Wright v. Pipe Line Co.

• Decision Date: 20 November 1882
• Parties: Wright et al. <I>versus</I> The Pipe Line Company et al.
• Court: Pennsylvania Supreme Court

Page 204

101 Pa. 204

Wright et al. versus The Pipe Line Company et al.

Supreme Court of Pennsylvania.

October 3, 1882.

November 20, 1882.

October 3rd 1882.

Before SHARSWOOD, C. J., MERCUR, GORDON, PAXSON, TRUNKEY, STERRETT and GREEN, JJ.

ERROR to the Court of Common Pleas of Venango county: Of October Term 1882, No. 103 Wm. S. Lane and C. Heydrick, for plaintiffs in error.—The plaintiffs had no knowledge of the fact that the Oil City Pipe Company was organized under the Act of 1874, and they were therefore bona fide holders of the note and as such are entitled to recover: Chesbrough v. Wright, 41 Barb. 28; Metropolitan Bank v. Siber, 33 Leg. Int. 193; Williams v. Cheney, 3 Gray 215; Haskell v. Jones, 5 Norris 173; Wyman v. Fisk, 3 Allen 238; Hunter v. Henninger, 12 Nor. 373; Hubbard v. Chapin, 2 Id. 328; Martin v. Smith, 7 Weekly Notes 32.

The defendants cannot escape liability by setting up that their own obligation grew out of an illegal transaction. "The test whether a demand connected with an illegal transaction is capable of being enforced at law, is whether the plaintiff requires the aid of the illegal transaction to establish his case:" Swan v. Scott, 11 S. & R. 164; Thomas v. Brady, 10 Barr 170; Bly v. Second National Bank, 29 P. F. S. 453. In the present suit the plaintiffs rely solely on the note, and require no aid from the contract. Where a contract has been executed, as in this instance, even if illegal, a note given in pursuance thereof, as for the price of a thing sold, can be enforced: Hipple v. Rice, 4 Cas. 406; Lestapies v. Ingraham, 5 Barr 71; Ex parte Bulmer, 13 Ves. 316.

Osmer, Dale & Freeman, for defendants in error.—A corporation cannot become a stockholder in another corporation unless by authority express or implied in its charter: Franklin Company v. Lewistown Savings Bank, 68 Me. 43; Berry v. Yates, 24 Barb. 199; Mechanics', &c. Bank v. Meridian Agency Co., 24 Conn. 159; In re Barneds Banking Co., L. R. 3 Ch. Ap. page 112; Joint Discount Co. v. Brown, L. R. 8 Eq. Case 380; Talmage v. Pell, 7 N. Y. 328; Penn'a R. R. Co. v. Canal Commissioners, 21 Pa. St. 9; Green's Brice's Ultra Vires, 2d ed. 91, note (b); Pierce on Rail Roads, 505-6, and authorities there cited.

The Act under which the Oil City Pipe Company was chartered expressly prohibits the use of its funds for such purpose: Act April 29th 1874, § 12; Mutual Benefit Insurance Co. v. Bales, 92 Pa. St. 352. The contract by the defendants for the purchase of the stock was ultra vires and cannot be made valid, even by the consent of all the stockholders, nor can it by partial performance become the foundation of a right of action: National Trust Company v. Miller, 33 N. J. Eq. 155; East Anglian Ry. Co. v. Eastern Counties Ry. Co., 7 Eng. L. & Eq. 505; Ashburry Ry. Carriage & Iron Co. v. Riche, L. R. 7 House of Lords 653; 14 Eng. Rep. Moaks' Notes 42; Thomas v. West Jersey R. R. Co., 9 W. N. C. 65; Hodges v. City of Buffalo, 2 Denio 110; McCullough v. Moss, 5 Id. 565; Green's Brice's Ultra Vires, 2d Ed. 550 and note (a); Field on Corp. 220, § 199; Barton v. Port Jackson, &c. Plank Road Co., 17 Barb. 397.

Mr. Justice PAXSON delivered the opinion of the court, November 20th 1882.

It is conceded that the plaintiffs are holders for value of the note in controversy, and that they are not affected with notice of any fraud on the part of Harley, the payee. It was alleged, however, that the consideration of the note was illegal, and that the plaintiffs knew, or were affected with notice of this fact.

The note is the joint note of the Antwerp Pipe Company and the Oil City Pipe Company, and was given in part payment of eighteen thousand three hundred and sixty shares of the stock of the Pennsylvania Transportation Company. The Oil City Pipe Company was organized under the provisions of the Act of 29th April 1874, and under that Act it is provided that it should not be lawful for any corporation organized under it to use any of its funds in the purchase of stock in any other corporation, or to hold the same, except as collateral security for a prior indebtedness. The court below instructed the jury that the consideration of the note being unlawful, the plaintiffs could not recover. This ruling is the only material error assigned.

The note contained upon its face no evidence of illegality, and was issued by corporations having ample power to make and issue commercial paper. The contract claimed to be illegal had been fully executed, and the stock delivered. If the Oil City Pipe Line Company exceeded its corporate powers in the purchase of this stock, can it now repudiate its note in the hands of a holder for value upon the ground that the transaction out of which it grew was ultra vires? The law never sustains a defence of this nature out of regard for a defendant; it does so only where an imperative rule of public policy requires it. The instances are rare in which a corporation or individual has been permitted to set up its own wrong in order to retain both the property and its price. The defendant corporations have obtained the stock which they now allege they had no right to buy, and propose to retain it without payment. It would be difficult to imagine a defence with less merit, and the law would be exceedingly impotent were it to allow it to succeed. The very point was decided in the Oil Creek and Allegheny River Railroad Company v. The Pennsylvania Transportation Company, 2 Norris 160, where it was held that where a corporation has entered into a contract which has been fully executed on one part, and nothing remains but for it to pay the consideration money, it will not be allowed to set up that the contract is ultra...