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A7062

 
HANDBOOK

OF THE LAW OF

PRIVATE CORPORATIONS

iC
oe
ie
By WM. L. CLARK, 15
or

INSTRUCTOR IN LAW IN THE CATHOLIC UNIVERSITY OF AMERICA,
AND AUTHOR OF HORNBOOKS ON ‘‘CRIMINAL LAW,” ‘'CRIMINAL PROCEDURE,”
AND ‘'CONTRACTS”

ST. PAUL, MINN.
WEST PUBLISHING CO.
1897
To

FRANK P. CLARK, Esq.,
of Baltimore,

Asa slight mark of the author's regard and of his remembrance
and sincere appreciation of many kindnesses,

THIS VOLUME IS AFFECTIONATELY DEDICATED.

(iii)*
PREFACE,

There are few subjects in the law in which so many difficulties,
and so great a conflict in the decisions, are to be met with as in the
law of private corporations. The law is unsettled on many points.
These points have received special attention in this treatise, and to
some of them more space has been devoted than is given them in the
larger works. For examples, reference may be made to the chap-
ters in which are discussed the doctrines in regard to corporations
de facto (page 86), estoppel to deny corporate existence (page 99),
subscriptions to stock prior to incorporation (page 263), and watered
stock (page 368). The doctrine, often laid down in the cases, and
stated in all the text books, but which has been virtually’ exploded
by recent decisions, that the capital stock and assets of a corpora-
tion constitute a trust fund for the benefit of creditors, has been
given considerable space (page 539).

The entire work has been written from the cases themselves, and
throughout his work the author has aimed at making the book a true
reflection of the cases. The authorities have been selected with care,
and none have been cited without personal examination.

The work is not intended to deal with corporation law in its appli-
cation to particular corporations, but only with the rules and princi-
ples of law applicable to corporations generally. It would be im-
possible to go further than this, and keep within the limits of a hand-
book in one volume.

The very interesting monograph on “The Logical Conception of a
Corporation,” by Mr. Benjamin Trapnell, with the accompanying
chart, has, with the author’s permission, been inserted as an ap-
pendix, and materially adds to the value of the work.

WM. L. C., Jr.

Washington, D. C., February 6, 1897.

(v)*
Section

1-38.

13-18.
14,
15.

17.
18.
19-20.
21,
22.
23-24,

TABLE OF CONTENTS.

 

CHAPTER I.
OF THE NATURE OF A CORPORATION.
Page
Corporation Defined............ aeenetew ao SaNEk sow Oe ees wess J-l1l
Creation of Corporations. .............cccceeecccaeevececuees 11-12
Limited Powers of Corporations. ............. Sots ee 6 eoasect 12
Attributes and Incidents of a Corporation. ..........-..000000- 12-23
Corporation as a “Person,” “Citizen,” etc. ......... 0c eee eens “24-25
Kinds of Corporations............00ceeeee eee acdiscepae cesT ~. 26-82
CHAPTER TT.
CREATION AND CLYIZENSHIP OF CORPORATIONS.
Creation—In General ....... 0.0... cece cece eee eee e en eenes ‘ 33
Power to Create....... See LAS MOREE Se AEA Lae Pea abe 33-41
State: Legislatures: .-.sccice ss wssvsianacs wai ase o auprecdescd’s eoaverenera. s 4 ar8 ‘ 3+
COD RTESS 52 ees sae sich a Rises ocksdnalh dow ayaoe e Sa sialele aeananlace Revns 34
Territorial. Legislatures 9255 g006 + save nic suwes vas eawe ees 384
PPTOE CRUDE. OTN ose erssciga:saiann tira oe serene va essaue veri bors datgsooet sect Mieke erates 3+
Delegation of Power..... i Paes PD aiG Seah aiadhara diwPitiersca asap sine gations 3441
General and Special Laws............. cece cece r eevee cease 42-48
Ratification of Claim to Corporate Existence...............056 48-49
Intention to Create. ....... cece ee eee ceca eee Sh an and teaeares mt sac 49-50
Agreement between Corporation and State—Acceptance of Char-

TOT eile teterouers ss sata Nos 6 erietaliore 2s cu sKeyin de: é cherehe mais kelcta date re ear E om 50-54
Place of Organization’... 6 scsies esis 8 e655 6 ORR Kee e bad 54455
Compliance with Conditions Precedent............... 0. ce caee 55-63 |
Agreement between Corporators and Corporation.............. G+
Who may Become Corporators.... 0... eee tee cee eee ee nes 64-67
Purpose of Incorporation. ...... 0 ccc cece cee eee en eee n ena 67-71
Corporate Name ....... cee cece e cece ee ee enone ereieasviiad a bare 71-74
Residence and Citizenship of Copporations.................4.. 74-80
Extension of Charter—Creation of New Corporation............ 81-82
Proof of Corporate Dxistence.....cescccccceccesceceeesseee » 82-85

Clk.Pr.Corp. (vii)
Vill

Section
4142.
43-44,

45.

TABLE OF CONTENTS.

CHAPTER III.

EFFECT OF IRREGULAR INCORPORATION.

Page
Corporations De Facto. .......seeseeeees se WR RES isa s weeee 86-98
Estoppel to Deny Corporate Existence.........-+-s seer erences 99-108
Liability of Associates as Partners.......+-- x eee SS COSO WS ... 108-110

CHAPTER IV.

RELATION BETWEEN CORPORATION AND ITS PROMOTERS.

46.

47.
48.

49.

51.
52.

54.
55.
56-57.
58-61,

Liability of Corporation for Expenses and Services of Pro-
Moters ...ee ce eee eee Gane. este bis BERGEN FAIRS Pete sesso TAT

Liability on Contracts by PromoterS.......-+.+-2e0e8 hes dame 112-117
Liability of Promoters to Corporation and Stockholders.........117-119

CHAPTER V.

POWERS AND LIABLLITIHS OF CORPORATIONS.

Un General) iscicsieis swigiaies oarraig seatew e oscae te cae MeaesS seve ee 120-122
POXPPESS: ROW ELS: escssye se vias disse reserve: sued We taeratewsase mee aeveravone.< ncn 122
Powers Incidental to Corporate Existence............20eeeeee 122-124
Powers Implied from Powers Expressly Granted..........+5...5 124
Construction of Charter—In General. ......... cee eee eee eee 124-128
Power to Take and Hold Real and Personal Property.......... 128-182
Power to Act as Trustee..... ene wi drolsakabin ste ku tacro nooner 132-133
Powers as to Contracts and Conveyances........2 ccc eeee ees 133-156

Form and Mode of Corporate ContractS....scceecsecseess L0G+162

CHAPTER VI.

POWERS AND LIABILITIES OF CORPORATIONS (Continued).

62.
63.
64.
65-66.
U7.
68.

Effect of Ultra Vires Act—In General..........cecceseccccee 163-164
A Corporation May Wxceed Its PowerS...........22.0++++.164-166
Assent of Sharebolders.............006 mieietbees Bieaandual Sewecalee 166-167
Ultra Vires Conveyances of Land, or Transfers of Per-

aiially: we cneken cane iespess eereer eich lions: be keene can I TTE
Ultra Vires Contracts............ CREPE ORR REE RE O4s +. .170-187
Illegal Contracts ...cencccsceevccnccs stare de Sans d ewrew as gl STS192
TABLE OF CONTENTS. ix

CHAPTER VII.

POWERS AND LIABILITIES OF CORPORATIONS (Continued).

Section Page
69. Liability for Torts....... ccc cece esc e ene cece eee ‘cpunioe ses 193-197
70-72. Responsibility for Crime—Contempt of Court.........050- eee 197-200

CHAPTER VIII.
THE CORPORATION AND THE STATE.

73-T4. Power of the State over Corporations—Charter as a Contract. ..201-207

75. Police Power of the State........ 0... ccc cece eee eeeeeeeee ...207-211
76. Power of Eminent Domain.......... ccc. ccc ceec cee tecene ««.211-212
77. Reservation of Power to Repeal or Amend Charter........... 212-219
78. Offer of Amendment—Power of Majority............20e005 ates 219
79-81. Taxation of Corporations. ........00ccceceecceetecees we ee ee -219-230

CHAPTER IX.

DISSOLUTION OF CORPORATIONS.

82. How Dissolution is Effected............ 0.00 cece e eee se eenes 201-244
Sa-84. Banity J wrisdietien occeackavceuwa sou ede beeee ea eaeowens we. 245-248
85. Effect of Dissolution. ....... 0.0.0... cece eee ee ee ee eee ve 248-252

CHAPTER X.

MEMBERSHIP IN CORPORATIONS.

86. How Membership is Acquired... ...... ce. sce eee nee eve ec ce es OO-2O0
87-88. “Capital Stock” and “Capital.”........ 0. cece ee cee Kerk Cus 256-257
89-90. Nature of Shares of Stock..... suai, dieanipadanendiaieriya th alanaaney ven tooieae 257-260

91, Certificates: Of St0ékicc cscesentewes ones s ieee ot seas cess cen 260-261

92. Subscriptions to Stock—Subscriptions after Incorporatiou........ 261-263
93-97. Subscriptions Prior to Incorporation. .....seeeeees ccc enone 263-274!

98. Who may Become Subscribers. .... cc cece cece cece ences «6275-277

99. Form of Subscription—Statutory Formalities.......... aoe 2271-281

100. Mutual Consent ..... aise oanatarin rs egyedane ial geresdse iouau cuban astneirs Atavelons 281-283
101. Subscriptions Induced by Fraud............+0005 sirens . 288-290 *
102. Subscriptions under Mistake. ..........eereeeeeee See . - 290-291

103. Subscription by Agent...cecccececccsecteerecneeeereeere 291-292
x

Section

104-106.
107-109.
110-112.
113.
114-115.
116.
117.
118-121.
122-125.
126.
127-132.
133.

134.
135.
136-137.
138-140.
141.
142-145.
146-148.
149-151.

152.

153-154.
155.
156.
157-158.
159-160.
161-162,
163-166.
167.
168-169.

TABLE OF CONTENTS.

» Page
Agents to Receive Subscriptions..........-++ Lames aver tenere 293-294.
Conditional Subscriptions ...... 000s seer erect eect e eens 294-301
Subscriptions upon Special Terms......- Sav iesndunt AT eSOw 302-306
Conditional Delivery of Subscription........... se eeeeee s+ -806-308
Subscription of Entire Capital, and Distribution.......-..- 308-313
Payment of Deposit........--++50- sini bend AE SRR MOIR REI 313-316
Delivery of Certificate......... Sides! ota aiailsy salar vigceieiaa iene 316-317
Remedy of Corporation on Subscriptions. .......+-..+++0-- 318-322
Calls: sic weeeaeraawinigracscs pasiied Where SEA RSR EAU EM eee Se 322-327
Assignment of Unpaid Subscription.........-..0..e eee eee 328
Release and Discharge of Subscriber......-.- 0+ cece ee eee 328-334
Estoppel of Subscriber. ..... ccc ceceee ects een err eenee ais 335

CHAPTER XI.
MEMBERSHIP IN CORPORATIONS (Continued).

Right of Members to Inspect Books and Papers of Corporation. .336-339

Rigat to Vote wi Vieetintes oss ose cadeeien bees Hoenn nese een 340
PTOdtS: ANG DUVAMSM AS 6. iy o:s6 ia sai.cs eerie sesiasie eeeinrsecnia’ cece onan ia bean aut nde con see ths 340-358
Increase of Capital Stock... .... 0... ccc eee eee tenes 358-360
Shareholders’ Right to Preference............ cee e ee eee eee 360-361
Preferr Gd SOG Ke cians: dey orisieaep nar semcesiy's ausieerncanaiatera ve aden S anger acm 361-868
Watered and Bonus Stock. .......... cece eee eee reece eees 368-889
Action by Stockholders for Injuries to Corporation—Interference
AN: MANA BEMEN bi a csotdzeiscatesons aise asrave ccebusgocoss esac x KGendds anew arenearsied 389401 /
Expulsion of Members............ ccs sce e tec e eet eeeees . «401-405

CHAPTER XII.

MEMBERSHIP IN CORPORATIONS (Continued).

EPPANSTER OF SHAPER .ejsid oy suena cterecaew aS arom igen de Suenos eceE aS 406—409
Eiffect of Transfers ssiisievveqass sad 2 0G Kae ewes alee www dc aver vie a 409-413
Lien of Corporation on Shares. ..... 0.0.0.0... ccc cece eee eee 413-414
Validity: Of DANGERS 8.5 ta eisieie 4 acon estes atnug gee Souimas beens 415-416
Mode: of Transfers «cscs ey ees c0G G0 0 44GO sda ea nea ew 416-417
Registration of Transfer. ...... 2.0.0... cece cece cee eee eae 417-427
Forged and Unauthorized Transfers....................000.. 427-434
Liability of Indorser of Forged Certificate................0.00, 434

Liability of Corporation Arising from Unauthorized or Invalid
AD YRIOBTOR? sasavsneyeives & aapetenk oe meee eS oh ema: Aiadinnocuarate caress 435-436
Section

170-171.

172.

178.

TABLE OF CONTENTS. xi

Page

Liability of Corporation on Certificates Issued Fraudulently,
Without Authority, ef@is coo saageveawavaceedar senacnees 437-440
Remedy against Corporation for Refusal to Recognize Transfer. .440—441
Compelling Corporation to Issue New Certificates.............441-442

CHAPTER XIII.

MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS.

174-177.
178-181.

182-184.

185-188.
189-190.
191.
192.
193-194.
195-197.
198.
199.
200.
201-202.

203.
204--205.
206.
207-209.
210.
211.
212.
213.

214.

210.
216.
217.
21s.
219.

Powers of the Majority of Stockholders. ..........0.seceeeee 443-4536
By-Laws! qaaieteccaceitaieee ition. Dy bral Giaayhdaytoret wed apotae ave anetnie 454462
Stockholders’ Meetings.........cc.ccceceecccecuecveeevceece 462-472
VOtns saci. cama eae ea ines wanes a oitastiiyins x one sotientcs le gxdivetaand neatoretn 473-482
Election and Appointment of Officers and Agents............. 482-183
Qualifications of Directors or Other Officers..............0000- 484-485
Powers of Directors....... i Basan lesa a Va ga esa tnaraaslantnahdired mamta aes 485-488
Directors’ Meetings and Resolutions............00.0000ee eee 488-4933
Authority of Other Officers and Agents. ..........0cee see eeee 493-502
Notice to Officer as Notice to Corporation. .........200000000% 502-504
Contracts between Stockholder and the Corporation............ 504
Relation between Officers and Corporation..........ee0e.00eee 504-507
Contracts or Other Transactions between Officers and the Cor-
POTStION avacsas Beh adsl ih tects sin eat ce Eee x Ras 508-514
Liability of Officers to the Corporation.’.............055 ci mean 514-518
Remedies against Officers. ...... 0.0.00. cc ccc cee e eee ecees 519-520.
Liability of Officers and Agents on Contracts.............. 000s 521-522
Liability of Corporation for Torts of Officers and Agents....... 523-530 4
Liability of Officers and Agents to Third Persons for Torts.. .. .§80-531 L
Compensation of Officers. .... 0... . cc cee eee eee ee eee ene 531-533
Removal of Officers and Agents......... 0... ccc eee eee ences 533-584
Relation between Officers and Stockholders......... ee ep eeeee 004-536

CHAPTER XIV.
RIGHTS AND REMEDIES OF CREDITORS.

Relation between Creditors and the Corporation—Remedies in

General «ssvacccnaw arama ve vetoes esas veewoe te sawed Hees é 537-538
Property Subject to Execution. ....-... 0.0 cece cece ee es 88-539
Assets of a Corporation as a “Trust Fund” for Creditors. .539-546
Interference in Management of Corporation........ a. 546-548
Fraudulent Conveyances and Transfers...,.............4. 549-552

Suits for Injunction and Receiver.............. 002 c eee eee 552-553
xii
Section
220.
221.
222.
223.
224,
225-226.
227-230.
231.
232-2338.
234-236.
237.
238.
239.
240.
241,
242-248,
244,
245.

246.
247-249,
250-254.

255.

TABLE OF CONTENTS.

Page
Assignment for Benefit of Creditors—Preferences.......+--003-554
Dissolution of Corporation. .....cecee cece ee ee cree necenee 555-556 !
Consolidation of Corporations..........020e2 sete tee eete 556
Extension of Charter—New Corporation. .....-.+++++++0+5 556-5571
Set-Off by Debtor of Corporation. ...........000 eee eters 557-558
Relation between Creditors and Stockholders...........+-++6- 558-564
Statutory Liability of Stockholders........0.+++-e2+ reece 564-575
Who are Liable as Stockholders under the Statutes........ 576-587
Who may Enforce Statutory Liability.......-.0e eee eee 588-589
Remedies of Creditors against Stockholders. .... lo aeauar acennere 589-597
Necessity for Judgment against Corporation...... Ries dveFaloean a 597-598
Effect of Judgment against Corporation.........-6.0eeeeee 599-600
Statute of Limitations... cess sewee cada vgs a 8 cee ee gicies 600-602
Set-Off by Stockholders. ....... cee cece eee ee te ence ee nee 602-604
Contribution among Stockholders. ............000 eee eeee + 604-605
Relation between Creditors and Officers. ..........cseeeeeeoee 605-608
Preferences to Officers Who are Creditors. ..........00004: 608-609
Statutory Liability of Officers....... ieahe be Mew eee wees «... 609-611
CHAPTER XV.
FOREIGN CORPORATIONS.
Foreign Corporations Defined.......c..cccccsececcecees ianeuarshe 61z
Status of a Foreign Corporation. ............c0c cece cceeaccae 612-633
Actions by and against...... BG Gayo iasch wh avis hie fenders: Cariegamigs sidaueaee ue 633-639
Visitorial Power over Foreign Corporation............ wees es 689-641

APPENDIX.

THE LOGICAL CONCEPTION OF A CORPORATION.

(Page 643.)

a Tt
HANDBOOK

OF THE

LAW OF PRIVATE CORPORATIONS.

CHAPTER I.
OF THE NATURE OF A CORPORATION.

1-8. Corporation Defined.
4. Creation of Corporations.
5. Limited Powers of Corporations.
6-8. Attributes and Incidents of a Corporation.
9. Corporation as a “Person,” “Citizen,” ete.
10-11. Kinds of Corporations.

CORPORATION DEFINED.

1. A corporation aggregate is a collection of individuals

united, by authority of law, into one body, under
a special denomination, with the capacity of per-
petual succession, and of acting in many respects
as an individual.’ Every corporation aggregate
consists of:

(a) A collection of individuals.

(b) A legal entity, which is, for many purposes, in cen-
templation of law, separate and distinct from the
members who compose it. *

1 “Bodies politic and corporate have been known to exist as far back, at least,
as the time of Cicero; and Gaius traces them even to the laws of Solon, of
Athens, who lived some 500 years before. Poth. Panel of Just. (Paris Ed., 1823)
bk. 3, p. 109. ‘These associated bodies, or communities of individuals, with cer-

 

*See Appendix, post, p. 643, “The Logical Conception of a Corporation,” by Benjamin Trap- -
nell, Erq. ts z ai

Olk.Pr.Corp.—1l
y
2 OF THE NATURE OF A CORPORATION. (Ch. 1

2. For the purpose of acquiring, holding, and conveying
property, contracting obligations, incurring liabili-
ties, suing and being sued, a corporation is re-
garded in law as a legal entity, separate and dis-
tinct from the members who compose it. For in-
stance:

(a) The property of a corporation is owned by the cor-
poration, and not by the individual members.

(b) Conveyances of such property must be made by the
corporation, and cannot be made by the members
as individuals.

(c) Suits on causes of action accruing in favor of or
against a corporation must be brought by or against
the corporation, and not by or against the mem-
bers individually.

1

tuin rights and privileges belonging to them by Jaw in their aggregative capacity,
were styled by the Romans ‘Collegium,’ and sometimes ‘Universitas’; as, ‘Col-
‘egia Zibicimum,’ ‘Collegia Aurificum,’ ‘Collegia Architectorum,’—the society, corpo-
ration, or community of flute players, goldsmiths, architects, etc. Id. bk. 20, p.
110. The terms used by one of the Roman jurisconsults to describe the nature
of such a corporation or associated body of individuals, under the laws of the
republic, are, perhaps, as appropriate as any geueral language which can be used
to describe a corporation aggregate at the present day, without referring to the
specifie object for which any particular corporation is organized. I have thus
translated it fom the Latin of the Digest: ‘But those who are permitted to form
themselves into a body, under the name of a corporation, society, or other com-
munity, have within their peculiar jurisdiction, as in the similar case of the re-
public, property in common, and a common chest or treasury, and an agent or
head of the corporation or society, by whom, as in the republic, whatever is nec-
essary to be done for the benefit of the community may )e transacted.’ Dig. lib.
3, tit. 4a. And from time immemorial, as at the present day, this privilege of
being a corporation, or artificial body of individuals, with the power of holding
their property, rights, and immunities in common, as a legally organized body, and :
of transmitting the same in such body by an artificial succession different from .
the natural successions of the property of individuals, has been considered a fran-
chise, which could not be lawfully assumed by any associated body without a spe-
vial authority for that purpose from the government or sovereign power. -Dig.
lib. 47, tit. 22, De Coll. et Corp., 4 Guyol, Rep. de Jur. art. ‘Communante Laique’;
Domat, Pub. Law, bk. 1, tit. 15, § 2... Warner v. Beers, 23 Wend. (N, Y.) 1038,
122. For the history of corporations, see 2 Kent, Comm. 268; 1 Wat. Corp. § 11;
1 Pol. & M. Hist. Com. Law, 469,
&§ 1-38) CORPORATION DEFINED. 3

(d) A corporation may take from and convey to its
members, and may contract with them, and may
sue them and be sued by them.

3. That a corporation is thus a legal entity, separate and
distinct from the members who compose it, is a
mere legal fiction, introduced for the convenience
of the corporation in transacting business, and of
those who do business with it; and, when urged
to an intent and purpose not within its reason and
policy, it will be disregarded, and the fact that the
corporation is really a collection of individuals will
be recognized, even at law. Courts of equity, in
numerous instances, look behind the corporate en-
tity, and recognize the individual members, and
will do so whenever justice requires.

“Persons capable of purchasing,” said Lord Coke, “are of two sorts,
persons natural, created of God, and persons created by the policy of
man, as persons incorporated into a body politic.” * The latter sort of
person is what we calla corporation, or body corporate. “It is called
a body corporate because the persons composing it are made into one
body.” “It is only in abstracto, and rests only in contemplation of
law.” 8

Many definitions of a corporation may be found in the books, differ-
ing more or less from each other; but there are two, which are often
quoted, and which bring out better than any others the two sides of a
corporation. One is the definition of Chief Justice Marshall in the
Dartmouth College Case; and the other is that of Mr. Kyd, who wrote
on the law of corporations in England about a century ago.

Chief Justice Marshall said: “A corporation is an artificial being, in-
visible, intangible, and existing only in contemplation of law. Being
the mere creature of law, it possesses only those properties which the

21 Co. Inst. 202, 250.

310 Rep. 50. “A body politic is a body to take in succession, framed (as to that
capacity) by policy, and therefore it is called by Littleton u ‘body politic’; and it
is called a° ‘corporation’ or ‘body corporate’ because the persons are made into a
body, and of a capacity to take and grant,” ete. Co. Litt. 250a.
1
4 OF THE NATURE OF A CORPORATION. (Ch. 1

charter of its creation confers upon it, either expressly, or as incidental
to its very existence. These are such as are supposed best calculated
to effect the object for which it was created. Among the most im-
portant are immortality, and, if the expression may be allowed, indi-
viduality; properties by which a perpetual succession of many persons
are considered as the same, and may act as a single individual. They
enable a corporation to manage its own affairs, and to hold property
without the perplexing intricacies, the hazardous and endless necessi-
ty, of perpetual conveyances for the purpose of transmitting it from
hand to hand. It is chiefly for the purpose of clothing bodies of men
in succession with these qualities and capacities that corporations
were invented, and are in use. By these means, a perpetual succes-
sion of individuals are capable of acting for the promotion of the par-
ticular object, like one immortal being.” *

Mr. Kyd defines a corporation as: “A collection of many individuals
united into one body, under a special denomination, having perpetual
succession under an artificial form, and vested by the policy of the law
with the capacity of acting in several respects as an individual, par-
ticularly of taking and granting property, of contracting obligations,
and of suing and being sued, of enjoying privileges and immunities in
common, and of exercising a variety of political rights more or less ex-
tensive according to the design of its institution or the powers confer-
red upon it, either at the time of its creation or any subsequent period
of its existence.” 5

Chancellor Kent’s description of a corporation is as follows: “A cor-
poration is a franchise possessed by one or more individuals, who sub-
sist, as a body politic, under a special denomination, and are vested,
by the policy of the law, with the capacity of perpetual succession, and
of acting in several respects, however numerous the association may
be, as a single individual. The object of the institution is to enable

4 Per Chief Justice Marshall, in Dartmouth College v. Woodward, 4 Wheat.
517, 636, 1 Cumming, Cas. Priv. Corp. 490, W. D. Smith, Cas. Corp. 148, Shep.
Corp. Cas. 248. “A corporation is u body, created by law, composed of indi-
viduals united under a common name, the members of which succeed each other,
so that the body continues the same notwithstanding the change of the individuals

who compose it, and is, for certain purposes, considered as a natural person.”
Ang..& A. Corp. § 1.

5.1 Kyd, Corp. 18. And see State v. Standard Oil Co., 49 Ohio St. 187, 30 N.
E. 279.
§§ 1-3) CORPORATION DEFINED. 5

the members to act by one united will, and to continue their joint pow-
ers and property in the same body, undisturbed by the change of mem-
bers, without the necessity of perpetual conveyances, as the rights of
members pass from one individual to another. All the individuals
composing a corporation and their successors are considered in law as
but one person, capable, under an artificial form, of taking and con-
veying property, contracting debts and duties, and of enjoying a varie-
ty of civil and political rights. One of the peculiar properties of a cor-
poration is the power of perpetual succession p for, in judgment of law,
it is capable of indefinite duration. The rights and privileges of the
corporation do not determine or vary on the death or change of the
individual members. They continue as long as the corporation en-
dures. * * * It was chiefly for the purpose of clothing bodies of
men in succession with the qualities and capacities of one single, arti-
ficial, and fictitious being, that corporations were originally invented,
and for the same convenient purpose they have been brought largely
into use. By means of the corporation many individuals are capable
of acting in perpetual succession like one single individual, without
incurring any personal hazard or responsibility, or exposing any other
property than what belongs to the corporation in its legal capacity.” ®

In People v. Assessors of Village of Watertown,’ it was said by
ronson, J.: “A corporation aggregate is a collection of individuals
united in one body, under such a grant of privileges as secures a suc-
cession of members without changing the identity of the body, and
constitutes the members for the time being one artificial person, or le-
gal being, capable of transacting some kind of business like a natural
person. It does not occur to my mind that anything else can be es-
sential to the definition. Such a union as I have mentioned can only
be effected under a grant of privileges from the sovereign power of
the state. A corporation is, therefore, said to be a legal being, or the
mere creature of law.”

The Corporation as a Legal Entity.

These definitions show that a corporation is for many purposes, in
the contemplation of law, an artificial person or entity, having an in-
dividuality separate and distinct from that of the members who com-
pose it. The existence of the members is, in law, and, for most pur-

62 Kent, Comm. 267, 268, 71 Hill (N. Y.) 620.
1
6 OF THE NATURE OF A CORPORATION, (Ch. 1

poses, in equity also, merged in that of the corporate body, and lost
sight of. As a legal entity it takes and holds property, and conveys
the same; it contracts obligations, and it sues and is sued, in its cor-
porate name, in the same manner as a natural person. For these pur-
poses the members of the corporation are not regarded. Their exist-
ence is merged in that of the corporate body. They compose the cor-
poration, but they are not the corporation.®

In an English case, which serves as a good illustration of this char-
acteristic of a corporation, suit was brought to compel customhouse
officers to register a vessel belonging to a British corporation, and was
resisted on the ground that, as some of the members of the corporation
were foreigners, the vessel did not belong wholly to British subjects, as
was required by statute to entitle it to registry. The court held, how-
ever, that the vessel belonged to the corporation, and not to the indi-
vidual members, and was therefore entitled to registry, and that this
would be so even if all the stock in the corporation had been owned by:
foreigners.°

This characteristic of a corporation, as a legal entity, separate and
distinct from its members, is very important, and is of peculiar impor-
tance with respect to the ownership and conveyance of corporate prop-
erty, the effect of corporate contracts, and the right to maintain ac-
tions concerning corporate property and rights, and for corporate
wrongs. For these purposes the law generally considers the corporate
body only.1° The members of a corporation do not take, nor can they
grant, its property; but the corporation does so itself in its corporate:
name. The corporate property does not in any legal sense vest in or
belong to the individual members, though they are interested in it to
the extent that they may derive benefit from its increase, or suffer loss
from its destruction.* They are in no legal sense, however, the own-
ers of its property. As we have seen, for instance, property belonging

8 See The Queen v. Arnaud, 16 Law J. C. L. 50, 1 Cumming, Cas. Priv. Corp.
30; Smith v. Hurd, 12 Metc. (Mass.) 371, 1 Cumming, Cas. Priv. Corp. 792; Bron-
son, J., in People v. Assessors of Village of Watertown, 1 Hill (N. Y.) 620; and
the cases cited in the following notes.

® The Queen v. Arnaud, supra.

10 Post, p. 389.

*Present ownership not being necessary to give an insurable interest in prop-
erty, it has been held that a stockholder has such a beneficial interest in the corpo-

rate property as to give him an insurable interest. Warren vy. Insurance Co., 31
Towa, 464.
§§ 1-3) CORPORATION DEFINED. 7

to a British corporation belongs wholly to a British subject (the cor-
poration), though some or even all of its members may be foreigners.**
So, a member of a corporation has not such a distinct right in its prop-
erty as to make his interest attachable for his debts.12. And the cor-
poration, and not the individual members, must bring trover for con-
version of its property,’® or replevin to recover possession of the
same.** And the members of a corporation have no power to sell or
convey its property, but all such transactions must be by and in the
name of the corporation.1*> The members of a corporation cannot
bind it by contracts entered into individually. A corporation, as we
shall see, may become bound by a contract entered into on its behalf
by its promoters, by adopting it, or accepting the benefit of it; but here
the corporation, by adoption, makes a contract itself. Contracts made
by the members of a corporation as individuals, either before or after
incorporation, do not bind the corporation.1* Nor can the declara-
tions or admissions of individual members of a corporation, when they
are not authorized to act as its agent in the matter, be received as evi-
dence against the corporation, any more than the declarations and
admissions of a stranger could be admitted.t

11 The Queen v. Arnaud, supra.

12 Williamson vy. Smoot, 7 Mart. (La.) 34, 1 Cumming, Cas. Priv. Corp. 32.

18 Tomlinson v. Bricklayers’ Union, 37 Ind. 308, 1 Cuming, Cas. Priv. Corp. 33.

14 Button v. Hoffman, 61 Wis. 20, 20 N. W. 667, 1 Cuming, Cas. Priv. Corp. 38.

15 Wheelock v. Moulton, 15 Vt. 519, 1 Cumming, Cas. Priv. Corp. 85; Baldwin
vy. Canfield, 26 Minn. 43, 1 N. W. 261; Parker v. Hotel Co. (Tenn. Sup.) 34.8.
W. 209; Humphreys v. McKissock, 140 U. 8. 304, 11 Sup. Ct. 779.

16 Davis v. Creamery Co. (Neb.) 67 N. W. 486. In Moore & Handley Hard-
ware Co. v. Towers Hardware Co., 87 Ala. 206, 6 South. 41, a valid contract was
entered into by competing firms, by which one of them agreed not to sell goods in
a certain territory in opposition to the other. After this the members of this
firm and others formed a corporation for carrying on the same general business,
and after a time announced their intention to handle the same goods formerly
sold by the firm, and in the district in which the firm had bound themselves not to
sell. It was held that, in the absence of allegations that the corporation was
fraudulently created with the intent on the part of the stockholders to evade and
avoid their obligations as individuals, and that the partners in the original firm
had reserved to themselves interests in the business distinct from their interests
as stockholders, the corporation could not be enjoined from carrying on the busi-
ness, ‘

+ Polleys v. Insurance Co., 14 Me. 141; Fairfield County Turnpike Co. v. Thorp,
13 Conn. 173.
8 OF THE NATURE OF A CORPORATION. (Ch. 1

These rules are the same even when all the stock in the corporation
is owned by one person, for this circumstance does not change his rela-
tion as a mere stockholder. The corporation is still a separate and
distinct artificial person, in the eye of the law.*"

On the same principle, the shares in a corporation organized for the
sole purpose of holding and managing real estate, are personal proper-
ty, and not real estate. The members do not own the real estate. It
is owned by the corporation, the artificial being, and not in any sense
by the individual members, like partnership real estate, which is owned
‘by the partners as tenants in common.’®

It also follows from the distinction between the individuality of
the corporation and that of its members that a corporation may con-
vey its property to one or more of its members, or its members may
convey to it, and it may enter into contracts with its members, with-
out the conveyance being open to the objection that the same person
is both grantor and grantee, or the contract being objectionable on
the ground that it is a-contract by a man with himself.’°®

It also follows from this characteristic of corporate bodies that a
corporation may sue its members, and be sued by them.?° So, ac-
tions by and against corporations are not in any sense actions by and
against the stockholders. Thus, a sheriff, who owns stock in a cor-
poration, is not a party to a suit by or against the corporation, within
the meaning of a statute disqualifying an officer from serving process
where he is a party to the suit.24_ For the same reason, a justice or

17 “The owner of all the capital stock of a corporation does ‘not, therefore, own
its property, or any of it, and does not himself become the corporation, as a nat-
ural person, to own its property and do its business in his own name. While the
corporation exists, he is a mere stockholder of it, and nothing else.” Button v.
Hoffman, supra. And see Wheelock v. Moulton, supra; Baldwin v. Canfield, su-
pra; Parker vy. Hotel Co., supra. In this case it was held that a stockholder of a
corporation does not, by becoming owner of the entire stock, acquire an equitable
estate in real property of the corporation which would enable him to make a con-
yeyance thereof in his own name. But see Bundy v. Tron Co., 38 Ohio St. 300.

18 Russell vy. Temple (Mass.) 3 Dane, Abr. 108.

19 Pope v. Brandon, 2 Stew. (Ala.) 401; Foster v. Commissioners of Inland
Revenue [1894] 1 Q. B. 516; Lexington Life, Il. & M. Ins. Co. v. Page, 17 B.
Mon. (Ky.) 412; Gordon vy. Preston, 1 Watts (Pa.) 385; post, pp. 253 et seq., 504.

20 Waring v. Catawba Co., 2 Bay, (S. C.) 109; Pope vy. Brandon, supra; Cul-
bertson v. Navigation Co., Fed. Cas. No. 3,464; Geer v. School Dist., 6 Vt. 76;
Sawyer v. Society, 18 Vt. 405; Rogers v. Society, 19 Vt. 187.

21 Merchants’ Bank y. Cook, 4 Pick. (Mass.) 405,
§§ 1-3) CORPORATION DEFINED. 9

judge who is related to a member of a corporation, or who is himself
a member, is not disqualified to try an action by or against the cor-
poration, under a statute disqualifying because of relationship to
either of the “parties.” 22. And in a late Minnesota case it was held
that the demands of stockholders individually cannot be interposed
as equitable set-offs to a demand against the corporation, even
though the plaintiff be insolvent.2? The federal courts are given
jurisdiction in certain cases of suits between citizens of different
states. Within the meaning of the law, a corporation is a citizen of
the state of its creation, and may sue a citizen of another state,
though all of its members may be citizens of the latter state. The
action is by the corporation, not by its members.”*

‘The Corporation as a Collection of Individuals. -

When it is thus said that a corporation is a legal entity, separate
and distinct from the persons who compose it,—that the individual
existence of the members is merged in the artificial individuality of
the corporate body,—it must not be understood that the law cannet
under any circumstances look behind this artificial entity, and notice
the existence and acts of its members. One cannot shut his eyes to
the fact that private corporations are all formed by an association
of individuals, under authority of law, and that to this extent they
are mere collections of individuals. The legal conception of a corpo-
ration as an entity distinct from its members is a mere fiction adopt-
ed by the law, for the purpose of enabling natural persons to trans-
act business in this peculiar way; and, whenever it is necessary to
do so, the law will look behind the corporate body, and recognize the
members, and disregard the fiction.

In a late New York case,?® the state asked a forfeiture of the
charter of a corporation because of its illegal conduct in entering
into an unlawful association with other corporations and firms en-
gaged in the same business. There had been no formal action by the
defendant’s trustees or directors, but the stockholders individually

22 Searsburgh Turnpike Co. v. Cutler, 6 Vt. 315; Steuart v. Bank, 19 Johns.
(N. ¥.) 501. Contra, Washington Ins. Co. v. Price, 1 Hopk. Ch. (N. Y.) 1.

23 Gallagher v. Brewing Co., 538 Minn. 214, 54 N. W. 1115.

24 Post, p. 74.

25 People v. North River Sugar-Refining Co., 121 N. Y. 582, 24 N. H. 834. See,
also, People v. Kingston & M. Turnpike Road Co., 23 Wend. (N. Y.) 193.
10 OF THE NATURE OF A CORPORATION. (Ch. f

had transferred their stock to the parties representing the combina-
tion. It was contended that the combination was due to the acts of
the stockholders, and not to any corporate action, and that, therefore,
the corporation was not guilty of any misconduct. The court de-
clined to take this view, and held that the misconduct of the stock-
holders, and of the officers in recognizing the transfers of stock, was

. the misconduct of the corporation.?® A like question arose in a late
Ohio case, and a like decision was made.??

26 It was said in this case: ‘There may be actual corporate conduct which is.
not formal corporate action; and where that conduct is directed or produced by
the whole body, both of officers and stockholders, by every living instrumentality
which can possess and wield the corporate franchise, that conduct is of a cor-
porate character, and, if illegal and injurious, may deserve and receive the
penalty of dissolution. * * * The abstract idea of a corporation, the legal
entity, the impalpable and intangible creation of human thought, is itself a
fiction, and has been appropriately described as a figure of speech. It serves
very well to designate in our minds the collective action and ageucy of many in-
dividuals as permitted by the law; and the substantial inquiry always is what
in a given case has been that collective action or agency. As between the cor-
poration and those with whom it deals, the manner of its exercise usually is ma-
terial; but, as between it and the state, the substantial inquiry is only what that
collective action and agency has done, what it has, in fact, accomplished, what
is seen to be its effective work, what has been its conduct. It ought not to be
otherwise. The state gave the franchise, the charter, not to the im-
palpable, intangible, and almost nebulous fiction of our thought; but to the cor-
porators, the individuals, the acting and living men, to be used by them, and
redound to their benefit, to strengthen their hands, and add energy to their
capital. If it is taken away, it is taken from them as individuals and cor-
porators, and the legal fiction disappears. The benefit is theirs, the punish-
ment is theirs, and both must attend and depend upon their conduct; and when
they all act collectively, as an aggregate body, without the least exception, and,.
so acting, reach results and accomplish purposes clearly corporate in their char-
acter, and affecting the vitality, the independence, the utility, of the corporation
itself, we cannot hesitate to conclude that there has been corporate conduct which
the state may review, and not be defeated by the assumed innocence of a con-
venient fiction.”

