The demurrer presents the question whether the facts stated in the declaration are sufficient to support the action. The liability
1. As to the act of 1867.
Under this act, guilty stockholders are made liable, 1, for the payment of all bonds, the indorsement of which was fraudulently obtained by the company, or which were sold at less than ninety cents on the dollar; and, 2, for all other losses that fell on the State in consequence of any other fraud of the company. For frauds in obtaining indorsements the obligation is to pay the bonds indorsed; for all other frauds, to pay the losses of the State in consequence thereof.
This suit is not brought to enforce a liability of the defendants for the payment of the bonds. That was conceded in argument. With the alleged frauds in obtaining indorsements, therefore, we have nothing to do, because the liability of stockholders for the payment of losses depends entirely on other frauds than these.
The office of a declaration is, to state the essential facts on which the liability of the defendant in the action depends. In this case, it must show, 1, the particular fraud of which the company has been guilty; and, 2, that the loss which has fallen on the State resulted directly therefrom. The frauds alleged are, 1, misrepresentations, by reason of which the indorsement of an over-issue of bonds was obtained; 2, misrepresentations, by reason of which indorsements were obtained before the several sections of the road were fully "finished, completed and equipped;" and, 3, the unlawful and improper use of some of the bonds, or their proceeds, after they got into the hands of the company.
As to the first and second of these classes of allegations, it is sufficient to say that they relate only to the manner in which the indorsements were obtained, and for frauds of that character the liability is, as has been seen, only for the payment of the bonds the indorsement of which was got in that way. The other allegations are in effect that, at different
The declaration does indeed allege that, "by reason of the aforesaid wrongful, illegal and fraudulent acts of the said ... company, permitted and participated in by the defendants," the corporation became bankrupt and was rendered wholly unable to pay its debts, and especially the interest on its bonds; and that the State had been compelled to make certain payments on that account "which she would not have been compelled to pay but for the wrongful, illegal and fraudulent acts of the defendants and said corporation;" and that, "by reason of the aforesaid wrongful, illegal and fraudulent acts of the said ... company and of the defendants, the said plaintiff has been further damnified and injured to the additional extent of one million of dollars in settling her liability created and evidenced by her aforesaid indorsement of said indorsed bonds;" but this is not enough, unless the facts from which this conclusion is drawn are such as to show that the loss was both the natural and immediate consequence of the wrongful and fraudulent acts referred to. Pleadings must state facts, and not conclusions of law merely, and the allegation in this case that the loss arose from the fraud is only a conclusion of law. If the facts from which the conclusion is drawn are not sufficient to show that in law the loss was attributable to the fraud, the declaration is bad.
The loss of the State is directly attributable to the deficiency in the value of its original security, and the fraudulent use of the bonds had no effect on that. The company, if the allegations are true, has wasted its property and made itself insolvent, but it has not in this way increased its obligations to, or changed its relations with, the State. Both the debt to and the security held by the State were the same after the frauds as before. The injury to innocent stockholders by the wrongful acts of the company and the defendants was direct and immediate, because their property was taken and fraudulently converted to the use of the defendants or the other wrongdoers. To the State, however, the injury, if any, was both indirect and remote, because the State had no direct claim upon, or interest in, the property which was misappropriated. The law will not imply that, if the company had kept the bonds, the same loss would not have fallen on the State. There was no imperative obligation on the company to use the bonds to
2. As to the act of 1870.
Under this act all officers and stockholders who knowingly violate or permit without objection the violation of any of its provisions, or the provisions of the act of 1867, are made personally liable to the State for any loss incurred thereby. There is also a prohibition against a sale of the State bonds, the issue of which to the company was authorized, at less than ninety cents on the dollar; but there is no provision for the liability of the stockholders for the payment of the bonds, in case they are so sold, as there is in the act of 1867. The only liability under this act, for such a violation of its provisions, is for the losses which the State sustains on that account. The declaration alleges that seven hundred and seventy-one of these bonds were sold at less than ninety cents on the dollar, but it fails entirely to show how the State was injured thereby. Stockholders are liable under this act for violations of the act of 1867, only when such violations occur after this act took effect, which was February 11, 1870, and it nowhere affirmatively appears that any of the wrongs complained of were committed after that date, except in the sale of the State bonds at less than ninety cents on the dollar. It is also as much incumbent on the State to show, under this act, that the losses for which it seeks to recover were the direct and immediate consequence of the wrongful conduct complained of, as it was under the act of 1867. What has been said, therefore, as to the insufficiency of the allegations to charge the defendants under that act, is equally applicable to this.
It was contended in argument that the remedy of the State to enforce the liability of the defendants under the statute was
We sustain the demurrer.