Nesbit v. Clark

• Decision Date: 03 January 1922
• Docket Number: 103
• Citation: 116 A. 404,272 Pa. 161
• Parties: Nesbitt, Appellant, v. Clark et al
• Court: Pennsylvania Supreme Court

116 A. 404

272 Pa. 161

Nesbitt, Appellant, v. Clark et al

No. 103

Supreme Court of Pennsylvania

January 3, 1922

Argued October 11, 1921

Appeal, No. 103, Oct. T., 1921, by plaintiff, from judgment of C.P. Allegheny Co., April T., 1921, No. 403, for defendants on question of law raised by affidavit of defense in case of A. G. Nesbitt, ancillary administrator of estate of Walter R. Herrod, deceased, v. Charles H. Clark et al. Affirmed.

Assumpsit on promissory notes. Before STONE, J.

The opinion of the Supreme Court states the facts.

Judgment for defendants on question of law raised by affidavit of defense. Plaintiff appealed.

Error assigned, inter alia, was judgment, quoting it.

The judgment is affirmed.

Harvey A. Miller, of Miller & Nesbitt, for appellant. -- The Pennsylvania courts should look to and follow the construction placed upon the statute in question by the highest court of Colorado: Commercial Nat. Bank v Kirk, 222 Pa. 567.

The highest court of Colorado has held, as to actions brought by creditors of the corporation against its officers and directors, that this statute is remedial and enforceable against the officers and directors: Credit Men's Adjustment Co. v. Vickery, 62 Col. 214; Interstate Savings & Trust Co. v. Wyatt, 63 Col. 1; Perini v. Oil Co., 68 Col. 564.

The refusal of the Pennsylvania courts to enforce the statute and decision of Colorado is a violation of the "full faith and credit" clause of the Federal Constitution: Huntington v. Attrill, 146 U.S. 657.

Huntington v. Attrill, supra, is regarded as the leading case on the points hereinbefore stated and decided. It is referred to as authority in the following cases: Meeker v. R.R., 236 U.S. 412; O'Sullivan v. Felix, 233 U.S. 318; Ward v. Com'rs, 253 U.S. 17.

As further authorities, both on the question that the statute of Colorado is remedial and that from an international standpoint it should be enforced by the Pennsylvania courts: see Hancock Nat. Bank v. Farnum, 176 U.S. 640; Whitman v. Bank, 176 U.S. 559; Royal Arcanum v. Green, 237 U.S. 531.

John M. Freeman, of Watson & Freeman, with him James L. Weldon, Thorp, Boswick & Stewart, A. M. Simon and Herbert D. Lent, Jr., for appellees. -- Penal laws are not enforceable outside of the state creating them: Commercial Nat. Bank v. Kirk, 222 Pa. 567; The Antelope, 10 Wheat. 66; Flash v. Conn., 109 U.S. 371.

The statute of Colorado, on which the liability of defendants is based, is unquestionably a penal statute and not enforceable outside of that state: Brown v. Kildea, 58 Wash. 184; Adams v. R.R., 67 Vt. 76; Chase v. Curtis, 113 U.S. 452.

This act has been uniformly held penal by the courts of Colorado, and the decisions of that court, while not binding on this court, are to be given weight in determining the character of the act: Gregory v. Bank, 3 Col. 332; Clough v. Oil Co., 25 Col. 520.

The decisions of other states where this question has arisen are substantially uniform in holding that statutes of this particular type are penal and not enforceable outside of the state enacting them: Cary v. Schmeltz, 141 Mo.App. 570; First Nat. Bank of Plymouth v. Price, 33 Md. 487; Derrickson v. Smith, 27 N.J.L. 166; Wisconsin v. Ins. Co., 127 U.S. 265.

Before MOSCHZISKER, C.J., FRAZER, WALLING, KEPHART, SADLER and SCHAFFER, JJ.

