Black, Sivalls & Bryson, Inc. v. Connell

• Decision Date: 28 January 1939
• Docket Number: 34068.
• Citation: 149 Kan. 118,86 P.2d 545
• Parties: BLACK, SIVALLS & BRYSON, Inc., v. CONNELL.
• Court: Kansas Supreme Court

86 P.2d 545

149 Kan. 118

BLACK, SIVALLS & BRYSON, Inc., v. CONNELL.

No. 34068.

Supreme Court of Kansas

January 28, 1939

Syllabus by the Court.

The trustees provided for by statute relating to dissolution of corporations should act as a group and not individually, and should transact business as trustees and not in name of corporation. Gen.St.1935, 17-808, 17-809.

A corporation ceases to exist upon forfeiture of its charter by state charter board, and has no authority thereafter to do anything or to authorize any one to do things for it. Gen.St.1935, 17-808, 17-809.

One signing an instrument as representative or agent of a nonexistent or incompetent principal is personally liable thereon. Gen.St.1935, 52-220.

The president of corporation who executed note in name of corporation after forfeiture of its charter became personally liable thereon to person taking note without knowledge of forfeiture of charter. Gen.St. 1935, 17-808, 17-809, 52-220.

1. When the charter of a corporation is forfeited by the state charter board the corporation ceases to exist. It has no authority thereafter to do anything, or to authorize anyone to do things for it.

2. Under G.S.1935, 52-220 (sec. 20, N.I. L.), one who signs a promissory note as president of a nonexisting corporation is liable personally in an action on the note.

Appeal from District Court, Butler County; George J. Benson, Judge.

Action by Black, Sivalls & Bryson, Inc., against O. J. Connell to recover upon a promissory note. From a judgment overruling a demurrer, the defendant appeals.

Judgment affirmed.

J. B McKay, of El Dorado, for appellant.

Lu Rodgers, of El Dorado, for appellee.

HARVEY Justice.

Defendant has appealed from an order of the court overruling his demurrer to plaintiff's petition, which attempted to state a cause of action against him personally, upon a promissory note payable to plaintiff, an Oklahoma corporation, and signed "Connell Oil Co., By O. J Connell, Pres.".

It was alleged in the petition in substance that for a long time prior to December 31, 1929, there existed in Butler county, a Kansas corporation, The Connell Oil Company, of which the defendant was president and one of the principal stockholders, which corporation became indebted to plaintiff upon a promissory note; that on December 31, 1929, the charter of the Connell Oil Company was duly forfeited by the state charter board for the failure of the corporation to file its annual report and to pay its state license fee; that on December 5, 1930, defendant wrote plaintiff, on the stationery of the Connell Oil Company:

"We have notice from the Citizens State Bank that they have for collection note given you by the Connell Oil Company, due December 9th, 1930.

"We would like for you to recall the note and send us renewal for signature, and if you will be kind enough to add the interest to it, we would appreciate it very much. We are not in a position at this time to make a payment on the principal, and if you will make renewal for ninety days to include both principal and interest we will try at that time to do something. ***

"(Signed) O. J. Connell."

It was further alleged that defendant did not notify plaintiff that the charter of the Connell Oil Company had been forfeited and that plaintiff, pursuant to the request and relying upon the promise made in the letter, surrendered the old note and accepted in lieu thereof a new note, being the one sued upon here, the pertinent portions of which read:

"584.46 Bartlesville, Oklahoma,

"Dec. 9th, 1930.

"Ninety days after date, for value received, I, we, or either of us, promises to pay to the order of Black, Sivalls & Bryson, Inc. Five Hundred Eighty Four and 46/100 Dollars, at the *** with interest from date until paid, payable annually at the rate of eight percent per annum. ***

"Connell Oil Co.

"By O. J. Connell, Pres."

