imposed, and that an agreement to waive the condition converted the conditional right to sue into an absolute right.36

§ 2668. Necessity for judgment and execution against the corporation. Whether a creditor of a corporation must obtain a judgment against the corporation and attempt to enforce it by execution, before suing officers on their statutory liability depends to some extent upon the wording of the governing statute. Of course, if the statute uses the words "judgment creditors,' "then a mere simple creditor cannot sue; and the same is true where a statute expressly requires a judgment against the corporation as a condition precedent.37 Ordinarily, however, the statute in no way refers to this question, in which case there is some conflict in the authorities as to whether a judgment is necessary before suing. Some of the statutes making directors or other officers of corporations personally liable for corporate debts in case of certain defaults or misconduct are construed as imposing an original and primary liability directly to creditors, so that a creditor may maintain an action against them on his debt without first recovering a judgment against the corporation and having an execution returned unsatisfied.38

36 Watertown Nat. Bank of Watertown v. Bagley, 62 N. Y. Misc. 380, 116 N. Y. Supp. 772.

37 For instance, see statutes in Massachusetts as set out in Train v. Marshall Paper Co., 180 Mass. 513, 62 N. E. 967.

38 California. Winchester v. Howard, 136 Cal. 432, 89 Am. St. Rep. 153, 69 Pac. 77, 64 Pac. 692.

Illinois. Woolverton v. George H. Taylor Co., 43 Ill. App. 424.

Massachusetts. Westinghouse Elec. & Mfg. Co. v. Reed, 194 Mass. 590, 120 Am. St. Rep. 576, 80 N. E. 621; Merchants' Bank v. Stevenson, 5 Allen 398.

Michigan. M. I. Wilcox Cordage & Supply Co. v. Mosher, 114 Mich. 64, 72 N. W. 117.

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

New Hampshire. Swan v. Burn

ham, 70 N. H. 580, 49 Atl. 93.

New York. Manhattan Co. v. Kaldenberg, 27 App. Div. 31, 50 N. Y. Supp. 265, 165 N. Y. 1, 58 N. E. 790; Milsom Rendering & Fertilizer Co. v. Baker, 16 App. Div. 581, 44 N. Y. Supp. 999; Camp Mfg. Co. v. Reamer, 14 App. Div. 408, 43 N. Y. Supp. 1027, rev'g 18 Misc. 619, 43 N. Y. Supp. 673; Rose v. Chadwick, 9 App. Div. 311, 41 N. Y. Supp. 190; Strauss v. Trotter, 6 Misc. 77, 26 N. Y. Supp. 20; Merritt v. Goodrich, 2 Misc. 578, 21 N. Y. Supp. 949; Cochran v. Smith, 22 Jones & S. 117; State Bank of Rock Valley v. Andrews, 18 N. Y. Supp. 167, 2 Misc. 394, 21 N. Y. Supp. 948.

The statutory right of action against officers, where their liability is primary, does not depend upon the insolvency of the company. First Nat. Bank of Missoula v. Cottonwood Land Co., 51 Mont. 544, 154 Pac. 582.

Other statutes, either in express terms or by implication, are held to impose a secondary liability, so that a creditor cannot sue directors until he has exhausted his remedy against the corporation by recovery of a judgment and issue of an execution,39 unless he shows that such a step was impossible or would have been nugatory. As said by Justice Mitchell in a case in Minnesota, "assuming it to be true that he must establish his claim against the corporation, he may, as was done in this case, make it a co-defendant with the directors, and establish the claim in the same action." 40 In New York, the Court of Appeals said that "while there is no express direction to that effect in the statute, it is the general rule that it is to be implied from the nature of the liability in the absence of some provision clearly importing the contrary. The general policy of the law in this respect is expressed in the fifty-fifth section of the Stock Corporation Law, which provides that no action shall be brought against a stockholder for any corporate debt until judgment has been obtained against the corporation, and an execution returned unsatisfied. The directors are, of course, stockholders, and it is reasonable to assume that it was not intended to charge them with personal liability on any other conditions than apply to all the members of the corporation." 41

39 United States. Hornor v. Henning, 93 U. S. 228, 23 L. Ed. 879, followed in Stone v. Chisolm, 113 U. S. 302, 28 L. Ed. 991.

Massachusetts. Thacher v. King, 156 Mass. 490, 31 N. E. 648; Priest v. Essex Hat Mfg. Co., 115 Mass. 380; Norfolk v. American Steam Gas Co., 103 Mass. 160; Kinsley v. Rice, 10 Gray 325.

Michigan. McKee v. City Garbage Co., 140 Mich. 497, 103 N. W. 906, 12 Det. L. N. 227.

New York. National Bank of Auburn v. Dillingham, 147 N. Y. 603, 49 Am. St. Rep. 692, 42 N. E. 338; Paulsen v. Van Steenbergh, 65 How. Pr. 342.

Pennsylvania. Archer v. Rose, 3 Brewst. 264; Bacon v. Morris, 10 Phila. 93.

the corporation, on which a creditors' suit against the directors is based, was falsely returned unsatisfied, is no defense, unless there was collusion on the part of the plaintiff. BerwindWhite Coal Min. Co. v. Wadsworth, 27 N. Y. App. Div. 550, 50 N. Y. Supp.

501.

In New York, only a "judgment" creditor can sue to compel officers to account under the statute giving a cause of action for mismanagement to a "creditor." Steele v. Isman, 164 N. Y. App. Div. 146, 149 N. Y. Supp. 488; Buckley v. Stansfield, 155 N. Y. App. Div. 735, 140 N. Y. Supp. 953.

