Grace Securities v. Roberts

• Citation: 158 Va. 792
• Parties: GRACE SECURITIES CORPORATION v. JUDITH SELDEN ROBERTS.
• Decision Date: 16 June 1932
• Court: Supreme Court of Virginia

Page 792

158 Va. 792

GRACE SECURITIES CORPORATION v. JUDITH SELDEN ROBERTS.

Supreme Court of Virginia, Wytheville.

June 16, 1932.

Present, Campbell, C.J., and Holt, Epes, Hudgins and Gregory, JJ.

1. CORPORATIONS — Sale of Corporation's Own Stock by Corporation — Agreement by Corporation to Repurchase Stock Sold — Authority of Officer to Make Sale — Case at Bar. — The instant case was an action by the purchaser of stock of a corporation to enforce an alleged agreement by the corporation to repurchase the stock. The plaintiff knew that the defendant held out to the public the officer making the sale as its chief executive officer. While neither the board of directors nor the executive committee ever passed a formal resolution directing the officer to make the contract with the plaintiff, yet there was no denial of the fact that the members of the board had full knowledge of the conditions under which the plaintiff paid her money, namely, that the contract contained a provision that the corporation would repurchase the stock at any time plaintiff decided to sell.

Held: That with this knowledge the corporation would not be permitted to repudiate the act of the officer making the sale to plaintiff on the ground that it was not authorized by the corporation.

2. OFFICERS AND AGENTS OF PRIVATE CORPORATIONS — Officers Exceeding Authority — Prompt Repudiation by Corporation. — If officers of a corporation exceed their powers, their acts may be repudiated by the board of directors. However, if directors desire to repudiate a sale by executive officers, they should act promptly, notify the other party to the contract, and return benefits received.

3. CORPORATIONS — Sale of Corporation's Own Stock by Corporation — Agreement by Corporation to Repurchase Stock Sold — Ownership of the Stock Sold — Case at Bar. — The instant case was an action by plaintiff against defendant upon a contract by which plaintiff bought shares of stock from defendant and defendant agreed to repurchase the stock from plaintiff. When the contract was made with the defendant, plaintiff was not informed whether the defendant was acting for itself or as agent for an undisclosed principal. It was claimed in defendant's brief that the stock was owned by a pool composed of defendant's directors and not by the corporation itself. There was no proof that any part of plaintiff's money was ever paid to the pool. The corporation acknowledged that it received her money and gave her a receipt therefor, with the distinct understanding that the money would be returned by the defendant on her making demand upon the corporation. If the action of the board of directors in managing corporate affairs and the action of the board of directors in operating a pool were distinct, they were within the peculiar knowledge of the defendant, and inasmuch as defendant did not avail itself of the opportunity to clarify the sale, the court regarded the ownership of the stock in question as in the defendant corporation.

4. CORPORATIONS — Stock and Stockholders — Power of Corporation ot Buy Its Own Stock. — There are two inconsistent doctrines on the power of a corporation to buy its own stock. One is that it is inherently illegal, in the absence of statutory authority, for a corporation to purchase its own stock. The other is, that a corporation may buy its own stock, if the interest of creditors be not adversely affected, and if its power to buy be not restricted by its charter or by the general law. Under certain conditions such a contract will be enforced in this State.

5. CORPORATIONS — Stock and Stockholders — Power of Corporation to Buy Its Own Stock Ultra Vires — Case at Bar. — The instant case was an action by plaintiff to enforce against a corporation its contract to repurchase stock sold plaintiff. The defendant, in the stipulation of its counsel, stated that "neither the corporation's charter, nor the general law, contains a provision forbidding it to purchase or deal in its own or any other stock or make agreements relative thereto;" and in its brief asserted that, "the right is vested in the corporation to sell, buy and otherwise deal in its own stock."

Held: That in view of these admissions it could not consistently urge that the contract of the corporation with plaintiff was ultra vires.

6. APPEAL AND ERROR — Record — Appellate Court Confined to the Record in the Trial Court. — In the consideration of a case on appeal or error, the appellate court is confined to the record as made in the trial court.

7. CORPORATIONS — Sale of Corporation's Stock by Corporation — Agreement by Corporation to Repurchase Stock Sold — Affirmative Defenses in Action on Agreement — Case at Bar. — The instant case was an action upon an agreement between plaintiff and defendant that defendant would repurchase its stock sold to plaintiff. The defendant did not introduce in evidence its charter, nor was it proven that defendant owed any debts, or that it had the right to issue and did issue more than one class of stock, nor introduce evidence to show that any stockholder would be affected by the enforcement of the contract with plaintiff.

