## Facts

- Keith L. Bryan and Joan Bryan formed Bryan’s, Inc., a retail clothing corporation authorized to issue 100 common shares with a $1,000 par value per share.
- The corporation issued 50 shares to Keith and 50 shares to Joan, but the corporation received no money, property, labor, or services for the issued shares.
- Harold E. Hanewald sold his dry-goods business assets to the corporation for $60,000, consisting of $55,000 cash and a $5,000 promissory note, and leased the building to the corporation for $600 per month for five years.
- The $55,000 cash payment came from a corporate bank loan personally guaranteed by Keith and Joan.
- The business operated for about four months at a loss and then closed; remaining inventory was transferred to related family stores out of state.
- Before ceasing operations, the corporation paid off the bank loan, repaid a $10,000 loan Keith and Joan had made to the corporation, and paid other creditors, but did not pay Hanewald’s $5,000 note and did not satisfy remaining lease obligations.
- The trial court entered a money judgment against the corporation for approximately $38,600 plus interest but declined to hold Keith, Joan, or George D. Bryan personally liable; Hanewald appealed the denial of personal liability.

## Issues

1. Whether shareholders who received par-value shares without providing consideration are personally liable to corporate creditors to the extent the shares were unpaid.
2. Whether repayment of an insider “loan” can be treated as a capital contribution sufficient to avoid unpaid-stock liability.
3. Whether any individual defendant who did not receive shares may be held personally liable on an unpaid-stock theory.

## Decision

- The Supreme Court of North Dakota reversed the denial of personal liability as to Keith and Joan Bryan and remanded for entry of judgment consistent with unpaid-stock liability.
- The court held Keith and Joan personally liable to the creditor to the extent of the unpaid par value of the shares issued to them.
- The court rejected the contention that the $10,000 insider loan operated as paid-in capital because it was a loan and was repaid ahead of unsecured creditors.
- The court did not impose unpaid-stock-based liability on George Bryan because he had not been issued any shares.

## Legal Principles

- A shareholder is liable to corporate creditors to the extent the shareholder’s stock has not been paid for when par-value shares are issued without the required consideration.
- Unpaid par value constitutes a corporate capital resource that creditors may reach to satisfy corporate debts.
- Insider loans, even if used to fund operations, do not substitute for paid-in capital when they are treated as debt and repaid ahead of unsecured creditors.
- Liability for unpaid shares may be imposed without satisfying the separate and more demanding requirements of traditional veil-piercing doctrines.

## Conclusion

The court held that when a corporation issues par-value stock for no consideration, the shareholders who received the shares remain personally liable to corporate creditors up to the unpaid par value, and this creditor remedy applies even without proof sufficient to pierce the corporate veil.


Hanewald v. Bryan’s, Inc., 429 N.W.2d 414 (N.D. 1988)