Case ID: ohio-st_46/html/0044-01.html
Source: Caselaw Access Project
Author: {"author": "Minshall, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Railway Co. v. Iron Co.
    
      Pleading, indefiniteness in — Corporations; subscription by one, to capital stock of another — Action by, to recover money voluntarily paid.
    
    1. Indefiniteness in pleading should be taken advantage of by motion and not by demurrer; so that, where the language of a pleading will fairly admit of a construction that will sustain it as against a demurrer, it should, in the absence of a motion to make definite and certain, be so construed.
    2. An incorporated company cannot, unless authorized by statute, subscribe' to the capital stock of another; a subscription so made is ultra vires and void.
    3. The rule, that a payment voluntarily made under a mistake of law, but with a full knowledge of the facts, cannot be recovered back, rests upon general principles of public convenience, and applies to a corporation as well ás to a natural person.
    (Decided October 16, 1888.)
    Error to the Circuit Court of Cuyahoga County.
    The original suit was brought into the court of common pleas in the county where instituted on appeal from a justice of the peace.
    From the petition filed in the common pleas, it appears that The Lake Erie Iron Company, plaintiff, and The Valley Railway Company, defendant, below, are each incorporated companies under the laws of this state; and that the plaintiff asked to recover of tbe defendant on an account for goods sold and delivered, tbe sum of $253.30. The account consisted of iron and iron forgings, amounting to the sum claimed.
    The defendant answered, denying, first, any indebtedness upon the account; and added, as a second defense, and by way of counter-claim, — “that the plaintiff is now and has been for the last twelve years and over, a large manufacturer of such iron goods as are named in the account attached to the petition and of other iron goods used in the construction and the operation of the railroads, and consumes in the manufacturing of such goods daily, a large amount of coal; that said Iron Company is now, and has been for the last ten years and over, largely interested in the matter of reducing the price of coal in the city of Cleveland.
    “ That the construction of railroads from the said city of Cleveland to the coal fields in said state, south of said city, tends to reduce the price of coal in said city. That the said plaintiff, to bring about and aid in the construction of the railroad of the defendant, from said city to said coal fields, and in order to effect a sale of iron goods by it manufactured, entered into a written contract with the defendant on or about the 1st day of February, 1873, a copy of which contract, marked “ Exhibit A,” is hereto attached and made a part of this answer. That in said contract the said plaintiff agreed to manufacture for and deliver to the defendant, iron and forgings of the value of two thousand dollars ($2,000), and to take in pay therefor forty shares of the capital stock of the defendant at its par value : to the entering into and making said contract by the plaintiff, each and every one of its members and stockholders at the time thereof assented to and requested. That under said contract, and in accordance therewith, the defendant did on or about the 1st day of January, 1881, apply to the plaintiff for the articles described and charged in the account, a copy of which is attached to the petition, and received from the plaintiff, on or about the date last mentioned, said goods under and in pursuance of said contract. That all the provisions of said contract that were to be performed and carried out by the defendant have been by it performed and carried out, excepting only the delivery by it of the certificate of said forty shares to the plaintiff, which has not been done for the reason that the plaintiff wholly refuses to manufacture for and deliver to the defendant any more iron and forgings. That the defendant is, and has been ever ready to receive, from the plaintiff, iron and forgings in payment for the balance due for said forty shares of stock from the plaintiff, and has so repeatedly notified and duly demanded the same of the plaintiff, but the plaintiff did, prior to, and has ever since the commencement of this action, utterly refused and still refuses to carry out its said contract;” — and asked judgment for the balance, $1,746.70, due on the subscription.
    The plaintiff demurred to the pleading on the ground that it is insufficient as a defense, or counter-claim. The court sustained the demurrer, to which the defendant excepted; and,, proceeding “to take the account, hear the proofs, and assess the damages,” found for the plaintiff in the sum of $295.04, and rendered judgment accordingly.
    The defendant, The Valley Railway Company, prosecuted error to the district court, claiming that the court erred in sustaining the demurrer of the plaintiff to its answer. The judgment was affirmed by the circuit court, and this proceeding is prosecuted to reverse the judgment in both of the lower courts.
    The principal questions arising upon the record are (1) whether the facts pleaded in the answer constitute a defense, and (2) whether they constitute a counter-claim in favor of the defendant against the plaintiff.
    
      W. J. Poardman, for plaintiff in error.
    There is a distinction made between contracts executed, or partly executed, and those that are not either in whole or in part executed. Field on Corporations, secs. 259, 260, 263; Green’s Brice’s Ultra Vires, p. 729, note a; Hitchcock v. Galveston, 96 U. S. 341; Hays v. G. G. L. & C. Co., 29 Ohio St. 330; Dimpfel v. O. & M. Ry. Co., 9 Bissell, 127; A. U. T. Co. v. U. P. Ry. Co., 1 McCray’s Rep. 188, syllabus 4; also page 201.
    
