Case Name: FITZGERALD v. WEIDENBECK et al.
Court: United States Circuit Court for the District of Minnesota
Jurisdiction: United States
Decision Date: 1896-09-29
Citations: 76 F. 695
Docket Number: 
Parties: FITZGERALD v. WEIDENBECK et al.
Judges: 
Reporter: Federal Reporter
Volume: 76
Pages: 695–697

Head Matter:
FITZGERALD v. WEIDENBECK et al.
(Circuit Court, D. Minnesota.
September 29, 1896.)
CORPORATIONS — Liability os’ Trustees — Pkvalty—Right or Actiox.
The Montana statute providing that, if the trustees of a corporation organized thereunder fail to make a report of its affairs at a specified time, they shall bo liable for its debts, creates a joint and several liability to each creditor, which can he enforced by an action at law against one or all of the trustees. This liability is not in the nature of a penalty. The right of the creditor is vested as soon as it accrues, and may bo assigned, and cannot be defeated by any subsequent change or repeal of the statute.
Bigelow & Taylor, for complainant.
Cobh & Wheelwright and T. D. Merwin, for defendants.

Opinion:
100HBEN, District Judge.
The demurrer of the several defendants to plaintiff's complaint in this action came on for hearing before the court on the first day of the general term begun and holden at the court room in the federal building in the city of Minneapolis, in said district, on Tuesday, the 1st day of September, A. D. 1896, and the several parties appeared by counsel and were heard. The plaintiff, by his complaint, seeks to hold the defendants, trustees of the Twin City Butte Mining Company during the year 1894 and ever since, liable for the amount of three judgments obtained in the district court of the Second district of the slate of Montana against said company, which is a'Montana corporation, upon indebtedness of said company arising on contract, and existing and matured on and prior to October 1, 1894; the personal liability of the defendants being claimed to exist under a section of the Montana statute, under which said company was incorporated, which required that every company or corporation organized under the provisions of such statute should annually, within 20 days from the 1st day of September, make a report, which should state the amount of the capital of such corporation, and the proportion thereof actually paid in, and the amount of existing debts, and which report should be signed by the president, and a majority of the trustees of said corporation, and he verified by the oath of the president or secretary of such corporation, and be filed in the office of the clerk of the county where the business of the corporation is carried on; and that, if any company shall fail to make or file such report as above stated, all the trustees of the company shall be jointly and severally liable for the debts of the company then existing, and for all that shall be contracted before such report shall be made. And the complaint alleges the fact to be that said Twin City Butte Mining Company did not make or file such report within 20 days from the 1st day of September, A. D. 1894, nor at any other time prior to tbe 3d day of February, A. D. 1895. One of said judgments, for. tbe sum of $1,273.37, was so recovered by tbe plaintiff against said Twin City Butte Mining Company on December 1, 1894, on causes of action on contract, all existing against said company on and prior to October 1, 1894, in favor of other parties, wbo thereafter assigned tbe same to the plaintiff. Tbe other two judgments, for $1,556.37 and $163.08, respectively, were so recovered by other persons in February, 1896, on similar causes of action existing and matured before October 1, 1894, and tbe same two judgments were, after tbe recovery thereof, assigned to tbe plaintiff.
1. I think tbe complaint sufficiently alleges that tbe defendants were at all tbe times referred to in tbe complaint trustees of tbe said corporation; and that their report was not filed within a reasonable time after 20 days from tbe 1st day of September, 1894.
2. Tbe liability of tbe defendants under tbe statute, being a joint and several liability to each creditor of tbe corporation, such liability can properly be enforced by each creditor for himself in an. action at law against one or all of tbe trustees. If tbe liability were strictly of tbe nature of a penalty, it could not be enforced in a court of equity.
3. But, while the statutory liability of trustees has some of tbe characteristics of a penalty, and attaches upon such kind of default or omission of duty on the part of tbe trustees as is frequently in like statutes punished by tbe infliction of a penalty, yet, under this statute, such liability of tbe trustees is not a penalty, but tbe withdrawal, as to them, as a consequence of their failure to perform certain duties, of tbe exemption from personal liability which tbe statute allowing tbe incorporation of tbe company would otherwise afford them, and an allowance to tbe creditors of tbe corporation at tbe time of such default or during such omission of duty, of tbe further remedy of having tbe right to proceed in tbe collection of their debts directly against tbe trustees from whom such exemption is withdrawn. There is nothing harsh or oppressive in this. Persons wbo without franchise engage in a business venture for profit are each held justly liable for all tbe debts and obligations of tbe joint- concern. If tbe state grants corporate franchises to persons engaging collectively in business ventures, and includes in such grant exemption from personal liability, such exemption will be upon such terms and conditions, and as to such persons, as tbe statute prescribes. By tbe terms of this Montana statute stockholders are personally liable to creditors to tbe extent of unpaid stock, and, in case tbe company fails to make tbe required report, tbe exemption from personal liability for debts of tbe corporation then existing or contracted during tbe default is withdrawn as to tbe trustees wbo ought to have caused tbe report to be made and filed. There is no penalty in tbe strict and proper sense. These debts are still tbe debts of tbe corporation, and, if they are all paid by tbe corporation in tbe course of its business, or collected from its assets, the liability of tbe trustees causes no loss to them. There is no mulct nor forfeiture prescribed against them as punishment for their default. Tbe removal of tbe exemption from personal liability as to them, simply enlarges and extends tbe rights and remedies of creditors as to debts of tbe corporation axis Ling at the time of tbe omission of duly, or contracted while such omission continued. Such liability attaches in respect to the debts existing at or during the default, and may be enforced not only by the then creditors, but by their subsequent assigns as well. The right of the creditor to enforce this obligation and liability of the j rustees becomes fixed and vested as soon as it accrues, and passes to Ms assignee, and is not subject to be defeated by any repeal or change of the statute. It is not the case of a right or liability created by statute, and with no other than a statutory basis, resting on the -lower of the legislature to prescribe forfeiture for disobedience. It is rather a case or condition where the corporate franchise by its own terms and limitations, and for a plain reason, ceases to afford to offi-' oers of the corporation who disregard an enjoined duty, the exemption from personal liability which the franchise alone would otherwise afford in respect to specified debts contracted in an enterprise in which they were engaged, with others, for profit.
4. The Montana statute set forth in ilie complaint has not been repealed. The slight changers in verbiage in the new Code and (flight additions leave the conditions affecting this case in force in 1894, still in force.
The demurrers are overruled, with leave to the defendants to answer plaintiff's complaint by the rule day in November, 1896.