Sargent v. Palace Cafe Co.

MELVIN, J.

James Sargent, as assignee of his brother, Nicholas F. Sargent, successfully sued on a promissory note given by the defendant corporation. The assignment was made after the maturity of the instrument. Defendant appeals from the judgment.

The defendant interposed three defenses to the action. The first was improper execution of the note by the corporation founded upon the claim that the payee was one of the three directors who pretended to authorize the execution of the note; that without his vote and that of other interested persons the resolution of authorization could not have been

passed;

that in his fiduciary capacity as a director he could not deal with the corporation to his own advantage; and that the contract being void, the note based upon it should not be enforced. The second defense was alleged lack of consideration for the note, and the third that the note was merely an accommodation paper, the issuance of which by the corporation was

ultra vires.

It clearly appears from the testimony and the findings that Nicholas F. Sargent had been the owner of all the stock of

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the Palace Cafe Company (a corporation), but that two shares were held respectively by Otto Kessler and J. E. Wad-ham solely to qualify them as directors. At the time of the transaction in question Nicholas F. Sargent and Otto Kessler entered into a contract whereby the former agreed to sell to the latter all the stock of the corporation for seventeen thousand dollars. Ten thousand dollars of this sum was paid in cash and the balance, was evidenced by two promissory notes of the corporation, one for three thousand dollars, which was subsequently paid, and one for..four thousand dollars, the note involved in this litigation. The sole consideration for the execution and delivery of said note was the sale of the stock of the corporation in part payment for which the note was given. While it is true that all the directors and stockholders shared in the transaction whereby the notes were given, Sargent, who owned the stock before the transfer, and Kessler, who owned it afterward, were both parties to the negotiation, and were the only real parties in interest, the Palace Cafe Company being a “one man corporation.” The purchaser and seller of the business preferred to act through the corporation; no one was deceived; the bargain was partly consummated even to three payments of interest on the note here in litigation; and we find no proper excuse in the record for the attempt to interpose technical defenses to the payment of the note executed as a part of the purchase price.