Globe Sewer Pipe Co. v. Otis — 51 N.Y. St. Rep. 917

Majority

p. 917

The Globe Sewer Pipe Co., App’lt, v. Ira L. Otis et al., Resp’ts.

(Supreme Court, General Term, First Department,

Filed February 17, 1893.)

Headnote

Corporations — Stock subscription — Defense.

Where the articles of incorporation of a company - recite that it- was formed for a purpose which is legal, it is not competent for a subscriber for stock, when sued on his subscription, to show, by way of defense, that it was orally agreed between the promoters that it was organized for another and illegal purpose, and that this relieves him from his contract and agreement to pay his subscription.

Appeal from order denying plaintiff’s motion for a new trial, a verdict having been directed for the defendants in an action to enforce the payment of stock subscription.

Rush Taggart (Robert W. Taylor, of counsel), for app’lt; Martin & Smith (George A. Strong, of counsel), for resp’ts.

This action was brought by plaintiff, a corporation of the state of Ohio, to recover the amount of defendants’ subscription to the stock of the company. The two principal defenses relied upon were that plaintiff had been organized for the unlawful purposes of unduly enhancing prices, controlling and regulating production, and therefore in restraint of trade ; second, that the contract of subscription had been cancelled, which relieved defendants from their obligation to pay the amount thereof. ' At the close of the case, on motion, a direction of a verdict in defendants’ favor was granted, upon the ground that the plaintiff’s organization was unlawful, and that it tended to créate a monopoly ; the testimony tending to show that it was organized for the purposes of controlling and raising prices, of controlling production and output, and of preventing competition in business. Such purposes, the learned trial judge held in directing the verdict, vitiated the corporate organization itself, rendering it impossible for such a corporation, with its inherent illegality, “ to enforce contracts made in aid of its avowedly illegal objects and purposes.” The articles of incorporation recite that the corporation was organized for a legal purpose, viz., “ for the purpose of manufacturing, mining, transporting and dealing in clay and its products, coal, minerals and other commodities.” Upon these

p. 918

facts, the question is presented as to whether it is competent, in an action brought by the corporation to recover the amount of a subscription to its capital stock, for a subscriber to show, by way of defense, that it was orally agreed between the promoters that it was organized for another, a different and illegal, purpose, and that this relieves him from his contract and agreement to pay his subscription. This question has been considered, upon facts presenting the same point, in United States Vinegar Co. v. Schlegel, 51 St. Rep., 453 (herewith handed down).

We regard that case as controlling in principle, and for the reasons therein given the judgment should be reversed and a new trial ordered, with costs to appellant to abide the event.

Van Brunt, P. J., O’Brien and Follett, JJ., concur.