Hoyt v. Hasse

Mr. Justice Adams delivered the opinion of the court. Section eighteen of the statute, for the violation of which appellants are sought to be charged, is as follows : “ Section 18. If any person or persons, being, or pretending to be, an officer or agent, or board of directors, of any stock corporation, or pretended stock corporation, shall assume to exercise corporate powers, or use the name of any such corporation, or pretended corporation, without complying with the provisions of this act, before all stock named in the articles of incorporation shall be subscribed in good faith, then they shall be jointly and severally liable for all debts and liabilities made by them, and contracted in the name of such corporation, or pretended corporation.” As construed by the court in Loverin v. McLaughlin, 161 Ill. 417, the section must be read as if the word “or” occurred next after the word “ act ” in the section. The indebtedness of the company to appellee for cash advanced by her, and the wages earned by her husband and sons and credited to her as cash, having been incurred before appellant Hoyt became a director of the company, he can not be held liable as a director for that indebtedness. That indebtedness or liability can not be said to have been made by him, and to hold him under the statute he must have participated, at least, in the making of the debt or liability. Lewis et al. v. Montgomery et al., 145 Ill. 30. Appellee’s counsel admit the correctness of this proposition, sajnng: “ Appellee does not insist that section 18 of the act concerning corporations renders directors liable for debts contracted by their predecessors in office.” The contention of appellee’s counsel is, that the note was given and received in payment of the prior indebtedness of the company to appellee; that such being the case, a new liability on the part of the company was created, and that article 12 of the by-laws, as amended February 27, 1897, authorized the creation of this new liability, in the manner stated. Whether the first proposition is true,, is a question of fact; each of the second and third propositions involves merely a question of law. The question of fact, namely, whether the note was given and received in payment, was a question for the determination of the jury. Belleville Savings Bank v. Bornman et al., 124 Ill. 200, 207, and cases there cited. Appellee’s counsel, in their argument, concede this proposition. But the court excluded this question from the jury, as will clearly appear when we come to consider the instructions. This being true, the judgment can not be sustained on the theory of appellee’s counsel, based, as it is, on the proposition that there was an agreement that the note should operate as payment. But we can not accede to the proposition that article 12 of the by-laws, as amended February 27, 1897, authorized or contemplated the making an agreement that a note executed to a creditor of the company should operate as payment of the indebtedness evidenced by the note. The part of article 12 relied on as being such authority is as follows: “ The secretary and treasurer shall be empowered to sign and indorse notes, checks and drafts necessary for the ordinary business of the company; but all such notes, checks and drafts must be countersigned by the general manager.” There is no evidence that it was necessary, in the ordinary business of the company, to agree that its notes, executed in consideration of indebtedness previously incurred, should be accepted by its creditors in payment of such indebtedness, and it is matter of common knowledge that this is not necessary in the ordinary course of the business of corporations, and that, on the contrary, it is exceptional and unusual. It is unnecessary to the decision of the present case to decide the question whether, if the note' was given and received in payment of the prior indebtedness of the company to appellee, a new indebtedness or liability, within the meaning of the statute, was thereby created, and on that question the court expresses no opinion. The writer, however, is of the opinion that in such case there would be no new liability, within the meaning of the statute. Appellee’s counsel contend that appellants are liable as partners, and have discussed that question at considerable length. But even though it should be conceded, as matter of law, that they could be so held, the contention can not prevail, because the evidence shows, without contradiction, that appellant Hoyt did not become a stockholder till May, 1895, or a director till June 18,1895. The indebtedness to appellee was incurred prior to the year 1895, and it is well settled that a partner in a copartnership firm is not liable for debts incurred by the firm previous to his having become a partner. Story on Partnership (7th Ed.), Sec. 146, et sequentes, and notes. The judgment being a unit, if erroneous as to Hoyt is also erroneous as to Edwards. St. R. R. Co. v. Morrison, etc., Co., 160 Ill. 288, 295, and cases