corporation contracted while they were directors or officers, or they may be made liable for all debts existing at the time of their default, and all debts contracted during the period of their default and before it is cured, or they may be made liable only for such debts as are contracted after their default or their misconduct, as the case may be. And in order that they may be held liable for a particular debt, it is necessary, of course, that it shall have existed as a debt or been contracted at such a time as to come within the terms of the statute. The officers are liable, under such statutes, only for debts actually due when suit is brought, and for which a present right of action exists against the corporation at the time the action is commenced.44 A demand which is a mere gratuity is not a debt. within the meaning of the statutes; 45 and it seems that a debt barred by limitations is not one for which officers are liable.46 But an indebtedness arising after the passage of the statute, for rent of premises under a lease executed prior to its passage, is included.47

43

43 Providence Steam-Engine Co. v. Hubbard, 101 U. S. 188, 25 L. Ed. 786; Morgan v. Hedstrom, 164 N. Y. 224, 58 N. E. 26; Gold v. Clyne, 134 N. Y. 262, 17 L. R. A. 767, 31 N. E. 980, 58 Hun (N. Y.) 419, 12 N. Y. Supp. 531; Whitney Arms Co. v. Barlow, 68 N. Y. 34; Garrison v. Howe, 17 N. Y. 458; Carley v. Hodges, 19 Hun (N. Y.) 187; Blake v. Wheeler, 18 Hun (N. Y.) 496; Cameron v. Seaman, 7 Hun (N. Y.) 601, 69 N. Y. 396, 25 Am. Rep. 212; Cady v. Sanford, 53 Vt. 632.

The debt must be contracted during the period of default. Westchester Appliance Co. V. Englehardt, 180 Mich. 602, 147 N. W. 489.

The liability for failing to file a report covers a debt contracted after a director was elected in April, as to such director, although the report is required to be filed in January. Union Bank of Buffalo v. Keim, 52 N. Y. App. Div. 135, 64 N. Y. Supp. 1070, aff'd without opinion in 169 N. Y. 587, 62 N. E. 1101, and following Chandler v. Hoag, 2 Hun (N. Y.) 613.

Rule which is applied to filing of annual report, see also Reuter Hub &

Spoke Co. v. Hicks, 181 Mich. 250, 148 N. W. 339; Continental & Commercial Nat. Bank v. Emery, 178 Mich. 612, 146 N. W. 303, and see infra, chapter on Reports.

As to whether a transaction was a deposit of money to be repaid on demand, so as to create a debt at the time the money was received, or a loan for a definite period, see Chapman v. Comstock, 58 Hun (N. Y.) 325, 11 N. Y. Supp. 920.

In New York, there is no exception in the statutes relating to stock corporations as to debts not to be paid within one year from the time they are contracted. The year rule applies only to membership corporations. Ginsburg v. Von Seggern, 59 N. Y. App. Div. 595, 69 N. Y. Supp. 758, aff'd without opinion in 172 N. Y. 662, 65 N. E. 1116.

44 Jones v. Barlow, 62 N. Y. 202.

45 Norris v. DeWolf, 12 Hun (N. Y.) 666, bonds given to plaintiff by the corporation.

46 Rector, etc., of Trinity Church v. Vanderbilt, 98 N. Y. 170.

47 Stieffel v. Tolhurst, 67 N. Y. App. Div. 521, 73 N. Y. Supp. 1034.

A statute making directors liable for corporate debts on failure to file an annual report extends to debts contracted and due in other states.48 But such a statute does not render them liable for an indebtedness imposed upon the corporation by fraud or improper practices of the creditor.40

The debt for which the directors or other officers are liable is the original debt due from the corporation, with interest, rather than the amount of the judgment rendered against the corporation with interest.50

