Sulphur Export Corp. v. Carribean Clipper Lines, Inc.

RUBIN, District Judge. Sulphur Export Corporation (Sulexco) sued to recover damages resulting from an alleged breach of a charter party by Carribean Clipper Lines, Inc. (Carribean). The three officers of defendant corporation, who were also its directors, were made defendants individually; they were alleged to be individually liable because the corporation transacted business before it received the minimum capital recited in the corporate charter in violation of La.R.S. 12:9, subd. A(2) (1950).

On June 24, 1960, Sulexco as charterer entered into a voyage charter party with Carribean as chartered owner for the S/S KIM, or substitute vessel acceptable to charterer, for the carriage of 9500 tons of bulk sulphur from a Gulf port to one of several European channel ports. Negotiations leading to the execution of the charter party were conducted by Sulexco's agent in New Orleans and John J. Paquette, Carribean's President. The charter was on Sulexco's voyage charter form, with the specifics of the charter completed by Sulexco's agent and approved by Carribean. The charter party was executed by Carribean's president and secretary and by Sulexco's president. . . .

Carribean's articles of incorporation stated it would not begin business until $1,000 in cash was paid in as capital, but it nonetheless transacted business before it received this capital.

The individual defendants Justice, Harrison, and Paquette were at all times material to this case directors and officers of Carribean. They each participated in the transaction of business by Carribean prior to its receipt of the minimum capital required by its charter, and none of them caused his dissent from the transaction of such business to be recorded in Carribean's corporate records.

Failure of a chartered owner to submit timely notice of readiness to load as required in a written voyage charter party in addition to the failure of the chartered owner to have a vessel fixed for carriage by the date notice of readiness was to be given is a breach of the charter party. Putnam Lumber Co. v. Ashcraft-Wilkinson Co. . . .

The arbitration clause in the charter party cannot be construed as a contractual statute of limitations. The fact that Carribean actually participated in litigation for 5 1/2 years before expressly raising the question of the arbitration clause constitutes an election to litigate rather than to arbitrate. . . .

The transaction of business by Carribean before it received the minimum capital recited in its articles of incorporation constituted a violation of La.R.S. 12:9, subd. A(2) (1950) which provides:

"A corporation * * * shall not * * * begin the transaction of any business * * * until * * * (2) the amount of capital with which it will begin business, as stated in the articles, has been fully paid in."

La.R.S. 12:9, subd. A(1), and 9, subd. A(2) state alternative prohibitions the violation of either one of which alone is sufficient to invoke the penalties provided by La.R.S. 12:9, subd. B, which states:

"If a corporation has transacted any business in violation of this Section, the officers who participated therein and the directors, except those who dissented therefrom and caused their dissent to be recorded in the minutes or who, being absent, filed with the corporation their written dissent upon learning of the action, shall be liable jointly and severally with the corporation, and each other, for the debts or liabilities of the corporation arising therefrom."

Section 9, subd. B, of the Louisiana Business Corporations Law makes each of the nondissenting directors and the officers participating in the transaction of business by the corporation in violation of La.R.S. 12:9 liable jointly and severally with the corporation for the corporation's debts and liabilities arising from such transaction of business.

The measure of the joint and several liability with the corporation of the nondissenting directors and the participating officers is the full corporate debt or liability arising from the transaction of business in violation of the statute. This proposition is supported by the holding in Construction Engineering Co. of La. v. Village Shopping Center, Inc.,. . . In addition it is buttressed by the fact that the limitation of the liability for unpaid capital of the stockholders of a Louisiana corporation contained in Section 12 of La.Act 267 of 1914, the former Louisiana business corporation statute, was eliminated in Section 9 of Act 250 of 1928, now La.R.S. 12:9 (1950); by the public policy of protecting corporate creditors embodied in a statute requiring the payment of minimum capital into the treasury of a newly organized corporation; by the general rule of law that persons transacting business in other than corporate form are liable jointly and severally up to the full amount of debts contracted by them; and by the decisions of the courts of states other than Louisiana dealing with the same question. . . .

Limiting the liability of the nondissenting directors, and participating officers, for the corporate debts to the amount of recited but unpaid capital, or to the amount of the total authorized capital of the corporation, would tend to frustrate the public policy embodied in the statute by emasculating the penalties provided for its violation, and would raise difficult questions as to whether the limited liability fund is owed to the corporation itself to make up its missing capital or to the creditors, and as to whether the entire fund could be recovered by the creditor swiftest in the race to the court house or must rather be prorated among all the creditors in some sort of interpleader proceeding.

Any limitation of the liability of the nondissenting directors and the participating officers for the corporate debts to the amount of the total authorized capital of the corporation would additionally be impractical of application in the case of corporations having only no par capital stock authorized, which is permitted by the Louisiana corporation statute. . . .

The Clerk will prepare a judgment in accordance with this opinion.