ous interest. While this suit was pending the foreclosure suit passed into decree, the Stouts having never been made parties or entered an appearance in that suit. Thereupon, their suit was dismissed, and such dismissal was held by this court proper, on the ground that the Stouts, being simple contract creditors at the time the foreclosure suit was commenced, were not only unnecessary but improper parties. "If they had been made parties when the suit was begun, they could have done nothing by way of defense to the action until they had acquired some specific interest in the mortgaged property. As creditors at large, they were powerless in respect to the foreclosure proceedings; but, when they obtained their judgment,-not before,they were in a position to contest in all legitimate ways the validity and extent of the superior lien which the bank asserted on the property, in which, by the judgment, they had acquired a specific interest." And on the further ground that the mortgagor represented in the foreclosure suit not merely himself, but all parties who, like the Stouts, acquired any interest in the property since the commencement of that suit.

So, here, these plaintiffs were simple contract creditors when the trustee's suit was commenced. That suit passed to decree of foreclosure, and up to that time these plaintiffs had acquired no specific lien upon the property. They entered no appearance in that suit, did not intervene, or claim any rights in the property, and they were represented in that suit. by the corporation, the party under whom both they and the trustee claimed. A decree of dismissal was therefore proper. It appears in the record as a decree upon the merits. It should have been for want of jurisdiction, and to that extent the decree, as entered, will be modified. The appellants will be charged with all the costs in the case.

Dismissed for want of jurisdiction.

Mr. Justice Brown and Mr. Justice Jackson dissented.

SUBDIVISION III. THE CREDITORS and CORPORATE OFFICERS.

ARTICLE I. RIGHTS OF CREDITORS.

Sec. 661. A. Common law liability of officers. 1. Directors' responsibility.

I.

NIX v. MILLER.'

1899. IN THE SUPREME COURT of Colorado.

Pac. Rep. 1084-1087.

26 Col. 203, 57

CAMPBELL, C. J. This action by a judgment creditor of an insolvent corporation, whose right of execution on the judgment was returned nulla bona, was brought against its directors to recover from 1 Part of opinion and opinion on rehearing omitted.

them the amount of the judgment, on the ground of their wrongful diversion and misapplication of the corporate assets. The judgment below went against two of the directors, one of whom (Charles H. Nix) has appealed.

*

The propositions vigorously maintained by appellant may thus be stated: First, that appellant did not participate in or consent to the alleged frauds of the directors that worked the insolvency of the corporation; second, that if, in law, by inattention to his official duty he may be held to have contributed to the alleged fraudulent acts, they are not of such a character as to entail personal liabilities upon the director committing them; third, that the alleged frauds were committed before the plaintiff became a creditor of the corporation, and, therefore, even if the appellant participated therein, the plaintiff, as a subsequent creditor, can not call him to account therefor; fourth, that before the plaintiff became a creditor, appellant resigned his office as director, and so can not be chargeable for any default of the other directors respecting plaintiff's charge of fraud, in so far as it was committed after the time of his resignation; fifth, that he is not liable as a stockholder.

Preliminary to the separate consideration of these propositions, it is well briefly to state the salient facts necessary to an understanding of the case: Previous to July, 1892, the firm of Home & Co., composed of W. S. Home and Charles H. Nix, was engaged in the general merchandise business at the town of Ouray. Being indebted, they conceived the plan of forming a corporation to which to transfer all of the firm property, with a view the better to pay off this indebtedness. In accordance therewith, the Ouray Mercantile Company was formed by the members of this firm, they, and two others named by them, becoming the directors, the capital stock consisting of $20,000, which was issued as fully paid up stock, the consideration being the transfer by the firm to it of the firm property, burdened by the indebtedness of the firm, which the corporation assumed and agreed to pay. Its. business was carried on and purchases made from time to time for a period of eight months, when the corporation, about March 26, 1893, became insolvent and ceased doing business. The plaintiff sold merchandise to it between the latter part of December, 1892, and the date of insolvency. A judgment against the corporation for the amount of his debt was recovered, and, the execution thereon being returned unsatisfied, the plaintiff brought this action against the directors, charging them with diversion of the corporate property. The court found, as a matter of fact, that the directors had misapplied over $11,000 of the corporate assets, which caused its insolvency, and this insolvency was admitted at the trial.

1. It may be that the record failed to show any direct, positive and specific fraudulent act of the appellant concerning the corporate business. He himself testifies that, practically, he gave it no personal attention, but entrusted it entirely to Home and Sparks, his co-directors. That they were guilty of misappropriation of the corporate assets, as the trial court found, the appellant, in discussing this branch of the case, does

not controvert, but his defense is that he had nothing whatever to do with such acts, and did not participate therein or consent thereto. It is not every act of a director of a mercantile corporation, whether it be of omission or commission, that entails upon him individual liability for loss to a stockholder or creditor resulting from such act. While the appellant in this case may not be held for knowingly committing a fraudulent act, yet for gross neglect of and inattention to his official duty he may be, and under the facts of this case is, accountable to the plaintiff, as a judgment creditor, just as certainly as if he personally did the act that caused the damage. That his neglect of duty in this direction permitted his co-directors to commit the acts that worked the injury to plaintiff we think entirely clear, and the proof is amply sufficient to uphold the findings of the trial court to that effect.

