Barnhardt & Co. v. Star Mills (Corp.)

MONTGOMERY, J.:

It is an admitted fact in this case that the debt which is sought to be recovered was origi nally a balance due by W. M. Crowell to the plaintiffs, and that it was contracted for goods sold and delivered to him by the plaintiffs. The credit was extended by the plaintiffs to Crowell on his own personal account. It is a further admitted fact that the amount due to the plaintiffs by Crowell was afterwards charged on the ledger of the plaintiffs to the Star Mills, an incorporated business company of which Crowell was president. On the trial, T. M. Barnhárdt, one of the plaintiffs, testified that when the account on the plaintiff’s books against Crowell was charged to the defendant, the Star Mills, it was done by agreement between the plaintiffs and Crowell; that Crowell told the plaintiffs that all the goods which he had bought on his own personal account •from the plaintiffs were bought in reality for the Star Mills, and that the corporation got them. The witness also testified that, if those statements had not been made to him by Crowell, he would not have made'the transfer of the accounts. He further said that he did not know that Crowell was insolvent at the time the account was charged to the defendant, but he knew that he could claim his exemptions and that the corporation could not. The testimony of Crowell, a witness for the defendant, was contradictory of Barnhardt’sin all of its material particulars. There was evidence tending to show that the capital stock of defendant company consisted on 72 shares, 70 of which were subscribed by Crowell and the other two shares by two other persons (one share each), and that the two other subscribers to stock simply subscribed for the purpose of organizing the corporation, and had never paid any thing on their shares; and that Crowell had had the management of. the business of the corporation since its formation.

The plaintiffs however are not seeking to treat the corporation as a fraudulent contrivance to defeat creditors, as well as an abuse of the statutory law authorizing the formation of corporations, but they recognized the legality of its organization and insist on making a recovery of their debt out of its assets. The basis of their claim rests entirely on the doctrine of novation, and the well considered argumeut of their counsel, here, was directed along that line. The plaintiff’s contention is that upon the satisfaction and discharge of the account of Crowell to the plaintiffs and the charging of the account to the defendant by the direction of Cro-well, who was the president and manager of defendant corporation, Crowell was discharged and the debt became, by novation, a debt against the defendant. Such a transaction between individuals undoubtedly would have the effect to discharge the original debtor and to charge the new promisor. The consideration which would support the promise to pay under the novation would be the injury or hurt the promisee would have sustained by his having discharged his original debtor at the request of the promisor, and upon the agreement that he would assume the debt. That' is familiar learning and needs no authority for its support. But the matter presented here for decision is very different from that.

The question here is, can the president, even though he be the business manager, of a corporation, without a just consideration moving to the body, create an indebtedness against it by undertaking to assume for it liability for an individual debt of his own? We are of the opinion that he cannot. The president or managing agent of a corporation, as a general rule, can only use his power to advauce the interest of his principal, the corporation and for no other purpose. Morawitz on Private Corporations, Sec. 517 and 518. His Honor substantially instructed the jury to the contrary, and in so doing there was error.

New trial.