Petitioners Briefm — De La Vergne Co. v. German Savings Inst.

IN THE

Supreme Court of the United States,

OcTOBER TERM, A. D. 1897.

IN THE MATTER OF THE APPLICATION OF THE DE LA VERGNE

REFRIGERATING MACHINE COMPANY FOR A WRIT OF

CERTIORARI.

THE DE LA VERGNE REFRIGERATING MACHINE

COMPANY,

vs.

Petitioner,

GERMAN SAVINGS INSTITUTION ET AL.,

Respondents.

IN THE UNITED STATES CIRCUIT COURT OF APPEALS FOR THE

EIGHTH CIRCUIT.

BRIEF AND ARGUMENT IN SUPPORT OF PETITION

FOR WRIT OF CERTIORARI.

Statement of Facts.

This petition is addressed to this court at the suggestion

of the two judges of the Circuit Court of Appeals who

heard the cause and who differed upon the question of the

power of The De La Vergne Refrigerating Machine Com-

pany to make the contract set out in the record. It was

also suggested that the petition for the writ should be

2

promptly tiled, so as to secure action by this court, if

possible, before the expiration of the time within which a

petition for a rehearing can be filed in the Court of Ap-

peals.

The petition and record show that the several plaintiffs

were stockholders in a manufacturing company known as

the Consolidated Ice Machine Company, organized under

the laws of the State of Illinois, and having its principal

office at Chicago, which became insolvent and made an

assignment, for the benefit of its creditors, of all its prop-

erty of every nature and description to Robert E. Jen-

kins, as assignee, on October 14, 1891.

On April 16, 1891, The De La Vergne Refrigerating

Machine Company, by its president and principal stock-

holder, John C. De La Vergne, made the contract set out

in the petition and record. This was done without

authority of the stockholders or directors of his company.

There is no plea of non est factum, and, for the purpose

of the question now addressed to the court, the contract

must be deemed the contract of the corporation. The

assets of the corporation were in the possession of the as-

signee under deed, and he has since disposed of them,

including the good-will, to others. The Consolidated Ice

Machine Company therefore transferred nothing to The

De La Vergne Company or to Mr. De La Vergne by the

contract of April 16, 1891. It had nothing to convey.

The stockholders made a partial delivery of their shares

of stock. The De La Vergne Company refused to carry

out the contract, and the several shareholders brought

separate actions at law in the Circuit Court of the City of

St. Louis for the value of their several share holdings,

basing their action upon the contract referred to. These

actions were removed by the defendants, citizens of New

York, to the Federal Court, there consolidated and tried

3

upon an agreed statement of facts, set out in the petition

and record, resulting in a judgment for the defendants.

A writ of error was taken to the Court of Appeals, and

the judgment there reversed. (German Savings Inst. v.

De La Vergne Machine Co., 36 U. 8. App., 184.)

The court, in its opinion, was very severe in its stric-

tures upon the defendant company, assuming that it had

received the assets of the Consolidated Ice Machine Com-

and the good-will of its business, benefited by the sup-

pression of the competition of that company, and ob-

tained legal control of the suppressed corporation, and

after obtaining the benefit of the contract had failed and

refused to pay the agreed price therefor, on the technical

ground that less than one-fourth of the stock of the cor-

poration that had conveyed to it all of its assets and the

good-will of its business had been imperfectly assigned.

The court said that there was no evidence in the record

that had any substantial merit, and it was exceedingly

difficult to see how any failure to assign this small

minority of the stock could result in any injury to the

defendant, and proceeded:

‘¢ After the conveyance and covenant of April 16,

1891, was executed and delivered, the corporation

was nothing but an empty shell. All its valuable

rights and property had been vested in the De La

Vergne Company, and the legal control of the shell

itself was given to De La Vergne by the valid as-

signment of a majority of the stock of the corpora.

tion. These defendants cannot retain these benefits

andthus make $100,000 for themselves and throw a

loss of $100,000 on the stockholders of this cor-

poration, because they technically failed to perform

their contract in the slight and immaterial particular

that they did not legally assign a small minority of

this stock.” (36 U. S. App., 195.)

‘* Further, an offer to return them on September

12, 1891, if sufficient in form, would have been an

idle ceremony. The defendants had undoubtedly

then derived all the benefits of a performance of the

contract by the Consolidated Company and its stock -

holders that they could ever derive. They still held

the right to its assets, subject to its debts, the good.

will of its business, and the covenant of its stock-

holders which suppressed its competition. No doubt,

they had secured its customers and destroyed all

possible competition. ‘The return to the stockholders

of the control over the empty shell of their corpora.

tion would have been a useless act. A merchant

cannot, by offering to return the empty box, success

fully defend an action for the purchase price of a

box of goods, on the ground that the box was de-

fective, when he has received and sold the goocds.”’

(36 U. S. App., 196.) ,

In interpreting this contract the court further said:

“The rights and benefits which the defendants

were to receive from this contract were, the right of

the Consolidated Company to its assets, subject to

the payment of its debts; the good-will of its busi-

ness, Which had been established for six years; the

suppression of the competition of that company and

its stockholders, and the legal control of the sup-

pressed corporation... they received, re-

tained, and had the benefit of all these rights and in-

terests."? (36 U.S. App., 194.)

When this decision was announced the appellants moved

in the Court of Appeals that the order of reversal grant-

ing a new trial be modified, and that the reversal be with

directions to enter judgment in favor of the several

plaintiffs. This was refused, and the action stood for a

new trial. Amended answers were filed. The sixth,

seventh and eighth paragraphs of answer raised the issue

distinctly that the contract was ultra vires of both the De

La Vergne Refrigerating Machine Company and the Con-

5 foal 5

solidated Ice Machine Company under the laws of their

respective charter states. (R. 22-24.) Much testimony

was taken, the most of which bas no bearing upon the

particular question now presented to this court. Tt is

sufficient to say that the inference of the Court of Ap-

peals that the Do La Vergne Company profited by the

contract, and the harsh eriticisms of its conduct indalged

in by the court, were shown to be wholly unfounded,

Mr. Knight, who represented the majority of the credi-

tors in the assignment proceedings, testified that the De

La Vergne Company never received any of the assets (R.

101); Mr. Jenkins, the assignee, made the same statement

(R. 110); Mr. Bender, the manager of the De La Vergne

Company, testified to the same effect (R. 194, 195);

Louis De La Vergne also (R. 205); Lonis Barron, as-

sistant manager, also (R. 220); also Charles H. Cone, the

former secretary (Rt. 243). There is also the affirmative

proof in the record, and it was found by the court (R.

42%, 423), that on May 4, 1801, only eighteen days after

the date of the contract, and before the date fired therein

for ita erceution, Uhe court entered an order to sell all the

assets of the insolvent company, and they were subse-

quently sold to other than the defendants. (R. 424.)

Instead of being a case where the petitioner had re-

ceived value, as originally supposed by the Court of Ap-

peals, the record presents a case where a large recovery

was sought for the confessedly partial delivery (36 U.S.

App., 194) of stock in an insolvent corporation, forbidden

by its charter to have an indebtedness beyond its capital

stock, and yet shown to have been indebted to more than

five times its valid stock, if we are to believe the recitals

of the contract of April 16, 1891, that its stock was

$100,000, The hardship and wrong was wholly on the

other side. There was not a scintilla of evidence to the

contrary.

The case was again submitted to the court without the

6

intervention of a jury, by stipulation in writing waiving

a jury, and the court was requested to find the facts

specially, together with conclusions of law therefrom.

The requested findings of fact submitted by the defend-

ants are found in the Record (875 414). The propo-

sitions of law submitted by the defendant are also set out

in the Record (414-416). The court found the facts

specially. (R. 417-441.)

It will be noticed that the tirst request for finding sub

mitted by the defendant company was us follows:

so],

‘The De La Vergne Refrigerating Machine Com

pany is, and was at the time of the commencement

of these actions, a corporation organized under the

laws of the state of New York governing the organi-

zation of manufacturing corporations enacted on the

17th day of February, 1848, entitled “An Act to

wathorize the formation of corporations for manufac

turing, mining, mechanical or chemical purposes,’ and

Which laws, in and by the terms thereof, provide

that ¢it shall not be lawfal for such company to use

any of their funds in the purchase of any stock in

any other corporation,’ and said corporation, dur-

ing the year 1890 and prior and subsequent thereto,

was engaged in the business of manufacturing and

selling refrigerating machinery, having its principal

office and place of business at the foot of 138th Street

in the City and State of New York.’ (R. 375, 3876.)

The court found upon this point:

as

‘The De La Vergne Refrigerating Machine Com-

pany is, and was at the time of the commencement

of these actions, a corporation organized under the

laws of the Stute of New York governing the organ-

ization of manufacturing corporations enacted on the

17th day of February, 1848, entitled ‘An Act to

authorize the formation of corporations for manu-

facturing, mining, mechanical or chemical purposes,’

und acts supplomental or amendatory thereof.’’

(It. 417.)

The difference consists merely in the failure to find as

a fact the prohibitory language quoted from the laws of

the State of New York, which under some circumstances

would not be material, as the court might take judicial

notice thereof and administer relief accordingly, Tt is

submitted, however, that here the strictness applying to a

special verdict was requisite, and that the parties were

entitled to a finding upon every material issue in’ the

case. The defendant company asked the court to hold

as an conclusion of liw:

«The stock of the Consolidated Company was a

part of the consideration for the promise of the De

La Vergne Company to pay %100,000 in its own

stock, or in cush, and the consideration being indi-

visible, and being illegal so far as the stoek was con-

cerned, the contract is legal and void.’? (WR. 415.)

The court found nothing upon this sabject, and thus it

happened that the findings were silent upon issues dis-

tinetly raised by the pleadings and upon which requests

ws to fact and law had been clearly made. There was no

trin] upon these issues. The questions were properly

preserved by exceptions (IR. 441, 442, 444), bill of ex-

ceptions, assignment of error. (R. 466, 469, 470.)

A writ of error was taken to the Court of Appeals;

there was a summons in severance (R. 473, 474), where

the cause was argued and submitted to Judges Thayer

and Sanborn, who banded down the following per curiam

opinion:

‘Per Curtam. The judges are divided in opinion

upon the question whether or not the contract which

is the basis of this action was w/tra vires the De La

Vergne Refrigerating Machine Company, and are of

opinion that the other questions presented should be

ba

determined in favor of the defendants in error. The

judgment below is therefore affirmed by a divided

court.”’

It has thus come about that, although the defendant

company, by proper pleading and evidence, has sought to

defend itself against this contract as prohibited by the

laws of the state to which it owes its existence, yet it has

been unable to obtain the opinion of any court thereon—

the trial court, though making special findings of fact,

choosing to remain silent upon this subject, and the Court

of Appeals being equally divided thereon.

It was doubtless owing to this extraordinary condition

of affairs that the two judges composing the Court of

Appeals suggested that an application be made to this

court for a writ of certivrard, that the issue might be de-

termined and the party not mulcted in a large sum with-

out having its principal defense passed upon by any

court.

We, as counsel presenting the petition, feel that there

are other such manifest errors in the record that it should

be brought bere as an entirety and all the questions re-

ceive the benefit of the judgment of this court. For ex-

ample, the defendant John C. De La Vergne died testate

ufter the action of the Court of Appeals reversing the

first judgment and before any evidence was taken. He

was not represented in the taking of the testimony. He

was represented at the trial by William C. Richardson,

Public Administrator of the City of St. Louis, notwith-

standing the fact that the defendant company offered to

show that be had no estate in the State of Missouri (R.

38, 39, 374); and the court below finds a judgment

against such administrator, notwithstanding the fact that

the court below in its finding of facts does not find that

John C. De La Vergne is dead. This subject is not men-

tioned with the intention of discussing it on the present

4

application, but simply to show the incomplete nature of

the findings in the court below, upon which the judgment

purports to be based.

On the present application, the argument will be con-

fined to the single question of ultra vires, upon which the

trial court was silent and concerning which the Court of

Appeals divided; it being assumed that if this court

grants the petition for certiorari we shall be permitted,

if the court considers the entire record, to file a brief and

be heard in argument upon the other errors assigned.

BRIEF.

I.

The assets of the Consolidated Company,

insolvent, being in the hands of an assignee

under the insolvent laws of Illinois and in

due process of administration, the stock

owned by the respective plaintiffs was the

only thing attempted to be delivered under

the contract, and was the only thing capable

of passing by such contract, and must, there-

fore, be deemed the subject of the contract.

Humphreys v.. Mc Risook, 140 U. S., 304.

Smith vy. Hurd, 12 Mete., 371, 385.

Railroad Co. vy. Howard, 7 Wall., 392.

Whistler vy. Foster, 14 C. B. (N. S.), 248.

Fawcett v. Osborne, 31 Ul., 425.

Benton v. Curyea, 40 Ill., 320.

Story on Sales (3rd Ed.), Sees. 188, 423.

Linn v. Thornton, 1 C. B., 379.

Tluling v. Cobell, 9 W. Va., 522.

Low v. Pew, 108 Mass., 349.

10

That all the title of the Consolidated Ice Machine Com-

pany passed by the deed to the assignee on October 1h,

1890, leaving no title, legal or equitable, in the insolvent

company or its individual shareholders to which the con-

tract of April 16, 1891, could attach.

Weber v. Ulich, 131 Il., 520, 533, 534.

Walker v. Ross, 150 Ill., 56.

Spindle v. Shreve, 111 U. S., 545.

As to the claim that the transfer of the stock was only

incidental to the main purpose of the contract, which the

respondents assert and one of the judges intimated was to

convey the assets subject to the debts, and the stock was

therefore only incidental as a means for further assurance

of title, it is submitted that it was even then a part of the

consideration for an indivisible promise, and being un-

lawful, the entire contract is void.

Bishop on Contracts, Sec. 74.

Widoe v. Webb, 20 Oh. St., 431.

Carleton v. Woods, 28 N. H., 290.

Deering v. Chapman, 22 Me., 488.

Ocean M. Co. vy. Polleys, 13 Pet., 157, 164.

Me Blair v. Gibbs, 17 How., 232.

Dent vy. Ferguson, 132 U. S., 50, 64-66.

Armstrong v. American Ex. Bank, 133 U.S.,

433, 469.

11

II.

The stock of the Consolidated Ice Machine

Company was a part of the consideration

for the promise of the De La Vergne Com-

pany to pay 100,000 in its own stock or

in cash. The contract is ultra vires of the

vendee company, and therefore illegal and

void.

Laws of New York, 1848, Ch. 40, See. 8.

Id., 1890, Ch. 564, Sec. 40.

Boone, Law of Cor., Sec. 107.

Green’s Brice Ultra Vires, p. 91, note d.

1 Morawetz Private Cor., Secs. 431, 433.

People v. Chicago Gas Trust Co., 130 Ill, 268,

284.

Milbank v. N. Y., L. F. & W. R. R. Co., 64

How. Pr., 20.

Talmage v. Pell, 7 N. Y., 328.

mL. CGE E.R Owe. TF. 2. Oh SE

Co., 145 U. S., 393.

Central Transportation Co. ¥. Pullman Car Co.,

139 U. S., 24.

California Nat'l Bank v. Kennedy, 167 U. S.,

362.

Marble Co. v. Harvey, 92 Tenn., 116.

Union Pacitie Ry. Co. v. Chicago, M. & St. P.

Ry. Co., 163 U. S., 564.

Alewander v. Cauldwell, 83 N. Y., 480.

Davis vy. Old Colony R. R., 131 Mass., 258.

Applying to the act of 1890, supra, enacted before

the contract upon which action was brought, but going into

RSI. LOE IP PLE LI LOR IIT INS LOY EI EONAR

12

Sorce fifteen days after it was signed, but before the deliv-

ery upon either side under the contract.

Baily v. De Crespigney, L. R. 4, Q. B., 180.

Newby vy. Sharp, L. R., 8 Ch. Div., 39.

2 Schouler Personal Prop., 287.

Benjamin on Sales, 571.

Campbell on Sales, 315.

Applying to the contract to increase the capital stock of

the De La Vergne Company.

1 Morawetz on Cor., Sec. 434.

N.Y. d& N. H.R. R. Co. v. Schuler, 34 N. Y.,

30.

Railway Co. v. Allerton, 18 Wall., 235.

Scovill v. Thayer, 105 U. S., 143.

ITI.

The petitioner was entitled in the court

below to a special finding upon the issue

of ultra vires raised by its sixth, seventh

and eighth pleas (R. 22-24), and the court

having refused to find upon this issue, the

judgment is void.

Cannot go to other parts of record to help finding out.

The E. A. Packer, 140 U. S., 360, 364, 365,

bottom of page.

Special findings have same effect as special verdict by

jury.

Saltonstall v. Britwell, 150 U. S., 417, 419.

Special verdict is had unless it finds all the facts in

issue.

Ft. Scott v. Hickman, 112 U. S., 150, 164.

Ward v. Cochran, 150 U. S., 597, 608.

13

ARGUMENT.

I.

