The contract was not ultra vires the consolidated company, because it was not a mere combination or coalition for the purpose of creating a monopoly or trust, but it was a legitimate business undertaking.

55, 11 Sup. Ct. Rep. 478; California Nat. | erating Mach. Co. 36 U. S. App. 184, 70 Fed.
Bank v. Kennedy, 167 U. S. 362, 42 L. ed. Rep. 146, 17 C. C. A. 34.
198, 17 Sup. Ct. Rep. 831; Buckeye Marble
& Freestone Co. v. Harvey, 92 Tenn. 116, 18
L. R. A. 252, 20 S. W. 427; Union P. R. Co.
v. Chicago, M. & St. P. R. Co. 163 U. S. 564,
41 L. ed. 265, 16 Sup. Ct. Rep. 1173; Alexan-
der v. Cauldwell, 83 N. Y. 480; Davis v. Old
Colony R. Co. 131 Mass. 258, 41 Am. Rep.
221.

All the shareholders of a corporation cannot, by uniting in a contract or deed, transfer the property of the corporation without corporate action.

Sellers v. Greer, 172 Ill. 549, 40 L. R. A. 589, 50 N. E. 246.

The assignment under the Illinois statute regulating assignments by insolvent debtors left no title, legal or equitable, in the insolvent consolidated company, which was the subject of conveyance.

Weber v. Mick, 131 Ill. 520, 23 N. E. 646; Burrill, Assignm. 10; Spindle v. Shreve, 111 U. S. 545, 28 L. ed. 513, 4 Sup. Ct. Rep. 522; Walker v. Ross, 150 Ill. 56, 36 N. È. 986; Stoddard v. Gilbert, 163 Ill. 131, 45 N. E.

542.

In the absence of express statutory authority, a corporation cannot purchase stock of another corporation.

Morawetz, Priv. Corp. § 212; Herriman v. Menzies, 115 Cal. 16, 35 L. R. A. 318, 44 Pac. 660, 46 Pac. 730; Oil Creek & A. River R. Co. v. Pennsylvania Transp. Co. 83 Pa. 160; Whitney Arms Co. v. Barlow, 63 N. Y. 62, 20 Am. Rep. 504; Gasquet v. Crescent City Brewing Co. 49 Fed. Rep. 496; Camden & A. R. Co. v. May's Landing & E. H. City R. Co. 48 N. J. L. 567, 7 Atl. 523.

The defendant corporation should not be permitted to plead that it exceeded its charter power in acquiring the assets of the consolidated company, or that the latter company exceeded its powers in disposing of the same.

Bradley v. Ballard, 55 Ill. 413, 7 Am. Rep. 656; Union Nat. Bank v. Matthews, 98 U. S. 621, 25 L. ed. 188; Whitney Arms Co. v. Barlow, 63 N. Y. 62, 20 Am. Rep. 504; Oil Creek & A. River R. Co. v. Pennsylvania Transp. Co. 83 Pa. 160; Gasquet v. Crescent City Brewing Co. 49 Fed. Rep. 496; Camden & A. R. Co. v. May's Landing & E. H. City R. Co. 48 N. J. L. 567, 7 Atl. 523; Morawetz, Priv. Corp. § 689.

some other form,-in money.

Boone, Corp. § 107; Green's Brice, Ultra Vires, p. 91; Morawetz, Priv. Corp. §§ 431, 433; People ex rel. Peabody v. Chicago Gas Even if the contract required an increase Trust Co. 130 Ill. 268, 8 L. R. A. 497, 22 N. of capital stock and the De la Vergne ComE. 798; Milbank v. New York, L. E. & W. R. pany had no power to contract therefor and Co. 64 How. Pr. 20; Talmage v. Pell, 7 N. Y. for the payment in such form, it will never328; Mechanics & Workingmen's Mut. Sav.theless be compelled to make compensation in Bank & Bldg. Asso. v. Meriden Agency Co. 24 Conn. 159; Central R. Co. v. Pennsylvania Hitchcock v. Galveston, 96 U. S. 351, 24 L. R. Co. 31 N. J. Eq. 475; Pearson v. Concord ed. 662; Fort Worth City Co. v. Smith Bridge R. Corp. 62 N. H. 537; Denny Hotel Co. v. Co. 151 U. S. 294, 38 L. ed. 167, 14 Sup. Ct. Schram, 6 Wash. 134; Franklin Co. v. Lew-Rep. 339; State Bd. of Agri. v. Citizens iston Inst. for Savings, 68 Me. 46, 28 Am. Street R. Co. 47 Ind. 407, 17 Am. Rep. 702; Rep. 9. Parish v. Wheeler, 22 N. Y. 494; Edwards v. A contract made by a corporation beyond Fairbanks, 27 La. Ann. 449; Morawetz, Priv. the scope of its powers, express or implied, Corp. § 86; Missouri P. R. Co. v. Sidell, 35 on a proper construction of its charter, can-U. S. App. 152, 67 Fed. Rep. 464, 14 C. C. A. not be enforced or rendered enforceable by 477; Bensiek v. Thomas, 27 U. S. App. 765, the application of the doctrine of estoppel. 66 Fed. Rep. 104, 13 C. C. A. 457.

