Chapman v. Iron Clad Rheostat Co.

[498] The opinion of the court was delivered by 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 the stock was on its face ultra vires, and therefore not enforceable against it. In England the general rule seems to be that corporations cannot 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. International Financial 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. Encycl. L. 676. This question, as it turns on common law principles, seems not to have been'judicially decided in New Jersey, nor need lit now be, for the provisions of our Corporation act (Pamph. L. 1896, p. 277), by which (section 20) the shares of stock in [499] every corporation are declared to be personal property, and (section 1) every corporation 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 shares of their own capital stock |' (sections 29, 38), plainly imply a legislative grant of the neces- j 'i sary power in all cases where the purposes of the corporation require it. In the present case the fact that the corporation I exerted the power in order to secure the services of the plaint- ! iff is prima fade sufficient indication that the purposes 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 cannot be restored to his former status, nor be hon- ; estly 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 and Atlantic Railroad Co. v. Mays Landing Railroad Co., 19 Vroom 530. The plaintiff is entitled to judgment on the demurrer.