Louisville Banking Co. v. Eisenman

• Decision Date: 25 February 1893
• Citation: 21 S.W. 531,94 Ky. 83
• Parties: LOUISVILLE BANKING CO. v. EISENMAN. [1]
• Court: Kentucky Court of Appeals

21 S.W. 531

94 Ky. 83

LOUISVILLE BANKING CO. v. EISENMAN. ^[1]

Court of Appeals of Kentucky.

February 25, 1893

Appeal from chancery court, Louisville county.

To be officially reported.

Action by the Louisville Banking Company against Eisenman Bros. &amp Co., a corporation, on certain drafts indorsed by it, in which there was a judgment for plaintiff. Execution having been returned unsatisfied, plaintiff seeks to have its judgment satisfied from the assets of the estate of J. C Eisenman in the hands of the Germania Safety Vault & Trust Company, his assignee, on the ground that he was the sole stockholder of such corporation. From a judgment for defendant, plaintiff appeals. Affirmed.

Barnett Miller & Barnett and Bright & Brandies, for appellant.

Burwell K. Marshall, for appellee.

PRYOR J.

A corporation styled Eisenman Bros. & Co., was organized under chapter 56 of the General Statutes for the purpose of engaging in the milling business and the purchase of grain, etc. The incorporators were Jacob Kriegher, Sr., David Frantz, Sr., and J. C. Eisenman. The capital stock of the corporation was $50,000, and by its terms the corporation could begin business when two fifths of its stock had been paid in. There is some conflict in the testimony as to whether as much stock as $20,000 had been paid when the corporation began to deal with the public, and we shall assume, for the purposes of this case, that only $15,000 of paid-up stock was in the vaults of the corporation at that time. J. C. Eisenman, the appellee here, purchased up the stock of the corporation, and became the sole owner of all the stock and the corporate property. This purchase was made in January, 1889. The appellee, on account of his individual indorsements for the corporation, made an assignment to the Germania Safety Vault & Trust Company, and the assignee instituted this action for the purpose of settling up the estate assigned, and its distribution between creditors. On the _____ day of October, 1889, the corporation also transferred its assets to the trust company for the payment of its debts. In the months of September, October, and November of the year 1889, a firm known as J. C. Mattingly & Sons, engaged in the manufacture and sale of whisky, drew their drafts on the corporation of Eisenman Bros. & Co. for large sums of money, amounting in all to about $20,000. The drafts were accepted by the corporation, indorsed by Mattingly & Sons, and discounted by the Louisville Banking Company, the appellant in this case, and placed to the credit of J. C. Mattingly & Sons. The corporation of Eisenman Bros. & Co. had no interest in the loans, but had accepted the paper for the accommodation of J. C. Mattingly & Sons, and of that fact the appellant, from the facts and circumstances of this case, must have been fully appraised; and, but for the failure of Mattingly & Sons, the corporation of Eisenman Bros. & Co. would have continued solvent. The appellant instituted its action at law and recovered a judgment against the corporation of Eisenman Bros. & Co. on the paper of Mattingly & Sons, and had an execution issued, with a return of "No property found." Having been made a defendant to the action for a settlement of the estate of the appellee by his assignee, the Germania Trust Company, the appellant is seeking to make J. C. Eisenman liable in his individual right for the amount of the Mattingly notes upon two grounds: First. The corporation of Eisenman Bros. & Co. practiced a fraud on the public when it announced that it had two fifths of its capital stock paid in. Second. That, J. C. Eisenman having purchased all the stock of the corporation, the corporation ceased to exist, and the latter, having indorsed or accepted the paper, although in the corporate name, will not be allowed to say that it was a corporate liability, and more particularly when the fact of Eisenman being the sole owner of the stock was unknown to the appellant.

The formation of this corporation, of which the appellee was a member, was had under the General Statutes, and it is proper, therefore, to refer to some of the provisions of the statute on that subject, in order to a correct decision of the questions made by the appellant. Section 1 of chapter 56, Gen. St., provides that "any number of persons may associate themselves together and become incorporated for the transaction of any lawful business, except banking and insurance, and for the construction of railroads, but such incorporation shall confer no powers or privileges not possessed by natural persons, except as hereinafter provided." It is, we think, manifest the legislature never intended to permit one person to conduct his ordinary business in the name of a corporation so as to exempt him from personal liability, or his property, not embraced by or used in his corporate business, from the payment of a debt, for no other reason than its being a debt of the corporation. The purpose of the statute was to enable two or more persons possessed of a capital or skill to associate themselves in business, and to limit their liability as against the improvident acts of each other, or the act of the corporation, in the event of pecuniary loss in the legitimate and proper conduct of its business. It invites the investment of the capital stock of one to be placed in the same business with the skill of another, or a combination of capital that encourages trade, the burden of which mere individual enterprise would be unwilling to assume, and it could not have been the legislative intent that any one man could form a corporation of which he is the creator and sole stockholder, so as to limit his liability for debts contracted, and from which he has derived the benefit, to the extent only of what he might designate his corporate estate. He owns the entire property belonging to the corporation; it is his. He can sell or dispose of it as he pleases; borrow money; acquire property in the name of the corporation for the sole purpose of exempting him from any responsibility other than that belonging to the corporation; and, however reckless or improvident he may be, has all to gain, and nothing to lose. He could make a gift of the entire corporate estate, and dispense with all corporate forms; and to say, when exercising such unlimited control, he is not personally responsible for every debt he contracts, would be to pervert the plain purpose of the statute. There is no such being in this state as a sole corporation, and certainly none such allowed to be created by the statute.

This corporation, however,...