27 State v. Standard Oil Co., 49 Ohio St. 137, 30 N. BE. 279. In this case it was

said: “The general proposition that a corporation is to be regarded as a legal.

entity, existing separate and apart from the natural persons composing it, is
not disputed; but that the statement is a mere fiction, existing only in idea, is
well understood, and not controverted by any one who pretends to accurate know!]-
edge on the subject. It has been introduced for the convenience of the company
§ 4) CREATION OF CORPORATIONS. it

Courts of equity, in numerous instances, look behind the corpora-
tion, and recognize the rights of the corporation as being in reality
rights of the individuals composing it. The rights of the members
of a corporation, in their collective capacity, in its property, must
generally be enforced, even in equity, through the corporation as a
distinct legal person; but if, for any reason, this cannot be done,
courts of equity will not allow the legal fiction of a distinct corporate
entity to stand in the way of justice. Thus, though an action against
the officers of a corporation for conversion of its property, or a suit
in equity to enjoin them, must be brought in the name of the corpora-
tion if it can be done, yet, if the offending officers are a majority of
the directors, and own a majority of the stock, so that an injured
stockholder cannot obtain relief at law through the corporation, he
may maintain a suit in equity in his own name.?® On the other hand,
if all the stockholders of a corporation are individually in such a posi-
tion as to be without equity in regard to a particular matter, they

cannot obtain equitable relief through the corporation, and in its
name.??°

CREATION OF CORPORATIONS.

4. A corporation can only be created by or under author-
ity from the state. It cannot be formed by mere
agreement between the members.

in making contracts, in acquiring property for corporate purposes, in suing and
being sued, and to preserve the limited liability of the stockholders by distinguish-
ing between the corporate debts and property of the company and of the stock-
holders in their capacity as individuals. All fictions of law have been introduced
for the purpose of convenience, and to subserve the ends of justice. It is in this
sense that the maxim, ‘In fictione juris subsistit eequitas,’ is used, and the doc-
trine of fictions applied. But, when they are urged to an intent and purpose not
within the reason and policy of the fiction, they have always been disregarded by
the courts. * * * Now, so long as a proper use is made of the fiction that a
corporation is an entity apart from its shareholders, it is harmless, and, because
convenient, should not be called in question; but, where it is urged to an end
subversive of its policy, * * * the fiction must be ignored.”

28 Post, p. 38Y.

29 Arkansas River Land, Town & Canal Co. vy. Farmers’ Loan & Trust Co., 18
Colo. 587, 22 Pac, 954,
12 OF THE NATURE OF A CORPORATION. (Ch. 1

In this respect a corporation is very different from an ordinary part-
nership. A partnership is formed by a mere agreement between the
parties who become members, and no legislative authority at all is nec-
essary. A corporation cannot be so formed. It can only be created
by or under authority from the state conferred by the legislature. The
creation of corporations will be considered at length in a subsequent
chapter.®°

LIMITED POWERS OF CORPORATIONS.

5. A corporation, being the mere creature of the legisla-
ture, has such powers only as are expressly or im-
pliedly conferred upon it by the charter or act of
incorporation.

A common partnership has the same powers as the members would
have individually. As its formation does not depend at all upon leg-
islative authority, neither do its powers. A corporation, on the other
hand, being the creature of the legislature, has such powers, and such
powers only, as are expressly or impliedly conferred upon it by the
charter or act of incorporation. It cannot do acts which would be
lawful for individuals, or even praiseworthy, unless the power to do
them can be derived from its charter.?

ATTRIBUTES AND INCIDENTS OF A CORPORATION.

6. The following powers and faculties, and these only, are
essential to the existence of a corporation:

(a) To have continuous succession, under a special name,
and in an artificial form, without being subject to
dissolution or change of identity by the death,
withdrawal, or legal disability of individual mem-
bers.

(b) To take and grant property and contract obliga-
tions, within the limits of the power conferred
upon it by its charter, and to sue and be sued, in
its corporate name, in the same manner as an in-
dividual.

80 Post, p. 33. 81 Post, p. 120.
§§ 6-8) ATTRIBUTES AND INCIDENTS OF A CORPORATION. 13

(ec) To receive grants of privileges and immunities, and
to enjoy them in common.

7. The following powers and faculties are incident to most
private corporations, but are not essential to cor-
porate existence:

(a) Transferability of shares.

(ob) Exemption of the members from personal liability
for the debts of the corporation beyond the amount
of their respective proportions of the capital.

(ec) Power to purchase and hold real estate.

(d) Power to use a common seal.

(e) Power to make by-laws.

8. The distinguishing characteristic of a corporation,
“which makes it to be such, and not some other
thing, in legal contemplation, is the merging of the
individuals composing the aggregate body into one
distinct, artificial, individual existence.”

Under this head we shall ascertain the attributes and incidents of
a corporation, and the characteristics which distinguish it from
other associations of individuals. A corporation is known to the
law by the powers and faculties bestowed upon it, expressly or im-
pliedly, by the charter or act creating it. The words “corporation”
or “incorporate” need not be used in its creation.*? Nor, on the other
hand, does the use of such words necessarily make the particular
association a corporate body. The use of these or equivalent words
may impliedly confer corporate powers and faculties, and therefore
create a corporation, if there is nothing to show that powers and
faculties essential to corporate existence were intended to be with-
held; but if, in fact, essential powers and faculties are not con-
ferred, then the body created or intended to be created is no cor-
poration, whatever may have been the intention of the legislature.
On the other hand, even the express declaration of the legislature,

32 Thomas v. Dakin, 22 Wend. (N. Y.) 9, 1 Cumming, Cas. Priv. Corp. 1; Sut-
ton’s Hospital Case, 10 Coke, 28a, 28a, 2 Cumming, Cas. Priv. Corp. 14, Shep.
Oas. Corp. 3; Conservators of the River Tone v. Ash, 10 Barn, & C. 349, 1 Cum-.
ming, Cas. Privy. Corp. 23; Blanchard v. Kaull, 44 Cal. 440.
14 OF THE NATURE OF A CORPORATION. (Ch. 1

in the act by which it creates or authorizes an association, that it
shall not constitute or be considered a corporation, will not prevent
the courts from holding that it is a corporation, if the attributes
conferred upon it make it so.3? In order, therefore, to determine
whether a particular association is a corporation or not, it is nec-
essary to ascertain the properties essential to constitute such a body,
and compare them with those conferred upon the association. If
they exist in common or substantially correspond, the association is
a corporation; otherwise, it is not. As we shall see, many facul-
ties are generally incident to a corporation, but are not essential
to corporate existence. And, on the other hand, some faculties
which are essential may exist also in an unincorporated association.

The powers and faculties generally specified as creating corporate
existence are: (1) The capacity of perpetual succession; (2) the
power to grant and receive, to contract, and to sue and be sued,
in the corporate name; (3) the power to purchase and hold real and
personal estate; (4) the power to have a common seal; and (5) the
power to make by-laws. As was pointed out in a New York case,**
however, these indicia were given by judges and elementary writers
at a very early day. Since that time the institutions have greatly
multiplied, their practical operation and use have been thoroughly
tested, and their peculiar and essential properties much better un-
derstood, and at the present time some of the powers above specified
are wholly unessential.

28 Bronson, J., in People v. Assessors of Village of Watertown, 1 Hill (N. Y.)
620; Hand, Senator, in Gifford v. Livingston, 2 Denio (N. Y.) 895; Liverpool, Ins.
Co. v. Massachusetts, 10 Wall. 566, 1 Cumming, Cas. Priv. Corp. 26, W. D.
Smith, Cas. Corp. 13, Shep. Cas. Corp. 5. In the latter case an association cre-
ated by the British parliament was expressly declared not to be a corporation, but
it was given all the attributes necessary to make it one. It was held by the su-
preme court of the United States that, whatever might be the effect of such decla-
ration in the British courts, it could not alter the essential nature of a corporation,
or prevent the courts of another jurisdiction from inquiring into its true character,
whenever it should come in issue; and it was held that the body was a corporation.

34 Thomas v. Dakin, supra; Sutton’s Hospital Case, supra; Conservators of the
River Tone v. Ash, supra; Liverpool Ins. Co. v. Massachusetts, supra.

386 Thomas vy. Dakin, supra.
$§ 6-8) ATTRIBUTES AND INCIDENTS OF A CORPORATION, 15

Perpetual Succession.

One of the chief attributes of a corporation, and one that is es
sential to corporate existence, is the power or faculty ot having per-
petual succession,** under a special denomination, and in an artifi-
cial form, without being subject to dissolution or change of identity
by reason of the death, legal disability, or withdrawal of members.
In the case of an ordinary partnership, the withdrawal of a member
dissolves the firm. Even if the remaining partners continue to car-
ry on the business as a firm, and under the same firm name, the
identity of the firm is changed. The remaining partners constitute
a new and distinct firm. Even if the outgoing partner transfers his
interest with the consent of the other members, so as to introduce
the transferee into the partnership, there is, in law, a new partner-
ship agreement, and a new firm. However numerous such changes
in membership may Le, and though there may be no break in the con-
tinuity of the business, nor change in the firm name, at each change
an existing firm is dissolved, and a new one is formed.7_ So, where
a partner dies, this will ordinarily dissolve the firm, and his inter-
est in the property will go to his heirs and personal representatives.
And there are some legal disabilities, which, if they attach to a part-
ner, will operate as a dissolution of the firm.*®

This is not true of a corporation. Neither the existence of a cor-
poration nor its identity is in any way affected or changed by the
withdrawal of individual members. Unless prevented by the pe-
culiar nature and object of the corporation,®® any member may trans-

36 It is generally said, as in the text, that a corporation has the faculty of “per-
petual’” succession, and a corporation has been described as an “immortal” being.
It is not meant by this that a corporation must, but simply that it may, continue
forever, Private corporations are almost always limited in their duration, by the
act creating them, to a certain number of years; and, even when not so limited,
they may forfeit their right to corporate existence, and be dissolved.

3717 Am. & Eng. Enc. Law, 1093. It is permissible, it has been said, for par-
ties to stipulate in a partnership agreement that the death of a member of the
firm or an assignment by him of his interest shall not dissolve the partnership, but
that the executors of the deceased partner or his assignee, as the case may be,
shall succeed to membership. Warner v. Beers, 23 Wend. (N. Y.) 103, 146, 1
Cumming, Cas. Priv. Corp. 10, W. D. Smith, Cas. Corp. 3. Even in such a case
as this, however, the identity of the firm is necessarily changed.

3817 Am. & Eng. Enc. Law, 1102-1107. 89 Post, p. 18.
16 OF THE NATURE OF A UORPORATION. (Ch. 1

fer his shares without the consent of his associates, and the trans-
feree will come into the association as a member, without in any
sense changing the identity or affecting the existence of the corpe-
rate body.*® So, if a member dies, the existence or identity of the
corporation is not affected; but whoever becomes the legal holder of
the shares, which are transferred by operation of law like other per-
sonal property, succeeds to membership. This mark of corporate
existence may exist in unincorporated associations by statute.*?
The Faculty of Acting as a Legal Entity.

An essential attribute of a corporation is the power or faculty of act-
ing as a legal entity. This attribute has already been explained at
some length.t? We have seen that a corporation can take and grant
property and contract obligations within the limits authorized by its
charter, and sue and be sued, in its corporate name, in the same man-
ner as an individual. In other words, it has the faculty of dealing
and being dealt with as a distinct person in the eye of the law, apart
from its members. In this respect a corporation differs widely from
an ordinary partnership. If a firm takes a conveyance of property, it
vests in the partners individually as tenants in common, each having
an undivided interest therein. And each member of the firm may by
his individual act transfer his interest in the firm property. When a
firm enters into a contract, it is a joint contract, binding the partners —
as individuals. When suit is brought by or against a firm, it must, in
the absence of statutory provision to the contrary, be brought by or
against the members individually. In a word, the commun law does
not recognize a firm as a legal entity apart from. the members, but
deals with the members themselves individually.

It is altogether different in the case of a corporation. Such a body
is for many purposes a legal entity, separate and distinct from its mem-
bers. They compose the corporation, but in law they are not the cor-
poration. A corporation, in the exercise of its power to take and
grant property, to enter into contracts, etc., acts through its agents as
an individual. Being impersonal, it can only act by means of duly-
appointed agents. But the acts of the agents are in law the acts of
the corporation, and not the acts of the individual members. So,
when a cause of action accrues in favor of or against a corporation, the

40 Post, p. 18. 41 Post, p. 23. 42 Ante, p. 5.
§§ 6-8) ATTRIBUTES AND INCIDENTS OF A CORPORATION. 17

corporate body sues or is sued in its corporate name, and the suit is not
brought by or against the members individually.*#

Special Denomination, or Corporate Name.

A name is essential to a corporation, for without a name it could not
be known, it could not contract, it could not make or take a convey-
ance of property, it could not sue or be sued; in short, it could do no
act as an artificial person distinct from its members. “A corporation
is a body politic, consisting of material bodies, which, joined together,
must have a name to do things which concern the corporation, or else
it is no corporation.” 4

The right to use a special name, to contract obligations under it,
and the right and liability to sue and be sued by it, has been mentioned
as a criterion of corporate existence; but it is not so. Unincor-
porated associations may be authorized by statute to use a special
name, and to sue and be sued by it; and, by statute, in some states, a

limited partnership may sue and be sued in the name of the general
partner.

43 Ante, p. 5, where this attribute of a corporation is explained at length.

44 Conservators of the River ‘one v. Ash, 10 Barn. & ©. 349, 1 Cumming, Cas,
Priv. Corp. 23. And see Mariot v. Mascal, And. 206; post, p. 71. The fact
that an association having all the essential attributes. of a corporation conducts
part of its business in its corporate name, and part in the name of its president for
the time being,—as where it contracts in its corporate name, and sues and is sued
in the name of its president,—in no degree changes the character of the body, for
a corporation may have more than one name. “A corporation may have more
than one name. It may have one in which to contract, grant, ete., and another in
which to sue and be sued. So, it may be known by two different names, and may
sue and be sued in either; and the name of the president, his official name, or any
other, will answer every purpose. The only material circumstance is a name or
names of.some kind in which all the affairs of the company may be conducted.”
Thomas v. Dakin, 22 Wend. (N. Y.) 9, 1 Cumming, Cas. Priv. Corp. 1; Liverpool
Ins. Co. v. Massachusetts, 10 Wall. 566, 1 Cumming, Cas. Priv. Corp. 26, W. D.
Smith, Cas. Corp. 18, Shep. Cas. Corp. 5. In these cases the statute provided for
suits by and against the associations in the name of their principal officer, and the
associations were allowed to contract in their artificial name. It was held that
they were corporations. “If it can contract in the artificial name,” it was said
in the case last cited, ‘and sue and be sued in the name of its officers on those
contracts, it is in effect the same, for process would have to be served on some
such officer even if the suit were in the artificial name.”

Ctk.Pr.Corp.—2
18 OF THE NATURE OF A CORPORATION. (Ch. 1

Transferability of Shares.

In the case of a partnership, a member of the firm cannot, unless
there is a provision therefor in the partnership articles, transfer his
membership to another, without the consent of the other members.
In the case of most private corporations, on the other hand, the
shares are transferable without the consent of the other sharehold-
ers.t® Transferability of shares has been mentioned as one of the
distinguishing features of a corporation, but it is not necessarily so.
It is an incident of most private corporations, but it is by no means
essential to corporate existence. For instance, it does not enter
into the constitution of chartered colleges, academies, hospitals, and
other corporate institutions founded by public endowment or private
beneficence; nor of incorporated scientific and literary societies, or
corporate societies for mutual benefit or charity, in the funds of
which the mentbers have a beneficial interest, such as mutual benefit
insurance companies, trade unions, etc. The absence of this feature,
therefore, does not show that the particular association is not a
corporation. Nor, on the other hand, does the fact that shares are
transferable show that the association is a corporate body, for the
right to transfer may, if the parties choose, be provided for in part-
nership articles.*® There is this difference, however. In most pri-
vate corporations the transferability of shares is incidental, and need
not be expressly provided for. In the case of a partnership an ex-
press provision is necessary to render the shares transferable.
Exemption of Members from Personal Liability.

One of the most familiar distinctions, in general and popular un-
derstanding, between corporate bodies and common partnerships or
other unincorporated associations, is the exemption of the members
from personal liability for the debts of the association. In the
case of a partnership, at common law, each member is personally
liable for all the debts of the firm, after the joint assets have been
exhausted. In the case of a corporation, at common law, the mem-
bers of a business corporation are exempt from personal liability
for the debts of the corporation beyond the amount of their re
spective proportions of the capital.

45 Post, p. 406.

46 Warner v. Beers, 23 Wend. (N. Y.) 103, 1 Cumming, Cas. Priv. Corp. 10;
W. D. Smith, Cas, Corp. 3
§§ 6-8) ATTRIBUTES AND INCIDENTS OF A CORPORATION. 19

This has often been mentioned as peculiar to a private corpora-
tion, but it is not necessarily so. The exemption of members from
personal liability is merely an incident to a corporation, in the ab-
sence of a statute altering the common-law rule. It is not an es-
sential attribute. In most states statutes have been enacted, ren-
dering the members of a private business corporation personally lia-
ble, to a greater or less extent, for its debts, where the corporate
assets are insufticient to pay them in full. Such a statute does not
in any sense change the character of the body as a corporation.**
On the other hand, the liability of partners may be thus limited.
The statutes relating to limited partnerships show that the partners
may be exempted from liability beyond their shares in the joint fund,
without converting such firms into bodies corporate. Besides this,
persons have a natural right, unless restrained by legislative enact-
ment, to contract to make payment only to the amount of certain
specific funds.*®

Power to Purchase and Hold Real Estate.

Among the other powers which are usually attributed to corpora-
tions, but which are by no means essential to corporate existence,
may be mentioned the power to purchase and hold real estate. This
power generally exists, but it is altogether unessential, unless the
purpose for which the corporation was created requires it to hold
real estate.

Power to Use a Common Seal.

So it is with the power to use a common seal. At common law a
corporation has, as an incident, the power to use a seal whenever it
is necessary in the transaction of its business; but the power may
be dispensed with altogether, for it is well settled that corporations
may, unless expressly restricted by their charter, contract by reso-
lutions, or through agents, and without a seal.*®

47 Warner v. Beers, supra; Liverpool Ins. Co. v. Massachusetts, 10 Wall. 566,
1 Cumming, Cas. Priv. Corp. 26, W. D. Smith, Cas. Corp. 13, Shep. Cas. Corp. 5.
See post, p. 564.

48 Warner vy. Beers, supra. |

49 Post, p. 156; dictum of Nelson, C. J., in Thomas y. Dakin, 22 Wend. (N.
Y.) 9, 1 Cumming, Cas. Priv. Corp. 1.
4
20 OF THE NATURE OF A CORPORATION. (Ch. 1

Right to Make By-Laws.

The same may be said of the right to make by-laws. This power
is generally incidental to a corporation, but it is not essential to cor-
porate existence. It is unnecessary in all cases where the charter

- sufficiently provides for the government of the body.®°

Conclusion as to Attributes Essential to Corporate Existence.

In a leading New York case, it was said by Chief Justice Nelson:
“The distinguishing feature [of a corporate body], far above all oth-
ers, is the capacity conferred, by which a perpetual succession of
different persons shall be regarded in the law as one and the same
body, and may at all times act, in fulfillment of the objects of the
association, as a single individual. In this way a legal existence,
a body corporate, an artificial being, is constituted, the creation of
which enables any number of persons to be concerned in accomplish-
ing a particular object, as oneman. While the aggregate means and
influence of all are wiclded in effecting it, the operation is conducted
with the simplicity and individuality of a natural person. In this
consists the essence and great value of these institutions. Hence
it is apparent that the only properties that can be regarded strictly
as essential are those which are indispensable to mold the different
persons into this artificial being, and thereby enable it to act in the
way above stated. When once constituted, the powers and faculties
that may be conferred are various,—limited or enlarged, at the dis-
cretion of the legislature, and will depend upon the nature and object
of the institution, which is as competent as a natural person to re-
ceive and enjoy them. We may, in short, conclude by saying, with
the most approved authorities at this day, that the essence of a cor-
poration consists in a capacity (1) to have perpetual succession under
a special name, and in an artificial form; (2) to take and grant prop-
erty, contract obligations, sue and be sued, by its corporate name as
an individual; and (3) to receive and enjoy in common grants of
privileges and immunities.” °*

50 Post, p. 454; Thomas v. Dakin, supra.

51'Thomas v. Dakin, 22 Wend. (N. Y.) 9, 1 Cumming, Cas. Priv. Corp. 1. ‘To
the same effect, see 1 Kyd, Corp. 70; Southern Pac. R. Co. v. Orton, 32 Fed. 457,
473.
§§ 6-8) ATTRIBUTES AND INCIDENTS OF A CORPORATION. 21

The Distinguishing Characteristic of a Corporation.

As we have seen in the preceding pages, many of the incidents of
a corporation are not essential, and many of the essential attributes
may also exist in the case of a common partnership or unincorporat- ’
ed joint-stock association. It is important, therefore, to find some
characteristic of corporations that can be relied upon as a distinguish-
ing mark. The only feature that can be thus relied upon is the ex-
istence of the corporation as an entity separate and distinct from
the members who compose it. “The most peculiar and strictly es-
sential characteristic of a corporate body, which makes it to be:
such, and not some other thing, in legal contemplation, is the mer-
ging of the individuals composing the aggregate body into one dis-
tinct, artificial individual existence.” 5?

Unincorporated Joint-Stock Companies.

A joint-stock company is an unincorporated association of indi-
viduals for business purposes, resembling an ordinary partnership in
many respects, but which, unlike an ordinary partnership, has a com-
mon fund or capital stock, divided into shares, which are appor-
tioned among the members in proportion to their respective con-
tributions, and which are assignable by the owner without the ex-
press consent of the other members. “The words ‘joint-stock com-
pany’ have never been used as descriptive of a corporation created by.
special act of the legislature, and authorized to issue certificates of

52 Per Verplanck, Senator, in Warner v. Beers, 23 Wend. (N. Y.) 103, 1 Cum-
ming, Cas. Priv. Corp. 5, W. D. Smith, Cas. Corp. 8. In Liverpool Ins. Co. v.
Massachusetts, 10 Wall. 566, 1 Cumming, Cas. Priv. Corp. 26, W. D. Smith,
Cas. Corp. 13, Shep. Cas. Corp. 5, the question arose whether a Hritish insurance
company was a corporation or not, within the meaning of a Massachusetts statute
imposing a tax on foreign corporations. ‘Ihe supreme court of the United States,
after pointing out that the company had a distinctive and artificial name by which
it could make contracts; that there was a statutory provision by which it could
sue and be sued in the name of one of its officers as the representative of the whole
body, which would be bound by the judgment rendered in such suit; that there
was a provision for perpetual succession by the transfer and transmission of the
shares of its capital stock, whereby new members might be introduced in the place
of those who might die or sell out; that its existence as an entity separate and
apart from the shareholders was recognized by the act of parliament in enabling
it to sue its shareholders, and be sued by them,—held that these attributes made
the body a corporation, notwithstanding the act of parliament creating it declared
that it should not be so regarded.
22 OF THE NATURE OF A CORPORATION. (Ch. 1

stock to its shareholders. They describe a partnership made up of
many persons acting under articles of association, for the purpose
of carrying on a particular business, and having a capital stock, di-
vided into shares transferable at the pleasure of the holder.” **
These associations are nothing but partnerships, and, except in so far
as the legislature has conferred special rights and privileges upon
the members, they are subject to all the liabilities of partners.**
Both in England and in this country statutes have been enacted con-
ferring upon joint-stock companies many faculties possessed by cor-
porations, and for this reason the resemblance between corporations
and joint-stock companies is very close. It is often difficult to dis-
tinguish them. The distinction, however, is important.

Joint-stock companies are formed solely by agreement between
the associates, and rest upon their common-law right to contract
with each other, and do not depend at all, as in the case of a cor-
poration, upon license or authority from the state. They are merely
a peculiar kind of partnership."

They do not act like a common partnership, in which each part-
ner is the agent of the others in conducting the firm business; but
they generally act by a board of trustees or directors, like a corpora-
tion, the shareholders having no power to bind the other members.”*

It is generally provided by statute that, when a cause of action

58 Attorney General vy. Mercantile Marine Ins. Co., 121 Mass. 524, 526.

54 Hedge & Horn’s Appeal, 63 Pa. St. 273, where it is said that a joint-stock
«ompany is a partnership, the capital of which is divided into shares, so as to be
transterable without the express consent of all the co-partners. And see Hoad-
ley .. County Com’rs, 105 Mass. 519, 526. And see Butterfield v. Beardsley, 28
Mich. 412; Wells v. Gates, 18 Barb. (N. Y.) 554; Rickart v. People, 79 Ill. 85.

55 People v. Coleman, 133 N. Y. 270. 31 N. E. 96, and 2 Cumming, Cas. ‘Priv.
Corp. 2; Hoadley v. County Com’rs, 105 Mass. 519, 526.

56 Burnes v. Pennell, 2 H. L. Cas. 520; Bray v. Farwell, 81 N. Y. 600. The
reason that each member of a common partnership may thus bind the others is
because, by carrying on the business jointly as a firm, the members hold out to the
world that each has autlority to manage the partnership concerns. It could be
stipulated, however, even in an ordinary partnership agreement, that only a cer-
tain ‘member shall have authority to bind the firm, and such a stipulation would be
effectual as against all persons with notice of it. Since a joint-stock company
notoriously conducts its business only through its board of trustees or directors,
the members, as such, have no power to bind it. Every person has notice of this.
Burnes v. Pennell, supra.
8§ 6-8) ATTRIBUTES AND INCIDENTS OF A CORPORATION. 23

accrues in favor of or against a joint-stock company, action may be
brought by or against it in the name of a certain officer. In the ab-
sence of such a provision, all the members would have to be made
parties as in the case of an ordinary partnership.*’

As a joint-stock company is a partnership, the members, however
numerous, are subject to all the ordinary liabilities of partners, except
in so far as their liability may be limited by agreement or by statute.
They must generally be sued as partners, and each member is person-
ally liable for all the debts of the company after the joint assets are
exhausted.** This liability, however, may be limited by statute, or
even by agreement between the associates if known to the person deal-
ing with the company, without changing the company into a corpora-
tion. And, as has been seen, members of a corporation may, by statute,
be made liable for its debts.°®

As shown above, the shares in a joint-stock company are transfer-
able by the holder without the consent of his associates. So, on the
death of the holder, they may pass like other property. These associa-
tions, therefore, have the faculty of succession.*°

How, then, it may well be asked, are we to always distinguish such
an association from a corporation? The New York court has held that
the distinction is in the fact “that the creation of the corporation
“merges in the artificial body, and drowns in it the individual rights
and liabilities of the members, while the organization of a joint-stock
company leaves the individual rights and liabilities unimpaired and in
full force.” *t “A joint-stock company,” it has been said, “is a part-
nership, with some of the powers of a corporation.” *?

57 Williams v. Bank, 7 Wend. (N. Y.) 539, 542.

58 ‘Taft v. Ward, 106 Mass. 518; ‘'appan v. Bailey, 4 Metc. (Mass.) 529;
‘Tyrrell vy. Washburn, 6 Allen (Mass.) 466; Boston & A. R. Co. v. Pearson, 128
Mass. 445; Krost v. Walker, 60 Me. 468; Wells v. Gates, 18 Barb. (N. Y.) 554;
Butterfield v. Beardsley, 28 Mich. 412; Kobbins v. Butler, 24 III. 387.

59 Ante, p. 19. Z

60 See Burnes v. Pennell, 2 H. L. Cas. 520; Tenney v. Protective Union, 37
Vt. G4; Willis v. Chapman (Vt.) 35 Atl. 459.

61 People v. Coleman, 133 N. Y. 279, 31 N. E. 96, and 2 Cumming, Cas. Priv.
Corp. 2. And see Warner y. Beers, 23 Wend. (N. Y.) 103, 1 Cumming, Cas. Priv.
‘Corp. 5, W. D. Smith, Cas. Corp. 3.

62 People v. Coleman, supra. In this case it was said: The distinction between
4 corporation and an unincorporated joint-stock association is “that the creation
24 OF THE NATURE OF A CORPORATION. (Ch. 1

CORPORATION AS A “PERSON,” “CITIZEN,” ETC.

9. When the reason and design of a statutory or constitu-
tional provision, reserving or conferring a right or
remedy, or imposing a duty or liability, upon ‘“‘per-
sons,” “citizens,” “inhabitants,” etc., applies to
corporations, they are within the scope of the stat-
ute or constitution, though not specially referred to.

- A corporation, though a collection of individuals, has, as we have
seen, a separate and distinct individuality. Though it is an artificial be-
ing, a mere creature of the legislature, it is in law a person,—an arti-

of the corporation merges in the artificial body, and drowns in it the individual
rights and liabilities of the members, while the organization of « joint-stock com-
pany leaves the individual rights and liabilities unimpaired and in full force.
= * * The drift of legislation has been to lessen and obscure the original and
characteristic difference. On the one hand, corporations have been created with
positive provisions retaining more or less the individual liability of the members:
and, on the other, the joint-stock companies have been clothed with most of the
corporate attributes; but enough of the original difference remains to show that
our legislation not only carefully preserves the distinction of names, but sufficient,
also, of the original difference of character and quality to disclose a clear intent’
not to merge the two. We may thus see upon what the legislative intent to pre-
serve them as separate and distinct is founded, and what distinguishing charac
teristics remain. The formation of the one involves the merging and destruction
of the common-law liability of the members for the debts, and requires the sub-
stitution of a new, or retention of the old, liability by an affirmative enactment
which avoids the inherent effect of the corporate creation. In the other the com- °
mon-law liability remains unchanged and unimpaired, and needing no statutory
intervention to preserve or restore it. ‘he debt of the corporation is its debt, and
not that of its members. The debt of the joint-stock company is the debt of the
associates, however enforced. ‘The creation of the corporation merges and drowns
the liabilities of its corporators. ‘he creation of the stock company leaves un-
harmed and unchanged the liability of the associates. ‘Vhe one derives its exist-
ence from the contract of individuals: the other, from the sovereignty of the
state. The two are alike, but not the same. More. or less they crowd upon and
overlap each other, but without losing their identity; and so, while we cannot
say that the joint-stock company is a corporation, we can Say, as we did say, in
Van Aernam v. Bleistein, 102 N. Y. 360, 7 N. E. 537, that a joint-stock company
is a partnership, with some of the powers of a corporation.”

See Oliver v. Insurance
Co., 100 Muss. 531; Bray v. Farwell, 81 N. Y¥. 600,
§ 9) CORPORATION AS A “PERSON,” “CITIZEN,” ETC. 25

ficial person. It is therefore held to be a “person,” within the meaning
of statutes, using that term when the purpose and reason of the law
include corporations as well as natural persons.*? Thus, where a stat-
ute prohibited any “person” from engaging in the business of: banking,
except under certain circumstances, but did not expressly refer to. cor-
porations, it was held that they were included under the term “per-
son.” °* ‘The rule may be laid down that whenever a statute conferring
a right or remedy, or imposing a duty or liability, upon “persons,” ap-
plies in reason and design to corporations, but not otherwise, they are
to be deemed included, though not specially mentioned.*® The same
is true of statutes using the word “inhabitant” or the word “occu-
pier.” °* On the same principle, a corporation may be regarded as a
“citizen,” within the meaning of a statute using that term, though it
does not expressly refer to corporations. The statute is to be con-
strued as referring to them, if they are within its reason and design,
but not otherwise. Thus, a corporation is to be deemed a “citizen,”
within the meaning of the acts of congress defining the jurisdiction of
the federal courts.°7 But it is not a “citizen,” within the meaning of
the provision of the federal constitution that “the citizens of each state
shall be entitled to all the privileges and immunities of citizens in the
several states.” °§

63 Ang. & A. Corp. § 6.

64 People v. Utica Ins. Co., 15 Johns. (N. Y.) 358.

85 People v. Utica Ins. Co., supra; Denny Hotel Co. v. Schram, 6 Wash. 1384,
32 Pac. 1002; School Directors v. Carlisle Bank, 8 Watts (Pa.) 289; State v.
President & Directors of Bank of Maryland, 6 Gill & J. (Md.) 205; Fisher v.
Manufacturing Co., 10 Wis. 351; Plenters’ & Merchants’ Bank v. Andrews, &
Port. (Ala.) 404; Mineral Point R. Co. v. Keep, 22 Ill. 9; Grand Gulf Bank v.
Archer, 8 Smedes & M. (Miss.) 151; Baltimore & O. R. Co. v. Gallahue’s Adm’r,
12 Grat. (Va.) 655; Proprietors of Jeffries Neck Pasture v. Inhabitants of Ipswich,
153 Mass. 42, 26 N. H. 239. A corporation is not a person, within the meaning
of the constitutional provision that no state shall deny to any “person’’ within its
jurisdiction the equal protection of its laws. Post, p. 616.

662 Inst. 708; Hex v. Gardner, 1 Cowp. 79; Gormully & Jeffrey Manuf’g Co.
v. Pope Manuf’g Co., 34 Fed. 818; post, p. 637.

67 Post, p. 74,

68 Ducat v. City of Chicago, 48 11. 172; Tatem vy. Wright, 23 N. J. Law, 429;

post, p. 616.
a
26 OF THE NATURE OF A CORPORATION. (Ch. 1

KINDS OF CORPORATIONS.

10. Corporations may be classified as follows:

(a) According to their membership, they are sole or ag-
gregate.

(1) Corporations sole are composed of only one
member ata time.

(2) Corporations aggregate are composed of more
than one member.

(b) According to their object, they are religious, eleemos-
ynary, or civil.

(1) Religious corporations are such as are created
to carry out some religious object.

(2) Eleemosynary corporations are such as are cre-
ated to carry out some charitable object.

(8) Civil corporations comprise all corporations
other than those defined above, such as pub-
lic corporations and private business corpo-
rations.

(ce) Civil corporations are divided into public and priv-
ate corporations. Religious and eleemosy-
nary corporations are private.

(1) Public corporations are such as are created for
the purpose of government and the manage-
ment of public affairs, like cities and villages,
ete., and banks, hospitals, ete., founded by
the state, and managed by it for govern-
mental purposes.

(2) Private corporations are such as are created for
private purposes, as manufacturing, banking,
and railroad corporations. Religious and elee-
mosynary corporations are also included.

(d) Civil corporations are again divided into stock and

‘ nonstock corporations.
§§ 10-11) KINDS OF CORPORATIONS. 27

(1) In stock corporations, membership, with its at-
tendant rights, privileges, and liabilities, is
determined solely by the ownership of stock.

(2) In nonstock corporations, membership depends
upon the consent and agreement of the asso-
ciates.

11. Quasi corporations are bodies having some, but not all,
of the powers and faculties of a corporation.

Sole and Aggregate Corporations.

A corporation sole consists of a single member only at one time.
When he dies, or for any other reason ceases to be a member, there
is some other person who takes his place, so that the corporation,
though it may consist of only one natural person, has perpetual or
continuous succession.°® The sovereign of England has always been
regarded as a corporation sole, because of the office, which is clothed
with perpetuity. A bishop, dean, parson, and vicar are also given
in the English books as instances of corporations sole, and they and
their successors take the corporate property and privileges in succes-
sion.”° In this country the governor of a state has been held a
quasi sole corporation." There are also instances in the books
of ministers of a parish, seised of parsonage lands in the right of
the parish, being held to be corporations sole.*? For certain pur-
poses, also, public officers have at times been expressly or impliedly
created corporations sole by statute.™* Unless authorized by stat-

69 As to the distinction between corporations sole and aggregate, see Overseers
of Poor of City of Boston v. Sears, 22 Pick. (Mass.) 122.

701 Bl. Comm. 469;. 2 Kent, Comm. 273.

71 Governor v. Allen, § Humph. (‘lenn.) 176. And see State v. Woram, 6 Hill
(N. Y.) 33.

72 Weston vy. Hunt, 2 Mass. 500; Inhabitants of First Parish in Brunswick y.
Dunning, 7 Mass. 445; Terrett v. Taylor, 9 Cranch, 43, 46. Such a corporation
exists at this day by statute in Kentucky, and perhaps in other states. See Mc-
Closkey v. Doherty (Ky.) 30 8S. W. 649.

73 Thus, when a statute directs bonds for the public benefit to be made payable
to a public officer, the office is the real obligee, and the successor in office, whether
described eo nomine in the statute or bond or not, may maintain an action on the
bond, since the officer is quoad hoc a corporation sole. See Polk vy. Plummer, 2
Humph. (Tenn.) 500, 37 Am. Dec. 566; Jansen v. Ostrander, 1 Cow. (N. W.) 670.
. 4
25 OF THE NATURE OF A CORPORATION, (Ch. 1

ute, a corporation sole cannot take personal property in succession,
but their capacity in this respect is limited to real property.”*

In this country corporations sole are very rare. Almost all of
our corporations are aggregate; that is, they consist of more than
one member at a time.® Private civil corporations are all aggre
wate, The legislature would, doubtless, have the power to create
a sole corporation for private business purposes; but it is perhaps
safe to say that it will never do so. It may happen in a stock cor-
poration that, by the purchase of all the stock, the membership may
be reduced to one person; but this would not make it a corporation
sole: The several shares would be treated as distinct, and liable to
be again distributed by the sole owner.*

Religious, Hleemosynary, and Civil Corporations.

In English law, corporations are divided into ecclesiastical and lay.
The former were those of which the members were spiritual persons,
and the object of the institution was also spiritual.*® In this coun-
try we have no strictly ecclesiastical corporations in the sense of
the English law. But we have religious corporations. These are
private civil corporations created for the purpose of holding prop-
erty in succession for advancing the particular tenets and articles
of faith which the corporation was organized to uphold and advance.
They are mere trustees of the property, and cannot divert it to other
purposes.”?

Lay corporations are divided into eleemosynary and civil corpora-
tions. Eleemosynary corporations are like religious corporations,
except that the property is held in trust for certain designated char-
ities. Their object is to provide for the perpetual distribution, or
continuous distribution for a certain period, of the bounty of their

742 Kent, Comm. 2738, 274.

75 Overseers of Poor of City of Boston v. Sears, 22 Pick. (Mass.) 122.

* Post, p. 284,

76.2 Kent, Comm. 274.

77 Van Houten v. McKelway, 17 N. J. Eq. 126; Watson v. Jones, 13 Wall.
679; Robertson v. Bullions, 11 N, Y. 243. See Silsby v. Barlow, 16 Gray (Mass.)
329. Where there is a division in a church, and part—even a majority—of the
members secede, that portion of the church which remains in full connection with
ihe body under which they were organized as a congregation continues the cor-
porate existence, and is entitled to all the property and privileges of the cor-
poration, Baker v. Fales, 16 Mass. 488; Gable v. Miller, 10 Paige (N. Y.) 627.
§§ 10-11) KINDS OF CORPORATIONS. 29

founders to such objects as they direct. Hospitals, asylums, col-
leges, and universities are examples of eleemosynary corporations."®

All other corporations than religious and eleemosynary are called
“civil.” Indeed, with us, religious corporations are civil.

Public and Private Corporations.

By far the most important division of corporations is into public
and private. It is of the latter class only that we are to treat.
As between these two classes of corporations, there is a real di-
vergence, both in the modes of operation, and in the principles of
law which govern their acts, and their rights and obligations. Pub-
lic corporations are such as are created for the purposes of govern-
ment and the management of public affairs. Private corporations
are those founded for the management of affairs in which the mem-
bers are interested as private persons. Counties, cities, towns, and
villages are examples of public corporations, These are also called
municipal corporations.

