise diligence and good faith.” Wallace v. Lincoln S. Bank, 89 Tenn. 680—649, 15 S. W. 448. See Pearson v. Concord R. Corp. 62 N. H. 537; Bank of Mutual Redemption v. Hill, 56 Me. 385; Landis v. Saxton, 105 Mo. 486, 490, 16 S. W. 912.
Expressions of this kind without number might be cited without getting any nearer exactitude of definition of this relation. No- court that we are aware of has ever defined the relation as broadly as was stated in the former opinion by this court. We therefore withdraw the statement that such officers and directors are trustees of an express trust, as defined by sec. 2081, Stats. 1898.
We will now take up the question of whether their relation is such that, under the circumstances alleged in the complaint, they cannot avail themselves of the benefit of the statute of Imitations. At this point we are met by a divergence in the authorities. One line of cases, of which Williams v. McKay, 40 N. J. Eq. 189, is a type, holds that the managers of a savings bank stand in the relation of trustees to depositors,, so that the statute of limitations will not be a bar against a charge of mismanagement on their part which had occurred more than six years before the filing of the bill. See Ellis v. Ward, 137 Ill. 509, 25 N. E. 530; Southern M. Ins. Co. v. Pike, 32 La. Ann. 483; Coxe v. Huntsville C. L. Co. 106 Ala. 373, 17 South. 626; Hightower v. Thornton, 8 Ga. 486. The ruling in the New Jersey case seems to have been based expressly upon the holding that the relation between the di*181rectors and depositors (wbo were mere creditors) was similar to that of trustee and cestui que trust, and that the right of the depositor was a purely equitable one, which he could not enforce in a court of common law. 40 N. J. Eq. 198. It is perfectly evident that this court cannot follow this decision without overruling a large line of cases repudiating the trust-fund doctrine. Neither the corporation nor its governing body, so long as it is a going concern, holds its property in trust for creditors. The officers or directors occupy a fiduciary relation, demanding care, vigilance, and good faith. If they violate their duty, they at once become responsible to the corporation. If they are guilty of misfeasance or malfeasance, the latter may at once bring an action at law to enforce such liability. If the corporation refuses to act, the stockholders before insolvency, and the creditors after insolvency, may enforce such liability in the right of the corporation, and not otherwise. Such right is not based entirely upon the relation of trusteeship sustained to the creditors, but rather upon the legal right of the corporation to compel them to make reparation for their wrong. The right of the creditor to enforce the rights of the corporation may be said to rest upon the so-called fiduciary relation which the officers sustain to the corporation, and indirectly to them. The fact that the creditor must sue in equity does not alter the situation. The application of the statute of limitations in equity is determined by the cause of action stated, rather than by the nature of relief demanded. Hughes v. Brown, 88 Tenn. 578, 587, 13 S. W. 286. The cause of action stated in the complaint being one in the right of the corporation, and one which it might have enforced in an action at law, it becomes susceptible to such objections as the recalcitrant officers might have urged, had the corporation brought the suit.
The case of Ellis v. Ward, 137 Ill. 509, 25 N. E. 530, much relied upon, is bottomed upon two facts which this court cannot recognize as substantial. One is “that the assets of a *182corporation are, in equity, a trust fund,” and the other is that the relation between the officers and the corporation bas “all the elements of an express trust.” Tbe case of Southern M. Ins. Co. v. Pike, 32 La. Ann. 483, was one where the directors intrusted the accounts and assets of the company to one wbo united in bimself the offices of president and casbier, and wbo died without rendering an account of bis trust. Tbe court held that prescription did not run on a demand for a return of the property until the heir bad done some act equivalent to a repudiation of the trust. We have no quarrel with the bolding. Coxe v. Huntsville G. L. Co. 106 Ala. 373, 17 South. 626, simply bolds that the right of a corporation to require an accounting from its president, wbo was also its general manager and controlled and managed all its affairs for many years, cannot be barred by the statute of limitations when it is shown that the failure to assert the right sooner was due to the refusal of said officer to allow an examination of bis boobs, and to bis deception and misrepresentation as to the condition of corporate affairs. Tbe decision rests upon the fraud of the officer, and misrepresentation to the governing body. Tbe case of Hightower v. Thornton, 8 Ga. 486, may be dismissed with the following quotation from the opinion:
“As to tbe statute of limitations, it need only be said that this is a case of a direct trust, purely technical, not cognizable at law, but falling within tbe proper, peculiar, and exclusive jurisdiction of a court of equity.”
