§ 918. On claims given a statutory preference. Stockholders are sometimes made individually and absolutely liable by statute for certain classes of preferred indebtedness, such as laborer's wages, debts contracted for materials furnished, improvements made on the corporate property, and the like. These statutes and the construction given them by the courts where found must be consulted for a clear understanding of their effect. But few cases involving claims arising under such statutes have been adjudicated. Usually, however, the preference is confined to "servants" and "laborers." The principal difficulty in the enforcement of such statutes has been in determining the persons included in these terms.1

Y. 137; Eames v. Doris, 102 Ill. 350; Perry v. Turner, 55 Mo. 418; Norris v. Johnson, 34 Md. 485, 489.

1 Under the Wisconsin statute, Rev. St. Wis. 1878, sec. 1769, making stockholders liable for the services of servants, it is not necessary to first obtain a judgment against the corporation. Sleeper v. Goodwin, 67 Wis. 577; 31 N. W. 335; nor does the dissolution of the corporation or suspension of business by assignment for the benefit of creditors, nor the fact that the servant has prosecuted his claim to the assignee in insolvency in such manner as to entitle him to receive a dividend, bar his right of action or constitute a waiver thereof. Id. Under the Tennessee statute, the taking of a note from the corporation by a laborer does not affect his claim against the stockholder; nor can the latter avoid his accrued individual liability by transferring his stock. Jackson v. Meek, 3 Pick. (Tenn.) 69; 9 S. W. 225. A bookkeeper having no other duties than such as usually pertain to his position comes within the term as used in the Act of 1848, c. 40, sec. 18. Chapman v. Chumar, 54 Hun, 636; 7 N. Y. S. 230. See Act, Md., 1888, c. 383; Search v. Ellicott (Md.), 18 A. 863. A laborer or servant is "he who performs menial or manual labor and who looks to the reward of a day's labor or service for immediate or present support, from whom the company does not expect credit, and to whom its future ability to pay is of no consequence." Wakefield v. Fargo, 90 N. Y. 213, 217. See also, People v. Remington, 45 Hun, 329; Harrod v. Hamer, 32 Wis. 162; Adams v. Goodrich, 55 Ga. 335; Heebner v. Chave, 5 Pa. St. 115; Mulligan v. Mulligan, 18 La. Ann. 21; Foushee v. Grisby, 12 Bush. 75; Capron v. Stout, 11 Nev. 304; Smallhouse v. Ky., etc., Co., 2 Mont. 443; Knight v. Norris, 13 Minn. 475; Stryker v. Cassidy, 76 N. Y. 50; B'k of Penn. v. Gries, 35 Pa. St. 423; Mut. Benefit Ins. Co. v. Redwood, 26 N. J. Eq. 389; Raeder v. Bensberg, 6 Mo. App. 445; Adams v. Goodrich, 55 Ga. 233. The term "servant" has been held to include a reporter and city editor on a newspaper; Hovey v. Ten Broeck, 3 Rob. 316; but the term "laborers" does not include a civil engineer; Ericcson v. Brown, 38 Barb,

§ 919. Constitutionality of laws imposing individual liability. Serious questions have sometimes arisen concerning the constitutionality of statutes imposing liabilities upon shareholders beyond that which they assumed under the law as it existed at the time of their becoming such shareholders. Such laws have usually been held valid as being made for the better security of the community, many individuals of which might otherwise suffer loss.

390; Penn., etc., R. R. Co. v. Leuffer, 84 Pa. St. 168; or his assistant; Brockway v. Innes, 39 Mich. 47; Peck v. Miller, 39 Mich. 594; nor an agent of a mining company; Dean v. DeWolf, 16 Hun, 186; Hill v. Spencer, 61 N. Y. 274; Krauser v. Rickel, 17 Hun, 463; nor a superintendent; Kincaid v. Dwinelle, 59 N. Y. 548; nor the secretary of a manufacturing company; Coffin v. Reynolds, 37 N. Y. 640; Compare Gordon v. Jennings, L. R. 9 Q. B. D. 45; Gurney v. Atlantic, etc., Ry. Co., 58 N. Y. 358; Williamson v. Wadsworth, 49 Id. 294. A superintendent, foreman or manager does not obtain the benefit of such statutes by occasionally doing manual labor. Ericcson v. Brown, 38 Barb. 390; Lrauser v. Ruckel, 17 Hun, 463. It is otherwise where one occupies such position only as an incident to that of an actual laborer. Short v. Medberry, 29 Hun, 39. A president of a corporation is not a "laborer" entitled to a preference in case of the company's insolvency under Rev. St. N. J. 188, sec. 63, although "laborers" are by the act made to include "all persons doing labor or service of whatever character" for such corporation. England's Ex'rs v. Daniel F. Beatty Organ & Piano Co., 41 N. J. 470; 4 A. 307. Such statute does not protect debts due for handling, repairing and other work done by the job under contract. Weigley v. Coal Oil Co., 5 Phil. 67. The claim of an experienced miller employed by a corporation engaged in manufacturing mill machinery, and fitting out mills to adjust and start machinery in mills supplied by it, and to operate the same until it fulfilled the contract of his employer with the mill owner, or to discover and report wherein it was deficient, such employment being similar to that of the head miller in a mill, involving much manual labor, and requiring a high degree of skill, was held to come within the meaning of Pub. Acts, Mich., 1887, No. 94, which provides that all debts which shall be owing for labor by any. corporation at the time . . . . . . it shall become insolvent, shall be perferred claims against the estate of such insolvent debtor," etc. In re Black (Mich.), 47 N. W. 342. Under Rev. St. Ind. 1881. sec, 3934, which makes stockholders in a railroad corporation individually liable to laborers for all labor done in the construction of the road that shall remain unpaid after the assets of the corporation shall have been exhausted, a complaint which alleges that defendants have subscribed to the stock of a certain railroad company; that plaintiffs hold certain judgments against the company, one of which is for work and labor, and that the company is insolvent, does not state a cause of action, since it does not show that plaintiff's claims are for labor done in the construction of the road. Toner v. Fulkerson (Ind.), 25 N. E. 218.

