Friday, November 22, 2013

Hanewald v. Bryan’s Inc. case brief

Hanewald v. Bryan’s Inc. case brief summary
429 N.W.2d 414 (1988)


CASE SYNOPSIS
Plaintiff creditor appealed a judgment from the District Court of Stark County, Southwest Judicial District (North Dakota) that held defendant incorporators were not personally liable for their corporation's breach of a lease agreement and failure to pay a promissory note, but which also held that the corporation was liable to the creditor.

PROCEDURAL HISTORY
The trial court found that the incorporators had not paid the corporation for the shares of stock they received either in labor, services, money, or property. However, it held that they were not personally liable for the corporate debt to the creditor because of a loan they made to the corporation for its operating capital was sufficient for those purposes.

DISCUSSION

  • The court reversed the judgment in favor of the incorporators because they could only have been shielded from liability to the extent of their payment for the stock issued to them pursuant to N.D. Cent. Code §10-19-22. 
  • Because they had not paid for the stock, the incorporators were personally liable for the corporate debt. 
  • The court rejected the incorporators' claim that the loan for operating capital shielded them from liability. 
  • The incorporators' loan to the corporation was a debt of the corporation, and when the corporation repaid it before it ceased operations that loan could not be considered a capital contribution.

CONCLUSION
The court reversed only that part of the judgment which held the incorporators were not personally liable for the corporation's debts in favor of the creditor. The court remanded for a judgment holding the incorporators jointly and severally liable for the entire corporate debt to the creditor. Otherwise the court affirmed the judgment.

Recommended Supplements for Corporations and Business Associations Law

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