This review of tbe authorities cited in support of tbe appellants’ position is sufficient to show tbe difficulty this court must experience in attempting to follow them. On tbe other hand, there is a clear line of authorities taking a contrary view. In tbe case of Kane v. Bloodgood, 7 Johns. Ch. 90, Chancellor Kent speaks on tbe subject as follows: *183tbe main object of discussion in tbe cause; and there is ground for a good deal of embarrassment in tbe examination of tbe question, arising from tbe loose manner in wbicb tbe rule is often mentioned in tbe boobs, and tbe want of consistency, as well as precision, in tbe series of cases applicable to tbe point. I cannot assent to tbe proposition that all cases of direct and express trust, and arising between trustee and cestui que trust, are to be withdrawn from tbe operation of tbe statute of limitations, notwithstanding a clear and certain remedy exists at law. The word trust is often used in a very broad and comprehensive sense. Every deposit is a direct trust. Every person who receives money to be paid to another, or to be applied to a particular purpose to wbicb be does not apply it, is a trustee, and may be sued either at law for money bad and received, or in equity, as a trustee, for a breach of trust. Scott v. Suman, Willes, 404. Tbe reciprocal rights and duties founded upon tbe various species of bailment, and growing out, of those relations^ . . are all cases of express and direct trust. . . . Are all such eases to be taken out of tbe statute of limitations, under tbe notion of a trust, when one of tbe parties selects bis remedy in this court ? A review of tbe decisions will enable us, as I apprehend, to deduce from them a safer and sounder doctrine, and to establish upon tbe solid foundations of authority and policy this rule:
*182“Tbe objection that the society held tbe money in question in tbe character of trustees, and that it was a trust which, upon equity principles, was not within tbe statute, has been
*183“That tbe trusts intended by the courts of equity not to be reached or affected by the statute of limitations are those technical and continuing trusts wbicb are not at all cognizable at law, but fall within tbe proper, peculiar, and exclusive jurisdiction of this court.”
Erom his view of tbe authorities, it may be said that as long as there is a continuing and subsisting trust, acknowledged or acted upon by tbe parties, tbe statute does not apply, but if tbe trustee denies tbe right of bis cestui que trust, and tbe bolding becomes adverse, lapse of time from that period may constitute a bar in equity, but other trusts wbicb are tbe ground of an action at law are not exempted from tbe operation of tbe statute. Mason v. Henry, 152 N. Y. 529, 46 N. E. 8 37, was an action by tbe receiver of an insolvent insurance company to compel a trustee (bolding tbe same office as a *184director under our statutes) to account for assets fraudulently misapplied by him. The court held that the receiver, as the representative of tbe corporation, might have sued the defendant, in an action at law, for the damages sustained from his misconduct, or in equity, as he did, to compel an accounting as to the property wasted and lost; that such action was barred by the lapse of six years between the misapplication and the commencement of the suit. Pierson v. McCurdy, 33 Hun, 520, affirmed in 100 N. Y. 608, 2 N. E. 615, holds pretty much the same doctrine. Wallace v. Lincoln Savings Bank, 89 Tenn. 630, 15 S. W. 448, was a suit against the officers and directors of a corporation for losses caused by their neglect and mismanagement of the corporate affairs. The following propositions were decided: That primarily such a suit was maintainable at law by the corporation alone, but creditors might maintain the action in equity when the corporation was disabled to sue or wrongfully refused to sue; that such suit, whether brought at law by the corporation itself, or in equity by a creditor, was alike subject to the bar of the statute of limitations; and that the six-year statute was the one that was applicable. So in a later case (Cullen v. Coal Creek M. & M. Co. [Tenn.] 42 S. W. 693) a demurrer to a bill against directors of a corporation for malfeasance in office was sustained after the lapse of six years, on the ground that such directors were not such direct or technical trustees as to take the case without the statute. See Hughes v. Brown, 88 Tenn. 578, 13 S. W. 286. The supreme court of Missouri followed substantially the same rule in an action brought against the secretary of a corporation for withholding money of the concern. Landis v. Saxton, 105 Mo. 486. In Indiana the rules above mentioned were applied in an action against public officers to recover moneys received by them under color of their offices; the court holding that, when money can be recovered in an ordinary action at law, the statute of limitations was a valid defense. Newsom v. *185Comm’rs, 103 Ind. 526, 3 N. E. 163. In Baxter v. Moses, 77 Me. 465, 1 Atl. 350, it is said tbat tbe directors of a corporation bold tbe corporate property under an implied or constructive trust, and tbat one wlio is not actually a trustee, but upon whom tbe character is forced by a court of equity, may avail himself of tbe statute of limitations. See Link v. McLeod, 194 Pa. St. 566, 45 Atl. 340. Upon mature deliberation, we are disposed to adopt tbe view of tbe latter line of cases. It is plain tbat, however tbe relations of corporate officers to their corporation and its stockholders may be defined, such relations are not “technical and continuing trusts,” cognizable solely in a court of equity, which Chancellor NeNT declares are the only trusts not affected by the statute of limitations. The various causes of action stated in the complaint for misapplication of funds were rights of action in favor of the corporation, upon which actions at law could have been commenced when the act was done. The plaintiffs here are simply seeking to enforce the right of action of the •corporation. They have no greater right than it possessed.
