Full text
Cream City Mirror Plate Company v. Coggeshall and another, imp.
B'aRNes, J". Tbe question presented to tbis court is: Does tbe complaint state a cause of action? It may be tbat tbe plaintiff is asking relief to wbicb it is not entitled, and tbat facts exist wbicb would deter a court of equity from- granting any relief, but if they do exist they are not before us.
Tbe complaint shows tbat Goetzinger beld four fifths of tbe capital stock of tbe corporation as collateral security for tbe payment of an indebtedness amounting to- $15,000, which indebtedness was incurred by the defendant Donahue in reference to the purchase of tbe corporate stock and property of tbe plaintiff from Goetzinger; tbat Donahue, who was insolvent, was permitted by bis co-directors to borrow $12,450 from tbe corporation for bis own personal use, giving a worthless note therefor, due in three years from its date without interest, and tbat all tbe directors knew tbat Donahue was insolvent when tbe loan was made; tbat tbe corporation was thereby left without means to pay its debts; and tbat its assets amounted to little, if anything, more than its debts.
Tbe law would be very inefficient if it did not afford to tbe bolder of tbe collateral protection against tbe squandering of bis security by any such means. It would be just as inefficient if it did not afford a like protection to creditors of the corporation. It is no answer to tbe facts alleged to say tbat tbe Donahue notes may be paid as they mature. Goetzinger is entitled to have bis security protected from fraudulent dissipation in tbe meantime.
If tbe corporation could take the worthless notes of Donahue due in three years for tbe money paid him, it could take notes maturing in ten years. A party taking corporation stock as security for a loan is not obliged to permit bis security to be squandered by the debtor who practically controls tbe corporation because perchance tbe debt will be paid at maturity. Tbe security having been wasted, tbe creditor should have tbe right to compel those responsible for tbe waste to make reparation.
Tbe general creditors of tbe corporation might exercise tbe same -right if 656 their interests were being jeopardized and they so demanded. The complaint shows that a large sum of money was lost to the corporation because of a fraudulent breach of trust on the part of its directors. Eor such a loss the recreant officers are personally responsible. Sec. 3237, Stats.
(1898); Gores v. Day, 99 Wis. 276, 74 N. W. 787; Cunningham v. Wechselberg, 105 Wis. 359, 81 N. W. 414; Killen v. Barnes, 106 Wis. 546, 82 N. W. 536; Consolidated V. Works v. Brew, 112 Wis. 610, 88 N. W. 603; Seering v. Black, 140 Wis. 413, 122 N. W. 1055. Nothing is said in Edler v. Hasche, 67 Wis. 653, 661, 31 N. W. 57, or in Whorton v. Webster, 56 Wis. 356, 371, 14 N. W. 280, that is in conflict with the views here expressed. Subd. 2, sec. 3237, Stats.
(1898), expressly authorizes the institution of such an action as is here brought against the directors of a corporation for the restitution of funds lost through their mismanagement. .The control of the corporation having passed into friendly hands, and the purpose of the suit being to restore its assets by compelling money to be paid back into its treasury by those who-were responsible for its wrongful withdrawal, the action was-properly brought in the name of the corporation rather than in the name of a creditor of the corporation or of Groetzinger.
Doud v. W., P. & S. R. Co. 65 Wis. 108, 25 N. W. 533; Land, L. & L. Co. v. McIntyre, 100 Wis. 245, 256, 75 N. W. 964; Franey v. Warner, 96 Wis. 222, 227, 71 N. W. 81, and cases cited. By the CouH. — Order affirmed.