Goodman v. Ladd Estate Co.
Wheatley borrowed $10,000 in exchange for a promissory note endorsed by defendant Ladd Estate. Ladd Estate did this at the request of Liles and his wholly-owned corporation Westover, and Liles and Westover guaranteed Ladd Estate against loss arising therefrom.
The plaintiffs then purchased of Westover's shares, knowing about the guaranty agreement to Ladd Estate. The guaranty was conceded to be ultra vires Westover, which existed for the purposes of providing housing for rent or sale and to obtain contracts of mortgage insurance from the Federal Housing Commissioner.
Wheatley defaulted on his note, the bank demanded payment from Ladd Estate, and Ladd Estate demanded payment from Liles and Westover.
Lower court found for defendant.
Are plaintiffs entitled to have their performance enjoin enjoined since it is ultra vires?
Plaintiffs were aware of the guaranty when they purchased Westover. The fact that they falsely thought it unenforceable does not entitle them to equitable consideration. While it was ultra vires, corporations can enter into guaranty agreements in legitimate furtherance of their businesses, and here the statute even says that ultra vires agreements can be enforceable. The statute would be deprived of its effect if this was held to be inequitable. Plaintiffs, by purchasing Liles's shares, are essentially in the same position as he would have been. A shareholder who participated in an ultra vires act cannot attack it as ultra vires.
No, plaintiffs are not entitled to equitable relief. Affirmed.