Zimmerman v. Western & Southern Fire Insurance Co.

• Decision Date: 20 December 1915
• Docket Number: 58
• Citation: 181 S.W. 283,121 Ark. 408
• Parties: ZIMMERMAN v. WESTERN & SOUTHERN FIRE INSURANCE COMPANY
• Court: Arkansas Supreme Court

181 S.W. 283

121 Ark. 408

ZIMMERMAN v. WESTERN & SOUTHERN FIRE INSURANCE COMPANY

No. 58

Supreme Court of Arkansas

December 20, 1915

Appeal from Benton Chancery Court; T. H. Humphreys, Chancellor revised in part, and affirmed in part.

Decree reversed, and causes dismissed in part and decree affirmed in part.

Williams & Williams and McGill & Lindsey, for appellants.

1. Zimmerman was not a director after April 15, 1906. We submit the following on the question of minutes as evidence. Abbotts Trial Ev. (2 ed.), 57-67; 62 Ark. 33; 7 R. C. L., § 124; 5 N. J. Sec. 137. If he was elected, an acceptance was necessary. 2 Cook on Corp., § 624; 10 Cyc. 740. He had no knowledge of his election and could not be held liable. 110 Ark. 39. No form of resignation is necessary, nor is it necessary that the resignation be accepted. 2 Cook on Corp. § 624; 174 N.Y. 247; 95 A. S. R. 574, and notes 578-9; 141 U.S. 132; 77 N.Y. 378. The action of Zimmerman rebutted any presumption of an intention to accept or to hold over and he was not bound to give notice. Notes to 95 A. S. R 578-9; 81 N.Y. 46; 10 Cyc. 740; 34 Vt. 371; 80 Am. Dec. 688.

At common law a director was not bound to hold over. 73 N.Y. 384; 77 Id. 378. Nor did he, in fact, hold over. Statutes like ours (Kirby's Dig., §§ 841-2) are highly penal, and are not extended by implication. 58 N.E. 790; 80 Am. Dec. 688.

2. The appellee is not entitled to recover on cross-appeal. The purchase of stock was ultra vires. Every one dealing with a corporation is bound to take notice of the laws under which it is chartered. 3 Rul. Cas. Law, § 61; 82 Va. 913; 3 Am. St. 128; 92 Tenn. 115; 37 Neb. 197; 71 Ark. 379. The transaction was void and could not be ratified. 36 Am. St. 71; 3 Rul. C. Law, § 85; 103 Ark. 283. Besides the scheme was a fraud. 10 Cyc. 858-868; 19 A. & E. 622; 92 Ark. 327.

3. The suit is barred by limitation of three years. 68 Ark. 433; 95 Id. 327; 96 Am. St. 989; 96 Id. 992; 7 Rul. C. Law, 476-510; 8 L. R. A. (N. S.) 738-746.

E. P. Watson, A. L. Smith, Dick Rice and Rice & Dickson for appellees.

1. The basis of this suit is the common law liability of the directors for negligent performance of duty amounting to gross negligence. This was a question of fact for the court who found for the receiver. 141 U.S. 132; 82 S.W. 76.

2. Zimmerman was a director from 1901 to 1909. Kirby's Digest, §§ 841-844.

3. The action was not barred. Kirby's Digest, § 848.

4. The directors were all liable. 82 S.W. 76.

OPINION

MCCULLOCH, C. J.

This appeal involves several consolidated actions instituted in the chancery court of Benton County against defendants, Zimmerman and others, directors of a defunct banking corporation doing business at Siloam Springs, to recover on account of liability alleged to have been incurred by reason of their neglect of duty in the management of the affairs of said bank. The bank was declared to be insolvent in the summer of 1910, and a receiver was appointed, and the uncontradicted evidence in this case shows that it had been insolvent for three or four years, at least, prior to the appointment of a receiver. The evidence is sufficient to warrant a finding that there was gross mismanagement of the affairs and business of the bank, causing considerable loss to the depositors and stockholders. These actions were instituted shortly after the appointment of a receiver, and at the trial of the cause before the chancellor there was a decree in favor of the plaintiffs for the recovery of a large sum of money against all of the directors save one, and those against whom the decree was rendered appeal to this court. The plaintiffs appeal from the decree exonerating the other director, Murphy, and also from that part of the decree which held that the directors were not liable for a deposit of $ 20,000 made by the Western & Southern Fire Insurance Company, one of the plaintiffs.

It is not seriously contended here that the decree against the directors was erroneous, except against Zimmerman, who defends on the ground that he was not a director within the period of the statute of limitations which runs against the causes of action of the plaintiffs. In other words, he contends that he was not a director after April, 1906, and that as to liability of the directors which accrued after that time he can not be included. It seems to be conceded in the argument that the statutory period of limitation is three years. This court held that that was the period of limitation under Kirby's Digest, section 859, which imposes a liability on the president and secretary of any corporation for neglect of duty in failing to file the certificate prescribed by statute. The present actions are founded on section 863 of Kirby's Digest, which provides that if any president, "directors or secretary of any such corporation shall intentionally neglect or refuse to comply with the provisions of this act, and to perform the duties therein required of them respectively, such of them as so neglect or refuse shall be jointly and severally liable, in an action founded on this statute, for all the debts of such corporation contracted during the period of any such neglect or refusal." The same statute of limitation applies under both sections. Therefore, the chancellor was correct in holding that three years years was the period of limitation applicable in this case.

We are of the opinion that according to the clear preponderance of the testimony, appellant Zimmerman did not serve as a director after the meeting of stockholders on April 15, 1906, and that he is not liable in any of these actions. The minutes of the meeting of stockholders, as recorded on the books of the corporation, were introduced in evidence, and they recite that Zimmerman was elected at each meeting of the stockholders up to and including the year 1909. This is about all the evidence that was adduced tending to show that he was a director. Mr. Covey, the receiver, testified as to conversations which he had with Zimmerman after his own appointment as receiver, and those conversations merely show that he apprised Zimmerman of the fact that the minutes showed that he was a director, and that Zimmerman requested him to look into the matter and write to him further on the subject. The testimony of Mr. Covey is hardly sufficient to show an admission on the part of Zimmerman that he was in fact a director in the corporation.

Turning to the testimony adduced by appellant, it shows very clearly that Zimmerman was not a director. In fact, there is no substantial dispute on that point. Zimmerman shows that he moved to Texas in April, 1906, and came back to Siloam Springs only occasionally to visit his family. In March, 1906, he informed the president of the bank, Mr. Morris, that he would not be able to serve as director, and proposed to resign. Morris told him that it would be inconvenient to call a meeting for the purpose of electing a successor, but promised that he would not be re-elected at the meeting in April. Zimmerman testified that he was not present at the April meeting, and never received any information until after the appointment of a receiver that he had been re-elected as a director, or that the minutes recited that fact. Morris corroborated Zimmerman and testified concerning his conversation with the latter in March, 1906, and he stated that Zimmerman was not present at the April meeting. Lafollette, the assistant cashier, testified to the same effect.

Several witnesses were introduced by the plaintiffs who testified that Zimmerman was back at Siloam Springs oftener than he claims in his own testimony. That testimony, however, has very little probative force in establishing the fact that Zimmerman knew that he had been elected as director or that he assumed to act as such. The minutes of the corporation were very loosely kept and were unsigned, but conceding that they were competent evidence tending to show the election of Zimmerman as a director,...