Farr v. Briggs' Estate

• Decision Date: 13 April 1900
• Citation: 72 Vt. 225,47 A. 793
• Parties: FARR v. BRIGGS' ESTATE.
• Court: Vermont Supreme Court

47 A. 793

72 Vt. 225

FARR

v. BRIGGS' ESTATE.

Supreme Court of Vermont. Chittenden.

April 13, 1900.

Exceptions from Chittenden county; Rowell, Judge.

Action by Willis V. Farr against the estate of George C. Briggs, deceased, on a disallowed claim. To an order sustaining a demurrer to his declaration, plaintiff excepts. Reversed.

The defendant claimed, as grounds of demurrer, that the liability arising on the statute of South Dakota in question was so far penal that it could not be enforced in this state, and that the right of action to enforce it did not survive.

Argued before TAFT, C. J., and ROWELL, TYLER, MUNSON, START, THOMPSON, and WATSON, JJ.

W. L. Burnap and Powell & Powell, for plaintiff.

Clarke C. Briggs and Seneca Haselton, for defendant.

TYLER, J. Appeal from the disallowance of a claim by the commissioners upon the estate. The following are the material facts alleged in the declaration and admitted by the demurrer: The Vermont Investment Company was a corporation created and organized in May, 1882, under the laws of South Dakota, and having offices and places of business in that state and in Burlington, Vt., for the negotiating of loans and the sale of promissory notes and other securities. The statute under which the corporation was created contains the following provision: "The directors of corporations must not make dividends except from the Surplus profit arising from the business thereof; nor must they divide, withdraw or pay to the stockholders, or any of them, any part of the capital stock; nor must they create debts beyond their subscribed capital stock, or reduce or increase their capital stock, except as especially provided by law. For a violation of the provisions of this section, the directors under whose administration the same may have happened (except those who may have caused their dissent therefrom to be entered at large on the minutes of the directors at the time, or were not present when the same did happen), are, in their individual and private capacity, jointly and severally liable to the corporation, and to the creditors thereof, in the event of its dissolution, to the full amount of the capital stock so divided, withdrawn, paid out, or reduced, or debt contracted; and no statute of limitations is a bar to any suit against such directors for any sums for which they are made liable by this section." The capital stock issued and subscribed for was 523 shares, of the par value of $100 per share; yet the directors contracted debts and liabilities against the corporation largely in excess of the stock subscribed. George C. Briggs, of Burlington, was a stockholder in the corporation, was duly constituted a director thereof, and qualified and acted as such while it continued to do business. He attended its meetings, participated in its transactions, expressed no dissent to the creation of debts as aforesaid, and caused none to be entered upon its records. The corporation sold to the plaintiff in this state, and guarantied the payment of, various notes, to a large amount, and thereby became liable to pay the same to him at maturity if the makers failed to pay them. The plaintiff demanded payment of the notes and obligations so purchased by him, as they respectlvely fell due, of the makers, and, upon failure of payment by them, made demand of payment of the corporation pursuant to its guaranty. The corporation became insolvent and was dissolved in December, 1893, and all its assets were exhausted, whereupon the plaintiff presented his claim against Briggs' estate upon the ground that, as one of the directors of the corporation, by virtue of the statute Briggs became liable to pay him the amount of his debt against the corporation, and that the claim survived against his estate.

The statute of South Dakota evidently was the general law of that state under which all business corporations were required to be organized. Upon the election of the directors they became subject to all its requirements, and liable to the corporation and to its creditors, within that state, at least, for a violation thereof. The question is whether the statute had any extraterritorial force,—whether creditors outside the limits of that state have any remedy by virtue of its provisions. It is well settled that penal statutes will receive no recognition and are not enforceable in other states than the ones in which they were enacted. Story, Confi. Laws, §§ 620, 621; Halsey v. McLean, 12 Allen, 439, 90 Am. Dec. 157, and notes; Blaine v. Curtis, 59 Vt. 120, 7 tl. 708; Adams v. Railroad Co., 67 Vt. 76, 30 Atl. 687. The plaintiff concedes this to be the rule of law, but contends that the statute under which the present action is brought is not penal, but contractual. The defendant estate claims that the statute is strictly penal. Statutes similar to that under which the present action is brought, making the directors of business corporations personally liable for their default in the performance of certain prescribed duties, have received much consideration by law writers and courts. In Cook, Corp. § 223, in Mor. Priv. Corp. § 907, and in Thomp. Corp. §§ 3052, 4164, it is said that such statutes have generally been held to be penal. Courts of high authority have so held. In Bank v. Price, 33 Md. 488, a Pennsylvania statute which provided that, if any debts or liabilities should be contracted, exceeding the amount of the capital stock of the corporation actually paid in, the directors and officers contracting the same should be jointly and severally liable in their individual capacity for the whole amount of the excess, and that the same might be recovered in an action of debt, was considered as imposing a penalty, and that it could only be enforced in the state which enacted it. In Mitchell v. Hotchkiss, 48 Conn. 9, 40 Am. Rep. 146, the same doctrine was held under the statute of another state which provided that officers of certain corporations should be personally liable for the debts of the corporation in case they neglected to file an annual report showing the financial condition of the corporation. See, also, Stokes v. Stickney, 96 N. Y. 323; Carr v. Rischer, 119 N. Y. 117, 23 N. E. 296. The same was held in Derrickson v. Smith, 27 N. J. Law, 166, in Diversey v. Smith, 103 Ill. 378, 42 Am. Rep. 14, and in Chase v. Curtis, 113 U. S. 452, 5 Sup. Ct. 554, 28 L. Ed. 1038.

In Huntington v. Attrill, 146 U. S. 657, 13 Sup. Ct. 224, 36 L. Ed. 1123, the court gave construction to a New York statute, in violation of which the defendant, as a director of a business corporation, signed and made oath to a certificate which he knew to be false,— that the whole of the capital stock of the corporation had been paid in, when in fact no part of it had been paid in. The statute made him liable for all the debts of the corporation, which included that of the plaintiff. The question whether this was a...