A statute of Connecticut enacts that the president and secretary
of each corporation organized thereunder shall annually make a
certificate showing the condition of the affairs of the
corporation, as nearly as the same can be ascertained, on the first
day of January or July next preceding the time of making such
certificate, setting forth the amount of capital actually paid in,
the cash value of its credits, the amount of its debts, the name
and number of shares of each stockholder, and deposit it, on or
before the fifteenth day of February or August, with the town clerk
of the town in which the corporation transacts its business. It
also provides that if such president or secretary shall
intentionally neglect or refuse to comply with said provisions, and
to perform the duty required of them respectively, the persons so
neglecting or refusing shall be jointly and severally liable to an
action founded on the statute for all debts of such corporation
contracted during the period of such neglect or refusal. In an
action by a creditor of such corporation against its president,
Held:
1. That the statute is penal, and must be strictly
construed.
2. That the defendant is not liable if the debt was contracted
by the corporation before, although it may remain unpaid during,
the period when he neglected or refused to comply with the
requirements of the statute.
This is an action by the Providence Steam Engine Company, a
creditor of the Odorless Rubber Company, a joint-stock corporation
organized under the laws of Connecticut, to recover from Charles
Hubbard, president of the latter company, the amount due by it to
the plaintiff.
The remaining facts, and the statute of Connecticut under which
the action is brought, are set forth in the opinion of the
Court.
MR. JUSTICE CLIFFORD delivered the opinion of the Court.
Statutory regulations were enacted by the state to enable the
business public to ascertain the pecuniary standing of joint-stock
corporations, and for that purpose it was made the duty of the
president and secretary of every such corporation annually to make
a certificate showing the condition of the affairs of the
corporation, as nearly as the same can be ascertained, on the first
day of January or of July next preceding the time of
Page 101 U. S. 189
making such certificate, stating the amount of paid capital, the
cash value of its credits, the amount of its debts, and the name
and number of shares of each stockholder, which certificate it is
required shall be deposited, on or before the 15th of February or
of August with the town clerk of the town, who shall record the
same at full length. Conn.Rev.Stat., sec. 404, p. 172.
Such an officer, whether president or secretary, if he
intentionally neglects or refuses to comply with that requirement
and perform the duty therein specified, is declared to be liable to
an action founded on the statute for all debts of such corporation
contracted during the period of such neglect or refusal.
Id., p. 174, sec. 413.
Sufficient appears to show that the Odorless Rubber Company was
a joint-stock corporation legally organized in 1870, at Middletown,
under the laws of the state. About the time of its organization,
to-wit on the 9th of September of that year, C. C. Post was elected
president, and it appears that he was twice re-elected at the
annual meetings of the stockholders, each held in April of the two
succeeding years, and that he continued to hold the office until
the 17th of June following his last election, when he resigned.
During all the period, he was in office, there was a secretary.
Neither the president nor the secretary during that period
deposited with the town clerk any certificate required to be so
filed by the law of the state except as follows: on the 20th of
June, 1871, the president and secretary did deposit such a
certificate, showing the condition and assets of the company on the
first day of April of that year.
Prior to the 10th of June of the next year, the defendant was
not even a stockholder of the company, but it appears that he on
that day signed the subscription paper exhibited in the record for
two hundred shares of new stock of the company, and that eight day
later, he paid $1,800 towards his subscription. His promise to pay
was conditional -- that is, he was to pay
"6.25 per share whenever cash subscriptions to the amount of
$118,000 should be obtained, and the balance in equal monthly
installments of ten percent each from the date of the subscription,
. . . it being understood that none of said subscriptions shall be
valid or obligatory until at least said amount
Page 101 U. S. 190
of $118,000 shall have been subscribed and thirty percent
deduction is made in the old stock."
Subscriptions to the required amount were obtained, but no
evidence was offered to show that the thirty percent deduction in
the old stock was ever made.
Evidence to show that the defendant was ever elected a director
is entirely wanting, but it is shown that on the day the old
president resigned, the board of directors elected him president of
the corporation in the place made vacant by the resignation of his
predecessor, and that thereafter he acted as president and
stockholder, and that he continued to act as such until the 2d of
September in that year, when he resigned said office.
Beyond all doubt, he was during that period the acting president
of the corporation, and the bill of exceptions shows that he never
made any statement of the condition and assets of the company until
the day he resigned his office. Attempt is made by the plaintiffs
to show that he was culpably guilty of neglect in that regard, but
the bill of exceptions also shows that on that day, he, with the
secretary, made out in due form and deposited a certificate of the
condition and assets of the company as they existed on the first
day of July, two weeks subsequent to the day of his election as
president of the corporation.
More than three months before the defendant was elected
president, the plaintiffs entered into a written agreement with the
rubber company by which they contracted to furnish the company a
steam engine for $5,700, and it appears that they constructed the
engine and shipped and delivered it to the purchasers; that the
manufacturers subsequently placed it in position and put it in good
running order, to the satisfaction of the buyers. Due delivery of
the same having been made, the buyers made a cash payment and gave
a note for a part of the price, which was never paid, leaving more
than $5,000 unpaid when the rubber company was adjudged bankrupt.
