Gotshal v. Mill Factors Corp.

MAYER, Circuit Judge (after stating the facts as above). The sole question requiring attention is whether the agreement of December 10, 1919, is valid as against the trustee in bankruptcy of -Importing Co., and hence whether defendant should account as prayed for. The three Gartner corporations did not technically comprise a parent and subsidiary corporations. The senior Gartner was the main stockholder in each, and Ribbon Co. had been in business about seven years, when it was thought wise to expand the business by exporting and importing. The record fully justifies the conclusion that these three corporations were run as one and as complements of each other, although, of course, in the nature of things, some transactions were necessarily individual to each. There were, however, two major and important objects in mind: (1) That of obtaining the benefit of the reduced (3% per cent.) commission by the test of the aggregate sales of the three corporations; and (2) that of inducing defendant to make advances indiscriminately to the three corporations. Thus the three corporations were so dovetailed that the agreement with defendant was advantageous to each, enabling each to obtain the advantage of a more liquid cash- situation, because of the factor’s willingness, in advancing money, to disregard corporate entity in favor of business unity, and also enabling each to do business on a less expensive commission basis, a differential which would grow as the combined sales developed beyond $400,000. The record is convincing as to the good faith of all concerned, and the arrangement would have been regarded by everybody, including creditors, as displaying good business sense, if all had gone well. The question now, therefore, is solely one of power—intra or ultra vires. In the case of In re John B. Rose Co., 275 Fed. 416, which presented quite a different state of fact, this court, in discussing the question of when a guaranty by a corporation is ultra vires, [1007] cited and analyzed many cases. At the outset of its opinion the court stated the rule: “A corporation ordinarily is without power to enter into' a contract of guaranty, as such a contract is foreign to the objects of its creation and hazards its funds, in a manner unwarranted by the contract which exists between it and the state, and between it and its stockholders. The existence of such a power is sometimes implied, however, when it is necessary to enable a corporation to accomplish the objects for which it is created, or when it is reasonably necessary in the conduct of its business.” Later, at page 424, the court said: “It has been held in numerous cases that a corporation may enter into a contract of guaranty when reasonably incidental to its authorized business.” And at page 427 the court also pointed out that the presumption of ultra vires was rebuttable. As suggested by the District Court, the agreement of December 10, 1919, was, perhaps, something more than a guaranty; but, viewing it as a guaranty and nothing else, the question at bar, as also stated by the District Court, becomes one of fact—i. e., whether the agreement under discussion was reasonably necessary in the conduct of •the business of these Gartner corporations and incidental to their authorized business to enable them to accomplish the commercial objects for which they were created. The record answers this inquiry in the affirmative in no uncertain terms. Of the many cases cited, nearly all of which were examined in the Rose Case, supra, it is necessary to refer only to Rogers v. Jewell Belting Co., 184 Ill. 574, 56 N. E. 1017. The fundamental point of that case was that, where stockholders, officers, and directors of two corporations are the same, that fact does not render one corporation liable for the debts of another. Nobody will take issue with that holding. Such, however, is not the case at bar. The fact that Gartner was the majority stockholder in all three corporations is of slight importance. Here the point is that substantial advantages, mutual in character, were to flow from the agreement, and the subject-matter was distinctly a normal incident of the business of these three corporations. Decree affirmed, with costs.