The assets of the Consolidated Company,

insolvent, being in the hands of an assignee

under the insolvent laws of Illinois and in

due process of administration, the stock

owned by the respective plaintiffs was the

only thing attempted to be delivered under

the contract, and was the only thing capa-

ble of passing by such contract, and must,

therefore, be deemed the subject of the

contract.

Since the question of ultra vires was raised, the claim

is put forward that there was no sale of stock by the

plaintiffs and no purchase of stock by the defendants be-

low; that the sale was of the assets of the insolvent cor-

poration theretofure conveyed by the corporation to the

assignee, subject to the payment by the assignee of the

debts, and that the transfer of the stock was a mere inci-

dent collateral to the main purpose of the contract. This

interpretation of the contract is not sustained by its lan-

guage, or the situation and conduct of the parties, and,

even if the contention were admitted, for the sake of ar-

gument, it would not avail the respondents, as they would

still be compelled to admit that the transfer of the stock

was @ part of the consideration.

The stock was the only property owned by the re-

spondents. It was the only subject of attempted trans-

fer. If we admit, for the purpose of argument, that

apon the payment of the debts the title would revert, the

reversion would be to the corporation—not to the share-

holders. If an equity existed, it belonged to the corpora-

14

tion and not to the shareholders. If the corporation had

anything to convey, the transfer would have been in the

name of the corporation, by its proper officers thereunto

duly authorized. If the other party to the contract failed

to pay the consideration, the corporation, not the share-

holders, either jointly or severally, must bring action to

obtain redress.

The idea that all the shareholders of a corporation may,

by uniting in a contract or deed, transfer the property of

a corporation, is a mistake. If corporate property was

the subject of transfer in this case, it should have been

applied to the payment of the debts, which the record

shows are, after a wise and economical administration of

the estate, yet unpaid to an amount exceeding $150,000.

Again, if corporate property was the subject of transfer,

the consideration therefor could only be obtained by the

plaintiffs in the several actions through the ownership of

their several shares of stock, and the defendant company

could acquire the property, if at all, in view of the pre-

vious conveyance to the assignee, only through the own-

ership of the stock. This made the stock, in any view

of the case that it is possible to take, an essential element

- of the transfer.

It is thought that .these several statements are avun-

dantly sustained by the authorities.

In the case of Humphreys v. McKissock, 140 U. S.,

304, the facts were that the old Wabash Company had

executed a mortgage on its Council Bluffs Division, to-

gether witb all the privileges, rights, franchises, real es-

tate, right of way, depots, depot grounds, side-tracks,

water-tanks, engines, cars and other appurtenances there-

unto belonging. ‘The Wabash and six other railroad

companies organized an elevator company to build and

operate an elevator at Council Blutfs, each company sub-

14

scribing to one-seventh of the stock. The mortgagee of

the Council Bluffs Division claimed under his mortgage

what he described as the one-seventh interest of the

Wabash in the elevator. The court denying this claim,

says that the facts found by the court, which decided in

favor of the mortgagee, ‘*show beyond controversy the

independent existence of that (the elevator) corporation,

and that the railroad company had no specific interest in

its elevator or other property which it could mortgage.”’

The court quotes with approval what was said by Chief

Justice Shaw in Sycth v. Hurd 12 Metce., 371, 385, viz:

‘©The individual members of a corporation,

whether they should all jointly or each act severally,

have no right or power to intermeddle with the

property or concerns of the bank or call any officer,

agent or servant to account or discharge them from

any liability. Should all the stockholders join in a

power of attorney to anyone, he could not take pos-

session of any real or personal estate, any security

or chose in action; could not collect a debt or dis-

charge a claim or release damage arising from any

default; s#mply because they are not the legal owners

of the property, and damage done to such property

is not an injury to them. Their rights and their

powers are limited and well defined. ”’

To this same effect is id/man Co. v. Mo. Pac. Co.,

115 U. S., 587.

«© Nemo dat quod non habet.”’ This maxim expresses

the principle that one who has no title cannot confer a

title as expressed by Willis, J., in Whistler v. Foster,

14.C. B. (N. S.), 248.

The idea has been reiterated in the form: ‘‘ No one

can sell a right when he himself has none to sell;’’ and it

has been declared that this proposition is so self-evident

that argument cannot elucidate or strengthen it.

14 Cent. Law J., 146.

16

‘The general rule of law, sanctioned by common

sense, is that no man can, by his sale transfer to

another the right of ownership in a thing wherein he

himself has not the right of property.”’

Fawcett vy. Osborn, 32 Ill., 425.

Benton v. Curyea, 40 Ill., 320.

‘¢ The general rule is, that the subject of the sale

must belong te the vendor, and that he can sell no

more than the interest, which he legally possesses. *’

Story on Sales (3rd ed.), Sec. 188.

‘*Again if the vendor wholly fails to make title

to the vendee in an executory contract, the vendee

may rescind the contract.”’

Story on Sales (3rd ed.), Sec. 423.

Tindal, C. J., in delivering the opinion of the court,

in Linn v. Thornton, 1. C. B., 379, suid:

‘It is not a question whether a deed might not

have been so framed as to have given the defendant

u power of seizing the future personal goods of the

plaintiff, as they should be acquired by him, and

brought on the premises, in satisfaction of the debt,

but the question arises before us on a plea which

puts in issue the property in the goods, and nothing

else; and it amounts to this, whether by law a deed

of bargain and sale of goods can pass the property

in goods which are not in existence, or, at all events,

which are not belonging to the grantor at the time of

executing the deed.’’ Held, in the negative.

In Huling v. Cobell, 9 W. Va., 522, it appeared that

an agricultural society assigned for the benefit of its

creditors the proceeds of a fair about to take place on

its grounds. It was held that such an assignment was

void as against the lien of au execution issuing before the

payment of the proceeds to the creditors. Mr. Justice

Green, in his opinion, discusses the general subject, and

says the rule is that a sale of property in which the

vendor has no present interest is void.

17

‘It is an elementery principle of the law of sales,

that a man cannot grant personal property in which

he has no interest or title. To be able to sell prop-

erty, he must have a vested right in it at the time

of the suale.’’

Low v. Pew, 108 Muss., 349,

In MeGoon vy. Aakeny, 11 Ill., 558, it was held to be

law that the real owner of personal property cannot sell

his right or title in it to another while it is in the actual

or adverse possession of one who claims title to it.

‘¢ Hence, the general rule is stated to be, that a

purchaser of property takes only such title as his

seller has, and is authorized to transfer; that he

acquires precisely the interest which his seller owns,

and no other or greater.”’

Barnard v. Campbell, 55 N. Y., 460.

If, after the payment of all debts, there should remain

in the hands of the assignee any surplus of the proceeds

of sales and collections, such surplus belongs to the as-

signor. But this right of the axsignor to the surplus

does not exist until all debts are paid. When they are

paid, it is called into existence.

Burrill on Assignments, 712.

Butler v. Thompson, 4 Abb, N. C., 290.

Briggs v. Davis, 21. N. Y., 574.

Sandmeyer v. Dakota F. & M. Co. (S. Dak.), 50

N. W., 353.

Before debts are paid this right is uncertain, indefinite,

a mere possibility. It cannot be determined until debts

are paid, and until that time it is not known whether

there will be a surplus or a deficit; no doubt this right to

the surplus, ii any, is a valuable right, but it is held ad-

versely. An assignment is made for the benefit of

creditors, and until they are paid everything of value is

vested in the assignee in trust for them. Such indefinite

18

right as this resulting trust in favor of the assignor is

not subject to sale by shareholders. It belonged to the

assignor, which, in the present case, is the Consolidated

Company.

The Illinois statutes respecting assignments, in so far

as it provides for a discontinuance of proceedings, is as

follows, viz. :

‘© All proceedings under the Act of which this is

amendatory, may be discontinued upon the assent,

in writing, of such debtor, and a majority of his

creditors in number and amount; and in such cases,

all parties shall be remitted to the same rights and

duties existing at the date of the assignment, except

so far as such estate shall have already been admin-

istered and disposed of; and the court shall bave

power to make all needful orders to carry the fore-

going provision into effect.”’

Revised Statutes (Ill., 1897), ‘* Assignments, ”’

Section 15.

Nothing could be done under this statute except by aid

of the debtor, the Consolidated Company. The assent

requisite is that of the debtor and a majority of the

creditors in number and amount.

The De La Vergne Company did not by the contract

become the debtor, for it expressly refused to assume

liability for debts of the Consolidated Company. (Sixth

article of contract, R. 45.) It had bargained for the

stock of the company, and through this stock, and only

through this stock, could it secure the assent in writing

of the debtor.

So the contract, having in view the fact that the assent

of the debtor is necessary to a discontinuance of the as-

signment proceedings, provides in its fourth clause that

the stock shall be assigned as prescribed, ‘for the pur-

pose of placing the said party of the third part (the De

19

La Vergne) in complete control of the assets of the party

of the first purt, subject to the legal rights of said as-

signee and the creditors of said party of the first part.’’

The stock was necessary not only to ‘* complete con-

trol,’ but it was necessary to any control whatever.

Conceding that the Consolidated Company was an

empty shell, in the sense that it was insolvent, and did

not contemplate a resumption of business, the fact re-

inains that the assets which had belonged to it could be

reached ‘only through it, and it could be reached only

through its stock.

The stock of the Consolidated Company was then the

vital element of the consideration to the De La Vergne

Company, even though the value of this stock was to be

realized through the acquisition by the De La Vergne of

the former assets of the Consolidated Company.

Assume that the contract contained no provision for a

sale of stock, and leave the contract one in form and in

fact as the plaintiffs say it is in essence, one for the sale

of the former assets of the Consolidated, subject to the

rights of the assignee and the creditors, and what would

the defendant receive by the contract 7

The right to discontinue the assignment, a majority of

the creditors in number and amount consenting, the only

right of any kind in respect to its assets remaining to the

Consolidated Company after the assignment, was not con-

veyed by the contract and could not be so conveyed.

No court would at the suit of the De La Vergne Com-

pany compel it to assent. The matter was one between

it as a debtor and its creditors.

It seems clear, therefore, from the law of Illinois, and

from the language of the contract, that this possibility of

discontinuing the assignment by composition or other ar-

rangement with creditors was the one thing of possible

20

value connected with the assets of the insolvent company.

This and the corporate existence might be utilized for

some purpose, but, and this is true as to both of them,

only through the stock.

We are bound to conclude that the stock was a part of

the consideration.

On the 1st day of December, 1891, Mr. Jenkins, as

assignee of the Consolidated Company, sold to John

Featherstone’s Sons the good-will, machinery, patterns,

etc. (R. 93.)

The bills and accounts receivable were collected by the

assignee and by Knight and Butz, and distributed by

them among the creditors.

There is, therefore, nothing that the defendants re-

ceived unless it be the shares of stock. It has been

shown that these shares were not evidence of any present

interest in property.

But let us assume that stock ownership in a corpora-

tion which has executed an absolute assignment under the

insolvent law by which all its property and every /egal

and equitable interest therein is vested in the assignee

means the same thing as stock ownership in a solvent

running corporation. What is the situation then /

The certificates of stock were evidence of the owner-

ship of a distributive share in the surplus after debts are

paid.

‘©A share of the capital stock merely gives the

right to partake, according to the amount put into

the fund, of the surplus profits of the corporation,

and ultimately on the dissolution of it, of so much of

the fund thus created as remains unimpaired and is

not liable for debts of the corporation.”’

Thompson, Commentaries on Law of Corporations,

Sec. 1071.

21

This is a fundamental principle.. It is not necessary to

cite further authorities.

The assets lucked $150,000 of being sufficient to

pay the debts of the Consolidated Company. (R. 109.)

What is the value of a distributive share in a deficiency

of $150,000 ?

It is idle to talk of the shares in the Consolidated Com-

pany being evidence of a distributive share in anything of

value, at the time of the contract.

If the corporation was not insolvent, it was a fraud to

assign.

Gardner v. Commercial National Bank, 95 Ul.,

298.

But this assumption cannot be made; the title to all

the assets passed to the assignee absolutely. Distributive

ownership in the company is then impossible. The only

thing of value that possibly did not pass to the assignee is

the franchise, the right to be a corporation.

But all the title of the Consolidated Ice Machine Com-

pany passed by the deed of the assignee on October 14,

1890, leaving no title, legal or equitable, in the insolvent

company or its individual shareholders, to which the con-

tract of April 16, 1891, could attach.

By the agreed statement of facts, as well as by the ex-

press terms of the deed of assignment, there passed to

the assignee all the property of the Consolidated Ice Ma-

chine Company wherever situated, including the patent

rights, outstanding accounts ‘sand the good-will of its

business.” (R. 383.) This good-will was subsequently

advertised for sale by the assignee, under the order of the

court, together with $100,000 of the capital stock of the

company not embraced in the sale to De La Vergne. (R.

152.) The assets and good-will were subsequently sold,

likewise under the order of the court, to Clarence A. Knight

se)

and Otto C. Butz, as trustees, for $309,000 of the claims

against the estate, including a portion of the complain-

ant’s herein. (R. 156, 158, 159.) Knight and Butz

afterwards, under order of court, sold the assets so ac-

quired, including the good-will, to John Featherstone’s

Sons; and subsequently, by formal deed, conveyances

were made by these respective parties. (R. 93, 90.)

It is thus clearly shown by the record that the assump-

tion of the learned court deciding this case (36 U. S.,

184), that the De La Vergne Company acquired the good.

will or any portion of the assets of this company at any

time, is wholly erroneous, as by undisputed evidence in

the case (R. 109) there remains $150,000 of the indebted-

ness of the company yet unpaid after the estate is fully

administered.

In the absence of these express provisions of the

deed of assignment and orders of court, and convey-

ances made in pursuance thereof, such an assignment,

under the statute of the State of Illinois regulating

assignments by insolvent debtors, left no title, legal or

equitable, in the insolvent Consolidated Company which

was the subject of conveyance. Being an Illinois cor-

poration, assigning under the laws of the State of IIli-

nois, the effect of the assignment has, of course, to be

determined by the decisions of the highest court of that

state.

In Weber v. Mick, 131 Ill, 520, 533, 534, the court

said that the

‘‘assignment is an absolute appropriation of the

property to the payment of the debts,’ passing both

legal and equitable title to the property ‘+ absolutely

beyond the contrel of the assignor.”’ 2. ** Such

ussignments have always been understood to be in-

struments voluntarily executed by a failing debtor

by which he assigns to some third person, as assignee

23

or trustee, the whole, or sometimes the bulk, of his

property, to be by such trustee distributed among

the assignor’s creditors, in satisfaction of their de-

mands.”’

In Burrill on Assignments, 10, it is said:

‘© An assignment is likewise an absolute convey-.

ance by which both legal and equitable estate is di-

vested out of the grantor, but the title vested in the

assignee is subject to the uses and trusts in favor of

the creditors, and upon their satisfaction a trust results

in favor of the assignor in the residue of the unap-

propriated property or its proceeds.”

The Supreme Court of the United States, in passing

upon the effect of an assignment of an insolvent debtor

under the Illinois law, in Spindle v. Shreve, 111 U. S.,

545, said:

‘¢The Court of Appeals of Kentucky, in Anefler v.

Shreve, 78 Kentucky, 297, had before it the very

question as to the construction of this deed, and de-

cided that all the estate and interests in property,

which, at its date, the grantor held, which he could

alien, and which was liableat law or in equity for the

payment of his debts, passed by its terms; and in that

decision we concur.”’

In Walker v. Ross, 150 Ill, 56, the court said:

‘«These cases further hold that there must be an

absolute transfer of the whole interest of the assignor,

legal and equitable, in the property assigned in trust

for the benefit of creditors.”’

In Stoddard v. Gilbert, 163 Ill., 131, 135, there was

an attempt to convey property while it was yet in the

hands of the assignee, and it was held that the agreement

could only become operative upon the discontinuance of

the proceedings.

By these decisions it is established that there was no

property right of any nature or description whatsoever

24

remaining in Consolidated Ice Machine Company on April

16th, 1891, that could be made the subject of conveyance

or transfer by that company. As has been said, all prop-

erty rights of the insolvent corporation had vested in its

assignee. Any other decision would be monstrous, as it

would enable shareholders to protect their interests with-

out paying their creditors.

It thus appears that the only property or property

right that the parties of the first and second part to the

contract of April 16th, 1891, could convey were their indi-

vidual shares in the capital stock of the corporation; and

certainly their ownership of these shares is the only right

possessed by them and which they could convey, which

would justify an action by them against the petitioner, or

its president. This seems to make it unnecessary to con-

sider the argument that was addressed to the Circuit

Court of Appeals, and which seems to have impressed one

of the judges, that the transfer of the stock was only in-

cidental to the contract, and therefore the defense of ultra

vires could not wholly avoid it. In adopting this propo-

sition the learned judge overlooked a distinction which

he had himself previously drawn in the case of the ///i-

nois Trust & Savings Bank vy. Arkansas City, 40 U. S.