A bank, a hospital, or other institution may be a public, as dis-
tinguished from a private, corporation, and therefore within the ab-
solute control of the legislature. If a corporation is founded for a
public purpose, and the entire interest therein belongs to the govern-
ment, it isa public corporation; but not if there are any private own-
ers of stock or shares therein. A bank created by the government
for its own purposes, and whose stock or shares are owned exclu-
sively by the government, would be a public corporation; but a bank
whose stock is owned partly by private persons is a private corpora-
tion, although it is erected by the government, and its object and
operations partake of a public nature.*° So, also, a hospital, asy-

78 Trustees of Dartmouth College v. Woodward, 4 Wheat. 517, 1 Cumming,
Cas. Priv. Corp. 490, W. D. Smith, Cas. Corp. 148; Shep. Cas. Corp. 248;
American Asylum y. President, Directors, etc., of Phoenix Bank, 4 Conn. 172;
Trustees of Phillips Academy v. IXing, 12 Mass. 546; Board of Education v.
Greenebaum, 39 Ill. 609; Board of Education v. Bakewell, 122 Ill. 839, 10 N. LE.
878; Bakewell v. Board (Ill. Sup.) 83 N. H. 186.

802 Kent, Comm. 276; Per Story, J., in Trustees of Dartmouth College v.
Woodward, 4 Wheat. 517, 669; Bank of U. S. v. Planters’ Bank, 9 Wheat. 907;
Miners’ Bank v. U. S., 1 G. Greene (Iowa) 553, 561; Turnpike Co. v. Wallace,
8 Watts (Pa.) 316; Attorney General-v. Simonton, 78 N. C. 57; President &
Directors of State Bank v. Brown, 1 Scam. (Ill.) 106. Compare Bank of South
30 OF THE NATURE OF A CORPORATION. (Ch. 1

lum, college, university, or other charitable institution, created and
endowed by the government alone for general charity, is a public
corporation; but a hospital or asylum or institution of learning
which is founded and endowed in whole or in part by private per-
sons, though partly endowed by the government, is a private elee-
mosynary corporation, however general the charity may be.*? In-
surance, canal, railroad, steamship, bridge, and turnpike companies,
the shares in which are owned in whole or in part by private indi-
viduals; are private corporations, though their uses are public in
their nature.22. These are sometimes called quasi public corpora-
tions. The trustees or commissioners of public schools and univer-
sities are public corporations or quasi corporations.**

A corporation may be a public or quasi public body in respect to
some of its functions and powers, and a private corporation in re-
spect to others. Thus, it has been held that a municipal corpora-
tion, to which the legislature has given the power to erect water-

Carolina v. Gibbs, 3 McCord (S. C.) 377; Bank of Alabama vy. Gibson’s Adm’rs,
G Ala. 814. See 1 ‘Thomp. Corp. § 24. A bank is not a public corporation because:
the state holds stock in it, if any stock is held by private individuals. “When a
yovernment becomes a partner in a trading company, it divests itself, so far as
concerns the transactions of that company, of its sovereign character, and takes
that of a private citizen.” Bank of U.S. v. Planters’ Bank, supra,

‘1 Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 630, 667, 1
Cumming, Cas. Priv. Corp. 490, W. D. Smith, Cas. Corp. 148, Shep. Cas. Corp.
248; Regents v. Williams, 9 Gill & J. (Md.) 365; Board of Education v. Greene-
baum, 39 Ill. 609; Board of Education v. Bakewell, 122 Ill. 339, 10 N. BE. 378;
Head v. University of Missouri, 47 Mo. 220; Society for the Propagation of the
Gospel v. Town of New Haven, 8 Wheat. 464; Board of Trustees for Vincennes:
University v. State, 14 How. 268; Downing vy. Board, 129 Ind. 448, 28 N. B.
123, 614. See 1 Thomp. Corp. §§ 25, 26.

s2 Tinsman y. Railroad Co., 26 N. J. Law, 148; Rundle yv. Delaware & R.
Canal, 1 Wall. Jr. 275, Fed. Cas. No. 12,189; Bonaparte vy. Railroad Co., Baldw.
205, Fed. Cas. No. 1,617; Ten Eyck v. Canal Co., 18 N. J. Law, 200; Board of
Directors v. Houston, 71 Ill, 318. See 1 Thomp. Corp. § 27. Contra, where
a turnpike corporation consists solely of officers of the state, and is organized
solely for the public benefit. Sayre v. Turnpike Road, 10 Leigh (Va.) 454.

83 Trustees of Schools v. Tatman, 13 Ill. 27; Bradley v. Case, 3 Scam. (Ill)
585; Mobile School Com’rs y. Putnam, 44 Ala. 506; Head v. University of Mis-
souri, 47 Mo. 220; Trustees of University v. Winston, 5 Stew. & P. (Ala.) 17;
1 Thomp. Corp. § 25.
s§ 10-11) KINDS OF CORPORATIONS. 31

works, for the private advantage and emolument of the municipal-
ity, is to be regarded quoad hoc a private corporation, and respon-
sible, as such, for injuries inflicted in the management of the works.®*
Stock and Nonstock Corporations.

Private corporations are also divided into stock and nonstock
corporations. In the former the membership, after incorporation,
with its attendant rights, privileges, and liabilities, is determined
by the ownership of stock. Any stockholder may transfer his stock,
and the transferee will become a member, without regard to the con-
sent of the other stockholders. This is the most common kind of
private business corporations. In nonstock corporations there are
no shares of stock to be transferred. Membership depends upon
the consent of the associates. Incorporated mutual benefit asso-
ciations are examples of this kind of private corporations.

Quasi Corporations.

A quasi corporation is a body which has some, but not all, of the
powers of a corporation. Towns, counties, and school districts, etc.,
are not strictly public corporations, but they have some of the pow-

84 Bailey v. Mayor, etc., 3 Hill (N. Y.) 531. In this case it was said that, if
powers are granted to a municipal corporation for public purposes exclusively,
they belong to the corporate body in its public, political, or municipal character;
“but if the grant is for purposes of private advantage and emolument, though the
public may derive a common benefit therefrom, the corporation, quoad hoe, is.
to be regarded as a private company.” See, also, De Voss v. City of Richmond,
18 Grat. (Va.) 338; Macauley v. Mayor, etc., 67 N. Y. 602; Oliver v. City of
Worcester, 102 Mass. 489, 499; City of Memphis v. Kimbrough, 12 Heisk. (Tenn.)
188; People v. Hurlbut, 24 Mich. 44; County of Richland v. County of Law-
rence, 12 Il). 8. Compare Mead v. City of New Haven, 40 Conn. 72; Eastman
y. Meredith, 836 N. H. 284. In De Voss v. City of Richmond, supra, it was held
that a municipal corporation, in exercising the power to borrow money and to
issue bonds therefor, is not acting in its public capacity, but merely as a private
corporation, and that it is therefore responsible as such for the act or default
of its agent. And in Oliver v. City of Worcester, supra, a municipal corporation
was held liable for injuries to a person from falling into an excavation on the
grounds of a building which was only partly used for public purposes, the other
part being rented to private individuals. Contra, where the building is used
wholly for public purposes. Eastman v. Meredith, supra. And see Hill v. City
of Boston, 122 Mass. 851; Stilling v. Town of Thorp, 54 Wis. 532, 11 N. W. 906;.
City of Chicago v. Turner, 80 Ill. 423; Symonds v. Board, 71 Tl. 357; Moulton
y. Inhabitants, 71 Me. 269,
32 OF THE NATURE OF A CORPORATION. (Ch. 1

ers of a corporation, as the faculty of succession, the power to sue
and be sued as a body, etc. For this reason they are called quasi
corporations.*® Other quasi corporations are overseers of the poor,
county commissioners, and other public boards or officers.*°

s5 Ang. & A. Corp. §§ 28, 24; Riddle v. Proprietors, 7 Mass. 187; Town of
North Hempstead v. Town of Hempstead, 2 Wend. (N. Y.) 109; Inhabitants of
Fourth School Dist. v. Wood, 18 Mass. 199; Board of Com’rs of Hamilton Co.
v. Mighels, 7 Ohio St. 109; Andrews v. Estes, 11 Me. 267; McLoud v. Selby, 10
Conn. 390; Gaskill v. Dudley, 6 Mete, (Mass.) 546; Boone, Corp. § 10; note in
18 Am. Dee. 523.

sé Polk v. Plummer, 2 Humph. (Tenn.) 500; Overseers of the Poor v. Sears,
22 Pick. (Mass.) 122: Governor v. Allen, 8 Humph. (Tenn.) 176; Levy Court v.
Coroner, 2 Wall. 501: Todd v. Birdsall, 1-Cow. (N. ¥.) 260; Van Kirk v, Clark,
16 Serg. & R. (Pa.) 286.
§§ 18-18) CREATION AND CITIZENSHIP OF CORPORATIONS. 38

CHAPTER II.
CREATION AND CITIZENSHIP OF CORPORATIONS,

12. Creation—In General.
18-18. Power to Create.

14. State Legislatures,

15. Congress.

16. Territorial Legislat-res,
17. Prescription.

18. Delegation of Power.

19-20. General and Special Laws.
21. Ratification of Claim to Corporate Existence.
22. Intention to Create.
23-24. Agreement between Corporation and State—Acceptance of Charter.
25. Place of Organization.
26. Compliance with Conditions Precedent.
27. Agreement between Corporators and Corporation.
28-29. Who may Becorhe Corporators.
380-31. Purpose of Incorporation.
32-35. Corporate Name.
36-38. Residence and Citizenship of Corporations.
39. Extension of Charter—Creation of New Corporation.
40. Proof of Corporate HWxistence.

CREATION—IN GENERAL.

12. To the creation or formation of a corporation, the fol-
lowing things are essential:
(a) A grant of authority, or charter, from the state.
(b) Acceptance of the grant, or an agreement between
the state and the corporators.
(c) An agreement between the corporators and the cor-
poration.

POWER TO CREATE CORPORATIONS.

18. It is essential to the existence of a corporation that it

shall have been created or authorized by the state.

- Mere agreement between the members, as in the
Clk.Pr.Corp.—3
34 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2

case of a partnership, is not enough. In this coun-
try such bodies can be created only by or under
legislative enactment.

14. STATE LEGISLATURES—The state legislatures have
absolute and unlimited power to create corpora-
tions, except in so far as they may be controlled
by restrictions in the state or federal constitution.

15, CONGRESS—Congress, acting as the legislature of the
United States, has the power to create a corpora-
tion, if its existence is an appropriate means of
carrying into effect any of the powers conferred
upon the United States government by the federal
constitution. As the local legislature of the Dis-
trict of Columbia, it has the same power in the Dis-
trict as the state legislatures have in the states,
subject only to the restrictions of the federal con-
stitution.

16. TERRITORIAL LEGISLATURES—Territorial legisla-
tures, vested with general legislative powers, have

. the power to create corporations, which will not

be affected by the admission of the territory into

the Union, and the adoption of a state constitution.

17. PRESCRIPTION — Long-continued use of corporate
powers, and acquiescence on the part of the public,
may raise a presumption of legislative authority in*
the case of public, and, it seems, even in the case
of private, corporations. These are corporations
by prescription.

18. DELEGATION OF POWER—The legislature cannot
delegate its power to create corporations, but, in
providing for the formation of a corporation, it may
allow ministerial acts to be performed by courts
or officers.

Individuals, under their right to make contracts and acquire -
property, have an absolute right to form partnerships, including
§§ 138-18) POWER TO CREATE CORPORATIONS. 35

joint-stock companies, for the purpose of carrying on any lawful
business. For this purpose no authority from the state is neces-
sary. But they have mo such right to form a corporation, and con-
duct their business in that privileged mode, by a mere agreement
between themselves. A corporation can only be created by the
state,—with us, by or under legislative authority... Special author-
ity seems not to have been necessary at one time under the Roman
law, but later it was required even under that law;? and authority
from the sovereign or state has always been necessary at common
law. Lord Coke, in enumerating the things essential to a corpo-
ration, states the first to be “Lawful authority of incorporation,”
and he says that this may be “by four means,—sc., by the common
law, by the king himself, by authority of parliament, by the king’s
charter, and by prescription.”* In England, the king, bishops,
parsons, etc., were corporations by the common law. In this coun-
try there are no common-law corporations. All corporations, both
public and private, are the creatures of the legislature. There are
a few corporations in this country which were chartered by the
English crown or by parliament before the Revolution, under the
colony administration, and whose charters are still recognized.*

Corporations by Prescription.

In England, both public and private corporations may exist by
prescription; that is, they may have existed for so long a time that
the king’s consent will be presumed. Blackstone, after mention-
ing the king, bishops, and other common-law corporations sole,
says: “Another method of implication, whereby the king’s consent is
presumed, is as to all corporations by prescription, such as the city
of London, and many others, which have existed as corporations, time
whereof the memory of man runneth not to the contrary, and there-
fore are looked upon in law to be well created; for though the mem-
bers thereof can show no legal charter of incorporation, yet in cases

1 Stowe v. Flagg, 72 Ill. 397; Medical Inst. v. Patterson, 1 Denio (N. Y.) 61;
Myers v. Manhattan Bank, 20 Ohio, 288; McKim yv. Odom, 3 Bland, Ch. (Md.)
407, 416; Ang. & A. Corp. § 66 et seq.

2 Tay]. Corp. § 4; 1 Wat. Corp. § 22.

8 Sutton’s Hospital Case, 10 Coke, 29b, 2 Cumming, Cas. Priv. Corp. 14.

4 Trustees of Dartmouth College v. Woodward, 4 Wheat. 517, 1 Cumming, Cas.
Priv. Corp. 490, W. D. Smith, Cas. Corp. 148, Shep. Cas. Corp. 248.
36 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2

of such high antiquity the law presumes there once was one, and
that, by the variety of accidents which a length of time may produce,
the charter is lost or destroyed.” ® The same doctrine has frequently
been applied in this country in the case of public corporations.®
There seems to be no good reason for recognizing any distinction in
this respect between public and private corporations, for both are the
creatures of the legislature; and the doctrine has been applied to
private corporations also.” To give rise to this presumption, the
acts done must bear the impress of corporate acts; that is, they must
be such as corporations are competent, and individuals incompetent,
to perform.®

Power of the State Legislatures.

The power of the state legislatures to create corporations, and
confer powers and privileges upon them, within the state, is absolute,
except in so far as it may be restricted by the state or federal con-
stitution.® In the absence of constitutional limitations, there is
nothing to prevent the legislature from creating a corporation, and
conferring exclusive privileges upon it, in consideration of public
services, though it may thus create a monopoly.?®

61 Bl. Comm. 473.

6 “Municipal corporations,” said the Illinois court, “are created for the public
good,—are demanded by the wants of the community; and the law, after long-
continued use of corporate powers, and the public acquiescence, will indulge in
presumptions in favor of their legal existence.” Jameson v. Peaple, 16 Ill. 257.
And see People vy. Maynard, 15 Mich. 463, 470; Bow vy. Allenstown, 34 N. H.
351; Dillingham v. Snow, 5 Mass. 547.

72 Kent, Comm. 276, 277; Greene v. Dennis, 6 Conn. 293.

8 Greene v. Dennis, supra.

9 People v. Marshall, 6 Ill. 672; Bell v. Bank of Nashville, Peck (Tenn.) 269.
See Myers v. Manhattan Bank, 20 Ohio, 283.

yo Thomp. Corp. §§ 647-650. See State v. Milwaukee Gaslight Co., 29 Wis.
454; Louisville Gas Co. v. Citizens’ Gaslight Co., 115 U. 8. 683, 6 Sup. Ct. 265;
New Orleans Gaslight Co. vy. Louisiana Light & H. P. & Manut’g Co., 115 U. 8.
650, 6 Sup. Ct. 252. Contra, Norwich Gaslight Co. v. Norwich City Gas Co,

»» Conn. 20. Thus, the legislature may, in the absence of constitutional re-
strictions, grant a corporation the exclusive privilege of maintaining a railroad in
the street. Case of Philadelphia & T. R. Co., 6 Whart. (Pa.) 25. And it may
grant a corporation the exclusive privilege of manufacturing and selling il-
luminating gas in a city, and of constructing works and laying pipes for such
purpose. State v. Milwaukee Gaslight Co, supra; Louisvill¢ Gas Co. y. Citizens’
. 9
§§ 18-18) POWER TO CREATE CORPORATIONS. 37

In all of the state constitutions some limitations on the power of
the legislature to create corporations, and grant privileges to them,
will be found. In some states, for instance, it is declared that no
act of incorporation shall be passed unless with the assent of two-
thirds of each house.1 And in most states, as we shall presently see
at some length, the legislature is prohibited from creating corpora-
tions, with some exceptions, by special act, but must provide for
their formation, if at all, by general laws.12, In most states there is
a constitutional provision that no bill passed by the legislature shall
contain more than one subject, and that this subject shall be clearly
expressed in its title. This applies, of course, to acts in relation to
corporations.** The only restrictions upon the power of the several

Jaslight Co., supra; New Orleans Gaslight Co. v. Louisiana Light & H. P. &
Manuf’g Co., supra. Contra, Norwich Gaslight Co. v. Norwich City Gas Co.,
supra. And it may grant the exclusive privilege of supplying a city with water,
and of constructing works and laying pipes for that purpose. New Orleans
Waterworks Co. v. Rivers, 115 U. S. 674, 6 Sup. Ct. 273. In most states, per-
haps, there are constitutional provisions prohibiting the legislature from grant-
ing exclusive privileges to any man or set of men, except in consideration of
public services. Such a provision would not prevent the granting of exclusive
privileges, like those referred to above, to water and gas companies, for the services
in such cases are public. The legislature, however, could not grant exclusive
privileges in matters not of such character. It could not, for instance, allow a
corporation to charge a greater rate of interest than is allowed by the general
law. Gordon v. Association, 12 Bush (Ky.) 110.

11 See, as to this provision, 1 Thomp. Corp. §§ 632-636. Some of the courts
have held that this provision is aimed at special. acts only, and that it does not
prohibit the passing of general incorporation.laws by a mere majority vote. Gif-
ford v. Livingston, 2 Denio (N. Y.) 380; Palmer v. Lawrence, 5 N. Y. 3889.
Others have held that it covers all laws for the creation of corporations, general
as well as special. Falconer v. Campbell, 2 McLean, 195, Fed. Cas. No. 4,620;
Green v. Graves, 1 Doug. (Mich.) 861. It has been held that this provision does
not prevent the legislature from creating more than one corporation by the
same act, provided the act is passed by the necessary two-thirds majority; and
that, therefore, it does not prevent the legislature from passing general laws for
the formation of corporations. Falconer vy. Campbell, supra; Thomas v. Dakin,
22 Wend. (N. Y.) 9.

12 Post, p. 42.

18 As to this provision, see 1 Thomp. Corp. §§ 607-627. See, also, State \.
Illinois Cent. R. Co., 83 Fed. 780, 765; People v. Mahaney, 18 Mich. 481; Astor
v. New York Arcade Ry. Co., 113 N. Y. 93, 20 N. E. 594. The provision must
receive “a fair and reasonable construction,—one which will repress the evil de-
38 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2

states, in the creation of corporations, that are to be found in the
federal constitution, relate to the purposes for which corporations

signed to be guarded against, but which at the same time will not render it op-
pressive or impracticable.” Belleville & I. R. Co. v. Gregory, 15 Ill. 20. This
provision does not prohibit an act of incorporation from granting various pow-
ers; nor does it require all the powers granted to be enumerated in the title. 1
Thomp. Corp. § 618. See Lockhart v. City of Troy, 48 Ala. 579; Montgomery
Mut. Bldg. & Loan Ass’n v. Robinson, 69 Ala. 418. While the subject must be
expressed in the title, “the adjuncts to that subject, or the modus operandi, need
not be.” City of Ottawa v. People, 48 Ill. 233. The constitution “does not re-
quire that the subject of the bill must be specifically and exactly expressed in the
title; hence we conclude that any expression in the title which calls attention to
the subject of a bill, although in general terms, is all that is required.” Johnson
vy. People, 83 Ill. 481. In Mississippi & R. R. Boom Co. v. Prince, 34 Minn. 79,
24 N. W. 361, an act entitled ‘An act relating to the Mississippi Boom Cor-
poration,” which, in addition to provisions relating to the powers and duties of
that corporation, embraced a separate section imposing additional duties upon
another corporation, was held void as to such section because the subject-matter
thereof was not embraced in the title of the act. And in Haton v. Walker, 76
Mich. 579, 43 N. W. 638, an act amending an act for the incorporation of manu-
facturing companies, so as to include corporations for mercantile business, the
title of the amended act being “An act for the incorporation of manufacturing
companies,” and being unchanged, was held void. This clause of the constitu-
tion is “construed liberally in favor of the validity of enactments; and the fact
that many things of a diverse nature are authorized or required to be done is
unimportant, provided the doing of them may fairly be regarded as in further-
auce of the general subject of the enactment.” Blake v. People, 109 Ill. 504.
The following acts have been sustained as embracing only one subject, which was
embraced in its title: ‘An act to incorporate the Firemen’s Benevolent Associa-
tion, and for other purposes,” which contained a provision requiring the agents
ot all foreign insurance companies doing business in Chicago to pay to the as-
sociation a certain per cent. of all premiums received by them. Firemen’s
Benevolent Ass’n v. Lounsbury, 21 Ill. 511. “An act to amend an act entitled
‘An act to incorporate the Northwestern University,’’’ which contained a pro-
hibition against the sale of intoxicating liquors within a certain distance of the
university. O’Leary v. County of Cook, 28 Ill. 534. _An act providing for the
incorporation of mutual fire insurance companies, and repealing certain existing
acts, which, in the absence of such express repeal, would be repealed by im-
plication. Tolford vy. Church, 66 Mich. 481, 88 N. W. 913. “An act to authorize
the organization of annuity, safe-deposit and trust companies,” granting to such
corporations power to act as guardian, etc. The latter section of the act, said the
court, “is but an enumeration of the powers granted to such corporations, and it
was never before heard that, in a general law for the organization of a par-
ticular class of corporations, the powers granted to them should be detailed in
§§ 13-18) POWER TO CREATE CURPORATIONS. 39

may be formed. No state can create a corporation for a purpose that
is expressly or impliedly prohibited by that instrument."

Power of Congress and of Territorial Legislatures.

The congress of the United States derives all its powers from the
federal constitution, but it is not limited to the powers expressly con-
ferred upon it by that instrument. There is a general clause giving
it the power to pass all necessary and proper laws for carrying its
powers into execution. Indeed, it has such power independently of
this clause, for a grant of power necessarily implies the grant of all
usual and proper means for its execution. It is under this general
clause, or the implied grant of power, that congress has the power
to establish corporations. The power is nowhere expressly con-
ferred. Congress, then, has the power, acting as the legislative body
of the federal government, to create a corporation, when its exist-
ence is necessary or proper to enable the federal government to ex-
ecute the powers expressly or impliedly conferred upon it by the
constitution. It can create a corporation as a means, but not as an
end.*® If the creation of a corporation is an appropriate means to

the title of the act.”” Minnesota Loan & Trust Co. v. Beebe, 40 Minn. 7, 41 N.
W. 232. In Wardle v. Townsend, 75 Mich. 385, 42 N. W. 950, it was held that
the title, ‘An act to provide for the incorporation of mutual fire insurance com-
panies, and defining their powers and duties,” was sufficient to embrace pro-
visions for winding up such companies when insolvent, for their examination by
the insurance commissioner, the appointment of a receiver, and the assessment
of policy holders to pay liabilities. The following acts have been held void as
embracing more than one subject: An act incorporating, or reviving the char-
ters of, several distinct corporations. EXx parte Conner, 51 Ga. 571. Contra,
People v. Ottawa Hydraulic Co., 115 Ill. 281, 3 N. E. 413. “An act to provide for
the incorporation of merchants’ mutual insurance companies, and to regulate the
business of insurance by merchants’ and manufacturers’ matual insurance com-
panies.’ Skinner v. Wilhelm, 63 Mich. 568, 80 N. W. 311. By the weight of
authority, an act incorporating a railroad company may also provide for municipal
aid. 1 Thomp. Corp. § 614; Phillips v. Bridge Co., 2 Mete. (Ky.) 219; Phillips
v. Town of Albany, 28 Wis. 340; Mahomet v. Quackenbush, 117 U. S. 508, 6 Sup.
Ct. 858. Contra, People v. Hamill, 134 Ill. 666, 17 N. E. 799 (but see Board of
Super’s v. People, 25 Ill. 182); Peck v. City of San Antonio, 51 Tex. 490.

141 Mor. Priv. Corp. § 14.

15 McCulloch v. State of Maryland, 4 Wheat. 316. See, as to national corpora-
tions, 1 Thomp. Corp. §§ 665-688. Under this implied grant of power, congress
has created a United States banking corporation. McCulloch v. State of Maryland,
40 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch, 2

carry into effect any of the powers conferred upon the federal govern-
ment by the constitution, the degree of its necessity is a question
within the discretion of congress, and not a question of judicial cog-
nizance.?®

Congress also has the power to create corporations in the District
of Columbia, and it has the same power in this respect as the state
legislature has in a state, subject only to the restrictions of the fed-
eral constitution.17 In the exercise of this power, however, it acts,
not as the legislature of the United States, but as the local legislature
of the District.1®

It has been held that territorial legislatures have the power to cre-
ate corporations under the general legislative powers conferred upon
them by congress in the organic act; and a corporation created by
a territorial legislature is not in any way affected by the admission of
the territory into the Union, and the adoption of a state constitu-
tion.1® Territorial legislatures are now expressly authorized to pro-
vide for the formation of corporations by general laws, but prohib-
ited from granting private charters or special privileges.?°

A corporation created by the government of the United States is
a creature of federal sovereignty alone, and is controllable by, and
amenable to, the federal government only.?*

Delegation of Power by the Legislature.
It was formerly asserted in England that the act of incorporation
must be the immediate act of the king himself, and that he could not

supra; Osborn y. Bank of U. S., 9 Wheat. 788. And see State v. Curtis, 35
Conn. 374. So, under the power to regulate commerce, it has created corpora-
tions with power to construct railways and highways across the various states and
territories, and corporations to construct bridges across navigable rivers. Union
Pac. R. Co. v. Lincoln Co., 1 Dill. 314, Fed. Cas. No. 14,378; Thomson v. Pacific
R. R., 9 Wall. 579; California v. Central Pac. R. Co., 127 U. 8. 1, 8 Sup. Ct.
1073; Indiana vy. United States, 148 U. S. 148, 18 Sup. Ct. 564; Luxton v. North
River Bridge Co., 153 U. S. 525, 14 Sup. Ct. 891.

16 McCulloch v. State of Maryland, supra.

171 Thomp. Corp. § 682; Hadley v. Freedman’s Savings & Trust Co., 2 Tenn.
Ch, 122. :

18 1d.

19 Vincennes University v. State of Indiana, 14 How. 268, 273; Kansas Pac.
Ry. Co. v. Atchison, T. & 8S. F. RK. Co., 112 U. 8. 414, 5 Sup. Ct. 208; 1 Thomp.
Corp. § 681.

20 Rev. St. U. S. § 1889. 21 State v. Curtis, 35 Conn. 374,

.

“
§§ 13-18) POWER TO CREATE CORPORATIONS. 41

grant a license to another to create a corporation.??, But the law
has since been settled to the contrary, and it is now held that the
king may not only grant a license to a subject to create a particular
corporation, but may give a general power by charter to erect cor-
porations indefinitely on the principle, “Qui facit per alium facit
per se;” the person to whom the power is delegated being regarded
merely as an instrument in the hands of the government.”* In this
country our federal and state constitutions vest the lawmaking power
exclusively in the federal and state legislatures, and the English rule
does not obtain. With us, corporations are created by the’ legis-
latures, and not otherwise. To establish a corporate body is to en-
act a law, and no power but the legislature can do this. The maxim,
“Delegata potestas non potest delegari,” applies.”*

This principle does not prevent the legislature from delegating
the performance of purely ministerial acts in the formation of cor-
porations. Thus, it may enact a general law authorizing persons to
form themselves into a corporation by complying with certain for-
malities, as by filing in a certain court of record, or with the secre-
tary of state or some other officer, a petition setting forth the objects
of the proposed corporation, and other facts, and providing for the
making of an order by the court directing the petition to be entered
of record, or the issuance of a certificate by the secretary or other
officer, showing that the statute has been complied with, and declar-
ing that the persons thus seeking to incorporate shall thereupon
become a corporation, etc. A corporation thus formed is really cre-
ated by the legislature, and not in any sense by the court or officer
upon whom the ministerial duties are imposed. No discretionary
power is conferred upon them. They are merely required to per-
form ministerial acts, and a writ of mandamus would lie to compel
them to do so.?®

22 Case of Sutton’s Hospital, 10 Coke, 27.

23 Franklin Bridge Co. v. Wood, 14 Ga. 80, 1 Cumming, Cas. Priv. Corp. 42;
Ang. & A. Corp. 74; 1 Kyd, Corp. 50; 1 Bl. Comm. 474.

241 Thomp. Corp. §§ 643-646; State v. Simons, 32 Minn. 540, 21 N. W. 750.

25 Franklin Bridge Co. v. Wood, 14 Ga. 80, 1 Cumming, Cas. Priv. Corp. 42;
In re New York El. R. Co., 70 N. Y. 827; Heck v. McEwen, 12 Lea (Tenn.) 97.
In Granby Mining & Smelting Co. v. Richards, 95 Mo. 106, 8 S. W. 246, it was.
held that, where the powers of a corporation, and the procedure by which it can
be brought into existence, are prescribed by the legislature, the fact that the
A2 CREATION AND CITIZENSHIF OF CORPORATIONS. (Ch. 2

GENERAL AND SPECIAL LAWS,

19. In the absence of constitutional limitations, corpora-
tions may be created under or by either a general
or a special law. In most states, however, the leg-
islature is prohibited by the constitution from creat-
ing corporations, with certain exceptions, otherwise
than under general laws.

20. By the weight of authority, such a provision does not
prohibit a special act which merely grants addi-
tional powers and privileges to an existing corpora-
tion, but it does prohibit a special act so amending
the charter of an existing corporation as to make
it in effect a different corporation.

Corporations are created either by a special act of the legislature
or under a general law. A special act creates a particular corpora-
tion. <A general law does not of itself directly create a corporation,
but authorizes incorporation by providing that any persons who
comply with its terms shall thereby become incorporated. A gen-
eral law authorizing the formation of corporations defines the pur-
poses for which they may be formed, and prescribes the steps that
must be taken to form them. It generally requires articles of asso-
ciation to be executed by the corporators, and filed in some public
office or court, and often fixes the minimum number of residents of
the state who shall execute such articles. The articles are usually
required to set forth the names of the corporators and their resi-
‘dences, the name by which the proposed corporation shall be known,
and its principal place of business, the object and purpose of the
association, which, of course, must not be other than is authorized
by the law under which it is formed,?* the period of time for which

legislature, in the same act, gives such corporation the power to dispose of special
stock which is to form no part of the general stock of the corporations, and per-
mits the holders of such special stock to become a distinct corporation, is, not such
a delegation of legislative power as to render an organization formed under the
‘special stock clause invalid.

26 Post, p. 67.
§§ 19-20) GENERAL AND SPECIAL LAWS. 43

the corporation is to exist, the number of directors, and the names
‘of those who are to act as such until an election is had pursuant
to the articles. If the body is to be a stock corporation, it is usually
required that the articles shall state the amount of the capital stock,
the number of shares, and the amount that is to be paid in before
‘doing business. Of course, the requirements will vary greatly in
the different states, and in different statutes in the same state.?7
As will presently be shown, the requirements of the statute must be
‘complied with in order to form a legal corporation.?®

Constitutional Restriction.

In most states there is a constitutional provision that corporations,
:generally with some exceptions, shall not be created or formed by
special act, but must be formed under general laws.?° Where there
‘is such a provision as this, the legislature, of course, has no power
to create corporations, other than of the kind excepted, by a special
act. The object of this provision is obvious. It is chiefly to pre-
vent the granting of special privileges to one body of men, with-
out giving all others the right to obtain them on the same condi-
tions; and perhaps it is partly to prevent bribery and corruption of
‘legislators.

27'The following sections taken from a New Hampshire statute (Gen. Laws
1878, c. 152) are a good illustration of a general law:

“Section 1. Any five or more persons of lawful age may, by written articles of
‘agreement, associate together for agricultural, educational, or charitable purposes,
-or for carrying on any lawful business, except banking and the construction and
maintenance of a railroad; and when such articles have been executed and re-
corded in the office of the clerk of the town in which the principal business is
to be carried on, and in that of the secretury of state, they shall be a corporation,
and such corporation, its officers and stockholders, shall have all the rights and
»powers, and be subject to all the duties and liabilities of similar corporations,
their officers and stockholders, except so far as the same are limited or enlarged
hy this chapter.

“Sec, 2. The object for which the corporation is established, the place in which
‘its business is to be carried on, and the amount of capital stock to be paid in,
shall be distinctly set forth in its articles of agreement.”

28 Post, p. 55.

29 See Const. N. Y. art. 8, § 1; Const. Ill. art. 11, § 1; Const. Mich. art. 15,
§ 1; Const. Ind. art. 11, § 18; Const. Wis. art. 11, § 1; Const. Minn. art. 10,
.§ 2; Const. Tenn. art. 11, § 8; Const. Tex. art. 12, § 1; Const. Mo. art. 12, § 2.

‘
At CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2

Where the provision of the constitution is that corporations “shall
not be created” or “formed” by special act, it prevents the formation
of a corporation by the acceptance after the adoption of the consti-
tution of a special act offering a charter passed before its adoption,
for “the restraint is plainly imposed upon the creation—the organ-
ization—of the corporation itself.”*° It is otherwise where the
provision is that the legislature shall “pass no special act conferring
corporate powers,” for here the restraint is only imposed on future
legislative action.*?

The question has often arisen whether a constitutional prohibition
against the creation or formation of a corporation by special act pro-
hibits the legislature from passing a special act conferring additional
privileges or powers upon a corporation previously created, or amend-
ing the charter of an existing corporation. It is sufficiently clear on
principle, and has frequently been decided, that, where a corporation
has already been created, a special act regulating it, or conferringnew
and additional grants, privileges, or powers, without changing the
organization of the corporate body, is not within the prohibition.”
It has been held, for instance, that the constitution does not prohibit
a special act conferring upon an existing railroad corporation au-
thority to change the line of its road,®* or to purchase the railroad
and franchises of another company; ** nor a special act extending
the duration of an existing corporation,*® or changing, or authorizing
it to change, its name; ** nor a special act changing the character of
an existing corporation, as from a mutual benefit or nonstock cor-
poration to a stock corporation.’ As was said by Judge Sawyer:

80 State v. Dawson, 16 Ind. 40, 1 Cumming, Cas. Priv. Corp. 65, W. D. Smith,
Cas. Corp. 19, Shep. Cas. Corp. 54; Snyder v. Studebaker, 19 Ind. 462,

31 State v. Roosa, 11 Ohio St. 16; State v. Dawson, supra.

32 Attorney General v. North America Life Ins. Co., 82 N. Y. 172.

33 Southern Pac. R. Co. v. Orton, 32 Wed. 457.

84 Wallace vy. Loomis, 97 U. S. 146.

35 Cotton v. Boom Co., 22 Minn. 872. Compare Logan y. Railroad Co., $7
Ga. 533, 13 S. E. 516.

36 Wallace v. Loomis, 97 U. S. 146; Hazelett vy. Butler University, 84 Ind.
230; Attorney General v. Joy, 55 Mich. 94, 20 N. W. 806. And see Pacific
Bank v. De Ro, 37 Cal. 538; Rosenthal v. Madison & I. P. Co., 10 Ind. 338,

87 St. Paul Fire & Marine Ins. Co. v. Allis, 24 Minn. 75.
§§ 19-20) GENERAL AND SPECIAL LAWS. 45

“The word ‘create’ has a clear, well-settled, and well-understood sig-
nification. It means to bring into being; to cause to exist; to pro-
duce; to make, etc. To my apprehension, it appears to be one thing
to create, or bring into being, a corporation, and quite another to
deal with it as an existing entity—a person—after it is created,. by’
regulating its intercourse, relations, and acts as to other existing per-
sons, natural and artificial.” °°

The legislature, however, cannot resort to any subterfuge to avoid
the constitutional prohibition. If by a special act it undertakes to
so amend or alter the charter of an existing corporation as in effect
to create a new corporate body, it violates the constitution, and the
actis void. “A prohibition from creating corporations by special act
undoubtedly does not, in terms, prohibit the legislature from passing
a special law altering the charter of an existing corporation; but it
is plain that a constitutional provision cannot be avoided, and prac-
tically annulled, by a subterfuge. A special law altering the char-
acter of an existing corporation, and practically changing it, must
therefore be deemed in violation of a constitutional prohibition
against the creation of corporations by special act. If this were not
so, organizations formed under the general laws might be treated
merely as the rough material out of which corporations might after-
wards be fashioned at pleasure under special acts of the legislature,
and the constitutional provision would become an empty form.” °°

Some of the cases do not recognize this distinction, but hold broad-
ly that the constitution prohibits a special act granting an existing
corporation any new franchises,—“that there is no distinction, as re-
spects the constitutional inhibition, between a grant of corporate

38 In Southern Pac. R. Co. v. Orton, supra. See, also, Wallace vy. Loomis, 97
U. S. 154; Attorney General v. North America Life Ins. Co., 82 N. Y. 172;
In re New York El. R. Co., 70 N. ¥. 327; St. Joseph & 1. R. Co. v. Shambaugh,
106 Mo. 557, 17 8S. W. 581; State v. Cape Girardeau & S. L. R. Co., 48 Mo. 468.

391 Mor. Priv. Corp. § 12. For cases in which special acts in reference to
existing corporations have been held void, see Ex parte Pritz, 9 Lowa, 30; Town
of McGregor vy. Baylies, 19 lowa, 43; City and County of San Francisco v.
Spring Valley Waterworks, 48 Cal. 4938, overruling California State Tel. Co. y.
Alta Tel. Co., 22 Cal. 398 (but see the criticism of this case in Southern Pac. R.
Co. y. Urton, 32 Fed. 457, 467); Green v. Knife alls Boom Corp., 35 Minn, 155,
27 N. W. 924; Astor v. Railway Co., 113 N. Y. 98, 20 N. EK. 594.
46 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2:

powers and privileges and the grant of corporate charters de novo.”*®

A special act waiving a failure to comply with conditions precedent
in the attempted organization of a particular corporation under a
general law is not unconstitutional under this clause; *! but it is.
otherwise if the legislature, by special act, attempts to ratify a claim
to corporate existence which is altogether unauthorized.*?

In some states the language of the constitution is different from
the provision we have been discussing; the legislature being prohib-
ited from passing any special act “conferring corporate powers,” or
“granting corporate powers or privileges.” Some of the courts re-
gard this as broader than the prohibition against the “creation” of
corporations, and have held that the legislature is thereby prohibited
“from either creating corporations, or conferring upon the same
corporate powers,” by special act.4* This would seem to be the
reasonable construction, but the weight of opinion seems to be
against it, and in favor of holding such provisions merely equivalent
to the prohibition against their “creation.” **

An act is not “special,” within the-meaning of the constitutions, if
it operates alike and uniformly throughout the state upon like
facts. An act, to be general, need not apply to every person or
every corporation in the state. It is sufficient if it applies to every
person or corporation who or which comes within the relations or
circumstances provided for,*® if the classification “has some reason-

40 See Green v. Knife Falls Boom Corp., supra; City and County of San Fran-
cisco v. Spring Valley Waterworks, supra; Attorney General v, Chicago & N. W.
R. Co., 35 Wis. 560.

