Palmer v. Hawes

Cassoday, J. It is alleged in the answer that the note was given to the plaintiff in payment for capital stock of the company, which was of par value at the time. Since it was indorsed by the appellant before it was so delivered to the plaintiff, there could be no question but what the indorsement was based upon a good and valuable consideration [50] paid at the time. It is alleged in the answer that the plaintiff took the 100 shares of such stock from the maker and the thirty shares from the appellant, to hold as collateral security to the note. As such custodian of such stock, the plaintiff undoubtedly owed several duties to the appellant. He was required to safely guard such custody. There is no pretense that he did not. The only other thing he could do, apparently, was to sell the stock and apply the proceeds thereof in payment on the note. But no request nor agreement to that effect is alleged. Without such request or agreement the plaintiff was under no obligation to sell. Harris v. Newell, 42 Wis. 690 et seq.; Gardner v. Van Norstrand, 13 Wis. 543; O'Neill v. Whigham, 87 Pa. St. 394; Monroe Co. v. Otis, 62 N. Y. 89; Cook on Stocks, § 476. The mere decline in the value of the stock while so being held by the plaintiff is no ground of defense. Ibid. It is alleged, in effect, that some six months after the plaintiff obtained such stock he falsely represented to the appellant that the affairs and business of the company were in good condition, whereby she was lulled into inactivity and rest concerning her liability on the note. But that is no ground for defending against the note, nor of any action against the plaintiff, since the appellant parted with nothing on the faith of such representations. But the ground most relied upon as a defense is the alleged carelessness and negligence of the plaintiff as a director and officer of the corporation which issued such stock so held as collateral, whereby the same became substantially worthless. There are cases where general allegations of carelessness and negligence in the performance or nonperformance of some specific act have been held good on demurrer. Young v. Lynch, 66 Wis. 514. But it is verj^ doubtful whether such general allegations, without reference to any specific act, as here, constitute actionable negligence. Cahill v. Layton, 57 Wis. 614; Pratt v. Lincoln Co. 61 Wis. [51] 66; Williams v. Williams, 63 Wis. 72; Stone v. Oconomowoc, 71 Wis. 159; Brown v. Phillips, 71 Wis. 254. Assuming, for the purposes of this case, however, that the allegations of carelessness and negligence, though general, are nevertheless in that respect sufficient, still we are unable to hold that they are available to the appellant as a defense in this action. The difficulty with such defense is in attempting to hold such director and officer responsible for such alleged misconduct directly to an individual stockholder. While the careless and negligent conduct of directors and officers of a private corporation may injuriously affect the respective stockholders, jmt they are primarily answerable for such conduct to, through, or on behalf of such corporation, and not directly to an individual stockholder. Thus it has been held by this court, upon careful deliberation, that a stockholder of such corporation cannot maintain an action in his own name against the officers thereof for the fraudulent act or waste of the corporate property, unless the corporation or its officers, upon being requested, refuse to prosecute such action, or unless it appears that such a request would be useless. Doud v. W., P. & S. R. Co. 65 Wis. 108. An averment of such requisites is essential to the pleading; otherwise it is bad on demurrer. Ibid. The authorities in support of such ruling are numerous. Hersey v. Veazie, 24 Me. 9, 41 Am. Dec. 364; Smith v. Hurd, 12 Met. 371, 46 Am. Dec. 690; Hodges v. New England Screw Co. 1 R. I. 312, 53 Am. Dec. 624; Brown v. Vandyke, 8 N. J. Eq. 795, 55 Am. Dec. 250; Greaves v. Gouge, 69 N. Y. 154; Hawes v. Oakland, 104 U. S. 450; Conway v. Halsey, 44 N. J. Law, 462; Abbott v. Merriam, 8 Cush. 588. While such stockholder has an indirect remedy for such official misconduct by, through, or against the corporation, in behalf of all stockholders, yet he has no right of personal action for damages on account thereof against such individual director or officer, notwithstanding such conduct may have had [52] the effect of depreciating the value of his stock. Smith v. Hurd, supra; Conway v. Halsey, supra. The reasons for such rulings are obvious. Such directors and officers are the trustees and agents of the corporation, and not in legal privity with the respective stockholders. Such misconduct primarily concerns and affects the corporation; and although a stockholder may be indirectly affected in the manner indicated, yet it necessarily affects all stockholders alike, and is therefore a matter in which all are equally concerned. For these and other reasons which might be given we are forced to the conclusion that the answer fails to state facts sufficient to constitute a defense. By the Court.— The order of the circuit court is affirmed.