Downs v. Jersey Cent. Power & Light Co.
Decision Date | 10 February 1934 |
Citation | 170 A. 835 |
Parties | DOWNS v. JERSEY CENTRAL POWER & LIGHT CO. |
Court | New Jersey Court of Chancery |
Syllabus by the Court.
1. Equity disregards the form and looks to the substance. Therefore, strict adherence to approved forms of pleading is not a prerequisite to relief in equity. If the facts alleged in a bill are sufficient to entitle the complainant to relief, the form in which they are expressed is immaterial. Nor is the form of the prayer for relief important as equity will mould its relief to fit the proofs.
2. A corporation has implied power to purchase its own capital stock provided no illegitimate design appears.
3. The defense of ultra vires is not available in a suit based upon fraud and is never allowed where it would defeat the ends of justice and work a legal wrong.
4. Where a corporation has accepted the benefits of an ultra vires contract, it is estopped to set up its own incapacity in defense of a suit based upon such contract.
5. These rules respecting the defense of ultra vires apply alike to corporations organized under the general corporation act and to public utility corporations. The same standard of honesty and fair dealing applies to both.
6. A contract by a corporation to repurchase its stock, as a condition of the purchase of such stock, is enforceable against the corporation where the rights of creditors are not involved and its ability to discharge its public duties is not impaired.
7. The parol evidence rule inhibiting proof of an oral agreement varying the terms of a written contract is applied or disregarded in courts of equity as the ends of justice require. Like all other legal rules, it is, in equity, no bar to justice.
Suit by Ephraim Downs against the Jersey Central Power & Light Company.
Decree for complainant,
Morris H. & Charles E. Cohn, of Newark, for complainant.
Walter L. MeDermott, of Jersey City, for defendant.
BERRY, Vice Chancellor.
The allegations of the bill, shortly stated, are that in December, 1931, the complainant purchased from one of the defendant's duly authorized agents 30 shares of its 5 1/2 per cent. preferred stock, at par, $100 per share, for $3,000, upon the false and fraudulent representation that the defendant would redeem the stock at par on demand; that such representation was made with the fraudulent intent to induce complainant to purchase the stock and relied upon by the complainant who has demanded that the defendant company redeem, which it has declined and refused to do.
In the second alternative count the complainant repeats all the above allegations and further alleges complete performance of his part of the agreement and failure and refusal of the defendant to perform, and tenders a return of the stock to the defendant.
The prayers are for an accounting and a decree for payment of the amount found due the complainant; or a decree compelling the defendant to specifically perform its agreement, and for general relief; but the form of the prayer for relief is not material, for if the facts pleaded and proved show the complainant entitled to equitable relief, appropriate relief will be granted, irrespective of formalities in pleading. The bill may be considered as one for the rescission of the stock purchase. Central Transportation Company v. Pullman's Palace-Car Company, 139 U. S. 24, 60, 11 S. Ct. 478, 35 L. Ed. 55, 60.
The defendant filed an answer denying generally all the allegations of the bill of complaint and, also, an answer in lieu of plea setting up the following defenses:
(1) That the defendant is a public utility corporation organized under and existing by virtue of the laws of this state and, as such, has authority to issue its capital stock only upon the approval of and in accordance with the regulations of the Public Utility Commission; that complainant's stock was issued with such approval and without conditions.
(2) That the alleged repurchase agreement was not for a legitimate corporate purpose and therefore void.
(3) That the agreement creates a special preference in complainant as a preferred stockholder and is therefore void.
(4) That it was unauthorized by either stockholders or directors.
(5) That defendant had neither power nor authority in law to make such a contract.
(6) That, not being in writing, it is void under the statute of frauds.
The facts disclosed at the final hearing were conclusive that the complainant's stock purchase was the result of high pressure salesmanship during an intensive stock selling campaign conducted by the defendant through its employees among its consumer-customers of which the complainant was one. There is no doubt but that the alleged representation or agreement of redemption was made by a duly authorized representative of the company and that it was false and fraudulent when made, as the defendant admits it never had any intention of redeeming or repurchasing complainant's stock and that it has refused to do so. At the conclusion of the hearing I announced that the proofs indicated that complainant was entitled to relief (Garrison v. Technic Electrical Works, 55 N. J. Eq. 708, 37 A. 741; Zuckerman v. Geller, 103 N. J. Eq. 145, 142 A. 344) unless the legal objections raised by defendant's answer in lieu of plea, which were reserved, prevailed. Briefs were accordingly submitted and have been carefully considered.
