Summary
In Tennessee Chemical Co. v. Cheatham, 217 Ala. 399, 402-03, 116 So. 420, 423 (1928), our Supreme Court explained that liability to third parties may be found on the part of an officer or director who participates in "a wrong or tort," again, not limiting this principle to intentional torts.
Summary of this case from Galactic Employer Services v. McDormanOpinion
3 Div. 822.
April 5, 1928.
Appeal from Circuit Court, Butler County; A, E. Gamble, Judge.
Steiner, Crum Weil, of Montgomery, for appellant.
The contract involved is one of agency, and does not create merely the relation of buyer and seller. Swift Co. v. Bullard Son (D.C.) 3 F.(2d) 814; Bowdoin v. Ala. Chem. Co., 201 Ala. 582, 79 So. 4; Williams v. V. C. Chem. Co., 182 Ala. 413, 62 So. 755; South Atl. Guano Co. v. Childs, 211 Ala. 637, 101 So. 445. All who actively participate in the commission of a wrong or tort, whether principal or agent, are equally guilty, and liable to the party injured. 3 Cook on Corp. (8th Ed.) 2724; 1 Cooley on Torts (3d Ed.) 244; Lee v. Mathews, 10 Ala. 682, 44 Am. Dec. 498; Perminter v. Kelly, 18 Ala. 716, 54 Am. Dec. 177. By obtaining judgment on the notes executed by the Farmers' Mercantile Company under its contract of guaranty, complainant did not waive its right to hold it or the individuals accountable for the conversion or destruction of its property. County Comm. v. Hurley (C.C.A.) 169 F. 92; Merrill v. Nat. Bank, 173 U.S. 131, 19 S.Ct. 360, 43 L.Ed. 640; Chemical Nat. Bank v. Armstrong (C.C.A.) 59 F. 373, 28 L.R.A. 231; Re N.Y. Chem. Co. (C.C.A.) 233 F. 906.
Thigpen Poole, of Greenville, for appellees.
The bill is without equity as one to fasten liability on the respondent stockholders. Force v. Age Herald Co., 136 Ala. 278, 33 So. 866; Hall v. Ala. Term. Co., 173 Ala. 398, 56 So. 235; Wilson v. Stevens, 129 Ala. 630, 29 So. 678, 87 Am. St. Rep. 86; Farmer v. Brooks, 213 Ala. 137, 104 So. 322; Thompson on Corp. (2d Ed.) § 1219; Rudisill Co. v. Eastham Co., 210 Ala. 145, 97 So. 219; O'Bear v. Volfer, 106 Ala. 205, 17 So. 525, 28 L.R.A. 707, 54 Am. St. Rep. 31. The contract was for sale of fertilizers, and not a contract of agency. Jackson v. State, 2 Ala. App. 226, 57 So. 110; Stegall-Cheais v. Bethune Co., 181 Ala. 250, 61 So. 274; Ferry Co. v. Hall, 188 Ala. 178, 66 So. 104, L.R.A. 1917B, 620; Killian v. Triggs Co., 209 Ala. 352, 96 So. 409. By accepting and suing on the notes of the Mercantile Company, complainant elected to treat the matter as a sale of the fertilizers, and is estopped from claiming that the fertilizers belonged to it. L. N. R. Co. v. Williams, 210 Ala. 268, 97 So. 817; Wilson v. Stevens, 129 Ala. 630, 29 So. 678, 87 Am. St. Rep. 86; Lytle v. Bank, 121 Ala. 218, 26 So. 6. If any ground of the demurrer is well taken, the decree should be sustained. Cahaba Coal Co. v. Elliott, 183 Ala. 298, 62 So. 808; Tatum v. Tatum, 111 Ala. 209, 20 So. 341; Gaynor v. Baeur, 144 Ala. 448, 39 So. 749, 3 L.R.A. (N.S.) 1082; Howell v. Howell, 171 Ala. 502, 54 So. 601.
The contract in question established the relation of principal and agent between the complainant and the Farmers' Mercantile Company. Bowdoin v. Alabama Chemical Co., 201 Ala. 582, 79 So. 4. Nor did the fact that the Farmers' Mercantile Company executed its notes to the complainant for a sum covering the price or value of the fertilizer as a guaranty of a compliance with the contract, as per the averment of the bill, and the provisions of the contract, convert said contract into one of sale and make the relationship of the two companies that of purchaser and seller. Swift Co. v. Bullard Son (D.C.) 3 F.(2d) 814.