41 Central Agr. & Mech. Ass’n vy. Insurance Co., 70 Ala. 120; State v. Webb*
(Ala.) 20 South. 462; McAuley v. Railway Co., 83 ILI]. 348; Syracuse City Bank
v. Davis, 16 Barb. (N. Y.) 188.

42 Oroville & V. R. Co. v. Supervisors of Plumas County, 37 Cal. 354.

43 Atkinson v. Railroad Co., 15 Ohio St. 21. And see German-American Inv.
Co. v. City of Youngstown, 68 Fed. 452. That such a clause prohibits a special
act conferring upon an existing corporation the power to issue bonds, see School
Dist. v. Insurance Co., 103 U. S. 707.

44 Attorney General vy. Chicago & N. W. R. Co., 35 Wis. 425; Brady v. Moul-
ton, 61 Minn. 185, 68 N. W. 489; North River Boom Co. v. Smith (Wash.) 45
Pac. 750.

451 Thomp. Corp. §§ 592-602; Hazelett v. University, 84 Ind. 230; Attorney
General v. McArthur, 38 Mich. 204; Minnesota Loan & Trust Co. v. Beebe, 40
Minn. 7, 41 N. W. 232; Delaware Bay & C. M. R. Co. vy. Markley (N. J. Err. &
§§ 19-20) GENERAL AND SPECIAL LAWS. 47

able foundation in the nature of things, and is not arbitrarily made
to afford means of evading the constitutional inhibition.”4* The
fact that the legislature expressly declares a special act to be gen-
eral cannot make it so. If it were held otherwise, it would be an.
easy matter to defeat the constitutional inhibition.+?

In some states, special laws relating to corporations are prohib-
ited only where general laws can be made applicable. Under such
a provision, though there are some decisions to the contrary, it has
generally been held that it is exclusively for the legislature, and
not for the courts, to say whether a special law is necessary.*®

App.) 16 Atl. 436. In Attorney General v. McArthur, supra, it was held that
the constitutional limitation upon the creation of corporations except by general
laws does not apply to incorporation acts to enable operations to be carried on in.
specific localities that cannot be carried on anywhere else. ‘The great purpose
of the provision,” said Graves, J., “was to introduce a system of legislation in re-
gard to the institution of corporations which would exclude the corruption and
party favoritism which had too often accompanied the method previously in vogue,
and to secure, as far as practicable, for all the people of the state, an equality
of opportunity and a guard against sectional discriminations. It was determined
that corporations of the ‘elass in question should owe their erection to general
laws, and not to special acts, and, within this principle, that no law, general in
form, should be allowed to localize the specific work or business of the corpora-
(ion within narrower bounds than it would naturally be bound to occupy if not
thus localized by enactment. At the same time, it was not designed to hinder
the confinement of the specific work or business of the corporation, by the terms
of the law, within a given section, in any case when, in consequence of natural
conditions, such work or business could not be carried on elsewhere.”

461 Thomp. Corp. § 593, 598; Atlantic City Waterworks Co. v. Consumers’
Water Co., 44 N. J. Hq. 427, 15 Atl. 581; Weinman v. Railway Co., 118 Pa. St.
192, 12 Atl. 288; Thomas v. Railway Co., 40 Fed. 126. In Frye v. Partridge,
82 Ill. 267, an act for establishing a single ferry at a designated point on a par-
ticular river was held void as a local and special act.

47 City and County of San Francisco vy. Spring Valley Waterworks, 48 Cal. 493;
Belleville & I. R. Co. v. Gregory, 15 Ill. 20.

48 Carpenter v. People, 8 Colo. 116, 5 Pac. 828; Gentile v. State, 29 Ind. 409;
State v. Hitchcock, 1 Kan. 178; Knowles v. Board of Education, 33 Kan. 692,
7 Pac. 561; State v. County Court, 50 Mo. 317; Evans v. Job, 8 Nev. 322. Con-
tra, State v. Mayor, etc., of Newark, 40 N. J. Law, 71; Ex parte Pritz, 9 Iowa,
380; Von Phue v. Hammer, 29 Iowa, 222; Thomas v. Board of Com’rs, 5 Ind.
4 (since overruled). In several states the question is expressly left to the judg-
ment of the legislature. People v. Bowen, 21 N. Y. 517. It was formerly so in
Illinois. Johnson v. Railroad Co., 23 Ill. 202.
48 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2

Constitutional prohibitions against creating corporations, or grant-
ing corporate powers, by special act, are not to be construed as re-
trospective, so as to render invalid and take away a previous grant
of corporate powers to corporations organized and .in,actual opera-
tion.*®

RATIFICATION OF CLAIM TO CORPORATE EXISTENCE.

21. Recognition and ratification by the legislature of a
claim of corporate existence render the body a cor-
poration. But where the claim is wholly without
authority, and the constitution prohibits the cre-
ation of corporations by special act, recognition
and ratification by special act are not effectual.

Express ratification by the legislature of a claim to corporate ex-
istence, or an implied ratification by recognition of the claim and
of the pretended corporation as a legally existing one, as by empow-
ering it to do acts which only a corporate body can do, renders the
body a legal corporation as fully as if originally created by the leg-
islature; and this is true even where the claim is without any au-
thority whatever.®° And such a ratification relates back, and ren-
ders previous acts of the body as a corporation valid corporate
acts.°* In like manner, failure to comply with conditions precedent
in an attempted organization of a corporation under an act of the
legislature may be waived by the legislature, and so cured, in the

49 State v. Illinois Cent. R. Co., 38 Fed. 730, 769.

50 Jameson v. People, 16 Ill. 257; Illinois G. T. R. Co. v. Cook, 29: Ill. 287;
People v. Farnham, 35 Ill. 562; Mitchell v. Deeds, 49 Ill. 416; Basshor v. Dres-
sel, 34 Md. 508; Attorney General v. Joy, 55 Mich. 94, 20 N. W. 806; St. Louis
R. Co. vy. Northwestern St. L. Ry. Co., 2 Mo. App. 69; People vy. Perrin, 56 Cal.
345; Williams v. Bank, 2 Humph. (Tenn.) 339: Society for Propagation of
Gospel in Foreign Parts v. Town of Pawlet, 4 Pet. 480, 501; Atlantic & P. R.
Co. v. City of St. Louis, 66 Mo. 228; Boykin v. State, 96 Ala. 16, 11 South. 66;
McDougald v. Bellamy, 18 Ga. 411; State v. Webb (Ala.) 20 South. 462. Com-
pare People v. Kingston & M. Turnpike Road Co., 28 Wend. (N. Y.) 198, 35
Am. Dee. 551. An act amending the charter of an alleged corporation, being a
recognition of its corporate existence, cures any defects in the original incorpora-
tion. Snell v. City of Chicago, 183 Ill, 418, 24 N. B. 532.

61 See the cases cited above.
§ 22) INTENTION TO CREATE A CORPORATION. 49

case of any particular corporation, by a statute expressly approving
and ratifying its organization, or impliedly doing so by recognizing
it as valid.*? To constitute a ratification of a claim to corporate
existence, it must, of course, clearly appear that the legislature in-
tended to recognize the corporation as existing.**

As was stated in a former section, a special act waiving a fail-
ure to comply with conditions precedent in the attempted organiza-
‘tion of a corporation under a general law is not a violation of the
constitutional prohibition against the “creation” of corporations by
special act; but it is otherwise if the legislature, by special act, at-
tempts to ratify a claim to corporate existence that is altogether
unauthorized.**

INTENTION TO CREATE A CORPORATION.

22. No particular form of words is necessary to the cre-
ation of a corporation. All that is necessary is
that such an intention on the part of the legisla-
ture shall clearly appear from the act.

In creating a corporation the legislature generally uses language
which admits of no doubt, as the words “incorporate,” “found,”
“erect,” etc.; but no particular form of words is ever necessary.
It was so held in Sutton’s Hospital Case,®* and the same principle has
been declared in numerous cases since that time. All that is neces-
sary is that it shall appear that the legislature intended to create a
corporation. Such an intention is shown whenever all the powers
and faculties essential to the existence of a corporation are confer-
red, though the words “corporation” or “incorporate” are not used
in the statute.** “Whenever it is apparent that the intention of the

52 Central Agricultural & Mechanical Ass’n v. Alabama Gold Life Ins. Co., 70
Ala. 120; McAuley v. Railway Co., 83 Ill. 348; Kanawha Coal Co. v. Coal Co.,
Fed. Cas, No. 7,606.

53 Thornton v. Railway Co., 123 Mass. 32, 1 Cumming, Cas. Priv. Corp. 462;
Green y. Seymour, 3 Sandf. Ch. (N. Y.) 285.

54 Ante, p. 46, and cases there cited.

5510 Coke, 30, 2 Cumming, Cas. Priv. Corp. 14.

56 Thomas v. Dakin, 22 Wend. (N. Y.) 9, 1 Cumming, Cas, Priv. Corp. 1;
Conservators of River Tone v. Ash, 10 Barn. & C. 849, 1 Cumming, Cas. Priv.
Corp. 23; Dean v. Davis, 51 Cal. 406; Mahony v. Bank of State, 4 Ark. 620.

Clk.Pr.Corp.—4
5U CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch, 2

legislature will be defeated if certain parties are not found to pos-
sess corporate powers, they will be held to be created a corpora-
tion.” 57 Thus, a grant to certain persons by the state, of property
or powers which they cannot hold or exercise unless they have a
corporate character, will confer such a character.®* If no intention
to create a body corporate is expressed, and the powers conferred
may be exercised as well by an unincorporated association, an in-
tention to create a corporation will not be inferred.°®

AGREEMENT BETWEEN CORPORATION AND STATE—AC-
CEPTANCE OF CHARTER.

23. It is essential to the formation of a private corpora-
tion that there shall be consent on the part of the
persons composing it, as well as on the part of the
state. There must be an agreement between the
corporators in their collective capacity, or the cor-
poration, and the state. Therefore—

(a) When a charter is offered by the legislature, it must
be accepted, to have any effect.

(b) Until acceptance, the state may withdraw the offer,
as by repeal of the law, or adoption of a constitu-
tional provision rendering it void.

57 Bow v. Allenstown, 34 N. H. 351. .

58 Bow v. Allenstown, supra; Dean vy. Davis, 51 Cal. 410; Dunn v. University,
9 Or. 357; Town of North Hempstead v. Town of Hempstead, 2 Wend. (N. Y.)
109. “Whenever the language manifests the intention of the government tos
confer corporate privileges, they may be conferred without the adoption of any
particular technical phraseology or minutely descriptive language. It is indeed
a principle of law that has been often acted on, that where rights, privileges, and
powers are granted by law to an association of persons by a collective name, and
there is no mode by which such rights can be enjoyed, or such powers exercised,
without acting in a corporate capacity, such associations are, by implication, a
corporation, so far as to enable them to exercise the rights and powers granted.”
Ang. & A. Corp. §§ 77, 78.

59 Thus, where the executive council of Massachusetts passed a regolution as
follows: ‘Advised, that a company of artillery be established by Watertown,
agreeable to military law,”—it was held that the intention to make the company
a corporation could not be inferred. Shelton v. Banks, 10 Gray (Mass.) 401.
And see Stebbins v. Jennings, 10 Pick. (Mass.) 172.
§§ 23-24) ACCEPTANCE OF CHARTER. 51

(c) The offer will lapse because not accepted within a
specified time, or within a reasonable time where
no time is specified.

(d) The charter must be accepted, if at all, uncondition-
ally and according to its terms, and by those per-
sons to whom it is made.

(e) In the absence of provision to the contrary, accept-
ance of a charter may be presumed from acts of
the corporators; and it will be presumed where
they organize, and proceed to execute the powers
conferred.

24. The above rules apply equally to acts of the legisla-
ture amending existing charters.

It is commonly said that corporations are created by an act of the
sovereign,—in this country, by an act of the legislature,—and in a
sense this is true. But it is not to be understood from this that
the legislature can bring a private corporation into existence of its
own accord, and without the consent of the members who compose
it! The consent of the legislature is absolutely essential to the
existence of a corporation; but it is equally essential, in the case of
private corporations, that there shall be consent upon the part of
the persons incorporated. The charter of a private corporation is
a contract between the corporation and the state; and we may
therefore apply to the formation of a private corporation the -prin-
ciples of law governing offer and acceptance in the formation of other
contracts.

If persons apply to the legislature for a charter, this is sufficient
evidence of consent on their part, and, when the charter is granted,
no acceptance of it by them, other than will be implied from their pre-
vious application, need be shown.®° Indeed, they may be considered
as having made an offer, and the state as having accepted it. If,
however, without such application, the legislature offers a charter,
either tg particular persons by a special act, or to persons or a class

60 Perkins v. Sanders, 56 Miss. 783; Society of Middlesex Husbandmen &
Manufacturers v. Davis, 3 Mete. (Mass.).133; City of Atlanta v. Gate City Gas-
light Co., 71 Ga. 106.
52 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2

of persons generally by a general law, an acceptance must be shown.
Until acceptance, the offer of a charter, either by a general or a spe-
cial law, can have no effect whatever.* An act of the legislature
authorizing persons to become a body corporate by complying with
certain terms and conditions is, until accepted by the persons author-
ized, nothing but an offer on the part of the state, which may be
withdrawn by it at any time; and it is withdrawn, so as to be no
longer open for acceptance, by a repeal of the act by the legislature,
or by the adoption of a constitutional provision rendering such an
act void.°?

It is also the rule in the formation of corporations, as it is in the
formation of contracts generally, that the offer of a charter by the
state must be accepted according to its terms. It cannot be accepted
conditionally or on terms varying from the offer, nor can it be ac
‘cepted in part and rejected in part, unless this is allowed by the
act. On the same principle, the offer, if made to particular per-
sons, must be accepted by them. It cannot be accepted by others,
nor by a part, only, of those to whom it is offered.** General laws
authorizing the formation of corporations are general offers to any
persons who may bring themselves within their provisions. If con-
ditions precedent are prescribed in the statute, or certain acts are re-

61 State v. Dawson, 16 Ind. 40, 1 Cumming, Cas. Priv. Corp. 65, W. D. Smith,
Cas. Corp. 19, Shep. Cas. Corp. 54; Smith v. Silver Val. Min. Co. (Md.) 20 Atl.
1022; Bagg’s Case, 1 Rolle, 224; Hammond v. Jethro, 2 Brownl, & G. 100; Rex
‘vy. Amery, 1 Term R. 575; Rutter v. Chapman, 8 Mees. & W. 25; Falconer vy.
Campbell, Fed. Cas. No. 4,620; Hllis v. Marshall, 2 Mass. 269; Yeaton v. Bank
of Old Dominion, 21 Grat. (Va.) 593; President, etc., of Lincoln & Kennebec Bank *
v. Richardson, 1 Greenl. (Me.) 79; Shortz v. Unangst, 3 Watts & S. (Pa.) 45;
Haslett’s Ex’rs v. Wotherspoon, 1 Strobh. Eq. (S. C.) 209; Willis v. Chapman (¥t.)
35 Atl. 459. “The mere grant of a charter, where it does not appear upon the face
of the incorporating act, or otherwise, that the named corporators applied for it,
does not create the corporate body. Something more must be done. ‘There must
be at least an acceptance of the grant by a majority of the corporators before cor-
porate life and existence can begin.” Per Miller, J., in Smith v. Mining Co., supra.

62 State vy. Dawson, supra; Aspinwall v. Daviess County Com’rs, 22 How. 364;
Gillespie v. Railroad Co., 17 Ind. 2438.

63 Rex v. Westwood, 4 Barn. & C. 781, 7 Bing. 1; Lyons vy. Railroad Co., 82
Md. 18, 29. i

64 Ang. & A. Corp. 25; Cook, Stock, Stockh. & Corp.-Law, § 649; Mor. Priv.
Corp. § 22; Rex v. Amery, 1 Term R. 589,
§§ 23-24) ACCEPTANCE OF CHARTER. 3038

quired to be done, they are terms of the offer, and must be com-
plied with.°® The state’s offer of a charter, like the offer in the
formation of an ordinary contract, must be accepted within the time
specified in it, or, if no time for acceptance is specified, it must be
accepted within a reasonable time. If it is not so accepted, the
offer will lapse, and will be no longer open for acceptance.*®

The acceptance of a charter may be inferred from the acts of the
corporators, or a majority of them; and a written instrument or note
of acceptance is not indispensable, unless made so by the terms of
the act.°7 Any act on the part of the corporators, which shows an
unequivocal intention to accept, is sufficient; as, for instance, where
they proceed to execute the powers conferred by the charter offered
them.’* If such acts are shown, acceptance will be presumed.*®

The rule that a charter must be accepted before it can have any,
effect applies to acts of the legislature extending a charter that has
expired, or is about to expire.”° It also applies to acts amending ex-
isting charters under a right reserved to the state when the charter
was granted; for, though the state may reserve the right to amend
the charter of a private corporation, it cannot compel the members

65 Post, p. 55; Fire Department of New York v. Kip, 10 Wend. (N. Y.) 266;
Quinlan v. Railway Co. (‘T'ex. Sup.) 348. W. 738.

66 State v. Bull, 16 Conn. 179; Bonaparte v. Railroad Co., 75 Md. 340, 23 Atl.
TS.

67 Rex v. Amery, 1 Term R. 575; Bank of U.S. v. Dandridge, 12 Wheat. 64,
70; Gleaves v. Turnpike Co., 1 Sneed (Tenn.) 491.

68 See, in addition to the cases cited above, Demarest v. Flack, 128 N. Y. 205, 2s
N. B. 645; State v. Montgomery Light Co., 102 Ala. 504, 15 South. 347; Jack-
son v. Walsh, 75 Md. 304, 23 Atl. 778; St. Joseph & I. R. Co. v. Shambaugh, 100
Mo. 557, 17 S. W. 581; Com. yv. Cullen, 13 Pa. St. 133; Russell v. McLellan,
14 Pick. (Mass.) 63; Society of Middlesex Husbandmen & Manufacturers y.
Davis, 3 Metc. (Mass.) 183; MclKay v. Beard, 20 S. C. 156. Signing the articles
of association, and complying with all the other requirements of a general law .
authorizing the formation of corporations, is clearly sufficient evidence of accept-
ance. Glymont Imp. & Exc. Co. v. Toler, 80 Md. 278, 30 Atl. 651; Benbow v.
Cook, 115 N. C. 324, 20 S. H, 453.

69 Bank of U. S. v. Dandridge, 12 Wheat. 64, 70.

70 President, etc., of Lincoln & Kennebec Bank v. Richardson, 1 Greenl.
(Me.) 79.

71 Com. v. Cullen, 18 Pa. St. 188; Yeaton v. Bank, 21 Grat. (Va.) 593; post,
p. 213.
54 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2

to accept the charter as amended, any more than it could compel
them to accept the original charter. If they do not choose to adopt
the amendment, they may give up their charter altogether. The
acceptance of an amendment, like the acceptance of an original char-
ter, may be implied from the conduct of the corporation or its mem-
bers, and it will be conclusively presumed if the powers conferred by
the amendatory act are exercised.7?

The acceptance of an amendatory act, as we shall see, must gen-
erally be by the shareholders, and not by the board of directors. It
must be so if it changes the constitution of the corporation. Thus,
if an act of the legislature authorizes a corporation to increase its
capital stock, the directors cannot make the increase without the as-
sent of the shareholders.” If, however, action by the stockholders
-is not required by the act itself, and the act merely grants an addi-
tional privilege which is within the scope of the general authority of
the board of directors,—as, where an act authorizes a railroad com-
pany to take, for a station, land belonging to another railroad com-
pany, and the by-laws vest in the directors the power to take lands
and locate stations,—it has been held that their acts alone will be
sufficient evidence of acceptance.**

PLACE OF ORGANIZATION.

25. The acceptance of the charter by the corporators, and
other acts necessary to the organization of the cor-
poration, must take place within the state.

72 Com. v. Cullen, supra. And see Jackson v. Walsh, 75 Md. 304, 283 Atl. 778;
Illinois River R. Co. v. Zimmer, 20 Ill. 654; Owen vy. Purdy, 12 Ohio St. 73;
ante, p. 53, and cases there cited in notes 67-69. In Miller v. Insurance Co.,
92 Tenn. 167, 21 S. W. 39, it was held that an insurance company, by issuing poli-
* cies and continuing business after an act amending the charters of such com-
panies, passed in pursuance of a right of amendment reserved to the state in
the general incorporation law, which amendment the company was therefore bound
to adopt if it wished to continue business, thereby aceepted the amendment.

78 Hidman v. Bowman, 58 Ill. 444; Chicago City Ry. Co. vy. Allerton, 18 Wall.
238.

74 Hastern R. Co. v. Boston & M. R. Co., 111 Mass, 125. As to the power of
directors, see post, p. 485.
§ 26) COMPLIANCE WITH CONDITIONS PRECEDENT. 53

The officers of a corporation may perform acts as agents of the
corporation outside of the state of its creation, unless prohibited by
local legislation; but no strictly corporate act can be done outside of
the state.*° The reason is, as we shall presently show, that a cor-
poration can have no legal existence outside of the boundaries of the
sovereignty by which it was created.7® Acceptance of a charter, and
organization under it, are strictly corporate acts, and must, to be
effective, take place within the state. Thus, where a charter was
granted by the state of North Carolina, and the corporators, who
were authorized to act as directors until others should be elected, as-
sembled in Baltimore, and there passed resolutions of acceptance,
and performed the other acts necessary to organize the corporation,
it was held that the proceedings were void, and that the pretended
corporation had no legal existence’?

COMPLIANCE WITH CONDITIONS PRECEDENT.

26. Where the law authorizing the formation of a corpora-
tion prescribes formalities to be observed as condi-
tions precedent to becoming a corporation, a com-
pliance therewith is essential to the legal existence
of a corporation. But

(a) A substantial compliance is sufficient.

(b) The legal existence of a corporation is not affected
by noncompliance with provisions that are merely
directory, and not mandatory.

75 Miller v. Ewer, 27 Me. 509; I*reeman vy. Mill Co., 38 Me. 343; Smith v.
Mining Co., 64 Md. 85, 20 Atl. 1082.

76 Post, p. 74.

77 Smith vy. Mining Co., 64 Md. 85, 20 Atl. 1032. And see Miller v. Ewer, 27 Me.
509. Compare Ohio & M. R. Co. v. McPherson, 35 Mo. 18. In Glymont Imp. &
Exe. Co. v. Toler, 80 Md. 278, 30 Atl. 651, it was held that, though the directors of
a corporation held their first meeting and organized outside the state, organization
within the state was shown by the fact that ever since its incorporation the cor-
porators and their successors had exercised corporate rights of every kind under
the charter, had issued certificates of stock under the corporate seal, had ex-
pended money in developing its property, that a board of directors had been annu-
ally elected by the stockholders within the state, and the directors so elected con-
trolled and managed the property and affairs of the corporation.
56 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2
‘

(c) Nor is it affected by noncompliance with conditions
subsequent. This includes conditions precedent to
the right to do business, which are not intended as
conditions precedent to incorporation. ;

(d) A corporation de facto may exist notwithstanding
noncompliance with conditions precedent;. and in
such a case the existence of the corporation can
only be questioned by the state, and in a direct
proceeding brought for that purpose.

(e) A person may be estopped from denying that an as-
sociation is a corporation by dealing with it, or
holding it out, as a corporation.

Since it lies entirely with the state whether it will create a cor-
poration or not, it has a right to impose any conditions it may see
fit in the charter or act authorizing incorporation, and a substantial
compliance therewith by the corporators is essential to the legal
existence of a corporation. In Attorney General v. Hanchett™® a
Michigan statute declared that whenever the conimon council of a
city should, by resolution, declare that it was expedient to have wa-
ter works constructed, but that it was inexpedient for the city to con-
struct such works, it should be lawful for private individuals to or-
ganize a water company in the manner therein set forth. The de-
fendants sought to organize a corporation under this statute, and as-
sumed to act as such, without any resolution as required by the
statute. In proceedings by the state, the defendants were ousted
from the exercise of corporate powers on the ground that such a
resolution by the common council of the city was a condition preced-
ent to the legal] existence of a corporation under the statute. And
so it has been held where the statute required that there should be a
certain number of associates; 7® that there should be written articles
of agreement between the corporators; ®° that the articles of associa-

78 42 Mich. 486, 4 N. W. 182.

79 Montgomery v. Forbes, 148 Mass. 249, 19 N. E. 342, and 1 Cumming; Cas.

Priv. Corp. 69; State v. Critchett, 37 Minn. 18, 832 N. W. 787; Broderip v. Salo-
mon [1895] 2 Ch. 323.

80 Utley v. Tool Co., 11 Gray (Mass.) 189; Unity Ins. Co. v. Cram, 43 N. H.
636. Where the statute requires written articles of association, “it is obvious
that the three or more persons must sign and execute these articles in such a
§ 26) CUMPLIANCE WITH CONDITIONS PRECEDENT. 57

tion should set forth certain facts; §+ that they should be subscribed
by the corporators,*? and acknowledged by them; ** that the articles
or a certificate should be recorded or filed in a certain court or of-
fice; ** that notice of organization, setting forth certain facts, should
be published.**

Manner as to come within the well-established rules of law prescribing the’ ele-
ments necessary to constitute a signing or execution which will make the paper
executed the legal and binding instrument of the person who executes it. ‘heir
signatures must not be procured, without fault on their part, by fraud; nor must
they be affixed with the understanding and upon condition that the paper signed
is not to take legal effect, and be valid and binding, either presently, or at some
fixed and definite time, or upon the happening of some contingency or fulfillment
of some condition within the bounds of possibility. Nor is it obvious how such
an instrument as this, more than any other, can have life and binding force, if
executed only to take effect upon the happening of some event, unless it is shown
that the event has happened.’’ Corey y. Morrill, 61 Vt. 598, 17 Atl. 840.

81 As that they should set forth the number of directors and their names, Reed
vy. Railway Co., 50 Ind. 342; or that they should give the names and places of
residence of the subscribers to stock, Busenback vy. Road Co., 48 Ind. 265; Miller
v. Road Co., 52 Ind. 51; or should state the manner of carrying on the business,
State v. Central Ohio Mut. Relief Ass’n, 28 Ohio St. 399; or the place of carry-
ing on the business, Harris v. McGregor, 29 Cal]. 124; Montgomery v. Forbes, 148
Mass. 249, 19 N. HB. 342, 1 Cumming, Cas. Priv. Corp. 69; or the purposes of the
incorporation, West v. Ditching Co., 32 Ind. 188; O’Reiley v. Draining Co., Id.
169; Attorney Genera] v. Lerman, 59 Mich. 157, 26 N. W. 311; In re Crown
Bank, 44 Ch. Div. 634; or the fact that a majority of the associates were present
and voted at the election of directors, People v. Selfridge, 52 Cal. 331. The fact
that the articles claim more than the act allowed does not vitiate them so as to
prevent the corporation from coming into existence. ‘lhe excessive claims may
be rejected as surplusage. astern Plank-Road Uo. v. Vaughan, 14 N. Y. 546;
Shick vy. Enterprise Co. (Ind. App.) 44 N. IX. 48; post, p. 58.

82 Kaiser v. Bank, 56 Iowa, 104, 8 N. W. 772. Articles may be signed by the
corporators by their usual signatures, and the use of initials to designate their
Christian names is not objectionable. State v. Beck, 81 Ind. 500.

83 Doyle v. Mizner, 42 Mich. 382, 3 N. W. 968; ISaiser v. Bank, 56 lowa 104,
8 N. W. 772. If the statute requires that five persons shall subscribe the articles.
and that they shall be acknowledged by each, articles subscribed by five persons,
tit acknowledged by four only, are not sufficient. People v. Montecito Water
Co., 97 Cal. 276, 32 Pac. 236. ‘The notary’s certificate of acknowledgment of the
articles need not show that the persons acknowledging the same are personally
known to him. People v. Cheeseman, 7 Colo, 376, 3 Pac. 716.

84 Abbott v. Smelting, etc., Co., 4 Neb. 416; Kaiser v. Bank, 56 Iowa, 104,

85 Clegg v. Grange Co., 61 Iowa, 121, 15 N. W. 865.

 
58 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2

Sometimes, subscriptions to stock to a certain amount are re-
‘quired as a condition precedent; ** and it is sometimes required that
a certain percentage of the stock subscribed shall be paid up, or
‘shall be paid in cash.*7 In the absence of such a requirement in
the statute, subscriptions to stock are not a condition precedent to
corporate existence; but the corporation may be organized, and the
stock, or part of it, may be subscribed afterwards.** Illustrations
of conditions precedent might be multiplied almost indefinitely.
The fact that the articles of association claim more than the law

‘8 N. W. 772; Childs v. Hurd, 32 W. Va. 66, 9 S. Hi. 362; Bigelow v. Gregory,
73 Tl. 197; Hurt v. Salisbury, 55 Mo. 311; Walton v. Riley, 85 Ky. 413, 3 S.
W. 605; Loverin vy. McLaughlin (IJ. Sup.) 44 N. H. 9Y. Compare Granby Min-
ing & Smelting Co. v. Richards, 95 Mo. 106, 8 S. W. 246. As to filing copy with
the secretary of state, see 'irst Nat. Bank v. Davies, 43 lowa, 424; Indianapolis
F. & M. Co. v. Herkimer, 46 Ind. 142; Garnett v. Richardson, 35 Ark. 144.
And compare Mokelumne Hill Canal & Mining Co. v. Woodbury, 14 Cal. 424;
Walton v. Riley, 85 Ky. 413, 38. W. 605. The corporation, under some statutes,
‘comes into existence before filing the certificate, tiling the certificate being required
as evidence of the corporate existence, which dates from the time fixed in the
certificate. See Vanneman vy. Young, 52 N. J. Law, 403, 20 Atl. 53.

86 See post, p. 308; People v. Chambers, 42 Cal. 201; Sweney v. Talcott, 85 Iowa,
103, 52 N. W. 106; Lake Ontario, A. & N. Y. R. Co. v. Mason, 16 N. Y. 451;
Franklin Fire Ins. Co. v. Hart, 31 Md. 59. In Holman v. State, 105 Ind. 569,
5 N. E. 702, it was held that where the state, by quo warranto, directly chal-
lengéd the right of persons to act as a corporation, and it appeared that many of
the subscribers for the stock were notoriously insolvent, and had no expectation,
at the time they subscribed, of ever paying their subscription, thus leaving the
amount subscribed in good“faith less than that required by the statute, a judgment
of ouster was proper.

87 People v. Chambers, 42 Cal. 201.

88 Perkins v. Sanders. 56 Miss. 733; Hammond vy. Straus, 53 Md. 1; Proprie-
tors of City Hotel v. Dickinson, 6 Gray (Mass.) 586; Minor v. Bank, 1 Pet. 46;
Johnson yv. Kessler, 76 Iowa, 411, 41 N. W. 57; National Bank vy. Texas Inv,
Co, 74 Tex. 421, 12 S. W. 101; Singer Manuf’g Co. v. Peck (S. D.) 67 N. W.
47,

89 See Capps v. Prospecting Co., 40 Neb. 470, 58 N. W. 956; Martin v. Deetz,
102 Cal. 55, 36 Pac. 368; Heinig v. Manufacturing Co., $1 Ky. 300. A. certiti-
cate of incorporation, which provides that the corporate attairs snall be controlled
by its president, vice president, and attorney, instead of providing for a board of
directors, or trustees, as required by the statute, is insuflicient to create a corpora-
tion de jure. Bates vy. Wilson, 14 Colo. 140, 24 Pac. YY.
§ 26) COMPLIANCE WITH CONDITIONS PRECEDENT. 59

allows does not render the incorporation invalid, if the excessive
part of the claim can be rejected as surplusage.”°

Substantial Compliance with the Statute is Sufficient.

In organizing a corporation under either a general or a special
law, only a substantial compliance with the provisions of the statute
is required, even as against the state. Thus, it has been held that
the organization of a corporation is sufficient where the require-
ments of the statute are all observed, but not in the order prescrib-
ed; ®* that, where the statute requires the directors to be named in
the articles of association, it is a sufficient compliance with the stat-
ute if the articles are adopted at the time of electing directors.®*
Many other cases may be cited to the same effect.°* As was said in
a California case, however: “Because a substantial compliance will
do, it does not follow that any positive statutory requirement can be
omitted, on the ground that it is unimportant. They are condi-
tions precedent to acquiring a statutory right, and none can be dis-
pensed with by the court.” °*

2901 Thomp. Corp. § 229; People v. Cheeseman, 7 Colo. 376, 3 Pac. 716. In
‘this case, under a statute incorporation for the period of “0 years, the articles of
‘association provided for a corporate existence for 50 years. ‘The court held that
‘the corporation could exist for 20 years. See ante, p. 57, note 81.

91 Hakright v. Railroad Co., 13 Ind. 404.

92 Hakright v. Railroad Co., supra.

93 Roman Catholic Orphan Asylum y. Abrams, 49 Cal. 455; People v. Stockton
.& V. R. Co., 45 Cal. 306, 313; Oroville & V. R. Co. v. Supervisors of Plumas
Co., 37 Cal. 354; Thornton v. Baleom, 85 lowa, 198, 52 N. W. 190; State v.
Wood, 183 Mo. App. 189, 84 Mo. 378; Buffalo & P. R. Ce v. Hatch, 20 N. Y. 157;
Rogers v. Society, 19 Vt. 187. Failure of the notary’s certificate of acknowl-
edgment of articles of association to show that the persons acknowledging the
same were personally known to him. People v. Cheeseman, 7 Colo. 376, 3 Pac.
716. In State v. Wood, supra, it was held that a statutory requirement that
one-half of the capital stock shall be ‘actually paid up in lawful money of the
United States,” is substantially complied with if the corporation has property the
market value of which is greater than the par value of the stock.

94 People v. Water Co., 97 Cal. 276, 32 Pac. 236. In this case the statute
required the articles of association to be subscribed by five or more persons, and
acknowledged by each. It was held that where five persons subscribed the articles,
but only four persons acknowledged them, there was not a substantial compli-
‘ance. For other cases on this point, see Clegg v. Grange Co., 61 Iowa, 121, 15
N. W. 865. In State y. Association, 29 Ohio St. 399, it was held that a cer-
60 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2

Provisions That are Merely Directory.

It is not every provision in a charter or act of incorporation set-
ting out formalities to be observed that is to be regarded as man-
datory, so that a compliance therewith will be held a condition
precedent. If the provision is merely directory, failure to comply
with it will not be fatal. Whether a particular provision is man-
datory or merely directory must be determined by ascertaining the
intention of the legislature, to be gathered from the statute and its
purpose; and in the cases on this point we must expect to find some
conflicting decisions. The distinction may be illustrated by two
Massachusetts cases. In the first (Utley v. Union Tool Co.),°* the
alleged corporation was an association which had undertaken to
assume corporate powers under a statute authorizing three or more
persons, who had entered into “articles of agreement in writing”
for the transaction of certain kinds of business, to organize in a
manner prescribed by the statute, and thereby become a corpora-
tion. The court held that written articles of agreement were es-
sential to constitute a corporation, and that these articles must fix
the amount of the capital stock, and set forth distinctly the purpose
for which, and the place in which, the corporation was established.
“There is an obvious reason,” it was said, “for making such organiza-
tion by written articles of agreement a condition precedent to the
exercise of corporate rights. It is the basis on which all subse-
quent proceedings are to rest, and is designed to take the place of
a charter or act of incorporation,-by which corporate rights and
privileges are usually granted.” On the other hand, in Newcomb:
v. Reed,®® where an act of incorporation provided ‘that the first
meeting should be called by a majority of the persons named in the
act of incorporation, it was held that this provision was merely di-

tificate of incorporation setting forth that ‘‘the manner of carrying on the busi-
ness shall be such as the association shall from time to time prescribe by rules,
regulations, and by-laws, not inconsistent with the laws of the state,” was not a
substantial compliance with a requirement that the certificate should show “the
manner of carrying on the business of said association.” And see In re Crown
Bank, 44 Ch. Div. 634.

9511 Gray (Mass.) 139, and cases heretofore cited.

9612 Allen (Mass.) 862, 1 Cumming, Cas. Priv. Corp. 67.
§ 26) COMPLIANCE WITH CONDITIONS PRECEDENT. 61

rectory, and a failure to comply therewith did not prevent the cor-
poration from coming into existence.*7

Present Grant with Conditions Subsequent—Oonditions Precedent
to Doing Business.

Acts authorizing the formation of a corporation, and prescrib-
ing conditions precedent to its coming into existence, must be dis-
tinguished from acts creating a corporation, and giving it a present
corporate existence, but prescribing conditions to be subsequently
complied with. In the latter case, acceptance of the grant is all
that is necessary to the creation of a corporation. Noncompliance
with a condition subsequent does not affect the existence of the
corporation, though it may be ground for a proceeding by the state
to forfeit the charter. An act of the legislature of Missouri, in-
corporating a railroad company, declared that “a company is hereby
created, called the ‘St. Joseph & Iowa Railroad Company,” and
designated the first board of directors, but imposed no conditions
precedent. It did provide, however, that the directors should meet
and organize as a board of directors, and open books for subscrip-
tions to stock, and fixed a time within which the company should
commence and complete its road. It was held that these were
merely conditions subsequent; that the act was a present grant of
corporate powers; and that the corporation came into existence on
acceptance of the charter.*®

Conditions precedent to the formation of a corporation must be
distinguished from conditions precedent to the right to engage in
business after the corporation has been formed. The latter are
conditions subsequent, a noncompliance with which, while it may
give the state a right to maintain proceedings to forfeit the char-

97 See, also, Walworth v. Brackett, 98 Mass. 98; Cross v. Mill Co., 17 Ill. 54;
Proprietors of City Hotel in Worcester v. Dickinson, 6 Gray (Mass.) 586, 593; Hak-
right y. Railroad Co., 18 Ind. 404; Humphreys v. Mooney, 5 Colo. 282; Brain-
tree Water-Supply Co. v. Town of Braintree, 146 Mass. 482, 16 N. LH. 420.

98 St. Joseph & 1. RK. Co. v. Shambaugh, 106 Mo. 557, 17 8S. W. 582. See, also,
Cheraw & C. R. Co. v. White, 14 8. C. 51; Toledo & Ann Arbor R. Co. v. John-
son, 49 Mich. 148, 13 N. W. 492. For other illustrations of conditions subsequent,
see Boston Acid Manuf’g Co. v. Moring, 15 Gray (Mass.) 211; Schenectady &
Saratoga Plank-Road Co. v. Thatcher, 11 N. Y. 102; Merrick v. Governor Co.,
101 Mass. 381.
62 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch, 2

ter, does not, in the absence of such proceedings, in any way affect
the legal existence of the corporation. The case of Harrod v. Ha-
mer *° illustrates this distinction. A statute of Wisconsin provided
that, before any corporation organized thereunder should “com-
mence business,” the officers should cause the articles of associa-
tion to be published in the papers, make a certificate setting forth
the purpose for which the corporation was formed and certain other
facts, and deposit the same with certain public officers. It was
held that a failure to comply with these conditions did not affect
the legal existence of the corporation.1°° “There is a broad and
obvious distinction between such acts as are declared to be necessary
steps in the process of incorporation, and such as are required of the
individuals seeking to become incorporated, but are not made pre
requisites to the assumption of corporate powers. In respect to
the former, any material omission will be fatal to ‘the existence of
the corporation, and may be taken advantage of collaterally, in any
form in which the fact of incorporation can properly be called in
question. In respect to the latter, the corporation is responsible
only to the government, and in a direct proceeding to forfeit its char-
ter.” 101

Who may Object—Corporation de Facto—Extoppel.

