W. C. Zachow Co. v. Grignon

JoNes, J.

The indebtedness of the defendants Grignon and Milles to plaintiff, the Zachow Company, seems not to have been denied. But it was claimed that it had been released by a mutual agreement by which plaintiff was to release the defendants Grignon and Milles and to accept as a debtor in their, stead the copartnership of Zachow and Rogers. Of course the burden rested on those raising this defense to prove it. They sought to do so by proof that the president of the plaintiff corporation had done business with them at various times, that he had taken orders for the corporation, that their, business transactions with the corporation had been carried on through him, and that he had promised to malee the substitution relied on.

The testimony does, not show that in this transaction he claimed to act for the corporation, and the only direct testimony on the subject is that he had no authority to substitute Zachow and Rogers in place of Grignon and Milles. To sustain their contention appellants rely on such decisions *454 of this court as Garrick T. Co. v. Gimbel Bros. 158 Wis. 649 , 149 N. W. 385 ; Milwaukee T. Co. v. Van Valkenburgh, 132 Wis. 638 , 112 N. W. 1083 ; St. Clair v. Rutledge, 115 Wis. 583 , 92 N. W. 234 ; Figge v. Bergenthal, 130 Wis. 594 , 109 N. W. 581 , 110 N. W. 798 . But these were cases where the acts of the president of the corporation w'ere far more nearly within the line of the ordinary corporate business or where the officer had been given extraordinary powers the exercise of which it would be inequitable to repudiate.

In our judgment the evidence entirely fails to bring this case within the line of the cases cited. It is very clearly not within the ordinary scope of corporate business for the president to release debtors and substitute for the indebtedness his own obligation or that of a partnership of which he is a member. While there is no evidence of any intentional breach of duty in this case, we cannot consent to establish a precedent under cover of which the grossest frauds might be practiced by transactions in which corporate officers might seek to secure personal advantage at the expense of stockholders. Unfortunately such advantage is too often taken when officers follow the letter, of the law and where stockholders and the courts are helpless.

In the present case the contract alleged to have been made by the president was too clearly antagonistic to the interests of the corporation to be upheld. In numerous decisions this court has condemned contracts or transactions in which officers sought to serve their own interest at the expense of the stockholders. In a recent decision, where the conflict in interest seemed far more remote than in the present case,-this court said:

“The directors of a corporation are not permitted to use their position of trust and confidence -to further their private interests, nor to become parties to contracts concerning corporate affairs intrusted to their management which conflict with a free and impartial discharge of their duties toward the stockholders. Any participation by them in contracts *455 dealing with matters of corporate interest which is antagonistic to their free and impartial discharge of official duties is denounced by the law, unless all of the stockholders with full knowledge assent thereto.” Timme v. Kopmeier, 162 Wis. 571, 575 , 156 N. W. 961 .

See, also, Miley v. Heaney, 168 Wis. 58 , 169 N. W. 64 ; Pietsch v. Milbrath, 123 Wis. 647 , 101 N. W. 388 , 102 N. W. 342 ; Meating v. Tigerton L. Co. 113 Wis. 379 , 89 N. W. 152 ; Hiawatha I. Co. v. John Strange P. Co. 106 Wis. 111, 116 , 81 N. W. 1034 ; Haywood v. Lincoln L. Co. 64 Wis. 639, 647 , 26 N. W. 184 .

In the cross-complaint against Zachow and Rogers the defendants alleged as follows:

“That some time during the fall of 1913 or spring of 1914, the exact date of which these defendants are unable to state, it was agreed between these defendants and the said defendants, Zachozv and Rogers, that in payment and settlement of the balance due these defendants, Grignon and Milles, from the said defendants, Zachozv and Rogers, on account of said logging operations, the said defendants, Zachow and Rogers, would assume and pay to the plaintiff herein the amount of its claim against these defendants, which said claim had been incurred in connection with said logging operations, and these defendants agreed to accept the assumption and the payment of said account by the said Zachozv and Rogers in settlement of their said claim against them growing out of said logging operations.”

There remains the question whether the judgment dismissing the cross-complaint against Zachow and Rogers should be sustained.

In» his opinion the circuit judge used language which seems to hold that the alleged oral agreement' made by Zachow was a promise to pay the debt of another and void under the statute of frauds, although in the brief of respondent Zachozv Company it is claimed that this was not the holding of the court.

In the brief of the appellants it is requested that, if this court should reach the conclusion that the plaintiff is entitled to judgment against them, final judgment be deferred *456 pending a new trial in order that appellants may in the same judgment recover against Zachow and Rogers on their cross-complaint in the event that they should prevail on a new trial.

It is the claim of appellants that the promise on which they rely is not repugnant to the statute of frauds because it was not a promise to pay the debt of another, but the promise of Zachow and Rogers for a valuable consideration to pay their own debt in a particular manner. It is well settled that such a promise is not an undertaking within the statute. Said Dixon, C. J., in Dyer v. Gibson, 16 Wis. 557 , 583:

“We cannot discuss the question whether the promise of one person, though in form to answer for the still subsisting debt of another, if founded upon a new and sufficient consideration moving from the creditor and promisee to the promisor, and beneficial to the latter, is within the statute of frauds and therefore void unless it be in writing, expressing the consideration, and subscribed by the party making it. Decision has multiplied upon decision, with scarce a syllable of conflict, for more than a century, that such a promise is not reached by the statute; and it is now too late for discussion.” Fos ha v. O’Donnell, 120 Wis. 336 , 97 N. W. 924 .

We have come to the conclusion that the judgment for the plaintiff, against the appellants should be affirmed, but that the part of the judgment dismissing the cross-complaint should be reversed, and that the appellants should be allowed in this action to prosecute their claim against Zachow and Rogers; but it does not seem necessary" that the entry of judgment, in behalf of the plaintiff should be delayed.

By the Court. — Judgment reversed. The cause is remanded for further proceedings in accordance with this opinion! Costs in this court should be taxed in favor of the plaintiff against defendants Grignon and Milles, and in favor of Grignon and Milles as against Zachow and Rogers.