App., 257, 274, where he suid:

‘‘It is that when a part of a divisible contract is

ultra vires, but neither malum in se nor malum pro-

hibitum, the remainder may be enforced, unless it

appears from a consideration of the whole contract

that it would not have been made independently of

the part which is void. Ovegon Steam Navigation

Company v. Winsor, 20 Wall., 64, 70; Reagan v.

Farmers’ Loan and Trust Company, 154 U. S., 362,

395; Western Union Telegraph Co. v. Burlington &

Southwestern Ry. Co., 11 Fed. Rep., 1, 4, and cases

cited in note at page 12; Saginaw Gas-Light Co’. v.

City of Saginaw, 28 Fed. Rep., 529, 540.”

25

In the case at bar the transfer of the stock was a part

of the consideration. The contract was indivisible in

this respect, and the only attempted performance was

that of a partial delivery of the stock. There was no

attempt to deliver anything else. The promise to issue a

like amount of stock of the De La Vergne Company, or,

at the option of Mr. John C. De La Vergne, to pay

$100,000 in money—an option which he never exercised

—was only to become binding upon the delivery of $100, -

000 of the stock of the insolvent company, and was a

promise to the shareholders as such. The delivery and

payment were to be made to the individual shareholders,

in proportion to their respective holdings. It was not,

therefore, using the language of the learned court in the

former opinion, in which he is sustained by authority,

‘ca divisible contract . . . neither malum in se nor

malum prohibitum,”’ but it was an indivisible contract,

malum prohibitum by two express enactments of the laws

of the State of New York governing the rights of the De

La Vergne Company, us will appear in the discussion of

the next proposition.

Mr. Bishop, io his work on Contracts, Section 74, thus

states the rule:

‘‘Where the consideration for an indivisible

promise is ¢x part something done in violation of

law, and in remainder some lawful thing, the prom-

ise cannot find support on the lawful part without

resting also on the unlawful, and the whole will be

void. But if there are two promises, the one found-

ed on the unobjectionable in the consideration and

the other on the evil, the former will be sustained

and the latter will fail.”’

This statement of the law does not require argument or

elaboration in this court. Otker authorities are cited in

the brief.

The stock of the Consolidated Ice Machine

Company was a part of the consideration

for the promise of the De La Vergne Com-

pany to pay %100,000 in its own stock or in

cash; the contract is ultra vires of the

vendee company, and therefore illegal and

void.

A corporation has such powers as are given it by its

charter, and such implied powers as are necessary to

carry out the corporate purpose.

This principle is well settled. In Thomas v. Railroad

Co., 101 U. S., 71, Mr. Justice Miller, speaking for the

Supreme Court of the United States, said:

‘‘We take the general doctrine to be in this

country, though there may be exceptional cases and

some authority to the contrary, that the powers of

corporations organized under legislative statutes are

such, and such only, as those statutes confer. Con-

ceding the rule applicable to all statutes, that what

is fairly implied is as much granted as what is ex-

pressed, it remains that the charter of a corporation

is the measure of its powers, and that the enumera-

tion of these powers implies the exclusion of all

others. ”’

Dartmouth College Case, 4 Wheat., 636.

Perrine v. Chesapeake, ete., Canal Co., 9 How.,

177, at 184.

Metropolitan Bank vy. Godfrey, 23 Ill., 531.

Caldwell v. City of Alton, 33 Ill, 417.

1 Morawetz Corporations, Sec. 316.

Taylor on Corporations, Sec. 120.

Bell, C. J., in Downing v. Mt. Washington Road Co.,

40 N. H., 230, said:

27

‘‘Corporations are creatures of the legislature,

having no other powers than such as are given to

them by their charters, or such as are incidental, or

necessary to curry into effect the purposes for which

they were established.”’

It is not, nor can it be, claimed that the charter under

which the De La Vergne Company assumed to act gave it

the power to purchase stock in another corporation.

It needs no argument to show that the purchase of

stock in another corporation is not necessary to carry

into effect the purposes of incorporation.

It matters not what the general rule may be, as such

companies as the De La Vergne are prohibited from using

funds to purchase stock in another corporation. Sec. 8,

Chapter 40, Laws of 1848, of the State of New York,

provides:

‘*It shall not be lawful for such company to use

any of their funds in the purchase of any stock in

any other corporation.”’

It is established that The De La Vergne Refrigerating

Machine Company was organized under this act and the

amendments thereto. (R. 300.) The law of New York

continued to prohibit investments by one manufacturing

company in the stock of another until the enactment of

Chapter 564, N. Y. Session Laws of 1890, approved

June 7, 1890, and going into effect May 1, 1891. See-

tion 40 of said chapter provides that:

‘Any domestic corporation, transacting business

in this state, and also in other states or foreign

countries, may invest the funds in the stocks, bonds,

or securities of other corporations owning lands in

this state or such states, if dividends have been paid

on such stocks continuously for three years imme-

diately before such loans are made, or if the interest

on such bonds or securities is not in default, and

such stock, bonds and securities shall be continuously

28

of a market value 20% greater than the amount

loaned or continued thereon; . . . no corpora-

tion shall use any of its funds in the purchase of any

stock of its own or any other corporation, unless the

sane shall have been buna jide pledged, bypothe-

cated, or transferred to it, by way of security for,

or in satisfaction or part satisfaction of, a debt pre-

viously contracted in the course of its business, or

shall be purchased by it at sales upon judgments,

orders, or decrees which shall be obtained for such

debts or in the prosecution thereof.”’

It affirmatively appears in the record, by a full copy

of all directors’ meetings of the Consolidated Ice Ma-

chine Company, as well as by testimony of witnesses,

that the Consolidated Ice Machine Company never paid a

dividend on its stock during its existence; and there is

nothing to dispute the inference arising from the fact that

its capital stock was $200,000, of which $100,000 was

unpaid, except the sam of $10,000, and that its indebted-

ness was $550,000, which upon the administration of the

assets has left $150,000 wholly unpaid —that $100,000 of

the stock of the Consolidated Company never was con-

tinuously of a market value twenty per cent. greater than

the price which it is alleged Mr. De La Vergne had, at

his option, agreed to pay therefor.

The stock of the Consolidated Company was part of the

consideration to the De La Vergne Company. This ques-

tion has been adjudicated by the Circuit Court of Ap-

peals as between these parties. (36 U. S. App., 184,

187.)

That was one of the questions in controversy on the

first trial. Whether it was a /ega/ consideration was a

question not suggested.

In the statement of the case, in the first paragraph of

the opinion, Judge Sanborn says the suit is by the Ger-

man Savings Institution—

29

‘‘for that portion of the purchase price of the assets,

good-will, and capital stock of the Consolidated Ice

Machine Company, a corporation, which the defend-

unts in error promised to pay it,’’ ete. -

The court held, as matter of law, that the Consolidated

‘ompany stock was part of the consideration, and they

say that if the small minority of stock not transferred

was of any value,

‘*the defendants may undoubtedly show that fact

under proper pleadings, and offset the damage they

have sustained by the failure to assign it, against the

$100,000 they promised to pay for the substantial

benefits of this contract.”’

In the ubsence of express statutory authority, a cor-

poration cannot purchase stock of another corporation.

Boone on the Law of Corporations, Sec. 107, thus

states the law:

‘¢ Without g power specifically granted, or neces-

sarily implied, a corporation cannot become a stock-

holder in another corporation, and especially where

the object is to obtain the control or affect the man-

agement of the latter.”’

In Green’s Brice’s Ultra Vires, p. 91, note 4, it is

said:

‘sIn the United States a corporation cannot be-

come a stockholder in another corporation unless by

power specifically granted by its charter, or neces-

sarily implied in it.”

Morawetz on Private Corporations, Sees. 431, 433,

says:

‘© A corporation has no implied right to purchase

shares in another company for the purpose of con-

trolling its management. . . . A corporation

cannot, in the absence of express statutory authority,

become an incorporator by subscribing for shares in

a new corporation, nor can it do this indirectly

through persons acting as its agents or tools.”’

30

In People vy. Chicago Gas Trust Co., 130 Ill., 268, at

284 the court said:

‘‘It has been held in many cases, that in the

United States corporations cannot purchase, or hold,

or deal in the stocks of other corporations, unless

expressly authorized to do so by law, and that one

corporation cannot become the owner of any portion

of the capital stock of another corporation, unless

authority to become such is clearly conferred by

statute. ”’

The following is taken from the syllabus of the case:

‘The gus trust company mentioned was incor.

porated under the general law for two purposes, us

expressed in the articles of association: First, for

the purpose of erecting and operating gas works

for the manufacture and sale of gas in Chicago and

other places in this state; and second, ‘to purchase

and hold or sell the capital stock, or purchase, or

lease, or operate the property, plant, good-will, rights

and franchises of any gas works or gas company or

companies, or any electric company or companies, in

Chicago or elsewhere,’ ete.

‘*The company sought to exercise the powers

claimed under the second clause only, and for that

purpose bought a majority of the shares of all the

stock of all the gas companies in Chicago, being

four in number, whereby it might have control of all

the gas companies in the city, and thus destroy com-

petition and monopolize the gas business. — //c/d,

that the corporation so formed was not for a lawful

purpose, and that all acts done by it toward the

accomplishment of such object were illegal and void.”’

At various times during the years 1873 and 1874 the

Erie Railway Company purchased more than one-half

of all capital stock of the Buffalo, New York & Erie

Railroad Company, and paid for the same out of its

corporate funds. //eld, that such purchase was not

necessary in the exercise of any of its corporate powers;

31

that it was unauthorized and in violation of the statute,

and was consequently ultra vires.

Milbank v. New York, Lake Erie & Western R.

R. Co., 64 Howard’s Practice Reports, 20.

In Talmage v. Pell, 7 N. Y¥., 328, it was held that a

corporation has no power to purchase the stock of other

corporations for the purpose of selling them for profit,

or as a means of raising money, except when such stocks

have been received in good faith as security for a loan

made or a debt due such corporation, or when taken in

payinent of such loan or debt.

In the case of Zhe Mechanics’ Mutual Savings Bank

v. Meridan Agency Company, 24 Conn., 159, it was held

that a company organized to do a general insurance

agency, commission and brokerage business has no power

to subscribe to the stock of a savings bank and building

association.

In the case of The Central Railroad Company v. The

Pennsylvania Railroad Company, 31 N. J. Eq., 475, it

was held that a corporation cannot, in its own name, nor

in the name of individuals, subscribe for stock or be a

corporation under tLe general railroad law.

Kennedy v. failroad, 62 N. H., 537.

Hotel Co. v. Schram, 6 Wash., 134.

Franklin Co. v. Lewiston Inst. for Savings, 68

Me., 46.

It is thus established .by the great weight of authority

that an agreement by one corporation to purchase stock

in another is ultra wires. An ultra vires contract is ille-

gal and void.

St. Louis, Vandalia & Terre Haute R. Co. v.

Terre Haute & Indianapolis R. Co., 145 U. S.,

393.

32

It is shown by the report of the De La Vergne case, in

36 U. S. App., p. 190, that it was mistakenly considered

in the nature of a suit for specific performance. No

action can be brought to compel specific performance of

an ultra vires contract, which is illegal and void.

Bank of Michigan v. Niles, Walker’s Chan. R.

(Mich.), 99.

In the case of Zhe Central Tansportation Co. vy. Pull-

man Car Co., 139 U. S., 24, the plaintiff company had

leased and transferred all of its property of every kind to

the defendant company, which was engaged in a similar

and competitive business. The lessee company undertook

to pay all of the debts of the lessor company, and to pay

to it annually the sum of $264,000 for a term of ninety-

nine years. The suit was for a part of the installment

for the last year before suit. The defense of ultra vires

was interposed and sustained, the court holding that the

sale was unauthorized and in excess of the power of the

selling company. It was urged for the plaintiff, as in

this case, that, even if the contract was void, because

ultra vires and against public policy, yet that, having

been fully executed on the part of the plaintiff, and the

benefits of it received by the defendant for the period

covered by the declaration, the defendant was estopped

to set up the invalidity of the contract as a defense to an

action to recover the compensation agreed on for that

period.

After reviewing the prior decisions upon this branch of

the case, the court said (p. 59):

‘¢The view which this court has taken of the ques-

tion presented by this branch of the case, and the

only view which appears to us consistent with legal

principles, is as follows: A contract of a corpora-

tion which is w/tra vires in the proper sense, that is

33

to say, outside the object of its creation as defined in

the law of its organization, and therefore beyond the

powers conferred upon it by the Legislature—/s not

voidable only but wholly void, and of no legal effect.

The objection to the contract is not merely that the

corporation ought not to have made it, but that it

could not make it. The contract cannot be ratified

by either party, because it could not have been au-

thorized by either. No performance on either side

can give the unlawful contract any validity, or be

the foundation of any right of action upon it. When

a corporation is acting within general scope of the

powers conferred upon it by the Legislature, the

corporation, as well as the persons contracting with

it, may be estopped to deny that it has complied with

the legal formalities which are prerequisites to its

existence or to its action, because such requisites

might in fact have been complied with. But when

the contract is beyond the powers conferred upon it

by existing laws, neither the corporation nor the

other party to the contract can be estopped, by as-

senting to it or by acting upon it, to show that it was

prohibited by those laws.

** A contract u/tra vires, being unlawful and void,

not because it is in itself immoral, but because the

corporation, by the law of its creation, is incapable

of making it, the Courts, while refusing to maintain

any action upon the unlawful contract, have always

‘striven to do justice between the parties, so far as it

could be done consistently with adherence to law, by

permitting property or money, parted with on the

faith of the unlawful contract, to be recovered back,

or compensation to be made for it. In such case,

however, the action is not maintained upon the un-

lawful contract, nor according to its terms, but on an

implied contract of the defendant to returg, or, fail-

ing to do that, to make compensation for property or

money which it bas no right to retain. To maintain

such an action is not to aflirm, but to disaffirm, the

unlawful contract.’’

The case at bar is not to recover the value of the stock

delivered, but to enforce the unlawful sale of stock against

34

the corporation prohibited by its charter from making

the purchase.

In the case of California National Bank v. Kennedy,

167 U. S., 362, which reasserts the principles laid down

in Central Transportation Co. v. Pullman Car Oo., the

court said:

‘¢The lease sued on having been executed by the

defendant contrary to the express probibition of the

statute, which peremptorily forbade the corporation

to transact any business unless to perfect its organi-

zation, and thus denied it the capacity to enter into

any contract whatever, except in perfecting its organ-

ization, the lease is void, and cannot be made good

by estoppel, and will not support an action to recover

anything beyond the value of what the defendant has

actually received and enjoyed.”’

In Marble Company v. Harvey, 92 Tenn., 116, the

Marble Company, an Ohio corporation, contracted with

Harvey to take shares in a Tennessee corporation doing a

like business; the consideration was $6,000, the defend-

ant assuming and agreeing to stand one-half the loss

accruing to plaintiff in consequence of suits pending

against the Tennessee corporation. The relief sought was

to compel defendant to pay one-half the loss accruing.

The defense of u/tra vires was set up. It was held that

‘the suit is clearly in furtherance of the original, un-

lawful and void contract. That the contract has been ex-

ecuted by the plaintiff does not make it lawful or entitle

it to an enforcement of it. It is in no sense a suitin dis-

affirmance.’’

This Tennessee case is so conclusive in its argument,

and so exactly parallel in its facts to the case at bar, that

aay short citation does not enable the court to appreciate

its importance in the present discussion. It shows that

the contract in this case was executory, and that, to en-

34

able the plaintiffs below to recover, it is necessary for

the court to give effect to a corporate act which is abso-

lutely forbidden by the express terms of statutes regu-

lating the powers of both the vendor and vendee com-

panies.

It is urged by the plaintiffs in this case, as in the Cen-

tral Transportation Co. vy. Pullman Car Co., that, even

if the contract was void, because u/tra vires and against

public policy, yet that, having been fully executed on the

part of the plaintiff, and the benefit of it received by the

defendant, the defendant was estopped to set up the in-

validity of the contract as a defense to an action to re-

cover the consideration agreed on.

The Supreme Court, however, in the Central Trans-

portation Co. case would not allow that defense to pre-

vail, holding the contract ultra vires and void, and there-

fore no performance on either side could give the

contract any validity, or be the foundation of any action

upon it.

In California Nat'l Bank v. Kennedy, 167 U. S., 362,

the bank became a stockholder in a savings bank, and

while such stockholder received dividends on the stock.

Both banks failed, and an attempt was made to charge

the bank as a stockholder in the savings bank. By virtue

of the federal statutes, under which the bank was organ-

ized, it had no power to become a stockholder in another

corporation. The Superior Court of California adjudged

the national bank to be the holder of shares in the sav-

ings bank and responsible to the creditors of the savings

bank in proportion to its holdings. An appeal was taken

to the Supreme Court of the state, which affirmed the

judgment. Ona writ of error to this court the judg-

ment was reversed.

36

The court, speaking by Mr. Justice White, held that

‘+a national bank has no power to deal in stocks,

and cannot, therefore, acquire the stock of another

corporation, except as incidental to its power to lend

money on personal security.”’

