Van Dyck v. McQuade

Headnote

I. Corporation.

1. Savings Banks.

(a) TRUSTEES AND DIRECTORS,. LIABILITY OF.

(6) Payment of dividends or interest not earned.

1. Trustees are liable for all such payments under a resolution declaring dividends passed with their co-operation or concurrence, or subsequently approved of by them.

1. Mode of signifying concurrence or approval.

(a) Need not be by record of a vote “Aye” on the merits, but may be by a vita toce vote.

1. This notwithstanding the terms of section 34 of chapter 371, of the laws of 1875.

2. Joint and several,—The liability is several as well as joint.

3. Liability rests on.

1. Common law.

2. If the measure of the liability for acts done after May 17, 1875, is to be sought for only in chapter 371 of the laws of 1875, then the liability may be rested on the provisions of that chapter.

3. As to the Yorlcville Savings Sanie the liability independently of the common law may also, as to all dividends declared prior to May 17, 1875, if it be regarded as a moneyed corporation, be rested on sections 1 and 10, of article 1, title 2, chapter 18, part 1 R. S., and if not regarded as a monied corporation, then by virtue of the act of 1809 chartering it, upon section 2, title 4, chapter 18, part 1 R. S.

4. Right of action by reason of such payment, accrues to whom.

(a) To a receiver under a judgment dissolving the corporation and appointing a receiver rendered in action against the corporation by the people, &c.

5. Set off, a consideration.

(a) Sums assessed on, and paid by trustees into the corporation before the appointment of a receiver, for the purpose of paying such dividends or interest as were improperly declared and paid, cannot be set off or counterclaimed.

Appeal by defendant from a judgment for $13,534.25, entered against him in favor of plaintiff on the report of the referee.

This action brought to recover $9,096.45 and interest thereon, being the amount of fifteen dividends declared, credited and paid by the Yorlcville Savings Bank of the city of New York, of which plaintiff is receiver.

Defendant was a trustee of said bank from its organization in 1869, until its dissolution ; and, until December 29, 1873, was its first vice president, and chairman of its executive committee ; and all said dividends were declared and paid with the knowledge and approval, and by the vote and direction of the defendant as a trustee and officer o’f said bank.

The bank was insolvent during its entire existence, and its income was never sufficient to pay its running expenses ; and the moneys appropriated to pay said dividends were therefore mis-applied.

The action was tried before Hon. Joseph S. Bosworth, as referee, who delivered the following opinion.

“ J. S. Bosworth, Referee.—In Austin v. Daniels, 4 Denio, 299 , 301, the court, said: ‘ Bank officers are but agents of the corporation, and if they transcend or abuse their powers, are as much responsible to their principal as are the agents of an individual. This ought to be regarded as too plain to require argument or authority, and I shall offer neither.’

1 ‘ Perry, in his treatise on the Law of Trusts and Trustees, enunciates as rules well settled, that the directors of corporations are trustees and agents of the shareholders and of the corporation (§ 207) ; that a trustee cannot sleep on his trust; that the law knows no such person as a passive trustee ; that if a loss occurs from any want of attention, care or diligence, of the trustee, after he accepts the office of trustee, he may be held responsible for not taking such action as was called for (§ 266); that if a person assumes to act as trustee and becomes possessed of the trust fund, and misapplies it, he cannot protect himself by showing that he was not legally a trustee (§ 846); and that executors and administrators will be answerable for a breach of trust of their testator, though they may have distributed the assets without notice of the claim ; unless the distribution was made by order of the court,

or the time limited for suits against them has expired (§ 846).

Robinson v. Smith, 3 Paige, 222, 231; Cunningham v. Pell, 5 Id. 607, 612; Butts v. Wood, 37 N. Y. 317 ; Osgood v. Laytin, 3 Abb. Ct. App. Dec. 418 , and Osgood v. Ogden, Id. 425 , affirm these principles, illustrate to the same extent their application and the rights of action in favor of a receiver, which he can enforce.

“The act incorporating the Yorkville Savings Bank (L. 1869, p. 788), names the defendant as one of the corporators (§ 1), and as one of the first trustees of that corporation (§ 4), and he continued to act as such trustee, until the appointment of the plaintiff as receiver herein.

“The dividends alleged in the complaint to have been declared and paid, were declared by the co-operation, concurrence and approval of the defendant.

“There was no surplus profits at the time these dividends were declared, out of which they or any part thereof could be paid, and this fact was well known to the defendant. His misconduct, by willfully co operating with other trustees to effect, and in effecting a declaration and payment of dividends, when there was no surplus profits out of which they could be paid, is clearly and fully established. I think, therefore, that independent of any statutory enactments, he is liable to the corporation for this misconduct, and that the receiver can enforce that liability.

“I think the defendant is, also, clearly liable by force of statutory provisions, whether this corporation is or is not a moneyed corporation, within the meaning of that term, as defined by the Revised Statutes.

“ Section fourteen of the act incorporating this corporation (L . 1869), declares that ‘ the corporation hereby created shall be subject to the provisions of the eighteenth chapter of the first part of the Revised

Statutes, and all other general laws affecting savings institutions, so far as the same are applicable. . .

“Section 2, of title 4, of that chapter (1 R. S. 601), declares that it, shall not be lawful for the directors or managers of any incorporated company in this State to make dividends, excepting from the surplus profits accruing from the business of such corporation, . . . and in case of any violation of the provisions of this section, the directors, under whose administration the same may have happened, except those who may have caused their dissent therefrom to be entered at large on the minutes of the said directors at the time, or were not present when the same did happen, shall, in their individual and private capacities, jointly and severally be liable to the said corporation, and to the creditors thereof, in the event of its dissolution, to the full amount of the capital stock of the said company so divided, withdrawn, paid out or reduced, with legal interest on the said respective sums, from the time such liability accrued, and no statute of limitations shall be a bar to any suit at law or in equity, against such directors for any sums for which they are made liable by this section.’

