Daily v. Marshall

• Decision Date: 14 May 1913
• Citation: 133 P. 681,47 Mont. 377
• Parties: DAILY v. MARSHALL ET AL.
• Court: Montana Supreme Court

133 P. 681

47 Mont. 377

DAILY v. MARSHALL ET AL.

Supreme Court of Montana

May 14, 1913

Appeal from District Court, Missoula County; F. C. Webster, Judge.

Action by John R. Daily against Thomas C. Marshall, W. P. Mills, and others. From a judgment for plaintiff, defendant Mills appeals. Affirmed.

Frank A. Roberts, of Missoula, and Gunn, Rasch & Hall, of Helena for appellant.

A. N Whitlock and H. H. Parsons, both of Missoula, for respondent.

BRANTLY C.J.

Action by respondent to recover from appellant the sum of $5,347.13 alleged to be due on account of goods, wares, and merchandise sold and delivered to the Missoula Palace Market, a corporation organized and existing under the laws of Montana. The theory upon which appellant is sought to be held is that, as president and director of the corporation, he failed to file, or have filed, in the office of the clerk and recorder of Missoula county, the place where the corporation has its principal place of business, for the year 1910, the report required by section 3850 of the Revised Codes. On August 2, 1906, the appellant, W. P. Mills, filed with the county clerk of Missoula county articles of incorporation of the "Missoula Palace Market." These were executed and acknowledged by Mills, Thomas C. Marshal, and Thomas N. Marlowe. Thereafter a certified copy was filed with the secretary of state, and there was duly issued by him a certificate under the seal of the state. The articles recited that Mills, Marshall, and Marlowe were the directors having charge of the corporation during the first three months of its existence; that its corporate stock was $3,000, divided into 3,000 shares of $1 each; and that each of the incorporators was a subscriber for one share. The stock was declared nonassessable, but was to be fully paid when issued. It does not appear that the directors formally organized by the election of officers or the adoption of by-laws, or that an election of directors was thereafter had. No certificates of stock were thereafter issued. On December 12, 1907, the appellant, Mills, entered into a written contract with one J. D. Watts, wherein he represented himself to be the owner of all the capital stock of the corporation, and agreed to sell to Watts three-fourths of it for the sum of $3,000. The writing provided that Watts should have charge, management, and conduct of the business of the corporation; the same being the "butcher and meat business now carried on" in Missoula. Watts was to receive a salary of $125 per month, and he and Mills were to divide "the proceeds or dividends of said business in the proportion of their holdings." Watts took charge at once and conducted the business until March 6, 1910. He did not pay the note given to Mills as the purchase price under the terms of the agreement. He never received any shares of stock. Prior to Watts' connection with the business, Mills was manager and, according to his own testimony, sole owner of it until it was closed up by an attachment by himself in March, 1910. From its establishment until Watts took charge, and thereafter until it was closed up, the business was conducted in the corporate name. When Watts assumed charge, an indebtedness of about $2,200 had been incurred. Checks issued by him were signed with the corporate name, by Watts himself or his daughter, who was the bookkeeper. On January 17, 1908, Mills verified an annual statement, such as was required by the statute (Rev. Codes, § 3850), signed by himself, Marshall, and Marlowe, and caused it to be filed with the clerk and recorder of Missoula county, wherein it was recited that the Missoula Palace Market is "a corporation organized and existing under the laws of Montana," and that Mills was the president and a director of it; that Watts was its general manager; and that Marshall was its secretary. A report reciting the same facts, verified by Mills, was filed for record on January 19, 1909. In each of these reports is the statement that "the amount of capital stock actually paid in cash is the sum of $3,000."

