Breitzke v. Bank of Grand Prairie

Wood, J., (after stating the facts). (1) The Hazen Creamery Company (hereafter, for convenience, called company) was incorporated March 16, 1912, under the provisions of. chapter 31 of Kirby’s Digest. Under the law it is the duty of the president and secretary of every business corporation, annually on or before the 15th day of the months of February or August, to file with the county clerk of the county in which the company transacts its business a certificate showing the condition of the financial affairs of the corporation on the first day of. January or July next preceding, in the particulars specified in section 848 of Kirby’s Digest. A failure or refusal upon the part of the president or secretary of a corporation to comply with the above provisions renders them jointly and severally liable for all debts of the corporation contracted during the period of any such neglect or refusal, and they are also guilty of a misdemeanor, punishable by a fine of $500, for each and every day that they neglect to comply with the above provisions. Act 222, Acts of 1909, page 643. In Griffin v. Long, 96 Ark. 268-273, concerning this statute, we said: £ ‘ The reason of the statute is to require corporations to make such public showing of their affairs as will enable those dealing with them to determine whether they can safely give them credit. ’ ’ And in Beekman Lumber Co. v. Ahern, 75 Ark. 111, speaking of this act, we said: £ £ There is nothing in the act that requires an officer who has neglected to file the statement within the time named in the act to wait until .after the first day of the next succeeding July or January before filing the statement. On the contrary, as the act declares that, upon the failure to file the statement, within the time named, the officer becomes liable for all debts of the corporation contracted during the period of such neglect, we are of the opinion that it was the intention of the law to make it to the interest of the officer to file the statement at as early a date as possible, when he discovers his oversight, and when he does file such statement, even though it be after the dates named in the act, that he is not liable for debts thereafter contracted by the corporation until he makes another default in the filing of another statement.” While the president and secretary are made individually liable, both civilly and criminally, for a failure to comply with the provisions of the above statute, yet the duty which the statute imposes attaches to them as officials of the corporation, and not as individuals. It is an official duty which these officers of corporations owe to those of the public who may have dealings with such corporations. The duty attaches to the individual only by virtue of the office he holds in the corporation. When there is a failure to comply with the statute the dereliction continues on the part of the individual only so long as he is an officer of the corporation. When his relation as such is severed he has no longer any duty to make and file the certificate required by the statute, and he has no power to do so. The civil liability imposed upon these officers “for all debts of such corporation contracted during the period of any such neglect or refusal,” therefore.includ.es only those debts which were contracted while the individuals were officers of the corporation. When the last of the optional dates for making the report specified in the statute has expired, these officers are also liable criminally for each day thereafter that they fail to make such report until they go out of office, but no longer. (2) The duties and responsibilities of the newly elected president and secretary begin when they take the place of the old. One of these duties would be to acquaint themselves with the financial affairs of the corporation and to know whether or not the statute requiring the filing of the annual certificate had been complied with by their predecessors. If it had not, then it would be the duty of the new officers to file the same as soon as they ascertained that fact, after a reasonable time has elapsed for making an investigation of the financial affairs of the corporation. The newly elected officers from that time, so to speak,- step into the shoes of their predecessors in office, and their liability, both civil and criminal, for dereliction in failing to make the certificate is the same as their predecessors would have been had they continued in office. The dereliction, as we have seen, attaches to the ones who hold the offices of president and secretary and is a 'continuing dereliction so long as the statute is not complied with. Unless the newly elected officers, succeeding old ones, were required to make the certificate within a reasonable time after assuming the duties of their offices there might be a long interval in which the financial standing of business corporations would not be made known to the public. To illustrate, if the first elected president and secretary of such corporation should let the 15th day of February or the 15th day of August go by without filing the certificate, and thus fail to comply with the -statute,- and if they then were immediately displaced by new officers, these newly elected officers could wait until the next annual period before making the certificate required by law and there would be an interval of a year wherein no certificate was filed and debts could be contracted by the corporation and neither the old nor the new officers liable therefor'. This would frustrate the salutary purpose of the law, which is to require business corporations, through their president and secretary, to advise the public by these annual certificates of their financial standing. (3) But counsel for appellants contend that the outgoing president and secretary, having failed to comply with the statute while in office, would continue liable for debts of the corporation contracted until the next annual date for filing the certificate; that the period of “such neglect or refusal” continues till that time. To support this