Leslie v. Lorillard

• Citation: 110 N.Y. 519,18 N.E. 363
• Parties: LESLIE v. LORILLARD et al.
• Decision Date: 16 October 1888
• Court: New York Court of Appeals Court of Appeals

110 N.Y. 519

18 N.E. 363

LESLIE

v.LORILLARD et al.¹

Court of Appeals of New York.

October 16, 1888.

Appeal from supreme court, general term, Second department.

Demurrer to complaint by defendants Lorillard and the Lorillard Steam-Ship Company. The plaintiff is a stockholder of the defendant the Old Dominion Steam-Ship Company of Delaware. In the year 1873 the Old Dominion Steam-Ship Company of New York was a corporation organized under the laws of New York, and was engaged in the business of running a line of steam-ships between the port of New York and certain ports in the state of Virginia. The defendant the Lorillard Steam-Ship Company was also a New York corporation, organized for the the business of navigating the ocean by steam-ships. The defendant Lorillard was a director and the president of the Lorillard company, and had entire control of it; the other directors, except one, who was a brother-in-law, being his clerks and employes. The complaint charges that in and prior to the summer of 1873 said Lorillard, ‘for the purpose of extorting large sums of money from the Old Dominion Steam-Ship Company of New York, stated to the officers of said corporation that the said Lorillard Steam-Ship Company intended to put on and run a line of steam-ships between the ports above mentioned, in opposition to the steamships of said Old Dominion Steam-Ship Company; and, to deceive the officers of said company, and cause them to believe that a formidable opposition would be established against said company, said Lorillard caused said Lorillard Steam-Ship Company to lease docks at Norfolk and other places, and to hire agents and servants at different points, and, in or about the month of October, 1873, said Lorillard caused said Lorillard Steam-Ship Company to put on and run a line of steam-ships between said ports in opposition to said Old Dominion Steam-Ship Company of New York;’ that said Lorillard continued to run his steam-ships at great loss, and at his own expense, until his efforts were successful in deceiving the officers of the Old Dominion Company into the belief that a powerful opposition line had been established; and in January, 1874, an agreement running between the Old Dominion Company and Lorillard and his company was signed by the president of each company, and by Lorillard for himself, by the terms of which, in consideration of a monthly payment to him, Lorillard and his company agreed to discontinue running their vessels, or any others, between the ports mentioned; and that they would not charter or sell the vessels to any other company or persons to be used on that route, and would not become in any way interested in the running of steam-ships between those places; that in February, 1875, the defendant the Old Dominion Steam-Ship Company of Delaware was formed under the laws of that state, and succeeded to the business of the New York company, and ‘became vested with the property of said last-named company, which was duly conveyed and assigned to it, and subjected to the liabilities and contracts of said company;’ that this new company continued making payments to Lorillard under the contract mentioned until February, 1878, when disputes arose between the various parties, and a new contract was entered into in October, 1878; that by this latter contract the previous contract was canceled, and, in consideration of the payment of a gross sum of money, and of certain monthly payments, to be continued through five years from February, 1879, Lorillard and his company again agreed not to run or to be in any way interested in the running of steam-ships between the ports named; that the Delaware Company made all the payments called for under the second agreement up to August, 1881, when further payment of the monthly subsidies was enjoined in an action brought by this plaintiff. Plaintiff alleges that prior to the commencement of this action, and in February, 1884, he requested the Delaware Steam-Ship Company to pay no more moneys, and to commence an action for the cancellation of the contract, and for the recovery back of the moneys paid under the contracts. This demand was in a letter, and the reply to it contains a resolution of the board of directors refusing to take the action requested. Plaintiff also alleges the commencement of an action in February, 1884, by Lorillard against the Delaware Company to recover the monthly payments payable under the contract from and after August, 1881, and that the Delaware Company did not intend to defend it. The relief demanded is an injunction against the Delaware Company's making any payments under the contract, against Lorillard from prosecuting his action, the cancellation of the contract, and the re-payment by Lorillard of all moneys received. The demurrer having been overruled at special term, and its decision having been affirmed at general term, defendants Lorillard and the Lorillard Steam-Ship Company appealed to this court.

Asa Bird Gardiner and Richard L. Sweezy, for appellants.

Thos. S. Moore, for respondent.

GRAY, J., ( after stating the facts as above.)

The defendants Lorillard and the Lorillard Steam-Ship Company have demurred to the complaint on the ground that it did not state facts sufficient to constitute a cause of action. We are thus required to examine this pleading, and to see whether, allowing to its averments all the force and truth such a ground of demurrer concedes, it may be sustained as the foundation of an action for equitable relief. Our decision of the question will necessarily turn upon the validity of the contracts which are set forth. An extended discussion of the principles controlling the making and enforcement of corporate contracts is unnecessary. By frequent adjudications certain principles are well settled, and have become familiar. The contracts of corporations are said to be ultra vires when they involve some adventure or undertaking, not within the scope of their charter, which is their rule of corporate action. In the granting of charters the legislature is presumed to have had in view the public interest, and public policy is (as the interest of stockholders ought to be) concerned in the restriction of corporations within chartered limits, and a departure therefrom is only deemed excusable when it cannot result in prejudice to the public or to the stockholders. As artificial creations they have no powers or faculties, except those with which they were endowed when created; and when, as is frequently the case, they act in excess of their powers, the question will be, is the act prohibited as prejudicial to some public interest, or is it an act, not unlawful in that sense, but prejudicial to the stockholders? The rule, however, is well settled that the plea of ultra vires should not prevail when it would not advance justice, but, on the contrary, would accomplish legal wrong. In suits between the corporation and strangers dealing with it the question is whether the act is one the corporation is not authorized to perform under any circumstances; or one that it may perform for some purposes, or under certain conditions. In the first case it is ultra vires, and there can be no recovery, because the party dealing with the corporation is bound to know from the law of its existence that it has no power to...