Payment being refused, the plaintiffs brought this suit against the
defendant as president of the rubber company, claiming that the
debt was contracted during the period that he was guilty of neglect
in not making and depositing the before-described
Page 101 U. S. 191
certificate, and that in consequence of such neglect, he is
liable for all the debts of such corporation contracted during that
period.
Service was made, and the defendant appeared and denied the
truth of all the matters alleged in the declaration. Subsequently
the parties went to trial, and the verdict and judgment were in
favor of the defendant. Exceptions were filed by the plaintiffs,
and they sued out a writ of error and removed the cause into this
Court.
When the plaintiffs rested their case, the defendant requested
the court to instruct the jury to return a verdict in his favor and
the bill of exceptions shows that the circuit court, being of the
opinion that there were no disputed questions of fact, gave the
instruction as requested, and that the verdict was in conformity
with the instruction. Opposed to that, the plaintiffs insist that
the facts proved entitled them to the verdict, and they assign for
error the instruction given by the circuit court to the jury.
Three principal defenses are set up by the defendant, as
follows:
1. That he was never legally elected president of the
corporation.
2. That the debt was not contracted while he was acting in the
capacity of president of the company.
3. That by the proper construction of the state statute he is
not liable for the debt due to the plaintiffs, even if the first
two points cannot be sustained.
Preliminary to those inquiries, the defendant contends that the
statute upon which the action is brought is penal, and should be
strictly construed, in which proposition the Court unhesitatingly
concurs. Statutes somewhat similar in character have been passed in
several of the states, in all of which states it is held that the
statutes are penal, and that for that reason their provisions must
receive a strict construction. Take, for example, the statute of
New York, which provides that on failure of the company within
twenty days from the 1st of January to make, publish, and file an
annual report, all the trustees of the company shall be jointly and
severally liable for all the debts of the company then existing,
and for all that shall be contracted before such report shall be
made, it has repeatedly been held that the act was penal, and that
it could
Page 101 U. S. 192
not be extended by construction to cases not fairly within its
language. Hence it was decided that the trustees could not be held
liable on account of the failure to publish and file the annual
report unless the debt was contracted during the default or unless
it existed at the time of a subsequent default.
Garrison v.
Howe, 17 N.Y. 458;
Boughton v. Otis, 21
id.
261.
Repeated instances have occurred where suit was brought in one
state to enforce the statute liability for the debts of a
corporation created by the legislature of another state, in all
which it is held that the statute is penal and that it can only be
enforced in the state where the statute was passed.
Halsey v.
McLean, 12 Allen (Mass.) 438;
Derrickson v. Smith, 3
Dutch. (N.J.) 166;
Sturges v. Burton, 8 Ohio St. 215;
Bank v. Price, 33 Md. 487;
Irwin v. McKeon, 23
Cal. 472.
Corresponding decisions have been made in other courts, and to
such an extent as to justify the remark that the rule is universal.
Bird v. Hayden, 1 Robt. (N.Y.) 383;
Moier v.
Sprague, 9 R.I. 541.
Suppose that is so, then it is contended by the defendant that
the act cannot be enforced against him unless it appears that he
was legally elected president and that he was under legal
obligation to perform the duties of that office.
Persons acting publicly as officers of a corporation are
ordinarily presumed to be rightfully in office.
Bank of the
United states v. Dandridge, 12 Wheat. 64; Angell
& Ames, Corp. (9th ed.), sec. 139. Individuals elected and
serving as such officers may incur the statute liability for the
corporate debts of the company, even though irregularities occurred
in their election, if in all other respects the evidence brings
them within the category of legal default.
Newcomb v.
Reed, 12 Allen (Mass.) 362;
Hagner v. Brown, 36 N.H.
545, 563.
Stockholders elect the directors, and it is claimed by the
defendant that he was not legally elected president because he was
not a stockholder, the condition of his subscription having never
been fulfilled; but he paid the first installment, and the evidence
reported shows that he acted as a stockholder from the time of his
election as president until his resignation. His subscription to
the new stock was made before he was elected
Page 101 U. S. 193
president, and the bill of exceptions shows that on the
following day, he paid the required amount of his subscription.
Power to elect the president is vested in the directors, and the
record shows that he was formally elected to the office, and that
he acted in that capacity for a month and a half, when he resigned.
Beyond controversy, he was the acting president, and in view of the
circumstances the court is not inclined to rest the decision of the
case upon the ground that the defendant was not, during the period
he performed the duties devolved upon the president of the company,
legally responsible for the neglect to comply with the requirement
of that statute. He acted as president during that period, and
therefore is liable, if any liability exists, notwithstanding the
informality of his election.
Thayer v. New England Lithographic
Co., 108 Mass. 521.
Three months before he was elected president, the company
contracted with the plaintiffs for a steam engine, but it was not
shipped for delivery to the purchasers until four days after he was
elected president and commenced to perform the duties of his
office.