Central Transp. Co. v. Pullman's Palace Car Co. 139 U. S. 24, 35 L. ed. 55, 11 Sup. Ct. Rep. 478; California Nat. Bank v. Kennedy, 167 U. S. 362, 42 L. ed. 198, 17 Sup. Ct. Rep. 831; Buckeye Marble & Freestone Co. v. Harvey, 92 Tenn. 116, 18 L. R. A. 252, 20 S. W. 427; McCormick v. Market Nat. Bank, 162 Ill. 100, 44 N. E. 381, 165 U. S. 538, 41 L. ed. 817, 17 Sup. Ct. Rep. 433; Hamor v. Taylor Rice Engineering Co. 84 Fed. Rep. 392; Durkee v. People ex rel. Askren, 53 II. App. 396, 155 Ill. 354, 40 N. E. 626.

Messrs. Leo Rassieur and J. M. Wilson argued the cause and, with Mr. Eleneious Smith, filed a brief for respondents:

The subject-matter of the contract was not stock of the consolidated company, but its tangible assets, its outstanding accounts and its goodwill, subject to the payment of its debts, and the custody thereof, until such payment, by the Illinois assignee.

German Sav. Inst. v. De La Vergne Refrig

*Mr. Justice Brown delivered the opinion [48] of the court:

The principal question in this case is whether, under the laws of New York providing for the organization of manufacturing corporations, such corporations are authorized to purchase the stock of a rival corporation for the purpose of suppressing competition and obtaining the management of such corporation.

The facts of the case are substantially as follows: The Consolidated Ice Machine Company (hereinafter referred to as the Consolidated Company) was a corporation organized under the laws of Illinois, and was engaged in the business of manufacturing and selling refrigerating and ice-making machines. The entire amount of issued stock of such corporation was $100,000, held in various proportions by the plaintiffs in this consolidated cause. Having become insol

vent, the company, on October 14, 1890, made | in certain specified proportions to each stockan assignment under the general laws of 11- holder. linois, for the benefit of creditors, to one Jen- By the fourth clause, the stockholders kins, who, at the date of the contract sued agreed within ten days from the date of the upon, was engaged in winding up its busi- agreement to assign to De la Vergne, for the ness. The assignment on its face purported benefit of the Refrigerating Company, all to convey to Jenkins and his successors in stock of the insolvent company which had trust the entire real and personal "property been issued, and which they guaranteed had and effects of every kind and description" be- been paid in full; and within sixty days longing to the corporation, "or in which it thereafter the Refrigerating Company and has any right or interest," the same being its president *agreed to issue and deliver to [50] fully and particularly enumerated and de- the stockholders of the Consolidated Comscribed in an inventory, which, however, pany stock in the Refrigerating Company to does not appear in the record. Its assets the amount of $100,000. consisted mainly of a plant for the manufacture of refrigerating and ice-making machines in Chicago; of patent rights, outstanding accounts, and the goodwill of its business which appears to have been an ex

tensive one.

By the fifth clause, the stockholders in the Consolidated Company covenanted to accept, in lieu of the stock of the Refrigerating Company, $100,000 in cash, at the option of De la Vergne, the president of the company.

