De Groff v. American Linen Thread Company.

There seems to be nothing in the provisions or trusts contained in the deed of assignment to characterize it as fraudu lent, and the court below has found that there was no fraud in fact.

The judgment of the Supreme Court should be affirmed.

All the judges concurring,

Judgment affirmed.

DE GROFF V. AMERICAN LINEN THREAD COMPANY.

The defendant, a corporation organized for the purpose of manufacturing linen goods, sold to the plaintiff a stock of miscellaneous merchandise in a store belonging to it, upon the agreement that if the trustees then in office should, within a year, cease to have the management of the affairs of the company, and in consequence thereof the general trade of its operations should be diverted from such store to the plaintiff's damage, the defendant would rebate $300 of the price of the goods or pay that sum to the plaintiff: Held,

The defendant, in the absence of contrary evidence, is to be presumed to have obtained the merchandise in exchange for its manufactures, in payment of debts or some other legitimate exercise of its corporate powers. The power to affix conditions in respect to the price is incident to the power of the corporation to sell the property, and the contract is therefore valid.

New trustees having been substituted within the year, the liability of the corporation is established by evidence of a diversion of the trade of its employees to the prejudice of the plaintiff, without any active interposition of such trustees to produce that result.

APPEAL from the Supreme Court. The complaint was that in January, 1853, the defendant, a manufacturing corporation organized under chapter 40 of 1848, having its place of business at Mechanicville, Saratoga county, owned goods and merchandise in a brick store at that place suitable for retailing and worth about $2,500. The plaintiff purchased the goods, agreeing to pay for them $3,200, in consideration of which

De Groff r. American Linen Thread Company.

agreement the defendant agreed that if its trustees then in office should, at any time within one year from March 1, 1853, cease to have the management of the affairs of the company and by reason thereof the general trade of the hands in the employment of the company should, in consequence thereof, be diverted from the brick store (where the plaintiff was to sell the goods) within the period above mentioned and the plaintiff should sustain damage thereby, then the defendant was to pay the plaintiff the sum of $300, or discount that amount from any sum the plaintiff might be owing said company. Breach, that on the 28th April, 1853, a majority of the former trustees of the plaintiff ceased to have the management of its affairs; that in consequence thereof the trade of its hands was diverted from the plaintiff's store, whereby he sustained damage, and that the defendant refused to pay or account for the $300.

Upon the trial the plaintiff proved a verbal agreement for the sale of the goods as stated in the complaint; the payment by him in cash and his negotiable promissory notes of $3,200, and the execution by Vernam, Bennett and Farnham, three of the then trustees of the company, of a written agreement for the payment or deduction of $300 in the terms stated in the complaint. Neither the defendant, president, nor secretary signed the agreement. There were two other trustees of the company who resided at a distance, and took no active part in its affairs. On the 28th April, 1853, Vernam, Bennett and Farnham resigned their offices of trustees, and three others were elected in their place, of whom Fellows, who kept a store at Mechanicville, was one. He was also appointed the treasurer of the company. The trade of the company's operatives was soon thereafter diverted from the plaintiff's store to that of Fellows. Evidence was received, under exception by the defendant, that Fellows, when paying the operatives, stated to them that the plaintiff had no interest in the company and that they would be expected to trade at the other store. There was evidence on the part of the defendant tending to show that no other of the trustees did or said anything to divert the operatives from trading with the plaintiff, but or the other hand it was under

De Groff v. American Linen Thread Company.

stood by them that they were at liberty to trade where they pleased, and that the reason they abandoned the plaintiff's store was a rumor that he was unfair in his dealings with them. The defendant also proved specific facts tending to sus tain the truth of the rumor. The questions raised by the defendant upon exceptions to the judge's refusal to nonsuit, and to his charge, sufficiently appear in the following opinion. The plaintiff had a verdict. A new trial was granted at general term in the fourth district, and the plaintiff appealed to this court, stipulating as required by the statute.

E. F. Bullard, for the appellant.

Augustus Bockes, for the respondent.