§ 2649. Time when debt is contracted or accrues-In general. If nothing appears from the statute as to what debts are included, it has been held to extend to debts existing before the doing of the act, or the omission, claimed to create liability; 51 but statutes making officers liable for all debts contracted "while they are officers thereof" have been held not to apply to debts in existence at the time of the act or omission of the officer creating liability.52 If the statute fixes the liability as for debts contracted "during the period

of any such neglect or refusal," then of course an officer is not liable for debts contracted after the neglect or refusal is cured by doing the act.53 Sometimes the statute fixes a certain length of time back of which liability shall not extend.54 So, under a statute making the directors liable for all debts contracted during the period of their neglect to file a report of the company's condition, they are not liable for debts contracted before their default, although they remain unpaid during the period of their default.55 They are liable for breaches of an executory contract, although the contract was made before their default, where the breaches occur during the period of their default, but not for breaches occurring after their default has been cured by filing the report as required by the statute.56 Where a statute makes the directors liable for debts contracted "after" certain misconduct on their part, they are not liable for a debt contracted before such misconduct, although existing afterwards.57 In Minnesota, a statute provides that if insolvency results. from violation of certain statutory provisions, the directors shall be liable for all debts contracted after such violation as aforesaid." It was held, where the violation was the engaging in an ultra vires business, that the fact that a portion of the indebtedness was incurred and created by the corporation after defendants ceased to be directors, did not exempt them from liability, and the reasons were forcibly stated by Justice Brown as follows: "The language of the statute is that in such case the directors assenting to such violation shall be liable for all debts thereafter contracted. This must be construed, to effectuate the clear intent of the legislature, to mean that the directors assenting to the unauthorized business shall be liable for all debts thereafter contracted by the corporation, whether during the time the assenting directors are in office or subsequently thereto. To release them from liability under such circumstances merely because debts were contracted by the corporation after they severed their official connection therewith would be to

66

53 Beekman Lumber Co. v. Ahern, 75 Ark. 107, 86 S. W. 842.

54 Under a statute requiring directors to file an annual report within sixty days after the 1st of January, and providing that, if they neglect to do so, they shall be personally liable for the debts of the corporation "contracted during the year next preceding the time when such report should have been made and filed,"

IV Priv. Corp.-34

the year dates backward from the end of the sixty-day limit, and not from the first of January. Bradford v. Gulley, 10 Colo. App. 146, 50 Pac.

314.

55 Providence Steam-Engine Co. v. Hubbard, 101 U. S. 188, 25 L. Ed. 786; Cady v. Sanford, 53 Vt. 632.

56 Cady v. Sanford, 53 Vt. 632. 57 See Ogden v. Rollo, 13 Abb. Pr. (N. Y.) 300.

destroy the wholesome purpose of the statutes and the intended protection of those dealing with the corporation; and we hold, without further discussion, that the directors who assent to and are instrumental in the inauguration and continuance by the corporation of which they are such officers of an unauthorized and ultra vires business are liable for all debts thereafter contracted by the corporation." 58

Under a statute making the directors of a corporation, if they shall fail to file and publish a report of its condition within twenty days from the first of January of each year, liable for all debts of the corporation then existing, and all debts contracted before the report is filed or published, it is essential to the liability of directors that their occupancy of that relation, the default in filing and publishing a report, and the debt of the corporation shall exist at the same time; and therefore, where the charter of a corporation expires after the making of an executory contract for work to be performed, and before performance thereof, the directors are not liable for the work because of failure to file a report for the last year of the corporation's existence, since there is no debt until the work is performed, and at that time there is no corporation.59

§ 2650. - Debt not yet due. While an "obligation" is not necessarily a "debt" within the meaning of such a statute,60 yet if an obligation is not merely contingent, but the consideration has been received by the corporation, and it has become liable, there is a debt, or a debt contracted, within the meaning of such statutes, although it is not yet due.61

58 Citizens' State Bank of Kenyon v. Story Specialty Mfg. Co., 84 Minn. 408, 87 N. W. 1016.

Under a Minnesota statute declaring that, if any corporation organized thereunder should violate any of its provisions, and thereby become insolvent, the directors ordering or assenting to such violation should be liable for all debts contracted after such violation, it was held that, where a series of acts, or a continuous course of conduct on the part of the directors in violation of the statute, finally producing the insolvency of the corporation, were begun before the debt of a creditor was contracted, the

debt was one contracted "after such violation," although the series of acts or course of conduct was not completed, nor the insolvency of the corporation consummated, until afterwards. Patterson v. Minnesota Mfg. Co., 41 Minn. 84, 4 L. R. A. 745, 16 Am. St. Rep. 671, 42 N. W. 926.

