## Facts

- Westover Tower, Inc. was organized to provide housing for rent or sale and to obtain FHA mortgage insurance.
- In 1961, Dr. Edmond F. Wheatley borrowed $10,000 from Citizens Bank of Oregon; Ladd Estate Company endorsed Wheatley’s promissory note.
- Contemporaneously, Walter T. Liles (individually) and Westover (signed by Liles as president and by the corporate secretary) executed a written agreement unconditionally guaranteeing Ladd Estate against loss from its endorsement of the bank note.
- Wheatley defaulted; Ladd Estate paid the bank $9,583.61 and demanded reimbursement from Westover.
- Westover refused; Ladd Estate sued Liles and Westover at law on the guaranty.
- On September 27, 1963, Morton and Edith Goodman purchased all of Westover’s common stock from a court-appointed receiver.
- The Goodmans were fully aware of the guaranty when they purchased the stock and bought believing the guaranty was legally unenforceable.
- It was conceded that Westover’s guaranty was ultra vires (beyond the corporation’s powers).

## Issues

1. Whether, under ORS 57.040, shareholders who purchased all corporate stock with knowledge of an ultra vires guaranty may obtain equitable relief enjoining enforcement of the guaranty.
2. Whether the purchasers’ mistaken belief that the guaranty was invalid creates equities sufficient to bar enforcement against the corporation.
3. Whether successor shareholders may assert greater rights than the prior shareholder who procured and participated in the ultra vires transaction.

## Decision

- The Oregon Supreme Court affirmed the decree dismissing the Goodmans’ suit in equity.
- The court held that the shareholders were not entitled to an injunction barring Ladd Estate from enforcing the guaranty against Westover.
- Although the guaranty was ultra vires, the court treated enforceability as an equitable question under ORS 57.040 and concluded equity favored enforcement on these facts.

## Legal Principles

- Under ORS 57.040, a corporate act is not automatically invalid solely because it is beyond corporate capacity or power; ultra vires may be raised only in specified proceedings, including shareholder suits for injunctive relief.
- Shareholder injunctive relief against an ultra vires act is equitable and may be denied when the circumstances do not justify relief.
- Shareholders who knowingly purchase stock subject to a disputed corporate obligation generally cannot invoke equity to avoid that obligation based on their mistaken legal assessment.
- Successor shareholders who acquire stock from a shareholder who procured or participated in the ultra vires act may be barred from attacking the transaction; they stand in the position of the predecessor with respect to equitable defenses.
- Courts may enforce an ultra vires contract where third-party reliance and fairness favor enforcement and where no superior equities justify relief to the shareholder-plaintiffs.

## Conclusion

The court refused to enjoin enforcement of an ultra vires corporate guaranty because the plaintiffs purchased all stock with knowledge of the guaranty and, as successors to the shareholder who arranged the transaction, lacked equitable grounds to invalidate or block enforcement under ORS 57.040.


Goodman v. Ladd Estate Co., 246 Or. 621, 427 P.2d 102 (Or. 1967)