cited; Finance Co., etc., v. Hanlon, 75 Ill. App. 188. The court gave to the jury, at the request of appellee’s counsel, the following instructions: 1. “ The jury are instructed, as a matter of law, that if they find from the evidence that the document known as the final certificate of Incorporation, commonly called a charter, offered in evidence, was issued by the Secretary of the State of Illinois, for a proposed corporation entitled" the ‘Thompson & Edwards Fertilizer Company,’ and that said charter recites that the principal office of said corporation was to be located in the city of Chicago, in the county of Cook and State of Illinois, and that such final certificate, or charter, was never recorded in the office of the recorder of deeds of said Cook county; “ And, if the jury further find from the records of said alleged corporation, and from the evidence in the case, that the defendants Henry W. Hoyt and Henry J. Edwards were, with other persons, directors of said alleged corporation at the time that' Frank E. Barnard, acting as the secretary and treasurer of said alleged corporation, and A. L. Mestierode, acting as the general manager of said alleged corporation, said Barnard and Hestlerode being authorized to so act by the records of said alleged corporation, when they so executed, in the name of said corporation, the note sued upon in this case, then, if the jury so find from the evidence, they will find the issues for the plaintiff, and such sum as they find from the evidence is due and unpaid upon the note offered in evidence, together with interest at the rate of six per cent per annum, after maturity.” 2. “ The court instructs the jury that, if they find from the evidence that at the time when the note was given, it was given in settlement of a book account of the Thompson & Edwards Fertilizer Company, with the-plaintiff, such fact' will not impeach the consideration of said note; but, if the jury further find, that the note was issued in the ordinary course of business of said corporation, and find from the evidence that the charter of said company has never been recorded in the recordér’s office of Cook county; and, if the jury further find from the evidence, that at the time when said note was executed, the defendants Henry W. Hoyt and Henry J. Edwards were directors, then they will find against the defendants and in favor of the plaintiff.” 3. “The court instructs the jury that, if they find from the evidence that F. E. Barnard, as secretary and treasurer, and A. L. JSTestlerode, as general manager of the Thompson & Edwards Fertilizer Company, were authorized by a resolution of that company to execute note of said company; and if the jury further find from the evidence that the charter of the Thompson & Edwards Fertilizer Company was not at that time filed for record in the recorder’s office of the county of Cook and State of Illinois, and, if the jury further find from the evidence that at the time said note was given, the defendants Henry W. Hoyt and Henry J. Edwards were, with others, directors of said company, then the jury are instructed to find for the plaintiff and assess the plaintiff’s damages at the amount due upon said note, together with interest at six per cent after maturity.” 4. “ The court instructs the jury, as a matter of law, that the Revised Statutes of the State of Illinois require that when any instrument in writing is recorded .in the recorder’s office, the recorder shall indorse upon such instrument' a certificate of the time (including the hour of the day) when the same was filed for record (which shall be' considered the time of recording the same); and if the jury find from the evidence that the charter offered in evidence has not indorsed upon it such certificate, and, if the jury further find from the .evidence at the time when the note was given, it was given in settlement of a book account of the Thompson & Edwards Fertilizer Company with the plaintiff, and that said note w;as issued in the ordinary course of business of said corporation, at the time it bears date, and the jury further find from the evidence that at the time said note was executed, the' defendants Henry W. Hoyt and Henry J. Edwards were directors of _ said corporation, then the jury will find the issues in favor of the plaintiff and against the defendant.” It is apparent, from inspection of these instructions, that the question whether the note was given and received in payment of the company’s indebtedness to appellee was excluded from the consideration of the jury. By the first instruction the verdict is made to depend upon the non-recording of the final certificate in the office of the recorder of deeds of Cook county, and the fact that Barnard and Hestlerode were the acting and authorized secretary and treasurer and general manager of the company when they executed the note, and that appellants Hoyt and Edwards were, at said time, directors. The jury are instructed that, if they find these facts, they will find the issues for the plaintiff. This