Main v. Casserly

McKee, J. This is an action against the stockholders of a corporation, organized under the laws of the State, by the name of the “Lassen County Land and Flume Company,” to recover judgment upon a promissory note in words and figures following : —

“$8,250.00. San Fbancisco, July 25, 1877.

“Twelve months after date, for value received, the Lassen County Land and Flume Company promised to pay to the order of Henry Toomy eight thousand two hundred and fifty (8,250) dollars, in United States gold coin, without interest. In case of non-payment at maturity this note shall bear interest at ten per cent per annum until paid.

“(Signed) Eugene Cassebly, President, etc.

“F. K. Bunker, Secretary.”

[COBPOBATE SEAL.]

The payee of the note was a stockholder of the corporation and owner of 5,500 shares of its stock. At the same time he was largely indebted to the corporation; and he proposed, if the company would buy his stock at a stipulated price and give him its promissory note to secure payment of the same, that he would negotiate a sale of the note, and apply the moneys which he received for it in payment of his debt to the corporation. The company agreed, purchased the stock by the formalities required by law, and executed and delivered to him the note in suit, which he sold, indorsed, and delivered to the plaintiff before maturity, and out of the moneys received in the transaction he paid into the treasury of the corporation several thousand dollars in satisfaction and discharge of his indebtedness to the corporation.

By the executed agreement the company has therefore received 5,500 shares of stock and several thousand dollars, which it proposes to keep and repudiate its promissory note, upon the ground that the transaction was ultra vires and void.

Assuming that the contract of purchase was ultra vires, the law does not allow a corporation to retain the benefits which it has received from the contract and escape liability upon it. “ The invalidity of a contract,” says Mr. Sedgwick in his work on Statutory and Constitutional Law, p. 73, “is subject to the equitable exception that, although a corporation in making a contract acts in disagreement with its charter, where it is a [129]. simple question of. capacity, or authority to-contract, arising either on a question of regularity of organization, or of power conferred by the charter, a party who has had the benefit of the agreement cannot be permitted, in an action founded upon it, to question its validity. It would be in the highest degree inequitable and unjust to’permit the defendant to repudiate a contract, the fruits of which he retains.”