State Nat. Bank v. Encinal Mercantile Co.

This is an action begun by appellant against appellee, to recover on a certain promissory note in the sum of $26,045.91, alleged to have been executed by appellee to appellant. Appellee denied execution of the note, and pleaded: That, at the time the note was executed, T. A. Coleman, its president, was personally largely indebted to appellant, and was unable to pay the same, and sought an extension of the same from the bank, and "that, in order to reduce the amount of the loan to said T. A. Coleman on the books of said plaintiff bank, it was suggested that the indebtedness of said T. A. Coleman, then maturing, should be embraced in a note to be executed by said T. A. Coleman in the name of the Encinal Mercantile Company with his personal indorsement thereon, and this was done. That the note sued on by plaintiff in this suit is the note which was executed under the circumstances herein alleged, and was in truth and in fact the note and indebtedness of T. A. Coleman, an individual, and not the note and indebtedness of said Encinal Mercantile Company. That no money was paid to the said T. A. Coleman at the time said note was executed, and that the Encinal Mercantile Company, defendant herein, received none of the proceeds of said note, nor was any money in fact paid by said plaintiff bank to any one on account of the execution of said note, but that the note was in renewal of an indebtedness theretofore owing said bank, and the accrued interest thereon, by said T. A. Coleman. That the said T. A. Coleman used the credit and name of said defendant, Encinal Mercantile Company, for his personal business, and was without authority, in fact or in law, to execute the note herein sued on by plaintiff on behalf of this defendant, Encinal Mercantile Company." In a supplemental petition it was alleged that appellee was not a private corporation but a trade-name of T. A. Coleman. The cause was heard without a jury, and judgment rendered that appellant take nothing by its suit any pay all costs of the same.

The uncontroverted facts show that a charter was applied for to the state of Texas, and in that application it was recited that the paid-in stock was $40,000, of which T. A. Coleman owned 396 shares, par value $100 a share, W. F. McKinney, one share, S. A. James, one share, Homer Eads, one share, and S. J. Jordan, one share; the last four named not paying anything for their shares. Coleman conveyed to the appellee real estate and merchandise of the value of $40,000 to constitute the capital of the company. No stockholders' or directors' meeting was ever held, there being no directors, but Coleman had full control of the financial affairs of the company. Both parties agreed that the facts given were true. Coleman at different times gave notes to different parties in the name of appellee. S. A. James, who had one share in the concern without paying for it, and who was secretary and manager of the concern and looked after the business, received $2,500 per annum for his services. When asked if he was running the business for T. A. Coleman or the other stockholders he said: "We were trying to help him out all we could." The witness refused to affirm or deny that the mercantile business was for the benefit of T. A. Coleman in his ranch business, although the principal business of the mercantile concern was to furnish supplies for Coleman's ranch. James swore that appellee was indebted to creditors in the sum of $43,000, and that Coleman owed it $50,000. His ranch hands were paid through the mercantile company. James swore that he knew that Coleman was in financial straits and insolvent, and yet he sold him goods up to the time that he entered the bankrupt court. The facts showed indubitably that Coleman owned the corporation and to all intents and purposes was the corporation. No other man paid in a dollar of the capital stock of the so-called corporation.

This is a contest between a creditor and the Encinal Mercantile Company, and no shareholder, if there were one, or any creditor, has intervened to complain of the action of Coleman in executing a promissory note for his debt in the name of the mercantile company. The latter was nothing but the alter ego of T. A. Coleman, which moved as he moved and acted as he acted, and it is a farcical paradox for the alter ego to be complaining of the acts of the ego. The corporation, if it ever became one, was merely the creature of its creator and owner, and had no object, no existence, except as the agency of its creator. It was one of the instruments of his business, and he alone controlled its destinies and directed its actions.

Equity looks to the substance and not the shadow, to the spirit and not the letter, in a case made appropriate by the facts, and to prevent a wrong and an injustice to prevail, will treat a corporation and the individual owner of its shares as identical, one with the other. It seeks justice rather than technicality, truth rather than evasion, common sense rather than quibbling. If an individual owner of a corporation uses it only for individual purposes, they will be considered to all intents and purposes one and the same. Harbor Co. v. Manning, 94 Tex. 558, 63 S.W. 627; Burchill v. Hermsmeyer (Tex.Civ.App.) 230 S.W. 809; Boston Corp. v. Guarantee Life Ins. Co. (Tex.Civ.App.) 233 S.W. 1022; Perkins v. Realty Co., 69 N.J. Eq. 7131, 61 A. 170; Bank v. Trust Co., 187 Mo. 494,86 S.W. 109, 70 L.R.A. 79.

In this case there is no question that T. A. Coleman was indebted in the sum shown in the note to appellant, that he had the right and authority to sign the name of the mercantile company to that note because it was his other self, a mere agency created by and owned solely by him, and he could use it for all his purposes, and, such being the case, the mercantile company should be held liable for the debt. Any other course of action would be inequitable and unjust. The error is fundamental.

The judgment is reversed, and judgment here rendered that appellant recover of appellee the amount of the promissory note with interest as specified therein, attorney's fees, and costs.