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"where all the facts and circumstances surrounding the case are known to both the agent and third party, but there is a mutual mistake as to a matter of law-as the principal's liability or the legal effect of the agent's written authority-the agent cannot be held personally responsible by reason of the mere fact that the principal cannot be held, unless the agent by some apt expression guarantees the contract or assumes it himself.” 6 This rule has been applied to corporate officers."

§ 2529. Remedy as on contract or on tort. There is some conflict of opinion, in case of agencies in general, in such a case, as to whether the liability is based on the contract or is for deceit or breach of warranty of authority. In Virginia, it was held that a corporate officer cannot be held personally liable on a corporate contract merely because he misrepresented his authority to make the contract for the company.9

Justice Prentice states the better rule in a late Connecticut case as follows: "It does not, however, follow that officers of a corporation who, acting in excess of their authority, assume to obligate it by contracts executed by them in the name of the corporation may not incur personal liability. On the contrary, they, under certain circumstances, may. The liability thus incurred, however, is not one which is created by the contract, but is collateral to it. They will render themselves liable for tortious conduct if they knowingly or carelessly assume to bind the corporation without authority, or misrepresent or conceal the true state of their authority, and thus falsely lead others to repose in it. The liabil

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of authority in the agent to make it, the agent himself was personally liable thereon. The objection to such procedure is not technical, but substantial. The action is on the contract, and if that be void, a recovery thereon cannot be had against the agent on the assumption that ultimately he may be held answerable to the plaintiff (not upon contract, but in a special action on the case) upon the implied undertaking that he possessed the authority which he assumed to exercise."' Lancaster v. Stokes, 119 Va. 149, 89 S. E. 85.

ity does not flow from the obligation of the contract, but from the wrong, and rests upon that foundation solely." 10

1

§ 2530. Personal liability where contract ultra vires. There is some conflict of opinion as to whether corporate officers are ever personally liable to persons contracting with them as representatives of the corporation merely because the contract is ultra vires.11 Liability is held to exist in some decisions where an officer enters into a contract for the corporation which is not binding upon it because ultra vires, the other party not having knowledge of this fact, nor being chargeable with knowledge.12

Thus, it is held that a corporate officer who executes an accommodation note in the name of the corporation, payable to himself individually, and then transfers it, is personally liable thereon although the note is void as to the corporation.13

In a Tennessee case the court, after stating that corporate officers are, generally speaking, not personally liable on corporate contracts, said: "But, if they exercise ultra vires powers, powers not vested in the corporation as a matter of law, although they appear to be given in the face of its charter, to make a contract with a party, or to destroy a legal contract coming within the purview of the rightful powers of the corporation made in its name; or if, exercising these ultra vires powers, they destroy the capacity of the corporation to meet the contract; or if, asserting these unauthorized powers, they

10 Jacobs v. Williams, 85 Conn. 215, Ann. Cas. 1913 B 900, 82 Atl. 202.

This rule is supported in Hall v. Crandall, 29 Cal. 567, 89 Am. Dec. 64; Hancock v. Yunker, 83 Ill. 208.

11 See opinion of the late A. C. Freeman as expressed in note in 48 Am. St. Rep. 913, 915, and see also note in 26 Harvard Law Rev. 542, discussing this question.

12 United States. See Mandeville v. Courtright, 142 Fed. 97, 6 L. R. A. (N. S.) 1003, with note.

Illinois. See Seeberger v. McCormick, 178 Ill. 404, 53 N. E. 340, aff'g 73 Ill. App. 87, writ of error dismissed 175 U. S. 274, 44 L. Ed. 161.

Michigan. Knickerbocker v. Wilcox, 83 Mich. 200, 21 Am. St. Rep. 595, 47 N. W. 123.

