It seems that an equitable defence which would have been available to the corporation may be set up by the directors.1 § 922. Purely local in their application.-Such statutes are not enforceable outside of the state where they were Frazier, 22 Pa. St. 320. Where investments of an hydraulic mining corporation have resulted in loss because of an injunction restraining the company from washing dirt into a stream to the injury of riparian owners, which action could not reasonably have been anticipated, such loss must be treated as a loss of capital, and the directors are not liable because such expenditure was not converted ex post facto into a working expense. Excelsior Water & Min. Co. v. Pierce (Cal.), 27 P. 44; holding also that it was not a violation of the statute to borrow money temporarily with which to pay dividends, when the corporation had used its current profits to make improvements. Under Laws N. Y. 1875, c. 611, sec. 18, making officers of a corporation, created under that act, liable, on failure to file the annual report required, for all debts of the corporation then existing, or which shall be contracted before such reports shall be made, the failure to file such report does not make the officers liable for a payment becoming due from the corporation on the completion of the work under a contract with it, where such work is not completed until after the time limited for the continuance of the corporation in its certificate of incorporation, notwithstanding the provision of section 38 that the dissolution of such a corporation shall not take away or impair any remedy given against it, its stockholders or officers, "for any liability incurred previous to its dissolution." Following Garrison v. Howe, 17 N. Y. 458. Gold v. Clyne, 12 N. Y. S. 531. See Wallace v. Walse, 52 Hun, 328; Austin v. Berlin, 13 Colo. 198; 22 Pac. R. 433. A statute declared that "if any corporation organized and established under the authority of this act shall violate any of its provisions and shall thereby become insolvent, the directors ordering or assenting to such violation shall be jointly and severally in an action founded on this statute for all debts contracted after such violation." It was held that where a series of acts or a continuous course of conduct on the part of the directors in violation of the statute, finally producing insolvency of the corporation, is begun before the debt of a creditor is contracted, the debt is one contracted, "after such violation," although the series of acts or course of conduct is not completed or the insolvency of the corporation consummated until afterwards. Patterson v. Minn. Mfg. Co., 41 Minn. 84. But directors are not liable for failure to file a report showing amount of corporate indebtedness, where their terms of office began after such failure, although the statute provides for the joint and several liability of "all the directors" for all the indebtedness for the next preceding year. Austin v. Berlin, 13 Colo. 198. 1 When property worth $17,000 had, through the negligence and fraud of the secretary of the company, been permitted to sell for $1,000 it was held the directors on their statutory liability for failure to make an annual report could not be held liable for the balance of the indebtedness for which such property was sold. Sherman v. Slayback, 12 N. Y. S. 291. enacted; even though judgment has first been had in the state where enacted.2 It is also well settled that such statutes cannot be enforced against the personal representatives of a deceased director.3 § 923. Contracting indebtedness in excess of capital.The statute of Michigan relating to the organization of banking associations provides that "the total amount of debts which such associations shall at any time owe, exclusive of property deposited in bank, shall not exceed three times the amount of capital stock actually paid in and possessed; and for all excess and all deficits occasioned by the insolvency of such bank the directors in the first place shall be liable in their individual capacity in the full amount of their real and personal property." Under the statute it was held that the directors were liable for all excess of debts without regard to the insolvency of the bank; and also for all deficits in case of insolvency without reference to the excess of the debts incurred.* In the same case it was held to be no defence to the action that the notes sued on came into the possession and control of a third party, who, without the sanction of the bank, had fraudulently used the same for his 1 Derrickson v. Smith, 27 N. J. Law. 166; First Nat. Bank v. Price, 33 Md. 487; Weeder v. Baker, 83 N. Y. 156; Halsey v. McLean, 12 Allen, 438; Bird v. Hayden, 2 Abb. Pr. N. S. 61. Compare Western Union Tel. Co. v. Hamilton, 50 Ind. 181; Sayles v. Brown, 40 Fed. Rep. 8. 2 Attrill v. Huntington, 70 Md. 191. 3 Mitchell v. Hotchkiss, 48 Conn. 9. See Hargroves v. Chambers, 30 Ga. 580. 4 White v. How, 3 McLean, 111. A complaint was held sufficient under the New York statute which alleged that defendants were directors of a certain com. pany, which had made a certain promissory note therein set out; that the note remained a valid obligation and unpaid; that at the time of making the note the company's indebtedness exceeded its capital stock about $150,000; and that such indebtedness was created by and with defendants' consent. Lovelace vt Doran, 15 N. Y. S. 278 (August, 1891). own use and purposes, without the bank receiving any value from them whatever.1 The dissent and objection which will exempt a director from liability for excess of debts over capital must be expressed and made in good faith and not colorably only." § 924. What constitutes "assent."