Leibson v. Henry , 356 Mo. 953 ( 1947 )

[7] I cannot concur in the opinion of Leedy, J., herein because I do not believe that it can be reasonably held that officers and directors of a corporation become ipso facto personally liable for all of its subsequent obligations immediately after forfeiture of its corporate charter under Section 5091 for noncompliance with Sections 5085 and 5086. (References are to R.S. 1939 and Mo. Stat. Ann.) The commission, the trial court and the above opinion have all proceeded on the theory that the directors of Shelco Manufacturing Company must have begun its liquidation on January 1, 1940 (because of failure to register during 1939) or become ipso facto liable for all obligations of its corporate business thereafter incurred. This is an important question for the future because the 1939 sections applicable to this case have been reenacted in the new corporation code. (Laws 1943, p. 410.)

The effect of the above ruling is to enforce a statute which this court has held invalid. Section 5100, R.S. 1939. Mo. Stat. Ann. provided that officers and directors exercising corporate powers after such forfeiture "shall be held as partners and become severally and individually liable for the debts of such corporation." We held this provision unconstitutional because of defective title in Fidelity Adjustment Co. v. Cook, 339 Mo. 45,95 S.W.2d 1162. The portion of Section 5100 which makes such exercise a misdemeanor remained in force, so that the state had this additional means of requiring such registration and enforcing payment of this tax. This part of the original section has since been reenacted in the new Corporation Code, Laws 1943, p. 474, Section 125, without any provision for liability as partners. If it took a statute to create liability as partners in this situation, how can this court enforce such liability ipso facto from date of forfeiture without any statute? At least some evidence of an actual partnership, joint adventure, individual operation or fraud on creditors should be required and the fact "that such corporation has not suspended its ordinary and lawful business" (see Sec. 5093) should not alone be sufficient to create such personal liability immediately on the date of forfeiture.

I do not think that every forfeiture of a corporation charter for such noncompliance makes the directors of such corporation ipso facto personally liable for its debts from and after December 31st of the year for which registration report, fees, and anti-trust affidavit were not sent in. Section 5091 (now Section 118 Corporation Code) only said that the powers, privileges, etc., of a corporation, in such default, "shallsubject to rescission as in this article provided cease and determine." Section 5093 (now Section 120 Corporation Code) provided for rescission of such forfeiture as a matter of right during a one year period upon the payment of a fee of $50.00 and the showing of certain facts by affidavit or other proof. It also provided for rescission after that time, by payment of "the fees required . . . for original corporation." While the Secretary of State is authorized to "demand such other and further proof as he may deem necessary before rescinding any such forfeiture", no other facts are [318] suggested as requiring proof in addition to the two matters set out in Section 5093, which might alternatively be the basis of the affidavit.

It seems to me that this at least gives the directors a reasonable time after December 31st, of the year in which default is made, in which to apply for rescission and that Section 5093 recognizes a period of one year as a reasonable time. It also recognizes that a longer period than one year might be a reasonable time at least under some circumstances. Certainly, with all of the reports and returns, State and Federal now required, it might be possible for officers of a corporation to inadvertently overlook making this report and paying this fee; or at least for some of its directors to lack knowledge as to whether or not it had been done. There is no provision for any notice of delinquency until after forfeiture and cancellation of license by the Secretary of State. Even then notice comes only to the corporation at its post office address (Section 5091) and not to its officers and directors personally. Of course, financial penalties against the corporation for such failures are proper; and likewise a corporation should not be entitled to continue in business indefinitely without doing so; but the specific provision for rescission within one year on payment of a small fee must mean something. I do not think it is reasonable to construe Section 5091 so drastically as to impose on directors immediate personal liability for corporate obligations, without actual notice to them, if they act in good faith and within a reasonable time to make good the delinquency and pay the necessary fee for reinstatement. The provision for rescission must mean that much.