59 Gold v. Clyne, 134 N. Y. 262, 17 L. R. A. 767, 31 N. E. 980, aff'g 58 Hun (N. Y.) 419, 12 N. Y. Supp. 531. 60 Bovee v. Boyle, 25 Colo. App. 165, 136 Pac. 467.

61 Lee v. Jacob, 38 N. Y. App. Div. 531, 56 N. Y. Supp. 645; Providence Steam & Gas Pipe Co. v. Connell, 86 Hun (N. Y.) 319, 33 N. Y. Supp. 482;

§ 2651. Contingent liabilities. Under a statute making directors liable for all debts existing or contracted during the period of their default, they are not liable upon obligations or liabilities which, up to the time their default is cured, are wholly executory or contingent, although they may afterwards become debts.62 Thus liability on a note as an indorser does not become a debt until after default by the maker and notice to the indorser; 63 but if the corporation is an indorser on a note, it has been held that it may be shown that the note was accommodation paper and that the corporation was in reality the principal debtor, so that the debt is to be considered contracted at the time the note was executed.64 However, it is held in Arkansas that a debt due by the corporation to one who was its surety on a note is "contracted" at the time the party becomes surety rather than the time payment is made by the surety.65 So in Massachusetts it is held that the obligation of a corporation. as principal to indemnify an accommodation acceptor of a bill of exchange as surety, for any payment the latter is compelled to make

Vernon v. Palmer, 16 Jones & S. (N.
Y.) 231, rev'g 62 How. Pr. (N. Y.)

425.

When a corporation indorses a note made by an officer for a debt which is in fact that of the corporation, the debt exists when the note is given, within a statute making directors liable, in case of failure to make an annual report, for all debts then existing, or that shall be contracted before the report is made. Witherow v. Slayback, 158 N. Y. 649, 70 Am. St. Rep. 507, 53 N. E. 681, rev'g 11 N. Y. Misc. 526, 32 N. Y. Supp. 746.

The obligation of a corporation, either as drawer of a bill of exchange, or under an express agreement as to a bill of exchange drawn by a third person for its benefit, to indemnify an accommodation acceptor for his payment of the bill, is a debt contracted by the corporation at the time of the acceptance. Byers v. Franklin Coal Co., 106 Mass. 131.

62 Bovee v. Boyle, 25 Colo. App. 165, 136 Pac. 467; Lockhart v. Van Alstyne, 31 Mich. 76, 18 Am. Rep. 156; Gold v. Clyne, 134 N. Y. 262, 17 L. R.

A. 767, 31 N. E. 980, 58 Hun (N. Y.) 419, 12 N. Y. Supp. 531; Whitney Arms Co. v. Barlow, 68 N. Y. 34; Garrison v. Howe, 17 N. Y. 458; Dunn v. Neustadtl, 72 N. Y. Misc. 1, 129 N. Y. Supp. 161; Nimmons v. Hennion, 2 Sweeney (N. Y.) 663. Compare, however, Brand v. Godwin, 15 Daly (N. Y.) 456, 9 N. Y. Supp. 743, 8 N. Y. Supp. 339.

The contingent liability of a land company on its covenant of warranty in a deed of land, claimed by it under a scrip entry, which is canceled after the conveyance, is not, prior to such cancellation, an existing debt, within a statute imposing liability for debts upon officers for failure to file a report. Giddings v. Holter, 19 Mont.

263, 48 Pac. 8.

63 Western Nat. Bank v. Faber, 29 N. Y. Misc. 467, 62 N. Y. Supp. 82.

64 Witherow v. Slayback, 158 N. Y. 649, 70 Am. St. Rep. 507, 53 N. E. 681, rev'g 11 N. Y. Misc. 526, 32 N. Y. Supp. 746.

65 Griffin v. Long, 96 Ark. 268, 271, 35 L. R. A. (N. S.) 855, Ann. Cas. 1912 B 622, 131 S. W. 672.