South Dakota. Small v. Elliott, 12

S. D. 570, 76 Am. St. Rep. 630, 82 N.
W. 92.

Texas. Staacke v. Routledge,
Tex. Civ. App., 175 S. W. 444.
England. Weeks v. Propert, L. R.
8 C. P. 427; Richardson v. Williamson,
L. R. 6 Q. B. 276.

13 Luden v. Enterprise Lumber Co., 146 Ga. 284, L. R. A. 1917 C 485, 91 S. E. 102. But see B. J. Wolfe & Sons v. McKeon, 1 Ala. App. 421, 57 So. 63.

But in Illinois it is held that if the officer discloses for whom he is acting he is not personally liable upon an indorsement on a note made by him in the name of the corporation, where the indorsement is ultra vires the corporation, as for instance where the indorsement is for accommodation. Piser v. Serota, 182 Ill. App. 390.

refuse to exercise its legitimate powers to enable it to meet its contract,—another and a different question is presented. In the cases just instanced the writer is of opinion that they are liable.” 14

15

On the other hand, other decisions, seemingly supported by the better reasoning, hold that the officer is not personally liable in such a case. Thus, where notes were issued by a bank, it was held in Kentucky that the board of directors were not personally liable thereon to the holder of the notes merely because the issuance of such notes by them was ultra vires, on the theory that the creditor is chargeable with notice of the terms of the charter showing that the bank had no such power, and therefore the rule is not applicable because the want of authority was presumed to be known to the person dealing with the officer.16

*

The reason, says the Kansas court, is that, "where there is no wrong imputable to the agent, no action will lie against him: not on the contract, for the contract was not his, nor for any wrong of act or omission, for he is guilty of none. A misrepresentation as to a matter of law is not such a one as will cast a personal liability on the agent, and that on the ground that each party is bound to know the law." 17

14 Shoun v. Armstrong (Tenn. Ch. App.), 59 S. W. 790.

15 United States. Holt v. Winfield Bank, 25 Fed. 812.

Alabama. B. J. Wolfe & Sons v. McKeon, 2 Ala. App. 421, 57 So. 63, decided on ground of mutual mistake of law.

Iowa. Thilmany v. Iowa Paper Bag Co., 108 Iowa 357, 75 Am. St. Rep. 259, 79 N. W. 261; Frost Mfg. Co. v. Foster, 76 Iowa 535, 41 N. W. 212.

Kansas. Abeles v. Cochran, 22 Kan. 405, 31 Am. Rep. 194.

Kentucky. Sandford v. McArthur, 18 B. Mon. 411.

Missouri. Humphrey v. Jones, 71

Mo. 62.

Tennessee: Hermitage Hotel Co. v. Dyer, 125 Tenn. 302, 142 S. W. 1117. Compare Woodward v. Beasley, 2 Tenn. Ch. App. 339.

England. Eaglesfield v. Marquis of Londonderry, 4 Ch. Div: 693.

In Iowa it is held that if a corporate officer makes a contract beyond

the powers of the corporation to make, but within his powers if within the powers of the corporation, he is not personally liable thereon. Thilmany v. Iowa Paper Bag Co., 108 Iowa 357, 75 Am. St. Rep. 259, 79 N. W. 261.

The theory of these decisions is that where a person enters into a contract with the officers of a corporation, intending a contract with the corporation, and the contract does not bind the corporation because, as a matter of law, and on the face of it, it is not within the powers of the corporation, the person so contracting is chargeable, as well as the officers, with notice of the want of power on the part of the corporation, and in such a case he cannot hold the officers personally liable.

16 Sandford V. McArthur, 18 B. Mon. (Ky.) 411.

17 Abeles v. Cochran, 22 Kan. 405, 31 Am. Rep. 194.

In any event, an officer is not bound on a contract merely because it is ultra vires, where the circumstances are such that the other party may nevertheless enforce the contract against the corporation.18 So the fact that at other times, with other persons, the directors have done business not authorized by the charter, does not of itself make the directors personally liable to an individual who has done business with them.19

Whether ultra vires acts confer a cause of action in favor of the corporation or its stockholders, on the theory of mismanagement,20 and whether a creditor other than the one with whom an ultra vires contract is made can hold the officers personally liable for entering into other ultra vires contracts,21 is considered elsewhere.

