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the second, since abandoned by the plaintiff,, this count the defendant pleaded the genneed not be considered. In the first count eral issue, and also filed a special plea statthe plaintiff attempts to set forth a case ing that prior to the commencement of this within that portion of the statute imposing suit the debts of the company had been a penalty upon directors for failure to make reduced below the amount of the capital and file a certificate stating the amount of stock paid in, by the payment of certain capital stock added and paid in, within ten dividends in bankruptcy. To this special days after the payment of the last instal. plea the plaintiff demurred. ment of the increase thereof. To this count Both demurrers, that of the defendant to the defendant demurred, contending that the first count and that of the plaintiff to the plaintiff had not stated a case within the special plea to the third count, were dethe terms of the statute. The third count cided on February 15, 1910, in favor of the seeks to impose upon the defendant a di- defendant, and these rulings were duly exrector's liability under the statute, on the cepted to. Subsequently, on October 20, ground that the total indebtedness of the 1910, the case was heard on its merits becompany was allowed to exceed the amount fore a judge of the superior court and a of its capital stock actually paid in, while jury, the defendant admitting for the purthe defendant was one of its directors. To'pose of the suit substantially all the allegacreated by such statutes. As stated in excess, leaving the rest remediless as to III. supra, such statutes have been regarded this particular security, it could not asas penal in character. That such a statute sent to such a construction of the act. is penal in character is sustained also in Again, it has been treated as contractual, Motley v. Pratt, 13 Misc. 758, 35 N. Y. and therefore the repeal of the statute imSupp. 184; National Bank v. Dillingham, posing it after the directors assented to 147 N. Y. 603, 49 Am. St. Rep. 692, 42 N. I the excess indebtedness, and before the aeE. 338; First Nat. Bank v. Price, infra. tion is brought, does not terminate the

So, a statute providing that the whole liability. Charles E. Brown & Co. v. Ware, amount of the debts of a bank at any one 87 Vt. 121, 88 Atl. 507. time shall not exceed twice the capital stock In Farr v. Briggs, 72 Vt. 225, 82 Am. St. actually paid in, exclusive of the sums due Rep. 930, 47 Atl. 793, a statute prohibiting on deposits, and making, in case of any ex- the creation of debts beyond the subscribed cess, the act of incorporation void, and the capital stock by the directors of the corpodirectors under whose administration it ration, and making them liable for a violashall happen liable for the same, has been tion of the provision of such statute, was held to make the directors of the bank per held not penal in its nature, but contracsonally liable to an action of debt for a tual, and therefore enforceable in a state penalty. Sturges v. Burton, 8 Ohio St. 215, other than that in which the corporation 72 Am. Dec. 582.

was organized. A statute providing that a corporation A contrary holding appears in First Nat. shall not incur an indebtedness beyond the Bank v. Price, 33 Md. 488, 3 Am. Rep. 204, certain stated amount, and providing that 13 Mor. Min. Rep. 485, where the liability the directors creating, or consenting to the was held to be penal, and therefore not encreation of, a debt in excess of such limit, forceable in a state other than that of its shall be personally liable therefor to the enactment. treasurer of the corporation, is penal in In McComb v. Kellogg, 16 N. Y. S. R. 16, its nature, and an action thereon cannot 1 N. Y. Supp. 206, holding that a right of be joined with one against the directors for action under such statute survives against failure of the corporation to file an annual the estate of a deceased director, the court report, since the two causes of action do states that the liability of the assenting not arise out of the same transaction. Mot director under the statute is a contract, and ley v. Pratt, 13 Misc. 758, 35 N. Y. Supp. not a penal, liability. 184.

See Field v. Haines, 28 Fed. 919, infra, Again, the liability of directors has been VIII. b, where such a statute was held to held to be in the nature of a suretyship. create a contractual liability. Slater v. Taylor, 241 Ill. 102, 89 N. E. 271; With reference to the nature of the liasee also Woolverton v. Taylor, 132 Ill. 197, bility created by such a statute, the court 22 Am. St. Rep. 521, 23 N. E. 1007, infra, in Knower v. Haines, 31 Fed. 513, states IX. b.

