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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petitioners Briefm
- **Published:** January 1, 1899
- **Citation:** 175 U.S. 40

## Text

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

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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

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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.

“,
a
Ni

&

(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

=
-
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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ok
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3
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4
Mw
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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

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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: a

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386018_0345%3A2. Public record. Not legal advice.