Our statute (sec. 4206) is general and comprehensive, and 'in itself makes no exception as against trustees of any kind; •and, while we are not inclined to deny or question the authority of the precedents in this court importing into that statute certain exceptions, we are unwilling to assume a practically legislative function, by adding other exceptions which we might deem wise, which the legislature, in the exercise of its constitutional discretion, has not seen fit to make. "Those precedents are cited in the former opinion. Several •of them go nearly to the extent of exempting express trusts within the statute, but two of them suggest like exception in •certain other cases. Sowell v. Howell, 15 Wis. 55, and Fawceit v. Fawcett, 85 Wis. 332, 55 N. W. 405. The first of these is of but little significance, for in it was no attempt to declare how far the exemption from statutes of limitation •does extend, but merely that it does not extend beyond “ex*186press or acknowledged trusts,” and liability to account for proceeds of land wrongfully purchased with moneys of plaintiff was held barred by limitation. In Fawcett v. Fawcett, however, the limitation was extended to a resulting trust arising' upon purchase of land in his own name by a husband with his wife’s money; such resulting trust having been acknowledged by him, and having continued unrepudiated during-their cohabitation to his death. The statute was held not to-apply, because the trust was wholly beyond cognizance of courts of law, and had the characteristics of acknowledgment,, continuance, and certainty. Chancellor Kent’s classification of trusts in Kane v. Bloodgood, 7 Johns. Ch. 90, was adopted;, among other parts, the declaration being that “other trusts-which are the ground of action at law are not exempt.” It seems plain, therefore, that nothing in the prior decisions of' this court have established immunity from limitation statutes-in favor of any trusts, other than “those technical and continuing trusts which are not at all cognizable at law, but fall within the proper, peculiar, and exclusive jurisdiction of this; [chancery] court,” as classified by Chancellor Kent. Obviously corporate officers are not trustees holding upon such a trust. It is not meant by this that they may not be, in a-true sense, trustees of an express trust. While express trusts-in real property can only be such as are defined and limited by sec. 2081, Stats. 1898, there may be many express trusts-in personal property, as pointed out by Chancellor Kent in-the case above cited, which are entirely independent of the-trusts in real property referred to in sec. 2081. It may welt be that corporate officers, so far as they handle and control, the personal property of the corporation, may rightly be-called trustees of an express trust, of which trust the corporation and its stockholders are the beneficiaries. 1 Perry,. Trusts (5th Ed.) § 86. But so far as they may be sued at law, they do not come within the chancellor’s classification,, and hence the running of the statute of limitations is not in*187terrupted. As already pointed out, tbeir misapplication of funds might at any time have been reached by an action at law by the corporation. The right to sue arose when the act was done. If the alleged conspiracy as to mismanagement continued down to the death of the corporation, still, as we understand it, the demurring defendants were not made parties to this suit until more than six years thereafter. An action at law might have been instituted by the receiver immediately after this appointment, as to all acts not then barred by the statute. Mason v. Henry, 152 N. Y. 529, 46 N. E. 837; Wallace v. Lincoln Savings Bank, 89 Tenn. 630, 15 S. W. 448.
We are fully impressed with the weight of the reasons supporting and opposing such exemption as is claimed in this-action against directors and officers of corporations. The peril to tire public in becoming either stockholders or creditors, in view of the ample practical opportunity enjoyed by such officers to cover their malfeasance from the knowledge of any person other than themselves, and to control the action of the corporation, whether by way of investigation or suit, until the period of limitations shall have run, is a cogent consideration. On the other hand, in absence of limitation, such officers, and their estates after them, may be held liable for mere negligence at remote periods after their acts, when witnesses may be dead and books and records lost, so that defense against a prima facie case may be impossible, contrary to the 'policy of the law in all analogous situations. But af ter all, these are considerations of policy, with which the legislature can deal freely; and we feel induced to hold that as-neither the statute nor the precedents of this court warrant exception from the protection of the limitation statutes of those who, though holding as fiduciaries and trustees, have at all times been liable to remedy by suit at law. for their misconduct as such, we may not with propriety take from them that protection which the statute, in terms, gives. We hold,. *188therefore, that the limitation has run, and the action, in the respects mentioned, is barred, upon the allegations of the ■complaint. The five demurrers mentioned in the former ■opinion, in snhd. 2, are therefore sustained on the ground herein stated, and such opinion is hereby modified accordingly.
By the Court.- — So ordered.