While conditions precedent must always be performed, in order
that a corporation may have a legal existence, it does not, by any
means, follow that objection to the existence of a corporation on
this ground can be raised by any and every person, and in every pro-
ceeding. The objection may always be raised by the state in a
direct proceeding brought by it to test the right to corporate ex-
istence, as in quo warranto proceedings, or proceedings in the na-

99 32 Wis. 162.

100 See, also, In re Shakopee Manufg Co., 37 Minn. 91, 33 N. W. 219; Baker
vy. Backus’ Adm’r, 82 Ill. 79; Lord vy. Association, 37 Md. 320; Hammond v.
Straus, 53 Md. 1, 11; Holmes vy. Gilliland, 41 Barb. (N. Y.) 568; Hughesdale
Manuf’g Co. v. Vanner, 12 R. 1. 491; Granby Mining & Smelting Co. v. Hich-
ards, 95 Mo. 106, 8 S. W. 246; Sparks v. Steel Co., 87 Ala. 294, 6 South. 195;
Portland & G. ‘Turnpike Co. v. Bobb, 88 Ky. 226, 10 S. W. 794. But see Bige-
low v. Gregory, 73 lll. 197; Hurt v. Salisbury, 55 Mo. 311; Hisfeld v. Kenworth,
50 Iowa, 3S8Y.

101 Mokelumne Hill Canal Min. Co. v. Woodbury, 14 Cal. 424; Hyde v. Doe,
4 Sawy. 183, Fed. Cas. No. 6,969.

-
§ 26) COMPLIANCE WITH CONDITIONS PRECEDENT. , 63.

ture of quo warranto.*°? Even the state, however, cannot always.
raise the objection; and there are many cases in which private indi-.
viduals cannot object at all, though in a direct proceeding by the
state it might be held that there was no legal incorporation.

We shall presently see, at some length, that if there has been a.
bona fide attempt to incorporate, under a law authorizing incorpo-
ration, and the law has been so far complied with as to make the
association what is called a “corporation de facto,” the only way in
which its corporate existence can be questioned is in a direct pro-
ceeding by the state, brought for that purpose. Private individuals:
cannot raise the objection in such a case, either directly or indi-
rectly, and even the state cannot raise the objection collaterally..
If failure to comply with conditions precedent prevents the com-.
ing into existence of any corporation, either de jure or de facto, then,
on principle and in reason, the question may be raised collaterally
as well as directly, and by private individuals as well as by the
state, unless there is something to operate as an estoppel. When.
a private individual, therefore, raises the objectién that conditions
precedent have not been complied with, the question, in the absence
of elements of estoppel, is whether or not there is a corporation de
facto. If there is, he cannot object; otherwise, he can.

Where there is not even a corporation de facto, a private person.
may, by the weight of authority, be barred from raising the objec-
tion on the ground that he is estopped by his conduct, as by having
dealt with the pretended corporation as a corporation, or by having
held it out to the public as a legally constituted corporation.

There is much confusion, and some direct conflict, in the deci-
sions, on the law governing corporations de facto, and on the ques-.
tion of estoppel. These questions will be discussed and explained:
at length in a subsequent chapter.*°*

102 Attorney General v. Hanchett, 42 Mich. 436, 4 N. W. 182; People v. Mon-
tecito Water Co. 97 Cal. 276, 32 Pac. 286; State v. Central Ohio Mut. Relief
Ass’n, 29 Ohio St. 399; People v. Selfridge, 52 Cal. 331; People v. Chambers, 42.
Cal. 201.

103 Post p. 86.
64 CREATION AND CITIZENSHIP OF CORPORATIONS, (Ch. 2

AGREEMENT BETWEEN CORPORATORS AND CORPORATION.

27. An agreement between the corporators and the cor-
poration, creating a contractual relation between

them, is essential to the creation of a private corpor-
ation.

It is essential to the existence of a private corporation that there
shall be an agreement, between the corporators and the corporation,
creating a contractual relation between them. There can be no
such thing as a corporation aggregate without members, and’ a
person cannot become a member except by his own agreement or
contract. Some writers and some of the cases say that there must
be an agreement between the members, creating a contractual rela-
tion between them,’°* but this is inaccurate. There is no contract
between individual members in the formation of a corporation.
The contract is between each individual member and the whole body
of members in their collective capacity, represented by the corpora-
tion; that is, between each member and the corporation. <A sub-
scription for shares, for instance, in the organization of a corpora-
tion, is not a contract between the subscriber and the other sub-
scribers individually, but it is a contract between each subscriber

and the corporate body. This subject will be explained at length
in a subsequent chapter.2°®

WHO MAY BECOME CORPORATORS.

28. Unless excluded by the statute, any person who has

the capacity to enter into contracts may be a cor-
porator.

29. If a statute provides that a certain number ot persons
may organize a corporation, the prescribed num-
ber of bona fide corporators is necessary. It is
competent for the legislature to authorize a single
individual to form and become a private corpora-

1041 Mor, Priv. Corp. § 24,

And see Lauman y. Railroad Co., 80 Pa. St. 42.
105 Post, p. 2538,
§§ 28-29) WHO MAY BECOME CORPORATORS. 65

tion; but a statute will not oe construed so as to
give it this effect, unless it is clearly manifest that
such was the legislative intent. If the statute au-
thorizes “any” number of persons to form a cor-
poration, this does not authorize a single individu-
al to incorporate.

Capacity of the Corporators.

It is an implied term in every statute authorizing the formation
of corporations, and not expressly providing otherwise, that the
corporators shall be persons who are sui juris, and competent to enter
into a valid contract, though the statute may in terms say nothing
at all about their capacity.*°® Thus, it is implied that the corpo-
rators shall be of full age.*®7

Corporations are composed generally of natural persons in their
natural capacity; but they may be composed of persons in their
political and artificial capacity, as other corporations. In the time
of Edward the Sixth, a hospital corporation was established and
chartered in England, composed of the mayor, citizens, and common-
alty of London; and the same is true of a number of colleges, uni-
versities, and hospitals, both in England and in this country.*°*
The universities of Oxford and Cambridge are corporations com-
posed of many colleges which are separate and distinct corporations.
In some jurisdictions one busfness corporation is allowed to take
shares in another.°® It has been very generally held in this coun-
try, however, that, in the absence of express provision to that effect
in the statute, a private business corporation cannot become a mem-
ber of another corporation by subscribing for shares, as it is con-
sidered that public policy restricts the right to form a corporation
to persons acting individually and in their natural capacity..*° And
it has been held that this rule is not affected by the fact that the
statute allows “persons” to incorporate; and there is another stat-

106 In re Globe Mut. Ben. Ass’n, 68 Hun, 263, 17 N. Y. Supp. 852.
107 Id.
108 Regents of University of Maryland v. Williams, 9 Gill & J. (Md.) 365, 393.
109 Post, p. 151. :
110 Post, p. 151. See Denny Hotel Co. of Seattle v. Schram, 6 Wash. 134, 32
Pac. 1002; Central R. Co. v. Pennsylvania R. Co., 31 N. J. Eq. 475.
Clk.Pr.Corp.—S
66 GREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2

ute declaring that the term “person” may be construed to include
corporations as well as individuals, as this does not require such a
construction in all cases.***

Unless the statute expressly requires that the individuals organiz-
ing a corporation shall be residents of the state, a corporation may
be formed by nonresidents, and, in so far as that state is concerned,
it can make no difference that the place of business of the corporation
is to be in the state of the corporators’ residence.***? Whether or
not the corporation will be recognized as valid by the latter state is
a different question, and depends upon whether such an incorpora.. -
tion was an evasion of, and a fraud upon, its laws.*** In most
states a certain number of the corporators are required to be resi-
dents.

Number of Corporators.

Generally, the statutes authorizing the formation of corporations
require expressly that there shall be at least a certain number of
corporators, and such a requirement must be complied with. If
less than the required number of persons attempt to organize under
the statute, no corporation will come into existence.1** And the
associates must be bona fide corporators, and not straw men.'*°

It is perhaps safe to say that there is in no state a statute author-
izing a single individual to form himself into a corporate body, and
thus change his status and liabilities in business transactions. It
must not be supposed, however, that the state has no power to con-
stitute a single person a private corporation. The state may, if
the legislature sees fit, and there are no constitutional restrictions,,
grant a charter, as a private business corporation, to one man alone,
and leave it optional with him whether he will associate other per
sons with him, or have succession without doing so. In such a
case it was said: “The grant being to one person, * * * the in-

111 Denny Hotel Co. of Seattle v. Schram, supra.

112 Demarest v. Flack, 128 N. Y. 205, 28 N. E. 645; Lancaster v. Improvement .
Co., 140 N. Y. 576, 35 N. EB. 964.

118 Demarest v. Flack, supra.

114 Montgomery v. Forbes, 148 Mass. 249, 19 N. B. 342, 1 Cumming, Cas. Priv.
Corp. 69; Broderip v. Salomon, L. R. [1895] 2 Ch. 323; State v. Critchett, 37
Minn. 18, 32 N. W. 787.

115 See Broderip v. Salomon, supra.
§§ 80-31) PURPOSE OF INCORPORATION. _ 67

ference necessarily is that it was the intention of the legislature to
permit that one person or his successor to exercise all the corporate
powers, and to make his acts, when acting upon the subject-matter
of the corporation, and within its sphere of action and grant of
power, the acts of the corporation.”11* <A statute is not to be
construed as authorizing a single individual to form and become
a corporation, unless such an intention on the part of the legislature
is clear. Thus, one person alone cannot organize a corporation un-
der a statute authorizing “any number of persons” to associate them-
selves and become incorporated; for it is against the policy and in-
tent of the law to permit a single individual to conduct his business
in the name of and as a corporation, so as to exempt himself from -
the liabilities of other natural persons.127 Where a corporation
is legally organized by the requisite number of persons, the fact

that one person becomes the owner of all the shares does not dissolve
it.228

PURPOSE OF INCORPORATION.

30. Since legislative authority is essential to a valid in-
corporation, the purpose for which a corporation is
formed must come within the purposes authorized
by the statute.

31. A corporation formed by the various manufacturers
and sellers of a product, for the purpose of con-
trolling the supply and price, and stifling competi-
tion, is contrary to public policy, and illegal.

Since there can be no valid incorporation without legislative au-
thority, it follows that the object of a proposed corporation must be
such as the statute authorizes. It is not a question whether the ob-
ject is lawful or unlawful, but whether it is authorized.*??

The difficulty in this connection, and the only difficulty, is in de-

116 Penobscot Boom Corp. v. Lamson, 16 Me. 224. And see Day v. Stetson, 8
Greenl. (Me.) 365.

117 Louisville Banking Co. v. Hisenman, 94 Ky. 83, 21 S. W. 531, 1049; Swift
y. Sinith, 65 Md. 428, 5 Atl. 534.

118 Post, p. 234.

119 State y. International Inv. Co., 88 Wis. 512, 60 N. W. 796.
68 CREATION AND CITIZENSHIP OF - CORPORATIONS. (Ch. 2

termining, on a construction of the statute, whether the purpose of
particular associations, as set forth in the articles of association or
certificate, is within the statute. Some cases are very clear. Thus,
there can be no doubt or question but that a statute authorizing
corporations for manufacturing purposes does not authorize a cor-
poration for banking, or for constructing and operating a railroad.
Sometimes, however, the construction of the statute and applica-
tion of the rule is difficult. A statute authorizing the formation
of corporations “for buying, selling, exchanging and dealing in all
kinds of property, real or personal, or both,” is very broad. Per-
haps it might be held to authorize a manufacturing or banking cor-
poration; but it does not authorize a corporation “to encourage fru-
gality and economy in its members; to create, husband, and dis-
tribute funds from monthly installments, dues, or investments from
its members; to purchase, take, hold, sell, convey, lease, rent, and
mortgage real estate and personal property; to loan surplus ac,
cumulations; and to carry on and conduct a general investment busi-
ness,’—for the primary object of such an association is to obtain
money from its members, and the disposal of the money obtained by
it is merely an incidental or secondary object.*?° Nor, for the same
reason, is such a corporation authorized by a statute providing for
the formation of corporations “for loaning money on securities or
otherwise,” or “for the maintenance of any benevolent or charitable
institution.” +24 Other decisions are given below.+??

120 Id. 121 Id,

122 A corporation to build and maintain an opera house and lecture hall is
nuthorized by a statute allowing incorporation for the support of any educational
or literary undertaking, or for the promotion of music or other fine arts. Sey-
mour Opera-House Co. v. Wooldridge (Tex. Civ. App.) 31 S. W. 234. A statute
allowing corporations to carry on an “industrial pursuit” authorizes corporations
to carry on the express business, Wells, Fargo & Co. v. Northern Pac. R. Co.,
23 Fed. 469; or a mercantile business for the sale of goods, Bashford-Burmister
Co. v. Agua Fria Copper Co. (Ariz.) 85 Pac, 9883; Carver Mercantile Co. v.
Hulme, 7 Mont. 566, 19 Pac. 213. A statute authorizing “manufacturing” com-
panies includes electric light and gas companies. Beggs v. Illuminating Co., 96
Ala. 295, 11 South. 381; Nassau Gaslight Co. v. City of Brooklyn, 89 N. Y. 409;
People v. Wemple, 129 N. Y. 548, 29 N. HB. 808. But see Com. y. Northern
Electric Light & Power Co., 145 Pa. St. 105, 22 Atl. 889. “Manufacturing” in-
cludes the production of ice by artificial means, but it has been held that it does
not include the collection, storage, preparation for market, and transportation of
§§ 30-31) PURPOSE OF INCORPORATION. 69

Where the object of an attempted incorporation cannot be brought
within any of the purposes specifically mentioned in the statute, it
is often sought to sustain the incorporation under a general clause
contained in the statutes of most states. The construction of such
clauses has given rise to conflicting decisions. In Wisconsin, a
statute, after specifying certain purposes for which corporations
might be formed, added the general clause, “or for any lawful busi-
ness or purpose whatever.” The Wisconsin court, construing this
clause, held that, “by a well-settled rule of construction, these gen-
eral words extend only to things of a kindred nature to those spe-
cifically authorized by the section. ‘Noscitur a sociis.’ Any other
construction would enable parties, by mere agreement, to form a cor-
poration for any conceivable ‘business or purpose whatever,’ not in
violation of law. Certainly, the legislature never intended to grant
such unlimited authority.” 172 This construction is certainly very

naturally formed ice. People v. Knickerbocker Ice Co., 99 N. Y. 181, 1 N. E.
669. Contra, Attorney General y. Lorman, 59 Mich. 157, 26 N. W. 311. It
also includes the manufacture of lumber, flour, and meal. Cross v. Mill Co., 17
Ill. 54. <A statute authorizing corporations for ‘‘manufacturing’”’ purposes does
not authorize a corporation for the purpose of carrying on a manufacturing busi-
ness, and also another and independent business not properly incident to or con-
nected with manufacturing. State v. Minnesota Thresher Manutf’g Co., 40 Minn.
213, 41 N. W. 1020. A statute authorizing corporations ‘“‘for the erection of
buildings’ was held to authorize corporations for erecting buildings as a business
only. People v. Troy House Co., 44 Barb. (N. Y.) 625. In Guadalupe & S. A.
R. Stock Ass’n v. West, 70 Tex. 391, 7 S. W. 817, it was held that a corporation
organized to protect the personal property of its members from violence, theft,
ete., to raise money for necessary expenses by assessments, and confer with the
state officers, employ counsel, police, and detectives, when necessary to the
prosecution of criminals, though somewhat novel and peculiar, was authorized by
a statute providing that private corporations might be formed for mutual profit
or benefit, not inconsistent with the constitution and laws of the state. That an
educational institution, is not a corporation “for pecuniary profit,” though fees
are charged for tuition, see Santa Clara Female Academy vy. Sullivan, 116 Ill.
375, 6 N. BE. 183. A “mutual reliance society,’ constituted for pecuniary gain,
cannot be formed under an act for the incorporation of benevolent, charitable,
scientific, and missionary-societies. People v. Nelson, 46 N. Y. 477.

123 State v. International Inv. Co., 88 Wis. 512, 60 N. W. 798. Even under
this construction, it is held that a statute authorizing the formation of corporations
for the purpose of building and operating telegraph lines, or for any other law-
ful business, etc., authorizes a corporation for building and operating a telephone
70 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2

questionable. It is difficult to see why the legislature added this
clause, and with the addition of the word “whatever,” as if to em-
phasize, if it did not intend, as the language plainly imports, to
authorize incorporation for any lawful business whatever. That
such was the intention seems evident, for it could not well have been
more emphatically expressed; and the rule that, when general words
follow particular and specific words, the former must be confined to
things of the same kind as those specifically mentioned, is only in-
tended to aid in ascertaining the legislative intent, and not for the
purpose of controlling the intention, or confining the operation of
a statute within narrower limits than was intended by the lawmaker,
If the intention is clearly expressed, and the language of the statute
is without ambiguity, all technical rules of interpretation should be
rejected.

A better decision was made by the Missouri court in construing a
general clause which authorized the formation of corporations “for
any other purpose intended for pecuniary profit or gain not other-
wise specially provided for, and not inconsistent with the constitu-
tion and laws of this state.” It was held that this authorized a cor-
poration as the words of the clause imported, and should not be
construed. and limited to corporations of the kind specially men-
tioned in the preceding clauses.124 And it has been held that a
statute authorizing corporations “for mining, manufacturing, and
other industrial pursuits” did not limit the purpose to such industrial
pursuits as mining and manufacturing; but extended to the express
business, or any other industrial pursuit.125 There are many other
cases in which the statute has been similarly construed.'?* The
question in all cases is what was the intention of the legislature, and
not what, in the opinion of the court, the legislature ought to have
intended. !

A corporation formed by the various manufacturers and sellers
of a product, for the purpose of getting control of the manv-

line, as that is of a kindred nature. Wisconsin ‘lel. Co. v. City of Oshkosh, 62
Wis. 32, 271 N. W. 828,

124 State v. Corkins, 123 Mo. 56, 27 S. W. 363.

125 Wells, Fargo & Co. v. Northerti Pac. R. Co., 28 Fed. 469, 474.

126 York Park Bldg. Ass’n v. Barnes, 39 Neb. 884, 58 N. W. 440; National Bank
y. Texas Inv. Co., 74 Tex. 421, 12 8S. W. 101; Brown v. Corbin, 40 Minn, 508,
42 N. W. 481.
§§ 32-85) CORPORATE NAME. 71

facture and sale of the product, so as to stifle competition, and con-
trol the supply and price, is illegal, as being contrary to public poli-
cy, because it creates a monopoly, and is in restraint of trade. In
Distilling & Cattle Feeding Co. v. People,!?” in which quo warranto
proceedings were brought against the defendant corporation to oust
it from the exercise of corporate franchises, it appeared that a trust
combination was organized in order to obtain control of the manu-
facture and sale of distillery products, by purchasing the stock of
various distillery companies, and placing it in the hands of trustees.
The trust combination was then changed into the defendant cor-
poration, which was organized, owned, and controlled by the trus-
tees of the combination, and all the property controlled by the com-
bination was transferred to it. The corporation was held illegal, as
creating a monopoly, and was ousted from the exercise of corporate
franchises.'?§

CORPORATE NAME.

32. A corporation must have a corporate name.

33. Ordinarily, the corporators may select any name they

choose. But—

(a) Sometimes there are statutory restrictions in this
respect, and the statute must be complied with.

(b) By the common law, and by statute in some states,
a corporation cannot adopt the same, or substan-
tially the same, name as that of another corpora-
tion chartered by the same state.

34. A corporation may acquire a name by user or reputa-
tion, and it may thus be known by several names.

85. When a name has been given to a corporation in its
creation, it cannot be changed without legislative
authority.

127 156 Ill. 448, 41 N. E. 188.

128 See, also, People v. North River Sugar-Refining Co., 121 N. Y. 587, 24 N.
B. 834; Richardson v. Buhl, 77 Mich. 632, 43 N. W. 1102; State v. Standard
Oil Co., 49 Ohio St. 137, 830 N. EB. 279; People v. Chicago Gas Trust Co., 130
Til. 268, 22 N. EB. 798; State v. Nebraska Distilling Co., 29 Neb. 700, 46 N. W.
155.
72 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2

As was stated in explaining the attributes of a corporate body,
it is essential to the existence of such a body that it shall have some
name by which it may be known and have succession, and under
which it can contract and sue and be sued.*”®

Ordinarily, in organizing a corporation, the corporators may se-
lect any name they choose for the body, but in some states the choice
is to some extent limited by statute. In Connecticut it was, and is
perhaps still, required by statute that the name of every corpora-
tion organized under the general laws shall commence with the word,
“The,” and end with the word, “Company” or “Corporation”; and:
there are similar provisions in some of the other states.

Name of Another Corporation.

In some states it is expressly provided by statute that no cor-
poration shall adopt the same name that is being used at the time
by another corporation.**® This, or a similar provision, it has been
held, prevents the selection of a name that is substantially, though
not exactly, the same as that of another corporation.***

129 Ante,-p. 17; Conservators of the River Tone v. Ash, 10 Barn. & C. 349,
1 Cumming, Cas. Priv. Corp. 28; Mariot v. Mascal, And. 206. ‘A corporation
is a body politic, consisting of material bodies, which, joined together, must have
a name to do things which concern the corporation, or else it is no corporation.”
Conservators of the River Tone v. Ash, supra. ‘the names of corporations are
given of necessity, for the name is, as it were, the very being of the constitution;
for, though it is the will of the king that erects them, yet the name is the knot of
their combination, without which they could not perform their corporate acts;
for it is nobody to plead and be impleaded, to take and give, until it hath gotten
a name.” 2 Bae. Abr. tit. “Corporations,” c. 1. ‘The identity of name is the
principal means for effecting that perpetuity of succession, with members fre-
quently changing, which is an important purpose of incorporation.” Reg. v. Keg-
istrar, 10 Q. B. 839.

130 See Elgin Butter Co. v. Elgin Creamery Oo., 155 LI. 127, 40 N. E. 616;
State v. McGrath, 92 Mo. 355, 5 S. W. 29; Illinois Watch Case Co. v. Pearson,
140 ll. 423, 31 N. I. 400.

181 Thus, it was held that, where there was a corporation by the name of
“Kansas City Real-Estate and Stock Exchange,” the secretary of state would
not be compelled by a writ of mandamus to issue a certificate of incorporation to.
the ‘‘Kansas City Real-Hstate Exchange.” State v. McGrath, supra. The supreme
court of Illinois, however, held that such a statute did not ‘prevent the incorpora-
tion of the “Hlgin Butter Company” and the “Elgin Creamery Company.” Elgin
Butter Co. v. Elgin Creamery Co., supra.
§§ 32-35) CORPORATE NAME. 73

At common law, and independently of any statute, a corpora-
tion has an exclusive right to the use of its name, and it will be pro-
tected by a court of equity, by injunction, against its use by another
corporation. “The name of a corporation is a necessary element
of its existence, and, aside from any statute, the right to its ex-
clusive use will be protected upon the same principles that persons.
are protected in the use of trade-marks.” 18?

Acquisition by User and Reputation.

Generally, a name is given to a corporation when it is created,
whether by a special law or under a general law. If this is not done,
however, it may, in the absence of statutory regulations, acquire a
name by user or by reputation; +** and it has been held that it may
thus be known by several names.19*

Change of Name.

Where a name has been given to a corporation in its creation, it
cannot, unless authorized by statute, change its name, either directly,
as by resolution, or indirectly, by the use of another.1*> Such a
change must be made, if at all, under legislative authority, and the
statute must be complied with.1** Any act which provides that an
existing corporation shall or may change its name, changes, in an
essential particular, the organic law of such corporation, and is.
therefore an amendment of its charter, and subject to all the rules
relating to amendments.'** A change of its name does not change

132 State v. McGrath, 92 Mo. 355, 5 S. W. 29; Newby v. Railway Co., Deady,
609, Fed. Cas. No. 10,144; Holmes, Booth & Haydens v. Holmes, Booth & At-
wood Manuf’g Co., 37 Conn. 278. See note to R. W. Rogers Co. v. Wm. Rogers.
Manuf’g Co., 17 C. C. A. 579-591, 70 Fed. 1017.

133 Dutch West India Co. v. Van Moses, 1 Strange, 612; Anon., 3 Salk. 102;
Smith v. Plank-Road Co., 30 Ala. 650; South School Dist. vy. Blakeslee, 13 Conn.
227; Sykes v. People, 132 ll. 82, 23 N. E. 391.

134 Anon., 38 Salk. 102; Minot ¥. Curtis, 7 Mass. 441; Society for Propagating
the Gospel v. Young, 2 N. H. 310.

135 Sykes v. People, 132 Ill. 32, 23 N. E. 391; Reg. v. Registrar, 10 Q. B. 839.

136 Such statutes have been enacted in some states. In New York the court
is authorized to grant a corporation an order to change its name where it appears.
‘that there is no reasonable objection.” ‘L'his leaves the question whether a change
shall be allowed within the discretion of the court. In re United States Mer-
cantile Reporting & Collecting Agency, 115 N. Y. 176, 21 N. EB. 1084.

187 Sykes v. People, 182 Ill. 32, 23 N. E. 391.
74 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch, 2

the identity of the corporation, or affect its title to property.**®
It is not in any sense the creation of a new corporation, and there-
fore the change may be authorized by a special act without violating
the constitutional provision that corporations shall be created only
under general laws.*?*

Liffect of Misnomer.

Misnomer of a corporation in a bond, note, or other deed or con-
tract, does not vitiate it; but the corporation may sue or be sued
thereon in its true name, with an allegation and proof that it is the
party intended. Nor will a grant to or by a corporation be avoided
because of a misnomer. And a devise or legacy to a corporation is
good if the corporation is so described that it can be identified. In
all of these cases parol evidence is admissible to explain the ambig-
uity and identify the corporation.**°®

In legal proceedings, corporations must be correctly named. Ina
suit against a corporation, a misnomer not in substance is ground
for plea in abatement; but if the corporation appears, and does not
plead in abatement, it cannot afterwards object. If the misnomer
is substantial, the proceedings will not affect the corporation. The
Same is true ef criminal prosecutions against corporations. Mis-
nomer is fatal to writs of execution, mandamus, etc., against a cor-
poration, It is also fatal to a judgment against a corporation,*}

RESIDENCE AND CITIZENSHIP OF CORPORATIONS.

36. A corporation has no legal existence beyond the
boundaries of the state by which it was created.
In so far as it can be a citizen or inhabitant, it is
a citizen or inhabitant of that state, and of that |
state only, though it may do business in another.

128 Girard v. Philadelphia, 7 Wall. 1, “39 Ante, -p, a2,

140 Hager’s Town Turnpike Road Co. v. Creeger, 5 Har. & J. (Md.) 122; Presi-
dent, ete, of Berks & Dauphin ‘Lurnpike Road y. Myers, 6 Serg. & R. 12;
Mount Palatine Academy v. IKleinschnitz, 28 Ul. 138; Medway Collar Manu-
factory v. Adams, 10 Mass. 360; Commercial Bank v. French, 21 Pick. (Mass.)
486; New York Institution for the Blind v. How’s Hx’rs, 10 N. Y. 84; Society
for Propagating the Gospel v. Young, 2 N. H. 310; 1 Thomp. Corp. §§ 294, 295.

141 As sustaining these propositions, see McGary v. People, 45 N. Y. 155; Glass
v. Turnpike Co., 82 Ind. 376; 1 ‘Lhomp. Corp. §§ 290-293.
,

§§ 86-38) RESIDENCE AND CITIZENSHIP OF CORPORATIONS, 75

37. Where corporations are formed by corresponding leg-
islation in different states,—as where corporations
of different states are consolidated under similar
acts in each state, or where one state makes a cor-
poration of another state, as there conducted, a
corporation of its own,—the legal effect is that
there is a separate corporation in each state, which
is a citizen of that state only.

88. An act merely recognizing a foreign corporation, and
allowing it to do business in the state, is a mere
license, and not a charter, and does not change the
character of the body as a foreign corporation.

A corporation, as we have seen, has an individuality separate from
that of the members who compose it. It acts and is regarded, for
many purposes, as a distinct person, having many of the rights, and
being subject to many of the liabilities, of natural persons. It is
important, therefore, to determine the residence or citizenship of
corporations. The question has generally arisen in connection with
the question of jurisdiction of suits by and against corporations in
the federal courts, but it may arise in many other ways.

It is well settled that, for the purpose of determining the jurisdic-
ta6n of the federal courts of suits by and against corporations, a
corporation “is to be regarded as if it were a citizen of the state.
where it was created, and no averment or proof of the citizenship of
its members elsewhere will be permitted. There is a presumption
of law which is conclusive.” +#* So it is, also, for other purposes.

142 Baltimore & UO. RK. Co. v. Harris, 12 Wall. 65, 1 Cumming, Cas. Priv. Corp.
46; Ohio & M. KR. Co. v. Wheeler, 1 Black, 297; Louisville, C. & C. R. Co. v.
Letson, 2 How. 497; Shaw v. Mining Co., 145 U. 8S. 444, 12 Sup. Ct. 935, 2 Cum-
ming, Cas. Priv. Corp. 5, W. D. Smith, Cas. Corp. 15,.Shep. Cas. Corp. 55:
note to St. Louis, 1. M. & S. Ry. Co. v. Newcom, 6 C. C. A. 174, 56 Ted. 951.
See Bank of U. S. v. Deveaux, 5 Cranch, 61; Marshall v. Railroad Co., 16 How.
314, 327. For this reason it must appear somewhere (anywhere) in the pleadings,
in an action against a corporation in a federal court, in what state it was created,
if the only ground for federal jurisdiction is diverse citizenship. Muller v. Dows,
94 U. 8S. 444; St. Louis, I. M. ‘& S. Ry. Co. v. Neweom, supra. An averment that
a defendant corporation is a citizen of a certain state other than that in which
suit is brought is not a sufficient allegation of diverse citizenship. The pleadins
76 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2

A “corporation, being a mere creature of a local law, can have no
legal existence beyond the limits of the sovereignty where creat-
ed.” 143 This is none the less true because the corporation is allowed
to do business in another state by the comity of the latter. This
does not make it a citizen of the latter state for the purpose of federal -
jurisdiction, or for any other purpose.***

The same principle applies where a statute uses the word “inhab-
itant” or “resident,” and corporations are within the purpose of the
law. A corporation cannot be an inhabitant of any state other
than that by which it was created. Thus, under the act of congress

must show that it was created by the laws of a foreign state. Lafayette Ins. Co.
\. French, 18 How. 404, ‘he citizenship of a corporation, for the purposes of
jurisdiction of a suit by or against it in the federal courts, is to be determined
as of the time when the suit is commenced, and not as of the time when the
cause of action accrued. Stout v. Railroad Co., 8 Fed. 794, Cumming, Cas. Priv.
Corp. 61. It was said by the supreme court of the United States that ‘‘a cor-
poration itself can be a citizen of no state in the sense in which the word ‘citi-
zen’ is used in the constitution of the United States. [See Bank of U. S. v. De-
veaux, 5 Cranch, 61.) A suit may be brought in the federal courts by or against
a corporation, but in such a case it is regarded as a suit brought by or against
the stockholders of the corporation; and, for the purposes of jurisdiction, it is
conclusively presumed that all the stockholders are citizens of the state which.
by its laws, created the corporation.” Muller v. Dows, supra. In this case it
was clear that some of the stockholders of the corporation were not citizens of
the state which created the corporation, for the corporation was an extensive rail-
road company, created by the laws of Iowa. Instead of basing the decision on
a presumption which is evidently contrary to the fact, and instead of saying,
what we have seen is not true in legal contemplation, that a suit by or “against
a corporation ‘is to be regarded as a suit by or against the stockholders of the
corporation,” it is better to recognize a corporation, as it is in the eye of the law
in so far as suits by or against 1t are concerned, as having a personality dis-
tinct from that of its stockholders, and to say that the corporation itself is a citi-
zen, for the purposes of federal jurisdiction, of the state by which it was created.

143 Paul v. Virginia, 8 Wall. 168; Bank vy. Augusta v. Harle, 13 Pet. 519, 589;
post, p. 612.

144 Shaw v. Mining Co., 145 U.S. 444, 12 Sup. Ct. 935, 2 Cumming, Cas. Priv.
Corp. 5. “A corporation created by and organized under the laws of a particu-
lar state, and having its principal office there, is, under the constitution and
laws, for the purpose of suing and being sucd, a citizen of that state, * * *
ty doing business away from their legal residence they do not change their
cilizenship, but simply extend the field of their operations. They reside at home,
but do business abroad.” Baltimore & O. R. Co. y. Koontz, 104 U.S. 5, 11, 12.
§$ 36-38) RESIDENCE AND CITIZENSHIP OF (CORPORATIONS. 77

requiring suits in the federal courts, with certain exceptions, to be
brought in the district whereof the defendant is an inhabitant, a
corporation, for the purpose of suits against it in the federal courts,
is an inhabitant of the state of its creation, and of that state only,
though it may be doing business in other states, and may have an
agent there, and may have submitted, in the other states, to the
jurisdiction of their courts.1*® :

Charters from Several States.

It has been said that it is competent for several states to unite
in creating the same corporation, or in consolidating several pre-
existing corporations into a single one; but this is very inaccurate
language. Several states may, by corresponding legislation, create
several corporations, one in each state, having the same name, and
the same object and powers, and being under the same management;
but in the nature of things they cannot unite in creating the same
corporation, for the laws of a state can have no extraterritorial
effect. This is well settled, and seems so clear that it is strange
that the question should ever have been controverted. Suppose, for
instance, it is desired to incorporate a railroad company to construct
and operate, under one management, a railroad through several
states. In the absence of constitutional limitations, it is perfectly
competent for the legislatures of these states to pass similar laws,
chartering corporations to construct and operate the road, and to
have the same name and the same powers in each state, and to be
under one management, with principal offices in one state. So,
where different corporations have been created by different states,
it is competent for the legislatures of the different states to pass cor:
responding laws for the purpose of giving them the same name and
putting them under one management, or, in popular understanding,
of consolidating them. And where a corporation has been created
by one state, it is competent for another state, by appropriate legis-

145 Shaw v. Mining Co., 145 U. 8. 444, 12 Sup. Ct. 935, 2 Cumming, Cas, Priv.
Corp. 5, W. D. Smith, Cas. Corp. 15, Shep. Cas. Corp. 55; In re Keasby &
Mattison Co., 16 Sup. Ct. 273; Day v. India-Rubber Co., Fed. Cas. No. 3,685;
Donnelly v. Cordage Co., 66 led. 613; Gorham Manuf’g Co. v. Watson, 74 Fed.
418; Miller v, Manufacturing Co., 46 Fed. 882; post, pp. 612, 687.
78 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2.

lation, to make that corporation, as chartered and conducted in the
first-named state, a corporation of its own.**®

In none of these cases, however, do the different states unite in
creating the same corporation, or in consolidating the several cor-
porations into a single one. The result of such legislation is to
create a separate and distinct corporation in each state. The cor-
porations may have the Same name in each state, it is true, and they
may have the same powers, and be under one management, so that
for all practical purposes they are conducted as a single corpora-
tion; but in law they are separate and distinct corporate bodies.
The reason is that it-is not possible for a state to pass a law which
will have effect in another state, and a law of one state, therefore,
cannot create, nor aid in creating, a corporation in another state.**’

146 “Jt is entirely competent for the state, by its legislation, to determine the:
mode of creating corporations within its limits; and if it sees fit to declare that
a foreign corporation may become a corporation of the state by building a rail--
road therein, and filing a copy of its articles of incorporation with the secretary’
of state, I have no doubt that compliance with these terms constitutes the for-
eign corporation a domestic corporation with respect to all its transactions with--
in such state.” Stout v. Railroad Co., 8 Fed. 794, 1 Cumming, Cas. Priv. Corp.
61. And see Baltimore & O. R. Co. v. Gallahue’s Adm’rs, 12 Grat. (Va.) 655;
Louisville Trust Co. v. Louisville, N. A. & C. R. Co., 75 Fed. 483.

147 Ohio & M. R. Co. v. Wheeler, 1 Black, 286; Missouri Pac. Ry. Co. v..
Meeh, 69 Fed. 753, 16 ©. ©. A. 510; Railway Co. v. Whitton’s Adm’r, 13 Wall.
270; Newport & C. Bridge Co. v. Woolley, 78 Ky. 523; Fitzgerald v. Missouri
Pac. Ry. Co., 45 Fed. 812; Muller v. Dows, #4 U. S. 444, 1 Cummirig, Cas. Priv.
Corp. 53; Nashua & L. R. Corp. v. Boston & L. R. Corp., 136 U. 8. 356, 10 Sup. Ct.
1004; Chicago & N. W. R. Co. v. Auditor, 583 Mich. 91, 18 N. W. 586; Racine-
& M. R. Co. v. Farmers’ Loan & Trust Co., 49 Ill. 831; Rece v. Newport News
& M. V. Co., 32 W. Va. 164, 9 S. BE. 212; Bishop v. Brainerd, 28 Conn. 289. In:
Missouri Pac. Ry. Co. v. Meeh, supra, it was said: “At this day it must be
regarded as settled beyond doubt or controversy that two states of this Union
cannot by their joint action create a corporation which will be regarded as a
single corporate entity, and, for jurisdictional purposes, a citizen of each state-
which joined in creating it. One state may create a corporation of a given name,
and the legislature of an adjoining state may declare that the same legal entity
shall be or become a corporation of that state as well, and be entitled to exer-
cise within its borders, by the same board of directors and officers, all of its.
corporate functions. Nevertheless, the result of such legislation is not to create:
a single corporation, but two corporations of the same name, having a different
paternity.” In Chicago & N. W. R. Co. v. Auditor, supra, Judge Cooley said:
“It is impossible to conceive of one joint act performed simultaneously by two-
§§ 36-38) RESIDENCE AND CITIZENSHIP OF CORPORATIONS. 79

In the leading case of Ohio & M. R. Co. v. Wheeler,?** the plaintiff
described itself as a corporation created and existing under the laws
of the states of Indiana and Ohio, having its principal office in Cin-
cinnati, Ohio. It sued Wheeler in the circuit court of the United
States for the district of Indiana, describing him as a citizen of Indi-
ana. The supreme court of the United States held that there was
no jurisdiction, on the ground of diverse citizenship. “It is true,”
it was said, “that a corporation by the name and style of the plain-
tiff appears to have been chartered by the states of Indiana and
Ohio, clothed with the same capacities and powers, and intended
to accomplish the same objects; and it is spoken of in the laws of
the states as one corporate body, exercising the same powers and
fulfilling the same duties in both states. Yet it has no legal exist-
ence in either state, except by the law of the state; and neither
state could confer on it a corporate existence in the other, nor add
to or diminish the powers to be there exercised. It may, indeed, be
composed of and represent, under the corporate name, the same nat-
ural persons; but the legal entity or person, which exists by force
of law, can have no existence beyond the limits of the state or sov-
ereignty which brings it into life, and indues it with its faculties and
powers. The President and Directors of the Ohio & Mississippi
Railroad Company is, therefore, a distinct and separate corporate
body in Indiana from the corporate body of the same name in Ohio,
and they cannot be joined in a suit as one and the same plaintiff,
- nor maintain a suit in that character against a citizen of Ohio or
Indiana in a circuit court of the United States.” As was said by

sovereign states, which shall bring a single corporation into being, except it be
by compact or treaty. There may be separate consent given for the con-
solidation of corporations separately created; but, when the two unite, they sev-
erally bring to the new entity the powers and privileges already possessed, and
the consolidated company simply exercises in each jurisdiction the powers the
corporation there chartered had possessed, and succeeds there to its privileges.”
In Quincy Railroad Bridge Co. v. Adams Co., 88 Ill. 615, 619, it is said: Two
states “have no power to unite in passing any legislative act. It is impossible,
in the very nature of their organizations, that they can do so. They cannot so
fuse themselves into a single sovereignty, and, as such, create a body politic
which shall be a corporation of the two states, without being a corporation of
each state or of either state.”
1481 Black, 286,
80 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2

the Illinois court, “the only possible status of a company acting un-
der charters from two states is that it is an association incorporated
in and by each of the states; and, when acting as a corporation in
either of the states, it acts under the authority of the charter of the
state in which it is then acting, and that only, the legislation of the
other state having no operation beyond its territorial limits.” **°
Whenever one state makes a corporation of another state, as there
constituted and conducted, a corporation of its own quoad hoc any
property or transactions within its territorial jurisdiction, the corpo-
ration, in so far as suits in the federal courts in that state and trans-
actions there are concerned, is to be regarded as a citizen of that
state only, and cannot be regarded as a citizen of both states.*™

Charter Distinguished from License. ‘

Acts of the legislature creating corporations must be distinguished
from acts which merely recognize a corporation chartered by anoth-
er state, and allow it to do business within the state on compliance
with certain conditions. This distinction is illustrated by the case
of Baltimore & O. R. Co. v. Harris.15* The Baltimore & Ohio Rail-
road Company had been incorporated by an act of the legislature of
Maryland. Afterwards the legislature of Virginia passed an act
whereby, after reciting the Maryland act, it was declared “that the
same rights and privileges shall be, and are hereby, granted to the
aforesaid company within the territory of Virginia, and the said com-
pany shall be subject to the same pains, penalties, and obligations as
are imposed by said act; and the same rights, privileges, and im-
munities which are reserved to the state of Maryland or to the cit-
izens thereof are hereby reserved to the state of Virginia and her cit-
izens.” It was held in this case that the Virginia act was a mere
license, and nothing more, and that the license was given to the
Maryland corporation as such, and in no degree changed the character
or status of that body; that it remained a Maryland corporation only,
and therefore a Maryland citizen only for the purposes of federal
jurisdiction.*5?

