Case ID: ohio-np-ns_1/html/0020-01.html
Source: Caselaw Access Project
Author: {"author": "Dustin, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

ANTAGONISTIC INTEREST OF AN OFFICER OF A CORPORATION.
    [Montgomery County Common Pleas Court.]
    In the Matter of the Dissolution of The Empress Josephine Toilet Company.
    M., as secretary, general manager and one of the directors of a corporation to which he was indebted in the sum of $750 on a stock assessment; drew a note of the corporation on the verge of its dissolution, in the sum of $500, in payment of salary due him, and with the note paid an individual indebtedness. Thereafter a receiver was appointed for the company. Helé — that this note in the hands of the creditor of M. tp whom it was paid should be canceled, and the amount credited' on the indebtedness of M. to the company.
   Dustin, J.

.. This was a corporation formed for the purpose of beautifying the females of the community with a powder or lotion, warranted to remove tan, freckles, black-heads, and such like blemishes from the natural body, and restore, to cheeks, faded with age ’and yellow witii jaundice, the bloom and blushes of youth.

In the malarial districts of Indiana and Illinois, or the swamps of Florida, or the sewerless city of New Orleans, where the sour-complexion microbe flourishes, and malaria, yellow fever and old-fashioned ague have long since celebrated the golden jubilee of their reign, the company might have succeeded. But among the beauties of the Miami valley, whose rose-tinted cheeks, nourished by the pure air and pure water and rich products of this garden of the Lord, any complexion company would be doomed to failure from the beginning.

And in this connection, it is a singular fact that of all the men in this fair city (Dayton), none was better acquainted with the loveliness of the forms and faces of its female citizens and the natural purity of their complexions than were these very young men who put their money into this enterprise. The result seems to be something in the nature of a judgment upon them for this apparent reflection upon the complexions of their lady friends.

' The question of the allowance or rejection of a claim presented to the receiver by Laura Z. Marshall, is before the court for decision. The following are the pertinent facts:

In November, 1893, The Empress Josephine Toilet Co. was organized with a capital stock of $50,000, of which 50 per cent, was^paid in during the first eight months of its existence. In 1895 further assessments of 5 per cent, and 10 per cent, were made and paid by stockbolders as they found it convenient, and the necessities of the business required.

Mr. Harry Z. Marshall was the secretary and general manager of the company (as well as one of the directors) and had entire charge of the business, including the power to make contracts and. sign checks and the execution and payment of notes in the company’s name. He received a salary of $100.00 per month, payable monthly. In order to meet one or more of his assessments as a stockholder, he, in 1895, borrowed from his mother, Laura Z Marshall, the sum of $500.

In May, 1896, a further assessment of 5 per cent, was ordered by the directors, Mr. Marshall being present and casting an affirmative vote, but at the same time saying that it would be difficult for him to raise the amount of his assessment, to-wit, $750. There was then due him on salary account about $250, and by Oct'. 15, 1896, there was due him for salary about $600. No part of his assessment of $750 had yet been paid. On that day a note of the company for $1,000 was due at the City National Bank, upon which all the directors were liable as indorsers. Mr. Marshall drew up a new note for $1,500, and took it around to the directors for indorsement, explaining that' it was to pay the thousand dollar note in bank, and give him $500 on his salary account, which he needed to pay a private debt. The directors refused to indorse the note for $1,500, but did indorse one for $1,000 to pay the note in bank then due. Mr. Marshall, thereupon, on Nov. 2, 1896, without the knowledge of the directors, executed a note of the company to his mother for $500, and delivered it to her in payment of his individual debt to her, and credited himself on the books of the company with $500 salary, and charged bills payable with same amount. The company was not indebted to Mrs. Marshall, nor did the officers- and directors, other than Mr. Marshall, know of his indebtedness to her, or that she had been paid by a note of the company until it went into the hands of a receiver in December, 1896, and the claim of Mrs. Laura Z. Marshall was presented for allowance to Mr. Harry Z. Marshall, the receiver.

The stockholders are objecting to the allowance of this claim, .■and the matter has been submitted to the court.

Undoubtedly, at the time of the transaction in question, the -debt of Mr. Marshall to the company was more than the debt of the company to Mr. Marshall, and either was a proper off-set against -the other, and in the case of a suit by him for his salary or a suit 'by the company for the assessment, there would still be due t]ie ^company the difference between the two.

In that state of affairs had Mr. Marshall the right) by virtue of his office, and in use of the powers connected therewith, to execute and deliver a note of the company, to one of his own creditors, as a mode of payment of his salary, and- thereby prevent the company from off-setting its claim against him for assessments ?

It seems to me not. It is true, as claimed, that the salary was due him and he had all along had the right to draw it monthly (if there was anything to draw) and pay his creditors out of it; but having neglected so to do, it seems to me, he cannot on the verge of the dissolution of the company, pay himself and his creditors in that way.

His duty as an official and trustee is first to the company, then to himself. If his private interests and the interests of the company conflict, then he should resign, or submit the question involved to the remaining trustees for decision. Mr. Marshall’s position was a delicate one, and he decided as many, probably the majority, would have decided, in favor of himself. It was natural, jet, according to my view, improper.

In Goodin v. Canal Co., 18 O. S., 183, the court say: “When the interests of a director of a corporation become antagonistic to the interests of the corporation, he ceases to have any right or .authority to act for the corporation and is guilty of a breach of trust, and a court of equity will set his acts aside at the instance •of stockholders who are damnified thereby.”

The same doctrine is substantially held in

Rolling Stock Co. v. R. R. Co., 34 O. S., 460.

Rouse v. Bank, 46 O. S., 504.

Gillman R. R. Co. v. Kelley et al, 77 Ill., 426.

In First National Bank v. Gifford, 47 Iowa, 575, the court say:

“The officers of a corporation cannot, at the same time, and with respect to the same transaction, in which both the company .and they themselves individually are interested, act for themselves and the corporation, and if they so assume tef act, their acts are not binding on the corporation.”-

Upon the whole, I think the note should be disallowed and canceled and the amount credited on Mr. Marshall’s indebtedness to the company.