that such a liability, under a statute like The liability of directors under such stat. this, before suit brought to fix it, is not a utes has also been stated to be in the nature debt nor any fixed obligation to pay, but is of a specialty. Neal v. Moultrie, 12 Ga. 104, only that from which by the prescribed approved in Banks v. Darden, 18 Ga. 318, course an obligation to pay may be raised. where the court stated that as to the ground The nature of the liability created by of demurrer that a suit by a creditor of such a statute depends in a large measure the corporation against the director should upon the ultimate question before the court have been for the excess, and that such a for decision. It has seemed advisable, therestatutory provision was penal, and that any fore, not to treat the abstract question of creditor of the corporation, even for $5, was the nature of the liability arising under entitled to recover the whole amount of such statutes exhaustively, but to refer to tions of the third count, including that of the declaration, and overruling the plainexcess of indebtedness over paid-in capital tiff's demurrer to the special plea to the stock, and that as to the amount of the third count. The other rulings excepted to debt which it was sought to recover. This relate to testimony excluded or admitted in debt was admitted by the defendant and accord with the rulings on the demurrers, proved by the plaintiff to be $1,154.28, with and to the direction of a verdict for deinterest thereon from June 13, 1907. The fendant. only defense claimed was that set up under The first exception was to the decision the special plea to the third count. Upon sustaining the demurrer to the first count. motion of the defendant, the jury was di- The provisions of the statute under which rected to return a verdict of not guilty in it is sought to charge the defendant with favor of the defendant, and thereupon the liability in the first count are as follows plaintiff preferred its bill of exceptions, on (Pub. Stat. 1882, chap. 155, $S 1, 2, 3; Gen. which the case is now before this court. Laws 1896, chap. 180, SS 1, 2, 3):

The bill contains six exceptions, which “Section 1. The members of every incorwill be more fully set forth hereinafter. The porated manufacturing company shall be first two are to the rulings sustaining the jointly and severally liable for all debts and defendant's demurrer to the first count of contracts made and entered into by such it in connection with the various questions 1. What directors are liable, in connection with which it arises.

a. Necessity that directors be such when

excess Occurs.

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b. Whether joint or several.

The statutes regulating this subject usuThe action must be maintained against ally provide that the directors who conall the directors under a statute providing tracted the debts in excess of the limit fixed, that if the indebtedness of the corporation or those under whose administration the at any time exceeds the amount of its capi- excess happened, are liable therefor. tal stock, directors of such corporation cre

Even if the statutes do not expressly ating such indebtedness shall be personally make those who were directors at the time individually liable for such excess to the of contracting the debt liable therefor, that creditors of the corporation. McClave v.

construction is given. Thompson, 36 Hun, 365.

Thus, under a statute providing that the Under a charter provision making the di- company shall not contract debts exceedrectors under whose administration an ex

ing three fourths the amount of its capital cess shall occur liable for the same, without stock paid in, and that if such an indebtedproviding any means by which any one of directors and stockholders shall be person

ness shall exceed the amount aforesaid, the the directors may escape this liability, an action cannot be brought against a single ally holden to the creditors of such comdirector, unless a sufficient averment is pany, the directors and stockholders who made showing why the others are left out. tracted are liable, and not those who oc

were such at the time the debt was conBanks v. Darden, 18 Ga. 318.

cupied that position when suit was brought. But it is not necessary for the creditor Windham Provident Inst. for Sav. to join the representatives of deceased di. Sprague, 43 Vt. 502. Although the debt rectors under à statute authorizing him to sued upon in this case was contracted in sue the survivor alone, but giving him dis

excess of the limit, at the time the directors cretion to sue the survivor, or representa held liable therefor ceased to be stocktive of the deceased person, or the survivor holders (and apparently directors) the in the same action with the representative of debts of the company had been reduced such deceased person. Hargroves v. Cham within the limit, but the company was inbers, 30 Ga. 580. Some of the deceased di-solvent. The assets had been used in pay. rectors had personal representatives living ing other claims, leaving the debt in quesin the jurisdiction of the court in which tion unpaid. the suit was brought.

So, under the Kentucky form of statute Where the directors knowingly incur the set forth in II, supra, it is necessary that

indebtedness, or, being ignorant, parties sought to be held liable were diwhere such ignorance is inexcusable, an ac-rectors at time the debt was contracted. tion for contribution will not be allowed in Gunther v. Baskett Coal Co. 107 Ky. 44, 52 favor of some of the directors who are com- S. W. 931. pelled to pay the debt, against other di- If the term of office of certain directors rectors. Rogers v. Bonnett, 2 Okla. 553, 37 has expired before debts are contracted in Pac. 1078.

excess of the solvent stock, such directors The statute involved in Cornwall v. East- are not liable, although the new board of ham, 2 Bush, 561, provided that the direc- directors proceeds to pay the bonds so istors shall be individually liable jointly and sued in excess of the solvent stock, leaving severally to the creditors of the company for the bonds issued during the term of the the excess, and an action was maintained previous board unpaid. Schofield v. Henagainst one of the directors.

