Buckeye Marble & Freestone Co. v. Harvey

• Court: Tennessee Supreme Court
• Writing for the Court: Lurton, J.
• Citation: Buckeye Marble & Freestone Co. v. Harvey, 20 S.W. 427, 92 Tenn. 115 (Tenn. 1892)
• Decision Date: 31 October 1892
• Parties: Buckeye Marble & Freestone Co. v. Harvey.

20 S.W. 427

92 Tenn. 115

Buckeye Marble & Freestone Co. v. Harvey.

Supreme Court of Tennessee.

October 31, 1892

Appeal from chancery court, Knox county; Henry R. Gibson Chancellor.

Bill in equity by the Buckeye Marble & Freestone Company against James W. Harvey. The bill was dismissed, and plaintiff appeals. Affirmed.

Lurton J.

The complainant is an Ohio corporation, and was organized, under the general incorporation law of that state, "for the purpose of cutting, dressing, manufacturing, selling, and disposing of marble, stone, slate, granite, and other substances, with such other incidental and necessary powers essential to carrying on said business." This company with its place of business in Cincinnati, Ohio, has acquired the entire issues of shares made by a Tennessee corporation engaged in a similar business, and under a similar charter and known as the McMillan Marble Company. Its last acquisition of shares was under a contract with the defendant, who was president of the Tennessee company, and who owned at the time of the sale 25 shares, being one half of the entire stock of the company. These shares he conveyed to a trustee selected by the purchasing corporation, for its use and benefit. The consideration for the sale was the payment of $6,000, the defendant assuming and agreeing to personally pay and discharge one half of all liability which might be fixed upon the McMillan Marble Company as a result of certain suits against that company then pending in the courts of this state. The bill alleges, and the evidence establishes, that the complainant company has been compelled, in order to protect the property of the McMillan Marble Company, to pay out about the sum of $3,000 in the settlement and satisfaction of the claims in suit at time of its contract with defendant. The relief sought is a decree against defendant for one half this sum, being the proportion he agreed to pay under the agreement of sale. The defense is that the contract of sale to the complainant company was unlawful and void,-that is to say, that the purchase of these shares was outside the object of its creation, as defined in its charter, and is therefore such a contract as is not only voidable, but wholly void, and of no legal effect; that it is not a case of excessive use of power granted, but that no power whatever was conferred to deal in or hold the shares of another corporation; that the suit is one upon a void contract, and in furtherance of it, and it should not be entertained by a court of law and equity.

"The rule in the United States is," says Mr. Green, the American editor of Brice's Ultra Vires, "that a corporation cannot become a stockholder in another corporation unless by power specially granted by its charter or necessarily implied in it." Green's Brice, Ultra Vires, 91, note b, and American cases cited. "A corporation has no implied right to purchase shares in another company for the purpose of controlling its management, nor may a corporation hold shares in another company as an investment, unless this be the usual method of carrying on its proper business. A corporation must carry on its business by its own agents, and not through the agency of another corporation. It is clear, also, that a corporation has no implied right to speculate in shares, unless this be the kind of business for which the company was founded." 1 Mor. Priv. Corp. § 431. The evidence shows that the declared purpose of complainant in buying in the shares held by the defendant was to enable it to manage and control the business of the Tennessee company in the interest of the Ohio company. There is no pretense that it had any express power to purchase shares in another company, and it is too clear to need argument or further citation of authority that it had no implied authority to purchase and hold shares, either in its own name or in that of a trustee, for the purpose of controlling another corporation. That these corporations were engaged in a similar business does not help the case. The purpose and intent in granting a charter is that the corporation shall carry on its business through its own agents, and not through the agency of another corporation. The public policy of this state will not permit the control of one corporation by another. Especially is this true when a foreign corporation thus undertakes to control and swallow up a domestic company. Such control of one corporation by another in a like business is unlawful, as tending to monopoly. The result is that this purchase of shares for the express object of controlling and managing another corporation was ultra vires, and therefore unlawful and void. Being void, it was of no legal effect, and no rights result from it, enforceable by or through the courts of this state, when such aid is invoked in furtherance of the unlawful agreement.

But it has been insisted very earnestly by the able and learned counsel for complainant that, when the contract had been fully executed by the plaintiff, the defendant should not be permitted to invoke such defense to a suit brought to compel performance; that to permit such a defense would work injustice, and enable defendant to repudiate his liability while holding onto the price he has received. There are cases where, the...