Speer v. Dighton Grain, Inc.

• Decision Date: 28 February 1981
• Docket Number: No. 51852,51852
• Citation: 624 P.2d 952,229 Kan. 272
• Parties: Russell SPEER, Appellee and Cross-Appellant, v. DIGHTON GRAIN, INC., Leo Meeker, Walter Gormley, Brenda Meeker, and Rhonda Meeker, Appellants and Cross-Appellees.
• Court: Kansas Supreme Court

Page 952

624 P.2d 952

229 Kan. 272

Russell SPEER, Appellee and Cross-Appellant, v. DIGHTON GRAIN, INC., Leo Meeker, Walter Gormley, Brenda Meeker, and Rhonda Meeker, Appellants and Cross-Appellees.

No. 51852.

Supreme Court of Kansas.

Feb. 28, 1981.

Syllabus by the Court

1. The doctrine of res judicata cannot arise from a judgment rendered in an action until the time for appeal or modification has passed.

2. When a judgment has been pronounced and has become final then and only then have the rights of the defendants been duly disturbed. There is no vested right in a judgment held by the party in whose favor it is rendered so as to preclude its re-examination and vacation in the ordinary modes of appeals by law.

3. A decision of an appellate court in an earlier appeal in the same case becomes what is generally referred to as the "law of the case," which phrase merely expresses the practice of courts generally to refuse to reopen what has been decided. This practice of courts is not a limit on their power and a reconsideration of a question previously decided may be proper when the prior decision is patently erroneous.

4. The supreme court shall have jurisdiction to correct, modify, vacate, or reverse any act, order, or judgment of a district court or court of appeals in order to assure that any such act, order or judgment is just, legal, and free of abuse. K.S.A.1980 Supp. 60-2101(b).

5. A corporation and its stockholders are presumed separate and distinct. Debts of a corporation are not the individual indebtedness of its stockholders, directors or officers.

6. However, a corporate officer or director acting on behalf of a corporation is personally liable for damages caused by his willful participation in acts of fraud or deceit to one directly injured.

7. An officer of a corporation is not personally liable for a conversion committed by the corporation or one of its officers merely by virtue of the office he holds; he must participate or have knowledge amounting to an acquiescence or commit a breach of duty he owes to the owner of the property before he will be held liable.

8. Directors or officers are liable to the corporation and the stockholders for losses resulting from their malfeasance, misfeasance or their failure or neglect to discharge the duties imposed by their office.

9. While directors may be held liable if they retain in a responsible position a man who has shown himself dishonest or unworthy of trust, such action involves a breach of duty to the corporation for which only the corporation or someone suing on its behalf may recover. Such action or inaction affects all stockholders and creditors of the corporation in like manner.

10. The holding in Mead v. Meeker, 3 Kan.App.2d 15, 587 P.2d 1276 (1978), is overruled and it is held : A creditor of an insolvent corporation who sues solely on his own behalf cannot maintain a personal action against directors or officers who, by negligent mismanagement of the corporation's affairs, have breached their duty to the corporation to the consequent damage or injury of its creditors.

Tom R. Smith of Frey, Smith & Schmidt, Liberal, argued the cause and was on brief, for appellants and cross-appellees Leo Meeker, Brenda Meeker and Rhonda Meeker.

Dennis J. Keenan of Keenan, Mauch & Keenan, P. A., Great Bend, argued the cause and was on brief, for appellee and cross-appellant.

FROMME, Justice.

This is one of twenty-two separate lawsuits arising in the wake of the insolvency and closing of Dighton Grain, Inc., a grain elevator corporation in Dighton, Kansas. The plaintiff sues as an unsecured creditor of the corporation. The action is brought by this creditor against the corporation and against the directors and corporate officers individually. The jury determined that these directors and corporate officers were grossly negligent in the performance of their corporate duties. The plaintiff creditor obtained personal judgments of $31,512.87, $15,756.44 and $15,756.44 against Leo, Brenda and Rhonda Meeker, respectively.

