Court Opinion

ID: 6994226
Source: CourtListenerOpinion
Date Created: 2022-07-24 03:30:21.220276+00
Date Added: 2024-06-11T16:09:43.322273
License: Public Domain

Opinion by the Court. The appellants filed their bill in chancery against the appellees to enforce an alleged liability as directors of the “ Rushville Shawl Mills,” a corporation, for assenting to corporate indebtedness in excess of the capital stock. The cause was heard upon bill, answer, replication and proofs, and a decree was entered dismissing the bill at the cost of the appellants. By their appeal the record is now brought to this court. The provision of the statute involved reads as follows : “If the indebtedness'of any stock corporation shall exceed the amount of its capital stock, the directors and officers of such corporation assenting thereto shall be personally and individually liable for such excess to the creditors of such corporation.” R. S., Ch. 32, Sec. 16. Assuming, for the present purpose, that the indebtedness of the incorporation did exceed the capital stock, the question is whether the appellees, being directors, did assent thereto, within the meaning of the statute, so as to render themselves liable for such excess. It appears that the stock of the corporation was held mainly by one man, Augustus Warren, and that affairs of the corporation were practically under his exclusive management. Tin- appellees, while holding stock, and while occupying the p« : uion of directors, seem to have given but little, if any, i.amtion to the business. It is not shown by the proofs offered in support of the lull that they really knew the financial condition of the company, and they testify positively that they were not aware that the indebtedness exceeded the capital stock until it had all been incurred, and the affairs of the concern were about to be placed in the hands of a receiver. The appellants insist, however, that by using the proper care, they might have ascertained the exact condition of the company at any time, and if they failed so to dó, they were guilty of negligence, and must therefore be regarded as having assented to the indebtedness. It may be fairly inferred from the evidence that the appellees were negligent in the discharge of their duties as directors; that they really took no active interest in the management of the business; that they permitted Mr. Warren to conduct it as he saw fit, without any supervision on their part; and that, by the exercise of proper diligence, they might have known, at all times, what ivas the state of affairs. If this makes them liable under the statute, the decree in their favor is erroneous. The liability must be predicated upon assent, and this must involve knowledge; without knowing that a thing exists, one can not be said to assent to it. It is not sufficient that he neglects to do that which would lead him to knowledge. The statute does not impose liability for mere negligence in not properly discharging the duty of an officer or director. It does not say liability shall arise where he has negligently permitted the indebtedness to exceed the capital stock, but when he has assented thereto. There must be a mental act, based upon some information or perception of facts ; but mere failure to know, or to take the steps which, if taken, would bring the facts to light, will not suffice. The position of the appellants is, that the duty of a director requires him to know what the corporation is doing, and it is negligence in him not to know ; hence, he is conclusively presumed to have known, and, having made no objection, he is to be considered as assenting. But this is more than the statute has declared. It is an attempt to predicate liability upon mere neglect of duty in not keeping advised of the corporate action, whereas, the ground of liability, fixed by the statute, is that there was assent to the prohibited action. Patterson v. Stewart, 45 Minn. 84; Patterson v. Eobinson, 3G Hun, 622. - We are of opinion the decree should be affirmed.