C. L. Kraft Company v. Grubbs

• Decision Date: 01 February 1915
• Docket Number: 145
• Citation: 174 S.W. 245,116 Ark. 520
• Parties: C. L. KRAFT COMPANY v. GRUBBS
• Court: Arkansas Supreme Court

174 S.W. 245

116 Ark. 520

C. L. KRAFT COMPANY v. GRUBBS

No. 145

Supreme Court of Arkansas

February 1, 1915

Appeal from Pulaski Circuit Court, Third Division; G. W. Hendricks Judge; reversed.

STATEMENT BY THE COURT.

The appellee instituted this suit against the appellant on a promissory note in the sum of two thousand dollars ($ 2,000).

The appellant denied that it was indebted to the appellee; denied that the note sued on was executed by it. It alleged that the note was drawn by one McCain, without authority, and negotiated and the proceeds used by him without the knowledge of appellant.

The facts are substantially as follows:

The Kraft company was a corporation engaged in the livery business in Little Rock, Arkansas. Ed Woodruff and C. M McCain purchased the stock of the corporation, and transferred one share of the stock for the purpose of completing the new organization to Roy Campbell, and he held the same merely as trustee. The new corporation went under the same name as the old, that of C. L. Kraft Company. The purchase price was $ 8,000. Woodruff paid $ 4,000 of the purchase money in cash. Notes were executed to C. L. Kraft Company, and certificates of stock were pledged by the corporation to the Citizens Bank for money with which to pay the balance. This money, the balance of the purchase money, $ 4,000, was to be paid in monthly installments of $ 300 out of the profits of the business, after which the corporation was to pay Woodruff a similar sum each month until the $ 4,000 he had advanced was returned to him, the same being in effect a loan by him to the corporation.

By a contract between Woodruff and McCain, it was understood that after the $ 8,000 purchase money was fully paid in the manner indicated that they were to be equal partners in the business. McCain was the president and treasurer of the corporation, and its active business manager. The directors were Woodruff, McCain and Roy Campbell.

Thus far the facts are undisputed.

McCain testified on behalf of the appellee: "I had absolute control; as president my powers were 'to buy and sell borrow and sign notes.' The directors knew that the company had no capital to work on, and I had absolute control to execute notes for anything I needed."

Witness here exhibited one of a series of fourteen notes, executed by the Kraft company and signed by the witness. The note was for $ 93.75, bearing interest at the rate of 10 per cent per annum until paid. Continuing, witness says:

"I as president of the company, borrowed $ 2,000 from Mrs. E. G McCain, my wife, and signed the company's name to the note, with me as president, with the knowledge of Mr. Woodruff."

The note is exhibited, being a promissory note to Mrs. E. G. McCain for $ 2,000, specifying: "This note is secured by 238 shares of the C. L. Kraft Company's stock and lien on lease on building, with interest at 8 per cent until paid. Signed, C. L. Kraft Company, by C. M. McCain, President."

The witness continued as follows:

"The borrowing of this money was discussed between me and Mr. Woodruff as many as a dozen times. The object of borrowing the money was to pay the debts of the company. I paid Woodruff $ 1,000 and used $ 1,000 to pay bills of the company. All of the money was used to pay bills of the company. One thousand dollars was used to pay Mr. Woodruff. It was a company debt, because the company borrowed the money. The company got the benefit of all the proceeds."

The appellee testified that he bought the note from his sister a few days after the date of the note. He paid face value for it. The note was not due. He sent his sister $ 2,000 of his own money.

There was testimony on behalf of the appellee tending to show that Woodruff knew that McCain was borrowing the money from his wife. Grubbs testified concerning this that "he wanted the company to borrow and McCain to turn it over to him." "I understood that Woodruff was to get the money. * * * I had some talk with Woodruff. I don't remember exactly what I said to him, but anyway they all gave me this impression, if he (McCain) could get this $ 2,000, that would enable him to pay off the pressing debts and satisfy Mr. Woodruff."

Woodruff testified on behalf of appellant that he was one of the directors of the Kraft company at the time of the execution of the note; that he did not authorize its execution, and did not know anything about it; that he didn't know anything about any of the notes that McCain executed, never authorized him to execute any notes for the company. He kept the minute books containing the articles of association under which the company was operating at the time. These showed the following as to the duties of the treasurer:

By-Law 7. "It shall be the duty of the treasurer to collect and disburse the funds of the corporation, to draw checks, to endorse or collect all drafts, warrants or checks."

By-law 10 reads as follows:

"Whenever it becomes necessary to borrow money for the use of the corporation, such transaction must be done by the authority and consent of the majority of the board of directors."

The witness, continuing his testimony, stated that "the majority of the directors never did give their consent to the borrowing of this money."

The witness's testimony shows that McCain gave him a check of $ 1,000, that "was to purchase for McCain, personally, stock of the witness. He gave witness his personal check. He denies having any conversation with Grubbs as to buying the business; states that McCain had no money when they bought out the corporation; that he had authority to run the business as manager, and, of course, had to buy stuff to run it with. He did not need any money for thirty days, "the business being a remarkably good, profitable business." He denied, in short, that the money that McCain borrowed was used in the business, and for the benefit of the company.

The court, at the instance of the appellee, gave, among others, the following instruction:

1. If you find from the evidence that C. M. McCain, the president and manager of C. L. Kraft Company, had been in the habit of executing notes in the name of the company without express authority from the board of directors, and that the board had knowledge of such custom, then you will find that the company is bound by the note sued on herein the same as if express power to execute it had been conferred, and your verdict will be for the plaintiff.

There was a verdict and judgment in favor of appellee and this appeal has been duly prosecuted.

The above facts are sufficient for the purpose of the opinion.

Judgment reversed, and cause remanded.

Baldy Vinson and Mehaffy, Reid & Mehaffy, for appellant.

1. The officers of a corporation, without express authority of the board of directors, have no authority to bind the corporation. 29 So. 688. A note executed in the name of a corporation by an officer having no authority to execute same is void. 90 F. 703. McCain borrowed the money for his individual use and not for the company. Instructions 1 and 4 were erroneous and prejudicial. 20 S.W. 535; 105 N.E. 210; 96...