Manns Mercantile Co. v. Smith

Citation64 So. 929,107 Miss. 16
Decision Date13 April 1914
Docket Number16490
PartiesMANN'S MERCANTILE CO. v. A. B. SMITH
CourtUnited States State Supreme Court of Mississippi

APPEAL from the circuit court of Sunflower county, HON. MONROE MCCLURG, Judge.

Suit by Mann's Mercantile Company against A. B. Smith. From a judgment for defendant, plaintiff appeals.

The facts are fully stated in the opinion of the court.

Affirmed. Suggestions of error overruled.

Frank E. Everett, for appellant.

This suit was filed against A. B. Smith, as director of the Smith Mercantile Company, for the purpose of holding him liable, as a director, under section 924, Code of 1906, which is as follows: "The amount of debts which any trading corporation or company may contract or owe shall not exceed the amount of its capital stock paid in; and, in case the debts exceed that amount, the directors who contracted such debts shall be individually liable for the excess over the amount of capital stock, and may be sued therefor by any creditor, whether the debt be due at the time of suit brought or not, if such creditor was without notice or knowledge of the excess at the time his debt was made."

There is no question but that this debt is one that arose by contract between the parties. There is nothing indefinite or uncertain about it. A particular price was to be paid for particular goods, which goods were shipped and delivered beyond any question. The only question in this case is whether or not a director of a mercantile corporation is liable for a contracted debt, under the above statute.

Some courts hold statutes of this character penal in their nature and therefore should be strictly construed. Among these authorities are: Chase v. Curtis, 113 U.S. 452, 28 L.Ed. 1038; Child v. Boston, etc., Iron Works, 137 Mass. 516; Leighton v. Campbell, 17 R. I. 51.

From a review of these cases it will be seen that the statute construed therein are different from the statute now under consideration.

Admitting for the sake of argument that section 924, is penal in its nature and requires a strict construction by the court, it is my contention under the facts of the case at bar, when applied to the statute, are sufficient to render the defendant liable, under a strict construction of the statute.

In order to make a director liable under a strict construction of the statute, it would only be necessary to prove the paid in capital of the corporation; that its debts exceed that amount; that the defendant was a director at the time the debt was contracted; that the creditor was without notice or knowledge that the debts of the concern exceeded its paid in capital stock.

In this case, we did not only meet the burden of the statute, whether it be penal or not, but we went further and proved by McWilliams, the manager of the Smith Mercantile Company, that Mr. A. B. Smith was present when the shoes were sold, looked over the line of shoes with McWilliams, the manager, and at that time stated to Mr. Sondfield, the traveling salesman of the Manss Shoe Manufacturing Company, that the Smith Mercantile Company was in good condition, that he was satisfied with the line of shoes and never expected to handle any other than its shoes. That certainly makes him a party to the contract between the Smith Mercantile Company and the Manss Shoe Manufacturing Company, and therefore liable to pay the balance of this account.

Other courts, however, hold such statutes not penal, but to be for the protection of creditors, and therefore remedial. Among which are Morgan v. Hedstrom, 164 N.Y. 224, and Matty v. Sampson, 71 Supp. 731.

Where there is an existing debt arising by contract and for which the corporation is liable, the directors are liable also. Gold v. Clyne, 134 N.Y. 262; Stuffel v Hothurst, 73 N.Y.S. 1034; Thestle v. Jones, 107 N.Y.S. 840; Trenity Church v. Vanderbilt, 98 N.Y. 170.

And this seems to be the view taken by this court in the case of Avery v. McClure, 94 Miss. 172, where this particular section of the Code was under discussion. While the question in that case was very different from the one here presented, yet in discussing section 924 of the Code 1906, this court said at page 183 of the opinion, after quoting the above section, "It will thus be seen that the statute speaks of 'debts contracted' and 'debts existing,' and for the payment of these obligations the directors and stockholders are liable." Continuing its discussion of this statute, at page 191 of the opinion, this court said, "These statutes proceed upon the theory that any one extending credit to the corporation has a right to presume conclusively that the stock subscribed has been fully paid in, that the capital stock in an insolvent concern shall not be distributed in dividends, and that the corporation shall not contract debts in excess of its capital stock. As to these matters the directors and stockholders are held liable." Thus it is seen that it is the duty of the directors of a corporation to know its condition and to see that its debts do not exceed the paid in capital stock, and if they do not see to it and allow it to become involved beyond the capital stock, then they become individually liable.