40 Patterson v. Stewart, 41 Minn. 84, 93, 4 L. R. A. 745, 16 Am. St. Rep. 671, 42 N. W. 926.

41 National Bank of Auburn v. Dillingham, 147 N. Y. 603, 611, 49 Am. St. Rep. 692, 42 N. E. 338, rev'g 86 Hun (N. Y.) 100, 34 N. Y. Supp. 267.

In any event, it is held in some states, where the liability exists independently of statute, as in case of a waste of assets, the claims of creditors must first be established against the corporation either at law or in equity.42

Of course, if judgment against the corporation is impossible or would clearly have been nugatory, it may be dispensed with.43 In Massachusetts, however, if the corporation is discharged in bankruptcy, pending suit against it, no judgment can be entered therein so as to be the basis of a suit against the officers as individualsthe statute making such a judgment a condition precedent.4

§ 2669. Dissolution of company as condition precedent. Under the Montana statute providing that in case of certain violations of duty directors shall be liable to creditors, in the event of the "dissolution" of the company, there is no dissolution merely because the corporation has become insolvent and has ceased to do business-it being said that the creditor's right arises only when the corporation expires, viz., when it is so far dissolved that it has no capacity to sue.45

XXXII. REMEDIES AND PROCEDURE TO ENFORCE LIABILITY OF OFFICERS

§ 2670. Remedy as in equity or at law-In general. It is important to determine whether the liability of corporate officers may be enforced at law or in equity, and whether it may be enforced both in law and in equity. Generally, if the liability may be enforced in equity it is preferable to do so, at least in the federal courts and in those states which have not adopted codes, for the reason that the relief which may be granted embraces a much wider scope. In determining the remedy, the primary question is whether the rules govern which are applicable to liabilities created by stat

National Window

42 Edwards v. Glass Jobbers' Ass'n (N. J. Ch.), 58 Atl. 527. See also Strelow v. American Color Co., 162 Mich. 709, 127 N. W. 716, 17 Det. L. N. 754.

43 National Bank of Auburn v. Dillingham, 147 N. Y. 603, 49 Am. St. Rep. 692, 42 N. E. 338; Lilienthal v. Betz, 108 N. Y. App. Div. 222, 95 N. Y. Supp. 849, rev'd on other grounds 185 N. Y. 153, 7 Ann. Cas. 41, 77 N. E. 1002; Whitney v. Pugh,

58 N. Y. App. Div. 316, 68 N. Y. Supp. 992; Solomon v. Bates, 118 N. C. 311, 54 Am. St. Rep. 725, 24 S. E. 478.

As for instance, where a creditor has been enjoined from suing a debtor corporation. Whitney v. Pugh, 58 N. Y. App. Div. 316, 68 N. Y. Supp. 992.

44 Train v. Marshall Paper Co., 180 Mass. 513, 62 N. E. 967.

45 Boomer v. Rowe, 244 Fed. 307. See also § 2667, supra.

ute,46 or liabilities to the corporation, or its representative upon insolvency, for mismanagement, where the liability is not created by statute, or liabilities independent of statute in favor of creditors as such,48 or liabilities for tort in favor of a third person.* 49

Actions by stockholders in behalf of the corporation must be brought in equity rather than at law.50

§ 2671. To enforce common-law liability of officers for mismanagement, where action brought by corporation or representative if insolvent. When the directors, trustees, or other officers of a corporation are guilty of mismanagement or negligence in conducting its affairs under such circumstances as to become liable for the loss or injury to the corporation, the corporation may maintain an action at law against them-at common law, an action on the caseto recover damages.51 However, this right to sue at law does not ordinarily preclude the right to sue in equity, since the general rule is that for wilful breach of trust, or for actionable negligence, corporate officers may be sued by the corporation either at law or in equity.52 This doctrine was announced by Lord Hardwicke in a leading English case,58 and has been followed almost universally in this country by holding that a corporation, or, in case of its insolvency, its representative, may sue its officers in equity, as distinguished from a court of law, for negligence or other mismanagement,54 on the theory that there is such a fiduciary relation between the officers and the corporation as to confer equity juris

IV Priv. Corp.-35

N. Y. Supp. 888; Franklin Fire Ins.
Co. v. Jenkins, 3 Wend. 130.

Wisconsin. North Hudson Mut.
Building & Loan Ass'n v. Childs, 82
Wis. 460, 33 Am. St. Rep. 57, 52 N.
W. 600.

England. Cullerne v. London & S. General Permanent Bldg. Society, 25 Q. B. Div. 485.

52 Toledo Sav. Bank v. Johnston, 94 Towa 212, 217, 62 N. W. 748. 53 Charitable Corporation v. Sutton, 2 Atk. 400.

54 Murphy v. Penniman, 105 Md. 452, 121 Am. St. Rep. 583, 66 Atl. 282; Emerson v. Gaither, 103 Md. 564, 8 L. R. A. (N. S.) 738, 7 Ann. Cas. 1114, 64 Atl. 26; Fisher v. Parr, 92 Md. 245, 48 Atl. 621; Ventress v. Wallace,

diction,55 or upon the theory that the misconduct of the manager or director of the corporation is a constructive fraud, which gives courts of law and equity concurrent jurisdiction.56 The reasons for permitting a suit in equity have been held to be not only to prevent a multiplicity of actions,57 but also to better assure complete justice to all parties than can be done in an action at law.58 Especially is it true that equity has jurisdiction where the relief in a court of law would be inadequate,59 as where an accounting 60