instruction plainly excludes from the jury’s consideration all question as to whether there was an agreement that the note should operate as payment. Instructions 2, 3 and 4, equally exclude that question from the jury, by authorizing a verdict on proof of other facts. Instruction 2 authorizes a verdict for appellee, on a finding by the jury that the note was given in settlement of a book account of the company; that it was issued in the ordinary course of business of the company; that the charter has not been recorded, and that, when the note was executed, Hoyt and Edwards were directors. The instruction assumes that if the note was executed in the ordinary course of business, even though it may have been so executed in consideration of prior indebtedness binding on the company, and without any agreement that it should operate as payment, its execution would be illegal, and if appellants were directors at the time of its execu- tion, the mere fact that they were such, without proof that either of them participated in any way in making or creating the indebtedness for which the note was given, would make them liable. Such is not the law. To execute a note for indebtedness previously incurred is not to make a debt or liability’- within the meaning of section 18 of the statute. The language of the section is, “ then they shall be jointly and severally liable for all debts and liabilities made by them.” Appellee’s counsel contend that the section is purely remedial, and must be so construed, but the Supreme Court has held that section 16 of the act, which makes directors assenting to indebtedness of a corporation in excess of the amount of its capital stock liable for such excess, should be construed strictly (Lewis v. Montgomery, supra), and the Supreme Court of the United States, in Huntington v. Attsill, 146 U. S. 687, while holding a similar statute not strictly penal, say : “ As the statute imposes a burdensome liability on the officers for their Avrongful acts, it may well be considered penal in the sense that it should be strictly construed.” Ib. 676. In the last case (p. 667), and also in Diversey v. Smith, 103 Ill. 378, 390, it is held that a penal law may also be remedial. The reasoning by which the conclusion is reached that section 16 should be construed strictly, is equally applicable to section 18, and applying that construction to the latter section, “ The words employed should be interpreted according to their plain and obvious meaning, and should not be extended by construction so as to embrace cases not clearly Avithin the terms of the statute.” Lewis v. Montgomery, supra. By the terms of the statute, liability is imposed on those only by whom the debts or liabilities Avere made. We think it too clear to require argument, that the execution by a corporation of a promissory note, for indebtedness long previously incurred, is not the making of or incurring liability for the indebtedness evidenced by the note. The giving of the note is merely a recognition of the validity of the previously incurred indebtedness of the corporation, and a promise to do that Avhich the corporation is legally bound to do, viz., pay it. In Lewis v. Montgomery, supra, it was held, in respect to section 16, that to make the directors liable, it must appear that they assented to the creation of indebtedness in excess of the amount of the capital stock, and the court, after so holding, said: “Manifestly, a recognition of the indebtedness bv the directors after it has been so contracted*as to become binding upon the corporation, should not have the effect of charging them with this statutory liability. After the indebtedness has been created by such agents and in such manner as to constitute it a valid obligation of the corporation, it becomes the duty of the directors to recognize its validity, and, so far as in'their power, provide for its payment.” This language is equally applicable to section 18. Instruction 2 is also erroneous in assuming that appellants would be liable for the wrongful act of another officer or agent of the corporation, solely on the ground that they were directors at the time the act was performed. This view is expressly repudiated in Lewis v. Montgomery, supra. We can not approve of a single instruction given for the appellee, our opinion being that they are all erroneous. The only other instruction given was a modification of an instruction asked by appellant Edwards, and related solely to the necessity of proof of appellee’s case by a preponderance of the evidence. Counsel for appellant, at the close of the plaintiff’s evidence, requested the court to instruct the jury to find the issues for the defendant Hoyt, and presented to the court a written instruction so directing the jury, which instruction the court refused to give. Appellant Hoyt asked for no other instruction. We are of opinion that the instruction asked by appellant Hoyt at the close of all the evidence should have been given. The judgment will be reversed and the cause remanded.