Suppose a corporation continued to operate for a few weeks, or months, after receiving notice of December 31st forfeiture, and then obtained rescission within one year by payment of the fifty dollar fee. Would all directors be liable personally for all liabilities incurred between December 31st and rescission? Likewise, would corporate business contracts made during that period be invalid so that they could not be enforced by or against the corporation? These facts in Collier v. American Cafeteria Co., 215 Mo. App. 182, 256 S.W. 118, were held not to make such contracts invalid after reinstatement and it seems reasonable that the situation as to individual liability should be the same. See also Yerxa, Andrews Thurston, Inc. v. Viviano (Mo. Sup.), 44 S.W.2d 98. Apparently the General Assembly has not considered such a forfeiture under Section 5091, as ending the existence of a corporation because, while retaining this provision (Section 118 of the Corporation Code, Laws 1943, p. 472, Laws 1945, p. 708), it has now provided that such forfeiture shall be a ground for dissolving it in an action brought for that purpose by the Attorney General. (Sec's. 84-87, Laws 1943, p. 457, Laws 1945, p. 711.) Since the new Corporation Code (Laws 1943, p. 471, Sec's. 114-126) also continues the other inconsistencies pointed out in the principal opinion, it would certainly be helpful if the General Assembly would clarify these statutes.

[8] Furthermore, it seems to me that absolute forfeiture "subject to rescission" is a contradiction of terms and would amount to no more than a suspension of corporate powers. How can a forfeiture be absolute if it is conditional? If it is not an absolute forfeiture, what is it? Similar provisions have been enacted in many states, and their effect has been discussed in an article in 48 Yale Law Journal 650 in which it is said: "Here, as elsewhere, forfeitures are not favorites of the law. The effect of this idea upon the flexible, directive terminology employed by the varied statutes in fixing the penalty for violation has been to produce uniformity of interpretation. Whether the statute speaks in terms of `forfeiture,' `dissolution,' or `suspension,' the majority of courts hold that there is at most but a suspension of the corporate powers." [See Mathews v. Life Ins. Co. of Detroit, 279 N.W. 858 (Mich. 1938); Deschutes Co. v. Lara,127 Or. 57, 270 P. 913 (1928); Real Estate-Land Title Trust Co. v. Dildy, 92 S.W.2d 318 (Tex. Civ. App. 1936). For the contrary view see Young Construction Co. v. Dunne, 123 Kan. 176,[319] 254 P. 323 (1927).] It seems to me that, when our conflicting statutory provisions are construed together, the most reasonable construction is that forfeiture does not become absolute until a reasonable time for rescission has passed.

Therefore, I do not think that the forfeiture should be held to be immediately absolute or that the directors should be held to be personally liable for all corporate obligations until after the expiration of one year, at least in the absence of evidence of individual operation of the business or fraud upon creditors. In other words, I do not think there could be any personal liability upon the directors for only continuing the ordinary business of the corporation, in good faith in the same manner as it had previously been conducted, during the first year after default within which the statutory forfeiture could have been rescinded as a matter of right by filing the affidavit showing that it "has not suspended its ordinary and lawful business." Even giving this term the meaning of permanent termination by liquidation or otherwise, as does the principal opinion, I do think that all of these sections construed together can reasonably be held to impose personal liability upon directors ipso facto immediately upon default in all cases and under all circumstances. To do so would be to construe these penalty and forfeiture statutes in the most drastic possible way against those who might be subjected thereto, which is just the opposite of the usual rule of construction. [See 23 Am. Jur. 601, Sec. 5, p. 631, Sec. 37; 50 Am. Jur. 430, Secs. 407-408.] Moreover, even to say the provision of Section 5093, "has not suspended its ordinary and lawful business", may mean that the business of the corporation has not been permanently terminated a year or more after the time of forfeiture, under Section 5091, seems inconsistent with the ruling of the principal opinion that corporate existence is ipso facto completely terminated at that time and that directors have no authority except to immediately liquidate.

I think the judgment should be reversed and remanded with directions that appellants cannot be held liable personally for obligations of Shelco prior to the expiration of the first year after the forfeiture was declared without evidence of individual operation or fraud on creditors. Ellison, J., concurs.