Randolph v. Ballard County Bank

• Citation: 142 Ky. 145,134 S.W. 165
• Parties: RANDOLPH et al. v. BALLARD COUNTY BANK.
• Decision Date: 08 February 1911
• Court: Kentucky Court of Appeals

134 S.W. 165

142 Ky. 145

RANDOLPH et al. v. BALLARD COUNTY BANK.

Court of Appeals of Kentucky.

February 8, 1911

Appeal from Circuit Court, Ballard County.

Action by the Ballard County Bank against L. H. Randolph and others. Judgment for plaintiff, and defendants appeal. Affirmed.

Jess F Nichols and J. B. Wickliffe, for appellants.

F. L Turner, for appellee.

O'REAR J.

The Ballard News Printing Company was an incorporated company under the laws of this state. Appellants and W. F. Purdy were its directors. In its articles of incorporation the limit of its indebtedness was fixed at $500. It became indebted to appellant bank on April 7, 1905, $300, evidenced by note; and on February 6, 1909, it executed another note to the bank for $1,429.31. The latter was to close an overdraft. The company made a general assignment for the benefit of creditors. Its assets amounted to about $200. This suit was brought by the bank against the printing company to recover judgment for $500 upon the notes sued upon, and against all the directors to recover the balance of the notes because of their violation of section 550, Ky. St. (Russell's St. § 2134). W. F. Purdy was cashier of the bank at the time the debts sued on were created. He was also a director of the printing company, and its president and general manager. The directors sued, other than Purdy, filed answer contesting their liability, alleging that the indebtedness on behalf of the printing company to the bank was created by Purdy alone and without their consent or knowledge, although they admit in the pleadings that they consented to the execution of the last-named note on the assurance of Purdy that it was desired for appearance sake to prevent trouble with the bank examiner, who was shortly expected, and under the promise by Purdy to finally cancel and return the note. The court sustained a demurrer to the answer, and, as it was not amended so as to improve the defense asserted rendered judgment in behalf of the bank against the printing company for $500 subject to credit by the amount ordered paid over by the assignee, and rendered judgment against each of the directors for the excess of the bank's two notes above $500. The directors, save Purdy, appeal.

Any number of persons not less than three are empowered by statute to become incorporated for doing business, such as includes that engaged in by the Ballard Printing Company, by complying with the requirements of the chapter on private corporations. Ky. St. c. 32, § 538 (section 2121). Among other things required to be stated by the incorporators in their articles is "the highest amount of indebtedness or liability which the corporation may at any time incur." Subdivision 8 of section 539, Ky. St. (section 2122 Russell's St.). Section 550, Ky. St. reads: "If the directors or officers of any corporation shall fail or refuse to comply with, or shall violate any of the provisions of this article, those so failing, refusing or violating shall be jointly and severally individually liable for any loss or damage resulting to any person from such failure, refusal or violation, and, in addition thereto, the persons so liable shall be each punished by a fine of not less than one hundred dollars nor more than one thousand dollars." There was not a right at common law to incorporate trading or manufacturing companies. They were created by act of Parliament, and in this country for a long time by special act of the Legislature. It was usual, at least always permissible, for the Legislature to limit in the act the amount of indebtedness which the corporation might incur. Under the existing Constitution of this state, special legislation of that class is prohibited, and the Legislature has provided instead by general law for such incorporation. The law now, as before, creates the corporate being, endows it with powers, and sets upon it limitations. It may not exceed either. When incorporated under the general law now the corporation's powers are derived from the state, and are as if the particular corporation was named in the statute, and its articles agreeable with the statute were embodied therein. So when the statute allows not less than so many to engage in a particular business, upon terms prescribed by the statute, or to be set forth in the articles adopted, what is thereby allowed is allowed by the statute, and what is thereby forbidden is forbidden by the statute. To engage in the business as a corporation without becoming incorporated under the statute is to violate the provisions of the article on corporations. To exceed that which the statute allows is not less a violation of the same. So, when the articles of incorporation place a limit on the indebtedness which the corporation may incur, to exceed the limit is to violate the chapter on incorporations, as it would be to engage in a business not authorized by its charter or the statute. Notwithstanding trading corporations were not the creations of the common law, it took cognizance of them, and fixed the liabilities of their officers and agents for acts ultra vires. It has, accordingly, been held that at the common law, if directors contracted indebtedness in excess of the limit prescribed by the corporation's charter, it was not sufficient to render them liable to creditors of the corporation. Frost Mfg. Co. v. Foster, 76 Iowa 535, 41 N.W. 212. And where directors of a bank issued notes in excess of the authority given by the law of its incorporation they were held not personally liable. Sandford v. McArthur, 18 B. Mon. 411....