Court Opinion

ID: 9666858
Source: CourtListenerOpinion
Date Created: 2023-08-24 01:28:59.178695+00
Date Added: 2024-06-11T18:15:33.080497
License: Public Domain

PONDER, Justice.
Plaintiff brought suit on four promissory notes, all executed on the same date between the same parties and aggregating the sum of $4,420, seeking to collect from United Farm Equipment Company, Incorporated this amount, less a credit of $100 together with 8% per annum interest from November 1, 1949 and attorney’s fees in the amount of 10% on the, aggregate amount of the principal and interest. It was alleged by plaintiff that the notes were signed by V. P. Conley as President of United Farm Equipment Company, Incorporated. After the filing of various exceptions and a supplemental petition by the plaintiff, the defendant answered alleging that V. P. Conley was never authorized by resolution of the corporation to borrow money on 'behalf of the United Farm Equipment Company, Inc. and defendant denies that he had the authority to execute the said notes in behalf of the defendant and further that there was a novation in that the plaintiff did accept from V. P. Conley a note in the amount of $3,000 secured by mortgage on the home of V. P. Conley. Defendant also denies the allegation of plaintiff that the company has received the benefit of the loan. On motion of the defendant, the case was tried by jury and after hearing there was a finding for the defendant. The plaintiff has appealed.
It is the contention of appellant that the actions of an'officer of a corporation done without resolution of the board may be ratified and acquiesced in by the corporation and the corporation is estopped to deny the officer’s authority to act when it has received the benefit of the acts. Appellant also contends that novation" is never presumed and it must be clearly shown that the creditor intended .to extinguish an existing obligation and to substitute a new one.
The record shows that ,the plaintiff had made several loans to V. P. Conley on previous occasions as president of the defendant company and that these funds, along with the funds involved herein, were deposited to the account of the defendant in the Bossier Bank and Trust Company, Bossier City, Louisiana. The defendant company is a closed corporation consisting of only three members, all of whom had authority to draw checks on the account in the Bossier Bank. Of the three members, only Mr. E. H. Britt, Vice-President testified. Conley could not be located, having embezzled funds of the corporation, and Dr. Jack E. Carlisle, Secretary, was in the armed forces. Mr. Britt testified that he never inspected the bank statements and. only Mr. Conley made deposits and drew checks and that he [Mr. Britt] handled the *893construction end of the business. ' When Conley disappeared, Britt testified, Conley destroyed all of the books of the corporation so that the transactions of the corporation could not be traced.
It is evident that the money loaned to Conley by the plaintiff was deposited to the account of the defendant corporation in the Bossier Bank & Trust Company and withdrawn by Conley as President of that company.
The law is well settled that a course of conduct pursued by a corporation in permitting an officer to do an act is an acquiescence in such act and creates an estoppel. Gueydan v. T. P. Ranch Co., 156 La. 397, 100 So. 541; Scharfenstein & Sons, Inc., v. Item Co., 174 La. 794; 141 So. 463; Acadian Production Corporation v. Savanna, 222 La. 653, 63 So.2d 343. And a corporation may ratify the acts of its officers even though the act was without the authority of a formal resolution of its Board of Directors. Acadian Production Corporation v. Savanna Corporation, 222 La. 617, 63 So.2d 141 and authorities cited therein. In the case of City Savings Bank & Trust Company v. Shreveport Brick Co., Inc., 172 La. 471, 134 So. 397, cited and relied upon by the appellant, where a corporation was composed of three members but one transacted all of the business and managed all of its affairs, the court held that the other members were without right to contest his authorization when they had acquiesced by their silence and inaction in the affairs of the company. Further, in that case, as here, the active member had! made previous loans from the same bank and the court pointed out that the company had reaped the benefits and, therefore;, could not complain of the unauthorization.
A corporation may not reap benefits and repudiate obligations arising from officer’s acts on the ground that there was. no resolution of the board authorizing such acts. Berlin v. Cusachs, 114 La. 744, 38 So. 539; Boudreaux v. Feibleman, 105 La. 401, 404, 29 So. 881; Gair Co. v. Columbia Rice Packing Co., 124 La. 193, 194, 50 So. 8; Scharfenstein & Son v. Item Co., 174 La. 794, 141 So. 463.