OPINION

MR. JUSTICE SCHAFFER:

Plaintiff, as ancillary administrator of Walter R. Herrod, deceased, brought suit against defendants, to recover the amount represented by four promissory notes, given by the Ward Mining & Milling Company, a corporation of the State of Colorado, to Herrod in his lifetime. The liability of defendants, who are alleged to be officers and directors of that company, is asserted under a statute of Colorado, which provides, in substance, that if any corporation shall fail to file an annual report in the office of the secretary of state, within sixty days after January first of each year, the officers and directors of the corporation shall be liable for all debts of the corporation, contracted during the preceding year, and until the report shall be filed. It is alleged the report required was not filed. The contention of the plaintiff is that the statute in question is remedial as to creditors of the corporation, and therefore enforceable in Pennsylvania against defendants as its officers and directors; whereas, by their affidavit of defense, defendants take the position that the statute is penal, and therefore not enforceable here. The court below determined the case accordant with the latter view and entered judgment for defendants; plaintiff appeals.

It is well settled that penal laws of one state can have no operation in another: The Antelope, 10 Wheaton 66; Flash v. Connecticut, 109 U.S. 371.

In Commercial National Bank v. Kirk, 222 Pa. 567, where an action was brought to enforce a liability under a Montana statute, similar to the one now before us, it was said, "The right to recover as a personal obligation against directors in this State depends upon the nature of the liability under the Montana statute, which, if penal, must be enforced in that jurisdiction."

The trend of judicial decisions in Pennsylvania has always been against the enforcement within this Commonwealth of the penal enactments of other countries and states. In our early case of Commonwealth v. Halloway, 1 S. & R. 392 (1815), it was held that penal statutes of another country will not be enforced here, even against one who by contract has agreed to be subject to them. There it appeared a seaman had shipped in a British port, under articles in which he agreed to be subject to certain British statutes authorizing the arrest and imprisonment of sailors who deserted their ships. The seaman left his ship when it reached Philadelphia; he was arrested and committed by an alderman until security should be entered that he would continue on the voyage. In habeas proceedings it was held by Chief Justice TILGHMAN that the commitment was illegal, notwithstanding the contract by which the imprisoned sailor had agreed to be subject to the penal statute of Great Britain authorizing such imprisonment.

Appellees contend that the liability imposed by the Colorado statute is penal. Whatever may be the conclusion as to this, it is a harsh and severe law. The neglect of an official to file the report provided by the act may cause the ruin of perfectly innocent directors, although they may have directed the report to be filed. The debts for which they will be made liable may have been contracted before the date fixed for filing the report, and the neglect to file it may have misled nobody, yet the directors are fixed with liability. Such an act should be construed with great strictness. If a Colorado court has, under a given state of facts, held it to create a contractual liability, and not to impose a penalty, the courts of another state, when called upon to enforce the statute, should not thus construe it, unless the facts involved are substantially the same.

In Credit Men's Adjustment Co. v. Vickery, 62 Colorado 214, the Supreme Court of Colorado was presented with the question whether an assignee of a demand, arising under the act, against directors of a corporation, could collect, it being urged that he could not, because the claim was for a penalty, and therefore unassignable. The court ruled that the demand, under the circumstances there shown, was not for a penalty, and could be collected. In the course of the opinion, it was said, "This kind of a statute imposing a liability on directors for the debts of a corporation for failure to file a report, is, broadly speaking, penal in character, although not such in the strict sense of that term. . . . Within the statute of limitations, and, for the purpose of determining the liability of directors, it is as to them in the nature of a penalty; but when the facts bring the case against the directors clearly within the statute, it affords relief to creditors, and, as to them, is remedial in character. The courts of this State have often considered the statute from the side affecting directors, and as to them uniformly held it to be penal in its nature. Here the directors' liability is admitted [just how or why the opinion does not disclose], and we are now confronted with the question which requires a consideration of the statute from the viewpoint of creditors in enforcing the liability. . . . In some respects the statute is penal, while in others it is remedial in character. Penal in its nature as to the directors for the purpose of determining their liability, and to be strictly construed. When the liability is clearly shown, it is remedial in character as to creditors, and to be liberally construed in its enforcement."

We confess, that the reasoning by which the court reached the conclusion, that the statute is not penal, is not altogether clear to us; particularly is this so when we take into account that, in all the other cases in which the act has been considered by the Colorado courts, the liability imposed has been construed as penal.

Under an earlier, but similar, act in Gregory v. Bank of Denver, 3 Colorado 332, it was said, "The liability of the trustees, arising from a failure to publish an annual report, is in no way related to the loss that creditors of the company may sustain by reason of such violation of the statute. The joint and several liability attaches to the trustees, not because creditors of the company contracted with them, not because the corporation is insolvent, but because they neglected to perform a duty...