It was alleged plaintiff was ignorant of the forfeiture of the charter and that the corporation had ceased to exist before the note sued upon was executed, and first learned those facts in November, 1935, but that defendant well knew the charter of the corporation had been forfeited at the time of the execution of the note sued upon and signed the same knowing that the corporation had no right to execute the same, and that by doing so defendant became personally liable on the note. It was further alleged that plaintiff was the owner and holder of the note, and that the same was past due and unpaid. The prayer was for a personal judgment against the defendant for the amount due upon the note.

Counsel advise us that the trial court's ruling was predicated upon the view, first, that Connell was not authorized to execute a note in the name of the corporation after its charter was forfeited; and, second, having executed the note without such authority he became personally liable thereon by virtue of our statute (G.S.1935, 52-220). We discuss these points in the order stated.

Generally speaking, under the rules of the common law, upon expiration or forfeiture of the charter of a corporation, its real property reverted to the grantors or donors, its personal property escheated to the crown, and no recovery could be had on debts owed by or to it. 13 Am.Jur. 1195, 1196. To avoid the rigor and obvious injustice of these rules, in many of the states in this country statutes have been enacted. Some of these statutes give the corporation a definite time, as two, three, or five years, in which to close up its affairs and use its assets for the benefit of creditors and stockholders; others provide that the directors of the corporation become trustees for these purposes, and apart from such statutes the courts of equity in this country have applied a "trust fund" doctrine to the same effect. 13 Am.Jur. 1197. See, also, annotations 47 A.L.R. 1333; 97 A.L.R. 479. In our state the subject is covered by statutes (G.S.1935, 17-808, 17-809), which provide in substance that upon the dissolution of a corporation, if no receiver is appointed, the last president and directors of the corporation shall be trustees of the creditors and stockholders of the corporation, with power to settle its affairs, collect the debts due it, and pay debts owing by it, and to disburse its net assets among its stockholders, and for this purpose may maintain and defend any judicial proceeding; and such trustees are made severally responsible to such creditors and stockholders to the extent of the property which comes into their hands.

The trustees provided for by these statutes should act as a group, not individually, and should transact the business as trustees, not in the name of the corporation. Krutz v. Paola Town Co., 20 Kan. 397; Paola Town Co. v. Krutz, 22 Kan. 725. They have no authority to maintain an action in the name of the corporation, nor to defend an action in its name. Kansas Wheat Growers Ass'n v. Markley, 132 Kan. 156, 294 P. 885; Arkansas River Gas Co. v. Molk, 135 Kan. 152, 9 P.2d 623. They have no authority to execute deeds or contracts in the name of the corporation. Investment Co. v. Munson, 44 Kan. 491, 24 P. 977. Upon the forfeiture of the charter of a corporation it ceases to exist. State ex rel. v. Lawrence Bridge Co., 22 Kan. 438; Four-S.-Razor Co. v. Guymon, 110 Kan. 745, 205 P. 635. The title to its assets vests in the stockholders. It has no power thereafter to do anything, or to authorize anyone to do things for it. MacRae v. Piano Co., 69 Kan. 457, 460, 77 P. 94. The situation has been compared to that of the death of an individual whose ability to do things, or to authorize anyone to do things for him, necessarily has ceased. MacRae v. Piano Co., supra; Sissell v. Serum Co., 108 Kan. 52, 194 P. 311; Young Construction Co. v. Dunne, 123 Kan. 176, 254 P. 323. See, also, Chicago T. & T. Co. v. Forty-One Thirty-Six W. Bldg. Corp., 302 U.S. 120, 58 S.Ct. 125, 127, 82 L.Ed. 147; 13 Am.Jur. 1191 et seq.; 14a C.J. 1149 et seq., and cases collected in the annotations in 47 A.L.R. 1288, and 97 A.L.R. 477.

Let us turn now to the second point. Our pertinent statute reads: "Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal, or in a representative capacity, he is not liable on the instrument if he was duly authorized; * *." G.S.1935, 52-220.

This is section 20 of what is commonly known as the Uniform Negotiable Instruments Law (abbreviated N. I. L.), which has been adopted with slight modifications in...