Ch. App. Cas. 707, 39 L. J. Ch. 730, 23 L. T. 331; 1876, Hope v. International F. Soc., 35 L. T. 623; 1887, Trevor v. Whitworth, 12 App. Cas. 409, 57 L. J. Ch. 28, 57 L. T. 457; 1888, In re Walker & Hacking, 57 L. T. 763.

(2) But may if specially authorized. 1874, In re County Palatine, L. & D. Co., App. Cas. L. R., 9 Ch. 54, 43 L. J. Ch. 578, 29 L. T. 707; 1886, In re Balgooley Distillery Co., 17 L. R. Ir. 239; 1889, In re General Finance Co., 23 L. R. Ir. 173; 1892, In re Sovereign, L. A. Co., 3 Ch. 279, 62 L. J. Ch. 36, 67 L. T. 336.

(3) As to what is such a purchase, see 1871, Phosphate Lime Co. v. Green, L. R., 7 C. P. 43, 25 L. T. 636; 1874, In re County Palatine, L. & D. Co., L. R., 9 Ch. 54, 43 L. J. Ch. 578, 29 L. T. 707; 1893, In re Denver Hotel Co., 1 Ch. 495, 62 L. J. Ch. 450, 68 L. T. 8.

Sec. 300. (2) American rule: Theories.

(a) May (with certain exceptions) acquire its own shares, unless expressly or impliedly restrained.

CHAPMAN v. IRON CLAD RHEOSTAT COMPANY.

1898. IN THE SUPREME COURT OF NEW JERSEY, 62 N. J. Law 497, 41 Atl. Rep. 690, 9 A. & E. C. C. (N. S.) 769.

DIXON, J. The declaration alleges that it was agreed between the plaintiff and the defendant, the latter being a corporation organized under the laws of this state, that the defendant should employ the plaintiff at a regular weekly salary; that the plaintiff should purchase and hold during his employment eighty shares of stock in the defendant company; and that if the defendant should discharge the plaintiff from its employ, it would purchase said stock from the plaintiff at par. The declaration further alleges that in pursuance of said agreement, the plaintiff entered into the employ of the defendant at a weekly salary; that he purchased said stock, and held it during his employment, and that the defendant discharged him from the employment against his will; that thereupon the plaintiff demanded of the defendant that it should purchase the said stock from him at par, and the defendant refused to do so. To this the defendant demurs, insisting that the defendant's contract for the purchase of stock was, on its face, ultra vires and, therefore, not enforcible against it.

In England the general rule seems to be that corporations can not purchase their own stock without express authority from the statute, though perhaps even there this rule would not be applied if it appeared that the object of the purchase was not merely to traffic in the stock or to diminish the amount of the capital, but to accomplish some legitimate corporate purpose. Hope v. Society, 4 Ch. Div. 327. But in the United States the weight of authority seems to be in favor of the view that corporations have an implied power to purchase shares in their own capital stock, provided, of course, no illegitimate design appears. Many of the cases are cited in the notes of 23 Am. & Eng.

Enc. Law, 676. This question, as it turns on common-law principles, seems not to have been judicially decided in New Jersey, nor need it now be; for the provisions of our corporation act (P. L. 1896, p. 277), by which (section 20) the shares of stock in every corporation are declared to be personal property, and (section 1) every corpora tion is vested with power to purchase such personal estate as the purposes of the corporation shall require, except (section 3) certain designated sorts of personal property, which do not embrace shares of its own capital stock, coupled with those provisions which recognize the power of corporations to own capital stock (sections 29, 38), plainly imply a legislative grant of the necessary power in all cases where the purposes of the corporation require it. In the present case the fact that the corporation exerted the power in order to secure the services of the plaintiff is prima facie sufficient indication that the purpose of the corporation required it.

There is also another principle standing in the defendant's way. The plaintiff has fully performed the contract on his part, and can not be restored to his former status, nor be honestly dealt with otherwise than by holding the defendant to performance of its share of the bargain. Under these circumstances the plea of ultra vires is inadmissible. Camden & A. R. Co. v. May's Landing & E. H. C. R. Co., 48 N. J. Law 530, 7 Atl. 523. The plaintiff is entitled to judgment on the demurrer.