-To constitute "assent" to an act by the doing of which the liability is incurred, there must be something more than mere negligence on the part of a director in not knowing what, in the exercise of proper care; he ought to have known. There must be some wilful or intentional violation of duty in assenting to it, knowing that the act is being or about to be done. But if with such knowledge he neither objects to nor opposes it, having an opportunity of doing so, this is "assent.' 925. Declaring dividends without a surplus.-A form of statutory liability frequently imposed upon directors is that which makes them personally liable for declaring dividends when there is no surplus to divide. If a statute imposes a penalty for such wrong for the benefit of a stockholder, he is not estopped from resorting to it by the mere fact of having received a dividend as a consequence of the wrongful act, since he is not presumed to have participated in the wrongful act. And when 1 It was further held wholly immaterial how they came into circulation since they were payable to bearer and came into the possession of the plaintiff without any notice of fraud or unfairness. 2 Cornwall v. Eastman, 2 Bush, 561. 3 Patterson v. Minnesota Mfg. Co., 41 Minn. 84; see also Patterson v. Robinson, 116 N. Y. 193; Allison v. Coal Co., 3 Pickle (Tenn.), 760. Within the meaning of the term "indebtedness," in statutes imposing personal liability upon directors, has been held to come taxes presently payable. Felkner v. Standard Yarn Co., 148 Mass. 226; a contract to pay a singer employed for a specified time from the time the contract goes into effect. Brandt v. Godwin, 24 N. Y. S. Rep. 305; 3 N. Y. Supp. 807. the fact that a creditor invoking the statutory remedy against a director is also a stockholder and as such has received a dividend is relied upon as a defence, such fact must be directly alleged. The receipt of a dividend will not be inferred from the fact that he is a stockholder.1 § 926. That they acted in good faith a valid defence.— Since, however, the statute is penal in its nature, the directors cannot be held liable if they act in good faith, and were only guilty of an error of judgment, believing at the time of declaring the dividend that the corporation is solvent upon reasonable grounds. Nor will mere negligence in failing to inform themselves as to its true financial condition be ground for holding them liable under such statute, unless it were of so gross a character as to authorize a presumption of actual fraud." The corporate books are proper evidence not only to prove the acts of the directors, but also to prove the defendant's knowledge of the circumstances under 1 Gaffney v. Colville, 6 Hill, 567. 2 See Charitable Corporation v. Sutton, 2 Atkyns, 400; Spering's Appeal, 71 Pa. St. 11; Gaffney v. Colville, 6 Hill, 567. This is also the recognized doctrine in England, under the statute imposing personal liabilities upon directors for certain acts and non-feasances in winding up joint-stock companies. Re Liverpool H. S. Association, Ch. D. 7 Ry. & Corp. L. J. 498. In an action to recover from a trustee of a corporation the amount of a debt due from the company to the plaintiff, on the ground that the defendant had been guilty of fraud, in that he had signed a report required by the New York Manufacturers' Act of 1848, which stated that the capital of the corporation had been fully paid in, while the fact was that the defendant knew that the whole stock had been issued to one of the incorporators in payment of lands conveyed by him to the company at a grossly exaggerated price, the testimony as to the value of the lands of persons having actual knowledge of lands of the nature of those in question is admissible. Blake v. Griswold, 103 N. Y., 429; 9 N. E. 434. In Witters v. Sowles, 31 Fed. Rep. 1, in giving a construction to Rev. Stat. U. S. sec. 5200 concerning the personal liabilities of directors of insolvent national banks for making hazardous loans, it was said that the officers of such banks could not be held personally responsible to creditors for resulting losses if they had acted in good falth merely because such loans and discounts appear to have been unwise and hazardous when looked back upon. which the acts were done; but their admission does not exclude other evidence.1 § 927. Form of illegal payment immaterial.—The form which the illegal distribution takes is immaterial if in fact it amounts to a distribution of the assets of the company among its stockholders while the company itself is insolvent. Under such circumstances it is a violation of the spirit of the statute and renders the directors liable.2 § 928. Other penal liabilities.-The statutes of several states impose penalties upon directors for various other acts of misfeasance and nonfeasance than those noticed in the preceding sections; such for instance as failure to post periodical balance sheets in the company's office.3 The principles governing the construction and enforcement of these statutes are equally applicable to all similar statutes, whatever be the nature of the acts or neglects to which they relate. They are strictly construed and all the acts and facts the commission and existence of which are claimed to create the liability must be alleged and satisfactorily proven. § 929. Whether the remedy is equitable as well as legal.— There is little doubt of a creditor's right to proceed directly at law to recover his debt from a director who has become liable by an act of misfeasance or non 1 Blake v. Griswold, 103 N. Y. 429; 9 N. E. 434. Directors of a hydraulic mining corporation which became indebted by acquiring incumberee property and making improvements on the mine were held not liable under the California statute for dividends declared and paid out of the net profits of the mine before paying the whole of such debt, when a sinking fund has been provided, sufficient to extinguish the debt before the mine shall be exhausted. Excelsior Water & Min. Co. v. Pierce (Cal.), 27 P. 44. 2 Rorke v. Thomas, 56 N. Y. 559. |