149 Quincy Railroad Bridge Co. v. Adams Co., 88 Ill. 615, 619.

150 Stout v. Sioux City & P. R. Co., 8 Fed. 794, 1 Cumming, Cas. Priv. Corp.
61.

15112 Wall. 65, 1 Cumming, Cas. Priv. Corp. 46.
152 And see Pennsylvania R. Co. v. St. Louis, A. & T. H. R. Co.,.118 U. S.
§ 39) EXTENSION OF CHARTER—CREATION OF NEW CORPORATION. 81

EXTENSION OF CHARTER—CREATION OF NEW CORPORA-
TION.

39. It is competent for the legislature to extend a charter
before it has expired,.or to revive a charter after
its expiration. An act extending the period of ex-
istence of a corporation beyond the time for which
it was originally created, even under a new name,
does not create a new corporation. If, however, a
new corporation is intended ‘to be created, though
with the same name and the same members, the
old and the new body are distinct corporations.

The legislature, subject to constitutional limitations, may not
only pass an act before the charter of a corporation expires, extend-
ing the same,*** but it may pass an act reviving a charter which has
already expired, so as to revive the former corporation in all its
original force, and not create a new one.*** It is sometimes difficult
to distinguish between an act creating a new corporation, with the
same name and the same members as those of a former or an exist-
ing corporation, and an act which merely continues the existence of a
corporation previously created. The distinction is important. For
instance, if a statute grants special privileges to corporations there-
after incorporated, they cannot be claimed by a corporation previ-
ously created, though its charter may be afterwards extended.'**
Again, if a new corporation is created, though with the same name
and the same members as those of an existing corporation, whose
charter is about to expire, the new corporation is not liable for the
debts of the old, while it is otherwise if the existence of the old cor-
poration is merely extended.***

290, 6 Sup. Ct. 1094; Morgan v. Railroad Co., 48 Fed. 705; note to St. Louis, I.
M. & S. Ry. Co. v. Newcom, 6 C. C. A. 174, 175. Cf. Louisville Trust Co. v.
Louisville, N. A. & C. R. Co., 75 Fed. 433.

153 Foster v. Essex Bank, 16 Mass. 245, 1 Cumming, Cas. Priv. Corp. 464.

154 President, etc., of Lincoln & K. Bank v. Richardson, 1 Green}. (Me.) 19;
President & Selectmen of Port Gibson v. Moore, 18 Smedes & M. (Miss.) 157.

155 Frostburg Min. Co. v. Cumberland & P. R. Co., 81 Md. 28, 31 Atl. 698,

156 Bellows v. Bank, 2 Mason, 31, Fed. Cas. No. 1,279.

Clk.Pr.Corp.—6
82 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2

A mere change of name, as we have seen, does not create a new
corporate body.?5? “To ascertain whether a charter creates a new
corporation or merely continues the existence of the old one, we
must look to its terms, and give them a construction consistent with
the legislative intent and the intent of the corporators.”*** In a
late Maryland case the act under consideration was entitled “An act
to extend an act entitled ‘An act to incorporate the Wither’s Mining
Company,’ passed at the December session, 1847, chapt. 306”; and it
provided that said act, and a subsequent act amending it, “be and the
same are hereby continued in full force and effect” for 30 years, and
declared, after giving the company a new name, “that the company
by such name shall succeed to all the rights, powers, liabilities, and
obligations” of the company as previously named. Ht was held that
this did not create a new corporation, but merely continued the ex-
istence of the old one.15® On the other hand, where a bank was cre-
ated as a corporation, with the same name as that of an old bank,
whose charter was about to expire, and the statutes and circum-
stances together showed that the legislature did not intend merely to
continue the existing corporation, it was held that there was a new
and distinct corporation, though most of the stockholders were the
same, and that the new bank, therefore, was not liable for the debts
of the old bank.*®°

40. PROOF OF CORPORATE EXISTENCE.

The sufficiency of the proof of corporate existence will depend to
a great extent upon the nature of the proceeding in which the ques-
tion is raised, and the circumstances of the particular case. In quo
warranto proceedings by the state to test the right of an alleged cor-
poration to exercise corporate powers, corporate existence de jure
must be shown; and to show this it must be made to appear that
there is a valid law creating or authorizing such a corporation, that

157 Ante, p. 74.

158 Per Mr. Justice Story, in Bellows v. Bank, supra.

159 Frostburg Min. Co. vy. Cumberland & P. R. Co., supra.

160 Bellows v. Bank, supra. And see President & Selectmen of Port Gibson ¥.
Moore, 18 Smedes & M. (Miss.) 157,
§ 40) PROOF OF CORPORATE EXISTENCE. 83

there was a valid organization under it, and a substantial compli-
ance with all conditions precedent.'*+

On the other hand, as has heretofore been stated, and as will
presently be shown at some length, if the question of corporate ex-
istence is raised collaterally, it is sufficient if a de facto existence be
shown.*** Such proof is admissible whenever the question comes
up collaterally, as in a criminal prosecution for larceny, forgery, orany
other crime against an alleged corporation; 1** or in any civil proceed-
ing, other than proceedings by the state to test the existence of the
alleged corporation,'®* except, in some states, proceedings by the
corporation to condemn land under the power of eminent domain.!**
As will be seen, by the weight of authority, it is only necessary, in
order to prove de facto corporate existence, to show a valid law un-
der which the alleged corporation might have been formed, a colora-
ble bona fide compliance with that law, and an assumption of cor-
porate powers, or user.**°

Again, as we shall see, there are many cases in which a party may,
by his conduct, as by dealing with or holding out a body as a cor-
poration, be estopped to deny its existence as a corporate body.'*'
Here, by the weight of authority, it is not necessary to prove even
a de facto corporate existence. All that is necessary is to show the
facts that will operate as an estoppel.1** Where a person has con-
tracted or dealt with an association as a corporation, proof of that
fact alone is prima facie evidence of the corporate existence of the
body as against him, as in an action by the alleged corporation on
a subscription to its stock.*®®

The mode of proving acts of the legislature is a question of the
general law of evidence. There is no difference between the mode of
proving the charter of a corporation and the mode of proving other

161 Ante, p. 55; post, p. 86. 162 Post, p. 86.

163 Calkins v. State, 18 Ohio St. 370; State v. Habib, 18 R. I. 558, 30 Atl. 462.

1644 Mor. Corp. § 37.

165 Post, p. 88.

166 Post, p. 86; Bon Aqua Imp. Co. v. Standard Fire Ins. Co., 34 W. Va. 764,
12 S. E. 771.

167 Post, p. 99.

168 Post, p. 105.

169 United States Vinegar Co. v. Schlegel, 143 N. Y. 587, 38 N. E. 729.
84 CREATION AND CITIZENSHIP OF CORPORATIONS. (Ch. 2

legislative acts. A charter granted by a public statute need not
be proved at all, for the courts must take judicial notice of all public
acts.17° Private acts, however, must be proved, for the courts do not
take judicial notice of them.‘71_ For the mode of proving statutes,
the reader must refer to works on evidence. Foreign laws, includ-
ing charters granted by another state, must be proved.**?

We have seen that acceptance of a charter by the corporators may,
unless a particular mode of acceptance is prescribed by the legis-
lature, be shown by proof of any act on the part of the corporators
which shows an unequivocal intention to accept, as by showing that
they organized and exercised corporate powers. If such acts are
shown, acceptance will be presumed.*™* Unless there is statutory re-
quirement of other evidence, the organization of a corporation and
user, for the purpose of showing a de facto existence, may be shown
by parol evidence.*** It has been said that general reputation of
corporate existence is sufficient,*7® but this dictum cannot be support-
ed by authority. There must be evidence, not only of an act author.
izing incorporation and user of corporate powers, but also of or-
ganization in at least colorable compliance with the act.17* The
records, books, and minutes of a corporation, embracing the pro-
ceedings in its organization under its charter, or under the general
law, when regular and identified by the person authorized to make
them, are prima facie evidence of the organization of the corpora-.
tion.*77 When it is shown that there was an act authorizing the

170 Hays v. Bank, 9 Grat. (Va.) 127; Bank of Utica v. Meagher, 18 Johns. (N.
Y.) 341; Williams y. Bank, 2 Humph. (Tenn.) 339; Stribbling v. Bank, 5 Rand.
(Va.) 182; White Water Valley Canal Co. y. Boden, 8 Blackf. (Ind.) 130.

1711 Mor. Corp. § 88; Ohio & I. R. Co. v. Ridge, 5 Blackf. (Ind.) 78; State
y. Trustees of Vincennes University, 5 Ind. 77, 87, 91; Bailey v. Trustees of Lin-
coln Academy, 12 Mo. 174.

1721 Mor. Corp. § 89, United States Bank v. Stearns, 15 Wend. (N. Y.) 314.

178 Ante, p. 53; Bank of Manchester y. Allen, 11 Vt. 302.

174 Calkins v. State, 18 Ohio St. 870; State v. Habib, 18 R. I. 558, 30 Atl. 462;
Yakima Nat. Bank v. Knipe, 6 Wash. 348. 33 Pac. S34,

175 Fleener v. State, 58 Ark. 98, 23 S. W. 1. ‘

176 State v. Murphy, 17 R. I. 698, 24 Atl. 473: Porter v. State, 141 Ind. 488,
40 N. HE. 1061; Owen v. Shepard, 8 C. C. A. 244, 59 Fed. 746.

177 Buncombe Turnpike Co. v. McCarson, 1 Dev. & B. (N. C.) 306; Coffin v.
Collins, 17 Me, 440; Glenn v. Orr, 96 N. C. 418, 2S. EK. 538; Semple v. Glenn,
§ 40) PROOF OF CORPORATE EXISTENCE. 85

formation of an alleged corporation, that it was formed under the act,
and has since acted as a corporation, compliance with particular
provisions of the act will be presumed, in the absence of evidence to
the contrary.*7®

In many states it is expressly provided by statute that a certified
copy of the certificate or letters of incorporation or articles of as-
sociation, filed with the secretary of state or other officer (the statutes
necessarily varying in the different states), shall be prima facie evi-
dence of corporate existence.*7® This, however, does not exclude oth-
er competent evidence of incorporation, unless it is expressly so pro-
vided.1*° In some states it is provided that, whenever it is neces-
sary to prove the incorporation of a company, evidence that it is do-
ing business under a certain name shall be prima facie evidence of
its due incorporation.**!

If the certificate of incorporation and record thereof have been
lost or destroyed, parol evidence is admissible to show compliance
with the law in the organization of the company, and to prove the
contents of the certificate; and it is not necessary that such evidence
should be so minute as to permit of the reproduction of the certif-
icate in all its details. It is sufficient if it is so full as to show that
the law was complied with.**? Long acquiescence by the public in
the exercise of the franchise in such a case raises a presumption of
organization in conformity to law, in aid of the parol evidence.?**

91 Ala. 245, 9 South. 265; Peake v. Railroad Co., 18 Il. 88. If the acceptance
of a charter is recorded on the books, they are the best evidence; and parol evi-
dence is admissible only under the rules allowing secondary evidence. Coffin v.
Collins, supra; Hudson v. Carman, 41 Me. 84. It must be made to appear that
the books offered in evidence are the corporation books; that they have been
kept as such; and that the entries have been made by an authorized person.
President, ete., of the Highland ‘Curnpike Co. v. M’Kean, 10 Johns. (N. Y.) 154.

178 Bank of U. S. v. Lyman, 1 Blatchf. 297, Fed. Cas. No. 924.

179 Marshall v. Bank, 108 N. C. 689, 13 S. E. 182.

180 Edelhoff v. State (Wyo.) 36 Pac. 627.

181 Canal Street Gravel-Road Co. v. Paas, 95 Mich. 372, 54 N. W. 907.

182 Rose Hill & E. R. Co. v. People, 115 Ill. 183, 3 N. E. 725.

183 Rose Hill & E. R. Co. v. People, supra.

ws
86 EFFEC! OF IRREGULAR INCORPORATION. (Ch. 3

CHAPTER III.
EFFECT OF IRREGULAR INCORPORATION.

41-42. Corporations De Facto.
43-44. Estoppel to Deny Corporate Existence.
45. Liability.of Associates as Partners.

CORPORATIONS DE FACTO.

41. Where persons attempt, in good faith, to organize a
corporation under a statute that is valid, and that
authorizes such a corporation, and afterwards as-
sume to exercise corporate powers, there is a cor-
poration de facto, though, by reason of failure to
comply with the statute, there may not be a cor-
poration de jure; and the corporate character of
the association can only be questioned by the state
in a direct proceeding brought for that purpose.
By the weight of authority, to constitute a corpor-
ation de facto within this rule, there must be

(a) A valid law, and one which authorizes such a cor-
* poration.
(b) An attempt in good faith to organize under the
statute.
(ec) At least a colorable or apparent compliance with
the statute.
(d) An assumption of corporate powers.

42. The doctrine concerning de facto corporations is based

on grounds of public policy, and does not depend
on any element of estoppel.

A corporation may exist in fact without being legally constituted.
Such a corporation is called a corporation de facto, as distinguished
from a corporation de jure. “This phrase [de facto] is used to char-
acterize an officer, a government, a past action, or a state of affairs
which exists actually and must be accepted for all practical pur-
$§ 41-42) CORPORATIONS DE FACTO. 87

poses, but which is illegal or illegitimate. In this sense it is the con-
trary of ‘de jure.’”? The term “de facto,” as applied to a corpora-
tion, means a body which actually exists, for all practical purposes,
as a corporate body, but which, because of failure to comply with
some provision of the law, has no legal right to corporate |
ence as against the state. A corporation de jure, on the other hand,
is a corporation in law as well as in fact. Not even the state can
deprive it of its corporate existence in violation of the terms of its
charter.

The distinction between a corporation de jure and a corporation
de facto is very important. A corporation de jure has a right to
corporate existence even as against the state. ‘The state cannot,
even by a direct proceeding, deprive it of this right, contrary to the
terms of its charter. A corporation de facto has a corporate exist-
ence, even as against the state, where the state attacks its right col-
laterally; and it has such right as against private individuals, wheth-
er they attack its corporate existence collaterally or directly. The
state, which alone has the power to incorporate, may waive irregu-
larities in the organization of corporations; and, so long as the state
remains inactive in the premises, individuals must acquiesce.’
“Where the law authorizes a corporation, and there is an effort, in
good faith, to organize a corporation under the law, and thereupon,
as a result of such effort, corporate functions are assumed and exer-
cised, the organization becomes a corporation de facto, and, as a gen-
eral rule, the legal existence of such a corporation cannot be in-
quired into collaterally, although some of the required legal formali-
ties may not have been complied with. Ordinarily, such an inquiry
can only be made in a direct proceeding brought in the name of the
state.” §

A‘corporation de facto, that by regularity of organization might
be one de jure, can make contracts, purchase, hold, and convey prop-
erty, and sue and be sued, in the same manner as if it were a corpora-
tion de jure, for no one can object but the state. “A corporation de
facto may legally do and perform every act and thing which the

1 Black, Law Dict. tit. “De Facto.”

2 North vy. State, 107 Ind. 356, 8 N. E. 159), and cases cited in the following
notes.

3 Hasselman v. Mortgage Co., 97 Ind. 365.
88 EFFECT OF IRREGULAR INCORPORATION. (Ch. 3

same entity could do and perform were it a de jure corporation.
As to all the world except the paramount authority under which it
acts, and from which it receives its charter, it occupies the same posi-
tion as though in all respects valid; and even as against the state, ex-

cept in direct proceedings to arrest its usurpation of power, it is sub-

mitted, its acts are to be treated as efficacious.** “Mere irregulari-

ties in organization cannot be shown collaterally, where there is no
defect of power.” > The doctrine is not limited in its application to
domestic corporations, but extends to foreign corporations as well.‘

Some of the courts have held that the doctrine of de facto corpora-
tions does not apply to a case in which an alleged corporation at-
tempts to exercise the power of eminent domain by the appropria-
tion of private property to public use; that in such a proceeding, if

4 People v. La Rue, 67 Cal. 580, 8 Pac. 84. And see Heaston v. Railroad Co.,
16 Ind. 275, 1 Cumming, Cas. Priv. Corp. 417, W. D. Smith, Cas. Corp.. 20, and
Shep.. Cas. Corp. 184; Williamson y. Association, 89 Ind. 389; Iinnegan v.
Noerenberg, 52 Minn. 239, 53 N. W. 1150; Eaton v. Aspinwall, 19 N. Y. 119;
Buffalo & A. R. Co. v. Cary, 26 N. Y. 75, 1 Cumming Cas. Priv. Corp. 411;
Lamming v. Galusha, 81 Hun, 247, 30 N. Y¥. Supp. 767; Thompson v. Candor,
60 Ill. 244; People v. Board, 111 Ill. 171; Hudson vy. Green Hill Seminary Corp.,
113 Ill. 618; Bushnell v. Machine Co., 138 Il. 67, 27 N. H. 596; Duggan vy. In-
vestment Co., 11 Colo. 113, 17 Pac. 105; Appleton Mut. Fire Ins. Co. v. Jesser,
5 Allen (Mass.) 446; Butchers’ & D. Bank v. McDonald, 130 Mass. 264, 1 Cum-
ming, Cas. Priv. Corp. 420; Cochran y. Arnold, 58 Pa. St..399; Searsburgh
Turnpike Co. v. Cutler, 6 Vt. 815; East Norway Lake Church v. Froislie, 37
Minn. 447, 35 N. W. 260; Stout v. Zulick, 48 N. J. Law, 599, 7 Atl. 362; Me-
Tighe v. Construction Co., 94 Ga. 306, 21 S. HB. 701; Whitney v. Robinson, 53
Wis. 309, 10 N. W. 512; Selma & T. R. Co. vy. Tipton, 5 Ala. 787; Dannebroge
Min. Co. v. Allment, 26 Cal. 286; Dean ry. Davis, 51 Cal. 406; Bakersfield
Town Hall Ass’n vy. Chester, 55 Cal. 98; Pape v. Bank, 20 Kan. 440; Chicago
K. & W. R. Co. v. Stafford Co. Com’rs, 36 Kan. 121, 12 Pac. 593; Upton v.
Hansbrough, 3 Biss. 417, Fed. Cas. No. 16,801. “Ihe reason is that, if rights
and franchises have been usurped, they are the rights and franchises of the
sovereign, and he alone can interpose. Until such interposition, the public may
treat those possessing and exercising corporate powers under color: of law as
doing so rightfully. The rule is in the interest of the public, and is essential
to the safety of business transactions with corporations.” Duggan v. Invest-
ment Co., 11 Colo. 113, 17 Pac. 105. :

5 Heaston v. Railroad Co., supra.

6 Bank of Toledo vy. International Bank, 21 N. Y. 542; Lancaster vy. Im-
provement Co., 140 N. Y¥. 576, 35 N. BE. 964; Wright v. Lee, 4S. D, 287, 55.
N. Ww. 931; post, p. 632.
§§ 41-42) CORPORATIONS DE FACTO. 89

the question is raised, it must show that it is a corporation de jure.”
Other courts make no such distinction, but apply the doctrine in
condemnation proceedings as well as in other cases.®

If a pretended corporation is neither a corporation de jure nor one
de facto, it has no standing whatever, and its corporate existence
may be questioned collaterally, and by a private individual as well as
by the state,® provided there is no element of estoppel.?°

By the better opinion, though there are decisions to the contrary,

‘after the period of existence of a corporation has expired by force

of express provision in its charter or in a general law, it is not even
a corporation de facto. By the expiration of its charter it becomes
ipso facto dissolved, and no longer has any existence at all.** It
follows that its existence after that time can be questioned by any
person who has not estopped himself, and collaterally as well as
directly. Thus, if a pretended corporation, after expiration of its
charter, assumes to execute a conveyance, and the grantee, or one
claiming under him, sues a third person, who holds adversely, to
recover possession, the latter may question the validity of the con-
veyance, and dispute the existence of the corporation.**

The doctrine concerning de facto corporations does not prevent a
collateral attack on the right of a corporation to exercise a fran-
chise separate and distinct from the franchise of being a corpora-
tion. It has been held, for instance, that, even conceding that the
right of an association to exist as a corporation after the expiration
of the time limited in its charter cannot be questioned by a private

1 Atlantic & O. R. Co. v. Sullivant, 5 Ohio St. 276; Atkinson v. Railroad Co.,
15 Ohio St. 21.

8 Reisner vy. Strong, 24 Kan. 410; McAuley v. Railway Co., 83 I]. 348; Ward
v. Railroad Co., 119 Ill. 287, 10 N. BE. 365; Wellington & P. R. Co. v. Cashie
&C. R. & L. Co., 114 N. GC. 690, 19 S. B. 646.

9 Martin v. Deetz, 102 Cal. 55, 36 Pac. 368; Childs v. Hurd, 82 W. Va. Wb.
9 S. B. 362.

10 Post, p. 99.

11 Bradley v. Reppell (Mo. Sup.) 32 8S. W. 645. And see Grand Rapids Bridge
Co. v. Prange, 35 Mich. 400; Sturges v. Vanderbilt, 73 N. Y¥. 384; Dobson v.
Simonton, 86 N. C. 492; Krutz v. ‘town Co.. 20 Kan. 397. Contra, Bushnell v..
Machine Co., 138 Ill. 67, 27 N. E. 596; Miller v. Newburg Orrel Coal Co., 31
W. Va. 886, 8S. HE. 600. See post, p. 282.

12 Bradley vy. Reppell, supra.
90 EFFECT OF IRREGULAR INCORPORATION. (Ch. 3

individual in a collateral proceeding, he can thus question the right
of a corporation to take tolls after :the expiration of the period dur-
ing which it was authorized to take tolls, as he does not thereby
‘question its corporate existence.7®

What is Necessary to Constitute a Corporation De Facto.

Having once determined that a particular association is a corpo-
ration de facto, there is little difficulty in applying the principles
of law as stated above. But there is much confusion .and direct
conflict in the decisions as to what constitutes a corporation de facto,
as distinguished from an association which pretends to be a corpo-
ration, but which has no existence at all as such, either de jure or de
facto. And the books do not throw as much light on the question
as might be expected.**

Most of the courts hold that there is a corporation de facto when-
ever there is a valid law under which a particular kind of corpora-
tion may lawfully be organized, and persons having the required
‘qualifications undertake, in good faith, to organize such a corpora-
tion thereunder, comply at least colorably with the law, and after-
wards assume to act as a corporation, though particular provisions
of the law are not complied with. And they hold that it is alto-
gether immaterial, in such a case, whether compliance with the par-
ticular provisions was intended by the legislature as a condition
precedent to the formation of the corporation or not. Thus, an

13 Grand Rapids Bridge Co. v. Prange, 35 Mich. 400.

14 The state of the authorities on this subject is thus described by Judge
‘Thompson in his late work on Corporations: “It is impossible to formulate a rule
‘on the subject of de facto corporations, which will be applicable in all American
jurisdictions, or which will receive uniform support from the decisions in any
one such jurisdiction. Those decisions oscillate between two extreme views: (1)
‘That where a body of men act as a corporation, and in the ostensible possession
of corporate powers, it will be conclusively presumed, in all cases except in a
‘direct proceeding against them by the state to vacate their franchises, that they
are a corporation. (2) That the conditions named ‘in statutes authorizing the
organization of corporations are conditions precedent, and must be strictly com-
plied with, or the corporation does not exist; and that the want of compliance
with any one condition precedent may be shown by any one, in a private litiga-
‘tion with the pretended corporation, unless he has estopped himself by his con-

duct from challenging its corporate existence, and frequently without reference
to the question of estoppel.’ 1 Thomp. Corp. § 495.
§§ 41-42) CORPORATIONS DE FACTO. 91

association has been held a corporation de facto, though there was
not sufficient notice of the meetings held for the purpose of organiz-
ing, and though the certificates of incorporation were not prop-
erly executed, acknowledged, or recorded, as required by the stat-
ute.*® And there are many other cases to the same effect, or ap-
parently so.** All that is necessary, according to this doctrine,
is that there shall be a law under which such a corporation as the
one in question might have been formed, that there shall have been
a bona fide attempt to organize, and a colorable compliance with
the provisions of the law, and that there shall have been an as-
‘Sumption of corporate powers, or “user,” as it is termed. “Where it
is shown that there is a charter or law under which a corporation,
with the powers assumed, might lawfully be incorporated, and there
is a colorable compliance with the requirements of the charter or
law, and a user of the rights claimed under the charter or law, the
existence of a corporation de facto is established.” *" “Two things
are necessary to be shown to establish a corporation de facto, viz.:
(1) The existence of a charter or some law under which a corpora-
tion, with the powers assumed, might lawfully be created; and (2)
a user by the party to the suit of the rights claimed to be conferred
by such charter or law. If the law exists, and the record exhibits
a bona fide attempt to organize under it, very slight evidence of
user*beyond this is all that can be required.” *®

15 East Norway Lake Church v. Froislie, 37 Minn. 447, 35 N. W. 260.

16 See Attorney General v. Stevens, 1 N. J. Eq. 369; Stout v. Zulick, 48 N. J.
Law, 599, 7 Atl 362; Eaton v. Walker, 76 Mich. 579, 483 N. W. 638; Methodist
‘Church v. Pickett, 19 N. Y. 482, 1 Cumming, Cas. Priv. Corp. 407; Society
Perun vy. Cleveland, 43 Ohio St. 481, 3 N. E. 357; Finnegan v. Noerenberg, 52
Minn. 239, 53 N. W. 1150; Williamson vy. Association, 89 Ind. 389; Hasselman
v. Mortgage Co., 97 Ind. 365; North y. State, 107 Ind. 356, 8 N. KE. 159; Cochran
y. Arnold, 58 Pa. St. 399; Thompson v. Candor, 60 Ill. 244; Hudson v. Green
Hill Seminary Corp., 113 Ill. 618; Bushnell v. Machine Co., 188 Ill. 67, 27 N. E.
596; Miami Powder Co. v. Hotchkiss, 17 Ill. App. 622; Merriman v. Magiveny,
12 Heisk. (Tenn.) 494; Pape v. Bank, 20 Kan. 440; Haas v. Bank, 41 Neb. 754,
GO N. W. 85; Humphreys v. Mooney, 5 Colo. 282; Jones v. Hardware Co., 21
Colo. 263, 40 Pac. 457.

17 Stout vy. Zulick, supra.

18 faton v. Walker, supra. It will be noticed that, while the court here says
that two things only are necessary to constitute a de facto corporation, namely,
‘the law authorizing incorporation, and user under that law, it proceeds at once
92 EFFECT OF IRREGULAR INCORPORATION. (Ch, 3.

Same—Necessity for Valid Law Authorizing Incorporation.

In the first place, by the weight of authority, it is always essen-
tial to the existence of a corporation de facto that there shall be
some law under which such a corporation might have been legally
created or organized. If there is no law at all authorizing the
formation of such a corporation, there can be no corporation de
facto, even though there may have been an assumption of corporate:
powers. In a Wisconsin case there had been an attempt to organ-
ize two churches into one corporate body, whereas the statute only
authorized a corporation composed of one church. It was held
that the association was not even a corporation de facto. “To bea
corporation de facto,” it was said, “it must be possible to be a cor-
poration de jure; and acts done in the former case must be legally
authorized to be done in the latter, or they are not protected or
sanctioned by the law. Such acts must have an apparent right.”
Within this rule, an unconstitutional Jaw must be regarded as the
same as no law at all.2° There are a few cases which hold that a
de facto corporation may exist under an unconstitutional act,?* but
it is difficult to see how they can be supported, when we consider

to specify a third essential; that is, “a bona fide attempt to organize” under the
law. And it is clear that all three of these things are necessary. See Finne-
gan v. Noerenberg, 52 Minn. 239, 53 N. W. 1150. ‘‘A corporation de facto,” said
the Colorado court, “presupposes a charter or a law authorizing the creation of
such a corporation; that there has been an attempt in good faith to comply with
its provisions; and that there has been user or the exercise of corporate powers-
under it.” Duggan v. Investment Co., 11 Colo. 113, 17 Pac. 105.

19 Evenson v. Ellingson, 67 Wis. 684, 31 N. W. 342. And see Abbott v. Re-
fining Co., 4 Neb. 416; State v. Critchett, 87 Minn. 18, 32 N. W. 787; Duke v.
Taylor (Fla.) 19 South. 172; American Loan & Trust Co. v. Minnesota & N. W.-
R. Co., 157 Ill. 641, 42 N. E. 153.

20 Maton v. Walker, 76 Mich. 579, 43 N. W. 638; Burton v. Schildbach, 43-
Mich. 504, 8 N. W. 497; Green v. Graves, 1 Doug. (Mich.) 351; Brandenstein v..
Hoke, 101 Cal. 181, 85 Pac. 562. In Mc'Tighe v. Macon Const. Co., 94 Ga. 306,
21'S. E. 701, it was held, after a review of the cases, and a consideration of the
reasons on which the doctrine of de facto corporations is based, that a corporation
attempted to be created by a special act, which is unconstitutional, may, neverthe-
less, exist as a de' facto corporation, if there is a general law under which it might
have been incorporated. ;

21 Coxe y. State, 144 N. Y. 396, 89 N. E. 400. And see the dictum in Winget
v. Association, 128 Ll. 67, 21 N. E. 12.
§§ 41-42) CORPORATIONS DE FACTO. 93

that “an unconstitutional act is not a law. It confers no rights.
It imposes no duties. It affords no protection. It creates no office.
It is, in legal contemplation, as inoperative as if it had never been
passed.” ?* As we have seen, after the period of existence of a cor-
poration has expired by express limitation in its charter or in a
general law, it is not a corporation de facto. There is no law under
which it can exist.?3

Same—WNecessity for Bona Fide Attempt to Organize.

It is also essential to de facto corporate existence that there shall
have been a bona fide attempt to organize under the law, and at
least a colorable compliance with ‘the law in such attempt. “To
give to a body of men assuming to act as a corporation, where there
has been no attempt to comply with the provisions of any law au-
thorizing them to become such, the status of a de facto corporation,
might open the door to frauds upon the public. It would certainly
be impolitic to permit a number of men to have the status of a cor-
poration to any extent merely because there is a law under which
they might have become incorporated, and they have agreed among
themselves to act, and they have acted, as a corporation. * * *
‘Color of apparent organization under some charter or enabling
act’ *# does not mean that there shall have been a full compliance
with what the law requires to be done, nor a substantial compliance.
A substantial compliance will make a corporation de jure. But
there must be an apparent attempt to perfect an organization under
the law. There being such apparent attempt to perfect an organ-
ization, the failure as to some substantial requirement will pre-
vent the corporation from being a corporation de jure; but, if there
be user pursuant to such attempted organization, it will not prevent
it being a corporation de facto.” 7°

22 Norton vy. Shelby Co., 118 U. S. 442, 6 Sup. Ct. 1121.

23 Ante, p. 89.

24 The court had previously quoted from Taylor on Corporations: “When a
body of men are acting as a corporation under color of apparent organization, in
pursuance of some charter or enabling act, their authority to act as a corporation
cannot be questioned collaterally.” ayl. Corp. 145,

25 Winnegan v. Noerenberg, 52 Minn. 289, 53 N. W. 1150. And see Bash vy.
Mining Co., 7 Wash. 122, 34 Pac. 464; Haton v. Walker, 76 Mich. 579, 43 N. W.
638.

4
94 EFFECT OF IRREGULAR INCORPORATION. (Ch. 3.

Same—Sufficiency of Compliance with Law.

There are some cases that hold, and some that seem to hold, that
there cannot be even a de facto corporation unless the corporators
have substantially complied with all the conditions precedent pre-
scribed by the statute; that, without such compliance, the pretend-
ed corporation does not come into existence for any purpose; and
that, in the absence of elements of estoppel, the objection may be
raised by a private individual as well as by the state, and collater-
ally as well as directly.2° These cases, however, are contrary to
the great weight of authority, and some of them are not easily recon-
ciled with other decisions of the same court. To constitute a cor-
poration de facto there must, it is true, be a colorable compliance,
with the statute, but there need not be more. There need not be
a substantial compliance. A substantial compliance makes the
body a corporation de jure.27 As was said by the Minnesota court,
if there be an “apparent attempt to perfect an organization, the
failure as to some substantial requirement will prevent the cor-
poration from being a corporation de jure; but, if there be user
pursuant to such attempted organization, it will not prevent it being
a corporation de facto.” ?* That a colorable or apparent compli-
ance, in good faith, with the provisions of the law, is sufficient, is
shown by cases in almost all of the states.2? Some of the cases in

26 Thus, in Utley v. ool Co., 11 Gray (Mass.) 189, a case in which it was sought
to charge the defendants as stockholders of an alleged corporation, with personal
liability for its debts, the defense was that there were no written articles of agree-
ment in the organization of the alleged corporation, as required by the statute under
which the organization was attempted, and the defense was allowed. So, in Bige-
low vy. Gregory, 73 HI. 197, certain persons undertook to organize a corporation
under a general law which required the articles of association to be published in
a certain way, and a certificate of the purposes of the incorporation to be filed in
certain public offices; but they failed to comply with these provisions. It was
held that there was no corporation de facto, though articles of association were
executed, a common name adopted, 1nd business conducted under it; and the asso-
ciates were held liable as partners for goods sold to them. See, also, Montgomery
y. Forbes, 148 Mass. 249, 19 N. EK. 342; 1 Cumming, Cas. Priv. Corp. 69; Kaiser
v. Bank, 56 Iowa, 104, 8 N. W. 772; Shep. Cas. Corp. 268; Hurt v. Salisbury,
55 Mo. 310; McLennan y. Hopkins, 2 Kan. App. 260, 41 Pac. 1061.

27 Ante, p. 5Y.

28 Winnegan v. Noerenberg, 52 Minn. 239, 53 N. W. 1150.

29 See Thompson v. Candor, 60 Ill. 244; Bushnell vy. Machine Co., 138 IN. 67,
§§ 41-42) CORPORATIONS DE FACTO. 95

which the courts have allowed a collateral attack on the authority
of an association to exercise corporate powers, where there was a
valid law under which it might be incorporated, a bona fide attempt
at incorporation under it, and user of corporate powers, may per-
haps be explained on the ground that the court did not consider

that there had been, even a colorable or apparent compliance with
the law.*°

Same—Lecessity for User of Corporate Powers.

To constitute a de facto corporation it is also essential that the
parties shall have assumed in some way the appearance of a corpo-
ration, and shall have pretended to act as a corporate body. If,
after an attempt at incorporation, in which conditions precedent are
not complied with, the directors named in the articles never meet,
and no stock is issued nor corporate act done, the association is not
a corporation de facto.** | The mere fact that the owners of a mine
use a corporate name does not make a corporation de faeto, where
no corporate act is performed, and no steps have been taken to in-
corporate.*? As was said in a Michigan case, however, “if the law
exists, and the record exhibits a bona fide attempt to organize under

it, very slight evidence of user beyond this is all that can be re-
quired.” 53

27 N. E. 596; Miami Powder Co. v. Hotchkiss, 17 Il. App. 622; Hudson v. Semi-
nary Corp., 113 Ill. 618; Duggan v. Investment Co., 11 Colo. 113, 17 Pac. 105.
In Duggan v. Investment Co., supra, it was sought to avoid a mortgage given by
a corporation on the ground that its certificate of incorporation was defective be-
cause it was not acknowledged as required by the statute. The court said: “We
are aware of the distinction between mere omissions or irregularities, and what
are called ‘prerequisites’ of the statutes. The distinction may well be taken in
a direct proceeding or other exceptional cases where strict proof is required, but
we do not regard it as having any controlling place in the case at bar. What is
or what is not a prerequisite is often a difficult question for a professional man,
and much more for a layman, to determine. To cast such a burden upon the
public as between its individual members is to lose sight of the reason for, and
largely abrogate, the salutary rule respecting de facto corporations.”

30 Compare Finnegan v. Noerenberg, 52 Minn. 239, 53 N. W. 1150, with John-
son v. Corser, 34 Minn. 355, 25 N. W. 799.

31 Martin v. Deetz, 102 Cal. 55, 36 Pac. 368.

32 Bash vy. Mining Co., 7 Wash. 122, 34 Pac. 462.

33 Baton vy. Walker, 76 Mich. 579, 43 N. W. 6388.
96 EFFECT OF IRREGULAR INCORPORATION. (Ch. 3

Same— Where Attempted Organization 1s a Fraud upon the Act.

If the attempted organization of a corporation was a fraud upon
the act under which corporate existence is claimed, the better opin-
ion is that there is no corporation, even de facto. Thus, where citi-
zens of New Jersey went over into New York, and there attempted
to form a corporation under the laws of that state for the purpose of
doing business in New Jersey, it was held that there was no cor-
poration de facto, since, under the circumstances of that particular
case, the attempted organization was a fraud upon the laws of New
York.** So, where persons not named in a charter creating a cor-
poration to be located at a certain place, got control of the charter,
and attempted to establish a corporation under it, to be located at a
different place, it was held that the pretended corporation was not
even a de facto corporation.*®

The Doctrine of De Facto Corporations Distinct from the Doctrine
of Estoppel.