Note. Accord: 1828, Hartridge v. Rockwell, 1 R. M. Charlt. (Ga.)_260; 1831, Verplanck v. Mercantile Ins. Co., 1 Edw. Ch. (N. Y.) 84; 1846, Bank v. Champlain Trans. Co., 18 Vt. 131, 139; 1858, City Bank v. Bruce, 17 N. Y. 507; 1873, Dupee v. Boston Water Power Co., 114 Mass. 37; 1877, Chicago P. & S. W. R. Co. v. Marseilles, 84 Ill. 643; 1877, Chetlain v. Repub. L. I. Co., 86 Ill. 220; 1878, Iowa Lumber Co. v. Foster, 49 Iowa 25, 31 Am. Rep. 140; 1881, Fraser v. Ritchie, 8 Ill. App. 554; 1882, Clapp v. Peterson, 104 Ill. 26; 1888, Morgan v. Lewis, 46 Ohio St. 1, 8; 1889, First National Bank v. Salem, etc., Co., 39 Fed. Rep. 89; 1889, State v. Minnesota, etc., Co., 40 Minn. 213; 1890, Rollins v. Shaver W. Co., 80 Iowa 380, 20 Am. St. Rep. 427; 1890, Eggman v. Blanke, 40 Mo. App. 318; 1890, Thompson v. Moxey, 47 N. J. Eq. 538; 1890, Republic L. Ins. Co. v. Swigert, 135 Ill. 150; 1892, Ÿeaton v. Eagle, etc., Co., 4 Wash. St. 183; 1894, N. E. Trust Co. v. Abbott, 162 Mass. 148, 27 L. R. A. 271; 1895, Lowe v. Pioneer Threshing Co., 70 Fed. Rep. 646; 1895, Browne v. St. Paul, etc., 62 Minn. 90; 1895, Dock v. Cordage Co., 167 Pa. St. 370; 1896, Vent v. Coffee Co., 64 Minn. 307; 1897, Vercoutere v. Golden S. L. Co., 116 Cal. 410; 1897, Shoemaker v. Washburn, etc., Co., 97 Wis. 585; 1899, West v. Averill Grocery Co., 109 Iowa 488, 80 N. W. Rep. 555. See following cases and notes. See note 61 L. R. A. 621.

Shares of its own stock, held by the corporation, or in trust for it, can not be voted: 1821, United States v. Columbia, etc., Ins. Co., 2 Cr. C. C. 266, Fed. Cas. 14, 840; 1826, Ex Parte Holmes, 5 Cow. (N. Y.) 426; 1869, Am. Railway Frog Co. v. Haven, 101 Mass. 398, 3 Am. Rep. 377; 1869, Brewster v. Hartley, 37 Cal. 15, 99 Am. Dec. 237; 1876, State v. Smith, 48 Vt. 266; 1881, Vail v. Hamilton, 85 N. Y. 453; 1888, Allen v. De Lagerberger, 20 W. L. B. (Ohio) 368.

Sec. 301. Same. Exceptions to rule allowing acquisition of its own shares.

PRICE v. PINE MOUNTAIN IRON AND COAL COMPANY.1

1895. IN THE Court of AppealS OF KENTUCKY. 32 S. W. Rep. 267-268.

[Price sued the company on a note given by it for $8,500 in payment of 179 shares at $50 each, of the stock of the company. The company had concluded to sell out its property; propositions were submitted by Churchill, and by Calhoun respectively, the former being much the more advantageous to shareholders, but the latter claimed to have an option on the property. Perhaps this was not wellfounded, but it was, nevertheless, thought best to have him withdraw his claim, and in order to do so, the company agreed to sell him within ten days 2,500 shares of its stock at $25; the company sought to purchase shares in the market, but failed to get enough; a meeting was held at which plaintiff was present, and at which it was proposed that the directors and such shareholders as would should sell to the company enough to have the deal go through. This was objected to by the president as being illegal, and the opinion was given by a lawyer present that the giving of notes for the purchase of its shares by the company itself would be illegal, and would not be upheld, unless the deal was successful.

The company had no money to invest in its shares, yet it was reasonably certain that if the sale was made to Churchill as proposed, it would be beneficial to all concerned, even if the company had to purchase 2,500 shares in order to complete the sale. The scheme of sale to Churchill was not consummated. The lower court found for the defendant, and plaintiff appeals.] HAZELRIGG, J. It is insisted by the appellant-and we are not unmindful of the strength of his contention-that as he was not a director or officer of the company, as the note was executed in good faith by the corporation in an effort to benefit all its stockholders, and is unconditional in its terms, and as he was an outsider, and wholly without notice of the existence of any contingency upon which the validity of the note depended, not being present at any meeting or discussion of this matter, as he testifies, therefore the company, not being prohibited by its charter from buying its own stock, is bound by its purchase from him, whatever may be said by its dealings with its directors. We are not satisfied, however, even regarding the appellant as ignorant of the terms on which the notes were executed, and the officers as attempting in the best of faith to forward the interests of all stockholders alike, that the company may not elect not to be bound by the contract. Corporations ought not to be allowed to speculate in their own stocks; and, while they may not always do illegal thing in buying in their own stock, such a transaction 1 Statement abridged; part of opinion omitted.

must be not only in entire good faith, but the exchange must be of equal value, and the transaction free from all fraud, actual or constructive, and when the corporation is neither insolvent nor in process of dissolution; and, further, the rights of creditors are not to be injuriously affected. Such is the principle laid down in Clapp v. Peterson, 104 Ill. 30, a case cited by this court with approval in Jefferson v. Burford, 17 S. W. Rep. 855. We may add to these qualifications that the contract of exchange ought not to be to the advantage of a few favored stockholders, to the injury of the great body of them. In this case how much soever the apparent intention was to benefit all, the result of the contracts, if enforced, is disastrous to the last degree to the main body of the stockholders. Under this state of case, the contracts are, at least, voidable at the option of the company if repudiated within a reasonable time. See 1 Beach Priv.

