people may have no direct interest in the result, and although the grievance sought to be redressed is a private, and not a public, one; and that the attorney general has absolute discretion as to what the public interests require, and his determination is not subject to review by the courts.12 But in Wisconsin it is held that the attorney general cannot sue to enforce the primary right of the corporation to reclaim misapplied assets unless in a special case.18 In regard to the right of the state, through its attorney general, to sue, the Supreme Court of Wisconsin said: "That the uncovery of assets and the reclamation thereof either from the recipient or the recreant officers is a right vested in the corporation is too plain for debate.

An action for that purpose rests in the corporation and can be instituted only by it except that, when the corporation by its ordinary machinery and officers refuses to act, or is prevented by the adverse interests of those officers, a stockholder, as a cestui que trust of the corporation, may apply to a court of equity to practically coerce the corporation to bring such suit, and in such action may proceed to the enforcement of the right [citing cases]. Another exception is in case of insolvency or threatened insolvency, when the creditor of the corporation becomes the real cestui que trust and may apply to a court of equity to accomplish the same results as above stated for his protection [citing cases]. But, except in the case of charitable or eleemosynary, and perhaps municipal, corporations where the general public are interested in the application of the funds, obviously the state has no legal interest in the management or disposal of the funds of the corporation. The state, which is but another name for the general public, has no interest therein save possibly in the case where a corporation charged with a duty to the public, as is this, might by dissipation of its assets or property disable itself from performing that public duty." 14

§ 2622. Negligence. Some of the statutes imposing personal liability upon corporate officers are broad enough to cover liability

12 People v. Ballard, 134 N. Y. 269, 17 L. R. A. 737, 32 N. E. 54, rev'g 56 Hun 125, 8 N. Y. Supp. 918.

13 State v. Milwaukee Elec. Railroad & Light Co., 136 Wis. 179, 184189, 18 L. R. A. (N. S.) 672, 116 N. W. 900, explaining People v. Ballard, 134 N. Y. 269, 17 L. R. A. 737, 32 N. E. 54, as based also on another statute

authorizing the attorney general to sue "if in his opinion the public interests require that an action be brought."

14 State v. Milwaukee Elec. Railroad & Light Co., 136 Wis. 179, 185187, 18 L. R. A. (N. S.) 672, 116 N. W. 900.

for negligence,15 and in some states statutes expressly make directors and other officers personally liable to the creditors of the corporation, among others, for their negligence.16 However, of course, a statute creating liability in case of fraud or "wilful mismanagement" does not cover liability for negligence.17 But in Minnesota, a statute making corporate officers liable for corporate debts if guilty of any fraud, "unfaithfulness" or dishonesty in the discharge of any official duty, was held to include negligence, on the theory that "unfaithfulness" included any violation or neglect of official duty.18 However, it was held thereunder that this provision. gave a creditor a right of action against the officer only when his unfaithfulness has resulted in damage peculiar to such creditor, but not when the only damage or loss is to the corporation and by reason thereof to all the creditors in common.19

§ 2623. Violations of statute as to the incorporation of the company and as to subscriptions to stock-In general. Some statutes make officers personally liable for defects or irregularities or violations of statute in relation to acts to be done preliminary to the commencement of business by the corporation.

§ 2624. Irregularities and noncompliance with statute in creation or organization of corporation. Statutes in some jurisdictions make the directors, trustees or other officers liable for corporate debts if they fail to take the steps required by law in the formation or organization of the corporation.20 In Illinois, the statute provides, in part, that if directors or other officers "assume to exercise corporate powers, or use the name of any" stock corporation, "without

15 See, for instance, Fletcher V. Eagle, 74 Ark. 585, 109 Am. St. Rep. 100, 86 S. W. 810, based on Kirby's Dig. (Ark.) § 863.

This applies, it seems, to a statute making directors liable for "official mismanagement" whereby a loss or deficiency of capital stock occurs. Bank of Mutual Redemption v. Hill, 56 Me. 385, 96 Am. Dec. 470.

16 See New York statute as set out

in § 2621, supra.

17 Deaderick v. Bank of Commerce, 100 Tenn. 457, 45 S. W. 786.

18 First Nat. Bank of Merrill v. Harper, 61 Minn. 375, 63 N. W. 1079.

Under this statute, it was held that "a superior officer of a corporation is liable to its creditors for loss caused by the failure of such superior officer to properly superintend the acts of its inferior officer or officers under his control, and that such superior officer is liable, not only for the loss caused by such failure, but for the whole debt of the creditor, thereby specially injured." First Nat. Bank of Merrill v. Harper, 61 Minn. 375, 63 N. W. 1079.