Certain background facts well be helpful in understanding the legal issues. Leo Meeker and his two daughters, Brenda and Rhonda, joined with Walter Gormley in organizing Dighton Grain, Inc., for the purpose of carrying on the grain business. The three Meekers are engaged also in farming approximately 1400 acres of irrigated land in Finney County, Kansas. On organization it was understood that Walter Gormley would be the manager in charge of this newly formed grain business. These four individuals were the stockholders and directors of the corporation. Leo Meeker was elected president; Gormley was elected vice-president; Brenda Meeker was elected treasurer; and Rhonda Meeker was elected secretary. The business was organized May 18, 1973. At the end of the first fiscal year the books of the corporation were audited by a certified public accountant and it was apparent from the auditor's report that Gormley had mismanaged the corporation and that certain practices of Gormley had to be corrected. The books of the corporation showed many discrepancies. Gormley had written some $87,000.00 in corporate checks to himself and had restored only a portion of that amount to the corporate account. The record of grain shipped to the terminal was inadequate. The actual inventory of grain on hand was short and the book inventory was long. The obligation of the corporation for wheat on open storage was not accurately recorded in the books of the corporation.

However, the first year of operation was in a period of rapidly rising grain prices. The auditor estimated a substantial net profit even after he determined that Gormley had ended the year owing the corporation $54,000.00 for which he gave the corporation an unsecured note.

The audit report contained recommendations for new procedures to prevent future defalcations. It was suggested, among other things that two signatures be required on every check and that Gormley discontinue his unauthorized use of the funds of the corporation. Various bookkeeping procedures were recommended along with more frequent directors' meetings. None of these recommendations were followed. The Meekers apparently continued to ignore mismanagement of this business by Gormley. Gormley continued to use the money of the corporation for his own personal use. At the end of the second fiscal year of operation a check of the corporation issued by Gormley for $110,000.00 was returned because of insufficient funds.

This check was for funds to cover wheat sold by the grain company and to be paid to the producers after the first of the year. When Leo Meeker received the check and payment thereof was refused by the bank he became concerned and borrowed $70,000.00 on his own personal account to clear the check. Then followed a flurry of activity by Leo Meeker to keep the elevator operating. In this Leo Meeker was unsuccessful. On June 27, 1975, the doors of Dighton Grain, Inc. were closed. The corporation could not get a renewal of its license. Leo Meeker was never repaid his $70,000.00 loan to the corporation. He continues to hold a second mortgage on the elevator for that amount.

In January, 1976, the attorney general of Kansas, on behalf of the State Grain Inspection Department, filed a petition in the District Court of Lane County, Kansas for the appointment of Mr. Charles Bosley as receiver of the grain company pursuant to K.S.A. 34-2,104. Bosley took custody of all grain in the elevator on open storage and distributed it among the open storage owners. In addition, the receiver obtained the proceeds of a $71,000.00 surety bond. These funds were distributed among those persons who had placed grain on open storage with the elevator and whose grain could not be located. Even with the use of the bond proceeds, there was a shortage of grain delivered to the elevator on open storage. The State Grain Inspection Department closed the facility. It was at this time the receiver discovered that, although the corporation had handled in excess of $3,000,000 bushels of grain in its two-year existence, the corporation was insolvent and legally obligated to unsecured creditors in excess of $400,000.00.

A major portion of this indebtedness consisted of contracts having the effect of promissory notes whereby the corporation had agreed to pay stated sums to individual creditors after the first of January, 1976, for grain previously purchased by the corporation. The grain had been received at the elevator prior to June, 1975, when the doors to the elevator were closed. These contracts are apparently transactions approved by the Internal Revenue Service for the purpose of deferring income tax liability thereon to a year subsequent to the year of delivery of the grain. The producer can thereby deliver the grain to the elevator at a set price. The title to the grain passes when it is delivered but the producer cannot obtain his money until the date set in the agreement, which is after the first of the following year.

The plaintiff, Russell Speer, held several of these contracts totaling $104,633.24 in value. The contracts were made in 1975, the grain was sold and delivered in 1975, and the amount of the sale was due and payable after January 2, 1976. Speer thereby became an unsecured creditor of the corporation.

In this same action but prior to the trial of the present claims, the plaintiff obtained a default judgment against both Dighton Grain, Inc., and Walter Gormley in the amount of $94,633.24. Walter Gormley previously had been prosecuted and convicted for misappropriations from the business. It was stipulated by the parties before the trial of the present claims that any execution on the judgment against the corporation would be returned unsatisfied. With this background we turn to the issues raised on appeal.

The defendants-appellants raise a threshold question which should be disposed of at this time. They contend the evidence...