There is evidence in the record that V. P. Conley absconded with company funds and that he and the plaintiff were personal friends but, be that as it may, the record establishes the fact that the funds of previous loans made by the plaintiff and the present one were commingled with the corporation funds and there is no proof that thé corporation did not benefit thereby. It is indeed unfortunate that Conley destroyed all of the books of the corporation but it is more unfortunate that Britt and Dr. Carlisle did not take more of an interest in the corporation’s affairs and in Conley’s activities on behalf of the corporation.' Although it is harsh to hold the corporation liable under the established juris*895prudence, no other result can be reached. It would be impossible to conclude that although the funds were deposited in the corporation’s account that there was no benefit derived therefrom in the absence of positive proof to establish this fact. The fact that Conley destroyed the books is no ■concern of the plaintiffs.
It is next contended by appellee that if this Court concludes that the obligation is binding then it pleads novation. The evidence shows that plaintiff accepted from Conley a note secured by mortgage on Conley’s home in the amount of $3,000 and that at a later date by agreement the home was sold and the $3,000 placed in escrow according to a written agreement. This escrow agreement provides that in the event the court or courts should decide in favor of United Farm Equipment Company, Inc. in the lawsuit pending between plaintiff and United Farm Equipment Company, Inc., then, and in that event, the escrow agent was authorized to deliver to the plaintiff the mortgage note to be used 'by him in any manner he deemed necessary to partially protect himself; and in the event a judgment was secured by the plaintiff against United Farm Equipment Company, Inc. and satisfied then the escrow agent was authorized to deliver the mortgage note to V. P.' Conley and his wife. This agreement was signed and entered into between plaintiff and Conley and the other members of the corporation were not parties to the agreement nor were they apprised of its existence.
Novation is defined as a contract that consists of two stipulations which extinguish an existing obligation and substitute another obligation in its place. Under Article 2187, LSA-C.C., the pre-existent obligation must be extinguished, otherwise there is no novation; if it be only modified in some parts, and any stipulation of the original obligation be suffered to remain, it is no novation. It has been held that a new conditional obligation will not effect a novation until the condition is fulfilled. See 25 Tulane Law Review 110 and Article 2186 of the LSA-Civil Code.
Pertinent excerpts from 25 Tulane Law Review, page 109 and 110 are as follows:
“Novation is defined as a contract that consists of two stipulations which extinguish an existing obligation and substitute another obligation in its place. The contract of novation may take place in three different ways: (1) by the substitution of a new debt; (2) by the substitution of a new debt- or; and (3) by the substitution of a new creditor.”
“It has been held that a new conditional obligation will not effect a novation until the condition is fulfilled.” Article 2186 and also 1792, 2221, 2228. “A further’ requisite to the contract of novation is that the *897original obligation must be extinguished and not merely modified.” Art. 2187; Rosenda v. Zabriskie, 4 Rob. 493; Levy v. Ford, 41 La.Ann. 873, 6 So. 671.
“The determining factor in all the cases is the intention of the parties to substitute a new obligation for the original agreement, and only if this intention is present does the original obligation with all of its accessories cease to exist.” Arts. 2187, 2190, 2195.
“The primary effect of a novation by the substitution of another agreement for the original obligation is the extinguishment of the original agreement (Arts. 2187 and 2189) and the creation of a new obligation in its place. Arts 2185, 2189. * * * Nevertheless, if the creditor has attempted to effect a novation which will retain the liability of the co-debtors or sureties, their refusal to accede to the new arrangement will prevent the novation.”
Under the plain provisions of the codal articles and the law, the escrow agreement herein cannot be considered a novation.
For the reasons assigned the verdict of the jury and the judgment of the lower court are reversed and set aside. There is now judgment in favor of the plaintiff, Fred E. Russ, d/b/a Collateral Discount Company, and against the defendant, United Farm Equipment Company, Incorporated, in the sum of $4,320 together with 8% per annum interest from November 1, 1949 and attorney’s fees in the amount of 10% on the aggregate amount of the principal and interest. All costs to be paid by the defendant.
McCALEB, J., dissents with written reasons.
■SIMON, J., dissents.