Merchants' Nat. Bank v. Northwestern Mfg. & Car Co.

Dickinson, J. The appellant, a judgment creditor of the defendant the Northwestern Manufacturing & Car Company, an insolvent corporation now in the hands of a receiver, seeks to recover of the individual defendants upon the ground that they, being directors of the corporation, ordered or assented to certain alleged violations of the law, resulting in the insolvency of the corporation. Such alleged violations of the law consisted in the issuing of stock without the same being paid for, in making unauthorized loans, and making and indorsing negotiable- paper without consideration. The alleged causé — 356 — of action arose more than three years, but less than six years, before the commencement of this action. The asserted right of action is confessedly founded solely on the statute, 1878 G. S. ch. 34, § 142, (Laws 1873, ch. 11, § 23,) which is as follows: “If any corporation organized and established under the authority of this act shall violate any of its provisions, and shall thereby become insolvent, the directors ordering or assenting to such violation shall be jointly and severally liable, in an action founded on this statute, for all debts contracted after such violation as aforesaid.” On demurrer to the complaint the question is presented whether the right of action was barred by the general statute of limitations, (1878 G. S. ch. 66, tit. 2,) which, so far as it need be here referred to, prescribes the periods within which actions must be commenced as follows: “Sec. 6. Within six years: * * * Second. An action upon a liability created by statute, other than those upon a penalty or forfeiture. Sec. 7. Within three years: * * * Second. An action upon a statute for a penalty or forfeiture, where the action is given to the party aggrieved, or to such party and the state of Minnesota. Sec. 8. Within two years: * * * Second. An action upon a statute for a forfeiture or penalty to the state.” “Sec. 10. Every action upon a statute for a penalty given, in whole or in part, to the person who prosecutes for the same, shall be commenced by said party within one year after the commission of the offence; and if the action is not commenced within one year by a private party it may be commenced within two years thereafter on behalf of the state, by the attorney general, or the county attorney of the county where the offence was committed.” The precise question is whether the statutory limitation of six years, or that of three years, above specified, is applicable to actions of this nature. Is the action, within the meaning of that statute, one “upon a liability created by statute other than those upon a penalty or forfeiture,” or is it one upon a statute “for a penalty or forfeiture?” We have heretofore —Patterson v. Stewart, 41 Minn. 84, (42 N. W. Rep. 926) — referred to this statute — section one hundred and forty-two (142) — as highly penal in its nature, having a twofold object: First, to enforce diligence and fidelity on the part of corporate officers; and, second, to afford a remedy to creditors of the cor — 357 — .poration. While this remedial purpose of the law is unquestionable, it is equally plain that the liability imposed is in the nature of a penalty. It is imposed by the statute as a consequence of a violation of law, resulting in the insolvency of the corporation. While the liability is declared in favor of the creditors of the corporation, it does not rest upon contract, nor upon any principle of the law of contracts. The directors of. a corporation are not parties to its contracts, but strangers. The liability in favor of a creditor arises from their violation of law, even though the particular creditor who may sue to enforce the liability may not have suffered any real loss. If the statute is to have force according to its terms, the liability in favor of all of the specified class of creditors becomes absolute upon the insolvency of the corporation, even though, as respects some of them, it may be quite unnecessary for their protection; for instance, those whose debts are abundantly secured. The liability is in no degree measured by the extent of the injury done to those in whose favor it is declared. The creditors of the corporation may be able to recover from it, although it be insolvent, 90 per cent, of the amount of their debts. Nevertheless the directors are made “jointly and severally liable * * * for all debts contracted after such violation. ” It is at once apparent how great a liability is here in terms imposed upon each director who may be chargeable with a violation of the law. Upon this joint and several liability any one may be compelled to respond' to the extent of the entire debts of the corporation, of the class specified; and it is at least not clear that he would have any right to enforce contribution from his associates who were inculpated with him in disregarding the requirements of the law. The great disproportion between the pecuniary injury to creditors of the corpoiation, caused by a violation of the law, and the pecuniary liability to them, imposed by this statute, — the absence of any relation between the amount of the injury and the amount of the pecuniary liability,— is also apparent. No more need be said by way of premise to the conclusion that this is in an important sense a penal statute, and that the liability sought to be enforced under it in this action is in a proper sense a penalty. We come now to consider more particularly the language of the — 358 — statute of limitations above recited. If we look only at sections six (6) and seven (7) we find the language such that with' strict propriety this action may be embraced in the excluding words of section six, (6,) which except from its operation actions “upon a penalty or forfeiture ; ” and with equal propriety such an action may be regarded as embraced within the language of section seven, (7,) — “an