Warren v. Adams

• Decision Date: 31 October 1939
• Docket Number: 28111.
• Parties: WARREN et al. v. ADAMS et al.
• Court: Oklahoma Supreme Court

105 P.2d 221

187 Okla. 643, 1939 OK 461

WARREN et al. v. ADAMS et al.

No. 28111.

Supreme Court of Oklahoma

October 31, 1939

Rehearing Denied June 18, 1940.

Application for Leave to File Second Petition for Rehearing Denied Sept 10, 1940.

Syllabus by the Court.

Under section 9763, O.S.1931, 18 Okl.St.Ann. § 106, which imposes personal liability upon corporation directors, under certain conditions, for the debts of the corporation created in excess of its subscribed capital stock, a director is not liable for the excessive debts which had been paid by the corporation prior to its dissolution.

Appeal from District Court, Tulsa County; Harry L. S. Halley, Judge.

Action by G. Ed Warren, receiver of the Exchange National Company and others against Robert E. Adams and others and Kate Chestnut and others, to enforce the statutory liability of corporate directors for creating debts in excess of the subscribed capital stock of the corporation. From a judgment sustaining the separate demurrer of defendants Kate Chestnut and others to plaintiffs' amended petition and dismissing the petition with judgment for defendants Kate Chestnut and others, the plaintiffs appeal.

Affirmed.

Charles L. Yancey, G. C. Spillers, E. M. Calkin, and Kavanaugh Bush all of Tulsa, for plaintiffs in error.

Charles A. Coakley, R. B. McDermott, and Thomas C. Smith, all of Tulsa, for defendants in error.

OSBORN Justice.

Plaintiffs in error, G. Ed Warren, receiver of the Exchange National Company, a corporation, Matie Center and M. Marguerite Day creditors of said corporation, plaintiffs in the trial court, appeal from a judgment of the District Court of Tulsa County sustaining the separate demurrer of defendants in error Kate Chestnut, Alice C. Quinlan and Margaret G. Smith, to plaintiffs' amended petition and dismissing said petition with judgment for said defendants when plaintiffs elected to stand thereon.

This action was brought by the plaintiffs above named against the former directors of the dissolved corporation, Exchange National Company, and the personal representative of the deceased directors, or the distributees of the estates of the deceased directors if their estates had been theretofore distributed, to enforce the statutory liability of corporate directors for creating debts in excess of the subscribed capital stock as provided in section 9763, O.S.1931, 18 Okl.St.Ann. § 106.

Thomas Chestnut was a director of the Exchange National Company from the date of its organization in 1928 until his death in August, 1931. The defendants herein, the widow and two daughters of the deceased Thomas Chestnut, were the distributees of his estate after administration in the proper court. The estate was closed and distributed in 1932; the Exchange National Company was dissolved by decree of the District Court of Tulsa County on August 21, 1935, and this suit was filed on December 9, 1936.

Before sustaining the separate demurrer of the defendants the trial court on motion of said defendants struck paragraphs ten, fourteen and fifteen from plaintiffs' amended petition. The plaintiffs contend the trial court erred in striking said paragraphs from the petition and in sustaining the demurrer thereto. For the purposes of this appeal we shall consider the demurrer as having been made before the paragraphs were stricken therefrom, and dispose of both assignments of error. We must first, of course, determine whether the amended petition states a cause of action against the director, Thomas Chestnut, if he were living.

In plaintiffs' reply brief, wherein this proposition is argued, the plaintiffs do not discuss paragraph ten of the amended petition. We have, however, examined the allegations of that paragraph and the copy of the minutes of the directors meeting referred to therein, and the minutes of said meeting do not reveal that any indebtedness was created at that time; consequently, we shall not consider paragraph ten further.

In paragraph fourteen plaintiffs allege that Thomas Chestnut was present at the meeting of the board of directors which created an indebtedness in favor of the National City Bank of New York and that Chestnut did not cause his dissent thereto to be entered on the minutes of said meeting. An examination of the minutes of said meeting, a copy of which is attached to the petition, discloses that in reality the directors authorized named officers of the corporation to execute certain promissory notes in favor of the National City Bank of New York to evidence debts theretofore incurred by the managing officers of the corporation.

In paragraph fifteen it is alleged that Chestnut attended the meeting of the board of directors which passed a resolution authorizing the managing officers of the corporation to incur debts with the Mississippi Valley Trust Company in excess of the subscribed capital stock, and that Chestnut did not enter his dissent therefrom on the minutes of said meeting.

Plaintiffs do not allege that Chestnut attended other meetings of the board of directors of said corporation when other excessive debts were created, and except for the above paragraphs rely upon the general allegations of the petition as stating their cause of action against the defendants. The plaintiffs do not contend that Chestnut or his distributees are liable for any of the excessive debts created by the board of directors during Chestnut's administration except those set forth in the above paragraphs, and it is conceded that the excessive debts set forth in those paragraphs had been paid in full by the corporation prior to the dissolution of said corporation. The parties in whose favor these particular excessive debts were created are not parties to this action.

Conceding for the purposes of this appeal, without deciding, that paragraphs fourteen and fifteen allege the creation of debts by the directors of said corporation within the meaning of section 9763, O.S.1931, 18 Okl.St.Ann. § 106, the sole question for our consideration is whether a director, who otherwise comes within the terms of the statute, is liable for excessive debts which had been paid by the corporation prior to its dissolution.

As heretofore stated plaintiffs' cause of action is predicated upon section 9763, O.S.1931, 18 Okl.St.Ann. § 106 which provides: "The directors of corporations must not make dividends except from the surplus profit arising from the business thereof, nor must they divide, withdraw, or pay to the stockholders, or any of them, any part of the capital stock; nor must they create debts beyond their subscribed capital stock, or reduce or increase their capital stock, except as specially provided by law. For a violation of the provisions of this section, the directors under whose administration the same may have happened (except those who may have caused their dissent therefrom to be entered at large on the minutes of the directors at the time, or were not present when the same did happen), are, in their individual and private capacity, jointly and severally liable to the corporation, and to the creditors thereof, in the event of its dissolution, to the full amount of the capital stock so divided, withdrawn, paid out, or reduced, or debt contracted; and no statute or limitations is a bar to any suit against such directors for any sums for which they are made...