Merchants' Nat. Bank of Chi. v. Nw. Manuf'g & Car Co.

• Decision Date: 08 February 1892
• Citation: 51 N.W. 117,48 Minn. 349
• Parties: MERCHANTS' NAT. BANK OF CHICAGO v NORTHWESTERN MANUF'G & CAR CO. ET AL.
• Court: Minnesota Supreme Court

48 Minn. 349

51 N.W. 117

MERCHANTS' NAT. BANK OF CHICAGOvNORTHWESTERN MANUF'G & CAR CO. ET AL.

Supreme Court of Minnesota.

Feb. 8, 1892.

(Syllabus by the Court.)

An action by a creditor of an insolvent corporation against its directors to enforce the liability created by section 142, c. 34, Gen. St. 1878, is governed by that clause of the statute of limitations which prescribes three years as the period of limitation in respect to actions upon “a statute for a penalty or forfeiture, where the action is given to the party aggrieved,” etc.

Appeal from district court, Washington county; CROSBY, Judge.

Action by the Merchants' National Bank of Chicago against the Northwestern Manufacturing & Car Company and others to recover of the individual defendants, as directors of the company, on a statutory liability. From an order sustaining defendants' demurrer to the complaint plaintiff appeals. Affirmed.

Clapp & Macartney, for appellant.

Horace G. Stone, for respondents.

DICKINSON, J.

The appellant, a judgment creditor of the defendant the Northwestern Manufacturing & Car Company, an insolvent corporation now in the hands of a receiver, seeks to recover of the individual defendants upon the ground that they, being directors of the corporation, ordered or assented to certain alleged violations of the law, resulting in the insolvency of the corporation. Such alleged violations of the law consisted in the issuing of stock without the same being paid for, in making unauthorized loans, and making and indorsing negotiable paperwithout consideration. The alleged cause of action arose more than three years, but less than six years, before the commencement of this action. The asserted right of action is confessedly founded solely on the statute, section 142, c. 34, Gen. St. 1878, (chapter 11, § 23, Gen. Laws 1873,) which is as follows: “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 liable, in an action founded on this statute, for all debts contracted after such violation as aforesaid.” On demurrer to the complaint the question is presented whether the right of action was barred by the general statute of limitations, (title 2, c. 66, Gen. St. 1878,) which, so far as it need be here referred to, prescribes the periods within which actions must be commenced as follows: “Sec. 6. Within six years: *** Second. An action upon a liability created by statute, other than those upon a penalty or forfeiture. Sec. 7. Within three years: *** Second. An action upon a statute for a penalty or forfeiture, where the action is given to the party aggrieved, or to such party and the state of Minnesota. Sec. 8. Within two years: *** Second. An action upon a statute for a forfeiture or penalty to the state.” “Sec. 10. Every action upon a statute for a penalty given, in whole or in part, to the person who prosecutes for the same, shall be commenced by said party within one year after the commission of the offense; and if the action is not commenced within one year by a private party it may be commenced within two years thereafter on behalf of the state, by the attorney general, or the county attorney of the county where the offense was committed.” The precise question is whether the statutory limitation of six years, or that of three years, above specified, is applicable to actions of this nature. Is the action, within the meaning of that statute, one “upon a liability created by statute other than those upon a penalty or forfeiture,” or is it one upon a statute “for a penalty or forfeiture?”

We have heretofore (Patterson v. Stewart, 41 Minn. 84,42 N. W. Rep. 926) referred to this statute-section 142-as highly penal in its nature, having a twofold object: First, to enforce diligence and fidelity on the part of corporate officers; and, second, to afford a remedy to creditors of the corporation. While this remedial purpose of the law is unquestionable, it is equally plain that the liability imposed is in the nature of a penalty. It is imposed by the statute as a consequence of a violation of law, resulting in the insolvency of the corporation. While the liability is declared in favor of the creditors of the corporation, it does not rest upon contract, nor upon any principle of the law of contracts. The directors of a corporation are not parties to its contracts, but strangers. The liability in favor of a creditor arises from their violation of law, even though the particular creditor who may sue to enforce the liability may not have suffered any real loss. If the statute is to have force according to its terms, the liability in favor of all of the specified class of creditors becomes absolute upon the insolvency of the corporation, even though, as respects some of them, it may be quite unnecessary for their protection; for instance, those whose debts are abundantly secured. The liability is in no degree measured by the extent of the injury done to those in whose favor it is declared. The creditors of the corporation may be able to recover from it, although it be insolvent, 90 per cent. of the amount of their debts. Nevertheless the directors are made “jointly and severally liable *** for all debts contracted after such violation.” It is at once apparent how great a liability is here in terms imposed upon each director who may be chargeable with a violation of the law. Upon this joint and several liability any one may be compelled to respond to the extent of the entire debts of the corporation, of the class specified; and it is at least not clear that he...