EVANS v. JOHNSON, 149 F. 978

HOOK, Circuit Judge, after stating the case as above, delivered the opinion of the court. The bankrupt corporation had no power under its charter to guarantee the obligations of others. Therefore to sustain his claim Johnson invokes the Minnesota doctrine of estoppel in connection with a contention that the company received a consideration for the guaranty of the notes. Wilis v. Sanitation Co., 53 Minn. 370, 55 N. W. 550; Kraniger v. Building Society, 60 Minn. 94, 61 N. W. 904; Rosemond v. Autograph Register Co., 62 Minn. 374, 64 N. W. 925; Africa v. News Tribune Co., 82 Minn. 283, 84 N. W. 1019, 83 Am. St.

Rep. 421, Hunt v. Malting Co., 90 Minn. 282, 96 N. W. 85. But the decisions of the Supreme Court of Minnesota which are relied on proceed upon the theory that a corporation is estopped from availing itself of the defense ultra vires when otherwise it would be permitted to do an injustice, as, for instance, when the corporation has received the benefit or advantage from its act, and still retains the same. The case before us is not of that character. The notes which Johnson held evidenced the personal indebtedness of Hansen, not the indebtedness of the company.

The original consideration for them passed nearly two years before the company was incorporated and two years and eight months before Hansen as its president assumed to bind it as guarantor. When Hansen sold his goods to the company the latter paid in full by issuing to him fully paid capital stock; and thereafter upon the faith and credit of the condition so established Hansen sold portions of the capital stock to others, and, on the other hand, the company went into the markets, did business, and incurred obligations.

Johnson retained no lien upon the goods sold to the company, and was in no position to dictate or control the disposition of them by the owner. That he would not permit Hansen to sell them to a corporation was a threat he had no right to make in the absence of a purpose on the part of Hansen to defraud. There was no contract or promise that the corporation should buy the goods by paying the consideration or any part thereof to Johnson. The entire consideration was paid direct to Hansen, and Johnson knew it when he took Hansen’s stock as collateral to the notes.

There was no undertaking on the part of the company either to pay Johnson’s claim or to guarantee it as part of the consideration it was to give for what it got. In this respect the case 'differs from National Bank of Commerce v. Allen, 33 C. C. A. 169, 90 Fed. 545. The state by whose authority a corporation is organized, the stockholders who compose it, and its creditors whose demands have arisen in the course of its legitimate business are all interested in having it confined to the lawful exercise of its corporate powers.

In this case the creditors especially would suffer by adding to the liabilities of the bankrupt company the personal debt of its president. The company was organized to transact a mercantile business. It had no power under its charter to guarantee the debts of others, and in this case it received and retained no consideration for doing so. That it was a small corporation, the stock of which was largely owned by one man who controlled its operations, cannot alter the principles of law which are applicable.

It is urged that after the transactions in question occurred Hansen purchased the stock of the other stockholders; also that certain payments of interest upon the notes were charged to the expense account of the company. But these features of the case do not furnish the elements of an estoppel. The order is reversed, with direction to disallow the claim.