No reservation of the right to move to strike the bill is contained in the answer and no notice of such a motion was given; but, notwithstanding, the defendant's counsel, at the final hearing, moved to strike on the ground that the bill did not state an equitable cause of action and has argued the motion in his brief. The argument is that as the bill alleges the defendant's agreement of repurchase or redemption was made as an inducement to the complainant to purchase stock in the defendant company, an illegitimate purpose is apparent on the face of the bill and, under Chapman v. Iron Clad Rheostat Company, 62 N. J. Law, 497, 41 A 690, the alleged agreement is ultra vires and void. The argument is far-fetched and unsound and the motion to strike is denied. But all of the arguments advanced in support of the motion to strike are equally pertinent to the defenses set up in the answer in lieu of plea; and if of any force or efficacy will be given appropriate effect under those defenses.
Defenses 1, 2, 3, and 5, as set up in the answer in lieu of plea, may well be considered as together interposing the defense of ultra vires. The question first to be considered, therefore, is whether or not the defendant has the power to purchase its own stock.
The defendant company is the result of a merger of nine or more corporations, some organized under the General Corporation Act (see 2 Comp. St. 1910, p. 1595, § 1 et seq.; Comp. St. Supp. § 47—1 et seq.) and some under statutes applying only to corporations of a particular class, as public utility corporations. The agreement of merger is the charter of the defendant company and by article XI (subsection b) thereof, the defendant has "power and authority * * * to acquire and hold and redispose of, in any lawful manner, its stock, bonds and other securities." Thus it would seem that the defendant has express authority in its charter to purchase its own stock.
But irrespective of charter provisions, it is the settled law of this state that a corporation has implied power to purchase its own capital stock "provided, of course, no illegitimate design appears." Chapman v. Iron Clad Rheostat Company, supra. See, also, Berger v. United States Steel Corporation, 63 N. J. Eq. 809, 813, 53 A. 68; Oliver v. Railway Ice Company, 64 N. J. Eq. 596, 54 A. 460; Beach v. Palisade Realty & Amusement Company, 86 N. J. Law, 238, 90 A. 1118; Knickerbocker Importation Company v. State Board of Assessors, 74 N. J. Law, 583, 65 A. 913, 7 L. R. A. (N. S.) 885; Hoover Steel Ball Company v. Schaefer Ball Bearings Company, 90 N. J. Eq. 164, 106 A. 471; 1 Cook on Corporations, § 311, p. 849, and cases cited in footnote.
But assuming that there is neither express nor implied power in the defendant corporation to purchase its own stock, it seems to me that under the circumstances of this case the defense of ultra vires is not available to the defendant. Amerman v. Wiles, 24 N. J. Eq. 13; Chapman v. Iron Clad Rheostat Company, supra; Camden & Atlantic Railroad Company v. May's Landing & Egg Harbor City Railroad Company, 48 N. J. Law, 530, 7 A. 528 (Errors and Appeals 1886); Garrison v. Technic Electrical Works, 55 N. J. Eq. 708, 718, 37 A. 741; Board of Education of the City of Millville v. Empire State Surety Company, 83 N. J. Law, 293, 85 A. 223; Earle v. American Sugar Refining Company, 74 N. J. Eq. 751, 703, 71 A. 391, 396; United States Industrial Alcohol Company v. Distilling Company of America, 89 N. J. Eq. 177, 104 A 216; Mayor and Council of the Borough of Rutherford r. Hudson Rivefr Traction Company, 73 N. J. Law, 227, 63 A. 84; Pomeroy's Specific Performance of Contracts (3d Ed.) 1926, § 56, p. 146. The authorities to the same effect in other jurisdictions are legion. See notes to Miller v. American Mutual Accident Insurance Company, 20 L. R. A. 765 and Central Transportation Company v. Pullman's Palace-Car Company, 139 U. S. 24, 11 S. Ct. 478, 35 L. Ed. 55.
The defense is not allowed "where it would defeat the ends of justice or work a legal wrong." Earle v. American Sugar Refining Company, supra. And it is not available in a suit based upon fraud....
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