In construing the decisions on this subject, the following facts must be kept in mind, viz.:

1. There is more or less conflict between the decisions in the different jurisdictions although much of the apparent conflict is reconcilable as hereafter noted.

2. Even in the same state, one statute ereating liability of corporate officers may be deemed penal while another statute, because of its different wording, may be held not penal. So the wording of a statute in one state may be such that it is properly held penal or not penal, while the reverse is held as to a statute creating liability for the same offense in another state, and yet there be no real conflict because of the different wording of the statutes.

3. According to many of the decisions, a statute such as those now being considered may properly be held penal in connection with some phase of the law and at the same time be held not penal as to another phase of the law.

A decision that a statutory liability can only be enforced in chancery is sometimes construed as in effect a decision that the action is not for the recovery of a penalty.71

§ 2598. -Argument in favor of holding statute one for a penalty. The argument in favor of holding such statutes to be penal ones, at least in so far as the officer is concerned, is well presented in a federal decision as follows: "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 bene

ring to decisions holding such statutes to be penal, distinguished them by saying that "the language of those statutes will be found materially different from ours, and, so far as we have been able to ascertain, expressly prohibit the incurring of liabilities beyond certain limits fixed." Wool

verton v. Taylor, 132 Ill. 197, 207, 22 Am. St. Rep. 521, 23 N. E. 1007, rev'g 30 Ill. App. 70.

71 Woolverton v. Taylor, 132 Ill. 197, 207, 22 Am. St. Rep. 521, 23 N. E. 1007, rev'g 30 Ill. App. 70, so explaining Law v. Buchanan, 94 Ill. 76.

fit 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 or 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." 72 It is to be noticed, however, that the statute referred to in this decision is much more in the nature of a penalty than are many other statutes imposing liability, and hence some of the language used therein would not apply to all statutes. In this case liability was imposed by the statute "for the debts of the corporation." But under some statutes the liability is "for any loss" resulting.

In a New York case decided by the Court of Appeals in 1866, the court, in considering a statute making directors liable for failure to publish an annual report, and for paying dividends when the company was insolvent, said: "Under these sections, the trustees are declared to be jointly and severally liable for all the debts of the company, in case of a violation of their provisions. The liability, it must be observed, is not limited to the injury or damage sustained by the creditors in consequence of the violation; but upon failure to file the report, or upon making a prohibited dividend, however small or trifling the amount, the trustees are subjected to the payment of the whole amount of the debts of the company then existing, and for all that shall be contracted, in the one case before the report shall be made, and in the other while they shall respectively continue in office. These provisions appear to be severally punitive, inflicted on grounds of public policy, for the protection of creditors, and the prevention of frauds upon the public in respect to the financial condition of such corporations. It is clear that the liability of the trustees is not imposed as an indemnity, because it has no relation to the actual loss or injury sustained. 72 Patterson v. Thompson, 86 Fed. 85, 86, construing Oregon statute.

Nor,

by the party in whose favor the action is given. indeed, is it necessary that the creditor should have sustained any injury or damage by reason of a violation of those sections. It is sufficient that the party prosecuting the action should be a creditor when the violation of the law takes place."73

In Ohio, in 1858, in holding that a statute making directors liable for the amount of corporate indebtedness, in excess of the debt limit, is penal rather than creating a contract liability, the court said that the following showed the action was a penal one: "1. The section does not make the directors personally liable on the contracts of indebtedness which created the excess, but solely for the excess itself. 2. The liability of the directors for the amount of this excess is not to the persons who hold the contracts of indebtedness created in excess of the limitation, but to any creditor or creditors of the bank. Hence the ground of the action is not the original contracts with the creditors; those contracts simply give any of them the right or title to sue as plaintiff. 3. The amount of the recovery by any creditor does not depend upon the amount the bank owes him, nor upon the nature of the debt due to him; under the statute, the creditor who sues recovers the amount of the excess, and that, too, whether the debt due the plaintiff forms a part of the excess or not. 4. The liability of the directors is provided for as in penal statutes, to vindicate a violation of law. 5. The action provided is the usual action prescribed by penal statutes to recover a penalty. 6. The action of the creditor must be debt, whether his contracts with the bank be such as to authorize such a form of action or not.