      I do not assent to the proposition that one corporation can not take the stock of another corporation.
    Suppose the defendant in error had in fact delivered two thousand dollars worth o'f iron and forgings in pursuance of the contract, and had received a certificate for the forty shares of stock, could it then have repudiated the contract on such grounds? Or suppose it had, as is not unfrequently done by corporations, taken the stock in the name of a trustee, would it not have been liable as the real owner of the stock ?
    
      Henderson, Kline & Tolies, for defendant in error.
    We contend that the contract set forth in the answer is one which neither the plaintiff or defendant had power to make.
    
      First — The railway company was not authorized to accept subscriptions to its capital stock payable otherwise than in money. The rule which prevails in this state for the determination of corporate powers, is that corporations have those powers, and only those, which are expressly granted to them, or are necessary or incident to the exercise of those expressly granted.
    
      Strauss v. Insurance Co., 5 Ohio St. 59; Franklin Bank v. Commercial Bank, 36 Ohio St. 350; Coppin v. Greenless & Ransom Co., 38 Ohio St. 275.
    The same rule prevails in England and most of the United States. Ashbury Railway Carriage and Iron Co. v. Richie, 7 L. R. Eng. & Irish Appeal Cases, 653; Davis v. Old Colony R. R. Co., 131 Mass. 258; Thomas v. R. R. Co., 101 U S. 71; National Trust Co. v. Miller, 33 N. J. Eq. 155; Franklin Co. v. Bank, 68 Me. 43 ; Revised Statutes of Ohio, sections 3242, 3243, 3244, 3245 and 3282. Sims v. R. R. Co., 37 Ohio St. 556.
    
      Second — Whether the contract was ultra vires as to plaintiff in error or not is of little consequence, if, as seems to us clear, the Lake Erie Iron Company had no authority to subscribe to the capital stock of any other corporation.
    In determining this question, it should be noted that things necessary or incident to the purpose of corporate existence do not include things merely advantageous or convenient. Davis v. Old Colony R. R., supra; Thomas v. R. R. Co., supra.
    
    
      The rule is laid down, that a corporation organized for one purpose has no power to subscribe for the stock of a company organized for another, in. Mechanics Savings Bank and Building Association v. Meridian Agency Company, 24 Conn. 159 ; Franklin Company v. Savings Bank, 68 Me. 43; Railroad Company v. Collins et al., 40 Ga. 582; Hazelhurst v. Railroad Company, 43 Ga. 13; Berry v. Yates, 24 Barb. 199; Railroad Co. v. Railroad Co., 31 N. J. Eq. 475; Talmage v. Pell, 3 Selden (N. Y.) 328; Milbank v. Railroad Co., 64 How. Pr. 20. Franklin Bank v. Commercial Bank, 36 Ohio St. 350; Coppin v. Greenlees, 38 Ohio St. 275.
    Everyone dealing with a corporation, is bound to know, at least, its apparent powers. Davis v. Ry. Co., supra; N. T. Co. v. Miller, 33 N. J. Eq. 155; Franklin Co. v. Bank, supra; Towsley v. Moore, 30 Ohio St. 184.
    The contract being ultra vires, it is entirely immaterial whether any or all the stockholders assented to or attempted to ratify it or not. Ashbury Co. v. Richie, supra; Davis v. Ry. Co., supra; Thomas v. Ry. Co., supra; Nat. Trust Co. v. Miller, supra; Chitty on Cont., p. 553; Towsley v. Moore, supra.
    
   Minshall, J.

A question arises in limine as to the proper construction of the pleading demurred to, the answer and cross-petition of the defendant below. It is claimed that there is no averment that the goods were delivered by the plaintiff as in performance of the contract of subscription to the capital stock of the defendant. The averment is, that under said contract the defendant “applied” for the goods charged in the account sued on, “and received from the plaintiff said goods under and in performance of said contract.” This must, as we think, be held to mean that theyj were delivered by the plaintiff as claimed by the defendant. They could not otherwise have been received from the plaintiff in pursuance of the contract. The most that can be claimed as to the averment is, that it is indefinite. If so, then it should have been raised by motion and not by demurrer. The Trustees of School Section 16 v. Odlin, 8 Ohio St. 293, 297.

If, then, the subscription of the Iron Company to the capital stock of the Railway Company is a valid one, the plaintiff, on the averments of the answer, has no right to recover, unless upon the facts stated, it has the right to sue as for goods sold and delivered, and recover as for goods that had been delivered upon a contract it had no power as a company to make. So that the determination of the questions, (1) whether the plaintiff below could make a valid subscription to the capital stock of the Railway Company, and, if not, (2) whether it could recover back what it had delivered in performance thereof, will dispose of the right of the plaintiff to recover for the goods claimed to have been sold and delivered, and, of the claim of the defendant to recover the balance alleged to be due upon the subscription.

