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fact, he is unaffected by the alleged custom. But if such custom had been relied on by the plaintiff when he purchased the stock, it would not have made the executory contract of the defendant to buy the stock binding, which, without such custom would be void. The usage of a corporation does not become the law of its existence, or the measure of its powers. The general law of the State, of which all persons are presumed to have knowledge, is the source and limit of all its powers and duties; and these cannot be varied either by usage or contract. The doctrine of estoppel has no application in the case. Nor is there any such equity in the case as would have arisen between the parties in case the contract had been executed.

Judgment affirmed.

EASUN V. BUCKEYE BREWING CO.

U. S. CIRCUIT COURT, N. D. OHIO, W. D. 1892.

(51 Fed. Rep. 156.)

Powers of Corporation to hold stock in Another Corporation.

This is an action instituted by the plaintiff to recover damages for the failure of the defendants to comply with the provisions of a contract by the terms of which the Buckeye Brewing Co. obligated itself to sell to the vendee certain brewing property.

The purchaser as a consideration for the sale agreed to pay the vendor the sum of $860,000, whereof "the sum of $10,000 shall be paid in cash by way of a deposit; the further sum of $334,000 shall be paid in cash on or before the completion of the purchase; the further sum of $258,000, by issue to the vendors or as they may appoint, of six per cent. debenture bonds of an English joint stock company, proposed to be formed by the purchaser, herein after referred to as the 'company,' provided the total amount of such debenture bonds shall not exceed ninety-thousand pounds; and the balance of $258,000 by the allotment to the vendors of ordinary shares of the company of that equivalent, nominal value, such shares to be deemed paid up."

The Buckeye Brewing Co. refused to perform its part of the

contract.

Ricks, District Judge: *** In the view which we take of this case, it is only necessary to consider the question of whether or not this contract sued upon was ultra vires. It is well settled in

Ohio that corporations have such powers, and such only, as the act creating them confers; and are confined to the exercise of those expressly granted, and such incidental powers as are necessary to carry into effect those specifically conferred. Under this construction of the statute, it was clearly settled in the case of Franklin Bank v. Commercial Bank, 36 Ohio St. 350, 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 the statute. The provisions of this contract clearly contemplated that the Buckeye Brewing Company, which, so far as the pleadings before us show, was, at the time of making such contract, not only a solvent corporation, but a prosperous and profitable one, should sell and dispose of its plant and all its assets, and a very large part of the consideration for such sale was to be stock and bonds in an English corporation to be organized to carry on the business of the vendee. The provisions of the contract specified as to the rate of interest such bonds should carry, and the dividend such stock should pay. By implication it is fair to infer that it was contemplated that the Buckeye Brewing Company, as a corporation, should continue, for the purpose of collecting the interest on these debenture bonds, the dividends on the stock of the new corporation, and to distribute the same among the shareholders of said Buckeye Brewing Company. It was therefore to continue its business as a corporation, not for the purpose of carrying out the objects for which it was organized, viz., the business of a brewing company, but for the purpose of owning stock in a new corporation, and the extent that ownership of such stock involved participating in the management of that corporation it was to assist in carrying on the business of another corporation. There was no such exigency in the business of this corporation as to make such sale of its property and change in the nature of its corporate business necessary for the protection of its stockholders. Counsel for the plaintiff have cited many cases in which the courts of several of the states, under statutes very similar to those of Ohio, have held that corporations had a right to own and control the stock of other corporations, but in every such case to which our attention has been called such power was conceded to the corporation as incident to its inherent right to protect its shareholders from loss, owing to some peculiar exigency in the affairs of the corporation. An insolvent corporation, contemplating voluntary dissolution by consent of its shareholders, might have a right to dispose of its property, and accept, in whole, or in part, for the purchase price thereof, stock in another corporation; this stock to be either sold, and the proceeds thereof distributed to the creditors, or to be apportioned in kind to such creditors or stockhold

ers as the terms of dissolution might provide. A receiver appointed to manage the affairs of an insolvent corporation and to close out its business might be authorized to dispose of its assets, and receive in payment therefor stock in the corporation, to be disposed of as the court might order in the distribution of its assets. But in all these cases there must be some stringency or emergency to justify this departure from the ordinary course of the business of the corporation. But in this case no such emergency existed. As before stated, the corporation was doing a flourishing business. Its plant and good will and business were considered so desirable that the vendee agreed to pay therefore the large consideration specified in the contract. This sale could undoubtedly have been made for cash and deferred payments. The purchase price might not have been so great upon such a basis, but still would have been adequate. As no emergency existed to compel this sale, and the transaction was purely voluntary on the part of the corporation, there is no reason why it should be permitted to violate the well settled principles of law by taking stock in a new corporation, and thereby enhancing the consideration which it was to receive. Public policy discourages such transactions. As the supreme court of Ohio has well said, in the case in 36 Ohio St., above referred to:

