p. 246Louis Windmuller, Respondent, v. Standard Distilling and Distributing Company, Appellant.Headnote
Ultra vires —purchase by one corporation of a controlling interest in the stock of another corporation coupled with an agreement to pay certain dividends thereon — the.agreement is valid.A New Jersey corporation purchased, as it had authority to do under the laws of New Jersey, a controlling interest in the stock of another. New Jersey corporation engaged in substantially the same business. In consideration of the transfer the vendee corporation executed an agreement in. writing, which was indorsed upon the certificates of the stock of the corporation of which it' had acquired the controlling interest. Such.agreement read as follows: “For good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby guarantees and agrees to pay the holder of record of the within certificate, so long as said certificate shall be outstanding, but not to exceed the present unexpired term of the period for which said Spirits Distributing Company is incorporated, one and one-half per cent dividend on the ■ fifteenth days of January, April, July and October in each year, beginning with the year 1899, on every share of 1st preferred stock of said Spirits Distributing Company, represented by the within certificate.”
Held, that the execution of the agreement to pay the so-called dividend was in reality only a method of paying a part of the price which the vendee corporation was willing to give for the acquisition of the controlling interest in the other corporation;
That the agreement was to be regarded as an absolute agreement to pay certain stated sums at stated periods, which sums represented deferred payments on account of the purchase price of the stock acquired by the vendee corporation;
That such agreement was not illegal, ultra vires, immoral or against public policy, and was enforcible against the vendee corporation.
Appeal by the defendant, the Standard Distilling and Distributing Company, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Queens on the 21st day of January, 1904, upon the decision of the court rendered after a trial before the court without a' jury at the Queens County Trial Term.
Charles C. Deming [ William C. Prime with him on the brief], for the appellant.
John S. Sheppard, Jr., for the respondent.
The Standard Distilling Company and the Spirits Distributing Company were two New Jersey corporations engaged in business
p. 247of substantially the same character. Under the laws of New Jersey the Standard Company had the right to purchase the stock of the Spirits Company. The Standard Company did purchase 31,500 shares thereof, and in consideration of the transfer executed an agreement in Writing indorsed upon the certificates of two classes of the stock of the Spirits Company, which read as follows:
“ For good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby guarantees and agrees to pay the holder of record of the within certificate, so long as said certificate shall be outstanding, but not to exceed the present unexpired term of the period for which said Spirits Distributing Company is incorporated, one and one-half per cent dividend on the fifteenth days óf January, April, July and October in each year, beginning with the year 1899, on every share of 1st preferred stock of said Spirits Distributing Company, represented by the within certificate.
“ (Signed) STANDARD DISTILLING AND DISTRIBUTING COMPANY,
“ By N. E. D. Huggins, Secretary.”
An agreement in all respects similar except as to the percentage to be paid was executed with reference to the second preferred stock. This suit is brought to recover the amounts agreed to be paid by virtue of certain of these agreements. The defense was ultra vires. It was deemed insufficient in the court below, and the defendant has appealed.
In this court the plaintiff insists (1) that the contract sued upon is not ultra vires, and (2) that even if it be ultra vires, that defense is not available where the consideration for the contract has been fully paid to and received by the corporation seeking to avoid liability by means of such defense — as is conceded to be the case here. On the other hand, it is contended on behalf of the defendant (1) that a contract of the character of that under consideration here, is clearly illegal and void as being outside the scope of corporate power and (2) that where a contract is illegal, immoral or against public policy, the fact that it has been executed will not create an estoppel against the corporation by which it was made.
The defense of ultra vires plainly must rest upon a construction of the so-called guaranty which interprets it as an undertaking to
p. 248pay dividends whether any profits are actually earned or not. Such a construction, however, does not seem to us to be necessarily required by the terms of the agreement. Although the word .
“ guarantees ” is used, it is followed by the phrase “ and agrees to pay; ” and when we look at the general nature and the details of the whole transaction whereby the Standard Company acquired a controlling interest in the Spirits Company, the éxecution of the agreement thus to pay certain so-called dividends is seen to be in reality only a method of paying a part of the price which the Standard Company was willing to expend for the acquisition of the controlling interest which it sought. We think that this is the true character of the contract, notwithstanding the use of the word “ dividend ” therein; that the agreement is to be regarded as an ' absolute agreement to pay stated sums at stated periods representing deferred payments on account of the purchase price of the Stock'in one corporation purchased by the other; that an agreement of this nature is not illegal, inasmuch as the acquisition by one corporation of the stock of another is expressly sanctioned by the law of New Jersey (N. J. Corp. Law [Laws of N. J. of 1896, chap. 185], § 51). that it is not immoral or against public policy, and hence that it is an enforcible contract and was properly enforced by the judgment in this action.
Jenks, Rich and Miller, JJ., concurred; Hooker, J., not Voting.
Judgment affirmed, with costs.