The testimony given by Mills at the trial was, in part, as follows: "Q. Who was doing business before Mr. Watts got there? A. The Missoula Palace Market it was called. Q. What is the company of which you were president part of the time and Mr. Watts part? A. The business ran there, we called it the Missoula Palace Market. Q. Who was manager when Watts came? A. I was. * * * Q. Where did you get the money to pay that rent with? A. Why, he took it out of the corporation, I guess. * * * Q. Did you ever call a meeting or advertise for a meeting? * * * A. I know the secretary, Marshall, called a meeting. * * * We met several times--Col. Marshall, Mr. Watts, and myself. * * * I was trying to get Mr. Watts to settle the business up; I was being told I might be held responsible. * * * I think I met Mr. Daily about January, 1910. * * * I told him not to give any more credit to the Market. * * * The meat market of which Mr. Watts was in charge did business up to the time that I attached it." Touching the contract between himself and Watts, he testified: "That paper was made out in that form as security; I transferred the entire property to Mr. Watts for $3,000. The understanding was that I sold Mr. Watts this property for $3,000; that he was to have absolute control of it; that he was to allow me to remain as a quarter owner that I might, as security, have some control of the shop, while I verbally was never to receive anything from it, except the original cost. When he paid that $3,000, it was to be his--any day he wanted to pay the $3,000." The plaintiff testified: "Q. Tell what Mr. Mills said in relation to the corporation. A. He said that he was willing to give me all he could get out of the Missoula Palace Market, but he didn't want to go down in his pocket and give any more."

In his affidavit to obtain the attachment in his action against the corporation, it was stated by Mills that "the said John D. Watts, on or about the 12th day of December, 1907, became the manager of the business of the defendant corporation, Missoula Palace Market, and continued in that capacity until about the 6th day of March, 1910," when his "authority as said manager was severed and terminated." This was brought about by a letter to Watts from Mills; Watts being "requested to stay away from the Market and to receive no more mail * * * belonging to the Missoula Palace Market." The attachment suit was subsequently dismissed, and Mills' attorney took possession of the assets of the concern. On January 8, 1910, Marshall, with the consent of Mills, published a notice in the Daily Missoulian calling a meeting of the "stockholders of the Missoula Palace Market." The notice stated that the meeting was to be the annual meeting for the election of directors for the ensuing year. It was signed by Mills as president and director. It does not appear whether a meeting was held pursuant to this notice. The business had been conducted in a leased building; the lease running to the corporation by name. This lease was renewed in March, 1910. At one time Watts had some stationery printed for the corporation. By mistake the printer designated Watts as the proprietor instead of manager. This was made use of during the course of the business. No annual report for the year 1910, as required by section 3850, supra, as amended by the act approved March 11, 1909 (Laws 1909, p. 217), was filed by the president or directors of the corporation, or by any director thereof. From November, 1909, and up to March 9, 1910, there became due from the Missoula Palace Market, for goods, wares, and merchandise sold and delivered to it by respondent, the sum of $5,347.13. Demand was made by respondent upon Mills for payment. Upon his refusal to pay this action was brought, resulting in a verdict and judgment for respondent. These appeals are from the judgment and an order denying appellant's motion for a new trial. There was substantially no conflict in the evidence; the appellant himself being the principal witness examined by respondent.

1. The first contention made is that the complaint does not state a cause of action, in that it does not allege that the Missoula Palace Market is a corporation having a capital stock. The allegation on this subject is "that at all times herein mentioned the Missoula Palace Market was, has continued to be, and is, a corporation, organized and operated for profit," etc. Amended section 3850, supra, declares "Every corporation having a capital stock, except banks, trust companies and building and loan associations, shall annually, within twenty days from and after the thirty-first day of December, file, in the office of the clerk of the county in which the principal place of business of such corporation is situated, a report which shall state," etc. The argument of counsel for appellant is that, since this section is penal in character, it is incumbent upon one who seeks to hold directors of a corporation liable upon failure to comply with it to allege and prove affirmatively every fact and circumstance upon which his right to recover depends; nothing being presumed in his favor. The rule invoked is undoubtedly sound. It was recognized by this court in Wethey v. Kemper, 17 Mont. 491, 43 P. 716. While the liability imposed by the statute is often called penal, it is not so in the sense in which that term is commonly used. It is so only in the sense that the liability was not known at the common law, but is entirely of statutory origin. For this reason the legislative declaration of the rule may not be construed to include cases which do not fall clearly within its terms. 2 Morawetz on Corporations (2d Ed.) § 908. In every case, therefore, the pleading should allege facts and...