Patterson v. Thompson

• Decision Date: 24 March 1898
• Citation: 86 F. 85
• Parties: PATTERSON v. THOMPSON.
• Court: U.S. District Court — District of Oregon

86 F. 85

PATTERSON v. THOMPSON.

United States Circuit Court, D. Oregon.

March 24, 1898

Dolph Mallory & Simon and Cox, Cotton, Teal & Minor, for defendant.

GILBERT Circuit Judge.

The plaintiff in this action seeks to hold the defendant liable for a debt of the Portland Savings Bank, under the provisions of section 3231, 2 Hill's Ann. Laws Or., which provides as follows:

'If the directors of a corporation declare and pay dividends when the corporation is insolvent, or which renders it insolvent, or diminishes the amount of its capital stock such directors shall be jointly and severally liable for the debts of the corporation then existing or incurred while they remain in office; or if such directors shall, by any official act or conduct, fraudulently induce any person to give credit to such corporation, they shall be liable in like manner to such person for any loss he may sustain thereby; but any director who voted against such dividend or such fraudulent act or conduct, if present, or who thereafter, as soon as the same came to his knowledge filed his objections thereto, shall be exempt from such liability.'

The complaint alleges: That the defendant was a director of the bank, and that he acted with the other directors in declaring and paying dividends to stockholders on September 12, 1892, and that he made no protest against dividends declared upon December 12, 1892, and March 13, 1893. That, at the date when said dividends were declared and paid, the bank was insolvent. That on March 22, 1893, the plaintiff deposited with the bank $10,000, for which he received a certificate of deposit, payable, with interest, February 11, 1894. That on September 5, 1893, at a meeting of the board of directors, at which the defendant was present and voted in the affirmative, it was resolved that agreements be obtained from the depositors of the bank for extensions of time for the payment of their deposits, and, in pursuance of said resolution, the defendant signed an agreement, which is as follows: 'Whereas, the Portland Savings Bank of Portland, Oregon, has been compelled to close its doors by reason of the unprecedented withdrawal of deposits during the late financial panic in this community; and whereas, we desire to aid said bank to resume business, which we recommend and ask the court to allow; and whereas, we have confidence in the integrity of its officers and the resources of said bank, and desire to lend our influence to the restoration of public confidence in it and its management: Now, therefore, we, the undersigned, depositors in said bank having funds on deposit therein, either upon open account, savings account, or evidenced by certificates of deposit, in consideration of the premises and of the resumption of business by said bank, do hereby severally agree that we will accept for and instead of and in payment of our said balances and claims against the said Portland Savings Bank the following: Ten per cent. thereof payable February 1, 1894; ten per cent. thereof payable May 1, 1894; ten per cent. thereof payable August 1, 1894; ten per cent. thereof payable November 1, 1894; ten per cent. thereof payable February 1, 1895; ten per cent. thereof payable May 1, 1895; ten per cent thereof payable August 1, 1895; ten per cent. thereof payable November 1, 1895; ten per cent. thereof payable February 1, 1896; and ten per cent. thereof payable May 1, 1896. Deferred payments to bear interest at the rate of six per cent. per annum until paid.'

-- That on April 18, 1894, the plaintiff received from the bank the sum of $1,000, which, according to said agreement, was payable on February 1, 1894. That on or about May 1, 1894, the bank resumed business. That no further sum has been paid on said deposit, excepting $485.91, paid September 15, 1897. To this complaint the defendant demurred, upon the grounds-- First, that the same does not state facts sufficient to constitute a cause of action; and, second, that the action was not brought within the three years limited by statute for the commencement of actions to recover penalties.

In considering the second ground of demurrer, the first question to be determined is whether the liability created by the statute is a penalty, such that an action to enforce it is barred at the end of three years. The Oregon statute above quoted is similar to that of many of the states upon the same subject. In nearly all of such states it has been held that such a statute is penal in its nature, and that an action to enforce liability thereunder is subject to the statute of limitations which is made applicable to actions for the recovery of penalties. The courts have recognized the remedial feature of the statutes, in that they inure to the benefit of the creditors, for whose protection they are intended; but they have also held that, so far as the directors are concerned, the liability is in the nature of a penalty, and that the statutory provisions must be strictly construed. In this respect, reason is clearly coincident with the weight of authority. The liability imposed upon directors under the statute is absolute. It is not apportioned to the amount of the interest which the directors may have in the corporation, as stockholders or otherwise, thus differing from the statutory liability of stockholders. It is not predicated upon the amount of the benefit which may accrue to the directors from the illegal dividend. It does not depend upon the amount of the dividend which is declared, nor the extent of the injury to the creditor, which is thereby occasioned. It is intended by such statutes, upon grounds of public policy, to require the directors of corporations to exercise diligence, to deal honestly with creditors, and to faithfully perform their duties. The law clearly presumes that the director is bound to know the condition of his corporation, and to know whether or not dividends are payable; and it makes no excuse nor release of liability on account of his failure to acquire such knowledge. It is immaterial that the statute contains no direct prohibition of the payment of dividends under the circumstances mentioned therein. It is sufficient that a penalty is denounced against the act. That penalty can be regarded in no other light than as a punishment for the injurious act. Halsey v. McLean, 12 Allen, 438; Bank v. Bliss, 35 N.Y. 412; Chase v. Curtis, 113 U.S. 452, 5 Sup.Ct. 554; Irvine v. McKeon, 23 Cal. 472; Merchants' Nat. Bank of Chicago v. Northwestern Mfg. & Car Co., 48 Minn. 349, 51 N.W. 117; Bank v. Price, 33 Md. 487; Moies v. Sprague, 9 R.I. 541; Iron Co. v. Pierce, 4 Biss. 327, Fed.Cas.No. 14,367; Gregory v. Bank, 3 Colo. 333; Breitung v. Lindauer, 37 Mich. 217; Stebbins v. Edmands, 12 Gray, 203; Derrickson v. Smith, 27 N.J. Law, 166; Mitchell v. Hotchkiss, 48 Conn. 9; Hill v. Frazier, 22 Pa. St. 320; Bank v. Johnson (Mont.) 45 P. 662; Kritzer v. Woodson, 19 Mo. 327.

Counsel for the plaintiff contend that by the decision in Huntington v. Attrill, 146 U.S. 657, 13 Sup.Ct. 224, the supreme court has overruled its former holding that such a statute is penal. It will be seen, however, on a careful consideration of that case, that the decision was based upon a careful consideration of that case, that the decision was based upon a consideration of the remedial purpose of the statute and the protection intended to the creditor, and that the court went no further than to hold that such a statute is not penal, in the sense that it will not be enforced in a state other than that in which the liability was created. In the later case of Bank v. Remsen, 158 U.S. 337, 15 Sup.Ct. 891, it was again ruled that such a statute is one of a penal character, and in the opinion the court remarked that the purport of the decision in Huntington v. Attrill was that such a statute was not 'a penal law in the international sense.'

The action being for a penalty, and subject to be barred at the end of three years, the question next arises, at what date did the statute of limitations begin to run? The statutory liability of the directors is joint and several for all the debts of the corporation 'then existing or incurred while they remain in office. ' It is contended on behalf of the defendant that the statute began to run from the date when the illegal dividend was declared, notwithstanding that the debt was not then due. So far as the question appears to have been adjudicated in other states, it is held that no cause of action accrues against the directors until the debt of the corporation is due. Jones v. Barlow, 62 N.Y. 202; Sullivan v....