1. R.S. 14:8-10, formerly part of section 48 of the Corporation act ( Comp. Stat. p. 1630), was enacted for the benefit of creditors to secure them for their debts as against the dissipation of corporate funds through loans to stockholders by officers. The right of action is not limited solely to creditors, and in this case it also resided in the corporation itself for the benefit of its creditors, as well as in the trustees appointed in reorganization proceedings.
2. Investment Co., in which the defendants were officers at the time of the loans in question, gave a mortgage on certain premises to Prudence Co. to secure its bond. The bond and mortgage were thereafter assigned to Trust Co. as trustee under a depository agreement. Prudence Bond Corp. issued participation certificates guaranteed by Prudence Co. Investment Co. filed its petition for reorganization under section 77B of the Bankruptcy act. Trustees in bankruptcy were appointed; a plan of reorganization was presented, accepted by all classes of claimants, approved by the district court and put into action. Under this plan, Journal Square Co. was organized as successor to Investment Co., and the trustees conveyed and assigned all the assets of Investment Co. to the new corporation, including the mortgaged premises. By a later assignment, the trustees assigned all choses in action which they or Investment Co. might have against the officers of the company and against its former officers. Unsecured creditors of the bankrupt company surrendered their claims and accepted notes of Journal Square Co. in their place. The bond and mortgage were assigned to complainant Hudson Bank as trustee under a declaration of trust in favor of all holders of the participation certificates; they assigned their interest in the bond and mortgage, whose payment Journal Square Co. assumed, and accepted new certificates issued by Hudson Bank. For arrearages of interest due on their old certificates, they received Class A stock of Journal Square Co. in proportion to their certificate holdings. Stockholders of Investment Co. received stock of Journal Square Co. Complainant Cole assented to the reorganization plan, surrendered her mortgage participation certificate, and received a new certificate issued by Hudson Bank and also fourteen shares of Journal Square Co. Class A stock. Held, by taking over the assets of Investment Co., giving its promissory notes to the latter's unsecured creditors and assuming the mortgage debt, Journal Square Co. not only succeeded to the rights of Investment Co. creditors, but the trustees assigned to it the right of action they and the bankrupt company had against the defendants. Although the unsecured creditors and holders of mortgage participation certificates surrendered their rights against Investment Co., the surrender did not include their rights as against defendants to have an asset of Investment Co. recovered for their benefit. Journal Square Co. has a right to prosecute this action, and so much of the funds unlawfully dissipated by defendants as it may recover may be applied by it in payment of its promissory notes held by creditors of the bankrupt company and in payment of interest and principal on the mortgage debt.
3. Complainant Cole, who was owner of an original participation certificate and as such a creditor of Investment Co., and Hudson Bank, assignee of the bond and mortgage executed by Investment Co. and trustee under a declaration of trust in favor of the original mortgage participation certificate holders who had assigned their claims to it, are proper, if not necessary parties, to this action.
4. R.S. 14:7-8 provides that when officers of any corporation shall be liable to pay the debts of the corporation, any person to whom they are liable may have an action against them and may have his remedy by bill in chancery. The defendants' contention that the statute is unconstitutional in that it attempts to confer on the court of chancery jurisdiction to hear and determine actions for debt, is unsound.
5. A court of equity is a proper tribunal in which to determine the liability of trustees charged with fraudulent conduct, and wherein there can be a marshalling of assets and liabilities requisite to ascertainment of how much of the sums loaned will be required for payment of debts.
6. Statutes of limitation do not apply in terms to courts of equity, but the spirit and meaning of such statutes are generally applied in equity unless circumstances appear which would make it inequitable to do so.
7. A suitor cannot be deprived of his remedy in equity on the ground of laches unless it appears that he had knowledge of his rights and neglected prompt prosecution of his remedy. It does not appear that complainants, or the trustees in bankruptcy, knew of the illegal loans until some time after proceedings in bankruptcy had been instituted. The bill herein was filed in January, 1938, and it is not at all certain that complainants knew the extent or details of the loans until the records of the bankrupt company came into the hands of Journal Square Co., in April, 1937. The assignment to the latter company of choses in action against the officers of the bankrupt company was not made until October, 1937.
8. Section 48 of the Corporation act is a remedial and not a penal statute; it is authority for an action for damages for breach of fiduciary duty. Section 21 of the statute of limitations ( R.S. 2:24-22b) is not applicable.
9. The liability which complainants seek to fasten on defendants is not one for a simple debt, but for a special sort of obligation created by a special statute, and it is therefore for a debt on a specialty, to which section 1 of the statute of limitations ( R.S. 2:24-1) does not apply. It should be noted that R.S. 14:8-10 provides that liability of the officers shall continue "until the repayment of the sums so loaned."
10. Under the statute ( R.S. 14:8-10) all officers who assent to loans made to stockholders are liable therefor. Under the evidence it must be concluded that all the defendants knew of and assented to the loans in question, and are liable jointly and severally for the balance remaining due thereon, with interest from the dates the loans were made.
PER CURIAM.
The decree appealed from will be affirmed, for the reasons expressed in the opinion filed by Vice-Chancellor Fielder in the court of chancery.
For affirmance — THE CHIEF-JUSTICE, TRENCHARD, CASE, BODINE, PERSKIE, PORTER, HETFIELD, DEAR, WELLS, WOLFSKEIL, HAGUE, JJ. 11.
For reversal — DONGES, HEHER, RAFFERTY, JJ. 3.