Thatcher v. Salomon

• Decision Date: 11 March 1901
• Citation: 16 Colo.App. 150,64 P. 368
• Parties: THATCHER et al. v. SALOMON et al.
• Court: Colorado Court of Appeals

64 P. 368

16 Colo.App. 150

THATCHER et al. v. SALOMON et al.

Court of Appeals of Colorado

March 11, 1901

Appeal from district court, Arapahoe county.

Suit by Felix Salomon and another against J.A. Thatcher and others. From a judgment in favor of plaintiffs, defendants appeal. Affirmed.

Patterson, Richardson & Hawkins, for appellants J.A. Thatcher, H.M. Porter, and C.H. Smith.

Benedict & Phelps, for appellant J.C. Lewis.

Horace Phelps, for appellant D.H. Ferguson.

Guy Le R. Stevick, for appellees.

WILSON J.

The defendants (appellants herein) were directors of the Platte River Paper-Mills Company, a corporation organized under the laws of Colorado in 1892. The plaintiff firm claims that the corporation became indebted to it on account for a consignment of linen rags sold and delivered to it by plaintiff between the 1st day of April and the 1st day of June, 1894, at an agreed price, which should have been paid on or before July 1, 1894. It seeks by this suit to enforce the personal liability of the defendant directors for this debt, incurred, it is alleged, by reason of the failure of the corporation to make or cause to be made within 60 days from the 1st day of January, 1894, its annual report as required by statute, which reads as follows "Every such corporation shall annually, within sixty days from the first day of January, make a report, which shall state the amount of its capital and the proportion actually paid in, and the amount of existing debts; which report shall be signed by the president, and shall be verified by the oath of the president or secretary of said company, under its corporate seal, and filed in the office of the recorder of deeds of the county where the business of the company shall be carried on. And if any such corporation shall fail so to do, unless the capital stock of such corporation has been fully paid in and a certificate made and filed as provided in section twelve (12) of this act, all the directors or trustees of the company shall be jointly and severally liable for all the debts of the company that shall be contracted during the year next preceding the time when such report should by this section have been made and filed and until such report shall be made." Gen.St. § 252 (Mills' Ann.St. § 491). On June 6, 1894, the president of the corporation and a majority of the directors prepared, as provided by law, a certificate of the paid-up capital stock of the corporation, and filed it in the office of the recorder of deeds of Arapahoe county, wherein the business of the company was carried on. This same certificate was filed in the office of the secretary of state on June 13, 1894, and not before. The shipment of rags, although contracted for prior to June 1, 1894, was not delivered to or received by the corporation until June 7, 1894. Such other facts as are necessary to be stated will appear during the course of this opinion. Counsel conceded in their oral argument, and an examination of the record justifies the statement, that a consideration and discussion of only 2 or 3 of the 193 assignments of error would be necessary; that the determination of the questions involved in these would settle all as well as the appeal.

1. The fact, if it be conceded, that the corporation had no debts prior to the time when the annual report for 1894 was due under the provisions of the statute, is immaterial, and cannot avail the directors as a defense. The report was not only required to state the amount of debts existing at that time, but also the amount of its capital and the proportion actually paid in; the object being not only to compel the furnishing of information of possible value to those who were at that time creditors of the corporation, but also to those who might thereafter become such,--the latter purpose being the chief one, and obviously of special importance. The law gives to private corporations special franchises and privileges, but, as said by the New York court of appeals in construing a similar statute, the corporation itself having "no sense of legal obligation or of common honesty or fairness, the statute makes an attempt to compel its directors, under penalty of personal liability, to communicate to the public such information about its assets and liabilities as may be useful to its creditors." Bradford v. Gulley, 10 Colo.App. 146, 50 P. 314; Morgan v. Hedstrom (N.Y.App.) 58 N.E. 26. In case of default in making this report when required, the statute imposes upon the directors a liability for all debts of the company which were contracted during the year next preceding the time when such report should have been made and filed, and also all which may be thereafter contracted until such report shall be made. The default may be terminated and ended, and the directors relieved from all liability for debts subsequently contracted, by the making of the report, or by the making and filing of the certificate of paid-up capital stock, as provided in Gen.St. § 248. To make this effective, however, such certificate must be filed, after being properly prepared, both in the office of the recorder of deeds of the county wherein the business of the company is carried on, and in the office of the secretary of state. The filing in only one is obviously insufficient. An intending creditor, taking notice of the law, and observing all precautions for his protection, might make an examination in either one of the specified offices, and not finding the certificate, it would absolutely defeat the express intention and requirement of the statute to hold that the creditor is not entitled to the relief which the law gives him, because he might have found the certificate filed in the other. The requirement of the statute is imperative. Its language is unmistakable, and there is no room for construction. By section 252, Gen.St., the directors could be relieved of personal liability on the ground of having made and filed the certificate of paid-up capital stock only when such certificate was made and filed as provided in section 248, Gen.St., and this was that such certificate should be filed in both offices. It follows, therefore, that in the present suit the defendant directors cannot claim to have been relieved from any personal liability by reason of filing the certificate of paid-up capital stock until after June 13, 1894.

2. The chief contention upon which defendants rely is that the complaint did not state facts sufficient to constitute a cause of action. Both this court and the supreme court have several times passed upon what was necessary to be alleged in the complaint in a suit of this character. Anfenger v Publishing Co., 9 Colo. 378, 12 P. 400; Bradford v. Gulley, supra. The complaint in this case seems to be sufficient, under the rules there laid down. The principal point raised by defendants, however, in support of this contention, and that upon which they most rely to secure a reversal of the judgment, is that the defendant directors incurred no personal liability except for debts which had not only been contracted, but which were also due during the time of the default, and that it was necessary for plaintiff, in order to state a cause of action, to have alleged this fact. This plaintiff did not do. On the contrary, it appears from the complaint itself that the debt was not due until July 1, 1894,--about 18 days after the directors had terminated their personal liability for obligations of the corporation thereafter contracted or incurred, by filing the certificate of paid-up capital stock. On June 13th, when the filing of this certificate was complete, there was no existing cause of action in favor of the plaintiffs and against the corporation, which could then have been enforced. The question here presented is a new one in this jurisdiction, it having never been directly passed upon either by the supreme court or by this court. We think that the contention of defendants in this respect cannot be sustained either by reason or authority. It will be observed that the statute makes the directors liable for the debts of the company that were contracted during the year previous to the time when the report should be made, and for all debts thereafter contracted, until the default is terminated by the making of the report or by filing the certificate of paid-up capital stock. It says nothing about debts then matured or not matured,--those upon which a cause of action then existed or did not exist. It was sufficient if the debt had been contracted. We think the true rule is very aptly expressed by a New York court in construing that portion of a similar statute wherein identically the same language is used as in the Colorado statute, and is now under consideration: "The true doctrine is that a debt is contracted when, in consideration of value received by a corporation, a payment is to be made, no matter whether at once or at a future period." Vernon v. Palmer, 48 N.Y.Super.Ct. 231. This rule is supported by and in accord with all of the New York cases, as we read them. Some confusion has arisen by reason of possibly a careless reading of some of these cases, wherein it was held that the mere execution of a contract between a seller and a corporation for the sale and delivery of goods does not of itself amount to the contraction of a debt, within the meaning of the statute; delivery being first essential. All agree, however, that when delivery is made the debt springs into existence. Some confusion has also arisen in reading some of these New York cases wherein it was held that an action would not lie against the directors at once for a debt contracted before their default, and not until the expiration of the term of credit. In other words, the creditor could not sue the directors until...