‘¢The purchase by a national bank of the stock of

another corporation, not as incidental to the banking

business, becng void cannot be ratified, and therefore

the bank is not estopped to deny its liabilities, for the

debts of such corporation, though it has received divi-

dends on the stuck.”’

The reasoning of the learned court is shortly as follows:

That corporations have such powers only as are conferred

upon them by statute, quoting from Central Transporta-

tion Co. v. Pullman Car Co.

The power to deal in stock of another corporation be-

ing not expressly conferred upon national banks, nor an

act which may be exercised as incidental to the powers

expressly conferred, a dealing in stocks is consequently

ultra vires.

Being such, it is without efficacy.

The learned court deals with the question of estoppel

in the following manner:

‘¢ The claim that the bank, in consequence of the

receipt by it of dividends of the stock of the savings

bank, is estopped from questioning its ownership

and consequent liability, is but a reiteration of the

contention that the acquiring of stock by the bank

under the circumstances disclosed was not void, but

merely voidable. It would be a contradiction in

terms to assert that there was a total want of power

by any act to assume the liability, and yet to say

that by a particular act the liability resulted. The

transaction, being absolutely void, could not be con-

firmed or ratified,’’

and ends the opinion by quoting from the language of

Mr. Chief Justice Fuller in Union Pacific Ry. Co. v.

Chicago, M. & St. P. Ry. Co., 163 U. S., 564:

37

‘¢A contract made by a corporation beyond the

scope of its powers, express or implied, on a proper

construction of its charter, cannot be enforced, or

rendered enforceable, by the application of the doc-

trine of estoppel.”’

This, we submit, is a conclusive answer to the plain-

tiff’s contention.

Granting, for the sake of argument, that the contract

was entirely execufed on the part of the Consolidated

Company and that the De La Vergne Company got every-

thing it bargained for (which we deny), it is not estopped

from setting up the defense of ultra vires.

The agreement to purchase stock in the Consolidated

Company was illegal and void. It was an agreement

which the De La Vergne Company was not authorized to

make. This action was originally brought to enforce the

payment of the purchase price, and is clearly in further-

ance of the original, void contract. It is in no sense

an action in disaffirmance. A court of law will not aid

in enforcing a contract which one of the parties had no

authority to make, and which was illegal and void.

The only course the plaintiff could have pursued was

to disaffirm the contract and sue the defendant on the

implied contract to return; or, failing to do that, to make

compensation for property which it had no right to retain.

The record clearly shows that the defendant received

nothing which it could retain; there is not a scintilla of

testimony in conflict with that statement.

John C. De La Vergne and the Consolidated Company

and stockholders thereof knew, at the time the contract

was made, that the De La Vergne Company had not the

power to enter into the agreement by which they at-

tempted to bind it. If they did not know of this want of

power, they must be taken to have known it.

38

Therefore the maxim, ‘‘ /n pari delicto potior est con-

ditio defenditis,’’ applies.

The corporate charter is a public enactment, always

open for inspection, and a party dealing with this crea-

ture of law is charged with knowledge of the contents of

its charter, and cannot be heard to say that its powers

were unknown.

Alewander v. Cauldwell, 83 N. Y., 480.

Davis v. Old Colony R. R., 131 Mass., 258.

Mr. Justice Gray, speaking for the court in this case,

said:

‘¢ Every person who enters into a contract with a

corporation is bound at his peril to take notice of the

legal limits of its capacity, especially where, as in

this Commonwealth, all acts of incorporation are

deemed public acts, and every corporation organized

under the general laws is required to file in the office

of the Secretary of the Commonwealth a certificate

showing the purpose for which the corporation is

constituted. ”’

Citing:

Whittenton Mills v. Upton, 10 Gray, 582, 598.

Richardson v. Sibley, 11 Allen, 65, 72.

East Anglian Railways v. Eastern Counties Rail-

way, 11 C. B., 775.

‘¢This rule does not rest upon the ground that a

charter or general incorporation law is a public

statute of which all persons are deemed to have no-

tice. It is a rule based on no technical doctrine, but

upon the necessities of the case. It applies to

foreign corporations (Hoyt v. Thompson, 19 N. Y.,

208, 222; Relfe v. Rundle, 103 U. S., 222, 226) as

well as to domestic corporations, and to corporations

chartered by private acts of the legislature, as well

as to those whose charters are a part of the general

laws.”’

II Morawetz, Sec. 591.

39

In Relfe v. Rundle, supra, Mr. Chief Justice Waite

said:

‘*Every corporation necessarily carries with it its

charter wherever it goes, for that is the law of its

existence. It may be restricted in the use of some

of its powers while doing business away from its

corporate honre, but every person who deals with it

everywhere is bound to take notice of the provisions

which have been made in its charter for the manage-

ment and control of its affairs both in life and after

dissolution.”’

And it is to be remembered that the case at bar is not

merely the want of power through silence of the legisla-

ture, but one where the act done was positively pro-

hibited.

It must be remembered that prior to the signing of the

contract of April 16, 1891, the Legislature of the State

of New York had enacted the law approved June 7, 1890,

quoted supra, but which did not go into effect until May

1, 1891, fifteen days after this contract had been signed.

It is to be remembered, also, that the law was in effect

prior to the execution of the contract by either party.

Being thus prohibited by the statute, even if we should

refer alone to the Act of 1890, and executory, the case is

within the well-known principle that a legal impossibility

occasioned by the passage or a statute rendering the act

illegal will, by the courts of this country, in furtherance

of the local public policy, be a sufficient excuse for non-

performance.

Bailey v. DeCrespigney, L. R. 4 Q. B., 180.

2 Shuler on Personal Property, 287.

Benjamin on Sales, 571.

Campbell on Sales, 315.

Newby v. Sharp, L. R. 8 Ch. Div., 39.

This proposition is saved by the assignments of

40

error numbered 7 (R. 466) and 22 (R. 470), referring to

the fifth proposition of law (R. 469).

It thus appears that we have not here the simple case

of want of power because we are unable to put our finger

upon a legislative act authorizing the purchase of the

stock, but we have a case where, by two acts of the legis-

latures of the state to which the corporation owes its

existence, the particular act which the court is asked to

enforce was prohibited.

Th. contract to increase the capital stock of the De La

Vergne Wompany is ultra vires and void.

Seetior 3 of the articles of incorporation of the De La

Vergne Company is as follows:

** The capital stock of said Company shall be three

aundred fifty thousand dollars, which shall be divided

into thirty-five hundred shares of one hundred dollars

each.”

Where the charter has definitely fixed the capital at a

certain sum, a corporation has no implied authority to alter

the amount of its capital stock. Unless expressly authorized,

a corporation can neither increase nor diminish the num-

ber or value of its shares.

I Morawetz on Corporations, See. 434.

N.Y. & New Haven R. R. Co. v. Schuyler, 34 N. Y.,

30, is a case in which the right of a corporation to in-

crease its capital by increasing the number of its shares

is discussed. We quote from the opinion of the learned

court:

‘* A corporation, with a fixed capital, divided into

a fixed number of shares, can have no powers of its

own volition, or by any act of its officers or agents,

to enlarge its capital or increase the number of shares

into which it is divided. The supreme legislative

power of the state can alone confer that authority,

and remove or consent to the removal of restrictions

41

which are part of the fundamental law of the cor-

porate being; and hence, every attempt of the cor-

poration to exert such power, before it is conferred

by any direct and express action of its officers, is

void.”’

In Railway Co. vy. Allerton, 18 Wall., 235, Justice

Bradley said:

‘* A corporation, like a partnership, is an associa-

tion of natural persons who contribute a joint capital

for a common purpose; and although the shares may

be assigned to new individuals in perpetual succes-

sion, yet the number of shares and amount of capital

cannot be increased, except in the manner expressly

authorized by the charter or articles of association.

Changes in the purpose and object ofan as-

sociation, or in the extent of its constituency or

membership, involving the amount of its capital

stock, are necessarily fundamental in their character,

and cannot, on general principles, be made without

express or implied consent of its members.”’

Seovill v. Thayer, 105 U. S., 143, is to the same ef-

fect, and cites with approval both the Schuyler and Al-

lerton cases.

No consent, express or implied, to increase the capital

to effect this purchase was ever given by the shareholders

of the De La Vergne Company.

The contention has been made that there was no agree-

ment to increase the capital stock. In view of the fact

that the contract recited that the then capital stock was

$350,000 and the stock must be increased to $2,000,000

or a new corporation formed to comply with the con-

tract, and in view of the fact that the capital stock was

actually increased, it is not thought that this suggestion

needs any attention.

42

IrI.

The petitioner was entitled in the court

below to a special finding upon the issue of

ultra vires raised by its sixth, seventh and

eighth pleas (R. 22-24), and the court hav-

ing refused to find upon this issue, the

judgment is void.

It is thought that this principle is too well established

to need argument. The court was silent upon many

issues raised by the pleadings, and concerning which evi-

dence was adduced, and notwithstanding the fact that he

was requested to find specially upon each and every one

of these issues. These refusals of the court to find upon’

the facts thus in issue, and concerning which testimony

was adduced, were properly preserved and assigned for

error in the Circuit Court of Appeals. They are not dis-

cussed at length here, as it is supposed that the principle

applying to the one question upon which the judges of

the Circuit Court of Appeals divided would apply to all

of the other issues in the case concerning which there has

been no finding. Upon the question of ultra vires, inas-

much as there was no finding by the trial court, and an

equal division of opinion in the Court of Appeals, it ap-

pears there has been no trial whatever, and such an ex-

traordinary situation is presented as to require the exer-

cise of the jurisdiction of this court.

It is therefore submitted that the writ of certiorari

should be issued as prayed for.

Respectfully submitted,

Cuar_Les H. ALprIcn,

FREDERICK W. LEHMANN,

CHARLES NAGLE,

Attorneys for Petitioner.

IN THE

Supreme Court of the United States.

OcTOBER TERM, A. D. 1898.

No. 240.

THE DE LA VERGNE REFRIGERATING MACHINE

COMPANY,

vs.

THE GERMAN SAVINGS INSTITUTION ET AL.,

Respondents.

Petitioner,

ON WRIT OF CERTIORARI TO THE UNITED STATES CIRCUIT

COURT OF APPEALS FOR THE EIGHTH CIRCUIT.

BRIEF FOR PETITIONER.

Statement of Facts.

This cause, as its title indicates, was brought to this

court by certiorari to the United States Cirenit Court of

Appeals for the Eighth Cirenit. The facts of the case

are as follows:

In July, 1892, eight actions in foreign attachment were

brought in the Cirenit Court of the City of St. Louis

against The De La Vergne Refrigerating Machine Com-

pany and John C. De La Vergne, the plaintiffs demand-

ing, in the aggregate, the sum of one hundred thousand

dollars ($100,000), (R. 2.) Certain personal property

was levied upon (R. 11), a fortheoming bond given there-

for (R. 14), and afterwards the several actions were re-

‘moved to the United States Cirenit Court for the Hastern

Division of the Eastern Distriet of Missouri upon the

joint petition of the defendants. In that court the sev-

eral actions were consolidated and submitted upon an

agreed statement of facts CR. 38-51), resulting ina judg-

ment for the defendants. Writs of error were taken to the

United States Court of Appeals, and the judgment of the

court below reversed and the cause remanded, with diree-

tions to grant a new trial (36 UL S. App. Psd.) 0 Tn

the court below, amended answers were filed (R. 18-22),

much testimony taken, and the cause submitted to the court

without the intervention of a jury, resulting ina judgment

for $126,849.96 (R. 31-32) in favor of the plaintiffs,

from which judgment a writ of error was prosecuted by

The De La Vergne Refrigerating Machine Company, one

of the defendants. John ©, De La Vergne, the other de-

fendant, dicd on the 12th day of May, 1896, and his death

was suggested to the court on the 5th day of November, A.

D. 1896, at which time William ©. Richardson, Public

Administrator of the City of St. Louis, entered his ap-

pearance and his consent that the actions be revived against

John C. De La Vergne (R. 23), and an order was entered

reviving each of said actions. (R. 24.) The right of the

Public Administrator thus to represent the estate of John

C. De La Vergne is one of the questions to which the at

tention of the court will be invited, and it will be con-

tended that the court erred in permitting him to be joined

with the surviving defendant.

As appears in the declaration, the controversy in these

actions arose through an alleged breach on the part of the

—

defendants of a contract purporting to be entered into

between the plaintiffs and defendants, bearing date the

16th day of April, 1891. i. 39-43.) As shown by this

contract, the Consolidated Tee Machine Company, a cor-

poration organized under the laws of the State of Hlinois,

und engaged in the manufacture of refrigerating ma-

chinery and appliances, had become insolvent, and on the

14th day of October, 1890, made an assignment for the

benefit of its ereditors to R. KE. Jenkins, who, at the date

of the contract, was engaged in winding up its affairs.

The assignment, both by operation of law and in express

terms, included all of the property of the insolvent com

pany, including its good-will. The plaintiffs were stock-

holders in this insolvent company, and represented to

John @. De La Vergne, the president of the De La Vergne

Company, that the assets exceeded in value the liabilities

of the company; and he, without authority, either of the

stockholders or directors, on the part of the corporation of

which he was president and principal stockholder, and

without any action ever having been taken, either before

or after the execution of this contract, ratifying or con-

firming it (R. 188, 203, 225), entered into an agreement

by which he was to purchase the stock of the plaintiffs in

this insolvent company, increase the capital stock of his

own company from three hundred and fifty thousand dol-

lars ($350,000) to two million dollars ($2,000,000), (this

increase to be effected either under the laws of the State

of New York or by the organization of a new company

under the laws of the State of New Jersey) and pay (IR.

41-42) the plaintiffs an amount of the capital stock of the

reorganized De La Vergne Company equal to the amount

of the eapital stock whieh they then held in the insolvent

company.

By the first clause of the agreement, after the recitals,

the Consolidated Tee Machine Company and its stock-

holders covenanted with the defendants to sell and convey

unto the party of the third part (De La Vergne) all their

right, title and interest in and to the assets of the Con-

solidated Ice Machine Company, subject to the payments

of its obligations and subject to the custody thereof in the

legal custodian, R. KE. Jenkins, assignee as aforesaid.

By the fourth clause the shareholders agreed, within

ten days from the date of the agreement, to assign to John

C. De La Vergne, for the benefit of The De La Vergne

Refrigerating Machine Company, all the stock of the in-

solvent company which had been issued which the plaintiffs

owned or controlled.

By the fifth clause the stockholders in the Consolidated

Ice Machine Company covenanted to accept, in lieu of

stock in the reorganized De La Vergne Company, or its

successor, the sum of one hundred thousand dollars ($100,-

000) in cash, at the option of John C. De La Vergne.

To the petition setting out this agreement the defend-

ants amended their answer before the last hearing. The

answer as amended alleges that neither of the defendants

ever received any of the consideration moving under the

contract; that none of the assets, including the good-will

of the Consolidated Company, ever came into the posses-

sion of either of the defendants, but that the same were

transferred to the assignee and by him sold in the regular

course of the administration of his trust to Knight and

Butz, trustees, under a certain trust agreement between

them and a large number of the creditors of the Consoli-

dated Company (several of the plaintiffs, as will here-

after appear, were creditors of the Consolidated Com-

pany and were parties to this agreement); that John C.

De La Vergne was never authorized by The De La Vergne

Refrigerating Machine Company in its behalf to enter into

the contract upon which these actions are based; that the

said company never ratified the said agreement, but re-

jected it: that on or about the 12th day of September,

1891, both of the defendants rejected the said contract, and

that the said rejection was acquiesced in by the plaintiffs ;

that the plaintiffs did not perform the covenants of their

agreement, but engaged in the manufacture of ice-making

machinery ; that they did not transfer the stock in aceord-

ance with the agreement ; that the plaintiffs abandoned the

contract ; that the contract is u/fra vires both as to the De

La Vergne Company and the Consolidated Company ; and

that the contract is against public policy, and therefore

void.

There was an attempt to deliver the stock, but it was

practically conceded on the trial of the case, and was taken

for granted by the courtinitsopinion (36 U.S. App., 184)

that one hundred eighty-five (185) shares (stated in the

opinion, 215), which were held by Lingenfelder and Ras-

sicur as executors or trustees, were never legally assigned

to De La Vergne, because the assignments made and de-

livered on April 26th, 1891, were not authorized by any

order of the Probate Court.

The court, in its opinion, was very severe in its strict-

ures upon the defendant company, assuming that it had

received the assets of the Consolidated Tee Machine Com-

pany and the good-will of its business, benefited by the

suppression of the competition of that company, and ob-

tained legal control of the suppressed corporation, and af-

ter obtaining the benefits of the contract had failed and re-

fused to pay the agreed price therefor, on the technical

ground that less than one-fourth of the stock of the cor-

poration that had conveyed away all of its assets and the

good-will of its business had been imperfectlw assigned.