BACON, J. The order for a new trial, granted by the Supreme Court at general term in the fourth district, proceeds substantially upon two grounds: 1. That the contract entered into by the defendants with the plaintiff, out of which the cause of action arises, is void either as being ultra vires, or as contravening public policy; and 2. That if valid, a breach was not shown inasmuch as it was not proved that a diversion of trade from the plaintiff, against which it was intended to furnish an indemnity, was caused by the positive acts of the company. I think the court erred in both these conclusions.

If we concede that the business of buying and selling mer chandise was not one of the purposes for which this company was organized, yet it will be rather difficult to predicate illegality of a transaction of this character, which for aught that appears was a single and isolated one. Their primary, and it may be added their legitimate, business was the manufacture of linen goods, and by the act under which they were organized they could purchase and hold and convey any real or personal estate necessary to enable them to carry on their transactions. The manufacturing of goods necessarily implied the power of disposing of them when manufactured, and if so, of receiving in payment money, or property readily convertible into money,

De Groff v. American Linen Thread Company

or provisions or stores for the payment of their employees. How the goods which they sold to the plaintiff came into the hands of the company does not appear in the Case. They might, for aught that is affirmatively proved, have been in part, if not altogether, their own manufactured goods; or they might have been received in payment upon sales of such goods, or fallen into their hands as the only equivalent the company could obtain for debts due to them. It may be very true that the power to purchase, hold and convey personal estate does not confer upon this company an unlimited discretion as to the nature and extent of such transactions. But I am unable to see why the company may not lawfully have acquired the property in question in either of the modes above indicated. If, however, they acquired the goods in any such way as to make the transaction doubtful, as a question of power, what are the corporations to do with property thus forced in or forced upon their hands? Must they purge the illegality by giving the goods away, or destroying them, or may they not sell and transfer a good title to a purchaser? I think, beyond all doubt they may, and that the contract can be upheld and enforced on this ground.

But again, if it be conceded that the defendants had no power to enter into the contract of sale in this case and bind the company to perform the obligations assumed, viewed as a mere question of corporate power, yet having undertaken to do So, and having received the full consideration agreed to be paid by the plaintiff, and he having fulfilled his entire contract, they cannot now be permitted to set up that excess of authority to excuse them from that part of the contract which imposes an obligation upon them. It is very clear that if the plaintiff in this suit had been prosecuted upon one of the notes given by him upon the purchase, he could not, having accepted and retaining the goods, have set up as a defence want of power in the defendants to enter into the contract. The same rule of right and the same measure of justice will be exacted in this suit. This principle has been repeatedly held as appli cable to an individual attempting to screen himself from liability

De Groff v. American Linen Thread Company.

when contracting with a corporation, and in the case of a corpo. ration when seeking to escape responsibility on the plea of ultra vires for acts deliberately done with all usual and needful for malities; and where they have received the entire benefit they contracted for, such a defence should no longer be tolerated in our courts. In principle it is condemned by the decision in Tracy v. Talmadge (4 Kern., 162), although I admit this precise question is not presented in that case. Where the question is merely as to the capacity to contract, a party who has had the benefit of the contract should not be permitted, especially where there is no unlawful intent charged upon the other party, and he is in no sense in pari delicto, to question its validity. To deny relief to a plaintiff thus situated, would be substantially to secure to the party deliberately violating one of the laws of its existence, and where no guilty complicity can be charged upon the other party, the fruits of an illegal transaction, and operate as a premium upon repudiation and fraud.

The agreement in this case is in its true scope and object purely a contract for the sale of goods. It is very clear that in contemplation of the benefits the plaintiff expected to derive from the trade of the employees of the defendants, he had engaged to pay a large price for the stock, and in case this expectation should be disappointed by the contingency expressed in the contract, the defendants engaged, in substance, to deduct the $300 from the purchase price. The agreement to pay back was only to provide for the event that the whole purchase money should be paid, or no part of the securities given should remain in the hands of the defendants when the time should arrive for the deduction to be made. Precisely this state of things did occur. A majority of the trustees, and those who had made the contract, went out of office within the ensuing year; the moneys paid by the plaintiff, and the notes he gave upon the purchase, were all used or negotiated by the defendants, and they retained no obligation on his behalf. The trade of the plaintiff, as alleged and proved on the trial, largely declined. It is conceded by the court below, in the opinion granting a new trial, that if the sale had been upon condition that the