Therefore the instruction asked by the plaintiff announced the true principals of law under section 924, and should have been given, and the peremptory instruction asked by the defendant should have been refused.

One other point that I desire to mention briefly; that is, the court was without authority to hear and pass upon the motion to set aside the judgment rendered by the court in the first trial, and to grant a new trial to the defendant.

Section 23 of chapter 104, Acts of 1910, creating the fourth judicial district, by paragraph five, divided the court term into civil and criminal term; the first twelve days for civil business and the last twelve days for criminal business. It will be noted from the judgment of the court that in the first trial of this cause a jury was waived and the case submitted to the decision of the court and he rendered a judgment for the plaintiff. The civil term expired on October 14th and by reference to the record it will be seen that the motion to set aside the judgment was filed on the 16th of October, which was during the criminal term and two days after the civil term had expired. The court certainly could not have tried any civil business during the criminal term. Then if he could not take up and try civil cases in that term, he was certainly without authority to take up this motion, set aside a judgment and render a new trial. In the order sustaining the motion to set aside the judgment and grant a new trial, it will be seen that special exceptions were taken to the action of the court in taking this motion up and passing on it during the criminal term. Had the motion been filed during the civil term and had, by consent of counsel, been continued until some time during the criminal term, then the action of the court would have been proper. But for it to be filed after the civil term had ended and then considered by the court, I think was error.

J Holmes Baker, for appellee.

Appellant by this suit seeks to hold appellee, A. B. Smith, liable as a director of the Smith Mercantile Company under the provisions of section 924 of the Code of 1906, which reads as follows: "The amount of the debts which any trading corporation or company may contract or owe shall not exceed the amount of its capital stock paid in; and, in case the debts exceed that amount, the directors who contracted such debts shall be individually liable for the excess over the amount of capital stock, and may be sued therefor by any creditor, whether the debt be due at the time of suit brought or not, if such creditor was without notice or knowledge of the excess at the time his debt was made."

The most that can be said to fix liability on A. B. Smith, the appellee, is that he was present and had knowledge of the fact that the manager of the Smith Mercantile Company had an order for the purchase of the goods. Does this make him individually liable under the provisions of section 924 above cited? I think not; this statute is very clearly expressed and admits of no ambiguity. Knowledge that the debt is being contracted for, in excess of the capital stock is not sufficient, and neither is acquiescence or assent sufficient to fix an individual liability on one who is a director of a corporation. This is a highly penal statute, and as such must be strictly construed. The party to be held individually liable must contract the debt, and not only this, he must make this contract as a director, not as an individual, and not as a stockholder. In other words the purpose of this statute is to enable creditors to protect themselves if they see proper so to do, by saying to those corporations asking for credit, "We will grant the credit asked for if you will have your creditors to contract for it as such. We are willing to deal with your corporation in this matter through your directory, but not otherwise." Certainly this is not an unreasonable construction to put on this statute, nor is it imposing any hardship upon those who are dealing with corporations in the way of furnishing them credit; and it is but fair and just to require those who seek the benefits and protection of a special statute like this one, which is in derogation of the common law, to bring this case clearly within its provisions. Have appellants done this? Clearly they have not. It nowhere appears in the record that A. B Smith, or anyone else, as a director of the Smith Mercantile Company contracted the debt sued for, or any part thereof. I concede that it is not necessary that those who are directors of a corporation should have a formal director's meeting, with proceedings entered...

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    ...... 549, 63 L.Ed. 1113; 3 R. C. L. 465; 7 C. J., pp. 172, 562;. Seventeenth Ward Bank v. Smith, 51 A.D. 259, 64. N.Y.S. 888; Boyd v. Applewhite, 121 Miss. 879, 84. So. 16; San Joaquin Bank v. ......
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    ...... that part of the term of court set aside for criminal. business. But see Mann's Mercantile Co. v. A. B. Smith,. 107 Miss. 16. . . From. the foregoing decision of this court, it ......
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