derson, 67 Ind. 258.


company, except as hereinafter provided, the amount of the capital so fixed and paid until the whole amount of the capital stock in, which certificate shall be signed and fixed and limited by the charter of said com- sworn to by the president, treasurer and pany, or by vote of the company in pur- clerk and by a majority of the directors, suance of the charter or of law, shall have and they shall, within said ten days, lodge been paid in and a certificate thereof shall the same to be recorded in the book kept as have been made and recorded in a book kept aforesaid in the office of the town clerk of for that purpose, in the office of the town the town wherein the manufactory shall be clerk of the town wherein the manufactory established. In case of increase of the ca piis established, and no longer, except as here. tal stock of said companies, like proceedinafter provided.

“Section 2. The president and directors, ings shall be had as to the amount added. with the treasurer and clerk of such com

and paid in. pany, within ten days after the payment of

“Section 3. If any of said officers shall the last instalment of the capital stock fixed refuse or neglect to perform the duties reand limited by the charter or by vote of quired of them as aforesaid, they shall be the company, in pursuance of the charter jointly and severally liable for all debts of or of law, shall make a certificate stating company contracted after the expiration

In Bole v. West View Oil Co. 29 Pittsb. / plaintiff, and therefore became personally L. J. N. S. 98, it did not clearly ap- and individually liable to him. pear at what time the indebtedness of the That those sought to be held liable were company became in excess of the amount of directors when the excess happened must the capital stock. It did appear, however, be shown by the creditor seeking to imthat the excess existed at a certain stated | pose such liability: Aimen v. Hardin, 60 date, and the directors who served at that Ind. 119; Schofield v. Henderson, supra. time were held liable.

Under a statute imposing a liability upon If the debt contracted by the directors in directors under whose administration the excess of the limit is paid off, the liability excess happened, it is necessary that the of the directors is terminated. Allison v. creditor prove that debts were contracted Coal Creek & N. R. Coal Co. 87 Tenn. 60, under the administration of the directors 9 S. W. 226.

sought to be held liable. Irvine v. McKeon, The giving of new notes in renewal of old 23 Cal. 472. ones is not such an increase of indebtedness It must be alleged that the excess hapas to render a director liable therefor, un pened during the administration of the di. der a statute providing that no part of rectors sought to be held liable, under a the capital stock shall be withdrawn or in statute so requiring; a mere allegation that any manner diverted from the legitimate there was an excess is not sufficient. Merbusiness of the company, nor shall the com chants’ Bank v. Stevenson, 5 Allen, 398. pany at any time contract debts to an This is sufficiently shown in a suit on a amount greater than three fourths of the note which is signed by the parties sought capital actually paid in, and making as- to be held liable, as directors. It will not senting directors liable for such excess to be presumed, in the absence of any averthe creditors of the company, although the ment or showing to that effect, that the notes in question were executed by the debt was contracted previously to the execompany at a time when the debts con- cution of the note. Aimen v. Hardin, supra. tracted by it were greater than the limit fixed by the statute. National Bank v.

b. Necessity of assent, Paige, 53 Vt. 452. A complaint in an action against direc

1. In general. tors which alleged that the defendants were directors of the corporation, and that in- Some statutes impose a liability merely debtedness was incurred which exceeded the upon assenting directors. amount of the limit fixed by statute, to the A similar form of statute provides that extent of about $150,000, and that this in- directors shall be liable for any debts ther debtedness was created by and with the con- may contract in the name of the company sent of the defendants, states a cause of over and above the solvent stock of such action against the directors. Lovelace y. company. Under this statute, where it apDoran, 39 N. Y. S. R. 679, 15 N. Y. Supp. pears that the directors sought to be held 278. It is stated that it is to be assumed liable protested and objected to the confrom the facts stated in the complaint that tracting of the excess debts, they cannot be the plaintiff was a creditor to whom the held liable. Schofield v. Henderson, 67 Ind. company had contracted the excess, or in 258. other words that he held an indebtedness It is not necessary that the protest and which was contracted by the company at objection of the writers be reduced to writ. a time when it was indebted in a sum that ing and signed by them and entered of exceeded the limit fixed by statute, and that record in the proper books of the company. the defendant directors, as well as the cor- Ibid. poration, assented to the creation of such Directors who did not assent to the creaindebtedness held and represented by the 'tion of certain indebtedness cannot be held of said ten days and before such certificate, March, A. D. 1904, by vote of the said genshall be recorded as aforesaid."