The eourt said that there was no evidence in the record

6

that had any substantial merit, and it was exceedingly dif-

ficult to see how any failure to assign this small minority

of the stock could result in any injury to the defendant,

and proceeded :

“ After the conveyance and covenant of April 16,

1891, was executed and delivered, the corporation was

nothing but an empty shell. All its valuable

rights and property had been vested in the De La

Vergne Company, and the legal control of the shell

itself was given to De La Vergne by the valid assign-

ment of a majority of the stock of the corporation.

These defendants cannot retain these benefits and thus

make $100,000 for themselves, and throw a loss of

$100,000 on the stockholders of this corporation,

because they technically failed to perform their con-

tract in the slight and immaterial particular that

they did not legally assign a small minority of this

stock.” (36 U.S. App., 195.)

“ Further, an offer to return them on September

12, 1891, if sufficient in form, would have been an

idle ceremony. The defendants had undoubtedly

then derived all the benefits of a performance of the

contract by the Consolidated Company and its stock-

holders that they could ever derive. They still held

the right to its assets subject to its debts, the good

will of its business, and the covenant of its. stock-

holders which suppressed its competition. No doubt,

they had secured its customers and destroyed all

possible competition. The return of the stockhold-

ers of the control over the empty shell of their cor-

poration would have been a useless act. A merchant

cannot, by offering to return the empty box, sue-

cessfully defend an action for the purchase price of

a box of goods, on the ground that the box was de-

fective, when he has received and sold the goods.”

(36 U.S. App., 196.)

In interpreting the contract the court further said:

* The rights and benefits which the defendants were

to receive from this contract were, the right of the

re

‘

Consolidated Company to its assets, subject to the

payment of its debts; the good will of its business,

which had been established for six years; the sup-

pression of the competition of that company and its

stockholders, and the legal control of the suppressed

corporation. . . . They received, retained, and

had the benefit of all these rights and interests.” (36

U.S. App., 194.)

When this decision was announced the appellants moved

in the Court of Appeals that the order of reversal grant-

ing a new trial be modified, and that the reversal be with

directions to enter judgment in favor of the several plain-

tiffs. This was refused, and the action stood for a new

trial. Amended answers were filed. The sixth, seventh

and eighth paragraphs of answer raised the issue distinctly

that the contract was ultra vires of both the De La Vergne

Refrigerating Machine Company and the Consolidated Ice

Machine Company under the laws of their respective char-

ter states. (R. 18-22.) Much testimony was taken, the

most of which has no bearing upon the particular questions

now presented to this court. It is sufficient to say that the

inference of the Court of Appeals that the De La Vergne

Company profited by the contract, and the harsh criticisms

of its conduct indulged in by the court, were shown to be

wholly unfounded. Mr. Knight, who represented the ma-

jority of the creditors in the assignment proceedings, tes-

tified that the De La Vergne Company never received any

of the assets (R. 92); Mr. Jenkins, the assignee, made

the same statement (R. 101): Mr. Bender, the inanager

of the De La Vergne Company, testified to the same effect

(R. 179); Louis De La Vergne also (R. 188-189) ; Louis

Barron, assistant manager, also (R. 206); also Charles

I]. Cone, the former secretary (R. 225). There is alse

the affirmative proof in the record (R. 391-392), and it

was found by the court (R. 391) that on May 4, 1891,

DP?

only eighteen days after the dale of the contract, and be-

fore the date fixed therein for ils execution, the court en-

tered an order to sell all the assets of the insolvent com-

pany, and they were subsequently sold to other than the

defendants. (R. 392.)

Instead of being a case where the petitioner had received

value, as originally supposed by the Court of Appeals, the

record presents a case where a large recovery was souglit

for the confessedly partial delivery (36 U.S. App., 194)

of stock in an insolvent corporation, forbidden by its char-

ter to have an indebtedness beyond its capital stock, and

vet shown to have been indebted to more than five times

its valid stock, if we are to believe the recitals of the con-

tract of April 16, 1891, that its stock was $100,000. The

hardship and wrong was wholly on the other side. There

was not a scintilla of evidence to the contrary.

The case was again submitted to the court without the

intervention of a jury, by stipulation in writing waiving

a jury, and the court was requested to find the facts

specially, together with conclusions of law therefrom.

The requested findings of fact submitted by the defend-

ants are found in the Record (348-383). The proposi-

tions of law submitted by the defendant are also set out in

the Record (383-384). The court found the faets

specially. (R. 385-407.)

It will be noticed that the first request for finding sub-

mitted by the defendant company was as follows:

“ i%

“ The De La Vergne Refrigerating Machine Com-

pany is, and was at the time of the commencement

of these actions, a corporation organized under the

laws of the State of New York governing the organi-

zation of manufacturing corporations enacted on the

17th day of February, 1848, entitled ‘An Act to au

thorize the formation of corporations for manufac-

od

turing, mining, mechanical or chemical purposes,’ and

which laws, in and by the terms thereof, provide that

‘it shall not be lawful for such company to use any of

their funds in the purchase of any stock in any other

corporation ;’ and said corporation, during the year

1800 and prior and subsequent thereto, was engaged

in the business of manufacturing and selling refrig-

erating machinery, having its principal office and

place of business at the foot of 138th Street in the

City and State of New York.” (R. 348-349.)

The court found upon this point:

“ I

“The De La Vergne Refrigerating Machine Com-

pany is, and was at the time of the commencement

of these actions, a corporation organized under the

laws of the State of New York governing the organi-

zation of manufacturing corporations enacted on the

17th day of February, 1848, entitled ‘An Act to au-

thorize the formation of corporations for manufac-

turing, mining, mechanical or chemical purposes,’

and acts supplemental or amendatory thereof.” (RK.

385-386. )

The difference consists merely in the failure to find as

a fact the prohibitory language quoted from the laws of

the State of New York, which under some circumstances

would not be material, as the court might take judicial

notice thereof and administer relief accordingly. It is

submitted, however, that here the strictness applying to a

special verdict was requisite, and that the parties were

entitled to a finding upon every material issue in the

case. The defendant company asked the court to hold as

a conclusion of law:

“ The stock of the Consolidated Company was a

part of the consideration for the promise of the De

La Vergne Company to pay $100,000 in its own

stock, or in cash, and the consideration being indi-

visible, and being illegal so far as the stock was con-

cerned, the contract is illegal and void.” (R. 384.)

10

The court found nothing upon this subject, and thus it

happened that the findings were silent upon issues dis-

tinetly raised by the pleadings and upon which requests

as to fact and law had been clearly made. There was no

trial upon these issues. The questions were properly pre-

served by exceptions (R. 407-409), bill of exceptions, as-

signment of error. (R. 428-433.)

A writ of error was taken to the Court of Appeals:

there was a summons in severance (R. 434-435), wher

the cause was argued and submitted to Judges Thayer

and Sanborn, who handed down the following per curiam

opinion :

“Per Curiam. The judges are divided in opinion

upon the question whether or not the contract which

is the basis of this action was ultra vires the De La

Vergne Refrigerating Machine Company, and are of

opinion that the other questions presented should be

determined in favor of the defendants in error. The

judgment below is therefore affirmed by a divided

court.”

It has thus come about that, although the defendant

company, by proper pleading and evidence, has sought to

defend itself against this contract as prohibited by the

laws of the state to which it owes its existence, yet it has

been unable to obtain the opinion of any court thereon—

the trial court, though making special findings of fact,

choosing to remain silent upon this subject, and the Court

of Appeals being equally divided thereon.

It was doubtless owing to this extraordinary condition

of affairs that the two judges composing the Court of

Appeals suggested that an application be made to this court

for a writ of certiorari, that the issue might be determined

and the party not muleted in a large sum without having

its principal defense passed upon by any court.

We feel that there are other manifest errors in the ree-

11

‘

ord that should receive the benefit of the judgment of this

court. For example, the defendant John C. De La Vergne

died testate after the action of the Court of Appeals revers-

ing the first judgment and before any evidence was taken.

Ie was not represented in the taking of the testimony. He

was represented at the trial by William C. Richardson,

Public Administrator of the City of St. Louis, notwith-

standing the fact that the defendant company offered to

show that he had no estate in the State of Missouri (R. 36,

37), and requested the court to find his death and that his

estate was represented by W. C. Richardson solely in his

capacity as such public administrator. (R. 349.) The court

below finds a judgment against such administrator, not-

withstanding the fact that in its finding of facts it does not

find that John C. De La Vergne is dead. (R. 385-407).

Assignment of Errors.

It is assumed that (R. 413-433) when a cause is brought

to this court by certiorari the case stands as in the court be-

low, and that the errors assigned upon appeal are to be

deemed assigned in this court. We therefore reprint here

the assignment of errors on appeal from the Circuit Court

to the Court of Appeals, omitting therefrom documents set

out in such assignment, which are elsewhere found in the

record, thus seeking to avoid needless repetition and ex-

pense, and also omitting the assignments which we do not

now eare to urge upon the attention of the court.

The assignments thus insisted upon are as follows: The

court erred—

“1. In overruling the motion of this defendant to

dismiss this cause as to William C. Richardson, public

administrator, in charge of the estate of John C. De

La Vergne, deceased ; to which action of the Court the

13

said defendant then and there duly excepted.” (R.

413.)

“3. And the Court erred in this: That the

plaintiffs offered evidence showing the election and

qualification of Win. C. Richardson as public admin-

istrator for the city of St. Louis, Missouri, for the

term of four years beginning December 12th, A. D.

1892; to which evidence so offered by the plaintiffs

the De La Vergne Refrigerating Machine Co. ob-

jected on the grounds that it was immaterial and

irrelevant in that the publie administrator has no

standing as a party in this eause; which objection

was, by the court, overruled; to which ruling of the

Court the defendant's counsel then and there duly ex-

cepted.” (RR. 427.)

“4. And the said Court upon the trial of said

cause, committed error in this: That the plaintiffs

offered in evidence the notice given by said William

C. Richardson as publie administrator, on the 13th

day of March, A. D. 1896, to the effect that he had

taken charge of the estate of John C. De La Vergne,

deceased, which notice is in words and figures as fol-

lows, to-wit:

“*Srare or Missovrt,

“*Crry or Sr. Lours, ss.

** To the Hon. Leo Rassteur,

“* Judge of the Probate Court of the City of St.

“* Louis:

** Notice is hereby given to creditors and all other

persons interested in the estate of John C. De La

Vergne, late of the City of St. Louis, deceased, that

I, the undersigned, public administrator within and

for the city aforesaid, have this day taken charge of

said estate for the purpose of administering the same.

“* Given under my hand this 13th day of May, A.

D. 1896.

““ Wa. C. Rienarpson,

“¢Publie Administrator.’

“ The above notice bears the following endorsement

on the back thereof:

“*Reeorded in book of Pub. Admr. Notices on

page 418. Filed May 13th, 1896. Jos. A. Wherry,

Clerk. By J. W. Gutting, D.C’

13

“To which offer the De La Vergne Refrigerating

Machine Co. objected on the grounds that the same

was immaterial and incompetent, because the public

adininistrator has no standing as a party in this

cause, and because the statute assuming to authorize

the public administrator to aet as such in this cause

Was unconstitutional; which objection was, by the

Court, overruled. To which ruling of the Court, the

defendant, the De La Vergne Refrigerating Machine

Co. then and there duly excepted.” (R. 427-428.)

“43. And the said Court committed error in

this: That upon the trial of said cause, it was ad-

mitted upon the record by the De LaVergne Re-

frigerating Machine Company, that, for the purpose

of releasing certain attachments made at the time

these actions were instituted, John C. De La Vergne,

since deceased, deposited with Adolphus Busch, a

resident of the city of St. Louis and State of Mis-

souri, certain stocks in the De La Vergne Refrigerat-

ing Machine Company belonging to said John C. De

La Vergne, and that the said certificates of stock are

vet held and retained by said Adolphus Buseh, in

St. Louis. And, in that connection, the said De La

Vergne Refrigerating Machine Company offered to

show by Wim. C. Richardson, public administrator,

that no property of any kind or deseription belong-

ing to John C. De La Vergne, deceased, had come

into his possession or control; and, that the only

property of John C. De La Vergne, deceased, if any,

within the State of Missouri at the time of his death,

or at the present time, were the certificates referred

to; which certificates were endorsed by said John C.

De La Vergne, in blank. To which proof so offered

by the said defendant, the plaintiffs object; which

objection was, by the Court, sustained; to whieh rul-

ing of the Court, the said defendant then and there

duly excepted.” (R. 428.)

“5. That the Court committed error in finding

as a fact that the plaintiffs have not, nor have any

of them since entering into the contract of April

16th, 1891, abandoned the same or acquiesced in any

abandonment of rescission thereof; to which finding

of the Court, the defendant, the De La Vergne Re-

jG a a wink Aa

BS

it,

Kiba as

14

frigerating Machine Co, then and there duly ex-

cepted.” (RR. 428.)

“6, And the said Court erred in its finding of

fact that the plaintiffs have not, nor have any of

them, since April 16th, 1891, violated the terms or

provisions of their said contract of that date, by

which they bound themselves not to enter into or

become connected with, the sale of refrigerating or

ice-making machines; to whieh tinding of the Court,

the defendant, the De La Vergne Refrigerating Ma-

chine Co. then and there duly excepted.” (R. 428-

429.)

“7. And the said Court erred in failing to find

as requested by the defendant, the De LaVergne

Refrigerating Machine Co., in the first proposition

of fact requested by it, that the laws of the State of

New York, under whieh the defendant, the De La

Vergne Refrigerating Machine Co., was incorporated,

provide: * That it shall not be lawful for such com-

pany to use any of their funds in the purchase of

stock in any other corporation.’ To which action

of the Court refusing to so find, the said defendant

then and there duly excepted.” — (R. 429.)

‘8. And the Court erred in this: That it failed

to find the second proposition of faet requested by

said defendant, the De La Vergne Refrigerating Ma-

chine Co., as follows:

“* That the president and principal stockholder

of said corporation, in the vears 1890 and 1891, was

one John C. De La Vergne, who was made origin-

ally a defendant in these actions and was served with

process and had appeared herein; that said John (.

De La Vergne died testate on May 12th, 1896, in

the city of New York and State of New York, where

the executors appointed under his will are engaged

in the administration of his estate; that said exeen-

tors have never appeared in these actions, or any of

them, nor has any seire facias or other process been

issued in said actions, notifying such executors so to

appear.’

* To which action of the Court in failing and_re-

fusing to find, the defendant, the De La Vergne Re-

15

frigerating Machine Co. then and there duly ex-

cepted.” (RR. 429.)

“9. And the Court committed error in this:

That it failed to find, as requested by the said de-

fendant, its third proposition of fact, as follows:

“*That the said John C. De La Vergne’s estate

is represented in these actions by W. C. Richardson,

who is the duly qualitied and acting public adminis-

trator under the laws of the State of Missouri, and

appears as such representative in these actions solely

in his capacity as such publie administrator.’

“To which action of the Court in failing and re-

fusing to so find, as requested, the said defendant

then and there duly excepted.” (R. 429.)

40, And the Court erred in this: That it failed

to find as requested by said defendant in its seventh

proposition of fact that the said contract of April

16th, 1891, was never authorized by the directors

and stockholders of the De La Vergne Refrigerating

Machine Co.; to which failure and refusal of the

Court to so find, the defendant then and there duly

excepted.” (R. 429.)

“13. And the said Court erred in this: That it

refused to find the twelfth proposition of fact re-

quested by said defendant; to which failure and re-

fusal of the Court to so find as requested, the said

defendant then and there duly excepted.” (R. 430).

Which said twelfth proposition of fact was as fol-

lows:

“*NITI. That in the meantime, John Feather-

stone’s Sons, who had been doing all that was in

their power to prevent John C. De La Vergne pur-

chasing the claims of creditors against said insolvent,

and who was represented in such efforts by Clarence

A. Knight, Esq., an attorney and counsel of the bar

of the State of Illinois, joined with certain other

creditors in a plan to form a new corporation to pur-

chase the assets under said order of sale, and engage

in the business of manufacturing ice machinery : or,

in the event that such a plan could not be carried

through, then to hold such assets and dispose of the

same on the most favorable terms possible: and to

that end entered into a so-called trust agreement on

g 3

ESAT IVORY ACME eS pL pe en

SEETHER ANT RN T

16

the 9th day of October, 1891, a copy of which trust

agreement marked “Exhibit I,” is tiled herewith and

made a part thereof. That this trust (agreeing )

more than a majority of the entire indebtedness ot

said Consolidated Ice Machine Company, including

among others, The German Savings Institution, F.

Widmann, Leo Rassieur and Jacob W. Skinkle, who

are plaintiffs in these consolidated causes, and at the

same time Leo Rassieur was the agent and represen-

tative, in his personal or professional capacity, of all

the other plaintiffs in these consolidated causes. That

by the terms of this trust agreement, the same Clar-

ence A. Knight and Otto C. Butz were constituted

trustees for the creditors so signing the agreement.

as under the terms and with the powers set forth in

said trust agreement.’” (R. 352-353.)

