Swartley v. Oak Leaf Creamery Co.

Ladd, J. 1. Negotiable instruments:joint and several liability. The action is against seven defendants, and the order of court required plaintiff to “ separate each o-f his distinct and separate causes of action sued on, and present each of said causes of action in cases in his favor against the respective defendants as defendants.” This is the only ruling on the several motions, and it is not sufficiently explicit to indicate clearly the defects sought to he remedied, and, to determine whether the order was erroneous, it is essential to inquire if there was any misjoinder of causes of action or of parties. The action is baséd on a promissory note executed by one of the corporations defendant to the other, and indorsed by the latter to plaintiff. Section 3465 of the Code provides that “ where two or more persons are bound by contract or by judgment, decree or statute, whether jointly only, or jointly and severally, or severally only, including the parties to negotiable paper, common orders and checks, and sureties on the same or separate instruments, or by any liability growing out of the same, the action thereon may, at the plaintiff’s option, be brought against any or all of them.” Corporations are included in the word “ persons,” as used in this statute, for the circumstances in which they are placed are identical with those of natural persons (section 48, paragraph 13, Code; Stewart v. Waterloo Turn Verein, 71 Iowa, 226), and, as the maker and. indorser of a note may be joined as defendants in a suit thereon (Stout v. Noteman, 30 Iowa, 414), there was no error in suing these corporations in the same action. 2. Corporations malfeasance personal liability. The petition also alleged that W. W. Hubbell was president and G. L. Hubbell secretary and manager of each of these corporations, and that, as such officers, they had withdrawn money from the funis or assets of each corporation subsequent to the execution and indorsement of said note, and paid out and . . distributed the same among the officers and stockholders of each corporation, well knowing that in so [578] doing they would render such corporation insolvent, and that such was the effect produced thereby. Conceding these allegations to be true, as we must in passing on the court’s order, the conduct of the officers rendered them personally liable for all existing debts of the corporation; for section 1621 of the Code declares that “ if the directors or other officers or agents of any corporation shall declare and pay any dividend when such corporation is known by them to be insolvent, or any dividend the payment of. which would render it insolvent, or which would diminish the amount of its capital stock, all directors, officers or agents knowingly consenting thereto shall he jointly and severally liable for all the debts of such corporation then existing, but dividends made in good faith before knowledge of the occurring of losses shall not come within the provisions of this section.” Nor violating this statute in the manner alleged, the officers or agents of the corporation are made absolutely liable for the existing debts. Its manifest object is to enforce diligence and fidelity on the part of the corporate officei’S, and to afford a prompt and efficient remedy to creditors who may have been injuriously affected by the malfeasance of such officers. The liability so created is not secondary or contingent, but primary, and it is not essential to recovery against them that the assets of the corporation be first exhausted, or even that its liability be first, adjudicated. M. I. Wilcox Cordage & S. Co. v. Mosher, 114 Mich. 64 (72 N. W. 117); Patterson v. Minnesota Mfg. Co., 41 Minn. 84 (42 N. W. 926, 4 L. R. A. 745, 16 Am. St. Rep. 676). By knowingly consenting to the diversion of the corporate funds, so as to render the corporation insolvent, if they so did, these officers became jointly and severally liable for the payment of the debt evidenced by this note, and therefore, under the explicit sanction of the statute first quoted, might be made parties defendant. The manifest design of the law is to avoid a multiplicity of suits by authorizing one action against all who are liable for the payment of a specific indebtedness, [579] regardless of whether the same has been created by statute or contract. The liability of the officers depended on the existence of the. indebtedness against the companies at the time of the alleged misfeasance, and, in the determination of this issue, as well as the extent of the indebtedness, the corporations, independent of statute, were proper parties. Only a money judgment was demanded against these defendánts. While the petition alleged that money and assets of the company had been distributed as dividends by the officers and the books destroyed, no accounting was prayed. The action, in so far as against the corporations and W.' W. and G. L. Hubbell, was purely legal, and should be prosecuted on the law side of the calendar. 3. Dormant corporations: assets: trust fund. II. The petition proceeds further, and, in effect, alleges that the corporations have ceased to exist, in that the above-named officers had not acted as such since 1897, that they then destroyed or concealed the books of each to avoid personal liability; that no business has been transacted since by either corporation, no officers elected, no records kept, no accounting made of the property or assets of either corporation, and each has been treated by its officers and stockholders as though it had ceased to exist during the five years preceding the filing of the petition; and, further, that the Waukon Excelsior Creamery Company was the owner of a certain tract of land at the time of the execution of the note which it has never transferred, and that the same is in the possession of the defendant Daniel Williams, whose only claim thereto is by virtue of having acquired all the stock of said company. The prayer is that the judgment obtained be established as a lien against this property. Anna Williams is made a party defendant because of. being the wife of Daniel Williams. Erom this it is manifest that the pleader’s design was to reach the property of this corporation whose activities had ceased in order to enforce the corporate debt against it. Without officers in control of its property, the corpora [580] tion as such was not in a situation to satisfy any judgment which might be recovered. Its property was in the possession of Williams, but, according to all modern • authorities, impressed with a trust in favor of the creditors of the corporation. Muscatine Turn Verein v. Funck, 18 Iowa, 469; Nevitt v. Bank of Port Gibson, 6 S. & M. (Miss) 513 (see Chancellor Kent’s argument); Hightower v. Thornton, 8 Ga. 486 (52 Am. Dec. 412); Pahquioque Bank v. Bethel Bank, 36 Conn. 325 (4 Am. Rep. 80); City Ins. Co. v. Commercial Bank, 68 Ill. 348; 10 Cyc. 1320. Though the corporation had become dormant, its assets remained a trust fund for the payment of its debts against which a lien for that purpose might be established. Ordinarily a judgment must be obtained before proceeding to subject property to the payment of the debt. But, whenever the creditor has a trust in his favor, he is not required to exhaust his remedies at law before demanding the enforcement of the trust. Ellis v. Pullman, 95 Ga. 445 (22 S. E. 568); Patterson v. Wyo-missing Mfg. Co., 40 Pa. 117. But such is not the relief sought. 4. Same: form ofaction: misAll the petition prays is that the judgment when obtained be established against real estate belonging to the corporation. This involved no equitable principle whatever for upon the required finding in favor of the plaintiff the statute declared that the judgment should become a lien on the real estate of the company. Loan v. Hiney, 53 Iowa, 89. The thought of the pleader seems to have been that as Williams was sole owner of the stock of the dormant corporation, and was in possession of its land, he ought to be made party defendant, and afforded an opportunity to contest the existence of the indebtedness against the Waukon Excelsior Creamery Company. Whether he was a proper party is not raised by the motions filed. The issue as to him is identical with that raised against the company whose stock he is alleged to own, and, as no equitable relief is sought [581] there was no misjoinder of causes of action. See section 3545, Code. No cause of action is stated against J. E. Hubbell or Anna Williams, and, as to them, the order of the court will not be disturbed. As to the other defendants, the ruling was erroneous, and the order must be reversed.