Ingraham v. National Salt Co.

• Citation: 130 F. 676
• Decision Date: 06 April 1904
• Docket Number: 152.
• Parties: INGRAHAM v. NATIONAL SALT CO.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

130 F. 676

INGRAHAM v. NATIONAL SALT CO.

No. 152.

United States Court of Appeals, Second Circuit.

April 6, 1904

Joseph A. Burr, for plaintiff in error.

H. B Twombly, for defendant in error.

Before WALLACE, LACOMBE, and TOWNSEND, Circuit Judges.

WALLACE Circuit Judge.

This is a writ of error by the plaintiff in the court below, brought to review a judgment for the defendant. The assignments of error challenge the rulings of the trial judge in withdrawing the case form the consideration of the jury and directing a verdict for the defendant.

The action was brought to recover the amount of 12 obligations termed 'certificates of indebtedness,' created by the defendant, and countersigned and registered by the American Trust Company, evidencing the promise of the defendant to pay to the payee or order a specified sum of money in certain equal semiannual installments. These certificates are substitutes for 12 purchased by the plaintiff in the spring of 1901, and which he surrendered to the American Trust Company for the purposes of registry, and were received by him in exchange for those surrendered.

The answer of the defendant is a voluminous document which is rather in the nature of a bill in equity than of any pleading known to a court of law. Two defenses can be spelled out of it. The first is that the certificates (the originals) are invalid because they were made as part of an agreement which the defendant was without corporate power to make, viz., as a cover for an agreement by the defendant to guaranty dividends upon certain shares of its preferred and common capital stock, and thereby give the holders of these shares an unauthorized preference over the other stockholders of the defendant. The second defense is that they were made on an illegal consideration, viz., to effect a scheme contravening the law of the state of Ohio declaring unlawful certain combinations in restraint of trade.

The action has been before this court upon a previous writ of error which was brought by the defendant in the court below to review a judgment for the plaintiff. The court was then of the opinion that the facts established the first defense, and that, although the plaintiff was a purchaser of the certificates for value, he took them subject to any infirmities which would have invalidated them in the hands of the original holders. We are satisfied that our decision was erroneous, and are glad to have an opportunity to correct it while the consequences are yet remediable.

Succinctly stated, the certificates originated as follows: The defendant, a New Jersey corporation organized to carry on the manufacture of salt, and having power, among other things 'to purchase, hold, sell, assign, mortgage, pledge, or otherwise dispose of, shares of the capital stock * * * of any corporation of the state of New Jersey or of any other state,' decided to acquire the capital stock of the United Salt Company, a corporation of Ohio. Accordingly, in 1889, the defendant made an agreement with certain shareholders of the United Salt Company whereby they were to sell their shares to the defendant, and the defendant was to pay for each of their shares 1 1/4 shares of its preferred stock and 1 1/4 shares of its common stock, and also a money consideration of $106.25 in 10 equal semiannual installments. This money consideration was equivalent to annual dividends for five years upon each share and a quarter of preferred stock of 7 per cent. per share ($43.75), and upon each share and a quarter of common stock of 10 per cent. per exchanged, those of the United Salt Company as well as those of the National Salt Company, should be deposited with the American Trust Company until the money consideration should be fully paid; that in the meantime all dividends declared upon the preferred and common stock of the National Salt Company thus deposited should be paid by the defendant to the American Trust Company; that the dividends so paid should apply as payments pro tanto of the money consideration; that the defendant should make its certificates of indebtedness for the money consideration, and the same should be issued by the American Trust Company to the stockholders of the United Salt Company, or their assignees, in the amount due to them respectively; and that when the certificates were fully paid the trust should terminate, and the deposited stock be delivered to its owners. It further provided that, in case of failure of the defendant to pay the certificates according to their terms, the American Trust Company should sell the deposited shares of the United Salt Company, apply the proceeds to the payment of the certificates, and pay any surplus to the defendant. Pursuant to the agreement, the shares to be exchanged were deposited with the trustee, and the certificates of indebtedness were made by the defendant and issued by the trustee. The agreement thus referred to consisted of several documents, some executed by the shareholders of the United Salt Company, some executed by the defendant, and some executed by the American Trust Company, and which were intended to embody together the complete agreement.

The contention of the defendant in respect to this agreement is found in that part of its answer which avers as follows:

'That, whereas said alleged agreements in writing provided for the cash payment of $106.25 per share for each share of the capital stock of the United Salt Company, and the issuing of certificates of indebtedness to the respective holders, in accordance with their holdings, to evidence the same, said provision for cash

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