2. The second point is closely allied with the first, and might well be considered with it. The acts of the directors complained of were nothing more nor less than a diversion of the funds of the corporation from their legitimate channel, and, instead of paying therewith corporate debts, applying them to the payment of the individual debts of one of the directors. We have already decided that appellant's gross neglect of the company affairs enabled the active managing directors of the company to accomplish this fraud. That this misapplication of the corporate property, which is a trust fund for the creditors, instead of paying therewith the corporate indebtedness,—when the necessary result is to make the corporation insolvent, thus rendering creditors unable to collect from it their claims,-is a fraud upon them, for which they may proceed against the directors after fruitlessly exhausting their remedy against the corporation, is too clear for dispute. Tayl. Priv. Corp. (3d ed.), §§ 616-619, 756-758, et seq.; 3 Thomp. Corp., § 4152, and cases cited; 1 Beach Priv. Corp., § 257c, et seq.; Cole v. Iron Co., 133 N. Y. 164, 30 N. E. Rep. 847; Scott v. Depeyster, 1 Edw. Ch. 512. Appellant relies upon Briggs v. Spaulding, 141 U. S. 132, 11 Sup. Ct. 924, as authority for his position that the acts of the directors here are not actionable. The theory of the bill in that case was that the defendants were "liable, not to stockholders nor to creditors, as such, but to the bank, for losses alleged to have occurred during their period of office because of their inattention." The defendants were held not liable, but the charges against them were not of the grave and serious character established against these defendants. In the opinion, Chief Justice Fuller thus speaks: "If particular stockholders or creditors have a cause of action against the defendant individually, it is not sought to be proceeded on here, and the disposition of the questions arising thereon would depend upon different considerations." The rule he lays down in that case, governing the liability of directors to the corporation, would, however, clearly make these defendants liable, under the facts of this case, while confessedly the duty of directors to creditors is to be determined by a stricter rule.

3. It is held by the highest authority in this country (Graham v.

Railroad Co., 102 U. S. 148) that the disposal by a corporation of any of its property can not be questioned by any of its subsequent creditors. Other authorities might be cited, but this case is controlling. It is upon the ground that the diversion of funds occurred before the plaintiff became a creditor that appellant seeks to escape liability. If the facts of the case at bar brought it within the principle of the authority cited, we would not hesitate to recognize the rule therein announced, because not only is it a sound one, but, in the absence of a controlling rule in our own jurisdiction (of which there is none), we would be inclined to follow the decision of the august tribunal from which it emanated.

Whether, as contended by appellee, the character of the action in this case is different in kind from the principal case, or whether it is, as claimed by him, one merely to compel an accounting of a trust fund, is not important; for conceding that the two are of the same class, there is enough in the facts of the pending action, as set out in the findings of facts, which the record supports, to differentiate this case from that, in this: that the fraudulent acts here complained of were clearly intended to operate as a fraud upon subsequent creditors, and of necessity, as the directors must have known, could have no other effect. So that this case falls within the exception of the general rule that subsequent creditors may not question a fraudulent disposition of their debtor's property made before the relation of creditor and debtor existed, and is brought within that class of cases which hold, where such fraudulent disposition of the debtor's property was intended as a fraud upon subsequent creditors, and necessarily could have no other effect, that the latter may complain. It is also to be observed that it does not appear just what proportion of the fund was misapplied before, and what after, the plaintiff became a creditor. Upon the showing made by plaintiff, it was incumbent upon the defendants to make this point clear.

4. If the appellant resigned as a director before the plaintiff became a creditor, it does not necessarily follow that this releases him from all previous acts of misfeasance. If, as we have held, the diversion of assets was intended as a fraud upon subsequent creditors, and so resulted, and appellant by his inattention to duty contributed thereto so as to make him personally holden, the same as those directly guilty of the fraud, his liability may have become fixed for past acts before his resignation took effect, so that, in one sense, and as to past acts, it is immaterial as to the exact date of his resignation. But the finding of the trial court, to the effect that this resignation was not effectuated until after the plaintiff became a creditor and the wrong was committed, is not without support in the record. At the trial the appellant produced a written instrument, addressed to the company, and signed by him, tendering his resignation, and it bore date November 26, 1892, and this was before the plaintiff became a creditor. We may safely concede that the appellant had a right to resign, and that there was no necessity for an acceptance of his resignation by the board of directors, formal or otherwise. That his connection as a 2 WIL. CAS.-45

