
    (First Circuit—Hamilton Co., O., Circuit Court
    Oct. Term, 1898.)
    Before Cox, Swing and Smith, JJ.
    THE MERCHANTS’ NATIONAL BANK v. THE OVERMAN CARRIAGE COMPANY.
    
      Purchase by corporation of its stock — When void — Continued liability of stockholder—
    (1). A resolution by a corporation authorizing the purchase of a part of its own stock by B. as trustee for the company, to be paid for with notes of the company, is a purchase of the stock for the company.
    (2). Such a purchase by a corporation from two of its officers “in consideration of their proposed retirement”, does not come within the exception to the principle of law that a company cannot deal in its own stock; the purchase was invalid, and those who attempted to sell did not cease to be stockholders.
    
      Appeal from the Court of Common Pleas of Hamilton* county.
   Swing, J.

The point in controversy in this case is whether Peter' Junghaus and Bernard S. Fallon are stockholders in the-Overman Carriage Company.

On June BO, 1893, they each owned fifty shares of the' capital stock of said company. On that date, at a meeting-of the board of directors of said company, consisting ®f Messrs. Rossiter, Burrows, Fallon and Junghaus, the last two being the parties above named — Mr. Junghaus acting as secretary — Mr. Burrows made a motion which was carried, the president, Mr. Rositer, not voting. The motion was as follows:

“That in consideration of the proposed retirement of Mr, Fallon, as vice-president, and Mr. Junghaus, as secretary, Mr. G. H. Burrows be authorized to-purchase their stock as trustee for the company, paying for the same — giving notes to the order of the company payable five hundred dollars per month, with interest at six per cent. The president is authorized to endorse said notes, and the company to pay the same as they mature, holding said Burrows harmless, and retaining the stock when ali-are paid.”

The evidence clearly shows that Junghaus and Fallon, had full and accurate knowledge of the nature of the transaction; in fact, the resolution was carried by their votes, and they were chargeable with knowledge of the nature of the transaction, whether they actually knew its scope or not. At this time the assets of the company exceeded the liabilities, not counting the stock as a liability, by some $17,000. The capital stock of the company was $55,000, and according to the books of the company,the value of the stock was about thirty cents on the dollar, although if forced to realize,it probably would have been insolvent. At this time neither Junghaus or Fallon was indebted to the company, and they were solvent.

It seems hardly to admit of any question but what the sale of this stock by Junghaus and Fallon was a sale by them to the company itself. The purchase by Burrows, as trustee for the company, and its transfer to him as such does not change the real motive of the transaction. It was nothing more nor less than a sale to the company of its own stock.

That a company can not deal in its own stock is a well settled principle of the law that needs no citation of authorities. There are exceptions to this rule in cases only where the company may buy in its stock for the purpose of saving it from loss and for its own protection.

The resolution under which this purchase was made recites that it was for the purpose of the retirement of Fallon as vice president and Junghaus as secretary of the company. This is no valid reason for the company buying in its own stock. It may or may not have been for the interest of the company for these parties to retire from their offices, but it is not sufficient in law for the company to become purchasers of its stock. The necessity for avoiding loss to the company did not exist.

There is nothing in the case of Morgan v. Lewis, 46 Ohio St., 1, relied on by Junghaus and Fallon as authorizing this transaction, which holds that a corporation can buy in its own stock, except from necessity to avoid loss to the corporation. The reason for the holding there made, is found in the language of the court on page 7, where it is said:

“This proof would have established something beyond the mere good faith of the transaction.”

Of course,if there was bad faith in procuring the stock of' the corporation, it was the duty and the right of the corporation to undo the fraud.

But there was no element of fraud in procuring the stock of Junghaus and Fallon by them. They were the owners of the stock in good faith and for value and in the regular way, and the company did not have the power to purchase their stock. The transaction not being lawful, it was void, and said parties did not cease tc be stockholders in said company, and must therefore still be stockholders.

Marsh & .Ritchie, for Plaintiff.

Follelt & Kelley, contra.

A decree should be entered in accordance with this finding.  