action upon a statute for a penalty or forfeiture, where the action is given to the party aggrieved, orto such party and the state of Minnesota.”' Whatever doubt there might be as to the correctness of such a construction — bringing such actions within the three-years limitation prescribed by section seven (7) — may be expressed in the question whether the word “penalty” in these two sections was not used in the sense merely of a pecuniary punishment, as by fine, imposed by law for the commission of a public offence, where punishment is the end for which the penalty is prescribed, and not as embracing cases where the statute is directed largely to the end of affording a civil remedy by imposing a liability of a penal nature. Was not section seven (7) intended to embrace only the former class, — qui tarn actions, —where the right to recover the penalty is given to any informer, and section six (6) the latter class, in which the element of a private remedy is involved ? A further examination of the statute goes far to dispel this doubt. A distinction is to be observed respecting the-penalties to which the statute of limitations applies which affords some aid in its construction. It will be noticed that section seven (7) does not embrace penalties which are given in whole or in part to any informer who sues for their recovery. Such cases are specifically provided for in section ten, (10,) — actions “upon a statute for a penalty given in whole or in part to the person who prosecutes for the-same.” One year is the period of limitation within which only can any such private prosecutor sue, and that period commences to run from the time of the “commission of the offence.” Here we find specific provision, and a distinct and a shorter period of limitation, with respect to penalties imposed for public offences, but which may be recovered by any private prosecutor, in whole or in part. Obviously such actions by private prosecutors are not embraced within the provisions of section seven, (7;) hence the latter section must have — 359 — been intended to embrace some other class of cases. Now, reading that section in the light thus gained from section ten, (10,) it becomes more apparent that it includes actions for penalties created by statute, where the penalty is given in whole or in part to the person injured by the infraction of the law, because of which the penalty is imposed. The penalties and action to which this section relates are such as are given in whole or in part to “the party aggrieved,” and not, as in section ten, (10,) to “the person who prosecutes for the same.” In other words, they embrace penal statutes which involve the feature of affording a private remedy to the party aggrieved, by giving to him, in whole or in part, the penalty which is imposed for the violation of the law. The case before us is clearly of that class. To what has been said this should be added: Not only do general considerations growing out the penal nature of such statutes suggest the propriety of fixing a brief, rather than an extended, period of limitation, and so make it more probable that the legislature intended the shorter period of three years to apply rather than the longer period of six years, if the terms of the statute were such as to leave it a matter of doubt; but it has obviously been the intention of the legislature to fix short, rather than long, periods of limitation for actions to recover penalties. The fixing of periods of three, two, and one years, respectively, for actions to recover “penalties,” and excepting such actions from the six-years limitation with, respect to actions upon liabilities created by statute, is indicative of this. While we cannot, of course, undertake to enumerate the liabilities created by statute other than penalties or forfeitures to which section six (6) may be applicable, yet instances may be mentioned which will show that there is room for this section to have practical effect even under statutes now existing, without holding it applicable to actions of this nature; and in this connection it is to be considered that the statute was intended to be of general effect, not only with respect to the present state of the statute law, but as well with respect to future statutes. We may mention, as probably falling within this section; the double liability of stockholders for the debts of corporations; the statutory liability of railroad — 360 — •corporations for damages resulting from a neglect to fence their tracks; the right given by statute to recover money lost in gambling, to recover back usurious interest paid, if no special limitation be prescribed in the statute giving such right; actions to recover for death ■caused by negligence; and proceedings under our tax law to recover judgment for taxes against real estate. County of Redwood v. Winona & St. P. Land Co., 40 Minn. 512, (42 N. W. Rep. 473.) Our conclusion is that, within the meaning of the statute of limitations, this is an action to recover a penalty, and that it is governed by the clause which prescribes three years as the period of limitation. This conclusion is in accordance with the construction which, in the state of New York, has been put upon its statute of limitations (which, with mere verbal differences, is substantially like ours) in Merchants’ Bank of New Haven v. Bliss, 35 N. Y. 412, which has been followed in a long line of decisions extending nearly to the present time. The case cited was also an action to recover upon a statutory liability imposed upon trustees of corporations for violations of duties imposed by law. While the statute on which that action was founded was perhaps even a more stringent law than our section one hundred and forty-two, (142,) the liability imposed was no more clearly a penalty than is that which oür law imposes. Order affirmed. Gileillan, C. J., did not participate. ([Opinion published 51 N. W. Rep. 117.)