Fine Iron Works v. Louisiana World Exposition, Inc.
| Decision Date | 12 June 1985 |
| Docket Number | No. C,C |
| Citation | 472 So.2d 201 |
| Parties | FINE IRON WORKS v. LOUISIANA WORLD EXPOSITION, INC., Petr L. Spurney, Martin Katz, Norman Kerth, Charles Teamer, Floyd Lewis. 3652. |
| Court | Court of Appeal of Louisiana — District of US |
Karl M. Hansen, Jr., Anthony V. Ligi, Jr., Metairie, for plaintiff-respondent.
Eugene R. Preaus, Brent B. Barriere, New Orleans, for defendants-relators.
Before REDMANN, C.J., and SCHOTT and BARRY, JJ.
This is a suit for the balance of a contract price by respondent, Fine Iron Works, against Louisiana World Exposition, Inc. (LWE) a nonprofit corporation organized pursuant to LSA-RS 12:201 et seq. and relators, a number of its individual officers and directors. These individuals filed a peremptory exception of no cause of action based on the contention that respondent, whose contract was with LWE, failed to allege facts to support a legal claim against them. The trial court overruled these exceptions, and we granted certiorari in order to consider the validity of this judgment. The issue is whether relators had some special fiduciary relationship to respondent to see to it that a grant, given to LWE for the specific purpose of funding the work respondent was doing, was paid to respondent by LWE, in default of which relators are individually liable for LWE's debt to respondent.
In considering an exception of no cause of action the court must consider only the factual allegations of the petition and any documents attached to and made part thereof. Furthermore, these factual allegations are accepted as true for purpose of testing the legal sufficiency of the petition. In its petition as amended respondent alleged the following facts:
Pursuant to a contract between respondent and LWE dated February 10, 1984 respondent constructed three oases for LWE at its Fair. Out of the total contract price of $285,099 a balance of $107,439 was owed to respondent. This construction was sponsored for LWE by GTE Service Corporation pursuant to a contract between these parties dated March 16, 1984. Section 2 of the contract entitled "Disbursement of the Budget" provided as follows:
a. Construction costs $ 85,000.00 per oasis
b. Utilities 10,000.00 per oasis
c. Signage
(1) signs 22,000.00 per oasis
(2) freight 3,000.00 per oasis
(3) installation 5,000.00 per oasis
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SUBTOTAL $125,000.00 per oasis
TOTAL $375,000.00 (three (3) oases)
Respondent relied upon the existence and availability of this grant to pay for the work "and the representations of [relators] that said funds were available to pay all amounts due for said construction." Relators were or should have been aware that this grant was made specifically for the work done by respondent, "said grant constituting a trust for the benefit of [respondent] the existence of which [respondent] relied upon."
Relators were designated by LWE to disburse the grant to respondent "but despite knowledge of the specific purpose for which said grant was made, [respondent's] reliance on the existence thereof, and with knowledge of the otherwise insolvent condition of LWE, [relators] depleted the grant by wrongfully authorizing the diversion and misapplication of the funds for purposes other than those for which they were specifically designated." This conduct by relators constituted a breach of duty owed to respondent; it violated relators' fiduciary obligation to respondent; and it constituted a legal fraud upon respondent.
As a general rule officers and directors of a corporation have no personal liability for corporate debts. LSA-C.C. Art. 437. In a nonprofit corporation the relation of directors and officers to the corporation and their liability is set out in R.S. 12:226 as follows:
A. Officers and directors shall be deemed to stand in a fiduciary relation to the corporation and its members, and shall discharge the duties of their respective positions in good faith, and with that diligence, care, judgment and skill which ordinarily prudent men would exercise under similar circumstances in like positions.
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D. If any unlawful distribution, payment or return of assets be made to the members, or if the corporation purchase or redeem any of its own shares in violation of this Chapter, the directors who knowingly, or without the exercise of reasonable care and inquiry, voted in favor thereof shall be liable jointly and severally to the corporation, or to creditors of the corporation, or to both, in an amount equal to amount of the unlawful distribution. An action to enforce such liability must be brought within two years from the date on which the distribution was made, and this time limit shall not be subject to suspension on any ground, nor to interruption except by timely suit.
In City Stores Co. v. NEI Corp., 357 So.2d 1364 (La.App. 4th Cir.1978) this court, dealing with a suit by a creditor against the officers and directors of a business corporation, held that the only exception to the general rule insulating corporate officers and directors from liability for corporate debts is where fraud is alleged. In Altex Ready-Mixed C. Corp. v. Employers Com'l Union I. Co., 308 So.2d 889 (La.App. 1st Cir.1975), writs refused 312 So.2d 872, the court recognized that an officer or director could guarantee the debt of the corporation, but only in writing pursuant to C.C. Art. 2278. However, the court found the officer liable because of knowing misrepresentations he made to the...
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