19 First Nat. Bank of Merrill v. Harper, 61 Minn. 375, 63 N. W. 1079. 20 See, infra, this section.

*

*

complying with the provisions of this act," they shall be liable "for all debts and liabilities made by them, and contracted in the name of the corporation." 21 This statute was very carelessly constructed, and was practically unintelligible because of the joinder of other matters therein, until it was construed by the Supreme Court in 1896; 22 and in that case it was said that "the intention was to secure the public, dealing with corporations, against the evils of illegal or incomplete organization, by placing upon the managing officers or directors the responsibility of seeing to it, that the provisions of the Incorporation Act shall be fully complied with." 23 Such provision is violated "by a neglect to comply with any one of the provisions of the act not mentioned in the special clause," and it is not necessary that there should be a non-compliance with all the provisions in order to incur the liability." 24 For instance, there is a liability thereunder where there is a failure to record the certificate of complete organization before incurring debts.25 Proof of a corporation de facto does not relieve the directors and officers of the corporation from liability, but there must be a corporation de jure in order to escape that liability.26 However, there is no personal liability because of defective organization merely because of failure to give notice of the first meeting of subscribers to organize the corporation, as required by statute, where all the sub

21 M. H. Vestal Co. v. Robertson, 277 Ill. 425, 115 N. E. 629; O. S. Richardson Fueling Co. v. Seymour, 235 Ill. 319, 85 N. E. 496; Edwards v. Armour Packing Co., 190 Ill. 467, 60 N. E. 807, aff'g 90 Ill. App. 333; Hipp v. Muehleisen, 88 Ill. App. 55; Hoyt v. Hasse, 80 Ill. App. 187; George M. Clark & Co. v. Kent, 80 Ill. App. 128, aff'd 181 Ill. 237, 54 N. E. 967; Greene v. Masten, 66 Ill. App. 345; Loverin v. McLaughlin, 46 Ill. App. 373, aff'd 161 Ill. 417, 44 N. E. 99; Worthington v. Griesser, 77 N. Y. App. Div. 203, 79 N. Y. Supp. 52, decided under Illinois statute.

In Illinois, if any officer of a stock corporation assumes to exercise corporate powers, or to use the name of the corporation, without complying with the provisions of the act, or before all the stock named in the arti

cles of incorporation is subscribed in good faith, then the statute provides that they shall be liable for all debts and liabilities made by them, and contracted in the name of such corporation." 2 J. & A. Ann. St. (1913) § 2435.

22 See Loverin v. McLaughlin, 161 Ill. 417, 44 N. E. 99.

23 Loverin v. McLaughlin, 161 Ill. 417, 431, 44 N. E. 99.

24 Loverin v. McLaughlin, 161 Ill. 417, 433, 44 N. E. 99.

25 M. H. Vestal Co. v. Robertson, 277 Ill. 425, 115 N. E. 629; Loverin v. McLaughlin, 161 Ill. 417, 44 N. E. 99; Seymour v. O. S. Richardson Fueling Co., 103 Ill. App. 625, rev'd on other grounds 205 Ill. 77, 68 N. E. 716. 26 Loverin v. McLaughlin, 161 Ill. 417, 44 N. E. 99.

scribers waived such notice in writing.27 Under this statute, a person who deals with an association as a corporation is not estopped to enforce the personal liability of the directors.28 The existence of personal liability, under the statute, does not preclude the right to hold the corporation liable.29

So in Connecticut a statute at one time provided that "if the president, directors or secretary of any such corporation shall intentionally neglect or refuse to comply with the provisions of this act, and to perform the duties therein required of them respectively,' they shall be liable for all debts of such corporation contracted during the period of any such neglect or refusal." 30

In Vermont, a statute provides that if a corporation contracts debts before a copy of its articles of association and certificate of amount of capital actually paid in are both filed, then "the president and directors shall be personally liable for such debts." 31

Closely akin to this branch of the law is the common-law liability of directors to a creditor where the corporation has no existence even as a de facto one, in which case the basis of the liability is that governing where an agent contracts without a legally responsible principal to whom resort may be had.32

