the fact that such an arrangement was in violation of the laws of Ohio. The defendant thus accepted a surrender of the plaintiff's note, based upon a delivery of the stock with the guaranty of the defendant that it would pay dividends upon the stock at the rate of 6 per cent. per annum; and that guaranty was faithfully observed by the defendant down to the end of the year 1901, when, for the first time, the defendant informed the plaintiff that the agreement of guaranty was invalid by the law of the state of Ohio, and refused to comply with it; that the representations made by the defendant's president, and upon which it obtained the note of the defendant which was held by the plaintiff, were false; that the guaranty was not a legal obligation of the company, for which he acted; and that the plaintiff was not entitled to receive the dividends which the corporation had guarantied, upon the basis of which guaranty the plaintiff had surrendered this obligation of the defendant. I think it clear that under this condition the plaintiff was authorized to rescind this sale of the stock and to receive back the obligation of the company upon the delivery to the company of the stock that he had received. The plaintiff was not a lawyer. He had been for some time in the employ of the defendant. He had loaned his money to the defendant, relying upon its obligation to repay it to him upon demand. He had been induced to surrender that obligation of the defendant upon the distinct representation by the defendant's president that the stock that they had offered to sell him was stock of the company, with a guaranty of a dividend of 6 per cent., and that the corporation had power to issue stock with such a guaranty; and, relying upon this representation, the plaintiff accepted the stock and delivered up the obligation of the company that he held. What the defendant offered to give to the plaintiff, and what the plaintiff understood he was to receive from the defendant, was stock of the defendant dividends of which were guarantied. The defendant delivered the stock and what purported to be such a guaranty. The arrangement was for the benefit of the defendant, suggested by its president, and accepted by the plaintiff as the defendant's offer.

It is opposed to the established principles of law that the defendant should be allowed to repudiate its obligation upon the ground that the obligation that it assumed to the plaintiff was ultra vires, and at the same time retain the consideration that it had received for giving this void guaranty. This question is very satisfactorily treated in Pullman Palace Car Co. v. Central Trans. Co., 171 U. S. 139, 18 Sup. Ct. 808, 43 L. Ed. 108, and it was there expressly held that upon disaffirmance by a corporation of an act which is ultra vires, the corporation must restore the other party to his former condition as far as possible upon the disaffirmance of a void contract, and return all property that it has received as a consideration for that contract or its value. In Central Transp. Co. v. Pullman Palace Car Co., 139 U. S. 39, 11 Sup. Ct. 478, 35 L. Ed. 55, Mr. Justice Gray, in delivering the opinion of the court, said:

“A contract ultra vires, not being in itself immoral, but because the corporation is incapable of making it, the courts, while refusing to maintain any action upon the unlawful contract, have always striven to do justice to the par

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ties so far as could be done consistently with adherence to law, by permitting property or money parted with on the faith of the unlawful contract to be recovered back, or compensation made."

It has been settled in this state that a corporation cannot avail itself of the defense of ultra vires when the contract has been in good faith fully performed by the other party and the corporation has had the benefit of the performance and of the contract; that "when it [the contract] becomes executed by the other party it [the corporation] is estopped from asserting its own wrong, and cannot be excused from payment upon the plea that the contract was beyond its power." Vought v. Eastern Building & Loan Ass'n, 172 N. Y. 508, 65 N. E. 496. But when the corporation expressly repudiated its agreement upon which it had obtained this plaintiff's property, and as a basis for such repudiation proved that the act was ultra vires, and prohibited by the statutes of the state from which it had derived its right to exist, the other party to the contract certainly had the right to rescind the whole transaction, and the defendant was then. bound to restore the plaintiff to the same condition that he was in when the void contract was executed.

There is no justification in the evidence for the statement that this guaranty of dividends was not the substantial inducement under which the plaintiff accepted these shares of stock in discharge of the defendant's indebtedness to him; and, having acted upon the representations of the defendant's president that he was acting for the corporation, and that the corporation had the power to make such a guaranty, the defendant corporation cannot retain the benefit of the transaction, and hold its obligation which it had obtained from the plaintiff, and repudiate the authority of the plaintiff to make, on behalf of the corporation, such a contract. By accepting and retaining the note held by the plaintiff, the corporation ratified the act of its president in making the contract with the plaintiff, and, but for the fact that the guaranty is prohibited by the laws of the state of Ohio, the guaranty would be a perfect valid obligation of the defendant, which it, while retaining the benefits, could not repudiate upon the ground that the defendant's president had no authority to make it. It is sound law, as well as sound morals, that a party to a contract cannot repudiate the contract and his obligations under it, and at the same time retain the consideration that he has received for making the repudiated promise; and whether the promise is repudiated because it was made by an agent without authority, or because it was ultra vires, or beyond the power of the party making it, or for any other reason, when the obligation upon one party is repudiated, the other party has the right to receive back the consideration which it has paid for the repudiated contract or repudiated obligation. This general rule applies with greater force where the innocent party who has paid his money or property or delivered his property based upon the invalid promise has been induced to part with money and accept the promise upon the distinct representation of the promisor that the obligation was valid, and that the promisor was authorized to make it. All of these facts appear in this case. This defendant corporation stands in a position of a corporation accepting from the plaintiff a

discharge of its admitted obligation based upon a promise to pay 6 per cent. dividends upon the stock transferred to the plaintiff in satisfaction of that obligation. It repudiates that obligation, and then seeks to retain its obligation which the plaintiff had delivered to it based upon that promise. Certainly no corporation or individual can retain the benefit received on account of a void obligation while repudiating the obligation.