eral assembly, the company was authorized That part of the first count based on this to increase its capital stock to an amount statute, with which the demurrer is con- not exceeding in the aggregate $150,000, and cerned, reads: “And the plaintiff avers that to issue said increase, to wit, $50,000, as the said company was duly incorporated on first preferred 7 per cent stock. And said the 20th day of June, A. D. 1890, by the company actually increased the capital stock general assembly of the state of Rhode thereof, and prior to the 1st day of DecemIsland, etc., and became subject to the prober, A. D. 1905, issued capital stock in the visions of chapters 152 and 155 of the Pub. sum of $10,727 as first preferred 7 per cent lic Statutes of said state, the capital stock stock, in addition to the amount of capital thereof not to exceed $100,000, to be fixed stock theretofore issued and paid in; and by a vote of the company from time to time, the president and directors, with the treasand thereupon the company was duly or- urer and clerk of said company, did not, ganized, and thereafterwards, on, to wit, the within ten days after the payment of the 1st day of September, A. D. 1891, by vote last instalment of said increase of said capiof the company, the capital stock was fixed l tal stock as aforesaid, make a certificate at $50,000, and on, to wit, the 2d day of stating the amount of the capital stock so to have assented to an increase in the in- | sought to hold liable assented to the excess debtedness caused by interest accruing indebtedness. Lewis V. Montgomery, 145 thereon. McClave v. Thompson, 36 Hun, 1. 30, 33 N. E. 880. It is stated generally 365.

in this case that such assent can be given It has been held, under a statute provid only by some allirmative voluntary act on ing that if the indebtedness of any company the part of the directors, or at least some exceed the paid-in capital stock, the di- active participation or co-operation in the rectors assenting thereto shall be individ- particular transactions out of which the ually liable to the creditors for said excess, indebtedness arose. that the director sought to be held liable The absence of a protest, although the dimust have assented to the debt sued upon. rector subsequently becomes aware of the Allison v. Coal Creek & N. R. Coal Co. 87 action by which the excess debts were creTenn. 60, 9 S. W. 226; Moulton v. Connell, ated, is not equivalent to an assent. Some H. McL. Co. 93 Tenn. 377, 27 S. W, 672; affirmative act of assent must be shown. Tradesman Pub. Co. v. Knoxville Car Wheel Patterson v. Robinson, 36 Hun, 622. Co. 95 Tenn. 634, 31 L.R.A. 593, 49 Am. St. It has been stated that a statute making Rep. 943, 32 S. W. 1097.

liable directors who have knowingly conIn some statutes dissenting directors who sented to the excessive indebtedness does have caused their dissent to be entered at not provide for a recovery on account of large on the directors' minutes

mere inattention or negligence on the part cepted from the liability imposed upon the of the directors, but a personal liability directors generally.

can be enforced only where consent is given Another form of statute provides that to the making of the indebtedness with acany director who objects to contracting such tual knowledge that the limit has already debts, and who shall as soon as may be been reached, or is by such act being exafter the fact comes to his knowledge file ceeded. Constructive knowledge, or knowlhis objection in writing, shall be exempt. edge which might have been obtained had

Under these statutes the director is lia- the directors not been negligent, is not ble unless he has entered his protest as enough. Edward Hines Lumber Co. v. Mar. provided by statute. A director who has quardt, Iowa, 117 N. W. 666. not signed a protest cannot claim exemption by reason thereof. Cornwall v. East

Absent directors. ham, 2 Bush, 561.

A protest once entered is not effectual Directors who were absent when the exagainst debts subsequently incurred in ex- cess debts for which the directors generally cess of the prescribed limits with the are made liable were incurred are by some currence and sanction of the protesting statutes excepted from the liability. director. Ibid. It is suggested in this case Under a strict construction of such statthat such a protest may be constructively utes it is necessary for a creditor seeking prospective against any future debts be- to hold a director liable for his debt, to yond the capital in the absence of concur- show that the director was present when the rence or sanction.

excess debts were contracted. Irvine A provision contained in the act of in. McKeon, 23 Cal. 472. corporation involved in Neal v. Moultrie, 12 Other forms provide that an absent diGa. 104, and Moultrie v. Smiley, 16 Ga. 289, rector may release himself from liability made dissenting directors liable to cred under such a statute by giving notice of itors, but provided that they in turn might his absence. recover of assenting directors.

