Case Name: LAGRONE v. BROWN et al.
Court: Louisiana Supreme Court
Jurisdiction: Louisiana
Decision Date: 1928-04-09
Citations: 166 La. 445
Docket Number: No. 28765
Parties: LAGRONE v. BROWN et al.
Judges: O’NIELL, C. J., and ST. PAUL, L, concur in the decree.
Reporter: Louisiana Reports
Volume: 166
Pages: 445–451

Head Matter:
(117 So. 549)
No. 28765.
LAGRONE v. BROWN et al.
April 9, 1928.
Rehearing Denied June 4, 1928.
Theus, Grisham & Davis, of Monroe, for appellant. I
Barksdale, Bullock, Warren, Clark & Van Hook, of Shreveport, and Dhu Thompson, of Ruston, for appellees.

Opinion:
LAND, J.
The Willowbrook Brick & Tile. Company is a corporation under the laws of this state, with its domicile in the parish of Caddo. The charter provides fpr a capital stock of $100,000, all of the-shares being of the par value of $10.
This company was incorporated and organized on the 29th day of January, 1920, hy the defendants F. M. Brown, Norman McDonald, J. A. Jimerson, and R. A. Ludwick, who composed the first board of directors, and who were¡the first officers of the corporation.. At the date of organization, Brown subscribed to 1,625 shares of the capital stock, and the rest of the defendants to 1,125 shares each, making a total of 5.000 shares.
On April 27, 1923, plaintiff, J. M. Lagrone, was appointed receiver for the corporation-. On January 22, 1926, the present suit was filed by the receiver to obtain a judgment jointly and in solido against defendants in the sum of $50,000, or the full amount of their individual stock subscriptions, upon the following allegations.
Plaintiff alleges: That he has collected all available debts due the corporation, and has sold under order of court all of its property, and that there remained on hand approximately $5,000, after payment of taxes and other small, but urgent, expenses.
That the corporation is hopelessly insolvent, that it owes debts approximating $50,-000, in excess of the cash on hand, and exclusive of the amount of $37,000, paid in for stock by the stockholders, and that it is necessary that all stock subscribed and unpaid for be collected.
That defendants colluded and conspired with each other, and illegally and fraudulently issued to themselves certificates for the full amount of the stock subscribed by each of them, and that no portion of the stock has been paid for in cash or its equivalent, as required hy law.
Plaintiff does not pray for judgment ' against the defendant R. A. Ludwick, as his whereabouts is not known, and he has not been cited, hut reserves the right to sue this defendant hereafter.
The defendants Brown, McDonald, and Jimerson háve pleaded in their joint answer an exception of no right or cause qf action, and, in the alternative the prescriptions of one and of five years in bar of plaintiff's suit. -
The exception of no right or cause of action' and the alternative pleas of prescription Were overruled in the lower court. by the trial judge, who passed upon the merits of the case and rejected plaintiff's-demands.
Plaintiff has appealed, and appellees have answered the appeal, and pray that the judgment be so amended as to sustain the exception of no right or cause of action.
In considering this exception, it may be well to state at the outset that the (decision of this court in'Lagrone v. Brown et al., 161 La. 784, 109 So. 490, has not been followed in the more recent case of Smalley v. Bernstein, 165. La. 1, 115 So. 347.
It was said in the Lagrone Case, pages 787 and 788 (109 So. 491), in disposing of an exception to the jurisdiction of the lower court:
"Article 266 of the Constitution of 1913, which was in force at the time the corporation was organized, provides that no corporation shall issue stock except for labor done or money or property actually received.
"Section 17 of Act 267 of 1914, known as the Uniform Corporation Act, provides that if stock be issued for property in violation of the provisions of this act, or if any dividend or other distribution of the assets be made other than from net profits, or if a reduction of capital he made under the guise of a loan to stockholders the directors of such corporation voting or assenting thereto shall be jointly and severally liable to the creditors of the corporation for any loss or damage arising therefrom. [Italics ours.]
