Court Opinion

ID: 6974475
Source: CourtListenerOpinion
Date Created: 2022-07-24 02:08:32.788575+00
Date Added: 2024-06-11T16:08:55.547966
License: Public Domain

Mr. Justice Cartwright delivered the opinion of the court: The purpose of this suit is to recover from the appellants, as directors of the Garrett Grain and Coal Company, a corporation organized in 1902 with a capital stock of $5000 to run a farmers’ elevator and buy and sell grain and coal and handle hay and straw, the indebtedness of said corporation in excess of the amount of the capital stock. The corporation became insolvent and went into the hands of a receiver on March 14, 1904. The assets were insufficient to pay the debts, and the bill in this case was filed March 1, 1905, in the circuit court of Douglas county, by the appellees, as partners under the name of “The Citizens’ Bank of Garrett,” and one of them, Claus D. Greve, in his own right. The appellees filed the bill in their own behalf' and in behalf of all other creditors who might become complainants in the suit, and charged appellants with liability under section 16 of the act concerning corporations, (Laws of 1871-72, p. 296,) which is 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.” The defendants denied that they assented to the indebtedness in question or became liable under the statute, and the issues were referred to Guy R. Jones, as special master in chancery. He took and reported the evidence, with his conclusions of fact and law, and the cause was heard upon exceptions to the report. A decree was rendered against the appellants for the excess of the indebtedness over the capital stock, and the Appellate Court for the Third District affirmed the decree except as to some errors and mistakes in amounts. The cause was remanded to the circuit court, with directions to amend and correct the decree to conform to the opinion, and from the judgment of the Appellate Court this appeal was taken. The capital stock of the corporation was $5000, and the first act of the directors was to buy an elevator and borrow part of the money to pay for it and also money to buy grain. They hired J. W. Laughlin as manager and agreed to pay him a commission on the amount of grain he should buy. His compensation being determined by the amount he could buy, he was quite active in that direction, and continued to buy grain after the elevator and cribs were full and advanced money on grain to be delivered in the future. The corporation was soon indebted to the First National Bank of Garrett to the amount of $20,000, and that bank demanded new notes endorsed by the directors and a note for an overdraft constituting part of the indebtedness. The directors then transferred their account to the Citizens’ Bank of Garrett, owned by the complainants, and notes of the corporation were executed by the president and secretary to the Citizens’ Bank under a resolution adopted March 7, 1903, for $19,700, and the proceeds, with a check for-$300, were used to discharge the debt to the First National Bank. The corporation continued buying grain, and about two months later the directors hired Claus D. Greve, one of the complainants, who was cashier of the Citizens’ Bank, to buy grain on commission. He bought grain, and under his management the amount of indebtedness fluetuated from time to time but it was never extinguished. There was a conflict in the evidence as to the extent of the supervision of the defendants over Greve, but the evidence in the record' is sufficient to support the finding of the court that the defendants, as directors, assented to the creation of the indebtedness, and that it was not created by an agent of the corporation without the authority and assent of the defendants. The defendants were the governing body of the corporation and they authorized Laughlin and Greve to buy grain, which necessarily and to their knowledge would, and did, cause the corporation to become indebted in excess of the amount of the capital stock. It is true that the defendants would not be liable under the statute if they merely recognized the existence of the indebtedness after it was created, but the evidence justified the conclusion that they assented to the creation of the indebtedness. The statutory liability is for indebtedness in excess of the amount of the capital stock, and not for indebtedness in excess of the value of the capital stock or the assets or property of the corporation. The amount of the capital stock is the amount contributed by the shareholders for the prosecution of the business, and the officers and directors may incur indebtedness equal to that amount without assuming personal liability. Capital stock for the purpose of valuation, as the term is used in the Revenue act, includes the assets of the corporation, and the value of the capital stock depends upon the assets and property of the corporation and their amount. This statute takes no account of the property of the corporation, and it makes no difference what the assets are when the excessive debt is created. The statute fixes a point where the directors become liable, and that point is when the indebtedness exceeds the amount of the capital stock. The liability is that of a surety, and if payment is made out of the assets, the officers-and directors, who are sureties, are exonerated. (Woolverton v. Taylor, 132 Ill. 197; Lewis v. Montgomery, 145 id. 30.) The indebtedness of this corporation exceeded the amount of the capital stock, and the defendants became sureties for the excess which the assets were insufficient to pay. It is urged.that there is no liability to the complainants because the cashier, Claus D. Greve, one of the partners, told the directors if they would transfer the business to his bank he would not require them to endorse the notes of the company and would not hold them personally liable. He did waive the endorsing of the notes by the defendants, but there is no evidence of any agreement concerning the statutory liability. It is also urged that Greve, who was the manager, ought not to have any part of the fund because he participated in creating the indebtedness. Under the contract with him he was entitled to his commissions and expenditures the same as any other creditor, and we see no reason why he could not recover the same. There is no claim that the corporation was not liable to him, and if the defendants assented to the arrangement the statute made them liable. The judgment is affirmed. judgment affirmed.