Walton v. Oliver

• Decision Date: 01 January 1892
• Citation: 49 Kan. 107,30 P. 172
• Parties: AMOS WALTON et al. v. A. W. OLIVER et al
• Court: Kansas Supreme Court

30 P. 172

49 Kan. 107

AMOS WALTON et al. v. A. W. OLIVER et al

Supreme Court of Kansas

January 1, 1892

Error from Cowley District Court.

A SUFFICIENT statement of the case is contained in the opinion.

Judgment affirmed.

Eaton Pollock & Love, for plaintiffs in error:

1. The petition of plaintiffs below stated no cause of action and no right of recovery against defendants below. By said petition it will be seen that there is in this case no claim that the goods furnished the Arkansas City Athletic Association were furnished to these plaintiffs in error, as promoters of said corporation before it had been a body corporate, neither were they furnished upon any representations made by plaintiffs in error, the defendants below; but the petition shows upon its face that the goods were furnished upon the credit of the Arkansas City Athletic Association; that a part of the purchase-price for said goods was paid by said corporation and that whatever credit was given by defendants in error, plaintiffs below, was given to said corporation.

There is no allegation in the petition that defendants below, or either of them, promised or agreed to pay the debt of said corporation in any manner, and the petition of plaintiffs below proceeds upon the assumption that the incorporators of any corporation in Kansas simply by a failure to carry out the object and purpose of the corporation and the perfection of the organization, as contemplated by law, would render each of the incorporators individually liable for the debts contracted by said corporation through the instrumentality of any one of said incorporators, or the officer or agent of said corporation acting in the name of said corporation. We contend that such is not the law. Defendants in error, plaintiffs below, when dealing with the Arkansas City Athletic Association, are charged with knowledge of the financial standing and ability of said corporation in itself as a corporation to pay its debts, and, in lending credit to a corporation, cannot assert that such credit was lent upon the ability of the directors of the corporation to pay its debts.

There is no contention in the case at bar that the Arkansas City Athletic Association was not duly and legally incorporated. The articles of association are regular in every respect, and the act of incorporation became complete upon the filing of the certificate of incorporation with the secretary of state of the state of Kansas, which, as shown by the petition of plaintiffs below, was done on the 7th day of April, 1887. Hunt v. Bridge Company, 11 Kan. 412. It is well established by the decisions of this court, and by decisions of many other states, that where one contracts with a corporation in the use of its corporate powers and franchises, the corporation alone is liable and not the directors. Pape v. Capitol Bank, 20 Kan. 440; Stafford Bank v. Palmer, 47 Conn. 443; Savings Bank v. Walker, 66 N.Y. 424.

2. But should this court determine that the plaintiffs in error, from the fact of their being directors of said corporation for the first year after its organization, and incorporators of said company, are liable for that reason, yet we maintain that the judgment of the trial court is erroneous, and the demurrer should have been sustained for the further reason that such liability would not be, under the allegations of the petition, joint but several. And this court has determined, in the case of Abbey v. Dry Goods Company, 44 Kan. 415, that the liability of stockholders to the creditors of a corporation is several and not joint, and that each must be sued separately.

Hackney, Shartel & Brown, and H. D. Cummings, for defendants in error:

In the case at bar the plaintiffs in error filed the necessary certificate of incorporation with the secretary of state, but they did nothing either before, nor since, looking to the perfection of that organization, and, for all that appears from the record, they leased some land and got the lumber for nothing from the defendants in error and appropriated it to their own use, and they are now seeking to avoid their obligation to pay for that. Beach, in his work on Private Corporations, § 12, p. 18, asserts "that a substantial compliance with all of the provisions of the enabling act is required. . . . In forming a corporation under a general enabling act, it is necessary that the mandatory provisions of the statutes should be substantially followed." And at § 16, p. 25, he says: "If a corporation be illegally formed, its members or stockholders are liable, as partners, for its acts or contracts; and directors, officers and agents, acting and contracting in its name, render themselves personally liable." Citing, among others, the case of Hurst v. Salisbury, 55 Mo., p. 310, which was an action upon a note by the defendants to Hurst, purporting to be the note of the North Missouri Central District Stock, Agricultural and Mechanical Association.

If the failure to file the articles of the incorporation in the state of Missouri with the secretary of state after the perfecting of all other steps necessary to a legal corporation would render the directors personally liable, then we submit that, under the same rule of reasoning, the filing of articles of incorporation in this state, and doing nothing else except to incur the obligations sued on, would certainly make them liable here.

Counsel for plaintiffs in error are mistaken when they assume that the filing of the articles of incorporation renders the organization complete. The case of Hunt v. Bridge Company, 11 Kan. 412, does not decide any such thing.

GREEN, C. All the Justices concurring.

OPINION

GREEN, C.:

This action was commenced in the district court of Cowley county by the defendants in error to recover the sum of $ 295 debt and $ 45.40 costs, from the plaintiffs in error, who were alleged to be the directors of the Arkansas City Athletic Association. The petition charged that, after making and filing a charter in the office of the secretary of state, the defendants never perfected the organization of the corporation by opening books for the purpose of receiving subscriptions; that they did not levy and collect any money from themselves, nor adopt any by-laws or other rules for the government of the corporation; that no meeting had ever been called for the election of directors or other officers; that the defendants had failed to comply with any of the requirements of the law for the government of corporations after the articles of incorporation had been filed; that on the 18th day of January, 1889, the plaintiffs recovered a judgment against such corporation for the sum of $ 295, and $ 45.40 costs; that an execution was issued upon such judgment and returned "no property found." It was further alleged --

"That after the filing of...