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for the former, arises from the time the surety becomes responsible for the debt of his principal, and upon payment by the surety his debt is a "debt contracted" at the time he became responsible and not at the time of such payment.66

In New York, under the Membership Corporations Law making directors liable for debts contracted during their term of office and payable within one year or less from the time when contracted, where a judgment against the corporation therefor cannot be collected, a liability for breach of an executory contract is not a "debt," and a debt is "contracted" only when the contingency upon which it is to arise occurs, and hence monthly instalments of rent maturing after the expiration of their term of office, although under a lease for a year executed by them, cannot be collected from the directors.67 So, conversely, directors are liable under such a statute on instalments of rent coming due more than one year after a lease is executed, since the contingent liability ripens into a debt only when the rent becomes due.68

§ 2652. Renewal notes as contracting of indebtedness. The execution of a renewal note is not the contracting of a debt.69 Thus, it is held that where a statute makes the directors liable for corporate debts contracted after a certain time-after they became directors, or after they have made a false report, etc.,-they are not liable on a note given by the corporation after such time, merely in renewal of an existing note or debt given or contracted before such time.7 70

66 Byers v. Franklin Coal Co., 106 Mass. 131, 136.

67 Dunn v. Neustadtl, 72 N. Y. Misc. 1, 129 N. Y. Supp. 161.

68 Thistle v. Jones, 123 N. Y. App. Div. 40, 107 N. Y. Supp. 840, following Sanford v. Rhoads, 113 N. Y. App. Div. 782, 99 N. Y. Supp. 407, and rev'g on this point 45 N. Y. Misc. 215, 92 N. Y. Supp. 113.

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

Where liability covers the period of neglect or refusal to file a report,. the officers are not liable to a surety who has paid the debt of his principal-the corporation-where the note

on which he was a surety was exe-
cuted before there was a duty to file
a report, notwithstanding notes given
in renewal were executed during the
default of the officers, since the re-
newal note does not create a new in-
debtedness and the debt was
"'con-
tracted" when the first note was
given. Griffin v. Long, 96 Ark. 268,
35 L. R. A. (N. S.) 855, Ann. Cas.
1912 B 622, 131 S. W. 672.

70 Sullivan v. Sullivan Mfg. Co., 24 S. C. 341. Contra, Ferguson v. Gill, 64 Hun (N. Y.) 284, 19 N. Y. Supp. 149.

The debt represented by a note given by directors, which note was given for indebtedness contracted long

§ 2653. - Entry of judgment. If a debt is contracted or liability incurred before the liability of the officer commences, a judgment recovered against the corporation for such debt or liability during the time the officer is liable is not a debt contracted within such time.71

§ 2654. Unliquidated claims for damages. A statute making the directors of a corporation liable for "all damages" resulting from their failure to make reports required by statute, includes unliquidated as well as liquidated damages.72 So an unliquidated claim for a breach of a contract of employment, if due, is a "debt," within the meaning of a statute making directors liable for corporate debts on failure to file a report.73 So the use of the words "all debts" includes unliquidated claims for breach of contract, at least where the statute involved is considered a remedial one and hence to be liberally construed.74

§ 2655. Extinguished debts. It has been held that the liability of directors for an original corporate debt, under a statute making them liable for corporate debts on failure to file a report, is not affected. by the creditor's recovering a judgment thereon against the corporation, or taking a note therefor.75 But this view cannot be sustained where the original debt is thereby extinguished. In such a case they are liable on the new debt, or not at all. They are only liable for debts actually due, and for which a right of action exists

previously, and not by them, is not a debt contracted by them, within the meaning of a statute providing that, if directors act as a corporation before all the stock is subscribed in good faith, they "shall be jointly and sev erally liable for all debts and liabilities made by them." Hoyt v. Hasse, 80 Ill. App. 187.

71 Armstrong v. Cowles, 44 Conn. 44; Weber v. Draper, 170 Mich. 550, Ann. Cas. 1914 B 149, 136 N. W. 596; McHarg v. Eastman, 4 Robt. (N. Y.) 635, 7 Robt. 137.

