Morgan v. Struthers

• Decision Date: 13 May 1889
• Citation: 131 U.S. 246,33 L.Ed. 132,9 S.Ct. 726
• Parties: MORGAN v. STRUTHERS
• Court: U.S. Supreme Court

131 U.S. 246

9 S.Ct. 726

33 L.Ed. 132

MORGAN v. STRUTHERS.

May 13, 1889.

This is an action of assumpsit, brought in the court below by J. Pierpont Morgan, a citizen of the state of New York, against Thomas Struthers and one Thomas S. Blair, citizens of Pennsylvania, to recover the sum of $26,282.19, with interest, on a certain contract in writing, more particularly described hereafter. The defendant Blair not having been served with process, the case proceeded against Struthers alone. The material facts in the case are substantially as follows: In the year 1873, Thomas Struthers, Thomas S. Blair, an Morrison Foster were the owners of certain patents for the manufacture of iron and steel, and also of certain real estate and works erected thereon, to be used for such manufacture, situate in Pittsburgh, Pa. They then procured an incorporation under the laws of the state of New York, in the name of the 'Blair Iron & Steel Company,' with a capital of $2,500,000, divided into 25,000 shares of $100 each, the stock being paid up in full by a transfer to the company of the patents and the works at Pittsburgh. The entire amount of the capital stock was issued to the incorporators on or about April 12, 1873. With a view of raising a working capital, Blair, Struthers, and Foster had issued the following prospectus: 'New York, January 20, 1873. The capital stock of the Blair Iron and Steel Company is 25,000 shares, of $100 each,—$2,500,000. This capital has been paid up by the transfer of the patents for the Blair process and the works at Glenwood, Twenty-Third ward of Pittsburgh, Pa., to the company, (the deed for the Glen wood property to be made as soon as an empowering act can be obtained from the Pennsylvania legislature, which we have bound ourselves to procure,) and the whole stock of said company issued to us in payment therefor. We have agreed to place in the hands of General A. S. Diven, as trustee, 9,000 shares of this stock, to be used as working capital for the company, subject to the order of the board of trustees of said company, except $50,000 of the proceeds thereof first to be paid to us by said trustee. The trustees of the company have, with our consent, ordered a sale of 6,000 of said shares, for the purpose of raising a present working capital, and paying said $50,000, the minimum price to be $50 per share; and said trustee, with the approbation of the board of trustees, now offers said 6,000 shares at said minimum price of $50 per share, to be paid for as follows, viz.: One-third part thereof as soon as the whole 6,000 shares shall be subscribed for, and the remainder in such installments as the board of trustees may call for the same for the purposes of the business, the certificates to be delivered when the whole shall be paid. THOMAS S. BLAIR. T. STRUTHERS. MORRISON FOSTER, By his attorney, T. STRUTHERS. We, the undersigned, hereby subscribe to the number of shares of the above six thousand shares set opposite to our names, respectively, to be paid for according to the terms above set forth; but this subscription not to be binding until the whole six thousand shares shall have been reliably subscribed.' A number of persons subscribed to this paper without any other condition, but Morgan, the plaintiff, demanded and obtained from the promoters of the enterprise a further stipulation or agreement, the existence of which was not made known to others who signed the original paper, some before and some after Morgan, and which additional stipulation was as follows:

'Whereas, J. Pierpont Morgan has purchased four hundred shares of the stock of the Blair Iron and Steel Company, at the price of fifty dollars per share, and sold by A. S. Diven, trustee of said company: now we, the undersigned, in consideration of one dollar to us in hand paid, the receipt whereof is hereby acknowledged, do hereby agree that if, at the end of one year from this date, said J. Pierpont Morgan shall desire to sell the said shares at the price paid for the same by him, we will purchase the same at that price, n d pay to him the amount paid by him on the same, with interest at the rate of seven per cent. per annum. THOS, S. BLAIR. T. STRUTHERS. New York, April 4, 1873.' At the end of the year the agreement of purchase was renewed for another year, and at the expiration of that year it was again renewed, the following agreement being entered into: 'NEW YORK, March 22, 1875. In consideration of the waiver by J. Pierpont Morgan of the right of election to sell to us the four hundred shares of stock in the Blair Iron and Steel Company, (subscribed and paid for by him,) as he was entitled to do by agreement with us in 1873, renewed and extended, by agreement of 1874, to April 4, 1875, we do hereby agree that his right to do so shall be extended for another year, vix., to April 4, 1876. If he shall at that time elect to sell to us the four hundred shares so subscribed and held by him, we will receive and pay for the same the amount paid by him therefor, with interest at the rate of seven per cent. per year from the date of the payment by him of the respective installments thereon; and, as collateral security for the performance by us of this, our agreement, we have placed in the hands of Joseph W. Drexel, Esq., four hundred shares of the stock of the said Blair Iron and Steel Company, to be held by him in trust for that purpose. T. STRUTHERS. T. S. BLAIR.'

On the 20th of March, 1876, Morgan notified Blair and Struthers that he desired to avail himself of the terms of the agreement entered into between them, and on the 4th of April of that year tendered them the stock referred to in the agreement. The defendants having failed and refused to comply with the terms of the contract of repurchase, Morgan, on the 1st of March, 1882, brought this action, averring in his declaration the foregoing facts. The defendant in his answer admitted the making of the contract declared upon, and all the facts alleged by the plaintiff in support of his claim; but set up, by way of defense, two propositions, either of which he claimed was sufficient to defeat the plaintiff's case, viz.: First, the contract sued on was invalid, and against public policy, because made secretly with one of a number of persons who had subscribed together, upon the same express terms and conditions, for stock in a manufacturing corporation, whereby the plaintiff had sought to procure to himself an advantage withheld from the other subscribers; and, second, the defendant is not precluded from setting up the invalidity of such contract because he was a party to it. The case was tried by a jury, which, under instructions from the court, found in favor of the defendant, and judgment was rendered accordingly. To reverse that judgment this writ of error is prosecuted.

John Dalzell, for plaintiff in error.

George Shiras, Jr., and R. Brown, for defendant in error.

LAMAR J.

Several exceptions were taken during the progress of the trial to the rulings of the court in excluding evidence offered by the plaintiff, to its refusal to give instructions requested by the plaintiff, and to its general charge to the jury, which are embodied in 12 assignments of error. It is not necessary to discuss them seriatim, as the main contention relates to the correctness of the instructions given by the circuit court to the jury. In order to determine the principle on which the instructions rest, it will be useful to ascertain the points incidentally connected with the case about which there is no dispute.

First. It is conceded, and the court so charged the jury, correctly, as we think, that the contract made by Morgan with Struthers, touching the repurchase of the stock, standing by itself, was a perfectly fair and honest one, in which there was no vice inherent that would relieve the person making it from its obligation. If, therefore, its validity or binding force is impaired, it must be because of its extrinsic effect by reason of the relations of the parties to the other stockholders in the corporation. It is also conceded that, as to these stockholders, no actual fraud or deceit was prat iced in the making of the contracts sued upon. This is virtually the ground upon which the court refused to admit evidence offered by the plaintiff for the avowed purpose of showing the good faith of the transaction as to the other subscribers. It said: 'It is not necessary for the defendants, to sustain their defense, to show actual fraud. If the tendency of such things is to operate as a fraud upon others, that is the basis of the rule.' It is also a fact, undenied and undeniable, that the plaintiff strictly complied with all the terms and stipulations expressed in the prospectus, and in the contract of subscription, by paying into the treasury of the corporation the entire amount of his subscription. It should also be considered as conceded—for there is nothing in the pleadings, nor in the evidence, nor in any of the rulings of the court, nor in the argument of counsel, to the contrary—that he did not enter into any secret agreement with the corporation or any other person that he should not be required to pay the...