Nelson v. Bank of Fergus County

• Decision Date: 25 November 1907
• Docket Number: 2,587.
• Parties: NELSON et al. v. BANK OF FERGUS COUNTY.
• Court: U.S. Court of Appeals — Eighth Circuit

157 F. 161

NELSON et al. v. BANK OF FERGUS COUNTY.

No. 2,587.

United States Court of Appeals, Eighth Circuit.

November 25, 1907

Newel H. Clapp (George M. Nelson and Charles W. Farnham, on the brief), for plaintiffs in error.

Edward P. Sanborn and S. H. McIntire, for defendant in error.

Before VAN DEVANTER and ADAMS, Circuit Judges, and RINER, District judge.

ADAMS Circuit Judge.

Since June, 1902, the New Year Gold Mines Company, a corporation of West Virginia, has had its principal office and has conducted its operations consisting of mining in Fergus county, Mont. On December 31, 1902, it owed the defendant in error, the Bank of Fergus County, and another corporation which assigned its claim to the bank, some $12,000. The Mines Company failed to file, within 20 days after December 31, 1903, in the office of the clerk of Fergus county, a report, signed by its president and majority of its directors, stating the amount of its capital stock, the proportion thereof paid in, and the amount of existing indebtedness, as required by section 451 of the Civil Code of Montana, as amended by the act of February 26, 1903 (Laws 1903, p. 45, c. 32); and this suit was brought against the directors to enforce liability for the debts of the corporation created by such failure. The Circuit Court held them liable and this writ of error challenges that judgment.

The section in question reads in part as follows:

'Every corporation having a capital stock, shall annually and within twenty days from and after the thirty-first day of December, make a report which shall state' etc. 'If any such corporation shall fail so to do, all the directors of the corporation shall be jointly and severally liable for all debts of the corporation then existing or which may be thereafter contracted until such report shall be made and filed. * * * ' Defendants' counsel contend that the statute does not mean what its introductory words, 'Every corporation having a capital stock shall,' etc., apparently indicate, but that it relates to domestic corporations only, and not at all to foreign corporations, like the Mines Company. In maintaining this contention the history of the statute is appealed to. Section 15, tit. 1, p. 28 of the Territorial Laws of Montana for the year 1867, under the title 'An act to provide for the formation of corporations for certain purposes' is as follows:

'Every such company shall annually within twenty days from the 1st of September make report which * * * shall state, * * * and if any of said companies shall fail to do so all the trustees of the company shall be jointly and severally liable for all debts of the company then existing and for all that shall be contracted before such report shall be made.'

This section, which is the origin of the one invoked by the plaintiff in this case, clearly relates to domestic corporations, and subjects directors of such corporations only to liability for its debts. This section 15 was carried forward into the Codified Statutes of Montana (1871-72) as section 15, c. 18, p. 409, which relates mainly to domestic corporations. Section 46 (page 419) however, of that chapter, relates to foreign corporations and requires that they, as a condition of doing business in Montana, shall file for record with the Secretary of the Territory and in the office of the recorder of the county in which they propose to do business a copy of the charter or certificate of incorporation duly verified as therein prescribed. Chapter 15, div. 5, of the Revised Statutes of 1879, entitled 'Corporations for Industrial or Productive Purposes,' contains sections 258 and 289, which are identical, respectively, with section 15 of the Laws of 1867 and section 46 of chapter 18 of the Codified Statutes of 1871-72.

Up to this time it will be seen that domestic and foreign corporations had been treated separately and quite differently in the statutes. The first had been required to file verified statements showing the amount of their authorized capital and what portion had been paid in and the amount of their debts. The second had been required to file only certified copies of their charters or certificates of incorporation. By an act approved July 22, 1879 (Laws 1879, (Ex. Sess.) p. 8), the Legislature of Montana for the first time enacted that foreign corporations should be required to file, among others, the statements before that time required of domestic corporations, with some additional information touching assets and liabilities. The penalty for failure to do so (instead of subjecting the directors to liability for the debts of the corporation) was to invalidate the contracts of the foreign corporations made during the continuance of such failure and subject the corporations themselves to fines. This last act was carried forward into the Compiled Statutes of 1888 as chapter 24, div. 5, which has for its title 'Foreign Corporations.' It deals exclusively with such corporations, making no change in the penalty theretofore prescribed for failure to make the required statements. Chapter 25 of the compilation of 1888 has for its title 'Corporations for Industrial or Productive Purposes,' and first deals with the method of organizing corporations in the state of Montana-- that is, with the organization of domestic corporations; and then in section 460 is found a reproduction of section 15 of chapter 18 of the Codified Statutes of 1871-72 with its peculiar penalty for noncompliance with its provisions. So that in the compilation of 1888 domestic and foreign corporations are the subjects of different sections, and both are required to file certain statements (one a statement of capital stock authorized and paid in, and its debts; the other, the statement just mentioned, together with additional showing of the amount of assets and some other details not required of domestic corporations), and they are subject to different penalties for failure to file the statements.

It may be conceded that section 460 of chapter 25, which contains the only provision subjecting corporate directors to liability for corporate debts for failure to make required statements, has relation only to domestic corporations. Its introductory words, 'Every such company,' are clearly referable to the kind of corporation provided for in antecedent sections, and they were domestic corporations.

In 1889 the state of Montana adopted its Constitution and ordained (article 15, Sec. 11):

'That no company or corporation formed under the laws of any other country, state or territory shall have or be allowed to exercise or enjoy within this state any greater rights or privileges than those possessed or enjoyed by corporations of the same or similar character created under the laws of the stat.'

In February, 1895, code commissioners appointed by a previous Legislature submitted to the Legislature then in session their report recommending the adoption of four codes, the Political Code, the Civil Code, the Code of Civil Procedure, and the Penal Code. These were adopted in the form known as 'Montana Statutes and Codes' (1895). Section 299 of the Civil Code so adopted is in the following language:

'Every corporation shall semiannually within twenty days from the first days of January and July make report, which shall * * * state the amount of the capital and of the proportion actually paid in, and the amount of the existing debts, * * * and if said corporation shall fail to do so, all the directors of the corporation shall be jointly and severally liable for all debts of the corporation then existing, and for all that shall be contracted before such report shall be made.'

The foregoing was reported and adopted as part of the Civil Code. Afterwards, by an act approved March 14, 1895, the Legislature amended section 299 of the Civil Code so as to make the same read as follows:

'Every corporation having a capital stock shall annually * * * (instead of 'Every corporation shall semiannually,' as before) make a report,' etc.

This section as amended finally went into the Civil Code of 1895 as section 451, under the general title, 'General Provisions Applicable to all Corporations,' but under a subtitle, 'Corporations Defined and How Organized.'

Section 1030 of the Civil Code, under the title of 'Foreign Corporations,' is practically a reproduction of the original act of July 22, 1879, and re-enacts its conditions requiring statements, etc., upon which foreign corporations may do business in the state, but does not subject their directors to liability for their debts for failure to make the statements.

The act of February 26, 1903 (Laws Mont. 1903, p. 45, c. 32), which is the last expression of the Legislature on the subject, amends section 451 of the Civil Code so as to change the time within which reports should be filed from 'within twenty days from and after the first day of September' annually to 'within twenty days from and after the thirty-first day of December' annually.

It is in view of this legislative history that defendants' counsel contend that the liability of corporate directors for the debts of their corporations for failure to file required statements is limited to domestic corporations only. Is this sound? We think not, and for the following reasons:

1. The language of the statute as it now stands is broad enough when literally read, to subject the defendants who were directors of the Mines Company to liability for plaintiff's debt. It reads, 'Every...