By the seventh clause, the stockholders of the Consolidated Company agreed that for a period of ten years they would not enter into or become engaged in the selling or making of refrigerators or ice machines, directly or indirectly, within the United States, except

one

It is asserted by the plaintiffs, who are stockholders in this company, that the assets exceeded in value the liabilities of the company, and that the company was not in reality insolvent, but had assumed contracts to such an extent that, with its limited cap-ing the state of Montana. ital, it was unable to carry them out. Within the ten days provided by the [49] *However this may be, subsequently to the agreement, certificates representing assignment, and on April 16, 1891, the com- thousand shares of the stock of the Consolipany itself, by its president as party of the dated Company, with written assignments first part, and its stockholders as parties of executed by the parties who held the certifithe second part, entered into an agreement cates, were delivered to De la Vergne, alwith the De la Vergne Refrigerating Ma- though ninety-five of these shares were held chine Company, a corporation organized un- by P. J. Lingenfelder and Leo Rassieur as der the laws of New York (hereinafter called executors, and ninety were held by them as the Refrigerating Company), as party of the trustees under the will of one Jungenfeld, third part, and John C. De la Vergne, of the deceased. These shares were assigned by the state of New York, president of that com- parties without an order authorizing them pany, party of the fourth part. This agree to do so from the probate court of St. Louis, ment is the basis of the action. After recit in the state of Missouri, in which the estate ing that the Refrigerating Company was will of Jungenfeld was in the process of admining to acquire such right as the Consoli-istration. Two days after the receipt of dated Company and its stockholders could these certificates De la Vergne's attorney assign in and to the assets of such company; wrote to Mr. Rassieur, calling his attention that under the laws of Illinois the Consoli- to certain technical defects, which were imdated Company was not entitled to the pos mediately remedied by suitable instruments session of its assets in the hands of the as- of further assurance. No objection was then signee until its obligations had been dis-made that the assignments of the executors charged; that the Refrigerating Company and trustees were insufficient for want of an was incorporated with a stock of $350,000 order of the probate court authorizing the when its assets were worth $1,400,000; and same.

that its stockholders were considering a In the following July demands were sevplan of increasing the stock to $2,000,000, of eral times made by Mr. Rassieur for himself which $1,000,000 was to be turned over to and his associates for the $100,000 in stock the Consolidated Company under the terms or money stipulated by the contract, but no of the agreement. response was received until September, when Therefore, in view of these facts, the Con- Mr. Fitch, acting for the Refrigerating Comsolidated Company and its stockholders cov-defendants declined to carry out their part pany, announced for the first time that the enanted with the Refrigerating Company of the contract. The reasons for the refusal and its president, De la Vergne, to sell and do not seem to have been substantial ones. convey unto the Refrigerating Company all their right, title, and interest in and to the assets of the party of the first part, subject to the payment of its obligations, and subject to the custody thereof in the legal custodian, R. E. Jenkins, assignee as aforesaid.

The second clause contained a covenant to issue to the stockholders of the Consolidated Company fully paid-up stock in the Refrig erating Company to the amount of $100,000

The letter contained an announcement that
Mr. *De la Vergne's counsel was ready to re- [51]
turn the papers sent to him to whomsoever
was legally entitled to their custody. There
was no reconveyance to the Consolidated
Company of whatever was covered by the
contract, the covenant of its stockholders to
refrain from transacting business for ten
years was never released, and none of the
certificates and assignments of stock were

ever delivered back. It appeared, however, that in the meantime the Refrigerating Company had secured the former New York of fice of the Consolidated Company; had employed its agent in making contracts with former customers of that company, which contracts were taken in the name of such agent. He was, however, furnished with the means by which they were carried out, and assignments were taken from him, which practically secured the goodwill of the company, although the Chicago assets were allowed to go to sale by the assignee. At this sale Mr. De la Vergne was present and offered for the tangible assets the sum of $25,000.

As the general assignment to Jenkins, executed October 14, 1890, was most sweeping in its terms, and included all the real and personal property and effects of every kind and description belonging to the corporation, or in which it had any right or interest, it was doubtless sufficient to pass the goodwill of the business, which was an incident either to the premises, to the name of the corporation, or to the tangible property with which the business was carried on. Churton v. Douglas, Johns. V. C. (Eng.) 174, 188; Menendez v. Holt, 128 U. S. 514, 32 L. ed. 526, 9 Sup. Ct. Rep. 143; Metropolitan Bank v. St. Louis Dispatch Co. 149 U. S. 436, 37 L. ed. 799, 13 Sup. Ct. Rep. 944; Willett v. Blanford, 1 Hare, 253; Wedderburn v. Wedderburn, 22 Beav. 84; Bradbury v. Dickens, 27 Beav. 53; Williams v. Wilson, 4 Sandf. Ch. 379; Sheppard v. Boggs, 9 Neb. 257; Wallingford v. Burr, 17 Neb. 137.