A provision in the act of incorporation Under a statute merely imposing a lia in Neal v. Moultrie and Moultrie v. Smiley, bility upon assenting directors, it is neces- supra, made absent directors liable, but sary to show that the directors whom it is provided that they might recover of as





added and paid in, signed and sworn to by Capital Stock,' passed March 2, 1904, had the president, treasurer, and clerk, and by been made: a majority of the directors, and did not "(2) It does not appear that the debt within said ten days lodge the same to be owing by the Pawtucket Steam & Gas Pipe recorded in the book kept for that purpose Company was contracted at the expiration in the office of the city clerk of said Paw- of ten days or thereafter after the payment tucket, wherein the manufactory of said of the last instalment of the increase of the

capital stock of the Pawtucket Steam & company is established.The grounds assigned for demurrer to this Gas Pipe Company, as authorized by vote of

the general assembly on March 2, 1904. count are: “(1) It does not appear from said decla declaration that the duty ever devolved upon

"(3) It does not appear from the said ration that payment of the last instalment the defendant to file the certificate proof the increase of the capital stock of the vided for by chapter 180, $ 2, of the General Pawtucket Steam & Gas Pipe Company, as Laws of the state of Rhode Island.” authorized by an act of the general assembly At the hearing of the demurrer two ques. entitled 'An Act Authorizing the Pawtucket tions were in issue: First, whether the Steam & Gas Pipe Company to Increase its first count is defective in not alleging paysenting directors the amount they were com- , stated that the removal by a director of pelled to pay

one person as president, and the substituUnder a statute which makes no excep- tion of another, "and his still continuing tion in case of absent directors, but provides his own official agency and responsibility simply in case of an excess of debts that as a necessarily more vigilant and active the directors under whose administration director, his co-operation in still carrying it shall happen shall be liable for the same, on and extending the business, his presumed the fact that a director sued was absent knowledge of the extension of the company's when the excess happened is immaterial; credit further beyond its capital as neceshe is notwithstanding this fact liable. sary to the continued operations, and conBanks v. Darden, 18 Ga. 318.

sequently his knowledge of the fact that it was so extended, and his failure to certify

any objection or to prove that he did not 2. What constitutes assent. concur in or approve the contraetion of the

debts to the appellees, participating, as he Such assent is not shown on the part of must be presumed to have done, in the new directors by showing that they appointed administration of the company's affairs unone of their number who had a majority of der his own chosen auspices,—these conthe shares of stock, general financial agent siderations sufficiently conduce to the preof the corporation, and gave him complete sumption that these debts were contracted control of its business affairs. Lewis v. at his instance or with his sanction." Montgomery, 145 Ill. 30, 33 N. E. 880. The assent necessary to render the direc

In Slater v. Taylor, 241 Ill. 102, 89 N. tors liable must be given by them in their E. 271, the directors of an elevator com- official capacity. It must be shown that the pany authorized an agent to buy grain, assent was given in the capacity as director which necessarily and to their knowledge acting concurrently with the majority of would and did cause the corporation to be the official board. It is not necessary that come indebted in excess of the amount of this official assent be founded in the minthe capital stock. It is not clear whether utes of the board, but it must have been or not this was the only evidence of assent. given at an official meeting, whether it apThe court states that the evidence was pears in the minutes or otherwise. Tradessufficient to support the finding of the trial man Pub. Co. v. Knoxville Car Wheel Co. court that there had been an assent. 95 Tenn. 634, 31 L.R.A. 593, 49 Am. St.

See also Randolph v. Ballard County Rep. 943, 32 S. W. 1097. Bank, 142 Ky. 145, 134 S. W. 165, supra, Assent of the directors is shown by a as to appointment of agent.

resolution of the corporation to which the A recognition of the indebtedness after directors assented, authorizing the pur. its creation is not an assent. Lewis v. chase of certain machinery, in which debts Montgomery and Slater v. Taylor, supra. beyond the limit were created. Allison v.

But under a statute making the directors Coal Creek & N. R. Coal Co. 87 Tenn. 60, liable in the first instance, but providing 9 S. W. 226. that a director may relieve himself of such So, under a statute imposing a liability liability by protesting against the con- for excess of debts contracted over the tracting of the excess indebtedness, it has amount of paid-in capital stock, upon the been held that a director who has thus pro- directors “who contracted such debts,” it tested cannot take advantage of such pro- must be shown that the director sought to test as against debts subsequently incurred be charged with liability assented to or in excess of the limit with his consent, and contracted the debt officially as a director, that such consent may be presumed. Corn- acting concurrently with a majority of the wall v. Eastham, 2 Bush, 561.

board. Consequently, a director who was In Cornwall v. Eastham, supra, it is ' present, and assented to the purchase by

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