We think it well settled as a result of the decisions in this state, as well as elsewhere, that an incorporated company cannot, unless authorized by statute, make a valid subscription to the capital stock of another; that such subscription is ultra vires and void. Mr. Morawitz, in stating this to be the law, observes : The right of forming a corporation is conferred by the incorporation laws only upon persons acting individually, and not upon associations; moreover, it would, under ordinary circumstances, be a violation of the charter of an existing company to subscribe for shares in a new company and assume the resulting liabilities.” (Priv. Corp. § 433.)

There has been no direct decision upon the question by this court, but such has been the uniform holding elsewhere. Railroad Company v. Railroad Company, 31 N. J. Eq. 475; Franklin Co. v. Lewiston Savings Bank, 68 Maine, 43; Railroad Company v. Collins, 48 Ga. 582. These cases all proceed upon the principle that the powers of corporations organized under legislative statutes are such, and such only, as those statutes confer, or that may fairly be implied therefrom. This doctrine was clearly announced and applied in Straus v. Eagle Ins. Co., 5 Ohio St. 59, and has been firmly adhered to in this court. Railroad Co. v. Hinsdale, 45 Ohio St. 556, 573.

No claim is made by tbe defendant that the Iron Company had any express statutory authority to use its capital or assets, in aid of the construction of a railroad by subscription to its capital stock or otherwise. The only averment, as to this, is, that it, the Iron Company, conceived that it would be benefited by the reduction of the price of coal at Cleveland, its place-of business, and the market which the construction of the road would afford for its manufactures, and by these considerations was induced to make the subscription. But all this can be of no avail in the face, at least, of the prohibition contained in § 3266 of the Revised Statutes, that, “No corporation shall* employ its stock, means, assets or other property, directly or indirectly, for any other purpose whatever, than to accomplish the legitimate objects of its creation.” There was then, as we-think, no authority whatever in the Iron Company to make a valid subscription to the capital stock of the Railway Company, and no recovery can be had upon it.

The next question then is, whether the plaintiff, the Iron Company, can recover the value of the goods delivered by it in. part performance of the contract on which the subscription, was made? We shall treat the question as if the action had been in plain terms for such a recovery, without embarrassing-it with a doubt as to whether such a recovery could be had in-the form of a suit for goods sold and delivered.

It is quite certain that the simple fact that the plaintiff was under no legal obligation to deliver the goods, the contract of subscription being void, is no ground for a recovery of their value against the defendant, although the plaintiff may have-. been ignorant of the law affecting the contract. Bish. Cont. § 615 and § 81. To warrant a recovery in such case, it must, further appear that the delivery was made in ignorance of the-facts, or else that it was an involuntary one. Clark v. Dutcher, 9 Cowan, 674, 684; Lamborn v. County Commissioners, 97 U. S. 181; Babcock v. Fond du Lac, 58 Wis. 230; Savings Institution v. Linder, 74 Pa. St. 371; Inhabitants of Livermore v. Inhabitants of Peru, 55 Maine, 469; Bish. Cont. § 631;. Pol. Cont. 409, and notes. But there is no ground for either of these claims. The delivery was a voluntary one, with full knowledge of the facts, which forbids a recovery of the value of the goods so delivered, unless some reason exists why corporations should be assisted against the consequences of their voluntary acts, in cases where private persons would not.

The fact that corporations are generally not liable for the unauthorized acts of their agents, and may repudiate the same, does not seem to furnish a solution of this question. The principle which denies a recovery in this class of cases will be found to rest upon considerations of general convenience, to which corporations as well as natural persons are required to conform. Remedial justice is established to aid those who cannot aid themselves without the use of violence, in obtaining what as a matter of right is their due. It does not invite litigation, and declines its assistance to those who voluntarily place themselves in the situation of becoming suitors. The Iron Company was at-liberty by its agents to accede to the demand of the railroad company for the delivery of the goods on the subscription, or to decline to do so. It chose, with a full knowledge of the facts, to deliver the goods; and there is no sound reason why it should be aided in a law-suit made necessary by its own voluntary act, that would not apply with equal force to a natural person. "Where there is no ignorance of the facts, or coercion, it is said, in Glass Co. v. City of Boston, 4 Met. 181: “If the party would resist an unjust demand, he must do so at the threshold. The parties treat with each other upon equal terms, and if litigation is intended by the party of whom the money is demanded, it should precede payment. If it were not so, the effect would be to leave the party who pays the money, the privilege of selecting his own time and convenience for litigation ; delaying it, as the case may be, until the evidence, which the other party would have relied upon to sustain his claim, may be lost by lapse of time and the various casualties to which human affairs are exposed.” In some cases stress is laid upon the inconvenience it would be to the other party, who may receive the money as his own, and, acting upon that belief, so dispose of it as to make it exceedingly inconvenient, if not impossible, to repay it. Brisbane v. Dacres, 5 Taunt. 144, Gibbs J. 152; Clark v. Dutcher, 9 Cowan, 674, 684. In any view, however, the reason of the rule applies with like force to a corporation as to a natural person.

Judgment reversed and eause remanded to the court of common pleas, with direction to overrule the demurrer to the answer of the defendant, and for further proceedings.