In their answer as amended, defendants set up as justification for a refusal to perform the contract that no assets of the Consolidated Company ever came into the possession of the defendants, since all, including the goodwill, had been transferred to Jenkins, This was evidently the view taken by the the assignee, for the benefit of its creditors, assignee, since he subsequently advertised and remained in his possession and control the goodwill of the business for sale, and sold until they were disposed of under the direc- the same under an order of the court to tion of the probate court for the benefit of Clarence A. Knight and Otto C. Butz, who creditors, and that they were insufficient to afterward sold the same, including certain discharge the liabilities; that the contract of the assets, to John Featherstone's Sons. sued upon purporting to be executed on be- *It is difficult, even if the contract were [53] half of the Refrigerating Company by De legally executed, to see what assets of value la Vergne, its president, was executed with- belonging to the Consolidated Company out authority; that no benefit of any kind passed to the Refrigerating Company under ever accrued to the company under the con- it, except perhaps the possibility that the tract; that the company never received any assets would prove more than sufficient to of the consideration moving to it under the pay the debts; or that a settlement might be contract; that it never received any of the effected with a majority in number and assets of the Consolidated Company, nor any amount of the creditors, when, under the of the stock; that it never in any manner laws of Illinois, the assignor would be enratified or approved the contract, but, on the titled to a reconveyance and redelivery of contrary, rejected the same, and that the the assigned assets. In such case the goodplaintiffs well knew at the time of making will would doubtless return with the other the contract that De la Vergne had no power assets to the assignor, i. e., the corporation, or authority to bind the Refrigerating Com- but not to the stockholders, and the right to pany; that the defendants notified the plain- sue for a breach of the contract would betiffs that they would not be bound by the long to the corporation, or its assignee. [52] contract, and *that such rejection of the con- There was also a covenant that the Consolitract was acquiesced in by the plaintiffs, dated Company would not engage in a and that, relying upon such acquiescence, the similar business within ten years from the defendants abandoned all interests in the date of the contract. The Refrigerating ComConsolidated Company; that the contract pany, however, did not avail itself of this opwas in reality for the stock of the Consoli-portunity to compromise with the creditors dated Company, and that the Refrigerating of the Consolidated Company, but allowed Company was not authorized by its charter, the assignee to dispose of the assets, which, by the laws of New York or of Illinois, to on a forced sale, lacked $150,000 of being purchase such stock, and that the agreement sufficient to pay the debts of the Consoliwas ultra vires; and, further, that the Re- dated Company. frigerating Company had no authority to stipulate for an increase in its capital stock, as was attempted under the contract, and that the contract was against public policy and wholly void.

1. The main defense pressed upon our consideration is one which does not seem to have been called to the attention of the circuit court, and one upon which the judges of the circuit court of appeals were equally divided in opinion. It is that the president of the Refrigerating Company had no authority to sign the contract in question, and that the agreement itself was ultra vires the corporation.

In addition to this, however, there was no corporate action taken authorizing any such conveyance by the corporation, and such conveyance would not, under the laws of Illinois which conform in this particular to the general law, be within the power of the stockholders, even though they all signed it. without formal action at a meeting held for that purpose. Sellers v. Greer, 172 Ill. 549, 40 L. R. A. 589, 50 N. E. 246; Hopkins v. Roseclare Lead Co. 72 Ill. 373; Humphreys v. McKissock, 140 U. S. 304, 312, 35 L. ed. 473, 475, 11 Sup. Ct. Rep. 779; Allemong v. Simmons, 124 Ind. 199, 23 N. E. 768; Smith v. Hurd, 12 Met. 371, 385, 46 Am. Dec. 690;

It is true that the president of the Consolidated Company assumed to sign the contract as president, and to bind the company, but it is scarcely necessary to say that the president of a corporation has no power as such to make a general conveyance of the assets of the corporation without at least the assent of the board of directors. England v. Dearborn, 141 Mass. 590, 6 N. E. 837; Titus | [54] v. Cairo & F. R. Co. 37 N. J. L. 98, 102; *McCullough v. Moss, 5 Denio, 567; Fulton Bank v. New York & 8. Canal Co. 4 Paige, 129, 134; Walworth County Bank v. Farmers' Loan & T. Co. 14 Wis. 325; Stokes v. New Jersey Pottery Co. 46 N. J. L. 237; Morawetz, Priv. Corp. § 537; 4 Thomp. Corp. §clared in § 8 that "it shall not be law4622.