"The foregoing section seems to be broad enough to cover the acts charged against the directors in the case under consideration, and to make them liable in solido to the corporation and to its stockholders and creditors. [Italics ours.]
*
"In the case of Dawkins v. Mitchell, 149 La. 1038, 90 So. 369, we held that the directors of a national bank are its agents charged under the law with an implied trust to use its funds only for the purposes permitted by law and. to preserve them for its creditors and stockholders.
"The same principle applies here. [Italics ours.]
"The directors of the instant corporation owed a special contractual duty to the corporation, its/creditors, and stockholders, and not a general one to everybody. As fiduciaries of the corporation the directors held the assets in trust for the benefit of the corporation, its creditors, and stockholders." (Italics ours.)
In the recent case of Smalley v. Bernstein, cited supra, section 17 of Act 267 of 1914 was construed by this court in the following language:
"Plaintiff, for the purpose of, showing that the liability of the directors is to the corporation, and hence that it is an asset of the corporation and passed to him as trustee, cites Corpus Juris, vol. 14A, § 1817, p. 105, § 1971, p. 190, and other authorities, in which it is said, in effect, that the liability is to the corporation. On the other hand, defendants rely primarily on section 17 of Act 267 of 1914 to show that the cause of action is vested only in the creditors injured by the payment of dividends, and was not an asset of the corporation, and therefore did not pass to plaintiff, as trustee. The section of the act of. 1914, cited by defendants, so far as it is pertinent to the question under consideration, reads as follows:
" ' That if any dividend or other distribution of the assets be made other than from net profits, the directors of such corporation voting or assenting thereto shall be jointly and severally liable to the creditoi's of the corporation for any loss or damage arising therefrom. '
"Whatever may have been the law prior to the adoption of this section, here the liability is expressly stated to be to the creditors. The liability is not said to be to the corporation also, nor is there anything in sections 18 and 19, or elsewher-e in the act, justifying the conclusion that the cause of action is granted to any other than the creditors." (Italics ours.)
As section 17 of Act 267 of 1914 contains no provision whatever creating any liability in favor of the corporation or stockholders, the receiver in the case at bar is without right to bring the present suit, as the causes of action arising in the cases stated in section 17 of the act are vested exclusively in the creditors of the corporation, and can be asserted only by them.
There is nothing in the case of Dawkins v. Mitchell, 149 La. 1038, 90 So. 396, that is in conflict with the holding of this court in the Smalley Case.
In the Dawkins Case, the plaintiff sought to allege a cause of action under section 5239 of the United States Revised Statutes (12 US CA § 93). The section cited deals with the liability of the directors of any national banking association who shall knowingly violate, or knowingly permit any of the officers, agents, or servants of the association to violate, any of the provisions of the National Banking Law.
It is provided in this section:
"And in cases of such violation, every director who participated in or assented to the same shall be held liable in his personal and individual capacity for all damages which the association, its shareholders, or any other person, shall have sustained in consequence of such violation." (Italics ours.)
Section 5239 of the United States Revised Statutes expressly confers a cause of action upon "the association, its shareholders, or any other person" damaged; but section 17 of Act 267 of 1914 limits the cause of action specifically "to the creditors of the corporation" for any loss or damage arising from the illegal or wrongful acts of directors therein designated and prohibited.
It was also held in the Smalley Case that the cause of action arising under section 17 of Act 267 of 1914 was not ex contractu but ex delicto.
In our opinion, the exception of no right or cause of action pleaded by defendants is well founded and should have been sustained.
It is therefore ordered that the judgment appealed from be so amended as to sustain the exception of no right or cause of action tendered herein by defendants.
It is now ordered that said judgment, as amended, be affirmed, and that the receiver of the Willowbrook Brick & Tile Company, Incorporated, pay all costs of appeal and of the lower court.
O'NIELL, C. J., and ST. PAUL, L, concur in the decree.