“14. And the said court erred in this: That it

refused to find the fifteenth proposition of fact re-

quested by said defendant; to which failure and re-

fusal of the Court to so find, as requested, the said

defendant then and there duly excepted.” (R. 430. }

“Which said fifteenth proposition of fact is as

follows:

““XV. That the creditors so purchasing the

property, and their trustees, did not avail themselves

of the right contained in the trust agreement to or-

ganize a new company and prosecute the business of

said insolvent, but, on the contrary, seem to have

abandoned that project, and on the 30th day of Jan-

uary, 1892, made a conditional sale of said assets to

John Featherstone’s Sons, by which the title to said

assets, and of all ice machinery, or parts of machines,

to be sold by John Featherstone’s Sons until certain

payments in the agreement of sale should be made,

was to remain in and be done in the name of the said

trustees. A copy of said agreement, marked “Ex-

hibit K,” is filed herewith and made a part thereof. ”

(R. 353.) (Exhibit K—see Record, p. 380.)

“15. And the said Court erred in this: That it

refused to find the sixteenth proposition of fact. re-

quested by said defendant: to which failure and re-

fusal of the Court to so find, as requested, the said

defendant then and there duly exeepted.” (R. 430.)

17

“ Which said sixteenth proposition of fact is as fol-

lows:

“*XVI. That the business was so prosecuted, un-

der the terms of said agreement, from the date of

said sale (January 30th, 1892), until the 10th day

of May, 1892, when the said Featherstone’s Sons

availed themselves of the option contained in said

agreement to make an earlier payment and receive

an absolute title of the property.” (R. 353.)

“16. And the Court erred in this: That it re-

fused to find the seventeenth proposition of fact re-

quested by said defendant, as contained in its request

for finding of facts, which is as follows:

“*That neither John C. De La Vergne nor the

De La Vergne Refrigerating Machine Company ever

acquired or received any part of the assets of any

kind or description of said Consolidated Iee Machine

Company, and that the only delivery of any kind or

description that was ever made by the parties of the

first and second parts to the contract of April 16th,

1891, was of certain shares of stock owned by the

several parties of the second part to said contract,

and delivered as more particularly described in the

next paragraph and the document therein referred

to” (R. 354.)

the said document being the agreed statement of facts

hereinbefore set forth; to which failure and refusal

of the Court to so tind as requested, the said defend-

ant then and there duly excepted.” (R. 430.)

“147. And the said Court committed error in

this: That it refused to consider or pass upon the

ten propositions of law requested by the said defend-

ant, or upon any of the same; to which action of the

Court in so refusing to pass upon the propositions of

law requested hy defendant, or upon any of the same,

the defendant then and there duly excepted. The

said ten propositions of law are as follows (R. 430):

see J.

“*On April 16th, 1891, the date of the contract

upon which these actions are brought, the Consoli-

dated Iee Machine Company, insolvent, had no as-

sets, legal or equitable, which it could convey, and

its stockholders deriving their interest as they must

18

through the corporation, had no interest, legal or

equitable, in the assets, including goodwill of the

corporation, which was the subject of conveyance,---

nothing passed, therefore, to the defendants, or either

of them, through the pretended sale of the date named,

except the certificates of stock.

ae

“*The plaintiffs having at the date of the pre-

tended conveyance no present title to the assets of

the Consolidated lee Machine Company, the ease was

within the well-known rule which makes such a sale

void.

~* See

“*The assets of the Consolidated Company, in-

solvent, being in the hands of an assignee under tlie

assignnent laws of the State of Illinois and in process

of administration, the stock owned by the respective

plaintiffs was the only thing attempted to be delivered

under the contract, and was the only thing capable

of passing by such contract, and must therefore be

deemed the object of the contract.

see IV.

“* The plaintiffs, as stockholders in the Consoli-

dated lee Machine Company, an insolvent corpora-

tion, which had made a deed of all its property to an

assignee under the insolvent laws of the State of Ili-

nois, could not thereafter, and while such assignee

was engaged in the administration of the insolvent’s

estate, by their joint action convey or transfer any

interest in the property or assets of the corporation

itself, and therefore the contract must be held to have

for its real purpose the transfer of the stock in the

corporation which alone was capable of being the

subject-matter of transfer.

“ey

“* The stock of the Consolidated Company was a

part of the consideration for the promise of the De

La Vergne Company to pay $100,000 in its own

stock, or in cash, and the consideration being indi-

visible, and being illegal so far as the stoek was econ-

cerned, the contract is illegal and void.

19

cee VI.

“<Tf the contract be considered as a sale of the

assets of the Consolidated Iee Machine Company, in-

cluding its good-will, for stock in the De La Vergne

Refrigerating Machine Company, and not a_ sale of

stock, then it was u/fra vires as to the vendor com-

pany.

** vias.

“ <The contract was joint and not several, and there-

fore the actions are improperly brought.

wef

“*The plaintiffs abandoned the contract upon

which the action is brought.

a

“<The contract for the delivery of the stock was

an entire contract; such delivery was a condition

precedent to any action on the part of the plaintiffs ;

the plaintiffs failed to make a complete delivery;

and therefore this action must fail.

“ee ~*~.

“*« The contract to increase the capital stock of

the De La Vergne Refrigerating Machine Company

was ultra vires and void.” (R. 431, 432.)

“18. And the said Court committed error in

this: That it refused to define and declare the law

to be. as requested by the said defendant in its first

proposition of law; to which refusal of the Court, the

said defendant then and there duly exeepted.” (R.

432.)

“19, And the said Court committed error in

this: That it refused to define and declare the law

to be, as requested by the said defendant in its sec-

ond proposition of law; to which refusal of the

Court, the said defendant then and there duly ex-

cepted.” (It. 452.)

“90. And the said Court committed erorr in

this: That it refused to define and declare the law

to be, as requested by the said defendant in_ its

third proposition of law; to which refusal of the

ifs A eR

20

Court, the said defendant then and there duly ex-

cepted.” (R. 482.)

“21. And the said Court committed error in

this: That it refused to define and declare the law

to be, as requested by the said defendant. in its

fourth proposition of law; to which refusal of the

Court, the said defendant then and there duly ex-

cepted.” (RR. 432.)

*22. And the said Court committed error in

this: That it refused to define and declare the law

to be, as requested by the said defendant in its fifth

proposition of law; to which refusal of the Court, the

said defendant then and there duly excepted.” (R.

432. )

“23. And the said Court committed error in

this: That it refused to detine and declare the law

to be, as requested by the said defendant in its sixth

proposition of law; to which refusal of the Court,

the said defendant then and there duly excepted.”

(hi. 432.)

“24, And the said Court committed error in

this: That it refused to define and declare the law

to be, as requested by the said defendant in its sev-

enth proposition of law; to which refusal of the

Court, the said defendant then and there duly ex-

cepted.” (R. 432.)

“25. And the said Court committed error in

this: That it refused to detine and declare the law

to be, as requested by the said defendant in its eighth

proposition of law; to which refusal of the Court,

the said defendant then and there duly excepted.”

(It. 432.)

* 26. And the said Court committed error in

this: That it refused to define and declare the law

to be, as requested by the said defendant in its ninth

proposition of law; to which refusal of the Court,

the said defendant then and there duly excepted.”

(R. 432.)

“27. And the said Court committed error in

this: That it refused to define and declare the law

to be, as requested by the said defendant in its tenth

proposition of law; to which refusal of the Court,

, oe — , —_ ecncrvnae cine ata

rs 7 z i Co oi WN , Ty SPE BETS ee ps

21

the said defendant then and there duly excepted.”

(Rt. 482.)

“98. And the said Court committed error in en-

tering judgment for the plaintiffs and against the

said defendant for the sum of $126,849.96 and costs.”

"

a

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o>,

a

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&

(R. 432.) 5

“31. And the said Court committed error in over- ¢

ruling the said defendant’s motion for a new trial.” a

(R. 432.) &

“39, And the said Court committed error in ren-

dering judgment against W. C. Richardson, public

administrator, ete.” (R. 432.)

SSA PER

BRIEF. é

The assets of the Consolidated Company, %

insolvent, being in the hands of an assignee f

under the insolvent laws of Illinois and in }

due process of administration, the stock 5

owned by the respective respondents was

the only thing attempted to be delivered

under the contract, and was the only thing

capable of passing by such contract, and

must, therefore. be deemed the subject of

the contract.

Humphreys vo MeWissok, 140 U.S., 504,

Smith v. Hurd, 12 Mete., 371, 385.

Railroad Co. v. Howard, 7 Wall., 392.

Whistler v. Foster, 14 C. B. (N. S.), 248.

Fawcelt v. Osborn, 2 V., 411.

Burton v. Curyea, 10 WL, 820.

Story on Sales (3rd Ed.), Sees. 188, 423.

Linn v. Thornton, 1 C. B., 379.

Huling v. Cobell, 9 W. Va., 522

Low v. Pew, 108 Mass., 349.

SLOPES EE SILT ERS

PRO R EOL LY

22

—

That all the title of the Consolidated Ice Machine Com-

pany passed by the deed to the assignee on October 14,

1S90, leaving no lille, legal or equitable, in the insolvent

company or tts individual shareholders to which the con-

tract of April 16, 1891, could atlach.

Weber v. Mick, 121 TIL, 520, 533,

Walker v. Ross, 150 Il. 50.

Spindle v. Shreve, 111 UL S., 545.

As to the claim that the transfer of the stock was only

=

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wt

*

-~

—_

incidental to the main purpose of the contract, which the

respondents assert and one of the judges intimated was ‘o

convey the assets subject to the debts, and the stock was

therefore only incidental as a means for further assurance

of title, it is submitted that it was even then a part of the

consideration for an indivisible promise, and being un-

lawful, the entire contract is void.

sishop on Contracts, Sec. 74.

Widoe v. Webb, 20 Oh. St., 451.

Carleton v. Woods, 28 N. IL, 290.

Peering v. Chapman, 22 Me., 488.

Ocean Ins. Co. v. Polleys, 13 Pet., 157, 164.

MeBlair v. Gibbes, 17 How., 232.

Dent v. Ferguson, 132 U.S., 50, 64-66.

Armstrong v. American Bx. Bank, 133 U.S. 432.

469.

Se wise Me eens . PEN ENE oe Reve Oe

23

II.

The stock of the Consolidated Ice Machine

Company was a part of the consideration

for the promise of the De La Vergne Com-

pany to pay 100,000 in its own stock or

in cash. The contract is ultra vires of the

vendee company, and therefore illegal and

void.

Laws of New York, 1848, Ch. 40, See. 8.

Id., 1890, Ch. 564, See. 40.

Boone, Law of Cor., See. 107.

Green’s Brice Ultra Vires, p. 91, note b.

1 Morawetz Private Cor., Sees. 451, 433.

People v. Chicago Gas Trust Co., 130 Til, 268,

284.

Milbank v. N. Y., L. BE. & W. R. R. Co., 64 How.

Pr., 20.

Talmage v. Pell, 7 N. Y., 328.

SUL. V. d T. H.R. Co. v. T. H. & 1. R. Co., 145

U. S., 393.

Central Transportation Co. v. Pullman Car Co.,

139 U.S., 24.

California Nat'l Bank v. Kennedy, 167 U. S..

362.

Marble Co. v. Harvey, 92 Tenn., 116.

Union Pacific Ry. Co. v. Chicago, M. & St. P. Ry.

Co., 163 U.S., 564.

Alexander v. Cauldwell, 83 N. Y., 480.

Davis v. Old Colony R. R., 131 Mass., 258.

Applying to the act of 1890, supra, enacted before the

contract upon whch action was brought, but going mto

force fifleen days after it was signed, but before the deliv-

ery upon either side under the contract.

Baily v. De Crespigney, L. R. 4, Q. B., 180.

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24

Newby v. Sharp, L. Rs Che Dive, 39,

2 Schouler Personal Prop., 257.

Benjamin on Sales, 571.

Campbell on Sales, 315.

Applying to the contract lo inerease the capital stock of

the De La Vergne Company.

1 Morawetz on Cor., Sec. 454.

N.Y. @ Nv. BR. BR. Co. v. Schuler, 84 N; Y., 30.

Railway Co. v. Allerton, 1S Walk, 233.

Scovdl v. Thayer, 105 UL S., 148.

III.

The petitioner was entitled in the court

below to a special finding upon the issue

of ultra vires raised by its sixth, seventh

and eighth pleas (R. 22-24), and the court

having refused to find upon this issue, the

judgment is void.

Cannot go to other parts of record to help out the find

ing.

The B.A. Packer, AO UL S., 860, 864, 565, bot

tom of page.

Special tindings have same effect as special verdict by

jury.

Saltonstall v. Britwell, 150 UL S., 417, 419.

Special verdict is bad unless it finds all the facts in issue.

Ft. Scott v. Hickman, 112 U.S., 150, 164.

Ward v. Cochran, 150 U.S., 597, 6O8.

PIE TTT EIR PRINCE Ha NITRA AY OE RIN BOERS BR Re NI RU TR

IV.

The De La Vergne Company and John C.

De La Vergne having incurred a liability

Gif any) growing out of the same transac-

tion, William C. Richardson, the public ad-

ministrator of John C. De La Vergne, who

has died, cannot be joined with the De La

Vergne Company, and the action of the

court below in allowing such public ad-

ministrator to represent the estate of John

C. De La Vergne in said action, and ren-

dering a judgment against said De La

Vergne, so represented, and this defendant,

was not authorized under Sec. 956, R. S. of

the United States, and to give such effect

to the appointment of the public adminis-

trator by the state court is in violation of

the provisions of the fifth and fourteenth

amendments to the Constitution of the u

United States. i

Section 956, RS. U.S.

Seaman v. Slater, 18 FLV, PSS.

Ballance v. Samuel, 3 Seam., 380.

Kggleston v. Buck, 31 Ml, 254. a

Nich v. Severs, 73 Ml, 194. i

Moore v. Rogers, 19 IIl., 346. :

LRT GENTS Be

eee

LESTER TOAST ee

Powell v. Keltelle, 1 Gil., 491. 4

Conover v. I1ill, 76 Ill., 342. :

1 Chitty on PL, 50. :

The prohibitions of the constitution extend to all the in- :

strumentalities of the state. ;

Chi., Burlington & Quincy R. R. Co. v. Chicago, 4

166 U.S., 226, 233. a

The evidence offered and excluded was not a collateral e

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26

attack upon the appointment or authority of the publie ad-

ministrator.

Insurance Co. v. Lewis, 97 U.S., 682.

Mut. Life Ins. Co. v. Woodworth, 111 U. S., 138.

The shares of stock in the New York corporation de-

posited with Mr. Busch by John C. De La Vergne, de-

ceased, did not constitute assets upon which administra-

tion by the public administrator could be predicated.

Armour Bros. Banking Co. v. St. Louis Nat'l Bank,

113 Mo., 12; and cases there cited.

V.

The respondents abandoned the contract

upon which the action is brought and

violated its provisions.

Vi.

The contract was joint and not several,

and therefore the actions are improperly

brought.

Rainey v. Snizer, 28 Mo., 310.

Farni v. Tesson, 1 Black, 309.

Keightley v. Watson, 3 Ex., 716.

Parsons on Con. (Sth Ed.), pp. 14-17, Williston’s

notes; Id. (6th Ed.), star page 13.

17 Am. & Eng. Ene. of Law, 562.

Foley v. Addinbrooke, 3 Gale & D., 64.

Lucas v. Beale, 20 L. J. (U.S.), ep. 134.

Lockhart v. Barnard, 14 M. & W., 674.

Byrne v. Fitzhugh, 5 Tyr., 54; 10. M. & R., 613.

Hatsall v. Griffith, 4 Tyr., 487.

Petrie v. Bury, 3 B. & C., 353.

Southcote v. Hoare, 3 Taunt., 87.

Guidon v. Robson, 2 Camp., 302.

ARGUMENT.

I.

The assets of the Consolidated Company,

insolvent, being in the hands of an assignee

under the insolvent laws of Illinois and in

due process of administration, the stock

owned by the respective respondents was

the only thing attempted to be delivered

under the contract, and was the only thing

capable of passing by such contract, and

must, therefore, be deemed the subject of

the contract.

Since the question of ultra vires was raised, the claim

is put forward that there was no sale of stock by the re-

spondents and no purchase of stock by the defendants be-

low; that the sale was of the assets of the insolvent corpor-

ation theretofore conveved by the corporation to the as-

signee, subject to the payment by the assignee of the debts,

and that transfer of the stock was a mere incident collat-

eral to the main purpose of the contract. This interpreta-

tion of the contract is not sustained by its language, or the

situation and conduct of the parties, and, even iftheconten-

tion were admitted, for the sake of argument, it would not

avail the respondents, as they would still be compelled to

admit that the transfer of the stock was a part of the con-

sideration.

The court will notice the attempts made to fortify the

theory of the respondents by the extraordinary efforts to

italicize or emphasize, with the printer’s assistance, certain

words and sentences of the contract of April 16, 1891.