§ 2531. Liability as dependent upon how officers sign contract— In general. Whether corporate officers or agents are liable individually on written contracts signed with their names, with the name of the corporation or alone, and with or without the addition of their title, has been considered in a preceding chapter.22 The tendency of the later decisions,23 as already noted, is to absolve the individuals from liability unless the writing shows an intent to be bound individually, and to permit parol evidence to show the surrounding circumstances.

§ 2532. -Construction in favor of officer. Ordinarily, courts do not favor a construction of a writing that will make a corporate officer personally liable where the intent to bind him personally does not clearly appear.24

§ 2533. Contractual liability of directors as between each other. In one case, the seven directors, finding the corporate assets less than the liabilities, undertook to make up the deficit by having two of them execute their note to the corporation, the others agreeing to pay their pro rata share and stipulating that the note might be paid

18 Bird v. Daggett, 97 Mass. 494; Linkauf v. Lombard, 137 N. Y. 417, 20 L. R. A. 48, 33 Am. St. Rep. 743, 33 N. E. 472.

19 Dietrich v. Rothenberger, 25 Ky. L. Rep. 338, 75 S. W. 271.

20 See §§ 2434-2441, supra.

21 See § 2584, infra.

22 See $8 1441-1486, supra.

23 See Jacobs v. Williams, 85 Conn.

215, Ann. Cas. 1913 B 900, 82 Atl. 202, where contract signed with name of corporation, after which was "James S. Williams, Prest. Lewis W. Ripley, Secy.," was held not to bind individuals.

24 See Davis v. Cress, 214 Mass. 379. 101 N. E. 1081, construction of letter as part of contract.

out of the earnings of the company. It was held that the agreement was not against public policy, and that the makers were not bound to insist upon the payment of the note out of the earnings but could themselves pay it and demand contribution from the others.25

XXVIII. LIABILITY OF OFFICERS TO THIRD PERSONS FOR TORTS

§ 2534. Scope of subdivision. This subdivision is intended to include the question of liability of corporate officers to third persons, who may or may not be creditors of the corporation, for damages resulting to the third person himself from torts committed by, or participated in by, the corporate officers. It does not include the question as to the right of creditors of the corporation to recover for torts of corporate officers where the injury is primarily to the corporation and it affects the creditor only as it affects all the creditors through the injury to the corporation to whom they look for payment of their debts.26 This subdivision is intended to treat of torts of the corporation and its officers as causing a direct loss to third persons-it being wholly immaterial whether such third persons are creditors or are stockholders or have no relation to the corporation. In this class of cases, the injured person in effect says, "I have been injured by a wrong done by the corporation; the corporation can act only by officers or agents and hence I should be entitled to recover from the officers or agents who are the wrongdoers." The theory is simple but the courts have often confused the right of one injured generally a creditor-to sue offending officers for a tort committed by them or in which they participated, where the resulting injury is primarily to the corporation and is an injury to the person suing only in so far as it decreases the assets of the corporation to which he must look for his debt or claim. In the latter case, whether the suit is by a person individually and merely for his own benefit, or whether it is brought by him in behalf of all others in the same position, such as other creditors or stockholders, the suit is primarily for a tort suffered by the corporation, and is governed by the rules laid down elsewhere.27

The dividing line is whether the cause of action is one which is purely personal, in which no other claimant or creditor of the cor

25 Crane v. Bayley, 126 Mich. 323, 85 N. W. 874, 8 Det. L. N. 39.

26 See §§ 2569-2590.

27 The liability of directors and other officers of banks and other cor

porations to depositors or other creditors for loss due to their mismanagement of the corporation is considered in § 2574 et seq., infra.

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