Kilgore v. Ake Coal Co.

• Decision Date: 03 February 1945
• Citation: 187 S.W.2d 781,182 Tenn. 479
• Parties: KILGORE et al. v. AKE COAL CO. et al.
• Court: Tennessee Supreme Court

187 S.W.2d 781

182 Tenn. 479

KILGORE et al. v. AKE COAL CO. et al.

Supreme Court of Tennessee.

February 3, 1945

Appeal from Chancery Court, Marion County; T. L. Stewart Chancellor.

Action by Grace Kilgore, on her own behalf and as next friend of her minor children, against the Ake Coal Company and certain individuals as directors and stockholders of said company to recover compensation resulting from the death of plaintiff's husband while an employee of the defendant coal company. The chancellor entered a decree for plaintiff against the defendant coal company, but dismissed the suit against the individual stockholders and directors, and complainants appeal.

Affirmed.

Carlyle S. Littleton and Wm. R. Ferguson, both of Chattanooga, for appellants.

A. A Kelly, of South Pittsburg, for appellee Ake Coal Co.

NEIL Justice.

Complainant Grace Kilgore filed her original bill in the Chancery Court of Marion County, on her own behalf and as next friend of her minor children, against the defendant Coal Company and also against S. L. Rogers, J. L. Raulston and wife, Agnes Raulston, Ed Ake, and Clint Ake, to recover compensation resulting from the death of her husband Clyde Kilgore, who was killed in a mine that was being operated by the Ake Coal Company while an employee of said company.

The complainant sought a decree against said company in its corporate capacity and also against the above-named individuals as directors and stockholders of said company. The bill alleged that the corporation was insolvent, it being a 'dummy corporation' and was insolvent and hence was unable to pay the amount of compensation due; that the said corporation had as many as ten people employed when deceased was killed and was liable under the Workmen's Compensation Law; that it had wilfully refused to comply with the compensation law of Tennessee and hence was engaged in an illegal operation, i. e., having violated Sections 6895 and 6896 of the Code; it is alleged that the individual stockholders and directors cannot invoke the shield of corporate entity to protect them from liability. It is further alleged that the liability of the corporation for the $4,950 adjudged against it is contractual (not sounding in tort) and that it is a debt due for which said corporation and also its stockholders are jointly and severally liable.

The individual defendants filed a pleato the bill, averring that they were not employers of the deceased and that the relation of master and servant did not exist; that the Ake Coal Company was a duly chartered corporation and that they, as stockholders, directors, and officers thereof, were not acting as individuals in managing the affairs of the said corporation.

The chancellor entered an order striking the foregoing plea on motion of complainant.

The Ake Coal Company filed an answer in which it expressly denied that it was 'a dummy corporation' without any assets but that it was legally organized under the laws of Tennessee, and further denied that the paid-in capital stock had been dissipated. It denied that defendants Rogers, Ake, and J. L. Raulston furnished money to meet payrolls and other indebtedness; that it was at all times conducted as a 'distinct legal entity'. The answer admitted that it did not comply with the Workmen's Compensation Law relative to filing evidence of insurance, etc., but demanded 'strict proof of its duty and obligation to do so'. In paragraph 11 of the answer it is admitted it was bound by the provisions of the Workmen's Compensation Statute.

The individual defendants filed a separate answer in which it is alleged that they were acting solely in an official capacity as officers and directors of the Coal Company, and denied individual liability. The defendant S. L. Rogers averred he was not a stockholder at the time Clyde Kilgore was killed.

The cause was heard on stipulation and the oral testimony of J. L. Raulston, secretary and treasurer of the Company.

The chancellor filed a written opinion, which contains a finding of fact, and entered a decree against the Coal Company, but dismissed complainants' suit against the individual stockholders and directors.

An appeal was prayed and granted only from that portion of the decree adjudging said stockholders were not liable. No question is made as to the liability of the Coal Company. It did not appeal.

The case is here on the technical record. There is no bill of exceptions preserving the oral testimony. The chancellor found the following facts:

The oral proof consisted of the testimony of J. L. Raulston secretary-treasurer of the company. The proof discloses that the corporation had funds and property to pay current accounts and indebtedness, but it did not show present ability to pay an award of some $4,800 in a lump sum or to pay the deferred partial payments as provided in a stipulation. He further found that the corporation is engaged in mining coal and that the proof shows it has a ready market for its output at a profit; that it has a lease of three or four years' duration on the property mined, but whether it has a value above royalties is not shown by the proof; that 'according to the proof' it has certain equipment and stock of the value of about $1,500 to $1,800 above all encumbrances. He further found that there had been no dividends declared or paid and none of the stockholders or directors have drawn any money out of the corporation except salaries to J. L. Raulston, secretary and treasurer, and Ed Ake, superintendent of mines, and Clint Ake, tipple foreman, which sums seem very reasonable, amounting in the aggregate to about $100 per month. 'The Court is inclined to the opinion that said corporation can pay a weekly wage of $11.75, but that it does not have on hand sufficient funds to pay past due installments and the burial bill provided in said stipulation. However, it was thought by the witness that it can arrange the payment by securing advancements on coal mined and to be mined; however, as to the present financial showing, said Ake Coal Company is insolvent insofar as having cash or assets to discharge a judgment of $4,800.00 in a lump sum, or to cover past due installments.' The court further found that $2,000 and certificates of stock had been issued by the corporation and paid for partly in cash and partly in property necessary for the operation of the mine. It was further found that upon organization of the corporation, S. L. Rogers was made president, J. L. Raulston secretary-treasurer, Ed Ake manager, etc.; that prior to the death of Clyde Kilgore, S. L. Rogers had sold his stock in the corporation to J. L. Raulston, but according to the minutes of the corporation he remained and served as president until after the death of Kilgore. Since Kilgore's death J. L. Raulston and Agnes Raulston have sold their stock to Ake. The Court further found as a fact that the company did not procure and carry liability insurance, nor furnished to the Division of Workmen's Compensation proof of its financial ability to pay claims, nor did it post security or indemnity as provided by Code, section 6895. He further found the following: 'It appears from the proof that the corporation operated and advertised its operation under the corporation name and that it posted written notices at and near the mine that it was not operating under the Workmen's Compensation Law, and, according to the proof, the employees knew, or should have known, that it was not operating under the ...