This first appeared in the printed record in the Court of

Appeals, and has been properly followed by the clerk in

28

this court. It is sufficient to say that there is no warrant

for such emphasis in the contract as actually made. How

the emphasis came to be added can only be surmised. It

is not thought that the natural meaning or construction

of the contract can be thus changed, and this statement is

inade rather as an explanation of what the parties did

not do than as an accusation as to what any party has

done. The possibility of accident, or the presence of errors

through the printer’s devil, may explain this singular em-

phasis.

The stock was the only property owned by the respon-

dents. It was the only subject of attempted transfer. If

we admit, for the purpose of argument, that upon the pay-

ment of the debts the title would revert, the reversion

would be to the corporation—-not to the shareholders. If

an equity existed, it belonged to the corporation and not

to the shareholders. If the corporation had anvthing to

convey, the transfer would have been in the name of the

corporation, by its proper officers thereunto duly author-

ized. If the other party to the contract failed to pay the

consideration, the corporation, not the shareholders, either

jointly or severally, must bring action to obtain redress.

All of the records of the Consolidated Ice Machine Com-

pany, from its organization to the date of the trial, are in

the record, and it is affirmatively shown that neither the

stockholders nor the directors ever authorized the contract

sued upon, or afterwards ratified or confirmed it.

The idea that all the shareholders of a corporation may,

by uniting in a contract or deed, transfer the property of a

corporation, without corporate action, is a mistake. If

corporate property was the subject of transfer in this case,

it should have been applied to the payment of the debts,

which the record shows are, after a wise and economical

administration of the estate, yet unpaid to an amount ex-

29

ceeding $150,000, (R. 99.) Again, if corporate proper-

ty was the subject of transfer, the consideration therefor

could only be obtained by the plaintiffs in the several ac-

tions through the ownership of their several shares of

stock, and the defendant company could acquire the prop-

erty, if at all, in view of the previous conveyance to the

assignee, only through the ownership of the stock. This

made the stock, in any view of the case that it is possible

to take, an essential element of the transfer.

It is thought that these several statements are abundant-

ly sustained by the authorities.

The Supreme Court of Illinois, which court is, perhaps,

the final judge of the extent and scope of the powers of cor-

porations organized under the laws of that state, as was

the Consolidated Iee Machine Company, and of the extent

and scope of the powers of stockholders in such corpora-

tions, has held, quoting opinions of this court, that all the

chareholders uniting cannot transfer the title to corporate

property.

In Sellers v. Greer, 172 Til., 549 <s. c@, 40 L. R. AL,

580), the court said:

“ It is true that Morris Sellers and Howard Greer

owned all of the stock of the corporation except two

shares, which belonged to their sons. But did this

fact confer upon them, or either of them, the power

to sell the corporate property 4 It is conceded that

the patents and all the other property named in the

contract in question belonged to the corporation Mor-

ris Sellers & Co., and the question presented is

whether Morris Sellers and Howard Greer, two

of the stockholders, without the consent or authority

of the corporation Morris Sellers & Co., had the right

to divide the corporate property between themselves,

or to sell it, as was attempted to be done by the con-

tract in question. A corporation is an artificial being

ereated by law, clothed with certain powers. It acts

through its board of directors and officers. Its prop-

ce f =

30

erty is not subject to the control or disposition of its

members or stockholders. ‘They have no power to sell

or encumber the corporate property. A reference to

a few authorities will fully sustain what has been

said.

* In 2 Cook, Stock & Stockholders, 8d ed. See. 709,

it is said: * The stockholders cannot enter into con-

tracts with third persons. Contracts between the

corporation and third persons must be entered into

by the directors, and not by the stockholders. The

corporation, in such matters, is represented by the

former, and not by the latter. Such is one of the

main objects of cerporate existence. To the directors

are given the manugement and formation of corporate

contracts. The stockholders cannot, in meeting as-

sembled, bind the corporation by their contracts in its

behalf. Although one person owns a majority of the

stock, or all of it, or all but two shares, he does not

in consequence thereof acquire the right to act for the

corporation, or as the corporation, independently of

the directors. One person may own all the stock, and

yet the existence, relations, and business methods of

the corporation continue. A single stockholder c¢an-

not make a contract for and in the name of the cor-

poration which shall have any binding force or valid-

ity, except by subsequent ratification or adoption in

the regular manner.’

“In Allemong v. Simmons, 124 Ind. 199, it was

attempted to hold a corporation liable on a contract

made by one Crawford, who was a director and owner

of five-sixths of the stock of the corporation. In dis-

posing of the question the court said: ‘It is true,

Crawford was one of the directors of the company,

and held a majority of the stock, but the existence of

these facts conferred upon him no power to make con-

tracts for the corporation. It could only be bound

by the action of its board of directory; the bourd

could have conferred on Crawford this power, but

there was no evidence that it had done so. Crawford,

as one of the directors, had no more authority or

power than any other director. The board consisted

of five members: and three consituted a quorum, less

than three could make no binding contract for the

es

EERE ETI SPOON NEY RE URIS GT AIREY BPS NC ET BEN TMN PIN REI TISSIT PPS RAI BO

31

corporation. . . . The contract which Simmons

and Ayleshire executed with Crawford was the mere

personal engagement of Crawford with the said

parties.’

“In Humphreys v. MeWissock, 140 U, 304, 35

L. ed. 473, the validity of the action of “a the stock-

holders of a corporation in transferring its property

without corporate action arose, and in disposing of

the case the court said: * Both the commissioner and

the court, in confirming his report and entering the

decree mentioned, scem to have confounded the

ownership of stock in a corporation with ownership

of its property. But nothing is more distinct than

the two rights; the ownership of one confers no owner- .

ship of the other. The property of a corporation is 3

not subject to the control of individual members,

whether acting separately or jointly. They can

neither encumber nor transfer that property, nor

authorize others to do so. The corporation—the

artificial being created—holds the property, and alone

‘an mortgage or transfer it: and the corporation acts 5

only through its officers, subject to the conditions pre- yg

scribed by law. In Sinith v. Hurd, 12 Met. 385, 46

Am. Dec. 690. the relations of stockholders to the ;

rights and property of a banking corporation are t

stated with his usual clearness and precision by Chief t

Justice Shaw, speaking for the Supreme Court of .

Massachusetts, and the same doctrine applies to the .

relations of stockholders in all business corporations. i

Said the Chief Justice: * The individual members ¥

of the corporation, whether they should all join, or 5

each act severally, have no right or power to inter- 3

meddle with the property or concerns of the bank, or e

‘all any officer, agent, or servant to account, or dis- By

charge them from any liability. Should all the stock- &

holders join in a power of attorney to any one, he

could not take possession of any real or personal es-

tate, any security or chose in action ; could not collect

a debt, or discharge a claim, or release damage aris-

ing from any default, simply because the ‘vy are

ER PITT Ne gt

not the legal owners of the property, and damage done i

to such property is not an injury to them. Their i

rights and their powers are limited and well defined.’ e.

re

a

ees: RELEGER GER SELL LIL POLIS LIAISE, LINE IE TOA

hee Ay 9,

32

“In this court, in //ophins y. Roseclare Lead Co.

72 Ill. 373, the right of a stockholder of a corporation

to transfer certain leases be ‘longing to the corporation

arose, and in disposing of the question the court said

(p. 379): ‘It is insisted that La Grave had no

power to make the sale of the leases, to transfer the

control of the suit, or to sell the 20 acres of land, as

they were all owned by the company. He was but

a stockholder, and as such had no power to make the

sale. He, although owning the majority of the stock,

could not act for the « company unless specially author-

ized. He could, no doubt, control the action of the

company by the election of its officers, but still the

company could only act through its officers or by

expressly delegating power to others, whether a stock-

holder or other persons.’ See also England v. Dear

born, 141 Mass. 590; Newlon M/q. Co. v. White, 42

Ga. 148; Russell v. M’Lellan, 14 Pick. 63.

* From what has been said it is apparent that Mor-

ris Sellers, although he owned one-half of the capital

stock of the corporation, had no right to sell the eor-

porate property, and any contract he may have made

would not be obligatory on the corporation. The

corporation, Morris Sellers & Co., the owner of the

letters patent and other property described in the

contract, was not made a party to the bill, and no

decree could have been obtained against it if it had

been made a party, for the reason it neverexecuted the

contract. Nor did it ratify the contract after it was

made, but, on the other hand, expressly refused to do

so on application of Greer to its board of directors.

The bill prayed that Sellers might be compelled to

convey the letters patent named in the contract to

Greer. He had no title, and hence could not make

a conveyance, and any decree that might have been

rendered would have been nugatory. “Tn a bill for

specific performance, the contract must be of such a

character that the court is able to make an efficient

decree and enforce it when made. 3 Pom. Eq. Jur.

See. 1405,’

As has been noted, and as is affirmatively shown in the

record, neither the stockholders nor the directors author-

33

ized the transfer of the assets or equity therein, if such a

thing existed, to John C, De La Vergne or the De La

Vergne Refrigerating Machine Company. The officers

had been directed to assign all the property of the corpora-

tion, including its good-will, to Robert KE. Jenkins, as as-

signee, under the insolvent laws of the State of Illinois,

and had done so. (R. 173-174.) To claim that having

made the assignment by deed, after the assignee had en-

tered into possession and was engaged in the administra-

tion of the estate, the corporation had any property to dis-

pose of for the benefit of its shareholders and leave its

creditors unpaid, is in the highest degree absurd. To as-

ert that the shareholders may use the name of the corpora-

tion under such circumstances, and seeure to themselves,

and not for the corporation, one hundred thousand dollars,

while leaving creditors of the corporation ‘to the extent of

one hundred and fifty thousand dollars unpaid, seems

equally absurd; and to add to these propositions the fur-

ther one that these shareholders did not sell any stock (al-

though shares of stock were the only things which they at-

tempted to deliver), but sold the property of the corpora-

tion, and are nevertheless entitled to recover the considera-

tion promised, not in the name nor in the interest of the

corporation, but in the several names and interest of the

shareholders and in the proportion of such holdings, by

separate actions, is to disregard such fundamental princi-

ples of legal rights and remedies that we are unable to un-

derstand how one of the learned judges below reached his

conclusions as to the right of recovery.

“Nemo dat quod non hahet.” This maxim expresses

the principle that one who has no title cannot confer a title

as expressed by Willis, J., in Whistler v. Foster, 14 C. B.

(N.S.), 248.

The idea has been reiterated in the form: “No one can

1S cone IN Hg nA TRA ACES OM EIRENE TINS RE AORN SD

Shay a A a

Sha sie atid cae

ot

sell a right when he himself has none to sell;” and it has

been declared that this proposition is so self-evident that

argument cannot elucidate or strengthen it.

14 Cent. Law J., 146.

“ The general rule of law, sanctioned by common

sense, is that no man ean, by his sale transfer to an-

other the right of ownership in a thing wherein he

himself has not the right of property.”

Fawcett v. Osborn, 32 W., 411.

Burton v. Curyea, 40 TL, 320.

“The general rule is, that the subject of the sale

must belong to the vendor, and that he ean sell no

more than the interest, which he legally possesses.”

Story on Sales (3rd Ed.), See. 188.

“ Again, if the vendor wholly fails to make a title

to the vendee in an exeecutory contract, the vendee

may rescind the contract.”

Story on Sales (3rd Ed.), See. 423.

Tindal, C. J., in delivering the opinion of the court in

Lann v. Thornton, 1 C. B., 379, said:

“It is not a question whether a deed might not

have been so framed as to have given the defendant

a power of seizing the future personal goods of the

plaintiff, as they should be acquired by him, and

brought on the premises, in satisfaction of the debt,

but the question arises before us on a plea which puts

in issue the property in the goods, and nothing else ;

and it amounts to this, whether by law a deed of bar-

gain and sale of goods can pass the property in goods

which are not in existence, or, at all events, which

are not belonging to the grantor at the time of execut-

ing the deed.” Weld, in the negative.

In Huling v. Cobell, 9 W. Va., 522, it appeared that an

agricultural society assigned for the benefit of its creditors

the proceeds of a fair about to take place on its grounds.

Tt was held that such an assignment was void as against the

lien of an execution issuing before the payment of the pro-

BO

ceeds to the creditors. Mr. Justice Green, in his opinion, dis-

cusses the general subject, and says the rule is that a sale

of property in which the vendor has no present interest

is void,

“ Tt is an elementary principle of the law of sales,

that a man cannot grant personal property in which

he has no interest or title. To be able to sell prop-

erty, he must have a vested right in it at the time of

the sale.”

Low v. Pew, 108 Mass., 349.

In Mefoon v. Ankeny, 11 Tl, 558, it was held to be

law that the real owner of personal property cannot sell

his right or title in it to another while it is in the actual

or adverse possession of one who claims title to it.

“ TIence, the general rule is stated to be, that a

purchaser of property takes only such title as his

seller has, and is anthorized to transfer; that he

acquires precisely the interest which his seller owns,

and no other or greater.”

Barnard v. Campbell, 55 N. Y., 460.

If, after the payment of all debts, there should remain

in the hands of the assignee any surplus of the proceeds

of sales and collections, such surplus belongs to the assign-

or. But this right of the assignor to the surplus does not

exist until all debts are paid. When they are paid, it is

called into existence.

Burrill on Assignments, 712.

Buller v. Thompson, 4 Abb. N. C., 290.

Briggs v. Davis, 21 N. Y., 574.

Sandmeyer v. Dakota F. & M. Co. (S. Dak.), 50

N. W., 353.

Before debts are paid this right is uncertain, indefinite,

a mere possibility. It cannot be determined until debts

are paid, and until that time it is not known whether there

will be a surplus or a deficit; no doubt this right to the

36

surplus, if any, is a valuable right, but it is held adversely.

An assignment is made for the benefit of creditors, and un-

til they are paid everything of value is vested in the as-

signee in trust for them. Such indefinite right as this re-

sulting trust in favor of the assignor is not subject to sale

by shareholders. It belonged to the assignor, which, in

the present case, is the Consolidated Company.

The Illinois statutes respecting assignments, in so far

as it provides for a discontinuance of proceedings, is as

follows, viz. :

“All proceedings under the Act of which this is

amendatory, may be discontinued upon the assent,

in writing, of such debtor, and a majority of his

creditors in number and amount; and in such eases,

all parties shall be remitted to the same rights and

duties existing at the date of the assignment, except

so far as such estate shall have already been admin-

istered and disposed of: and the court shall have

power to make all needful orders to carry the forego-

ing provision into effeet.”

Revised Statutes (IIl., 1897), “Assignments,” See-

tion 15.

Nothing could be done under this statute except by aid

of the debtor, the Consolidated Company. The assent

requisite is that of the debtor and a majority of the ered-

itors in number and amount.

The De La Vergne Company did not by the contract be-

come the debtor, for it expressly refused to assume liability

for debts of the Consolidated Company. (Sixth article

of contract, R. 42.) It had bargained for the stock of the

company, and through this stock, and only through this

stock, could it secure the assent in writing of the debtor.

So the contract, having in view the fact that the assent

f the debtor is necessarv to a discontinuance of the as-

signment proceedings, provides in its fourth clause that

the stock shall be assigned as prescribed, “for the purpose

37

of placing the said party of the third part (the De La

Vergne) in complete control of the assets of the party of

the first part, subject to the legal rights of said assignee

and the creditors of said party of the first part.”

The stock was necessary not only to “eomplete control,”

but it was necessary to any control whatever.

Coneeding that the Consolidated Company was an

empty shell, in the sense that it was insolvent, and did

not contemplate a resumption of business, the fact remains

that the assets which had belonged to it could be reached

only through it, and it could be reached only through its

stock.

The stock of the Consolidated Company was then the

vital element of the consideration te the De La Vergne

Company, even though the value of this stock was to be

realized through the acquisition by the De La Vergne of

the former assets of the Consolidated Company.

Assume that the contract contained no provision for a

sale of stock, and leave the contract one in form and in

fact as the respondents say it is in essence, one for the sale

of the former assets of the Consolidated, subject to the

rights of the assignee and the creditors, and what would

the petitioners receive by the contract ?

The right to discontinue the assignment, a majority of

the creditors in number and amount consenting, the only

right of any kind in respect to its assets remaining to the

Consolidated Company after the assignment, was not con-

veyed by the contract and could not be so conveyed.

No court would at the suit o: the De La Vergne Com-

pany compel it to assent. The matter was one between

it as a debtor and its creditors.

It seems clear, therefore. from the law of Illinois, and

from the language of the contract, that this possibility of

discontinuing the assignment by composition or other ar-

See

38

rangement with creditors was the one thing of possible

value connected with the assets of the insolvent company.

This and the corporate existenee might be utilized for

rome purpose, but, and this is true as to both of them, only

through the stock.

The conclusion is irresistible that the stock was a part of

the consideration.

On the 1st day of December, 1891, Mr. Jenkins, as

assignee of the Consolidated Company, sold to John

Featherstone’s Sons the good-will, machinery, patterns,

ete. (R. 85.)