The case of Jackson v. State, 2 Ala. App. 226, 57 So. 110, whether in conflict with this holding or not, is not binding on this court.
As we understand, the bill does not charge that the notes given by the Farmers' Mercantile Company to the complainant were in satisfaction or settlement of the price of the fertilizer as pointed out by some of the grounds of demurrer, especially ground 25, but that they were given as a guaranty of a compliance with the terms of the agency in the sale of the fertilizer. Yet, when the notes were reduced to judgment against the Farmers' Mercantile Company, this was conclusive as between the said company and this complainant, and the only question that could possibly arise as between these parties was, perhaps, whether or not the said judgment was for such a wrong or tort as would remove it from the influence of the adjudication of the bankruptcy of said company. Swift Co. v. Bullard Son, supra. This is a matter, however, with which we are not concerned and should have been more properly adjudicated in the bankrupt court.
The bill, however, charges a conversion or tort on the part of the Farmers' Mercantile Company as to the cash sales of the fertilizer and the notes which should have been made payable to the complainant and that J. A. Cheatham was managing head of said respondent corporation. It is a well-settled proposition that all who participate in a wrong or tort, whether principal or agent, are equally guilty and liable to the party injured. 3 Cook on Corporations (8th Ed.) p. 2724, § 682; Cooley on Torts (3d Ed.) p. 244; Emery Co. v. Am. Refrigerating Co., 193 Iowa, 93, 184 N.W. 750, 20 A.L.R. 86, and note. Apart from this, the contract specially provides:
"If you are a corporation, the officer or officers signing this contract on behalf of the same shall be liable to us for carrying out all the terms and conditions hereof."
J. A. Cheatham signed the contract and under the terms of same personally guaranteed a compliance with it upon the part of the Farmers' Mercantile Company.
The complainant therefore had the right to pursue both the Farmers' Mercantile Company and the said Cheatham notwithstanding the bankruptcy of the former, and could recover from all sources until its claim was fully satisfied, but no longer. Board of Coms. v. Hurley (C.C.A.) 169 F. 92.
The bill as amended charges that the stock in the new corporation issued to Mrs. Cheatham was in fact paid for by J. A. Cheatham and was but a gift and was made to hinder, delay and defraud the creditors of said J. A. Cheatham. As to the stock in the new corporation in the name of J. A. Cheatham and also his wife, the bill contained equity, and the trial court erred in sustaining the demurrer to the entire bill on the ground that it was without equity.
As to Jessie B. Black, the bill charges that she was a director in the Farmers' Mercantile Company and it was her duty to see that the contract had been complied with, and then charges in the alternative that she either actually participated in the wrongs on the part of Cheatham or she negligently, in disregard of her duty, permitted the wrong. Therefore, measuring the averment by its weakest link, the said Jessie B. Black merely failed to discharge her duty as a director. As a general rule a mere corporate creditor cannot hold an officer or agent of a corporation responsible for a mere neglect or ultra vires act as distinguished from a fraudulent transfer or misapplication of corporate assets from the payment of corporate debts. Force v. Age Herald Co., 136 Ala. 271, 33 So. 866. "Directors may not be liable to corporate creditors for negligence in the management of the affairs of the corporation." Cook on Corporations, § 735. "Directors, agents and officers of a corporation are trustees for its stockholders, but not for its creditors, and this whether the corporation is solvent or insolvent." O'Bear Jewelry Co. v. Volfer Co., 106 Ala. 205, 17 So. 525, 28 L.R.A. 707, 54 Am. St. Rep. 31. We think the bill fails to set up such a state of facts as would render the respondent Jessie B. Black personally liable to the complainant for the things complained of and was subject to her demurrer.
The trial court seems to have sustained a demurrer to the entire bill as for want of equity, and in this there was error, and the decree is reversed and the cause is remanded, and the cost of this appeal will be taxed one half to the complainant and the other half to J. A. Cheatham and his wife, Bertha Cheatham.
Reversed and remanded.
SOMERVILLE, THOMAS, and BROWN, JJ., concur.