72 Mac Veagh v. Wild, 95 Fed. 84, construing Indiana statute.

73 Green v. Easton, 74 Hun (N. Y.) 329, 26 N. Y. Supp. 553; Cady v. Sanford, 53 Vt. 632. Contra, see Lock

hart v. Van Alstyne, 31 Mich. 76, 78, 18 Am. Rep. 156; Victory Webb Printing & Folding Mach. Mfg. Co. v. Beecher, 26 Hun (N. Y.) 48.

74 Proctor-Gamble Co. V. Warren Cotton Oil Co., 180 Fed. 543, decided under Arkansas statute.

75 Novelty Mfg. Co. v. Connell, 88 Hun (N. Y.) 254, 34 N. Y. Supp. 717; Jones v. Barlow, 6 Jones & S. (N. Y.) 142; Deming v. Puleston, 3 Jones & S. (N. Y.) 309; McHarg v. Eastman, 7 Robt. (N. Y.) 137.

This rule is explained in Byers v. Franklin Coal Co., 106 Mass. 131, 136, by holding that the debt is not merged far as any concurrent remedy against other parties is concerned.

SO

against the corporation; and whatever will defeat or abate an action against the corporation on a debt will be a defense to them.76 Where a corporate creditor secured by a chattel mortgage on machinery and tools, with a power of sale in case of default, undertook to sell under the power, but sold at auction at a place on the premises where all the property could not be seen, and as a whole, instead of in parcels, and when no one was present except himself and the secretary of the company, and the creditor bid in the property for very much less than the debt, whereas it was worth more than the debt, it was held that the creditor had no claim against the corporation for the deficiency, and could not hold the directors liable therefor because of their failure to file an annual report.77

§ 2656. Ultra vires contracts or transactions. A statute making directors personally liable for corporate debts does not render them liable for an alleged indebtedness under an ultra vires contract, if the circumstances are such that the corporation is not bound, for in such a case there is no corporate debt.78 But, of course, if the corporation is liable, notwithstanding the ultra vires character of the transaction, it is otherwise.79

§ 2657. Corporate bonds. Bonds issued by a corporation, and secured by a mortgage on its real estate, are debts, within the meaning of a statute making the directors liable for all debts on failure to file a report.80

§ 2658. Taxes. A tax duly assessed against a corporation, and presently payable, is a debt, within the meaning of a statute making directors liable for corporate debts on filing a false certificate.81

§ 2659. Judgments. A judgment against a corporation for the recovery of money is a "debt," within a statute making directors liable for corporate debts in case of failure to file a report of its condition, and may be counted on in an action against a director

76 Jones v. Barlow, 62 N. Y. 202. 77 Sherman v. Slayback, 58 Hun (N. Y.) 255, 12 N. Y. Supp. 291.

78 National Park Bank of New York v. Remsen, 43 Fed. 226, involving an accommodation indorsement.

79 Whitney Arms Co. v. Barlow, 63 N. Y. 62, 20 Am. Rep. 504; First Nat.

Bank of Baldwinsville v. Cornell, 8 N. Y. App. Div. 427, 40 N. Y. Supp. 850.

80 Morgan v. Hedstrom, 164 N. Y. 224, 58 N. E. 26, aff'g 25 N. Y. App. Div. 547, 49 N. Y. Supp. 1049.

81 Felker v. Standard Yarn Co., 148 Mass. 226, 19 N. E. 220.

without pleading the original indebtedness.82 But a judgment recovered after failure to file a report, on a debt contracted before, or a judgment recovered after a person became a director, on a debt contracted before he became such, is not within a statute making directors liable for debts contracted during the time of their neglect to file a report, or for debts contracted while they are directors, as the case may be.83 And a judgment for a tort is not a "debt contracted," within the meaning of a statute making directors personally liable for debts contracted.84 So a judgment for unliquidated damages for breach of contract has been held not a "debt contracted" by the corporation within the meaning of a statute requiring the filing of reports.85

§ 2660. Damages for tort and judgments therefor. A statute making directors liable for all "debts" of the company then existing, and all "debts contracted" before the making of a report, cannot be extended by construction to debts not arising ex contractu, and hence does not include liability for a tort or on a judgment for a tort.86 So liability for unliquidated damages for infringement of a patent, copyright or trade-mark is not a "debt contracted," within the meaning of a statute making directors personally liable for debts contracted.87 It has also been held that a statute making

82 Tabor v. Commercial Nat. Bank of Cleveland, 62 Fed. 383; Lewis v. Armstrong, 8 Abb. N. Cas. (N. Y.) 385.

A judgment for costs is a debt for which a trustee may be liable under a statute making the trustees of à corporation liable, in case of failure to file a report, for all debts existing at the time of the default, and all contracted during default. Allen v. Clark, 108 N. Y. 269, 15 N. E. 387; Matty v. Sampson, 64 N. Y. App. Div. 1, 71 N. Y. Supp. 731; Andrews v. Murray, 9 Abb. Pr. (N. Y.) 8.