Held: That these defenses were affirmative defenses and unless proven could not be considered by the court.

8. CORPORATIONS — Sale of Corporation's Own Stock by Corporation — Agreement by Corporation to Repurchase Stock Sold — Effect of Contract to Repurchase Being Ultra Vires. — The instant case was an action upon an agreement between plaintiff and defendant that defendant would repurchase its stock sold to plaintiff. If the contract of repurchase was valid, the plaintiff had under it a right to deliver her stock to the defendant and receive from it the price agreed upon. The same result follows if the contract to repurchase is invalid. Conceding that the contract was ultra vires, it was void and the net result of the transaction is that defendant has the plaintiff's money and has given no consideration therefor and holds it illegally.

9. CORPORATIONS — Sale of Corporation's Stock by Corporation — Agreement by Corporation to Repurchase Stock Sold — Nature of the Agreement. — According to the weight of authority, an agreement by which a purchaser of corporation stock may, at his option, at the end of a certain time, return the stock and receive back the price, or whereby the company agrees to repurchase it at an agreed price after a certain time, is in the nature of a conditional sale with an option to the purchaser to rescind, and is valid, provided there is a sufficient consideration which supports it, and there is no fraudulent invasion of the rights of creditors or of the other stockholders.

10. CORPORATIONS — Sale of Corporation's Own Stock by Corporation — Agreement by Corporation to Repurchase Stock Sold — Assumpsit — Money Had and Received. — The instant case was an action by plaintiff against defendant on an agreement by defendant to repurchase stock sold by defendant to plaintiff.

Held: That assuming the contract to be ultra vires plaintiff was entitled to recover under the common count of money had and received, as charged in the declaration filed.

11. CORPORATIONS — Sale of Corporation's Own Stock by Corporation — Agreement by Corporation to Repurchase Stock Sold — At Any Time. — The instant case was an action upon an agreement between plaintiff and defendant that defendant would repurchase its stock sold to plaintiff at any time at the price which plaintiff paid for the stock. Within two years the selling price of the stock declined and the plaintiff thereupon exercised the right given her by demanding that the defendant perform its obligation. Defendant claimed that plaintiff failed to act in time. The agreement did not require plaintiff to exercise her right within any stated time, and simply because the stock declined in price within two years was not sufficient to justify a holding, as a matter of law, that a reasonable time had expired.

12. CORPORATIONS — Sale of Corporation's Own Stock by Corporation — Agreement by Corporation to Repurchase Stock Sold — Judgment for Plaintiff — Defendant Entitled to Stock Certificates on Payment of Judgment — Case at Bar. — The instant case was an action upon an agreement between plaintiff and defendant that defendant would repurchase its stock sold to plaintiff. There was a judgment for plaintiff.

Held: That upon payment of the judgment defendant was entitled to have the stock certificates returned to it.

Error to a judgment of the Law and Equity Court, Part Two, of the city of Richmond, in an action of assumpsit. Judgment for plaintiff. Defendant assigns error.

The opinion states the case.

John A. Cutchins, for the plaintiff in error.

John S. Davenport, III, William G. Talley and Robert H. Talley, for the defendant in error.

HUDGINS, J., delivered the opinion of the court.

This is an action to recover $2,655.00 for a breach of contract to repurchase stock sold the defendant in error by the plaintiff in error. The case was submitted, on stipulation of counsel, to the trial judge without a jury, and judgment was rendered for the defendant in error.

The parties will be designated plaintiff and defendant, as they appeared in the trial court. The facts are brief and may be stated thus:

"On September 21, 1927, at the office of the defendant, the Grace Securities Corporation, in the city of Richmond, the plaintiff was induced by Mr. Oscar E. Parrish, at that time its senior executive and active vice-president, to buy sixty shares of stock in the corporation at $44.25 per share, with the written assurance that the corporation would repurchase the same at any time she desired to sell.

At that time the stock of the defendant corporation was offered on the Richmond market at $46.50 and bid $44.00 per share. Dividends were duly paid on the stock during the years 1927, 1928 and for the first six months of 1929. Some time during that year and after the October dividend was passed, the...