Frost Manuf'g Co. v. Foster

• Decision Date: 18 January 1889
• Citation: 41 N.W. 212,76 Iowa 535
• Parties: FROST MANUF'G CO. v. FOSTER. WISCONSIN MALLEABLE IRON CO. v. FOSTER. ANDREWS ET AL. v. FOSTER.
• Court: Iowa Supreme Court

76 Iowa 535

41 N.W. 212

FROST MANUF'G CO.

v.FOSTER.

WISCONSIN MALLEABLE IRON CO.

v.FOSTER.

ANDREWS ET AL.

v.FOSTER.

Supreme Court of Iowa.

Jan. 18, 1889.

Appeal from district court, Des Moines county; CHARLES H. PHELPS, Judge.

These causes involve the same questions, and will be disposed of in a single opinion. Defendant's intestate was one of the incorporators of a company known as the “Burlington Plow Company.” He was also director of the company and its president. The actions were brought to charge the estate with certain debts of the corporation, it having become insolvent. The district court sustained demurrers to the petitions, and the appeals are from those orders.J. T. Illick and P. Henry Smyth & Son, for appellants.

Powers & Huston and Newman & Blake, for appellee.

REED, C. J., ( after stating the facts as above.)

It is alleged in the petitions that the articles of incorporation of the company provided that “the highest amount of indebtedness to which the corporation may subject itself is two-thirds of the amount of its capital stock;” also that the published notice of incorporation, which was signed by the intestate as one of the incorporators, contained the same limitations; but that, notwithstanding such limitation, the company, through the negligence of its officers and directors, and their willful mismanagement of its affairs, did contract an indebtedness greatly in excess of that amount; and that plaintiffs, while ignorant of that fact, and relying on the business experience and reputation of the intestate, and his known financial responsibility, extended credit to it; also that, owing to the willful mismanagement of said officers and directors, the company became insolvent, and that they then executed a mortgage, whereby they pledged the whole of its assets for the security of debts, which it was owing to certain of their own number.

It was contended in argument that the conduct of the officers and directors, as detailed in the petitions, amounted to a fraud upon the creditors, and that they are answerable on that ground for the losses sustained by the latter; also that the relation of trustee and cestui que trust existed between the parties, and that the officers are liable, on the ground that they have abused the trust. In our opinion, neither of these positions can be sustained. It is certainly true, under the provisions of our statute, (Code, § 1071,) that an officer or director of a corporation, who willfully and knowingly misrepresents its conditions or circumstances to one who is thereby deceived and induced to extend credit to it, would be held liable...