generally imposed in case of certain neglect or misconduct on their part.

A provision of a general statute imposing a personal liability on directors or other corporate officers is not incorporated into a special charter by a clause therein declaring that the corporation shall possess all the general powers and privileges and be subject to all the liabilities conferred and imposed upon corporations organized under such general act.46

Directors of a corporation organized under a general law are chargeable, of course, with notice of provisions of the law regulating their duties and imposing individual liability upon them for failure to perform the same.47

§ 2592. Purpose of statutes. Some of these statutes confer a cause of action on the corporation itself or on individual stockholders. For the most part, however, these statutes have been enacted merely for the better protection of creditors of the corporation. Generally, they, in effect, say to directors or other officers, do this or do not do that, and if you violate the duty you must yourself pay the debts of the corporation because you have failed to comply with a statute or have otherwise acted wrongfully, or must pay the damages sustained by creditors.

§ 2593. Statutes as merely reiterating common law. Some of the statutes create no new cause of action. This is generally true as to statutes authorizing a recovery for illegal payment of divi dends, 48 as well as statutes authorizing a recovery in case of false reports, certificates, etc.,49 and in case of some other statutes as hereinafter noted.

§ 2594. General classification of statutes. While the statutes in the various states differ, and in some states the statutes cover more ground and create liability in more instances than in other states, such statutes, taken as a whole, may be roughly classified as follows:

1. Statutes creating liability where statutory conditions precedent to the right to do business have not been complied with or where all or a certain part of the stock has not been subscribed for or paid in.50

46 "Something more specific and direct is necessary to burden an officer of the corporation with a penalty for omission of duty." Park Bank v. Remsen, 158 U. S. 337, 346, 39 L. Ed. 1008.

47 Van Etten v. Eaton, 19 Mich. 187. 48 Jesson v. Noyes, 245 Fed. 46, 49. 49 See § 2643, infra.

50 See §§ 2623-2627, infra.

2. Statutes providing that the violation of any of the provisions of the incorporation act, or of certain preceding sections of the act, shall make directors or other officers personally liable.51

3. Statutes making officers liable to creditors, or creditors and others, for negligence or other breach of duty.52

4. Statutes creating personal liability where the debts exceed a certain amount.53

5. Statutes making directors and other officers personally liable where they pay a dividend wrongfully.54

6. Statutes making officers personally liable for failure to file annual reports.55

7. Statutes making corporate officers personally liable for false reports, certificates, statements, notices or the like.56

§ 2595. Statutes as divisible into those making officers liable for corporate debts and those making them liable for damages. The statutes may be roughly divided into two classes, as follows:

1. Those statutes making officers personally liable for any loss actually sustained by the creditor or other person in whose favor the statute is enacted.

2. Those statutes which make the officers liable for all debts of the corporation, or all debts contracted within a certain time, without regard to the loss actually sustained by the person seeking to enforce the liability.

Illustrations of the former class of statutes are those imposing liability for false reports, certificates, etc., and in some states liability for unauthorized dividends. Illustrations of the latter class are statutes requiring annual reports, etc.

Important consequences follow, according to whether the statute belongs to the one class or the other. Now, looking at the latter class of statutes making the officers personally liable "for all debts" of the corporation after the act or omission, it is to be noted that the liability imposed has no relation whatever to the amount of actual damage to either the creditors, or the corporation. The officers are, by such statutes, made absolutely liable for certain classes of debts although the acts or omissions of the officers have in fact not resulted in the loss of a dollar either to the corporation or its

51 See § 2620, infra.

52 See §§ 2621, 2622, infra.

58 See §§ 2630-2637, infra.

54 See § 2638, infra.
55 See § 2642, infra.
56 See § 2643, infra.

creditors.57 The object of such statutes, it has been said by Justice Mitchell in a decision in Minnesota, is twofold: "First, to enforce diligence and fidelity on the part of corporate officers; and, second, to furnish a prompt and efficient remedy to those creditors who were, or might have been, injuriously affected by the acts of misfeasance or nonfeasance." 58

The tendency of legislation in this country is towards the repeal or amendment of statutes creating liability for debts of the corporation, without regard to the actual loss sustained by the creditor or other person seeking to recover, and the substitution of either a fixed penalty of a certain sum, or, as is more often done, the substitution of liability for all loss or damages actually resulting from the unlawful act or omission of the corporate officer. Much is to be said in favor of the latter substitution, in that it fully protects the person seeking to hold the officer liable and at the same time casts a lighter and more just burden upon the corporate officer. Furthermore, it is submitted, and there is authority so holding, that if the statute merely creates liability for damages actually sustained, it is to be deemed remedial rather than penal,59 and construed more liberally in favor of the claimant, instead of a strict construction often applied where the court has sought to relieve from liability an officer or officers who have acted honestly and in good faith but who nevertheless seem to have been within the statute if liberally construed.