"Were this not so, one corporation, by buying up the majority of the shares of the stock of another, could take the entire management of its business, however foreign such business might be to that which the corporation so purchasing said shares was created to carry on. A banking corporation could become the operator of a railroad, or carry on the business of manufacturing, and any other corporation could engage in banking by obtaning control of the bank's stock. Nor would this result follow any the less certainly if the shares of stock were received in pledge only to secure the payment of a debt, provided the shares were transferred on the books to the name of the pledgee. A person in whose name the stock of the corporation stands on the books of the corporation, is as to the corporation, a stockholder, and has the right to vote upon the stock."

All these objections apply with full force to the transactions under consideration before us. There is no reason why there should be a departure from these well-settled rules in this case. There are no creditors whose interests are to be protected by upholding this sale. There are no unfortunate shareholders who are liable to be assessed for unpaid debts under the statutes of the state. There was, in fact, no emergency to justify any such unathorized transactions on the part of the Buckeye Brewing Company. The plaintiff does not sustain such a relation to this

contract as entitles him to any exemption from the application of these principles of law. He must be held to have dealt with this corporation with knowledge of its corporate powers. They were such as was conferred by the laws of Ohio, of which he had the same notice as the defendant and all persons dealing with it. The want of power on the part of defendant to make such a contract prevents the plaintiff from either enforcing it in an action for specific performance or recovering damages for its breach. Coppin v. Greenlees & Ransom Co., 38 Ohio St. 275. For the reason stated we think the contract ultra vires. It cannot, therefore, be enforced, and this proceeding must fail. grounds insisted upon in the demurrer it will not be necessary to notice. The demurrer must be sustained, and the petition dismissed.

The other

CHAPTER VI.

ULTRA VIRES ACTS OF CORPORATIONS.

BISSELL V. RAILROAD COMPANY.

NEW YORK COURT OF APPEALS 1860.
(22 N. Y. 259,)

Ultra Vires.

Comstock, C. J.: A general statement of the plaintiff's case is, that the two corporations defendant were jointly engaged in the business of carrying passengers and freight between Chicago and Lake Erie, through a part of the State of Illinois, and through the states of Indiana and Michigan, by three connected railroads which they owned or controlled, and the business of which was managed under a consolidated arrangement, which had been in force between the defendants, for some time previous to the injury complained of; that, being so engaged, they undertook and assumed to carry him, the plaintiff, as a passenger, from Chicago, or a point near that place, eastward over the consolidated line of road; that he took his seat in their cars accordingly, and that, during the transit, he was injured by an accident which happened through their carelessness and neglect. Assuming the truth of this statement, there is no doubt of the plaintiff's right to recover. But the defendants deny the legal truth of these facts, because one of the companies was chartered by the legislature of Michigan, with power to build a road in that state, and the other by the legislature of Indiana, with power to build one in that state. They both insist, that they had no right or power, under their respective charters, to consolidate their business in the manner stated, and especially, that they could not legally, either separately or jointly, acquire the possession and use of a connecting road in the State of Illinois, and undertake to carry passengers or freight over the same. They do not deny that their boards of directors and agents, duly authorized to wield all the powers which the corporations themselves possessed, entered into the arrangements which have been mentioned, nor that, in the execution of those arrangements, they made the contract with the

*Day v. Spiral Springs Buggy Co. 57 Mich. 146 (1885); Insurance Companyv. McClelland, 9 Colo. 11, (1885); Bradley v. Ballard, 55 Ill. 413, (1870); Northwestern_Packet Co. v. Shaw, 37 Wis. 655, (1875); Whitney Armes Co. v. Barlow, 63 N. Y. 62, (1875).

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