Clow-Schaaf Lumber Co. v. Kass

WHITING, J. This action was brought by plaintiff corporation to recover of the defendants a balance which, it was claimed, remained due and unpaid upon an account for building material sold defendants by the plaintiff. Trial was had before the court and a jury, and a verdict was directed in favor of plaintiff for •the amount claimed. Judgment was entered upon said verdict, and, a motion for a new trial having been denied, the defendants appealed from such judgment and order denying new trial. [1] Although the record countains several assignments of error, there are really but two matters presented for our consideration. Defendants objected to certain evidence, received upon behalf of plaintiff, and which was offered for the purpose of proving the sale of this material to the two defendants, the amount thereof, the payments that had been made, and the balance due thereon. It is unnecessary for us to determine whether or not there was any error in the rulings of the court in relation to this evidence for the reason that the error, if there was any, was not prejudicial to the defendants. The answer of the defendants admitted as to one defendant that, unless he was entitled to the .credit hereinafter referred to, he was owing the balance claimed to be due; the undisputed letters of the other defendant virtually admitted .that she was indebted in said amount; and the first defendant, when a witness upon the stand on behalf of the defendants,, admitted unequivocally that the balance claimed by plaintiff remained due and unpaid unless defendants were entitled to the said credit above referred to. [2] The real question in this case, and the one going to the merits of the defense, relates to a credit claimed by defendants. They sought to offer proof to sustain their claim to this credit, and such proof was, in part, rejected by the trial court. For the purposes of this case it will be presumed that defendants could have proven the facts as claimed. If, under such facts, defendants would have been entitled -to the credit claimed, this cause [501] should be reversed and a new trial granted; otherwise, it should be affirmed. The evidence received, together with that offered, would have tended to prove the following facts: Plaintiff corporation, at the time of the sale of this building material, was under the actual control and active management of two of its officers, one of who was Mr. Clow, its vice president. The contract for the sale of this lumber was entered into on behalf of the corporation by said Clow with the defendant N. J. Kass. At the time of the making of said contract, -the said Clow individually was indebted to the defendant N. J. Kass upon an account for labor performed by said defendant, and, in connection with the sale of the building material, he agreed with this defendant that defendants should receive a credit upon said bill for the amount of said account. The corporation never gave this credit. With such credit allowed, there would be no balance due the plaintiff. [3] The trial court ruled that the agreement to credit such account was not binding upon the corporation. In this the trial court was clearly right. One proposition which lies at the basis of the law of agency is that a person cannot fairly serve two masters whose interests are conflicting, and it is therefore an established proposition that an agent — even though he be a general agent — cannot .be presumed to have authority to do an act or enter into a contract binding upon his principal when such act or such contract is one in which he has a personal interest known to the party with whom he is dealing. So it is held that, unless an agent has actual authority — or by the acts of his principal has been clothed with ostensible authority — to enter into such a contract, he has no authority to contract the use of the property of his principal to liquidate his own indebtedness to a third person; and, if he does so, the principal may recover the property or its value in an action against such third person. 31 Cyc. 1605; 2 Ency. L. & P. 1224. Applying this principle, fully recognized in the law of agency, to the case, of a corporation which can act only through agents, it follows that, while a managing agent of a corporation will be presumed -to have authority to enter into any and all ordinary transactions upon behalf of said corpora-, tion which are within the corporate powers of such corporation, yet when any transaction in which he attempts to act as the agent of such corporation is one in which he is also' acting in his own [502] behalf — which fact, as in the casé at bar, is known to the party with whom he is dealing — the presumption in favor of the power of such agent or officer ceases. In such a case the other party is bound to know that the agent cannot bind the corporation unless he has special authority from the corporation bo to do. It therefore becomes incumbent upon a party, who seeks to hold a- corporation to a contract or agreement made by its agent or officer under such circumstances, to ascertain, at his own peril; whether or not the officer or agent had authority to enter into the contract. As is well stated in io Cyc. 799, “for the directors or contracting 'officers of a corporation to divert its property or pledge its credit to the payment or securing of their individual debts is a fraud and breach of trust toward the corporation and its shareholders, and a fraud as to its creditors.” Appellants have cited but one case in support of their contention, namely, the case of Siemens, etc., Co. v. Horstmann et al. (Pa.) 16 Atl. 490. An examination of this case will show that the propositions therein involved have not the remotest bearing upon the question presented upon this appeal. With the legal propositions announced in said case we fully agree; the same having but recently been announced in the decisions of this court. Defendants neither introduced nor offered any evidence tending to prove that Clow had actual or ostensible authority to credit said account upon said. bill sold, or that his agreement so to do was ever ratified by the corporation. The judgment and order appealed from are affirmed.