Corp., § 242.
Affirmed.

Note. Corporation can not purchase its own stock to the injury of creditors' security: 1879, State v. Oberlin, etc., Assn., 35 Ohio St. 258, 263; 1880, Peterson v. Ill. L. & L. Co., 6 Ill. App. 257; 1887, St. Louis C. Mfg. Co. v. Hilbert, 24 Mo. App. 338; 1887, Farnsworth v. Robbins, 36 Minn. 369; 1890, Commercial Natl. Bank v. Burch, 40 Ill. App. 505; 1892, Blalock v. Kernersville Mfg. Co., 110 N. C. 99; 1892, In re Columbian Bank, 147 Pa. St. 422; 1892, Commercial Bank v. Burch, 141 In. 519; 1900, Hall v. Henderson, 126 Ala. 449, 61 L. R. A. 621.

Or to the injury of shareholders: 1895, Price v. Pine, etc., Co., 32 S. W. Rep. 267, supra; 1897, Augsburg, etc., Co. v. Pepper, 95 Va. 92.

But a purchase of stock in itself by a corporation is not necessarily a reduction of its capital: 1858, City Bank v. Bruce, 17 N. Y. 507; 1891, Jefferson v. Burford, 17 S. W. Rep. (Ky.) 855; 1897, Western, etc., Co. v. Des Moines, etc., Bank, 103 Iowa 455; 1899, Howe G. & M. Co. v. Jones, 21 Tex. Civ. App. 198, 51 S. W. Rep. 24.

But see 1892, In re Sovereign L. A. Co., 3 Ch. 279, 62 L. J. Ch. 36, 67 L. T. 336, contra.

See case preceding, and case following, with notes.

Sec. 302. Same.

(6) May not, unless necessary to prevent loss to the company.

COPPIN v. GREENLEES & RANSOM COMPANY.1

1882. IN THE SUPREME COURT OF OHIO. 38 Ohio St. Rep. 275281, 43 Am. Rep. 425.

[Suit by Coppin for specific performance or for damages for nonperformance of a contract between him and the company whereby it agreed to convey to him two lots at $1,800, and do manufacturing work to the extent of $1,500 in consideration of the transfer by Coppin of 33 shares of $100 each of the company's stock to the company. It was alleged that the plaintiff had for a time been employed 'Statement abridged; arguments omitted.

by the company, and while so employed had acquired the stock; that it had been a custom of the company to buy back the stock of those of its servants when they ceased to work for the company, and that the foregoing contract was made in accordance with that custom. The trial court found for plaintiff, but this was reversed by the district court, on the ground that the facts did not show a sufficient cause of action. To reverse this the case was taken to the supreme court.] MCILVAINE, J. Whether the defendant corporation was bound by its executory agreement with the plaintiff to purchase shares of its own stock, under the circumstances detailed in the petition, was, undoubtedly, the question upon which the case turned in the district court.

The power of a trading corporation to traffic in its own stock, where no authority to do so is conferred upon it by the terms of its charter, has been a subject of much discussion in the courts; and the conclusions reached by different courts have been conflicting. Of course, cases wherein the power is found to exist by express or implied grant in the charter, furnish no aid in the solution of the question before us; unless the claim of the plaintiff can be sustained, that such power was conferred on the defendant by section 63 of the corporation act of 1852 (Swan & C. St. 301), as amended, which confers on manufacturing corporations the powers enumerated in section 3 of the act, and among others, the power "to acquire and convey at pleasure, all such real and personal estate as may be necessary or convenient to carry into effect the objects of the corporation." We think, however, that this claim can not be maintained. The sole object of the defendant organization was "for manufacturing purposes; " and it can not be said, in any just sense, that the power to acquire or convey its own stock was either necessary or convenient, "for manufacturing purposes."

The doctrine that corporations, when not prohibited by their charters, may buy and sell their own stocks, is supported by a line of authorities; and prominent among them may be mentioned the cases of Dupee v. Boston Water Power Co., 114 Mass. 37, and Chicago, P. & S. W. R. Co. v. Town of Marseilles, 84 Ill. 145. But nevertheless, we think the decided weight of authority, both in England and in the United States, is against the existence of the power unless conferred by express grant or clear implication. The foundation. principle upon which these latter cases rest is that a corporation possesses no powers except such as are conferred upon it by its charter, either by express grant or necessary implication; and this principle has been frequently declared by the supreme court of this state; and by no court more emphatically than by this court. It is true, however, that in most jurisdictions, where the right of a corporation to traffic in its own stock has been denied, an exception to the rule has been admitted to exist, whereby a corporation has been allowed to take its own stock in satisfaction of a debt due to it. This exception is supposed to rest on a necessity which arises in order to avoid loss; and was recognized in this state as early as Taylor v. Miami Exporting Co., 6 Ohio 176, and has been incidentally referred to as an ex