THE BUSINESS LAW JOURNAL JOHN EDSON BRADY EDITOR Volume II July - December, 1923 THE BUSINESS LAW JOURNAL COMPANY 71-73 MURRAY STREET NEW YORK CITY HE officers and directors of a corporation are, of course, not personally liable, as a general rule, for the debts of the corporation. But the directors or officers may contract in such manner as to render themselves personally liable. A manufacturer or dealer, called upon to extend credit to a corporation, may be unwilling to extend such credit, but perfectly willing to make the sale on the individual credit of the officers of the corporation, whom he knows to be financially responsible. In such a case it is important that the transaction be handled in such a manner that the manufacturer or dealer will be in a position, if necessity arises, to establish that the credit was granted to the officers individually and not to the corporation. A situation of this kind arose in a recent Michigan decision, Tisch Auto Supply Co. v. Nelson, Supreme Court of Michigan, 192 N. W. Rep. 600. The plaintiff, Tisch Auto Supply Co., sold a quantity of automobile supplies to the Majestic Auto Sales Co., a newly organized corporation. Before the goods were paid for a receiver was appointed for the Majestic Company. The plaintiff then brought suit against the men who organized the corporation and acted as its officers, on the theory that the credit for the goods had been extended to them individually and not to the corporation. Several of them were men of large means. Julius Tisch, the plaintiff's credit manager, testified that a request from the Majestic Auto Sales Co. for credit had been referred to him. He applied to R. G. Dun Co. for a report on the financial standing of the Majestic Company and received the following report: "The business was organized the first part of the present year, and incorporation papers were filed on March 4, 1921, but on present date the papers have not been returned." When called as a witness, Mr. Tisch was asked: Q. To whom did you give credit for the $446.27 account here, Mr. Tisch? Mr. Tisch answered: A. My understanding was that it was to the individuals composing the organization. In holding that this testimony did not establish that the credit had been extended to the officers as individuals, the court said: This answer cannot well be taken to establish the fact. The request for credit was from the defendant company. A report on the financial condition of the company was asked for and furnished. No such request would have been made as to the defendants personally, as several of them were men of large means. The defendants were not, and never have been, engaged in business as copartners. It was accordingly held that the Auto Supply Co. was not entitled to hold the officers of the Majestic Auto Sales Co. personallyliable. Purchaser of Flour Liable on Contract, Although Shipment Falsely Billed to Obtain Lower Freight Rate I N an action by the Pillsbury Flour Mills Co. of Minneapolis, Minn., against the Southern Flour & Grain Co. of Atlanta, Ga., recently decided by the Court of Appeals of Georgia, to recover damages for the alleged breach of four contracts for the purchase of wheat feed, the defendant interposed an unusual and, as it turned out, an ineffectual defense. The decision is entitled Southern Flour & Grain Co. v. Pillsbury Flour Mills Co., 116 S. E. Rep. 910. The plaintiff, the Pillsbury Company, showed that, between the dates of May 6 and May 17, 1920, it entered into four contracts with the defendant, by which the latter agreed to purchase from the plaintiff a total of 900 tons of "Daisy Red Dog Feed" and "A Mids," at prices ranging from $75 to $80 per ton, f. o. b. Atlanta. The defendant refused to accept the flour, and the plaintiff brought suit for the damages which it had sustained as a result of such refusal. In its answer to the complaint the defendant, for a defense, alleged that the wheat product which the defendant purchased from the plaintiff was a low grade of flour called "Red Dog"; that this flour carried a higher freight rate than "wheat feed"; that it was stamped, tagged, billed and invoiced as "XX Daisy Wheat Feed" in order that a lower freight rate might be procured; that this was a direct violation of Sec. 10, Par. 3, of the Interstate Commerce Act; that the product was all shipped to Atlanta with drafts to be taken up by the purchaser; that before the goods reached Atlanta and were ready for delivery to the defendant, the plaintiff informed the defendant that they were branded "Wheat Feed" instead of "Red Dog" to avoid paying the legally published tariff rate on "Red Dog Flour"; that if the defendant had taken up the bills of lading and secured the goods, it would have been directly aiding the shipper in its unlawful design to violate the above act; and that the defendant was, therefore, relieved from ail obligation to accept any of the wheat feed so shipped. The portion of the Interstate Commerce Act, alleged to have been violated by the plaintiff, provides that any person or corporation delivering property for transportation in interstate commerce to a common carrier, who shall knowingly and willfully, by false means, obtain or attempt to obtain transportation for such property at less than the regular and established rates, is guilty of a misdemeanor. The plaintiff demurred to the defense interposed by the defendant, saying, in effect, that even admitting the truth of the allegations contained in the answer, the same constituted no legal defense to the defendant's liability on the contracts, which were the basis of the suit. The trial court sustained the demurrer, and gave judgment for the plaintiff. The appellate court affirmed the lower court and, in so doing, wrote, in part, as follows: The alleged false billing of the goods by the plaintiff in order to obtain a lower freight rate than that actually carried by the product shipped was no defense to the instant suit for the breach of the contracts of purchase, and the court did not err in sustaining the plaintiff's demurrer to the plea and to the amendments thereto. The Interstate Commerce Act, alleged to have been violated by the plaintiff, makes penal a violation of regulations governing shipments and brands, but it does not provide that contracts made by persons failing to comply with the act shall be void and unenforceable. |