I think that the judgment and order should be affirmed, with costs. PATTERSON and HATCH, JJ., concur.

Two causes of action are alleged in the complaint, but the appeal only involves a consideration of the first, which is for the recovery of $8.000, a balance alleged to be due and owing on a demand note for $10,000 given by the defendant to the plaintiff on the 1st day of January, 1897. The plaintiff had for several years been in the employ of the defendant as a traveling salesman, and the note was given for a balance due for services and moneys loaned. It is alleged in the complaint that the note was surrendered to the defendant on the 13th day of May, 1899, at its request, and that the plaintiff was induced by the president of the defendant to accept therefor eight shares of the capital stock of the defendant of the par value of $1,000 each, with a guaranty in writing that the defendant would pay 6 per cent. dividends on the stock annually, and a new note of the defendant for $3,000, representing $2,000 of the indebtedness covered by the $10,000 note, and a further indebtedness for a subsequent loan of $1,000; that the president of the defendant represented that the stock had been lawfully issued, and that "the defendant had power and authority, by its charter, to issue such stock and guaranty dividends thereon," and that the plaintiff believed these representations and relied thereon; that the defendant paid dividends on the stock at the rate of 6 per cent. per annum until the 1st day of October, 1901, and the further sum of $20, and then declined to pay dividends on the grounds that the earnings of the company would not justify it, and that the guaranty was void; that the plaintiff tendered a return of the stock, and demanded a return of the note for $10,000, and offered to credit defendant thereon the $2,000 represented by the other note, and, as interest, the amounts paid as dividends; and that the note for $10,000 is not now in the possession of the plaintiff. The defendant, in its answer, denies the guaranty, and denies that the president of the defendant had authority to execute the same, and alleges that the guaranty, if executed, was void, and that plaintiff had either actual or constructive notice thereof. The other material allegations of the complaint are admitted.

The defendant was incorporated on the 8th day of February, 1878, pursuant to an act of the Legislature of the state of Ohio passed on the 1st day of May, 1852, and the acts supplementary and amendatory thereto. The purpose of its incorporation, as stated in the certificate, was "buying and selling foreign and domestic woods in the log or otherwise, and of manufacturing the same into planks, boards and veneers, and of disposing of the same, and doing a general lumber business, and holding such real and personal estate as may be deemed necessary to carry into effect the object of the incorporation." It was stipulated upon the trial that the general statutes of Ohio show that no corporation incorporated under the laws of that state since the 1st of May, 1852, "has had at any time power to guaranty dividends on its capital stock.' It also appears by those statutes that dividends may be lawfully paid only from the surplus profits arising from the business of the corporation, and the method of calculating profits is therein regulated. The plaintiff testified that in April, 1899, he wrote the defendant asking payment of $5,000 on its note for $10,000 which he held; that on the 22d day of the same month he received a letter in the name of the company, signed by its president, saying that the stockholders of the company preferred to pay the note in full, and that the company was ready to hand him a check for the face of the note, but, since he only desired $5,000, the stockholders joined in the suggestion for his interest, and not for theirs, that he take $5,000 in cash, and purchase five shares

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of the company's stock upon which 6 per cent. dividends annually would be guarantied, and that the company would agree, or two of its stockholders named in the letter would jointly agree, to buy his stock at the end of three years at the same price, although the company would prefer to pay the rents in cash, and was not anxious to sell stock, as it was expected that greater dividends than 6 per cent. would be paid; that about the 10th of May thereafter the president of the company called at the plaintiff's house with reference to the note and correspondence, and spoke of the prosperity of the company, and of its good prospects, saying that it expected to pay 10 per cent. dividends, if not more, and that the stockholders with whom plaintiff was acquainted were all anxious that he should take stock, and "offered to me that, if I would take stock of the Albro Co., they would guaranty a dividend of six per cent. per annum in exchange for my note. I then asked if that would be preferred stock. He answered me by saying that it would be stock guarantied by the Albro Co., which they had a right to do"; that plaintiff replied that he did not desire to buy stock, and would prefer to let the note run, or have it paid in full; that the president of the company then said it was not convenient to pay cash on the note at that time, to which plaintiff replied that he would think the matter over, and see the president of the company again; that he was well acquainted with the president of the defendant, and believed all that he said; that he had another conversation with the president of the company a day or two later; that the president then informed him that this was the only note of the kind outstanding on the books of the company, and that they wished to get it off the books as a liability, and that the company would sell to him eight shares of stock and guaranty a dividend of 6 per cent. per annum, payable quarterly, and the balance of $2,000 would be paid in cash in exchange for the $10.000 note, and, as an additional advantage to him, would pay interest on the note to the 1st of July, and would pay the first dividend on the stock on the 1st of July; that plaintiff then informed the president that he would accept the offer; that about the first or second week in June the stock was delivered to the plaintiff by the president of the company, together with the following letter:

"New York, May 13, 1899. "Mr. Jas. S. McVity-Dear Sir: You hold the note of The E. D. Albro Co. for $10,000.00 bearing Int. at 6%. If as proposed you will buy 8 shares of The E. D. Albro Co. stock we will guarantee you a 6% dividend on same payable quarterly and the remaining $2,000.00 we can arrange as you may desire. "This is the arrangement proposed by Mr. McDougall, and he and Mr. Justice will agree to purchase back the stock at par within 2 to 3 years if you wish to sell, and you are guaranteed a dividend of 6% per annum in the meanwhile. The E. D. Albro Co. "W. H. Justice, Prest."

Yours truly,

On

The plaintiff received dividends on the stock down to the 1st day of October, 1901, as alleged. About that time the management of the company changed, and the condition of its business did not justify the payment of dividends thereafter. On the 3d day of December, 1901, the plaintiff received a letter from the company, written by its secretary, inclosing a draft to apply on the $3,000 note of the company which he then held, and informing him that some of the stockholders had entered a protest against the payment of dividends, and that, as the company was not earning dividends, it would be an ultra vires act to pay them, and the protest would have to be heeded. the 15th of the same month he wrote the company, saying that he was not aware at the time that the agreement to pay dividends was unlawful, but that, if it was, he ought not to hold the company, and had no desire to do so; that if, in the judgment of the company and its legal advisers, it was beyond its power to issue the stock with the guaranty, he offered to return the stock properly indorsed for surrender or transfer, and the guaranty also, in exchange for the notes which he surrendered to the company on which he authorized the indorsement of payments, as interest, of the amounts he had received as dividends, together with $2,000 on account of the principal. On the following day the attorneys for the company, to whom the plaintiff's letter had been referred, wrote the plaintiff, saying that the guaranty was made without the

authority of the company, but that it would have been ultra vires even if authorized, and that the company could not receive back the stock or return the note. It does not otherwise appear that the company authorized its attorneys to write this letter. The plaintiff then brought this action.

LAUGHLIN, J. (dissenting). I am of opinion that the action cannot be maintained, and that the judgment in favor of plaintiff should be reversed. The theory of the plaintiff seems to be that the guaranty of dividends was void, and that it was such an essential part of the consideration that, when the company defaulted in paying dividends, he was at liberty to rescind the contract by which he received the stock, and to recover upon the original note which he had surrendered to the defendant, and which was in its possession. There was no allegation or proof of fraud or mutual mistake, and the plaintiff does not ask to have the contract set aside upon either ground, but claims the right of his volition, and without the consent of the defendant, to rescind it. The contract was fully performed on the part of the defendant, unless it can be said that it undertook to give a valid guaranty, which manifestly it could not do. The defendant did all that it agreed to do at the time, and paid the dividends according to the guaranty for more than two years. During all that time the plaintiff was a stockholder of record of the defendant company, and it was not in default. It may be assumed that others became stockholders, and third parties dealt with the company on the faith of its financial condition with this obligation to the extent of $8,000 apparently canceled. After this lapse of time upon the failure of the company to pay a dividend, which, according to the guaranty. did not become due for more than two and one-half years after the agreement had become consummated, the plaintiff asserts the right to terminate of his own volition all his liability as a stockholder, and to reinstate the company's original indebtedness to him. This, I think, he may not do. Doubtless the plaintiff relied on this guaranty, and, if he knew it was invalid, perhaps he would not have surrendered the note and have accepted the stock; but, whether so or not, it was not a conditional sale. The sale was consummated. The guaranty, if valid, was a covenant for the performance of obligations at future times, and its breach was therefore a breach of a condition subsequent, and would afford no ground for rescinding the purchase of the stock. De Kay v. Bliss et al., 120 N. Y. 91, 24 N. E. 300; Lamson Consolidated Store Service Co. v. Coyngham (N. Y. Com. Pl.) 32 N. Y. Supp. 129; Fairbank Canning Co. v. Metzgar et al., 118 N. Y. 260, 23 N. E. 372, 16 Am. St. Rep. 753; Goldsborough v. Orr, 8 Wheat. 217, 5 L. Ed. 600; Railroad v. Parks, 86 Tenn. 554, 8 S. W. 842; Morrow v. Iron & Steel Co., 87 Tenn. 262, 10 S. W. 495, 3 L. R. A. 37, 10 Am. St. Rep. 658; Hoffman v. King, 70 Wis. 372, 36 N. W. 25; Tufts v. Wainfeld, 88 Wis. 647, 60 N. W. 992; Patterson v. Donner, 48 Cal. 369. Moreover, I think that, if this guaranty is to be construed as an absolute undertaking on the part of the company to pay dividends regardless of whether they are earned or not, the plaintiff is chargeable with knowledge of its invalidity, and cannot rescind upon that ground. Such a contract would be contrary to public policy, as it would be in fraud of the rights of creditors and of