§ 2625. Incurring debts before all or certain per cent. of stock is subscribed or paid in. Statutes sometimes make the directors or other officers of a corporation personally liable if they contract debts on behalf of the corporation, or allow it to contract debts, before the whole capital stock of the corporation or a certain percentage thereof is subscribed, or before it is paid in, and a certificate to such effect filed.33 The intention of such a provision has been said to be

27 J. W. Butler Paper Co. v. Cleveland, 220 Ill. 128, 110 Am. St. Rep. 230, 77 N. E. 99, aff'g 121 III. App. 491.

28 Loverin v. McLaughlin, 161 Ill. 417, 44 N. E. 99.

29 Gunderson V. Illinois Trust & Savings Bank, 199 Ill. 422, 65 N. E. 326.

30 Armstrong v. Cowles, 44 Conn. 44, where directors failed to file certificate of organization as required by statute.

31 Vt. Pub. St. (1906), § 4305; Pub. Acts 1915, No. 141, § 20. See also Cady v. Sanford, 53 Vt. 632.

However, if the articles of association are signed under a condition never fulfilled so that they did not take effect, there is no corporation, and no directors, and no liability under this statute. Corey v. Morrill, 61 Vt. 598, 17 Atl. 840.

32 Booth v. Wonderly, 36 N. J. L. 250, where directors of insurance company held liable on policy where charter permitted establishment of corporation only in another place than where it was established.

33 Kent v. George M. Clark & Co., 181 Ill. 237, 54 N. E. 967, aff'g 80 Ill. App. 128; Chicago Coated Board

against the evils of

ficti

"to secure the public tious or bogus subscriptions," by placing the responsibility upon corporate officers to see to it "that the subscriptions to the capital stock shall be made in good faith."' 34

In Indiana, a statute provided that the capital stock should be paid in within eighteen months from the time of incorporation, and that if because of violation thereof the corporation "shall thereby become insolvent," the directors assenting to such violation shall be liable for all debts thereafter contracted. In construing this statute the Supreme Court has held that insolvency must be ascribed to the violation where the corporation whose stock has not been paid in is permitted by its directors to become indebted beyond its ability to pay; and that in an action against the directors based thereon the creditor "is not required to show that he has been imposed upon by fraud, or that he has sustained any damage by the acts or omission of the directors."' 35

In Massachusetts, a statute makes the directors of street railroad companies liable, to the extent of the capital stock, for all debts until all its capital stock is paid in and a certificate thereof filed.36

In Wisconsin, personal liability is imposed on corporate officers who consent to the incurring of any corporate liability, "while having knowledge that less than one half of the authorized capital stock has been subscribed or that less than twenty per centum thereof has been actually paid in." 37

Co. v. Bear, 166 Ill. App. 258; Edwards v. Armour Packing Co., 90 Ill. App. 333, aff'd 190 Ill. 467, 60 N. E. 807; Hoyt v. Hasse, 80 Ill. App. 187; Clow v. Brown, 150 Ind. 185, 49 N. E. 1057, 48 N. E. 1034; International Paper Co. v. Gazette Co., 182 Mass. 578, 66 N. E. 636; French Gas Sav. Co., Ltd. v. Desbarats Advertising Agency, Ltd., 1 Dom. L. R. (Can.) 136.

Directors are not individually liable, under a statute, on the ground that all of the capital stock of the corporation was not subscribed in good faith before commencing business, merely because one subscription was reported as "held subject to the call of the board of directors." Newmann Sexton, 156 Ill. App. 517.

V.

managing officers are expressly made personally liable for debts to the creation of which they assent, where a certain per cent. of the capital stock has not been paid in before the debt was incurred. 1 Marr's La. Rev. St., § 1398, which so provides as to nontrading corporations.

34 Loverin v. McLaughlin, 161 Ill. 417, 431, 44 N. E. 99.

35 Brown v. Clow, 158 Ind. 403, 62 N. E. 1006.

36 See Savage v. Shaw, 195 Mass. 571, 122 Am. St. Rep. 272, 12 Ann. Cas. 806, 81 N. E. 303; Westinghouse Elec. & Mfg. Co. v. Reed, 194 Mass. 590, 120 Am. St. Rep. 576, 80 N. E. 621, holding that filing of false certificate does not relieve directors of liability.

In Louisiana, directors or other

37 Weston v. Dahl, 162 Wis. 32, 155