83 See McHarg v. Eastman, 7 Robt. (N. Y.) 137, 4 Robt. 635.

84 See 2660, infra.

85 It was a debt but not a "debt contracted." Weber v. Draper, 170 Mich, 550, Ann. Cas. 1914 B 149, 136 N. W. 596. To same effect, see Armstrong v. Cowles, 44 Conn. 44.

86 United States. Chase v. Curtis,

113 U. S. 452, 28 L. Ed. 1038; ProctorGamble Co. v. Warren Cotton Oil Co., 180 Fed. 543.

Arkansas. Taylor v. Dexter, 126 Ark. 122, 189 S. W. 1060.

Missouri. Cable v. Gaty, 34 Mo. 573, 86 Am. Dec. 126.

New York. Esmond v. Bullard, 16 Hun 65.

Rhode Island. Leighton v. Campbell, 17 R. I. 51, 9 L. R. A. 187, 20 Atl. 14.

Rule applied to judgment for injuries received while a passenger on a street car, where the statute read "debts and contracts made by the company." Savage v. Shaw, 195 Mass. 571, 122 Am. St. Rep. 272, 12 Ann. Cas. 806, 81 N. E. 303.

87 Child v. Boston & F. Iron Works, 137 Mass. 516, 50 Am. Rep. 328; Roberts v. Reed, 4 Wkly. Notes Cas. (Pa.) 417.

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directors liable for debts of the corporation contracted in excess of the capital stock applies only to debts voluntarily created by the directors, and does not render them liable for a judgment recovered against the corporation for damages for a tort.88 On the other hand, the owner of personal property negligently injured has been considered a creditor within a statute making officers liable for preferring creditors or transferring property without consideration when insolvent.89

D. Defenses

§ 2661. In general. In addition to what has already been noted as to defenses as to particular statutes,90 it may be said that there are certain defenses which are often sought to be interposed, regardless of the particular statute involved, which will now be referred to. In the first place, the general rule is, where no judgment has first been secured against the corporation or where a judgment has been obtained but it is deemed not to be evidence against the officer in the particular jurisdiction, that officers may make any defense. which the corporation might have made against the original indebtedness.91 In addition, the officer may show as a defense that he is not such an officer as is embraced within the terms of the statute,92 or that he was not in office at the time of the act complained of,93 or other facts tending to show that the wrong person has been sued. Fraud on the part of complainant may be a defense, under some circumstances,94 and under the wording of some of the statutes the fact that there was no actual loss is a defense.95

On the other hand, it is no defense that the corporation is merely a de facto one,96 or that the officers are merely de facto officers.97 Thus, it is not a defense to an officer that he was not eligible to the office,98 or that his election was invalid because of irregularities or informalities of the meeting at which he was elected.99 Of course,

88 In re Putman, 193 Fed. 464, 467; Cable v. Gaty, 34 Mo. 573, 86 Am. Dec. 126. And see Leighton v. Campbell, 17 R. I. 51, 9 L. R. A. 187, 20 Atl. 14. 89 Cæsar v. Bernard, 156 N. Y. App.

Div. 724, 141 N. Y. Supp. 659.

90 See § 2636, supra, for instance.
91 Jones v. Barlow, 62 N. Y. 202.

92 See $2618, supra.

93 See § 2618, supra.

94 See Audenried V. East Coast

Milling Co., 68 N. J. Eq. 450, 59 Atl.

577.

95 See § 2615, supra.
96 See § 2662, infra.

97 See § 2412, supra.

98 St. George Vineyard Co. v. Fritz, 48 N. Y. App. Div. 233, 62 N. Y. Supp. 775, 30 N. Y. Civ. Proc. 253.

99 Thayer v. New England Lithographic Steam Printing Co., 108 Mass. 523.

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