Chapman v. Iron Clad Rheostat Co.

• Decision Date: 07 November 1898
• Citation: 62 N.J.L. 497,41 A. 690
• Parties: CHAPMAN v. IRON CLAD RHEOSTAT CO.
• Court: New Jersey Supreme Court

41 A. 690

62 N.J.L. 497

CHAPMAN

v. IRON CLAD RHEOSTAT CO.

Supreme Court of New Jersey.

Nov. 7, 1898.

(Syllabus by the Court)

Action by Walter L. Chapman against the Iron Clad Rheostat Company. Heard on demurrer to declarations. Judgment on demurrer for plaintiff.

Argued June term, 1898, before LUDLOW, COLLINS, and DIXON, JJ.

Clarence L. Murphy, for plaintiff.

E. A. S. Lewis, for defendant.

DIXON, J. The declaration alleges that it was agreed between the plaintiff and the defendant, the latter being a corporation organized under the laws of this state, that the defendant should employ the plaintiff at a regular weekly salary; that the plaintiff should purchase and hold during his employment 80 shares of stock in the defendant company; and that, if the defendant should discharge the plaintiff from its employ, it would purchase said stock from the plaintiff at par. The declaration further alleges that, in pursuance of said agreement, the plaintiff entered into the employ of the defendant at a weekly salary; that he purchased said stock, and held it during his employment and that the defendant discharged him from the employment against his will; that thereupon the plaintiff demanded of the defendant that it should purchase the said stock from him at par, and the defendant refused to do so. To this the defendant demurs, insisting that the defendant's contract for the purchase of the stock was on its face ultra vires, and therefore not enforceable against it In England the general rule seems to be that corporations cannot purchase their own stock without express authority from the statute, though perhaps even there this rule would not be applied if it appeared that the object of the purchase was not merely to traffic in the stock or to diminish the amount of the capital, but to accomplish some legitimate corporate purpose. Hope v. Society, 4 Ch. Div. 327. But in the United States the weight of authority seems to be in favor of the view that corporations have an implied power to purchase shares in their own capital stock, provided, of course, no illegitimate design appears. Many of the cases are cited in the notes of 23 Am. & Eng. Enc. Law, 676. This question, as it turns on common-law principles, seems not to have been judicially decided in New Jersey, nor need it now be; for the provisions of our corporation act (P. L. 1896, p. 277), by which (section 20) the shares of stock in every corporation are declared to be personal property, and (section 1)...