director with the corporation, and his liability for all subsequent acts, ceased the moment he tendered his resignation to the proper authority, even if that authority refused to accept it, is doubtless true. It may also be conceded that the legal presumption is that a written instrument like this was executed when it bore date, and that it was delivered at the same time. 2 Whart. Ev. (3d ed.), § 1313; 1 Greenl. Ev. (15th ed.), § 38; Holbrook v. Zinc Co., 57 N. Y. 616; People v. Snyder, 41 N. Y. 397; Abb. Tr. Ev., p. 527, § 10. Still there is enough in the record to justify the finding that the resignation was not tendered or made until March 18, 1893, when it was formally accepted by the board. Among other things bearing upon this point is the fact that Mr. Nix, when on the stand, did not state when he tendered his resignation, or that it was in fact made prior to the date of acceptance, and his subsequent conduct in relation to the corporation was of such a character as to indicate that he still considered himself as a director, and acted in that capacity.

(Fifth point omitted.)

Affirmed.

Note. See, generally, note 49 Am. St. Rep. 698, and 1832, Robinson v.. Smith, 3 Paige (N. Y.) 222, 24 Am. Dec. 212; 1850, Hodges v. N. E. Screw Co., 1 R. I. 312, 53 Am. Dec. 624; 1868, Bank v. Hill, 56 Maine 385, 96 Am. Dec. 470; 1878, In re Wincham, etc., Co., 9 Ch. D. 329; 1887, Delano v. Gardner Case, 121 Ill. 247; 1888, Seale v. Baker, 70 Texas 283, 8 Am. St.. Rep. 592; 1889, Marshall v. Farmers', etc., Bank, 85 Va. 676, 17 Am. St. Rep. 84, note 95, infra, p. 1879; 1895, Grant v. Walsh, 145 N. Y. 592, 45 Am. St. Rep. 626; 1895, Tradesman Pub. Co. v. Knoxville, etc., Co., 95 Tenn. 634, 49 Am. St. Rep. 943; 1896, Tate v. Bates, 118 N. C. 287, 54 Am. St. Rep. 719; 1896, In re Brockway Mfg. Co., 89 Maine 121,56 Am. St. Rep. 401; 1898, Corn Exchange Bk. v. Solicitors, etc., 188 Pa. St. 330, 68 Am. St. Rep. 872; 1898, Bird. v. Magowan, - N. J. Eq. 43 Atl. Rep. 278; 1898, Warner v. Pennoyer, 91 Fed. 587, 44 L. R. A. 761; 1899, Seeberger v. McCormick, 178 Ill. 404; 1899, Kent v. Clark, 181 Ill. 237; 1899, Hequembourg v. Edwards, Mo.-, 50 S. W. Rep. 908; 1899, In re Natl. Bank, 68 L. J. Ch. 634, 81 L. T. (N. S.) 363; 1899, Warren v. Robinson, 19 Utah 289, 75 Am. St. Rep. 734; 1900, Hayward v. Leeson, 176 Miss. 310, 49 L. R. A. 725; 1900, Michelson v. Pierce, 107 Wis. 85, 82 N. W. Rep. 707; 1901, Bosworth v. Allen, 168 N. Y. 157, 61 N. È. 163, 55 L. R. A. 751, note, 85 Am. St. R. 667; 1901, Campbell v. Watson, N. J. Eq. 50 Atl. 120; 1902, Scott v. Farmers' & M. Bk., Tex Civ. App. 66 S. W. 485; 1902, Winchester v. Howard, 136 Cal. 432, 89 Am. St. R. 153, 69 Pac. 77.

Compare, 1900, Utley v. Hill, 155 Mo. 232, 78 Am. St. Rep. 569.

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After insolvency the directors are trustees of the corporate assets for the benefit of creditors and shareholders. See, generally, 1887, Sweeney v. Grape Sugar Co., 30 W. Va. 443, 8 Am. St. Rep. 88; 1889, Beach v. Miller, 130 Ill. 162, 17 Am. St. Rep. 291, note 301; 1895, Tradesman Pub. Co. v. Knoxville, 95 Tenn. 634, 49 Am. St. Rep. 943; 1896, In re Brockway Mfg. Co., 89 Maine 121, 56 Am. St. Rep. 401; 1899, Millsaps v. Chapman, 76 Miss. 942, 71 Am. St. Rep. 547. Compare 1900, Wilson v. Stevens, 129 Ala. 630, 87 Am.

St. R. 86.

Contra, 1900, Utley v. Hill, 155 Mo. 232, 78 Am. St. Rep. 569.

By the weight of authority, however, creditors may be preferred, even after insolvency, until the property has been taken possession of by a court of equity or a trustee to wind up its concerns. See, supra, §§ 645, 646.