The bills and accounts receivable were collected by the

assignee and by Knight and Butz, and distributed by them

among the creditors.

There is, therefore, nothing that the petitioners re-

ceived unless it be the shares of stock. It has been

shown that these shares were not evidence of any present

interest in property.

But let us assume that stock ownership in a corpora-

tion which has executed an absolute assignment under the

insolvent law by which all its property and every legal and

equitable interest therein is vested in the assignee means

the same thing as stock ownership in a solvent running

corporation. What is the situation then ?

The certificates of stock were evidence of the ownership

of a distributive share in the surplus after debts are paid.

“

A share of the capital stock merely gives the

right to partake, according to the amount put into

the fund, of the surplus profits of the corporation, and

ultimately on the dissolution of it, of so much of the

fund thus created as remains unimpaired and is not

liable for debts of the corporation.”

Thompson, Commentaries on Law of Corporations,

See. 1071.

39

This is a fundamental principle. It is not necessary to

cite further authorities.

The assets lacked $150,000 of being sufficient to pay

the debts of the Consolidated Company. (R. 99.) What

is the value of a distributive share in a deficiency of

$150,000 7

It is idle to talk of the shares in the Consolidated Com-

pany being evidence of a distributive share in anything of

value, at the time of the contract.

If the corporation was not insolvent, it was a fraud to

assign,

Gardner v. Commercial National Bank, 95 Tll.,

298.

But this assumption cannot be made: the title to all the

assets passed to the assignee absolutely. Distributive

ownership in the company is then impossible. ‘The only

thing of value that possibly did not pass to the assignee is

the franchise, the right to be a corporation.

But al! the title of the Consolidated Ice Machine Com-

pany passed by the deed of the assignee on October 14,

1890, leaving no title. legal or equitable, in the insolvent

company or its individual shareholders, to which the con-

tract of April 16, 1891, could attach.

By the agreed statement of facts, as well as by the ex-

press terms of the deed of assignment, there passed to the

assignee all the property of the Consolidated Ice Machine

Company wherever situated, including the patent rights,

outstanding accounts “ and the good-will of its business.”

(Rt. 174.) This good-will was subsequently advertised

for sale by the assignee, under the order of the court, to-

gether with $100,000 of the capital stock of the company

not embraced in the sale to De La Vergne. (R. 138-139.)

The assets and good-will were subsequently sold, likewise

under the order of the court, to Clarence A. Knight and

“40

Otto ©. Butz, as trustees, for $309,000 of the claims

against the estate, including a portion of the respondent's

herein. (R. 144, 146.) Knight and Butz afterwards,

under order of court, sold the assets so acquired, including

the good-will, to John Featherstone’s Sons; and subse-

quently, by formal deed, conveyances were made by these

respective parties. (R. 82, 85.)

It is thus clearly shown by the record that the assump-

tion of the learned court deciding this case (36 UL S.,

184), that the De La Vergne Company acquired the good-

will or any portion of the assets of this company at any

time, is wholly erroncous, as by undisputed evidence in

the case (R. 99) there remains $150,000 of the indebted-

ness of the company yet unpaid after the estate is fully

administered.

In the absence of these express provisions of the deed

of assignment and orders of court, and conveyances made

in pursuance thereof, such an assignment, under the

statute of the State of Illinois regulating assignments by

insolvent debtors, left no title, legal or equitable, in the

insolvent Consolidated Company which was the subject of

conveyance. Being an Illinois corporation, assigning un-

der the laws of the State of [linois, the effeet of the assign-

ment has, of course, to be determined by the decisions of

the highest court of that state.

In Weber v. Mick, 131 IIL, 520, 533, 524, the court said

that the

“assignment is an absolute appropriation of the

property to the payment of the debts,” passing both

legal and equitable title to the property * absolutely

bevond the control of the assignor. . . . “Such

assignments have always been understood to be in-

struments voluntarily executed by a failing debtor by

which he assigns to some third person, as assignee or

trustee, the whole, or sometimes the bulk, of his prop-

41

erty, to be by such trustee distributed among the as-

signor’s creditors, in satisfaction of their demands.”

In Burrill on Assignments, 10, it is said:

“ An assigninent is likewise an absolute conveyance

by which both legal and equitable estate is divested

out of the grantor, but the title vested in the assignee

is subject to the uses and trusts in favor of the cred-

itors, and upon their satisfaction a trust results in

favor of the assignor in the residue of the unappro-

priated property or its proceeds.”

This court, in passing upon the effect of an assignment

of an insolvent debtor under the Illinois law, in Spindle v.

Shreve, 111 U.S., 545, said:

“ The Court of Appeals of Kentucky, in Knefler vy.

Shreve, 78 Kentucky, 297, had before it the very

question as to the construction of this deed, and de-

cided that all the estate and interests in property,

which, at its date, the grantor held, which he could

alien, and which was liable at law or in equity for

the payment of his debts, passed by its terms: and in

that decision we coneur.”

In Walker v. Ross, 150 IIL, 56, the court said:

“ These cases further hold that there must be an

absolute transfer of the whole interest of the assignor,

legal and equitable, in the property assigned in trust

for the benefit of creditors.”

In Stoddard vy. Gilbert, 163 Ill, 131, 135, there was an

attempt to convey property while it was yet in the hands

of the assignee, and it was held that the agreement could

only become operative upon the discontinuance of the pro-

ceedings.

By these decisions it is established that there was no

property right of any nature or description whatsoever

remaining in Consolidated Ice Machine Company on April

16th, 1891, that could be made the subject of conveyance

or transfer hy that company. As has been said, all prop-

$2

erty rights of the insolvent corporation had vested in its

assignee. Any other decision would be monstrous, as it

would enable shareholders to protect their interests with-

out paving their creditors,

It thus appears that the only property or property

right that the parties of the first and second part to the

contract of April 16th, 1891, could convey were their indi-

vidual shares in the capital stock of the corporation: and

certainly their ownership of these shares is the only right

possessed by them and which they could convey, whieh

would justify an action by them against the petitioner or

its president. This seems to make it unnecessary to con-

sider the argument that was addressed to the Cireuit

Court of Appeals, and which seems to have impressed one

of the judges, that the transfer of the stock was only in-

cidental to the contract, and therefore the defense of ultra

vires could not wholly avoid it. In adopting this propo-

sition the learned judge overlooked a distinction which

he had himself previously drawn in the ease of the I/linois

Trust & Savings Bank v. Arkansas City, 40 U.S. App..

257, 274, where he said:

“Tt is that when a part of a divisible contract is

ultra vires, but neither malum in se nor malum pro-

hibitum, the remainder may be enforced, unless it

appears from a consideration of the whole contract

that it would not have been made independently of

the part which is void. Oregon Steam Navigation

Company v. Winsor, 20 Wall., 64, 70; Reagan v.

Farmers’ Loan and Trust Company, 154 U. S., 362;

395; Western Union Telegraph Co. v. Burlington &

Southwestern Ry. Co.. 11 Fed. Rep., 1, 4, and eases

cited in note at page 12: Saginaw Gas-Light Co. v.

City of Saginaw, 28 Fed. Rep., 529, 540.”

In the case at bar the transfer of the stock was a part

of the consideration. The contract was indivisible in this

respect, and the only attempted performance was that of a

SAAR OTR RES SEAR OY a OORT SAS NES Pe Oe PE AE NSE ert

43

partial delivery of the stock. There was no attempt to

deliver anything else. The promise to issue a like amount

of stock of the De La Vergne Company, or, at the optien

of Mr. John C. De La Vergne, to pay $100,000 in money

—an option which he never exercised—was only to become

binding upon the delivery of $100,000 of the stock of the

insolvent company, and was a promise to the shareholders

as such. The delivery and payment were to be made to

the individual shareholders. in proportion to their re-

<pective holdings. It was not, therefore, using the lan-

guage of the learned court in the former opinion, in which

he is sustained by authority, “a divisible contract . . .

neither malum in se nor malum prohibitum,” but it was

an indivisible contract, malum prohibitum by two express

enactments of the laws of the State of New York govern-

ing the rights of the De La Vergne Company, as will ap-

pear in the discussion of the next proposition.

Mr. Bishop, in his work on Contracts, Section 74, thus

states the rule:

“Where the consideration for an _ indivisible

promise is in part something done in violation of law,

and in remainder some lawful thing, the promise

cannot find support on the lawful part without resting

also on the unlawful, and the whole will be void.

dut if there are two promises, the one founded on the

unobjectionable in the consideration and the other on

the evil, the former will be sustained and the latter

will fail.”

This statement of the law does not require argument or

elaboration in this court.

The rule is succinctly stated in Miller v. Ammon, 145U.

S., 421, 426, as follows:

“ The general rule of law is, that a contract made in

violation of a statute is void; and when a plaintiff

cannot establish his cause of action without relying

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upon an illegal contract, he cannot recover,” citing

cases.

II.

The stock of the Consolidated Ice Machine

Company was a part of the consideration

for the promise of the De La Vergne Com-

pany to pay 8100,000 in its own stock or in

cash; the contract is ultra vires of the

vendee company, and therefore illegal and

void.

A corporation has such powers as are given it by its

charter, and such implied powers as are necessary to carry

out the corporate purpose.

This principle is well settled. In Thomas v. Railroad

Co., 101 U. S., 71, Mr. Justice Miller, speaking for this

court, said:

“We take the general doctrine to be in this

country, though there may be exceptional cases and

some authority to the contrary, that the powers of

corporations organized under legislative statutes are

such, and such only, as those statutes confer. Con-

ceding the rule applicable to all statutes, that what is

fairly implied is as much granted as what is ex-

pressed, it remains that the charter of a corporation

is the measure of its powers, and that the enumera-

tion of these powers implies the exclusion of all

others.”

Dartmouth College Case, 4 Wheat., 518, 636.

Perrine v. Chesapeake, etc., Canal Co., 9 Wow..,

172, at 184.

Metropolitan Bank v. Godfrey, 23 Tll., 531.

Caldwell v. City of Alton, 33 IL., 417.

1 Morawetz Corporations, See. 316.

Taylor on Corporations, See. 120.

45

Bell, C. J., in Downing v. Mt. Washington Road Co.,

40 N. IL, 2380, said:

“Corporations are creatures of the legislature,

having no other powers than such as are given to

them by their charters, or such as are incidental, or

necessary to carry inte effect the purposes for which

they were established.”

It is not, nor can it be, claimed that the charter under

which the De La Vergne Compnay assumed to act gave it

the power to purchase stock in another corporation,

It needs no argument to show that the purchase of stock

in another corporation is not necessary to carry into effect

the purposes of incorporation.

't matters not what the general rule may be, as such com-

panies as the De La Vergne are prohibited from using

funds to purchase stock in another corporation. See. 8,

Chapter 40, Laws of 1848, of the State of New York,

provides :

“Tt shall not be lawful for such company to use

aay of their funds in the purchase of any stock in any

other corporation.”

It is established that The De La Vergne Refrigerating

Machine Company was organized under this act and the

amendments thereto. (R. 280.) The law of New York

continued to prohibit investments by one manufacturing

company in the stock of another until the enactment of

Chapter 564, N. Y. Session Laws of 1890, approved June

7, 1890, and going into effect May 1, 1891. Seetion 40

of said chapter provides that:

“ Any domestie corporation, transacting business in

this state, and also in other states or foreign countries,

may invest the funds in the stocks, bonds, or securities

of other corporations owning lands in this state or

such states, if dividends have been paid on such stocks

continuously for three years immediate'y before such

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loans are made, or if the interest on such bonds or

securities is not in default, and such stocks, bonds and

securities shall be continuously of a market value

20% greater than the amount Joaned or continued

thereon; . . . no corporation shall use any of its

funds in the purchase of any stock of its own or any

other corporation, unless the same shall have been

bona fide pledged, hypotheeated, or transferred to it,

by way of security for, or in satisfaction or part satis-

faction of, a debt previously contracted in the course

of its business, or shall be purchased by it at sales

upon judgments, orders, or decrees which shall be

obtained for such debts or in the prosecution thereof.”

It affirmatively appears in the record, by a full copy of

all directors’ meetings of the Consolidated Tee Machine

Company, as well as by testimony of witnesses, that the

Consolidated Ice Machine Company never paid a dividend

on its stock during its existence; and there is nothing to

dispute the inference arising from the fact that its capital

stock was $200,000, of which $100,000 was unpaid, except

the sum of $10,000, and that its indebtedness was $550,-

000, which upon the administration of the assets has left

$150,000 wholly unpaid—that $100,000 of the stock of

the Consolidated Company never was continuously of a

market value twenty per cent. greater than the price which

it is alleged Mr. De La Vergne had, at his option, agreed

to pay therefor.

The stock of the Consolidated Company was part of the

consideration to the De La Vergne Company. This ques-

tion has been adjudicated by the Cireuit Court of Appeals

as between these parties. (36 U. S. App., 184, 187.)

That was one of the questions in controversy on the first

trial. Whether it was a legal consideration was a question

not suggested.

In the statement of the case, in the first paragraph of the

47

opinion, Judge Sanborn says the suit is by the German

Savings Institution—

“ for that portion of the purchase price of the assets,

good-will, and capital stock of the Consolidated Ice

Machine C ompany, a corporation, which the defend-

ants in error promised to pay it,” ete.

The court held, as matter of law, that the Consolidated

Company stock was part of the consideration, and they say

that if the small minority of stock not transferred was of

any value,

“the defendants may undoubtedly show that fact un-

der proper pleadings, and offset the damage they have

sustained by the failure to assign it, against the

$100,000 they promised to pay for the substantial

benefits of this contract.”

In the absence of express statutory authority, a corpora-

tion cannot purchase stock of another corporation.

Boone on the Law of Corporations, Sec. 107, thus states

the law:

“Without a power specifically granted, or neces-

sarily implied, a corporation cannot become a stock-

holder in another corporation, and especially where

the object is to obtain the control or affect the manage-

ment of the latter.”

In Green’s Brice’s Ultra Vires, p. 91, note b, it is said:

“In the United States a corporation cannot become

a stockholder in another corporation unless by power

specifically granted by its charter, or necessarily im-

plied in it.”

Morawetz on Private Corporations, Secs. 431, 4383,

says:

‘A corporation has no implied right to purchase

shares in another company for the purpose of con-

trolling its management. . . . <A corporation

cannot, in the absence of express statutory authority,

become an ‘ncorporator by subscribing for shares in a

48

new corporation, nor can it do this indirectly through

persons acting as its agents or tools.”

In People v. Chicago Gas Trust Co., 130 TIL, 268, at

284 the court said:

“It has been held in many cases that in the

United States corporations cannot purchase, or hold,

or deal in the stocks of other corporations, unless ex-

pressly authorized to do so by law, and that one cor-

poration cannot become the owner of any portion of

the capital stock of another corporation unless

authority to become such is clearly conferred by

statute.”

The following is taken from the syllabus of the case:

“The gas trust company mentioned was incorpor-

ated under the general law for two purposes, as ex-

pressed in the articles of association: First, for the

; purpose of erecting and operating gas works for the

4 manufacture and sale of gas in Chicago and other

F places in this state; and second, ‘to purchase and hold

£ or sell the capital stock, or purchase, or lease, or oper-

Ee ate the property, plant, good-will, rights and fran-

% chises of any gas works or gas company or companies,

a or any electric company or companies, in Chicago or

Ee elsewhere, ete.

s “The company sought to exercise the powers

5 claimed under the second clause only, and for that

ES purpose bought a majority of the shares of all the

E 4 stock of all the gas companies in Chicago, being four

% in number, whereby it might have control of all the

2 gas companies in the city, and thus destroy competi-

3 tion and monopolize the gas business. Held, that the

x corporation so formed was not for a lawful purpose,

3 and that all acts done by it toward the aecomplish-

4 ment of such object were illegal and void.”

‘% At various times during the years 1873 and 1874 the

& Erie Railway Company purchased more than one-half of

3 all capital stock of the Buffalo, New York & Erie Railroad

Company, and paid for the same out of its corporate funds.

Held, that such purchase was not necessary in the exercise

49

of any of its corporate powers; that is was unauthorized

and in violation of the statute, and was consequently ultra

vires.

Milbank v. New York, Lake Erie & Western R.

R. Co., 64 Howard’s Practice Reports, 20.

In Talmage v. Pell, 7 N. Y., 328, it was held that a cor-

poration has no power to purchase the stock of other cor-

porations for the purpose of selling them for profit, or as a

means of raising money, except when such stocks have been

received in good faith as security for a loan made or a debt

due such corporation, or when taken in payment of such

loan or debt.

In the case of The Mechanics’ Mutual Savings Bank

v. Meridan Agency Company, 24 Conn., 159, it was held

that a company organized to do a general insurance

agency, commission and brokerage business has no power

to subscribe to the stock of a savings bank and building

association,

In the case of The Central Railroad Company v. The

Pennsylvania Railroad Company, 31 N. J. Eq., 475, it

was held that a corporation cannot, in its own name, nor

in the name of individuals, subscribe for stock or be a cor-

poration

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