contention, they cite and quote at length from Providence Steam Engine Co. v. Chas. Hubbard, 101 U. S. 188, 25 L. Ed. 786. In that case it was held that where an outgoing president (under a statute fixing the same dates as ours for filing the certificate) failed to file the certificate while he was in office on the 15th of February, and retired without doing so, that the incoming president who was elected “less than two months prior” to the 15th of August — the next annual date — would not be liable for a debt of the corporation contracted before he took his office, nor during the short period of less than two months between the ‘date of his election and August 15 — the date when he had to file his certificate — that he was not liable for such debt even though .his default continued after that date, because he was not in default during the period when the debt was contracted. While the statute under review in that case is similar to ours, the facts are quite different. Much that is said in the opinion is in harmony with the views we have expressed, and we do not regard the case as authority to support the contention of counsel. But even if it were, we could not follow it, for we could never hold, under our statute, that the retiring president and secretary who had failed to file the certificate would toe liatole for debts contracted toy the corporation after they went out of office. They would toe liable and could toe sued after they went out of office for the debts contracted during the period of their' default, which would continue until their retirement if they neglected till that time to file the - certificate. If the civil liability could toe continued for debts created thereafter, then the criminal liability would also continue, and thus individuals could toe civilly liable for debts they did not contract, and had no power to prevent and could be severely punished criminally for an act they did not and could not do: Corporations can -only perform their duties to the public through their officers and agents, and as shown in Griffin v. Long, and Beekman Lumber Co. v. Ahern, supra, the intention of the Legislature was to impose a duty upon corporations to make these certificates showing the financial standing of the corporation, through their president and secretary; and to make sure that the duty was-discharged, the Legislature made these officers individually liable for failing to perform -such 'duty. Primarily the duty under the statute i-s one which the corporation owes the public, and one which the Legislature has designated must toe performed by the president and secretary of such corporation. If it is a duty that inheres' in the office under the statute, then it is one which these officers, upon assuming their offices, must perform as soon as they can reasonably do -so where it has been neglected by their predecessors. In this view of the statute, there is no difference in principle between this case and that of Boughton v. Otis, 21 N. Y. 261-264, where the court -said: “A board of trustees guilty of default in January, and retiring from office, is liable for all antecedent debts and for those only; and that the successors, if they continue the default until the nest January, and no longer, áre liatole for the debts afterward contracted during that year, and for no other. If the persons succeeding to office promptly obey the requirement -of the act, they will escape all liability, and it is plainly just that they should, because there is no faih ure of duty on their part. If they do not, they very prop* erly incur the hazard of the debts which they themselves as trustees contract. This hazard they might be quite willing to incur; but there is neither principle nor policy in making them responsible for the acts and defaults of their predecessors. The general policy of the act is immunity from personal liability, but this is attended by certain conditions demanding the personal observance of the trustees.” (4) Applying the above doctrine to the facts of this record, it appears that the company was incorporated March 16,1912; that its then president and secretary did not file any certificate as long as they were in office. The appellants were elected October 8,1913; they filed no certificate until October, 1914. Thus it will be seen that appellants allowed about a year to elapse before filing the certificate. They contend that under the statute it was optional with them to file either on the 15th of February or the 15th of August succeeding their election, and that their period of delinquency therefore did not begin until August 15, 1914. But, as we have shown, this was not a correct view of the statute. It was the duty of appellants to file the 'certificate within a reasonable time after they assumed the duties of their offices, and the finding of the chancellor that the amount of the debts for which the decree was rendered were- incurred during the period of their delinquency is not against the preponderance of the evidence. A clear preponderance of the evidence showed that the indebtedness for which the decree was rendered was in the shape of overdrafts on the bank which, with interest from March 1,1914, up to the date of the decree, amount to the sum of $4,360, for which the decree was entered. Appellants waited too long to file the certificate- and these overdrafts represented an indebtedness that accrued during the period of their default, for there is undisputed testimony in the record to the effect that at times when the pay rolls were completed on the 20th of each month the overdrafts would amount to practically nothing. There is nothing in the record to estop appellee.from claiming judgment against the appellants. It is conceded that at the time appellee’s cashier told appellants that they would not be held personally liable on the note of $5,000, that the parties did not have in mind the statutory liability of appellants. This is the correct view of the evidence, and appellee was therefore not estopped from maintaining this 'Suit for the statutory liability. The decree-is affirmed. Kirby, J., dissenting.