Much of the confusion in the cases as to corporations de facto re-
sults from a failure to distinguish between the doctrine of corpo-
rations de facto and the doctrine of equitable estoppel.** They are
not the same thing, but entirely different doctrines. No elements
of estoppel are necessary to prevent a private individual from ob-
jecting to the existence of a corporation de facto; and, as we shall
see, a man may, on equitable grounds, be estopped to question the
corporate character of an association that is not even a corporation
de facto. The rule relating to de facto corporations, said the Min-
nesota court, “is not founded upon any principle of estoppel, as is
sometimes assumed, but upon the broader principles of common jus-
tice and public policy. It would be unjust and intolerable if, un-
der such circumstances, every interloper and intruder were allowed
thus to take advantage of every informality or irregularity of or-

34 Hill v. Beach, 12 N. J. Eq. 31. See Empire Mills y. Alston Grocery Co.
(Lex. App.) 15 8. W. 200, 505, Shep. Cas. Corp. 64.

35 Booth vy. Wonderly, 86 N. J. Law, 250. Of. Elizabethtown Gas Light Go. ~
y. Green, 46 N. J. Eq. 118, 18 Ati. 844; Id., 49 N. J. Eq. 329, 24 Atl. 560.

86 For examples, see Hamilton v. Railroad Co., 144 Pa. St. 34, 23 Atl. 53; Bates

y. Wilson, 14 Colo. 140, 24 Pac. 99,104; Foster v. Moulton, 35 Minn. 458, 29 N.
W. 155.
§§ 41-42) CORPORATIONS DE FACTO. 97

ganization.” ®* The law forbids a private individual to question
the right of a corporation de facto to existence as a corporation, not
because of any conduct on his part which renders it inequitable to
allow him to do so, for the doctrine extends to persons who have
had no dealings whatever with the corporation, but because, irre-
spective of any question as to his position or conduct, it is con-
trary to public policy to allow any private individual to do so. No
man can deny that a particular association is a corporation de
facto, if he has so acted as to be equitably estopped, but, if not
so estopped, he can. No man at all can question the corporate ex-
istence of a de facto corporation. This distinction is recognized by’
the Alabama court in a case in which it is said that, before a suit
can be maintained by an alleged corporation, its actual or de facto
existence must be proved, “or else a state of facts shown which
will operate to estop the defendant from denying such de facto
existence.” #8 In a great many cases it is said that “a person who
has entered into a contract” with a “de facto” corporation in its.
corporate name and capacity cannot, in the absence of fraud, after-
wards disregard the existence of the corporation, and sue the stock-
holders individually as partners on the contract, or defeat an ac-
tion by the corporation on the contract.*® This is a confusion of
principles. They would be estopped in such a case to deny the ex-
istence of the corporation, whether it is a corporation de facto or
not. These cases, therefore, are more properly considered under
the doctrine of estoppel. If the corporation is a de facto one, then
it is not necessary that a private individual shall have dealt with
it in order that he may be prevented from questioning its corporate
existence,

In an Ohio case, the plaintiff admitted that persons who have
recognized the existence of a pretended corporation by their trans-
actions with it as a corporation are estopped to deny its corporate

87 Hast Norway Lake Church y. Froislie, 37 Minn. 447, 35 N. W. 260. And see
Society Perun vy. Cleveland, 4% Ohio St. 481, 3 N. E. 357 (collecting cases); Wil-
liamson v. Association, 89 Ind. 389; Pape v. Bank, 20 Kan. 440.

38 Schloss vy. Trade Co., 87 Ala. 411, 6 South. 360.

39 See Snider’s Sons Co. v. Troy, 91 Ala. 224, 8 South. 658; Swartwout v. Rail-
road Co., 24 Mich. 390; Butchers’ & Drovers’ Bank v. MeDonald, 130 Mass, 264,
1 Cumming, Cas. Priv. Corp. 420.

Clk.Pr.Corp.—7
98 EFFECT OF IRREGULAR INCORPORATION. (Ch. 3

existence; but it was contended that, as the plaintiff had engaged
in no transactions with the alleged corporation in this case, he was
free to challenge its existence as a corporation de facto as well as
de jure,—the argument being that “no case can be found where it
is held that there is a corporation de facto against persons who
have in no way recognized its existence as a corporation;” and that
“the notion of a de facto corporation is based on the doctrine of estop-
pel. When estoppel cannot be invoked, there can be no de facto
corporation.” The court, however, declined to take this view, and
held that it is a rule, entirely irrespective of any question of es-
toppel, that no private individual can attack the corporate char.
acter of a de facto corporation. In its opinion the court said: “The
theory that a de facto corporation hag no real existence—that it is
a mere phantom, to be invoked only by that rule of estoppel which
forbids a party who has dealt with a pretended corporation to
deny its corporate existence—has no foundation, either in reason
or authority. A de facto corporation is a reality. It has an actual
and substantial legal existence. It is, as the term implies, a cor-
poration. * * * It is bound by all such acts as it might right-
fully perform as a corporation de jure. Where it has attempted,
in good faith, to assume corporate powers; where its proceedings
in that behalf are colorable, and are approved by those officers of
the state who are authorized to act in that regard; where it has
honestly proceeded for a number of years, without interference from
the state, to transact business as a corporation; has been reputed
and dealt with as a duly-incorporated body, and valuable rights and
interests have been acquired and transferred by it,—no substantial
reason is suggested why its corporate existence, in a suit involving
such transactions, should be subject to attack by any other party
than the state, and then only when it is called upon, in a direct
proceeding for that purpose, to show by what authority it assumes
to be a corporation.” *°

40 Society Perun y. Cleveland, 43 Ohio St. 481, 3 N. H. 357,
§§ 43-44) ESTOPPEL TO DENY CORPORATE EXISTENCE. 99

ESTOPPEL TO DENY CORPORATE EXISTENCE.

43. Where persons pretend to form a corporation, and
assume to exercise corporate powers, an estoppel to
deny that they are a corporation operates as against

(a) The persons who so hold themselves out as a cor-
poration.

(b) The pretended corporation itself.

(ec) Third persons who deal with the association as a cor-
poration, except in the cases hereafter mentioned.

44. EXCEPTIONS—To the rule above stated there are ex-
ceptions. Though there are some conflicting deci-
sions, by the weight of authority the doctrine does
not apply

(a) Where the dealings relied upon as an estoppel are
not such as to show recognition of the association
as a corporation.

(b) Where there are no equitable grounds for applying
it, and, a fortiori, where to apply it would be in-
equitable.

(c) A few cases hold that the doctrine does not apply
where the assumption of corporate powers was
unlawful as being in violation of a prohibitory law.

(ad) In a few states the doctrine is held to apply to such
associations only as are at least corporations de
facto; but by the weight of authority it is not to
be so limited.

It is a well-settled rule, subject to very few, if any, exceptions,
that, where persons, undertake to form a corporation, and after-
wards assume to act as a corporate body, neither they nor the as-
sociation can dispute its corporate existence and authority to act
as such, when it is sued as a corporation on a contract into which
it has entered in that character.‘ Nor under such circumstances

41 Scheufier v. Grand Lodge, 45 Minn. 256, 47 N. W. 799; Perine v. Grand Lodge,
48 Minn. 82, 50 N. W. 1022; Narragansett Bank y. Atlantic Silk Co., 3 Mete.

a
100 EFFECT OF IRREGULAR INCORPORATION. (Ch. 8

can the associates deny the corporate character of the association,
in order to escape statutory liability for its debts.** Nor can they
do so in order to avoid liability on their subscriptions to stock in
the pretended corporation, when sued thereon either by it, or by
its creditors, or by a receiver or assignee.** The estoppel also oper-

(Mass.) 287; Farmers’ Loan & Trust Co. v. Toledo, A. A. & N. M. Ry. Co., 67
Fed. 49; Callender v. Railroad Co., 11 Ohio St. 516; Stewart Paper Manuf’g ‘Co.
vy. Rau, 92 Ga. 511, 17 S. H..748; Fitzpatrick v. Rutter, 160 Ill. 282, 43 N. E.
392; Hamilton v. Railroad Co. (Pa. Sup.) 23 Atl. 53; Bon Aqua Imp. Co. v.
Standard Fire Ins. Co., 34 W. Va. 764, 12 S. E. 771; Independent Order of
Mutual Aid v. Paine, 122 Ill. 625, 14 N. EH. 42. See, also, Dooley v. Cheshire
Glass Co., 15 Gray (Mass.) 494, 1 Cumming, Cas. Priv. Corp. 418.

42 Slocum v. Gas-Pipe Co., 10 R. I. 112; Slocum v. Warren, Id. 116; Building
& Loan Ass’n of Dakota vy. Chamberlain, 4 8S. D. 271, 56 N. W. 897; Corey ¥.
Morrill, 61 Vt. 598, 17 Atl. $41; Hamilton v. Railroad Co., 144 Pa. St. 34, 28
Atl. 53; Freeland v. Insurance Co., 94 Pa. St. 504; Wheelock y. Kost, 77 Ill.
296; McCarthy v. Lavasche, 89 IIL 270: McDonnell v. Insurance Co., 85 Ala.
401, 5 South. 120; Maton v. Aspinwall, 19 N. Y. 119; McClinch v. Sturgis, 72
Me. 288; Aultman v. Waddle, 40 Kan. 195, 19 Pac. 730.

43 Wadesboro Cotton Mills Co. v. Burns, 114 N. C. 353, 19 S. EE. 288; Hickling
v. Wilson, 104 Ill. 54; Weinman y. Railway Co., 118 Pa. St. 192, 12 Atl. 288;
Parker vy. Railroad Co., 38 Mich. 283; Cravens vy. Mills Co., 120 Ind. 6, 21 N. E.
981; Anderson v. Railroad Co., 12 Ind. 376; Chubb v. Upton, 95 U. 8. 665; Ameri-
can Homestead Co. v. Linigan, 46 La. Ann. 1118, 15 South. 369; Upton v. Hans-
brough, 3 Biss. 417, Fed. Cas. No. 16,801; Dutchess Cotton Manufactory v. Davis,
14 Johns. (N. Y.) 288; Black River & U. R. Co. v. Clarke, 25 N. Y. 208; Chester
Glass Co. v. Dewey, 16 Mass. 94; Home Stock Ins. Co. v. Sherwood, 72 Mo. 461;
Ohio & M. R. Co. v. McPherson, 35 Mo. 18; South Bay Meadow Dam Co. vy. Gray,
30 Me. 547; Montpelier & W. R. R. Co. vy. Langdon, 46 Vt. 284, This rule has
no application to one who subscribes for stock previous to and in anticipation of
incorporation, and who has not by his subsequent acts acquiesced in the mode of
incorporation. In such a case it is an implied condition of his subscription that
the proposed corporation shall be legally and regularly organized; and, if it is not,
he may set it up as a defense when sued on his subscription. Schloss v. Trade
Co., 87 Ala. 411, 6 South. 360; Columbia Electric Co. v. Dixon, 46 Minn. 463, 49
N. W. 244; post, p. 108, note 50. If, however, a subscriber to stock in a corpo-
sation to be formed takes active part in its organization, or in its management after
organization, he cannot be heard to say that it was not legally organized. Dan-
bury & N. R. Co. v. Wilson, 22 Conn. 435, 456; Phoenix Warehousing Co. v.
Badger, G7 N. Y. 204; Schenectady & S. Plank Road Co. v. Thatcher, 11 N. Y.
102; Ohio & M. R. Co. v. McPherson, 35 Mo. 13; Canfield y. Gregory, 66 Conn. 9,
33 Atl 536.
§§ 438-44) ESTOPPEL TO DENY CORPORATE EXISTENCE. 101

ates in actions and controversies between the associates them-
selves.** Not only may the associates themselves, and the asso
ciation or pretended corporation, .be thus estopped, but third per-
sons may be estopped by dealing with the association as a corpo-
ration. Thus, it has frequently been held that entering into a
contract with an association as a corporation will operate as an
estoppel to dispute its existence as a corporation, in an action
brought on the contract, unless there are special circumstances to
take the case out of the general rule, whether it be brought by the
pretended corporation,*® or by the other party, in disregard of the
corporate existence of the association, to charge the members in-

44 See Bushnell v. Machine Co., 188 Ill. 67, 27 N. EH. 596.

45 Methodist Church v. Pickett, 19 N. Y. 482, 1 Cumming, Cas. Priv. Corp. 407;
Commercial Bank vy. Pfeiffer, 108 N. Y¥. 242, 15 N. E. 311; Stoutimore v. Clark,
70 Mo. 471; Minnesota Gaslight Economizer Co. v. Denslow, 46 Minn. 171, 48
N. W. 771; Jones v. Foundry Co., 14 Ind. 89; Kresno Canal & lrr. Co. v. War-
ner, 72 Cal. 379, 14 Pace. 87; Chubb v. Upton, 95 U. S. 665;. Swartwout v. Rail-
road Co., 24 Mich. 390; Stofllet v. Strome, 101 Mich. 197, 59 N. W. 411; Booske
yv. Ice Co., 24 Fla. 550, 5 South. 247; School Dist. No. 61 v. Alderson, 6 Dak. 145,
41 N. W. 466: Cahall v. Association, 61 Ala. 232; Douglass County Com’rs v.
Bolles, 94 U. S. 104; Tarbell v. Page, 24 Ill. 46; Winget v. Association, 128
Ill. 67, 21 N. EK, 12: Columbia Hlectric Co. v. Dixon, 46 Minn. 463, 49 N. W. 244;
Building & Loan Ass’n v. Chamberlain, 4 S. D. 271, 56 N. W. 897; Butchers’ &
D. Bank v. McDonald, 130 Mass. 264, 1 Cumming, Cas. Priv. Corp. 420; Wor-
cester Medical Inst. v. Harding, 11 Cush. (Mass.) 285; Lehman v. Warner, 61
Ala. 455; Close v. Glenwood Cemetery, {o7 U. Ss. 477, 2 Sup. Ct. 267; Oregonian
Ry. Co. v. Oregon Ry. & Nav. Co., 28 Fed. 232; Grangers’ Business Ass’n v.
Clark. 67 Cal. 634, 8 Pac. 445; South Bay Meadow Dam Co. v. Gray, 30 Me.
547; Hassinger v. Ammon, 160 Pa. St. 245, 28 Atl. 679; Bank of Shasta v.
Boyd, 99 Cal. 604, 34 Pac. 387. ‘Thus, the grantor in a deed in favor of a body
professing to be a corporation and acting as such, and any person claiming under
him, is estopped to deny the corporate existence of the grantee, for the purpose of
defeating the deed. Broadwell v. Merritt (Mo. Sup.) 1 8S. W. 855; Whitney v.
Robinson, 53 Wis. 309, 10 N. W. 512. And the execution of a vote or bond pay-
able to a body as a corporation is an admission ‘by the maker or obligor of its cor-
porate existence, which will estop him from denying.it. Stoutimore y. Clark, 70
Mo. 471; Vater v. Lewis, 36 Ind. 288; Brickley v. Edwards, 131 Ind. 3, 30 N. E.
708; John v. Bank, 2 Blackf. (Ind.) 367, 20 Am. Dec. 119; School Dist. No. 61
vy. Alderson, 6 Dak. 145, 41 N. W. 466; Booske y. Lee Co., 24 Fla. 550, 5 South.
247,
102 FFFECT OF IRREGULAR INCORPORATION. (Ch. 3

dividually as partners.*® As to the latter proposition, however,
there is some doubt, and there are well-considered cases against it.*?

Necessity for Recognition of Corporate Existence.

To warrant holding a person estopped from denying the exist-
ence of a corporation because he has dealt with it, his dealings must
have been such as to show a recognition of the corporate character
of the body. A man cannot be so estopped by acts which are just
as consistent with the existence of an unincorporated association
as of one incorporated, for “estoppels never arise from ambiguous
facts; they must be established by those that are unequivocal, and
not susceptible of two constructions.” *® Thus, the mere fact that
a man accepted the office of treasurer of an association will not
estop him from denying that the association was a corporation; nor
will the members of a religious association, for instance, be estopped
to deny its existence as a corporation by the fact that they held the
ordinary meetings of a religious society, passed by-laws, elected
officers, etc., for these acts are just as consistent with the existence
of an unincorporated association as of a corporation.*® On the
same principle it has been held that, though a person who has co-
operated in the organization and acts of a body as a corporation
will be estopped from disputing its corporate character, a person
who merely subscribes for stock in a corporation not yet formed,
and makes a payment thereon preliminary to its organization, but
who does nothing to recognize the body as duly incorporated, will

46 See Snider’s Sons’ Co. v. ‘lroy, 91 Ala. 224, 8 South. 658; Cochran v. Arnold,
58 Pa. St. 899. And see Shields v. Land Co., 94 Tenn. 123, 28 S. W. 668; Phinizy *
v. Railroad Co., 62 Fed. 678; Bradford v. Railroad Co., 142 Ind. 383, 40 N. E.
741; Black River Imp. Co. v. Holway, 85 Wis. 344, 55 N. W. 418; Johnston v.
Gumbel (Miss.) 19 South. 100. In the latter case it was held that creditors of
a corporation, having dealt with it in its corporate capacity, cannot attack an assigu-
ment by it on the ground of irregularities in its organization.

47 Post, p. 109, notes 71-73.

48 Wredenburg v. Lyon Lake M. E. Church, 37 Mich. 476. See Schloss v. Trade
Co., 87 Ala. 411, 6 South. 360; De Witt v. Hastings, 69 N. Y. 518; Clark v.
Jones, 87 Ala. 474, 6 South. 362,

49 Fredenburg v. Lyon Lake M. E. Church, supra; Kirkpatrick v. United Presby-
terian Church of Keota, 63 lowa, 372, 19 N. W. 272; Trustees, etc., of M. E.
Church of Newark v, Clark, 41 Mich. 730, 38 N. W. 207.
§§ 43-44) ESTOPPEL TO DENY CORPORATE EXISTENCE. 108

not be estopped to deny its de facto existence.°° And a person who
contracts with an association in ignorance of its claim to corporate
existence is not thereby estopped to sue the associates as partuers.>?
The mere fact that in a contract with an association it is designated
by a name which is appropriate to a corporate body does not show
a recognition or admission of its existence as a corporation. It
merely shows an admission of the existence of an association act-
ing under that name.®?

Doctrine of Estoppe is Based on Hguitable Grounds.

An examination of the cases in which the doctrine of estoppel to
deny corporate existence has been applied will show that most of
them rest on some basis of conduct, or of benefit obtained, or other
cause rendering it inequitable to allow such denial. The doctrine
is an equitable one, and should be applied only where there are equi-
table grounds for applying it. It should never be applied where it
would be inequitable to do so.5* Nor should it be applied unless it
would be inequitable not to do so. To say, therefore, without qual-
ification, that a person who deals with an association as a corpora-
tion is estopped to deny its existence as a corporation, is too broad.

‘It is perfectly right that a person who deals with an association as

50 Schloss vy. Trade Co., supra. And see Columbia Electric Co. v. Dixon, 46
Minn. 463, 49 N. W. 244; Capps v. Prospecting Co., 40 Neb. 470, 58 N. W. 956;
Indianapolis F. & M. Co. v. Herkimer, 46 Ind. 142; Rikoff v. Machine Co., GS
Ind. 388; Dorris v. Sweeney, 60 N. Y. 463; Richmond Factory Ass’n v. Clarke,
G1 Me. 351.

51In Guckert v. Hacke, 159 Pa. St. 308, 28 Atl. 249, it was held that where a
person contracts with an association of persons, and becomes their creditor, with-
out any knowledge that they claim to be a corporation instead of partners, and
there is nothing to put him on inquiry, he is not estopped to sue the members as
partners, and show that they have failed to comply with the law under which
they claim corporate existence; and, further, that he cannot be estopped by
taking their corporate note for the debt after knowledge of their claim to cor-
porate existence, for the relation of the parties has been fixed by their status
when the original contract was made. And see Eaton v. Walker, 76 Mich. 579,
43 N. W. 638; Duke v. Taylor (Fla.) 19 South. 172. Cf. Fitzpatrick v. Rutter,
160 Ill. 282, 43 N. H. 392. a

52'Holloway y. Railroad Co., 23 Tex. 465; Welland Canal Co. v. Hathaway,
8 Wend. (N. Y.) 480. See Jones v. Foundry Co., 14 Ind. 89.

53 Doyle v. Mizner, 42 Mich. 332, 3 N. W. 968. And see Estey Manutf’g Co. v.
Runnels, 55 Mich. 130, 20 N. W. 823.
104 EFFECT OF IRREGULAR INCORPORATION. (Ch. 3

a corporation, knowing that it is not, should be left in the position
that he has thus assumed, and be precluded from denying that the
body is a corporation in actions growing out of the transaction.**
When, however, a person deals with a body as a corporation, which
the members hold out as a corporation, and which he believes to
be a corporation, there should be something more than the mere
fact of his dealings to estop him.®* If, in such a case, he derives a
benefit from the association, and assumes an obligation to pay there-
for, as where a person borrows money or purchases goods from a
pretended corporation, it is equitable that he should be estopped
to deny its corporate existence in order to escape liability on his
obligation.5* On the other hand, however, if a person deals with
a pretended corporation, believing it to be a corporation, and, in-
stead of receiving a benefit himself, confers a benefit upon the as-
sociates, he ought not, from the mere fact that he dealt with them
as a corporation, to be estopped to deny their corporate existence,
and hold them individually liable. Though there are cases to the
contrary,®” there are many cases which hold that there is no es-
toppel under such circumstances.*®

Unlawful Assumption of Corporate Powers.
It has been said that the doctrine of estoppel does not apply, so
as to prevent one who recognizes a pretended corporation by con-

54 See Whitney v. Wyman, 101 U. S. 392.

55 Williams v. Hewitt, 47 La. Ann. 1076, 17 South. 496.

56 Ante, p. 101, and cases cited.

57 See Snider’s Sons’ Co. v. Troy, 91 Ala. 224, 8 South. 658; Cochran y. Ar-
nold, 58 Pa. St. 399.

58In Williams v. Hewitt, 47 La. Ann. 1076, 17 South. 496, the defendants con-
ducted a banking business as a corporation, when they were not a corporation because
of noncompliance with the statute under which they pretended to organize. The
plaintiff deposited money with them, believing that they were a corporation.
Afterwards he brought suit against them individually as partners, to recover the
amount of the deposit, and it was held that he was not estopped. And there are
many cases in which a person who has sold goods to a pretended corporation has
been permitted, on discovery that there was no corporation, to sue the associates.
as partners. Montgomery v. Forbes, 148 Mass. 249, 19 N. BE. 342, 1 Cumming,
Cas. Priv. Corp. 69. And see Bigelow v. Gregory, 783 lll. 197; Abbott v. Re-.
fining Co., 4 Neb. 416. Contra, Snider’s Sons’ Co. v. Troy, 91 Ala. 224, 8
South. 658; Cochran y. Arnold, 58 Pa. St. 399,
§§ 48-44) ESTOPPEL TO DENY CORPORATE EXISTENCE. 105

tracting with it from afterwards denying its corporate character,
where the assumption of corporate powers by the body was unlaw-
ful, as being in violation of a prohibitory law, or as being for an
illegal purpose. Any dealings with such a body would be illegal
and void, and could not give rise to a cause of action.®®

Doctrine of Estoppel not Limited to De Facto Corporations.

This question has already been somewhat referred to.°° In
Swartwout yv. Michigan Air-Line R. Co.,*1 Judge Cooley said:
“Where there is a corporation de facto, with no want of legislative
power to its due and legal existence, when it is proceeding in the
performance. of corporate functions, and the persons are dealing
with it on the supposition that it is what it professes to be, and
the questions are only whether there has een exact regularity,
and strict compliance with the provisions of the law relating to
corporations, it is plainly a dictate alike of justice and public policy
that, in controversies between the de facto corporation and those
who have entered into contract relations with it, as corporators or
otherwise, such questions should not be suffered to be raised.” This
dictum has been often quoted, and the doctrine of estoppel has been
similarly stated by many other courts.*? The dictum in these cases
is broad enough to imply that the doctrine of estoppel applies to
de facto corporations only; but in this respect it is mere dictum,
and nothing more. They do not so hold, and from other decisions
of some of the same courts it seems evident that it was not intended

59 See 1 Thomp. Corp. § 583; Wright v. Lee, 2 8. D. 596, 51 N. W. 706; Build-
ing & Loan Ass’n of Dakota v. Chamberlain (S. D.) 56 N. W. 897; Oregonian
Ry. Co. v. Oregon Ry. & Nav. Co., 28 Fed. 233; Empire Mills v. Alston Grocery
Co. (Tex. App.) 15 S. W. 200, 505; Shep. Cas. Corp. 64. But see Lincoln Build-
ing & Sav. Ass’n v. Graham, 7 Neb. 173.

60 Ante, p. 96.

6124 Mich. 390.

62 See the dictum in Snider’s Sous’ Co. v. Troy, 91 Ala. 224, 8 South. 658;
Butchers’ & Drovers’ Bank of St. Louis v. McDonald, 130 Mass. 264, 1 Cumming,
Cas. Priy. Corp. 420; Bushnell v. Machine Co., 188 Ill, 67, 27 N. H. 596; Mer-
chants’ & Manufacturers Bank v. Stone, 38 Mich. 779; Merriman v. Magiveny,
12 Heisk. (Tenn.) 494; Eaton v. Aspinwall, 19 N. Y. 119; Cochran v. Arnold, 58
Pa. St. 399; Central Agricultural & Mechanical Ass’n y. Alabama Gold Life Ins.
Co., 70 Ala. 120.
106 EFFECT OF IRREGULAR INCORPORATION. (Ch. 8

to so hold.*2 There are some decisions, however, which do express-
ly hold that the doctrine only applies to associations that are at
least corporations de facto; that it does not apply, for instance,
to an association that has never had any corporate existence at all,
either in law or in fact, as where persons have attempted to or-
ganize a corporation, and have assumed to act as such, without any
legislative authority at all, or under an unconstitutional law.**
These decisions do not seem right. They confuse the doctrine re-
lating to de facto corporations and the doctrine of estoppel, which,
as we have seen, are not the same, and which are founded on dif-
ferent reasons. “The rule relating to corporations de facto is not
founded upon any principle of- estoppel, as is sometimes assumed,
but upon the broader principles of common justice and public policy.
It would be unjust and intolerable if, under such circumstances,
every interloper and intruder were allowed thus to take advantage

63 Compare, with the above, Cahall v. Association, 61 Ala. 232; Schloss v.
‘Trade Co., 87 Ala. 411, 6 South. 860; Estey Manuf’g Co. v. Runnels, 55 Mich.
130, 20 N. W. $23; Stofflet v. Strome, 101 Mich. 197, 59 N. W. 411. In Schloss
y. Trade Co., supra, it was said that, before a suit can be maintained by an alleged
‘corporation, its actual or de facto existence must be proved, ‘‘or else’ a state of
facts shown which will estop the defendant from denying ‘such de facto exist-
ence.’ And further on it is again said that a subscriber to stock, like any other
person, may be estopped from disputing “the de facto existence” of a corpora-
tion. This clearly implies that the doctrine of estoppel applies to associations
which pretend to be a corporation, but which have not even a de facto existence
as such. In Hstey Manuf’g Co. v. Runnels, supra, it was said: ‘Where a body
assumes to be a corporation, and acts under a particular name, a third party dealing
with it under such assumed name is estopped to deny its corporate existence.
Such is the general rule founded upon equitable principles, and, if any excep-
tions exist, it is only whcre there are no facts which make it legally unjust to
forbid its denial.” ‘The rule here is not limited to de facto corporations.

64 Heaston vy. Railroad Co., 16 Ind. 275, 279, 1 Cumming, Cas. Priv. Corp. 417,
W. D. Smith, Cas. Corp. 20, Shep. Cas. Corp. 134; Snyder v. Studebaker, 19 Ind.
462; Harriman v. Southam, 16 Ind. 180; Jones v. Hardware Co., 21 Colo. 263, 40
Pac. 457; Brandenstein v. Hoke, 101 Cal. 131, 35 Pac. 562. And see Empire
Mills v. Alston Grocery Co. (Tex. App.) 15 S. W. 505; Boyce v. Trustees, 46 Md.
359. The dictum in Waton v. Walker, 76 Mich. 579, 43 N. W. 688, seems ‘to sup-
port this view; but in this case it was not shown that the plaintiff contracted
with the defendants as a corporation, or that he even knew that they pretended
to be a corporation.
$§ 438-44) ESTOPPEL TO DENY CORPORATE EXISTENCE. 107

of every informality or irregularity of organization.” ** In reason,
the reverse of this propositon ought to be equally true, namely, that
the rule by which a person is estopped from denying the corporate
character of an association which he has recognized as a corpora-
tion by dealing with it as such does not depend upon the existence
of the body as a de facto corporation. There are many cases in
which the rule is stated without limiting it to de facto corporations,
and there are cases which expressly hold that it is not so limited;
that it applies, for instance, where the law under which corporate
existence is claimed is unconstitutional.°* It was said by the su-
preme court of the United States: “Where a shareholder of a cor-
poration is called upon to respond to a liability as such, and where
a party has contracted with a corporation and is sued upon the
contract, neither is permitted to deny the existence or the legal
validity of such corporation. To hold otherwise would be contrary
to the plainest principles of reason and of good faith, and involve a
mockery of justice. Parties must take the consequences of the
position they assume. They are estopped to deny the reality of

65 Hast Norway Lake Church v. Froislie, 87 Minn. 447, 35 N. W. 260. And see
Society Perun y. Cleveland, 43 Ohio St. 481, 3 N. E. 357 (collecting cases).

66 Minnesota Gaslight Economizer Co. v. Denslow, 46 Minn. 171, 48 N. W. 771;
Snyder v. Bank, Breese (Ill.) 161; McCarthy v. Lavasche, 89 Ill. 270; Dows vy.
Naper, 91 Ill. 44; Winget v. Association, 128 Ill. 67, 21 N. E. 12; Building &
Loan Ass’n v. Chamberlain, 4 S. D. 271, 56 N. W. 897 (collecting cases); Corey v.
Morrill, 61 Vt. 598, 17 Atl. 841; Freeland v. Insurance Co., 94 Pa. St. 504; Wein-
man v. Railway Co., 118 Pa. St. 192, 12 Atl. 288; Board of Com’rs of City of
St. Louis v. Shields, 62 Mo. 247; Broadwell v. Merritt (Mo.) 1 8. W. 855; Fresno
Canal & Irr. Co. v. Warner, 72 Cal. 379, 14 Pac. 37; American Homestead Co.
y. Linigan, 46 La. Ann, 1118, 15 South. 369; Bates v. Wilson, 14 Colo. 140, 24
Pac. 99: Bashford-Burmister Co. v. Agua Fria Copper Co. (Ariz.) 35 Pac. 983;
Pape v. Bank, 20 Kan. 440. “Lt is too well settled now to be controverted that
a party who contracts with a corporation, whether it be by subscription to its
stock, or by-promissory note, bond, mortgage, or other form of contract, is estopped
from denying the existence of the corporation.” Lehman, Durr & Co. v. Warner,
61 Ala. 455, 466. “One who deals with a corporation as existing in fact is estopped
to deny, as against the corporation, that it has been legally organized.’’ Close v.
Cemetery, 107 U. 8. 477, 2 Sup. Ct. 267. “It is hardly possible that one will be
suffered to obtain the goods of another, doing business as a corporation, and re-
taining the goods, defeat a recovery by alleging the illegality of the act under
which the corporation was formed. We de not care to countenance such a result.”
Bashford-Burmister Co. v. Agua Fria Copper Co., supra.
103 EFFECT OF IRREGULAR INCORPORATION. (Ch. 3

the state of things which they have made appear to exist, and upon
which others have been led to rely. Sound ethics require that the
apparent, in its effects and consequences, should be as if it were
real, and the law properly so regards it.”°* If the doctrine were
limited to de facto corporations, it would be unnecessary. Grounds
of estoppel are not necessary to prevent a private individual, who-
ever he may be, from attacking the existence of a de facto corpora-
tion.®®

LIABILITY OF ASSOCIATES AS PARTNERS.

45. Where persons hold themselves out as a corporation,
and contract as such, without having even a de
facto corporate existence, most courts hold that
persons dealing with them, if not estopped to deny
their corporate existence, may hold them liable as
partners. Other courts hold that they are not lia-
ble as partners, but that the remedy is against the
agents who assume to represent the pretended cor-
poration for breach of implied warranty of author-
ity.

We have just seen that where persons in good faith undertake
to organize themselves into a corporation under a valid law author-
izing incorporation, and assume corporate powers in pursuance
thereof, they constitute a corporation de facto, and, though they
may not have complied with the provisions of the law in their or-
ganization, they nevertheless have the status of a corporation as
against all persons except the state, and that even the state cannot
attack their existence as a corporation, except in a direct proceed-
ing for that purpose. In such a case, of course, persons who deal
with the body cannot dispute its corporate existence, and hold the
associates liable as partners.

We have also seen that, by the weight of authority, even where
there is not even a de facto corporation, persons who deal with a

67 Casey v. Galli, 94 U. S. 673. 68 Ante, p. U6.
69 Ante, p. $6; Stout v. Zulick, 48 N. J. Law, 599, 7 Atl. 362, Shep. Cas. Corp.
275; Snider’s Sons’ Co. v. Troy, 91 Ala. 224, 8 South. 658,
§ 45) LIABILITY OF ASSOCIATES AS PARTNERS. 109°

pretended corporation as a corporation will, except under peculiar
circumstances, be estopped to deny its existence as a corporation,
for the purpose of holding the associates liable as partners.7°

The question now arises as to the remedy of those who deal with
an association which is not even a de facto corporation, and under
such circumstances that they are not estopped to deny its corporate
existence, as where they deal with the parties in ignorance of their
claim of corporate existence. On this question the courts do not
agree. In some jurisdictions it is held that persons who contract
as a corporation, without a right to do so, cannot be held liable
as partners, since they have not contemplated or assented to such
a liability. Fay v. Noble ™ is a leading case holding this view. In
this case the agent of an association which pretended to be a cor- °
poration, but which had not been legally organized, borrowed money
from the plaintiffs in the name of the association, and gave its note
therefor. The plaintiffs sought to recover the money in an action
against the associates as partners, but it was held that they could
not recover."? There are many other cases to the same effect,
though in most of them it will be found that the plaintiff contracted
with the association as a corporation, so that he might have been
held estopped.7* According to this doctrine, if there is not even
a de facto corporation, and the party contracting with the pretended
corporation is not estopped to deny its corporate existence, the rem-
edy is against the agent or agents who entered into the contract on

70 Ante, p. 99; Snider’s Sons’ Co. v. ‘roy, 91 Ala. 224, 8 South. 658; Cochran
v. Arnold, 58 Pa. St. 399.

717 Cush. (Mass.) 188, 1 Cumming, Cas. Priv. Corp. 420.

72 But if a single person assumes, without right, to act and contract as a cor-
poration, his pretended associates being associates in name only, and gives a note
in the name of the pretended corporation, he can be sued individually on the note.
Montgomery v. Forbes, 148 Mass. 249, 19 N. H. 342, 1 Cumming, Cas, Priv.
Corp. 69.

73 Rutherford v. Hill, 22 Or. 218, 29 Pac. 546; ‘lrowbridge v. Scudder, 11 Cush.
(Mass.) 83; First Nat. Bank v. Almy, 117 Mass. 476; Ward v. Brigham, 127
Mass. 24; Medill v. Collier, 16 Ohio St. 599; Humphreys v. Mooney, 5 Colo. 282;
Planters’ & Miners’ Bank v. Padgett. 69 Ga. 159; Stafford Nat. Bank v. Palmer,
47 Conn. 443; Central City Sav. Bank v. Walker, 66 N. Y. 424; Jessup v. Car-
negie, 80 N. Y. 441; Blanchard y. Kaull, 44 Cal. 440; Gartside Coal Co. v. Max-

well, 22 Fed. 197.
110 EFFECT OF IRREGULAR INCORPORATION. (Ch. 3:

behalf of the pretended corporation for breach of implied warranty
of authority. “By professing to act for a corporation which does
not exist, they put themselves in the position of a person who:
professes to act as the agent of another person who is really non-
existent. Under a well-settled rule, they are therefore personally
bound to make good any undertaking which they assume in that
character.” 7

In most of the states, perhaps, this rule is not recognized; but it.
is held that where a pretended corporation is not a corporation de
facto, and where persons dealing with it are not, under the rulé¢
heretofore explained,’® estopped to deny its corporate existence,—
as, where they do not know of its claim to corporate existence, or-
even where they do know of it, if in the particular jurisdiction they
are not held to be estopped,—they may hold the associates liable as.
partners for debts contracted by them in the name of the associa-
tion."* In some states this rule is, in effect, expressly declared by
statute."

741 Thomp. Corp. § 418, citing Medill v. Collier, 16 Ohio St. 599; Fay v. Noble,.
7 Cush. (Mass.) 188, 1 Cumming, Cas. Priv. Corp. 420.

75 Ante, p. 99.

76 Haton v. Walker, 76 Mich. 579, 43 N. W. 688; Guckert v. Hacke, 159 Pa..
St. 303, 28 Atl. 249; Empire Mills y. Alston Grocery Co. (Tex. App.) 15 S. W.
200, 505, Shep. Cas. Corp. 64; Johnson v. Corser, 34 Minn. 355, 25 N. W. 799;
Kaiser v. Bank, 56 Iowa, 104, 8 N. W. 772, Shep. Cas. Corp. 268; Pettis v. At-
kins, 60 Ill. 454; Bigelow v. Gregory, 73 Ill. 197; Whipple v. Parker, 29 Mich.
380; Eliot v. Himrod, 108 Pa. St. 569; Garnett v. Richardson, 35 Ark. 144; Hill
y. Beach, 12 N. J. Hq. 31; Abbott v. Refining Co., 4 Neb. 416; Wechselberg v.
Bank, 12 C. C. A. 56, 64 Fed. 90; Coleman vy. Coleman, 78 Ind. 346; Martin v..
Fewell, 79 Mo. 401, Shep. Cas. Corp. 271; Smith v. Warden, 86 Mo. 382; Williams
vy. Hewitt, 47 La. Ann. 1076, 17 South. 497; Duke y. Taylor, 37 Fla. 64, 19
South. 172,

77 Post, p. 564. See Clegg v. Hamilton & Wright County Grange Co., 61 Towa,
121, 15 N. W. 865. :
§ 46 RELATION BETWEEN CORPORATION AND ITS PROMOTERS. 111

CHAPTER IV.
RELATION BETWEEN CORPORATION AND ITS PROMOTERS.

46. Liability of Corporation for Expenses and Services of Promoters.
47. Liability on Contracts by Promoters.
48. Liability of Promoters to Corporation and Stockholders.

LIABILITY OF CORPORATION FOR EXPENSES AND
SERVICES OF PROMOTERS.

46. Some courts imply a promise by a corporation to pay
for expenses necessarily incurred and services.
necessarily rendered by promoters, and which in-
ure to the benefit of the corporation; but by the
better opinion, in the absence of express provision
in the charter -or some statute, there is no such
liability unless the corporation, after organization,.
expressly promises to pay.