974

§ 2599. Argument against holding statutes penal. In Arkansas, in holding that a statute making directors personally liable for corporate debts, in case of failure to file an annual report, was remedial and not penal, the court relied upon the theory that "the general public is supposed to be injured by the violation of every penal statute, whether any special injury results to any particular individual or class of individuals or not" and that it would be incongruous "to call a statute penal which did not contain a definite and certain provision for punishment in every case where the duties enjoined by it were ignored," and held the statute not penal because the liability created is merely in favor of creditors and then

73 Merchants' Bank of New Haven v. Bliss, 35 N. Y. 412, 416, aff'g 24 N. Y. Super. Ct. 391.

74 Sturges v. Burton, 8 Ohio St. 215, 72 Am. Dec. 582.

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only for the amount of the corporate debts. The court said: "This shows conclusively that the public in general is not one whit interested in the enforcement of the duties enjoined by this statute, and that punishment of the officers for failure to perform the duties it prescribes is not the dominant idea. The measure of the liability is the amount of the debts which the corporation has incurred. There is no arbitrary amount fixed as a pecuniary mulet against the officers for each failure to file the certificate required. The amount is fixed for compensation and indemnity, as the actual amount due the creditors. No additional sum is allowed them against the officers. They are only required to pay to prevent a loss which would otherwise result directly or indirectly from their neglect or failure.” 75

Some years later the 1909 amendment of the statute whereby, in addition, the neglect or refusal was made a misdemeanor punishable by a fine of not to exceed five hundred dollars, was held not to change the nature of the action thereunder to hold officers personally liable for corporate debts.76

§ 2600. Statutes as both penal and remedial. At an early day, in England, it was recognized that a statute might be penal against the offender and remedial in favor of the sufferer.77 This doctrine has been recognized to a considerable extent in this country.78 For instance, the Supreme Court of the United States, in a leading case, said, in construing a New York statute making officers personally liable where they sign and record a false certificate of the amount of the capital stock of the corporation, that since "the statute imposes a burdensome liability on the officers for their wrongful act, it may well be considered penal, in the sense that it should be strictly construed. But as it gives a civil remedy, at the private suit of the creditor only, and measured by the amount of his debt, it is as to him clearly remedial." 79 So in a comparatively early New York case it was said that "the act is penal as against the defaulting trustees but is remedial in favor of creditors." 80

75 Nebraska Nat. Bank v. Walsh, 68 Ark. 433, 82 Am. St. Rep. 301, 59 S. W. 952.

76 McDonald v. Mueller, 123 Ark. 226, 183 S. W. 751.

77 See cases cited in Huntington v. Attrill, 146 U. S. 657, 667, 36 L. Ed. 1123.

78 See Huntington v. Attrill, 146 U. S. 657, 36 L. Ed. 1123, and also § 2601, infra.

79 Huntington v. Attrill, 146 U. S. 657, 676, 36 L. Ed. 1123.

80 Jones v. Barlow, 62 N. Y. 202, 205.

Moreover, the question as to whether a particular statute is penal or remedial may arise in connection with an issue (1) as to whether the statute is to be strictly construed,81 or (2) whether the creditors of the corporation have a vested right therein which cannot be taken away by a repeal of the statute before judgment,82 or (3) whether the statute is within the statute of limitations relating to actions to recover penalties, 83 or (4) whether the cause of action survives the death of a party,84 or (5) whether the statute can be enforced in a sister state or foreign country; 85 and the statute is often held penal in one or another of such cases and not penal in some other cases.

§ 2601. Statutes as remedial as to creditors. Even in jurisdictions where particular statutes are held to be penal statutes, such statutes which impose liability for corporate debts upon the directors or other officers of a corporation for failure to file or publish a report of the company's condition, or neglecting to do other acts required of them by law, or for wrongfully contracting debts in violation of prescribed limitations, or doing other acts prohibited by law, are not penal statutes, in the strict and proper sense, like statutes imposing punishment for offenses against the state, but are remedial as respects the creditors.86

86 United States. Huntington v. Attrill, 146 U. S. 657, 36 L. Ed. 1123; Davis v. Mills, 99 Fed. 39; Fitzgerald v. Weidenbeck, 76 Fed. 695.

California. Moss v. Smith, 171 Cal. 777, 155 Pac. 90, where question is discussed at length.

Colorado. Credit Men's Adjustment Co. v. Vickery, 161 Pac. 297.

Georgia. Hargroves v. Chambers, 30 Ga. 580, 600; Banks v. Darden, 18 Ga. 318; Neal v. Moultrie, 12 Ga. 104. England. Huntington v. Attrill, [1893] App. Cas. 150.

"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 direc tors' liability is admitted, and we are now confronted with the question which requires a consideration of the statute from the viewpoint of creditors in enforcing the liability. The dominant idea of the statute no doubt is to secure an enforcement of the law by making directors personally liable for the debts of the corporation if they neglect to file the report. But at the same time it affords creditors relief by way of compensation, which may be summed up in a judg ment against the directors. In Huntington v. Attrill, 146 U. S. 657, 36 L. Ed. 1123, it is said: 'Penal laws, strictly and properly, are those imposing punishment for an offense com.