and the trustees of such company shall have the same power with respect to the purchase of such stock and issuing stock therefor as are now given by law with respect to the purchase of mines, manufactories, and other property necessary to the business of manufacturing companies. But the capital stock of such company shall not be increased without the consent of the owners of two thirds of the stock, to be obtained as provided by sections twenty-one and twenty-two of the act hereby amended." N. Y. Laws 1866, chap. 838. The object of this act was evidently much the same as that of the prior act of 1853, that is, to enable manufacturing corporations to produce their own ore and manufacture their own raw materials. To meet the exigencies of this statute it is necessary that the company whose stock is purchased should at the time of the purchase be engaged in the business of mining, manufacturing, or transporting such materials as are required in the prosecution of the business of the purchasing company; and the right is limited to such time as they shall furnish or transport such materials for the use of such company, and for two years thereafter. It clearly has no application to a case where a manufacturing [57] company purchases the stock of an insolvent rival concern which has ceased to do business, and whose stock is bought for the evident purpose of preventing a reorganization, and of obtaining its patronage.

In the Revised Statutes of New York of 1889 (vol. 3, p. 1959), there is also an act, to which our attention is called by a supplemental brief, permitting manufacturing companies to increase or diminish their capital stock to any amount which may be sufficient and proper for purposes of the corporation, and also to extend their business to any other manufacturing business subject to the pro

visions of the act.

value 20 per cent greater than the amount loaned or continued thereon." N. Y. Laws 1890, chap. 564, art. 3, p. 1073.

Had the former acts given the unlimited authority to purchase insisted upon by the plaintiffs this act would have been entirely unnecessary,and, instead of enlarging the power previously possessed, would have operated as a restriction upon it. That this act of 1890 does not assist the plaintiffs is evident not only from the fact that the act did not take effect *until after the contract. was made, [58] but from the further fact that it merely authorizes corporations to invest their funds in the stocks, bonds, or securities of other corporations if dividends have been paid for three years before the loans are made, or if the interest on their securities is not in default, and such securities are worth 20 per cent greater than the amount loaned thereon. This act evidently refers to loans and not to purchases, since the section expressly provides that no corporation shall use its funds in the purchase of any stock, either of its own or any other corporation, unless by way of security for antecedent debts.

The truth is, that the legislature of New York, instead of repealing the prohibitory clause in the original act of 1848, concerning the purchase of stock in other corporations, has modified it but slightly, by slow degrees, and in special cases, to enable a manufacturing corporation to control more perfectly its own legitimate business operations, and has thereby manifested the more clearly its intention to preserve the original inhibition.

Our conclusion upon this branch of the case is that, as the main, if not the sole, object of the purchase from the plaintiffs was to acquire their stock in the Consolidated Company, such purchase was ult~~ vires the Refrigerating Company.

2. Is this defense available to the Refrigerating Company? Whatever doubts might have been once entertained as to the power of corporations to set up the defense of ultra vires to defeat a recovery upon an executed contract, the rule is now well settled, at least in this court, that where the action is brought upon the illegal contract it is a good defense that the corporation was prohibited by statute from entering into such contract, although in an action upon 8

That neither of these acts were intended to give authority to corporations to purchase stock of other corporations engaged in the same business is evident from a subsequent act approved June 7, 1890, to take effect May 1, 1891, the 40th section of which provides that no corporation shall use any of its funds in the purchase of any stock of its own or any other corporation, unless the same shall have been bona fide pledged, hypothecated, or transferred to it, by way of security for, or in satisfaction or part satis-quantum meruit it may be compelled to refaction of, a debt previously contracted in spond for the benefit actually received. the course of its business, or shall be pur- The earliest case in which this doctrine chased by it at sales upon judgments, orders, is distinctly laid down is that of Pearce v. or decrees which shall be obtained for such Madison & I. R. Co. 21 How. 441, 16 L. ed. debts, or in the prosecution thereof. But any 184, in which it appears that two railroad domestic corporation transacting business in companies, which had been consolidated, this state, and also in other states or for- gave their promissory notes in payment for eign countries, may invest its funds in the a steamboat to run in connection with the stocks, bonds, or securities of other corpora- railroads. It was held that, as there was no autions owning lands in this state or such thority in the *railroad companies to engage in [59] states, if dividends have been paid on such running steamboats, there could be no recovstocks continuously for three years im- ery on the notes, and that as the plaintiff was mediately before such loans are made, or if not the owner of the boat and had sued upon the interest on such bonds or securities is the notes as an indorsee, there could be no renot in default, and such stock, bonds, or secovery. The same doctrine has been applied curities shall be continuously of a market to leases ultra vires a corporation, and it has