Certificates of the kind are required to be deposited with the
town clerk on or before the 15th of February or of August, and the
provision is that the persons neglecting or refusing to comply with
such requirements
"shall jointly and severally be liable to an action founded on
the statute for all debts of such corporation contracted during the
period of such neglect or refusal."
Intentional neglect and refusal create the liability, and the
liability extends to the debts contracted by the company during the
period of such neglect and refusal, and to no others, which of
itself is sufficient to disprove the theory of the plaintiffs that
the defendant can in any view be held liable for the default of his
predecessor.
Officers of the kind are responsible for the consequences of
their own neglect or refusal to comply with the statute requirement
while they remain in office, and they continue to be liable for
those consequences even after they go out of office; but they are
not responsible for the consequences of subsequent defaults
committed by their successors, nor are the successors in such
offices in any way responsible for the consequences of
Page 101 U. S. 194
such defaults committed by their predecessors in office, for the
plain reason that the language of the statute is that the persons
so neglecting or refusing . . . shall be liable in an action
founded on the statute for all debts of the corporation contracted
during the period of such neglect or refusal.
Boughton v.
Otis, 21 N.Y. 261.
Much aid in construing the statute in question is not required,
as the language employed by the legislature speaks its own
construction; but if more be needed, it will be found in another
decision of the same tribunal as that just cited.
Quarry v.
Bliss, 27
id. 277.
Statutes of the kind are passed for the benefit of creditors,
and their reliance always is upon the officers who are such when
they give the credit, and not upon persons who had ceased to be
officers, or who might subsequently become such when those in
office should go out.
Three things must concur in order that it can be held that the
defendant is liable: 1. that he was president of the corporation;
2. that he intentionally neglected or refused to deposit the
described certificate, as required by the statute; 3. that the debt
was contracted during the period of such neglect or refusal.
Where all these things concur, the president is liable not for
all the debts of the corporation, but for all such as were
contracted while he was guilty of such default. If he was not the
president at the time of the default or if the debt was contracted
before he was in default, then he is not liable, as the case is not
brought within the letter or spirit of the statute. Liability in
such a case, as imposed, is in its nature penal, and in order to
render such an officer responsible, it must appear that he has
neglected or refused to do some act which the law made it his duty
to perform.
Craw v. Easterly, 4 Lans. (N.Y.) 513, 521,
Bond v. Clark, 6 Allen (Mass.) 361, 363;
Harrisburg
Bank v. Commonwealth, 26 Pa.St. 451.
Marked differences exist between the provisions of the New York
statute and those of the State of Connecticut, the latter being
much less stringent than the former. By the New York law, the duty
of making the annual return is required of the corporation itself,
and the penalty for neglect is imposed upon the
Page 101 U. S. 195
trustees who are entrusted with the management of its affairs.
Consequently it is a corporate duty, and being such, each
succeeding board is bound to perform it if it has been neglected by
their predecessors. Unlike that, the duty to deposit the
certificate under the Connecticut statute is devolved on the
president and secretary in terms which show that a new president
does not inherit the consequences of neglect of duty or pecuniary
liability from his predecessor in office. He is made liable for his
own neglect, and not for that of a prior officer, as clearly
appears from the closing sentence of the penal section. In New
York, the trustees, upon default, are made liable for all the
outstanding debts of the corporation, whenever contracted, but in
Connecticut, the president and secretary are liable only for debts
contracted during the period of such neglect or refusal.
Prior to his election, the president, as such, had no duty to
perform in respect to such a certificate, which is a self-evident
proposition, and it is equally clear that his duty in that regard
ceased when he ceased to be president of the corporation.
Certificates of the kind are required to be made and deposited with
the town clerk on or before the 15th of February or of August, as
explicitly provided by the statute. On the 15th of February of that
year, his predecessor was in office, and of course the defendant
was under no obligation to deposit any such certificate on that
day, nor was he in any manner in default because his predecessor
did not perform that duty. Argument to show that he could not make
and deposit such a certificate before he was elected is
unnecessary, as such a proposition would be absurd, from which it
follows that he was not under any legal obligation to perform such
a service until the 15th of August of the same year, it appearing
that his election as president took place less than two months
prior to that time.
Concede that it became his duty as president to make and deposit
such a certificate with the town clerk on the 15th of August next
after his election, still it by no means follows that the present
action can be maintained, as it clearly appears that he was not in
default before that time. Proof of default in the defendant without
more will not maintain the action, as it
Page 101 U. S. 196
is also incumbent upon the plaintiffs to prove that the debt
alleged was contracted during the period of such neglect or
refusal. Apply that test to the case exhibited in the record, and
it is clear that the defendant is not liable and that the decision
of the court below is correct.
When the agreement for the steam engine was made, the defendant
was not president of the corporation, and of course he was not in
default at that time, nor was he in default when the engine was
delivered and placed in position, because that took place, in any
view of the evidence, one month before the 15th of August, when the
default of the defendant commenced. Prior to that time, the
defendant was never in default, and inasmuch as the debt of the
plaintiffs was not contracted during the period of his default, he
was not liable for that debt.
Garrison v. Howe, 17 N.Y.
458, 462.
Judgment affirmed.