Harker v. Ralston Purina Co.

• Court: U.S. Court of Appeals — Seventh Circuit
• Writing for the Court: ALSCHULER and EVANS, Circuit , and LINDLEY
• Citation: Harker v. Ralston Purina Co., 45 F.2d 929 (7th Cir. 1931)
• Decision Date: 16 February 1931
• Docket Number: No. 4387.,4387.
• Parties: HARKER v. RALSTON PURINA CO.

45 F.2d 929 (1930)

HARKER v. RALSTON PURINA CO.

No. 4387.

Circuit Court of Appeals, Seventh Circuit.

December 17, 1930.

Rehearing Denied February 16, 1931.

Paul Y. Davis, Henry H. Hornbrook, Kurt F. Pantzer, and Ernest R. Baltzell, all of Indianapolis, Ind., for appellant.

Rhodes E. Cave, P. Taylor Bryan, George H. Williams, and Thomas S. McPheeters, all of St. Louis, Mo., and James W. Fesler, Harvey J. Elam, and Howard S. Young, all of Indianapolis, Ind., for appellee.

Before ALSCHULER and EVANS, Circuit Judges, and LINDLEY, District Judge.

LINDLEY, District Judge.

Appellee is incorporated under the laws of Missouri for the purpose of buying and selling certain natural products and of manufacturing and dealing in certain manufactured products. Section 7, art. 12, of the Constitution of Missouri, provides that no corporation shall engage in business other than that expressly authorized under the charter or the laws under which it is organized. No statute adds to the powers of the corporation. On July 1, 1924, appellee and appellant entered into a contract whereby the former sold to the latter 290 shares of its capital stock at $25 per share; the same being substantially less than the then actual value thereof. The certificate for the shares, then issued in the name of appellant, was assigned to and deposited with appellee as collateral security for the unpaid deferred payments of 90 per cent. of the purchase price. The contract recited that appellant was an employee of appellee, and that the stock was sold to him upon the agreement that, if he should cease to be employed by appellee for any cause other than his death within five years from the date of purchase, appellee, as employer and vendor, should have the option of "taking back said stock," upon paying appellant all purchase price paid by him, plus interest at 6 per cent., but less all dividends. The contract also provided that the certificate for the stock should, and it did, when issued, bear an indorsement reciting such option to repurchase.

Prior to April 15, 1928, appellant completed payment of the purchase price, and on that date his employment had, for some reason, come to an end. Thereupon appellee gave notice that it would take advantage of said option and tendered to appellant the amount due him upon such repurchase. Appellant refused to accept the tender, denied appellee's right to repurchase, demanded the delivery of the stock, and, upon refusal, sued for the conversion thereof.

Upon trial in the District Court appellant contended that the agreement to repurchase was ultra vires of appellee under the Constitution and laws of Missouri; that therefore the stock, having been paid for, was his property, and that a refusal to surrender same worked a conversion of the same by appellee, and rendered it liable for the then market value of some $83,000. Upon this narrow issue the District Court found against appellant, and this appeal followed. The issue here is precisely the same upon which the trial court found against appellant, viz., Was the option ultra vires and therefore void?

If the courts of Missouri have authoritatively passed upon the question arising upon the facts in this record, unquestionably it is the duty of this court to follow such decisions. West Penn. Chem. & Mfg. Co. v. Prentice, 236 F. 891 (C. C. A. 3); Converse v. Gardner Governor Co., 174 F. 30 (C. C. A. 7). But appellee contends that the precise question here submitted has never been decided by the Missouri courts adversely to its contention, and that the decisions of the courts of that state have involved only cases where to permit a repurchase of its capital stock by a corporation would have worked an injury to creditors or produced an impairment of the corporate capital.

From Chrisman-Sawyer Banking Co. v. Independence Wool Mfg. Co., 168 Mo. 643, 68 S. W. 1029; Hunter v. Garanflo, 246 Mo. 131, 151 S. W. 741; Potts-Turnbull Advertising Co. v. Gatchell et al. (Mo. Sup.) 257 S. W. 134; Wilson v. Torchon Lace & Mercantile Co., 167 Mo. App. 305, 149 S. W. 1156, and various other cases cited by appellant, it appears firmly settled that, in the absence of such power in its charter, a Missouri corporation may not repurchase its capital stock, where to allow same would permit subscribers to stock to escape liability or endanger the security of creditors of the corporation or substantially impair the corporate capital. The courts of Missouri were evidently impelled to such sound conclusion upon the ground that the constitutional provision forbidding transaction of business other than that expressly authorized by the charter and the statutes was intended "for the benefit of the public by securing, as far as possible, the integrity of the fund for the protection of those who may deal with it, as well as those who may become the purchasers of its stock upon the faith of the representations made in the act of its incorporation." The basic proposition for the court's conclusion has been that "the withdrawal of this fund, or any part of it, by the stockholders, otherwise than under the sanction of the law in conformity with which it is created, or its application to other uses than those authorized by the laws under which the corporation exists, is a clear violation of the policy of the state as expressed in its Constitution." Hunter v. Garanflo, 246 Mo....