Delaware gazette and state journal. (Wilmington, Del.) 1883-1902, 1897-12-30
DELAWARE THURSDAY, DECEMBER 30 1897

There are many decisions by tho State
courts, and some dictR in the opinion
OF thu Supreme Court, which support
the proposition, .hat q contract OF
corporation NOT contra hOnos Tpurea or
involving nahum in Sc, or forbidden
ny tho charter or anY other law, and
merely beyond the grant OF cnrpurare
power, can be enforced against the cor
pDrafiop after it mas been executed TN
the part OF the plaintiff. notwitGstaud-
log the fact that the plaintiff the
time of entering into tho contract
was aware of the lack OF corporate
authority. But this doctrine has not
heen accepted by the Supreme Court.
" II II
Tho promissory nots OF March 10Th,
1880, m which willard bases mis- claim,
was given in renewal OF a note for the
Same amount between the same parties,
made and delivGrerd December 18th,
1898. Whatever iniirmity inferred in
the original moo attached to the
removal note. The consideration for
tho original noto was the surrender by
willard to tea defendant of certain
shared of its capita! stock held by hir:.
liz now seeks TO he recognized as one
of tho creditors of tho defendant, Wac
tho money which the defendant under
took TO pay him far his surrender of
stock to come out OF any surplus or
fund Of net protts, on the ore hand,
or on ibe other out OF the fund repre-
seute1 by the capital atucltY The de-
fendant waa adiudged insolyent and
receivers wers appointed within four
months after tho giving of the
original note; and it admitted that
there are not sufficient funds or
property in their hands to pay
the corporate Indebtedness sxGlu
siye Of the alleged claim OF Willard.
In 30 far as the existence Of surplus
or fund of net profits ut the time of this
taking Of the original note might tend
to the establishment of right on bis
part to compete with the Crediters OF
the defendant, the burden OF proof
rested upon him 10 Hhuw the existence
of such surplus or profits. No such
showing has besn made, and it cannot
be assumed that such was a fact. Tho
note must DO treated as an undertaking.
by the defendant to dispose of part of
its Ganitai stock tn secure surrender
OF Willard's shares. It was a contract TO
do what was ultra wires OF the de-
fendant, az against its creditors, and
was nudity; anu, therefore, the note
given in renewal is void.
'tIhe transaction in QUESTION was
prohibited, not only by tine genera
principles of law, applicable to corl
porations, but by the general ineorpora-
tion act of Delaware q The
payment to stockholders of any part OF
the capital stock of corporation to
SECURE the surrender OF it's shares,
which on general principles, is ultra
wires of the corporation. is by the above
section expressly prohibited; and by
that section for the amount of money
SO paid such directors as actually or i'm
pliedly take pRrt in such illegal
action, Rre made liable to the corpora.
tion or its creditors. Willard was a di-
took the original note and the receivers
represent both the corporation and its
creditors. But no inference can
justly be drawn for this provision that
the corporation can, as against creditors,
ALLEVIATE any part of the capital stock
for the purchase OF shares thereof. The
section is to be read in the light of
the other provisions Of the act Cor.
porations created undar tho act, In many
instances, are authorized to ana do own
real and personal property 10 excess of
their prescribed or authorized capital
stock. They may have surplus or a
fund Of net profits. 1t is pUasible that
under certain circumstances corpora
tion may have legal power TO buy shares
of it's own stock with its surplus or
profits, such power being coupled with
legal duty ON it's part promptly TO re
issue such shares for value. However
this may be, it ia clear that no power
exists in a corporation, as against its
creditors, to impair tile fund, repre-.
scented by its capital stock, by expend-
ing any portion OF it in purchasing
shares of it's own stocs.
1T was urged 10 argument that the
receivers represented tho defendant.
and that, il the circumstances of the
case were such. that it would have
precluded from denying the validity of
the promissory notes. the receivers are
equally prerluded from so doing. But
this position is uptenable. The re-
ceivers, representing both the creditors
assert any defence 10 which tho credi-
tors, in iadiRtiuction to the de-
fendant, are entitled. q
1.-The facts do not disclose any actual
fraud or unfair dealings on the part of
Willard, Ills intention may have been
blameless. The law, however, did not
sanction The transaction in which he
engaged. and his alleged claim must be
accordingly dIHallowed with COST
William S. Hilles represented the re-
csivers and Levi e. Bird MIR. Willard.