“ This language is so clear and precise, that there can be no doubt that it includes a corporation like the Yorkville Savings Bank.

“ Such continued to be the law up to the time that chapter 371 of the Laws of 1875 (passed May 17, 1875,) took effect and still continues "to be applicable to the directors or managers, of savings institutions, unless, as to them, it is repealed by the act of 1875. Section 56 of the act (Id. 416) repeals several enumerated statutes, relating especially to savings banks. No part of the Revised Statutes is, in terms, repealed. If repealed, it must be because some provisions of the act of 1875, relating to its trustees or managers, are in direct conflict with the part of the Revised Statutes above quoted. I do not

discover anything in the act of 1875 which is necessarily of this character. If it is claimed that section 52 (Id. 416) is of this character, it may be answered, as I think, that that section only relates to the powers, privileges, duties and restrictions conferred upon the corporation itself, and confirms the powers, rights and privileges of the corporation and subjects the corporation to the duties, restrictions and liabilities imposed by that act. It does not in terms, and in my opinion it does not by necessary implication repeal so much of the act of 1869 as imposes upon the trustees the liability above stated, for making dividends, when there are no surplus profits with which to pay them. Hence, it is clear, that if this corporation is a moneyed corporation, the trustees are liable for all dividends declared prior to the passage of the act of 1875, under sections 1 and 10 of 1 R. S. 591, and if not a moneyed corporation, then for all such dividends under section 2 of 1 R. S. 601 (Vide Id. § 11, p. 605).

“ And even if the ground and measure of the liability of a trustee of a savings bank, for acts done after the act of 1875, are to be sought only on that act, then it will be found that section 33 of that act (p. 411) makes it the duty of the trustees of such corporation to regulate the rate of interest not exceeding six per cent, per annum, upon the deposits therewith, in such manner, that depositors shall receive, as nearly as may be, all the profits of such corporation, after deducting necessary expenses.

“Section 34 declares that no dividends or interest shall be declared, credited or paid, except by authority of a vote of the board of trustees, duly entered upon their minutes, wherein shall be recorded the ayes and noes upon such vote, and whenever any interest or dividends shall be declared and credited in excess of the interest or profits earned and appearing to -the credit of such corporation, the trustees voting for such

dividends shall be jointly and severally liable to the corporation for the amount of such excess so declared and credited.

“The words ‘interest’ and ‘dividends’ are used in this act, as equivalent expressions. I cannot accede to the proposition that only such trustees are liable as appear by the minutes to have voted ‘ aye,’ in favor of making a prohibited dividend. Nor that those who caused it to be declared, if paid in pursuance of such declaration, are not liable, because it may have been declared at a meeting when less than a legal quorum was present. All who voted to make the declaration, though they may have voted viva voce, and all who subsequently, at a meeting of the board, approved of such act, though they approved of it by a viva voce vote, are liable ; they voted for it within the meaning of the provision, imposing the liability named for the misconduct specified. I think, therefore, that the defendant is liable by the rules of the-common law, and is liable under and by force of the statutory law.

“ I think the right of action upon this liability of the trustee is vested in the receiver.

“By the act of 1875, the liability imposed is declared to be a liability to the corporation. There can be no question that such a right of action is vested in the receiver.

“The liability created by section 2, of title 4, of chapter 18, of the Revised Statutes (vol. 1, p. 601), is declared to be a liability to the said corporation and to the creditors thereof, in the event of its dissolution.

“ The provision of law, under which, in Osgood v. Laytin (s upra) it was held that an action could be maintained by the receiver, provided, that ‘any dividend so made shall subject each of the stockholders receiving the same, to an individual liability to the creditors of such company, to the extent of such dividends received by him’ (4 Edm. R. S. 210).

“The act last cited, subjects each of the stockholders receiving a dividend, to an individual liability to the creditors of such company ; though the liability is several, it is to the creditors generally, and not to each creditor. The liability imposed by the Revised Statutes, though several as well as joint, is to the creditors thereof generally ; that is, to the creditors of the corporation, in the evept of its dissolution. The reasons assigned by the court, Grover, J., in Osgood v. Laytin, 3 Abb. Ct. App. Dec. 424 , at the foot of that page, for holding that the receiver might maintain the action in that case, apply with like force to this, and that case is an authority in point, in favor of the receiver’s right to maintain this action.

“Hence, it follows that whether the liability throughout is declared by the Revised Statutes, or whether his liability as to acts done since the passage of the act of 1875, is to be determined and measured by the provisions of that act, the right of the receiver to recover seems to be free from reasonable doubt. And it also follows, that the defendant is liable in this action, for the amount of the dividends declared by his concurrence and co-operation.

“I think there is nothing in the defense of nonjoinder of parties set up in the answer. Even if it be open to the defendant to avail himself of the alleged defect by answer, it appears that some of the persons alleged to be co-trustees with the defendant, were not trustees when some of the dividends were declared and credited, and are not liable therefor ; and the liability of the trustees is several as well as joint.

“The alleged counter-claim is unavailable. The action sounds in tort. It is brought to enforce a liability caused by the misconduct of the defendant. As to the sums assessed upon, and paid by the trustees into the bank, the liability of the corporation therefor, if it be liable to pay the same, arises upon contract.

“If, by the terms of the resolution, by which these moneys were assessed and paid, the corporation is under no liability to re-pay the same, unless /‘the profits of the bank warrant it,” then the corporation is not liable therefor. The profits of the bank have never warranted the re-payment of any part of these moneys, and, as the institution is dissolved, never can warrant it.”