A further distinction to be noted is that, in the case of liability for actual damages, it is generally held that the creditor or other person suing may proceed in an action at law without joining other creditors or persons, and recover a judgment directly for his loss; while in the case where the liability is for the debts of the corporation, without regard to the actual damages sustained, the remedy of a creditor is generally confined to a suit in equity, he must sue in behalf of all the creditors, and the recovery is for the benefit of the creditors as a whole.60

§ 2596. Constitutionality of statutes. Statutes imposing personal liability on directors or other corporate officers have almost invariably been held to be constitutional, so far as the nature of the

57 Patterson v. Stewart, 41 Minn. 84, 90, 4 L. R. A. 745, 16 Am. St. Rep. 671, 42 N. W. 926.

58 Patterson v. Stewart, 41 Minn. 84,

90, 4 L. R. A. 745, 16 Am. St. Rep. 671,
42 N. W. 926.

59 See § 2603, infra.
60 See § 2672, infra.

legislation is concerned.61 They have been held not in conflict with a constitutional provision prohibiting the imposition of "excessive fines, 62 and they have been held not to violate the due process clause of the fourteenth amendment of the federal constitution.63

§ 2597. Statutes as penal or contractual or remedial-General considerations. Statutes creating personal liability of officers of corporations are generally held to be penal statutes, or at least it is held that since such statutes impose upon the officers burdensome liabilities, not by reason of any agreement or contract on their part, but as a penalty for their neglect or misconduct, in this sense they are penal in their nature, as respects the officers, and not contractual, although in some states this theory that such statutes

are penal seems to be rejected in its entirety.65 The rule as laid down in perhaps a majority of the cases is that such statutes are penal in character, although not such in the strict sense of the term; 66 and that for the purpose of determining the liability of officers, the statutes are in the nature of a penalty, as to them.67

Of course, it is possible for a statute to impose upon the directors and other officers of a corporation a contractual liability, or a quasi contractual liability, for corporate debts, just as it may impose such a liability upon stockholders.68 In such a case, by becoming officers and contracting debts, they agree to assume the liability imposed by the statute, and the liability is therefore contractual in its nature. Such a liability is imposed by a charter of a bank declaring that, on default by the bank, the president and directors shall be individually, jointly and severally, liable for the payment of any bills or notes which they may issue or circulate. In such a case the liability is not imposed upon them as a penalty for any neglect or misconduct.69 And it has been held that a statute making the directors of a corporation liable for debts contracted in excess of its capital stock, but not prohibiting them from contracting such debts, does not impose a penal liability, but imposes a quasi contractual liability analogous to the liability of a surety.70

Garrison v. Howe, 17 N. Y. 458; Hoboken Beef Co. v. Hand, 104 App. Div. 390, 93 N. Y. Supp. 834; Bird v. Hayden, 2 Abb. Pr. (N. S.) 61, 1 Robt. 383; Price v. Wilson, 67 Barb. 9.

65 Nebraska Nat. Bank v. Walsh, 68 Ark. 433, 82 Am. St. Rep. 301, 59 S. W. 952. And see Farr v. Briggs' Estate, 72 Vt. 225, 82 Am. St. Rep. 930, 47 Atl. 793.

The liability in case of assent to debts in excess of the debt limit is contractual and not penal. Charles E. Brown & Co. v. Ware, 87 Vt. 121, 88 Atl. 507, following Hornor v. Henning, 93 U. S. 228, 28 L. Ed. 879.

Such statutes are penal only in the sense that they create a liability which was not known to the common law. Daily v. Marshall, 47 Mont. 377, 133 Pac. 681.

66 Credit Men's Adjustment Co. v. Vickery, Colo. 161 Pac. 297. 67 Credit Men's Adjustment Co. v.

-.

Vickery,

Colo. -,

161 Pac. 297. 68 Infra, chapter on Stockholders. 69 See Ex parte Van Riper, 20 Wend. (N. Y.) 617, as explained and distinguished in Derrickson v. Smith, 27 N. J. L. 166.

70 Woolverton v. Taylor, 132 III. 197, 22 Am. St. Rep. 521, 23 N. E. 1007, rev'g 30 Ill. App. 70; Farr v. Briggs' Estate, 72 Vt. 225, 82 Am. St. Rep. 930, 47 Atl. 793. See also Hornor v. Henning, 93 U. S. 228, 23 L. Ed. 879; National Bank of Auburn v. Dillingham, 147 N. Y. 603, 49 Am. St. Rep. 692, 42 N. E. 338.

In Illinois, the main ground for holding that statutes making officers individually liable for contracting debts, beyond a prescribed limit, were not penal statutes, was that the statute did not prohibit the incurring of liabilities beyond the limit but merely. made the officers personally liable in such cases; and the court, in refer