National Salt Co. v. Ingraham

• Decision Date: 17 January 1906
• Docket Number: 44.
• Citation: 143 F. 805
• Parties: NATIONAL SALT CO. v. INGRAHAM.
• Court: U.S. Court of Appeals — Second Circuit

143 F. 805

NATIONAL SALT CO. v. INGRAHAM.

No. 44.

United States Court of Appeals, Second Circuit.

January 17, 1906

H. B Twombly, for plaintiff in error.

G. S Ingraham, for defendant in error.

Before WALLACE, LACOMBE, and TOWNSEND, Circuit Judges.

WALLACE Circuit Judge.

In ordering judgment for the plaintiff, the court below ruled that the certificates of indebtedness made by the defendant were not created ultra vires; that the plaintiff was a bona fide purchaser, and the defense that they were executed upon an illegal consideration was therefore not available to the defendant; and that the plaintiff was not estopped from asserting the validity of the certificates by a decree of the Ohio state court declaring them void. The assignments of error challenge the correctness of this ruling.

The facts in this case, so far as they bear upon the defense of ultra vires, are fully stated in the opinion of this court reported in 130 F. 676. We there decided that the agreement made by the defendant with the stockholders of the Ohio corporation upon the purchase of their shares, whereby the vendors exchanged their shares for certain shares of the preferred and certain shares of the common stock of the defendant, together with certain money payments to be made as provided in the certificates, was not an agreement whereby the common stock transferred to them was constituted preferred stock, nor one guarantying dividends to them upon the stock transferred, and consequently was not ultra vires on the part of the defendant; that it was an agreement by the defendant to pay the vendors partly in its own stock and partly in money, and to issue its obligation for the payment of the money in such installments as the parties had agreed to; and that, although the agreement contemplated that the money payments would practically secure to the holders of the stock thus transferred all the benefits which they would have derived from an agreement by the defendant that the common stock should be preferred stock, and dividends be guarantied upon both the preferred stock and the common stock, inasmuch as such an agreement was not prohibited by the organic law of the defendant, the expectation or intention of the parties was of no moment so long as they adopted legitimate means to effect their scheme. In other words, we held that whether a corporate act or agreement is ultra vires or not is not a question of purpose or intention, and does not in the least depend upon the state of mind of those who participate in it. We see no reason to change our views upon the subject. The corporation was authorized by its charter to purchase the stock of the Ohio corporation. It made the purchase upon terms which it was authorized to offer and fulfill, and which did not contravene any provision of its organic law, and pursuant to an agreement which was carefully devised so as not to be obnoxious to that law; and, although the vendors were by the agreement placed in a position where they would receive the same practical benefit under it as though it had been one which the defendant would have had no right to make they could not be deprived of these benefits, and the defendant had not entered into an unauthorized obligation. It follows that the ruling of the court below adverse to the defendant upon the defense of ultra vires was correct.

If the certificates were negotiable paper, the court below properly ruled that the defense that they were executed as part of a scheme in restraint of trade prohibited by the so-called anti-trust law of Ohio could not be raised as against a purchaser of the certificates who had bought them before maturity and without notice of the invalidating facts. The certificates were instruments containing a promise by the defendant to pay to the payee or order a specified sum of money in certain equal semiannual installments. They also provided that at any time before any default in payment the defendant should be discharged from the payment of all further installments by paying the amount to the American Trust Company, of Cleveland, 'in trust to pay the same to the registered holder hereof upon demand. ' They also contained recitals respecting the terms of the agreement between the defendant and the Ohio corporation, and showing that the defendant, to secure the payment of the certificates, had deposited the stock in that corporation acquired by it, with the American Trust Company as trustee, pursuant to the terms of the declaration of trust executed by the defendant and filed at the office of the trust company. The contract fulfills the usual requisites of negotiable paper. It provides for the unconditional payment to the payee therein or order of a certain sum of money at a time capable of exact ascertainment. Its negotiability is not impaired because it permits the maker to pay the principal before maturity. Riker v. Sprague Manufacturing Co., 14 R.I. 402, 51 Am.Rep. 413; Mattison v. Marks, 31 Mich. 421, 18 Am.Rep. 197. In Ackley School District v. Hall, 113 U.S. 135, 5 Sup.Ct. 371, 28 L.Ed. 954, it was held that a provision in a municipal bond, by which its amount was payable at the pleasure of the maker at any time before due, did not affect its complete negotiability. The recitals in the certificates did not qualify the obligation of the maker or the holder, or incorporate to any extent into the contract the terms of the trust agreement mentioned therein. If, as in cases like McClelland v. Norfolk Southern Railroad Co., 110 N.Y. 469, 18 N.E. 237, 1 L.R.A. 299, 6 Am.St.Rep. 397, the recitals had made the principal or interest payable upon the terms mentioned in the deed of trust, those terms would, of course, have become a part of the promise, and the negotiable character of the instrument...