The opinion of the coqrt was delivered, by
Woodward, C. J.The plaintiff owned 600 shares of the capital stock of the company, Avhen the company, on the 9th of April 1863, by regular corporate action, purchased 400 shares of Mrs. Wagefarth. The company continued to hold these 400 shares until the 13th January 1864, Avhen, by formal resolution of the stockholders, they were divided among the then stockholders pro rata, upon the basis of the shares then held by the stockholders respectively. BetAveen the time of the purchase and the time of the distribution of the 400 shares, the plaintiff had sold and assigned 500 shares of his stock, so that at the distribution he held but 100 shares. He claims that he Avas entitled to a pro rata of the 400 shares purchased of Mrs. Wagefarth upon the basis of the number of shares oAvned by him when the purchase was made, and not upon the basis of the shares owned by him when the division was made ; and to enforce this claim he brought suit against the company.
The learned counsel of the plaintiff admit that a corporation may, from necessity, take its oavia stock in pledge or payment, as a lawful exercise of the corporate franchise, but they deny that the purchase in question was the exercise of a corporate franchise, or was justifiable upon any principle of necessity, and they maintain that it was the voluntary and gratuitous act of the directors, wholly outside of their official powers and duties.
Suppose this be fully admitted, can it be doubted that the plaintiff’s action is in affirmance of the purchase ? If he meant to disaffirm it, he should have sought an injunction against the company to restrain the purchase, or to cancel it if done before he had lcnoAvledge of it, or if he would bring an action at law, he should have declared for his share of the funds Avhich he com*77plains were misapplied in buying the 100 shares. Instead, however, of disaffirming the purchase in any manner, he affirms it, and claims his full share of the speculation. And he claims it against the company, and not against the directors merely who misapplied the funds, affirming thereby that it was a corporate act, and that, as one of the corporators, it enured to his benefit. This is the circumstance which prevents us from considering the transaction as a breach of trust. Whatever we might think of it in a different proceeding, we can, in this action, regard it in no other light than a valid corporate act. And for this reason the case of The London and Birmingham Railway Company v. Carpentier’s Executors, 13 L. & E. R. 201, has no application, no more than the other cases cited to prove that the charter having divided the stock into a certain number of shares, it was not competent for the company to change or diminish the number. If the company have violated the law of its being, or been guilty of a breach of trust, let appropriate proceedings be instituted against it, but let us not be asked to convict it of these high misdemeanors before they are alleged in pleading, and that in an action too, which affirms, approves, and claims the fruits of the very act we are asked in argument to condemn.
The employment of corporate funds to speculate in the stock of the company to which the funds belong, is not a practice to be encouraged; but the present plaintiff is not in position to censure the practice. As to him, we must regard the purchase as valid and fair; and all we have to decide is how far it enures to his benefit.
We think the court below gave satisfactory reasons for the judgment they entered. When a company buys in shares of its outstanding stock, it enriches the shares of every holder; for, whether the purchased shares be sunk, or sold at a profit, or distributed pro rata among the stockholders, the chance for an increase of dividend, or of shares, enhances the value of each existing share — enhanced the value of the 600 shares held by the plaintiff. When he sold 500 shares of his stock, he got, or he ought to have got, the benefit of this enhancement, and he ought surely to let his vendees, who paid the market price., take all they purchased ; not only the shares themselves, but also the incidental right of those shares to participate in the distribution of the Wagefarth stock.
As well might he dispute the right of his vendees to receive dividends, as to receive a pro rata distribution upon the stock they purchased of him. As well might he deny their right to the stock itself, as to deny them the incidental advantages of the stock.
The judgment is affirmed.