Court Opinion

ID: 7117880
Source: CourtListenerOpinion
Date Created: 2022-07-24 12:34:43.523949+00
Date Added: 2024-06-11T16:13:59.325118
License: Public Domain

Ladd, J.
The plaintiffs Avere directors of the Grain *1309Growers Incorporated Oo-operative Association of Melvin, Iowa. It was incorporated in 1905; and, as its capital was less than $5,000, and it might not become indebted for more than two thirds of this, and in no event for more than $5,000, the directors conceived the idea of themselves borrowing money, and operating the enterprise in large measure with money so borrowed. Whether they realized that, in so doing, they were involving the corporation in debt in excess of the limitations mentioned, does not appear; but in this way, the amount of indebtedness for money so borrowed increased, until, on October 26, 1907, it amounted to $28,000. In the meantime, it had purchased a grain eleva-. tor, and, up to that time, had been dealing in grain, coal, twine, and possibly flour. The record contains no evidence of the corporation’s having been engaged in handling anything else, or that it so did thereafter, until the fall of 1908, Avhen the corporation, through its board of directors, purchased a lumber yard of one Freese, at the price of $2,500 plus the invoice of the lumber on hand, which amounted to something over $15,000. This yard Avas disposed of in February, 1912, at the same price, with the invoice of lumber then on hand added. No books were kept from which any notion of the business transacted can be ascertained. Whether losses had accrued prior to the adoption of the resolution or subsequent thereto, or from the business then being conducted, or that of handling of lumber, subsequently engaged in, or through speculations or selling on credit, no one is informed by this record. About all that is disclosed is that these directors, after disposing of all the property of the concern and winding up its affairs, discovered that the proceeds lacked $6,6á8 of being enough to satisfy the notes they had signed, to borroAV money for the use of the corporation — a sum much in excess of the indebtedness in AAdiich they might, under its articles, involve it, to themselves or others. For the purposes of the case, it *1310may be conceded that there was a shareholders’ meeting, as' alleged; that the resolution was adopted; and that defendant offered the resolution and acquiesced therein, as the referee found: and the decision may be allowed to rest solely upon whether liability has been established, mujer the resolution. This looked to the future. But for the explanatory evidence, the borrowing might well be construed as being that by the board of directors, as sueh, and representing the corporation, in which event there would be serious doubt as to its validity. See Trustees of Free Schools v. Flint, 13 Metc. (Mass.) 539; Reid v. Eatonton Mfg. Co., (Ga.) 2 Am. Rep. 563.
Conceding, without deciding, that the directors individually were intended, however, it is to be observed that the shareholders were to be responsible only for money borrowed “to carry on the present business.” What was that business ? Dealing in grain, coal, twine, and possibly flour. The association was, at that time, engaged in no other business; and, by the clear language of the resolution, the responsibility assumed by the shareholders was limited to carrying on such business. Under the x’esolution, the obligation of the shareholders bouxid thereby was but that of surety, and at that, a surety ixxveigled into becoming such by the officers, to enable them to evade the plaixx prohibitions of the articles of incorporation. In these circumstances, plaintiffs are not in a situation to complain if the obligatioxx of the surety be strictly construed, axxd be not extended by implication. See Knight v. Waters, 15 Iowa 420; Crapo v. Brown, 40 Iowa 487.
But resort to the doctrine of stxdct construction is not necessary to the conclusioxi that the resolution had reference to the business then beixxg coxxducted, rather than to what the cox’porate articles authorized. The many lines of endeavor the associatioxx might exxgage ixi, emphasized designation of the “present business” as that to carry on which *1311money might be borrowed. Was money borrowed to carry on that business? The record is silent. Was there any loss of money borrowed to carry on such business? Again, the record is silent. Was the money borrowed to purchase the lumber yard and lumber, or was this loss consequent upon such enterprise? If so, those bound only by the resolution are not responsible therefor. The burden of proof was on the plaintiffs to show that the amount claimed to have been lost, or some of it, was money borrowed to carry on the business then being conducted, i. e., that of dealing in grain, coal, twine, and flour, — and this they wholly failed to do. Having reached this conclusion, there is no occasion to pass upon the issue as to whether the resolution, because of not being signed, is within the statute of frauds.
The judgment is — Reversed.
Preston, C. J., Evans and Salinger, JJ., concur.