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But such laws must be general in their operation, and affect existing contracts of membership only collaterally. It is clear that no law requiring existing shareholders to contribute more capital than they originally contracted to contribute would be valid; nor would a law increasing their liability to creditors under existing contracts. Such laws have sometimes been held constitutional and at other times otherwise. However,

if made to take effect upon future indebtedness of the corporation as being a regulation of business for the better security and welfare of the community, it is difficult to see where any valid constitutional objection would lie against them. The authorities are conflicting. Much will depend in each case, upon what are the public necessities which called for the enactment, whether it is in the form of a police regulation, and whether it affects the contracts among the shareholders directly, and in their essence, or only collaterally.2

1 See Sleeper v. Goodwin, 67 Wis. 577; 31 N. W. 335. An act passed in Illinois in 1887 providing that "the shareholders of each association formed under this act shall be individually responsible equally and ratably, and not one for the other, for all contracts, debts and engagements of such association to the extent of the amount of their stock therein, at the par value thereof in addition to the amount invested for such shares," is in conflict with Const. Ill. art. 11, sec. 6, which provides that "every stockholder in a banking corporation shall be individually responsible to its creditors over and above the amount of stock by him held, to an amount equal to the shares so held. Dupes v. Swigert (Ill.), 21 N. E. 622. See Schabucky v. Field, 124 Ill. 617. 2 Infra, §§ 1035, 1036.

926.

That they acted in good faith a valid defence. 927. Form of the illegal payment immaterial.

928. Other penal liabilities.

929. Whether the remedy is equitable as well as legal.

§ 920. Special statutory liability.-In several states a special personal liability. is imposed upon directors for certain acts, independent of that growing out of their ordinary fiduciary relation to the corporation, stockholders and creditors. There is a great variety in the extent of this liability, in the class of acts for which it is imposed, in the remedies provided for its enforcement and in the language employed to create it in the various states. When imposed by general law the liability becomes a provision of the charter of the corporation and cannot be evaded by contract.1

1 A policy issued by a society incorporated under Laws N. Y. 1875, c. 267, § 8, providing that "the directors. . . of any society or corporation organized under the provisions of this act . . . shall be jointly or severally liable for all debts due

The acts for which such laws usually make directors answerable are such as come within the scope of their ordinary official duties without special authority or instructions from the body of members and hence furnish the greatest opportunity for abuse without detection and prevention until great mischief has resulted. The principal of these are the making of dividends otherwise than from the surplus profits arising from the business; dividing, withdrawing or paying to stockholders part of the capital stock; the creation of debts beyond their subscribed capital stock, and reducing or increasing the capital stock in violation of the provisions of law. There is no common law liability of directors to creditors for mismanagement of corporate funds, and contracting indebtedness in excess of the corporate capital as prescribed in the charter and published notice of incorporation, and it is immaterial that credit was given in reliance on the business character and responsibility of the directors.1

§ 921. Such statutes strictly construed. It is sometimes said that statutes which thus impose a personal and private liability upon directors are "penal" in their character. At other times courts have doubted the correctness of this view. Whatever may be the true definition is unimportant, since all agree that they should be strictly construed.2

from said society or corporation, contracted while they are trustees," etc., pro vided that "the directors of this society, either individually or as a body, shall not assume any liabilities personally by reason of the issuance of this certificate." Held, that said provision of such policy, being repugnant thereto, was void. LEARNED, P. J., dissenting. Greene v. Walton, 13 N. Y. S. 147.

1 Frost Mfg. Co. v. Foster, 76 Ia. 535; Smith v. Prior, 40 Me. 415; Fusz v. Spaunhorst, 67 Mo. 256; Zinn v. Mendal, 9 W. Va. 580.

2 Steam Engine Co. v. Hubbard, 101 U. S. 188, 191-194; Irvine v. McKeon, 23 Cal. 472; Merchant's Bank v. Bliss, 35 N. Y. 412; Wiles v. Suydam, 64 N. Y. 173; Garrison v. Howe, 17 N. Y. 458; Moies v. Sprague, 9 R. I. 541; Hill v.