Corporations are sometimes made liable by the express provisions
of their charter, or by statute, for necessary expenses incurred or
services rendered in their promotion. As to the liability in the ab-
sence of such provision, there is some difference of opinion. A few
courts have held that a corporation is liable at law, upon an im-
plied assunipsit, for expenses legitimately incurred and services le-
gitimately rendered by promoters before its organization, and which.
were necessary to perfect organization, on the ground that, in ac-
cepting the benefit of such expenses and services, it becomes bound
to pay therefor, and that no express promise to pay need be shown.*
The generally accepted doctrine, however, is that the corporation is
not liable, unless made so by statute or by its charter, in the absence

1 Low v. Railroad Co., 45 N. H. 370, 46 N. H. 284; Hall v. Railroad Co., 28
Vt. 401. In these cases a corporation was held liable for services in procuring
subscriptions to its capital stock, necessary in -order -to perfect organization.
But in the case last cited charges by promoters for services in procuring an act
of incorporation were disallowed, on the ground that the services must be re--
garded as voluntarily rendered, and there was no promise by the corporation.
112 RELATION BETWEEN CORPORATION AND ITS PROMOTERS. (Ch. 4

of an express promise to pay.? Such a promise is supported by a
sufficient consideration, and is binding.

If money is paid by subscribers to promoters preliminary to or-
ganization, and the promoters or provisional directors fuil to or-
ganize according to the prospectus, and abandon the enterprise,
after applying the money in payment of expenses in view of organ-
ization, the subscribers cannot be made to bear such expenses, and
they may recover the money paid by them in an action for money
had and received.®

LIABILITY ON CONTRACTS BY PROMOTERS.

47. With regard to the liabilities arising out of contracts
entered into by promoters on behalf of a corpora-
tion the following rules are. established by the
weight of authority:

(a) The promoters are personally liable unless exempt
by the terms of the contract.

(b) The corporation is not liable unless it has expressly
or impliedly adopted the contract after its organi-
zation.

(c) In Massachusetts it is held that the corporation can-
not become a party to the contract even by adop-
tion. But, by the weight of authority, the contract
may be adopted by the corporation, and thereby
become binding upon it and in its favor.

(a) Adoption of the contract is not a ratification, but it
is, in effect, the making of a new contract by the
corporation, which is to be regarded as made at the
date of the adoption.

(e) Adoption by the corporation will be implied if it
knowingly accepts the benefits of the contract.

2 Rockford, R. I. & St. L. R. Co. v. Sage, 65 Ill. 828. New York & N. H. R.
Co. v. Ketchum, 27 Conn. 170; Marchand v. Association, 26 La. Ann. 389;
Melhado v. Railway Co., L. R. 9 CG. P. 508.

2 Nockels vy. Crosby, 3 Barn. & C. 814; Walstab v. Spottiswoode, 15 Mees. &
W. 501,

 
§ 47) LIABILITY ON CONTHACTS BY PROMOTERS. : 113

A corporation is not liable on contracts made by its promoters,
unless it has adopted them. A promoter, though he may assume
to act on behalf of the projected corporation, and not for himself,
cannot be treated as an agent of the corporation, for it is not yet
in existence; and therefore, when there is nothing more than a con-
tract by a promoter, in which he undertakes to bind the future cor-
poration, it is generally conceded that it cannot be enforced either
by or against the corporation.* This is so though the promoters
become, at the creation of the corporation, its only stockholders, di-
rectors, and officers.» The promoters themselves are personally lia-
ble on such contracts, unless the other party agreed to look to some
other fund for payment; *® and this is the party’s only remedy if the
corporation, after its organization, has done nothing to bind itself
under the principles hereafter explained.

In Massachusetts it is held that, if a contract is made in the
name and for the benefit of a projected corporation by its promoters,
the corporation cannot become a party to the contract after organ-
ization, even by adoption of it.7 And it has been so held in some
of the English cases.* Most of the courts hold, however, that con-
tracts made by promoters on behalf of a projected corporation, if

42 Cook, Stock, Stockh. & Corp. Law, § 707; Weatherford, M. W. & N. W.
Ry. Co. v. Granger, 86 Tex. 350, 24 S. W. 795, Shep. Cas. Corp. 33; Battelle v.
Pavement Co., 37 Minn. 89, 33 N. W. 327; Franklin Fire Ins. Co. v. Hart, 31
Md. 59; Munson v. Railway Co., 103 N. Y. 58, 8 N. E. 355; Carmody v. Pow-
ers, 60 Mich. 26, 26 N. W. 801; Tift v. Bank, 141 Pa. St. 550, 21 Atl. 660;
Buffington v. Bardon, 80 Wis. 635, 50 N. W. 776; Penn Match Co. v. Hapgood,
141 Mass. 145, 7 N. E. 22; Abbott v. Hapgood, 150 Mass. 248, 22 N. E. 907;
Safety Deposit Life Ins. Co. v. Smith, 65 Il. 809; Western Screw & Manuf’g
Co. v. Cousley, 72-111. 531; Gent v. Insurance Co., 107 Ill. 652; Carey v. Mining
Co., 81 Iowa, 674, 47 N. W. 882; Morrison v. Mining Co., 52 Cal. 306; Hawkins
vy. Mining Co., Id. 513.

5 Battelle v. Pavement Co., 37 Minn. 89, 33 N. W. 327.

6 Carmody v. Powers, 60 Mich. 26, 26 N. W. 801; Roberts Manuf’g Co. v.
Schlick (Minn.) 64 N. W. 826; Hersey v. Tully (Colo. App.) 44 Pac. 854. As to
the personal liability of promoters on contracts, see article by Henry O. Taylor,
Esq., in 16 Am. Law Rev. 281. ;

7 Abbott v. Hapgood, 150 Mass. 248, 22 N. HE. 907. Cf. Penn Match Co. v.
Hapgood, 141 Mass. 145, 7 N. E. 22.

8 Kelner v. Baxter, L. R. 2 C. P. 174; Gunn v. Insurance Co.,. 12 C. B.'(N. S.)
694; Melhado v. Railway Co., L. R. 9 C.. P. 503; In re Empress Engineering Co.,.

Clk.Pr.Corp.—8
114 RELATION BETWEEN CORPORATION AND ITS PROMOTERS, (Ch. 4

within the scope of its general powers, may be adopted by the cor-
poration after its organization, and thus become binding upon it,
and binding in its favor on the other party.® It is sometimes said
that such contracts may be ratified by the corporation, but this is
inaccurate, for ratification presupposes a principal existing at the
time of the agent’s action, whereas the corporation is not in exist-
ence at the time the contract is entered into by the promoter,?°
The liability in case of adoption does not rest upon the idea of any
supposed agency of the promoters, but upon the immediate and vol-
untary act of the company.’? There is no difference between the
making of a contract by a corporation by adoption of an agreement
originally made in advance for it by promoters, and the making of
an entirely new contract. No greater formality is required in the
one case than in the other; and if it could make an entirely new
contract without the ase of its seal, or without writing, or without
formal action of its board of directors, it may also so adopt an agree-
ment made for it by its promoters. And it is not necessary that
adoption of the agreement be express. It may be shown from acts
or acquiescence of the corporation or its authorized agents, as any
similar contract might be shown.'? The contract in case of adop-
tion is to be regarded as made by the corporation as of the date of the
adoption, and not the date of the agreement by the promoter, and

16 Ch, Div. 125; In re Northumberland Hotel Co., 33 Ch. Div. 16; Spiller v.
Skating Rink Co., 7 Ch. Div. 368.

* Battelle +. Pavement Co., 37 Minn. $Y, 33 N. W. 327; Whitney v. Wyman,
401 U. 8. 392; Frankfort & S. T. Co. v. Churchill, 6 T. B. Mon. 427; Reich-
-wald v. Hotel Co., 106 Ill. 439; Buttington v. Bardon, 80 Wis. 635, 50 N. W. 776;
Pittsburg & T. Copper Co. v. Quintrell, 91 Tenn. 693, 20 8S. W. 248; McArthur
¢. Printing Co., 48 Minn. 319, 51 N. W. 216; Grape Sugar & V. Manuf’g Co. v.
Small, 40 Md. 395; Stanton v. Railway Co., 50 Conn. 272, 22 Atl. 300; Little
Rock & Ft. S. Ry. Co. v. Perry, 37 Ark. 164; Schreyer v. Mills Co. (Or.) 48 Pac.
“719; Bommer v. Manufacturing Co., $1 N. Y. 468. See Spiller v. Skating Rink
‘Co., 7 Ch. Div. 368; Mason y. Harris, L. R. 11 Ch. Div. 97; 1 Cumming, Cas.
.Vriv. Corp. 731.

10 Weatherford, M. W. & N. W. Ky. Co. v. Granger, 86 ‘ex. 350, 24 S. W.
‘795, Shep. Cas. Corp. 33; McArthur v. Printing Co., 48 Minn. 319, 51 N. W. 216.
‘Cf. Stanton v. Railway Co., 59 Conn. 272, 22 Atl. 300.

11 Pittsburg & T. Copper Co. v. Quintrell, 91 Tenn. 693, 20 S. W. 248.

12 Battelle v. Pavement Co., 37 Minn. 89, 33 N. W. 327; Burden v. Burden,
S App. Diy. 160, 40 N. Y. Supp. 499; Schreyer v. Mills Co. (Or.) 43 Pac. 719.
§ 47) LIABILITY ON CONTRACTS BY PROMOTERS. 115

therefore a contract made by a promoter, and adopted by the corpora-
tion, is not within the statute of frauds, as not to be performed within
a year, if it is to be performed within a year from such adoption,
though not within a year from the date of the promoter’s agree-
ment.*4 :

If a contract is made on behalf of a corporation by its promoters,
and the corporation after its organization, and with knowledge of
the facts, accepts its benefits, it must take them cum onere; and,
if the contract has been performed by the other party, it may be
enforced against the corporation. By accepting the benefits of the
contract, the corporation adopts the contract.1* Thus, where a prop-
osition was made on behalf of a railroad company by its promoters,
that, if a bonus should be subscribed and paid to it, it would build
a road between certain points, and would carry coal at a stipulated
rate, it was held that the corporation, by accepting the bonus after
its organization, adopted the contract, and was bound to fulfill the
stipulations.1° In a Nebraska case, after articles of incorporation
had been drawn up and signed by the promoters of a cattle com-
pany, but before they were filed, and before the time fixed in the
articles for the commencement of business, a president was selected
for the corporation by the promoters, and he, in their presence and
with their approval, executed and delivered to a third person a note,
purporting to be the note of the corporation, in payment for and
in consideration of the sale and delivery of certain horses and cat-

18 McArthur v. Printing Co., 48 Minn. 319, 51 N. W. 216.

14 Weatherford, M. W. & N. W. Ky. Co. v. Granger, 86 Tex. 350, 24 S. W. 795,
Shep. Cas. Corp. 33; Id. (Lex. Civ. App.) 22 S. W. 70; Battelle v. Pavement
Co., 37 Minn. 89, 38 N. W. 327; Moore & H. Hardware Co. v. ‘Towers Hardware
Co., 87 Ala. 206, 6 South. 41; Vaxton Cattle Co, v. First Nat. Bank, 21 Neb.
621, 33. N. W. 271; Grape Sugar & V. Manuf’g Co. v. Small, 40 Md. 895; Little
Rock & Ft. 8S. Ry. Co. v. Perry, 37 Ark. 164; Schreyer v. Mill Co. (Or.) 48 Pac.
719. And see Rogers vy. Land Co., 134 N. Y. 197, 32. N. KH. 27; Grand Liver
Bridge Co. v. Rollins, 13 Colo. 4, 21 Pac. 897. Cf. Bell’s Gap R. Co. v. Christy,
79 Pa. St. 54, where the corporation was held not. to be liable for services per-
formed under an agreemeht with less than a majority of its promoters. And see,
to the same effect, Tift v. Bank, 141 Pa. St. 550, 21 Atl. 660.

15 Weatherford, M. W. & N. W. Ry. Co. v. Granger, 86 Tex. 350, 24 8. W. 705,
Shep. Cas. Corp. 33.
116 RELATION BETWEEN CORPORATION AND ITS PROMOTERS. (Ch. £

tle and a ranch and other property to the corporation. After the
corporation was fully organized, and the time had arrived when it
was authorized to commence business, the property came into its
possession, and it continued to use and enjoy the same. It was
held that this was an adoption of the note by the corporation, and
that it was liable thereon.*®

Where the promoters of a corporation have made a contract in
its behalf, to be performed after it is organized, it may be deemed
a continuing offer on the part of the other party to the agreement,
like the offer in a subscription to the stock of a corporation to be-
formed in the future, and may be accepted and adopted: by the
corporation after its organization; and the exercise of any right in-
consistent with the nonexistence of such contract ought to be
deemed conclusive evidence of such acceptance or adoption, pro-
vided, of course, the corporation has knowledge of the facts.2”

A distinction has been drawn, with respect to the rule that a cor-
poration which accepts the benefits of a contract made by its pro-
moters takes it cum onere, between a promise made on behalf of
the corporation in the contract itself, the benefits of which the
corporation has accepted, and a promise in a previous contract to
pay for services in procuring the latter to be made; and it was
held by the Texas supreme court that, while a corporation accept-
ing a bonus contracted for by its promoters was bound by the stip-
ulations in consideration of which the bonus was subscribed, it was
‘not bound, by reason of its acceptance of the bonus, by a contract
made by its promoters to pay a man for services in procuring sub-
scribers to the bonus, since the latter contract was no part of the
contract the benefits of which it accepted.1®

To make a corporation liable for services performed under a con-
tract with its promoters before its organization, the services must
have been intended at the time to inure to the benefit of the future
corporation, and must have been rendered in its behalf, and with

16 Paxton Cattle Co. v. First Nat. Bank, 21 Neb. 641, 33 N. W. 27E

17 Weatherford, M. W. & N. W. Ry. Co. v. Grangér, 86 ‘Tex. 350, 24 8. W.
795, Shep. Cas. Corp. 38. ,

18 Weatherford, M. W. & N. W. Ry. Co. v. Granger, 86 Tex. 350, 24 8. W.
795, Shep. Cas. Corp. 83, reversing Id. (Tex. Civ. App.) 23 S. W. 425.
§ 48) LIABILITY OF PROMOLERS TO CORPORATION. 117

the expectation that it would be bound. It will not be liable if
they were rendered on the credit of the promoters individually. 1°

LIABILITY OF PROMOTERS TO CORPORATION AND
STOCKHOLDERS.

48. Promoters, when acting for a projected corporation,
occupy towards it a fiduciary relation, and for any
secret profits made by them in transactions entered
into on behalf of the corporation they may be
compelled to account. This does not prevent a
promoter from acquiring property on his own be-
half, and selling it to the corporation, when organ-
ized, at an advance; and when he is not acting for
the corporation, but merely as a vendor, he need
not disclose his profits. ,

It is well settled that the promoters of a projected corporation
occupy a fiduciary relation towards it, similar to that of an agent
to a principal; and they have no right, in negotiations on behalf of
the corporation, to derive any advantage over other stockholders
without a full and fair disclosure of the transaction. Any secret
profits made by them while acting for the corporation they must
refund to it. The fact that there is no fraudulent intent on their
part does not relieve them. Because of their position, the law
forbids them to secretly derive any advantage over other stock-
holders, and makes them accountable for any profits realized by
them.?° And they may be made to account in a suit by the cor-

19 Perry v. Railway Co., 44 Ark. 383. And see Davis v. Creamery Co. (Neb.)
67 N. W. 486.

20 Chandler v. Bacon, 30 Fed. 5388; Woodbury Heights Land Co. v. Louden-
slager (N. J. Ch.) 35 Atl. 486; Plaquemines Tropical Fruit Co. v. Buck, 52 N.
J. Eq. 219, 27 Atl. 1094; Pittsburg Min. Co. v. Spooner, 74 Wis. 307, 42 N. W.
259; Simons v. Mining Co., 61 Pa. St. 202; McElhenny’s Appeal, Id. 188; Short
y. Stevenson, 63 Pa. St. 95; Emery v. Parrott, 107 Mass. 95; Central Land Co.
v. Obenchain, 92 Va. 130, 22 S. H. 876; Getty v. Devlin, 54 N. Y. 408; Yale
Gas-Stove Co. v. Wilcox, 64 Conn. 101, 29 Atl. 803; Hichens v. Congreve, 4
Russ. 562; Bagnall v. Carlton, 6 Ch. Div. 371; Emma Silver Min. Co. v. Grant,
11 Ch. Diy. 918; Burbank v. Dennis, 101 Cal, 90, 35 Pac, 444; Ex-Mission Land
118 RELATION BETWEEN CORPORATION AND ITs PROMOTERS. (Ch. 4

poration itself or its assignee or receiver; ** or the other stockhold-
ers may individually maintain an action for their proportion of such
profits,2? or they may sue for damages in case for fraud.?® A pro-
moter, for instance, cannot purchase property, acting for the cor-
poration, and then sell it to the corporation at an advance; nor
can he negotiate a sale of property to the corporation, and secretly
receive from the vendor a commission or bonus. In either case he
will be compelled to account for the profits which he has realized.”*
In Pittsburg Min. Co. v. Spooner,?® a complaint by a corporation for
money alleged to have been received by the defendants to its use
alleged, in substance, that the defendants, having obtained the right
to purchase a certain mining option for $20,000, proceeded to form
the plaintiff corporation to make such purchase, representing to the
persons who subscribed for stock that the option would cost $90,000;
and that, having first induced third persons to subscribe for the
stock upon such representations, and to pay the corporation $100,
000 for their stock, the defendants then, as officers of the plaintiff
corporation, purchased the option for it nominally for $90,000, pay-
ing the $20,000 which it actually cost them, with the money received
from the sale of stock, and converting the remaining $70,000 to their
own use. It was held that the complaint stated a good cause of
action in favor of the corporation.

This fiduciary relation exists between the promoter of a corpora-
tion and the corporation only where he is acting for the corporation.

& Water Co. v. Flash, 97 Cal. 610, 32 Pac. 600; Gover’s Case, L. R. 20 Ka. 122;
Erlanger v. Phosphate Co., 3 App. Cas, 1218. Parties who act as agents for a
corporation in acquiring property for it cannot make a profit out of the transac-
tion; nor can they do so if they assume to act without precedent authority, if
their transactions are accepted as the acts of agents by the corporation; and if,
with a view to creating a corporation, persons represent themselves as acting
for the company to be formed, and propose to sell at the prices they pay, and
their purchases are taken on such representations, and stockholders invest there-
on, it is a fraud on the company and interested parties to allow such agents to
retain profits paid them in ignorance of the true sums actually advanced in mak-
ing purchases. Simons v. Mining Co., supra.

21 Pittsburg Min. Co. v. Spooner, supra; Chandler v. Bacon, supra.

22 Emery v. Parrott, supra; Getty v. Devlin, supra.

23 Getty v. Devlin, supra.

24 See the cases cited above. 25 74 Wis. 307, 42 N. W. 259.
§ 48) LIABILITY OF PROMOTERS TO CORPORATION. 119

There is no rule of law which prevents a promoter who owns prop-
erty, though purchased by him for the purpose, from selling it to
the corporation after it is organized. In such a case, in the ab-
sence of fraud, and if he is not acting also for the corporation, he
may sell at such a price as he may be able to obtain from the board
of directors, without regard to the original cost to him, and he is
not bound to disclose the profits which he will realize by the trans-
action.?® If the promoters who are selling property to a corpora-
tion are also the directors of the corporation, so that they also
purchase for it, a different question arises. It is a case of the
officers and agents of an existing. corporation purchasing property
for the corporation from themselves, and the most perfect good faith
is required. 27 , %

To constitute a person a promoter of a projected corporation, so
as to bring him within the operation of this rule, it must affirmative-
ly appear that he was acting for and in behalf of the proposed
corporation, or that he assumed to so act. ?®

26 Densmore Oil Co. v. Densmore, 64 Pa. St. 48; Lungren v. Pennell (Pa.
Sup.) 10 Wkly. Notes Cas. 297; Ladywell Min. Co. v. Brookes, 34 Ch. Div. 398;
Central Land Co. vy. Obenchain, 92 Va. 130, 22 8. E. 876; dictum in Foss v.
Harbottle, 2 Hare, 461, 1 Cumming, Cas. Priv. Corp. 698. Cf. Ex-Mission Land
& Water Co. v. Flash, 97 Cal. 610, 32 Pac. 600.

27 Post, p. 508.

28 St. Louis, Ft. S. & W. R. Co. v. Tiernan, 37 Kan. 606, 15 Pac. 544. One
who engages with the owner of land in organizing u corporation to purchase it,
by procuring subscriptions, and who frames the prospectus and becomes one of
the first Subscribers, is a promoter of the corporation. Woodbury Heights Land:
Co. v. Loudenslager (N. J. Ch.) 35 Atl. 486. And see other cases cited in note
18, supra.
120 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5
'

CHAPTER V.
POWERS AND LIABLLITIES OF CORPORATIONS.

4¥. In General.
5U. kKxpress Powers.
51. Powers Incidental to Corporate Existence.
52. Powers Implied from Powers Expressly Granted.
543. Construction of Charters—In General.
54. Power to ‘ake and Hold Real and Personal Property.
55. Power to Act as ‘Trustee.
56-57. Powers as to Contracts and Conveyances.
58-61, Form and Mode of Corporate Contracts.

IN GENERAL.

49. A corporation has such powers, and such powers only,
as are conferred upon it by its charter. Powers
may be conferred upon a corporation

(a) Expressly.

(b) Impliedly, because they are incidental to corporate
existence.

(c) Impliedly, because they are necessary or proper in
order to exercise the powers expressly conferred.

A corporation, being a mere creature of the legislature, has such
powers only as are conferred upon it by its charter. But it is
not necessary that all powers, in order to exist, shall be conferred
in express terms. It has, of course, all powers, expressly confer-
red, provided the legislature was not prevented from conferring
them by some constitutional limitation. In addition to this, many
powers are impliedly conferred or attach as being incidental to
corporate existence, though not expressly mentioned in the char-
ter. Again, the charter impliedly confers all powers, though not
expressly mentioned, which are reasonably necessary and proper
for the execution of the powers that are expressly conferred. “Cor-
porations are creatures of the legislature, having no other powers
than such as are given them by their charters, and such as are
§ 49) IN GENERAL. 121

incidental or necessary to carry into effect the purposes for which
they were established.” +

The rule in England is that a corporation has the same power to
contract and act as a natural person has, except in so far as it may
be restricted by its charter, expressly or impliedly. But it is also
held that, when a corporation is created for a particular purpose,
the act creating it impliedly prohibits it from exercising any pow-
ers not necessary or proper to carry out that purpose. It was said
by Blackburn, J., in Ashbury Railway Carriage .& Iron Co. v.
Riche:* “I take it that the true rule of law is that a corporation
at common law has, as an incident given by law, the same power
to contract, and subject to the same restrictions, as a natural person
has. And this is important when we come to construe the stat-
utes creating a corporation, for if it were true that a corporation
at common law has a capacity to contract to the extent given it by
the instrument creating it, and no further, the question would be,
does the statute creating the corporation by express provision or
necessary implication show an intention in the legislature to con-
fer upon this corporation capacity to make the contract? But
if a body corporate has, as incident to it, a general capacity to
contract, the question is, does the statute creating the corporation
by express provision or necessary implication show an intention
in the legislature to prohibit, and so avoid, the making of a con.
tract of this particular kind?” *

In this country the general doctrine is that corporations organ-
ized under acts of the legislature have such powers, and such
powers only, as are conferred, expressly or impliedly, by the acts.
In Thomas v. West Jersey R. Co.* it was insisted that a corpora-
tion “may do any act which is not either expressly or impliedly

1 Downing v. Road Co., 40 N. H. 230, 1 Cumming, Cas. Priv. Corp. 148, W. D.
Smith, Cas. Corp. 129, Shep. Cas. Corp. 75; Colman v. Railway Co., 10 Beay. 1,
1 Cumming, Cas. Priv. Corp. 136; Thomas v. Railroad Co., 101 U.S. 71, 1 Cum-
ming, Cas. Priv. Corp. 164, W. D. Smith, Cas. Corp. 182, Shep. Cas. Corp. 70;
Byrne v. Manufacturing Co., 65 Conn. 336, 31 Atl. 833.

2L. R. 9 Exch. 224, 2 Cumming, Cas. Priv. Corp. 34.

3 South Yorkshire Ky. & River Dun Co. v. Great Northern Ry. Co., 9 Exch.
+101 U. S. 71, 1 Cumming, Cas. Priv. Corp. 164.
122 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5

prohibited by its charter, although, where the act is unauthorized
by the charter, a shareholder may enjoin its execution, and the
state may, by proper process, forfeit the charter.” The court,
however, did not take this view, but said: “We take the general
doctrine to be in this country, though there may be exceptional
cases and some authorities to the contrary, that the powers of
corporations organized under legislative statutes are such, and
such only, as those statutes confer. Conceding the rule applica-
ble to all statutes, that what is fairly implied is as much granted
as what is expressed, it remains that the charter of a corporation
is the measure of its powers, and that the enumeration of these
powers implies the exclusion of all others.”

EXPRESS POWERS.

50. A corporation has all powers expressly conferred
upon it by its charter, unless conferred in violation
of constitutional limitations.

Of the powers expressly conferred upon a corporation, there is
little to be said. The questions which arise in this connection are
chiefly questions of construetion. The legislature has the abso-
lute power to confer upon a corporation any power it may see fit
to confer, so long as it does not violate any limitation contained
in the state or federal constitution. A grant of powers in viola-
tion of constitutional limitations can have no effect.

POWERS INCIDENTAL TO CORPORATE EXISTENCE.

51. Certain powers are incidental to corporate existence,
and are impliedly conferred upon every corpora-
tion unless there is something to show an intention
to exclude them. These powers are:

(a) To have perpetual or continuous succession during
the period for which it is created. It therefore
has the power to elect members in the place of
those removed by death or otherwise.

(b) To have a corporate name, and to contract, to grant
and receive, and to sue and be sued thereby.
§ 51) POWERS INCIDENTAL TO CORPORATE EXISTENCE. 123

(ce) To purchase and hold real and personal property for
purposes authorized by its charter.

(ad) To have a common seal.

(e) To make by-laws for its government.

(f) The power of amotion or removal of members. But
this power is not incident to a joint-stock corpora-

* tion.

When a corporation is created, certain powers are impliedly at-
tached to it as incidental to its existence, though not expressly
mentioned in the charter. These powers are: (1) To have per-
petual or continuous succession; (2) to have a corporate name, and
to contract, to grant and receive, and to sue and be sued thereby;
(3) to purchase and hold real and personal property for purposes
authorized by its charter; (4) to have a common seal; (5) to make
by-laws; (6) the power of amotion, or removal of members, in the
case of corporations other than joint-stock corporations.” Some of
these powers, as has been seen,® are essential to corporate exist-
ence, while others are incidental, but not essential, and may be
withheld.

As we have seen in a former chapter, the power of perpetual suc-
cession, or succession during the period for which it is created, is
not only an incident which attaches to every corporation, but is
essential to corporate existence. A corporation, therefore, has the
implied power to elect members in the place of those who are re-
moved by death or otherwise.’

So with the power to have a corporate name, and to contract
obligations, receive and grant, and sue and be sued thereby. This
power attaches as incidental to corporate existence. The power
to contract is restricted to purposes authorized by the charter.®

The powek to purchase and hold real or personal property is in-
cidental to corporations, but not essential. This power, like the
power to contract, is limited to purposes authorized by the char-
ter.®

52 Kent, Comm. 277, 278. 8 Ante, pp. 17, 71; post, pp. 133-156.

6 Ante, p. 12. ® Post, p. 128.
71 Bl. Comm. 475.
124 POWERS AND LIABILITIES OF CORFORATIONS. (Ch. 5

The power to have a common seal, though not essential to cor-
porate existence, is an incident which attaches to every corpora-
tion without express provision. The necessity to use a seal will
be considered in another place.*°

Every corporation has the implied power to make by-laws for
its government, but this power is not essential. It may be dis-
pensed with if the charter sufficiently provides for the government
of the body. This power will be considered at length in a subse.
quent chapter.**

The power of amotion, or removal of members, is said to be in-
cident to corporations; and this is true of many corporations, like
boards of trade, and other non-stock corporations; but no such
power is incident to modern joint-stock corporations. This power
will be further discussed in treating of the relation between the
corporation and its members.??

POWERS IMPLIED FROM POWERS EXPRESSLY GRANTED.

52. All powers that are reasonably necessary or proper
for the execution of the powers expressly granted,
and that are not expressly or impliedly excluded,
are impliedly conferred.

Corporations not only have the powers expressly granted by the
charter, and the particular powers which have been mentioned as in-
cidental to corporate existence, but, in addition, they have all pow-
ers that are reasonably necessary or proper for the execution of the

powers that are expressly granted, provided such powers are not
withheld.

CONSTRUCTION OF CHARTERS—IN GENERAL.

53. In the construction of charters the intention of the
legislature must be ascertained, and must govern.
The rules are substantially the same as in the case of

10 Post, p. 156. 11 Post, p. 454. 12 Post, p. 401.
§ 53) CONSTRUCTION OF CHARTERS—IN GENERAL. 125

other statutes. The following rules may be par-
ticularly mentioned:

(a) In cases of doubt, charters are to be construed most
strongly in favor of the public, and against the
corporation. Some of the courts limit this rule to
cases where the corporation claims powers in dero-
gation of common right.

(b) Where general words follow an enumeration of per-
sons or things by words of particular and specific
meaning, such general words are not to be con-
strued in their widest sense, unless such seems
clearly to have been the intention of the legisla-
ture, but are to be held as applying only to per-
sons or things of the same general kind or class as
those specifically mentioned.

(c) If a charter expressly enumerates certain powers,
this impliedly excludes all other powers except
those mentioned, and such as may be necessary or
proper to the execution of them.

When a corporation is formed under a special act, its powers are
generally specified in the act, and the act, together with any other
laws which are binding upon it, constitute its charter. When a cor-
poration is formed under a general law, this law, together with the
articles of association required by the law to be executed and filed by
the corporators, and any other laws of the state which are applicable
to such corporations, constitute its charter."*

Construction in Favor of the Public in Case of Doubt.

In the construction of contracts between individuals it is a rule
that the language must be taken most favorably, in case of doubt,
against the party using it. The rule for construing corporate char-
ters is different. It has often been held that charters secured undér
special legislative grants will, in case of doubt, be construed most
strongly against the grantees and in favor of the public. As was said
by an English judge: “The language of these acts * * * is to

13 Lincoln Shoe Manutf’g Co. v. Sheldon, 44 Neb. 279, 62 N. W. 480.
126 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5

be treated as the language of the promoters of them. They ask the
legislature to confer great privileges upon them, and profess to give
the public certain advantages in return. Acts passed under such cir-
cumstances should be construed strictly against the parties obtain-
ing them, but liberally in favor of the public.”'** The same rule
applies to the construction of the charters of corporations formed
under general laws. “In the construction of a charter, to be in doubt
is to be resolved, and every resolution which springs from doubt is
against the corporation, and in favor of the public.” 7°

This rule applies only in cases of doubt. The intention of the
legislature must be ascertained, and must govern. Unless there is
doubt, the language of the charter must be given effect. Some of
the courts limit the rule that charters are to be construed, in cases
of doubt, most strongly against the corporation, to cases in which
the corporation claims powers in derogation of common right, as the
power of eminent domain. “In giving a construction to the powers
of a corporation,” it has been said, “the language of the charter
should in general neither be construed strictly nor liberally, but ac-
cording to the fair and natural import of it, with reference to the
purposes and objects of the corporation. If the powers conferred
are against common right, and trench in any way upon the privileges
of other citizens, they are, in cases of doubt, to be construed strictly,

14 Parker v. Railway Co., 7 Man. & G. 288. And see, to the same effect, State
\. Payne, 129 Mo. 468, 31 S. W. 797; Stourbridge Canal Co. v. Wheeley, 2 Barn.
& Adol. 792, 1 Cumming, Cas. Priv. Corp. 298; Charles River Bridge v. War-
ren Bridge, 11 Pet. 420, 1 Cumming, Cas. Priv. Corp. 506; The Binghamton
Bridge, 3 Wall. 51; Parrot v. Lawrence, 2 Dill. 382, Fed. Cas. No. 10,772; North-
western Fertilizing Co. v. Village of Hyde Park, 97 U. S. 659; Mills v. County
of St. Clair, 8 How. 569; Com. v. Erie & N. E. R. Co., 27 Pa. St. 339; Ross-
Meehan B. S. I*. Co. v. Southern M. Iron Co., 72 Fed. 957. In a leading Eng-
lish case, where the question was whether certain powers were impliedly granted
in the charter of a canal company, the court said: ‘The canal having been
made under an act of parliament, the rights of the plaintiffs are derived entirely
trom that act. This, like many other cases, is a bargain: between a company of
adventurers and the public, the terms of which are expressed in the statute; and
the rule of construction in all such cases is now fully established to be this; that
any ambiguity in the terms of the contract must operate against the adventurers,
and in favor of the public, and the plaintiffs can claim nothing that is not
clearly given them by the act.” Stourbridge Canal Co. vy. Wheeley, supra.

16 Black v. Canal Co., 24 N. J. Eq. 474.
§ 58) CONSTRUCTION OF CHARTERS—IN GENERAL. 127

but not so as to impair or defeat the objects of the incorporation.” 1°

Powers and privileges in derogation of common right, or such as
are not common to individuals, will never be implied, but must be
expressly conferred. As was said by Chief Justice Marshall: “The
great object of an incorporation is to bestow the character and prop-
erties of individuality on a collected and changing body of men.
Any privileges which may exempt them from the burdens common
to individuals do not flow necessarily from the charter, but must be
expressed in it, or they do not exist.” +7

General Terms Following Special Terms.

The rule of statutory construction, “that, where general words fol-
low an enumeration of persons or things by words of particular and
specific meaning, such general words are not to be construed in their
widest extent, but are to be held as applying only to persons or
things of the same general kind or class as those specifically men-
tioned,” 18 applies, of course, to the construction of charters. Thus,
where a corporation was authorized by its charter “to carry on the
business of mechanical engineers and general contractors,” it was
held that the term “general contractors” would be referred to that
which was immediately before, and authorized such contracts only
as mechanical engineers were in the habit of making.*® In constru-
ing charters, as in construing other statutes, the intention of the
legislature must always govern. Therefore, this rule must be disre-
garded where the legislative intention is plain to the contrary.”°

16 Downing v. Road Co., 40 N. H. 280, 1 Cumming, Cas, Priv. Corp. 148.
And see Whitaker v. Canal Co., 87 Pa. St. 34.

17 Providence Bank v. Billings, 4 Pet. 514.

18 Black, Interp. Laws, 141.

19 Directors, etc., of Ashbury Railway Carriage & Iron Co. v. Riche, L. R. 7 H.
L. 658, 1 Cumming, Cas. Priv. Corp. 152. So, where the charter of a corporation
authorized it “to purchase, lease, work, and sell mines, minerals, land, and build-
ings,” the general words “land and buildings” were limited to land and buildings
acquired for the purpose of purchasing, leasing, working or selling of mines and
minerals. Directors, etc., of Ashbury Railway Carriage & Iron Co. v. Riche,
supra. There are many cases in which this rule of construction has been ap-
plied. See ante, p. 69, where some of the cases are referred to.

20 Black, Interp. Laws, 141, 143; ante, p. 69.
128 POWERS AND LIABLLITIES OF CORPORATIONS, (Ch. 5

Express Mention and Implied Exclusion

The general rule of statutory construction, that the express men-
tion of one thing is tantamount to an exclnsion of all others, applies
to the construction of charters.2* Therefore, if a charter expressly
enumerates certain powers, this impliedly excludes all other powers
except those mentioned, and such as may be necessary or proper to
the execution of them. If, for instance, the charter of a corporation
enumerates the purposes for which it may acquire and hold lands, it
cannot acquire and hold land for any other purpose.”?_ So, if a cor-
poration is expressly authorized to lend money on bond and mort-
gage, it cannot lend on any other security.?* And a bank authorized
to do a banking business “by discounting” notes cannot buy them.?*

POWER TO TAKE AND HOLD REAL AND PERSONAL
PROPERTY.

54. In the absence of express restrictions in its charter or
in some statute applicable to it, a corporation has
the implied power to take and hold property, real
or personal, by purchase, gift, devise or bequest.
But—

(a) It cannot acquire or hold property for a purpose
that is foreign to the objects for which it was created.

(b) In some jurisdictions there are statutory limitations
on its power to take by devise.

The power to purchase and hold such real and'personal property as
the purposes of the corporation may render necessary or proper is in-
cident, at common law, to all corporations, unless they are specially
restrained by their charter or by some statute. Such power is gen-
erally expressly conferred by the charter; but it is not at all neces-
sary that it should be, for it is always implied, in the absence of ex-

21 Black, Interp. Laws, 146; Farmers’ & Mechanics’ Bank v. Baldwin, 23
Minn. 198; Case v. Kelly, 133 U. S. 21, 10 Sup. Ct. 216, 1 Cumming, Cas. Priv.
Corp. 106, Shep. Cas. Corp. 102; Talmage v. Pell, 7 N. Y. 328.

22 Case v. Kelly, 183 U. S. 21, 10 Sup. Ct. 216, 1 Cumming, Cas. Priv. Corp.
106, Shep. Cas. Corp. 102.

23 Life & Fire Ins. Co. v. Mechanic Fire Ins. Co., 7 Wend. (N. Y.) 81.

24 Farmers’ & Mechanics’ Bank v. Baldwin, 28 Minn. 198; post, p. 141.
§ 54) POWER TO TAKE AND HOLD REAL AND PERSONAI. PROPERTY. 129

press restriction.?2> And subject to the same limitations, it may take
by gift, bequest, or devise.2° As we shall presently see at some
length, it cannot purchase property for a purpose not authorized by
its charter.2". Nor has it any right to take property, either real or
personal, by gift, bequest, or devise, for an unauthorized purpose.?®
Where a charter enumerates the purposes for which the corporation
may acquire and hold real estate, it impliedly excludes all other pur-
poses.?® Therefore, where the charter of a railroad company au-
thorized it to take lands for a right of way, and for certain enumerat-
ed purposes connected with the use and management of the road, it
was held that it could not take lands by donation not for use in con-
nection with the road.*° In some states the amount or value of prop-
erty which particular corporations may take is limited by charter or
by statute. Such a restriction only applies to the value of the prop-
erty at the time it is acquired, and a subsequent rise in value does not
require the corporation to dispose of part of it, or affect its title.*’
A corporation is presumed, in the absence of evidence to the con-
trary, to have the right to purchase and hold real estate.*? .

By the English statutes of mortmain, corporations were prohib-
ited from purchasing lands without license from the king, but these
statutes, except in Pennsylvania, were not adopted in this couptry,

e

25 Co. Litt. 44c, 8300b; 2 Kent, Comm. 281; Nicoll v. Railroad Co., 12 N. Y.
121, 1 Cumming, Cas. Priv. Corp. 73; Regents of University of Michigan v.
Detroit Young Men’s Soec., 12 Mich. 138; Blanchard’s Gun-Stock Turning Fac-
tory v. Warner, 1 Blatchf. 258, Fed. Cas. No. 1,521; Lathrop v. Bank, 8 Dana
(Ky.) 114; Thompson v. Waters, 25 Mich. 214; Rivanna Nav. Co. v. Dawsons,
3 Grat. (Va.) 19. Where a corporation is legally organized for the specific pur-
pose of dealing in land, its power to hold land is not limited. Market St. Ry.
Co. v. Hellman, 109 Cal, 571, 42 Pac. 225.

26 Cases above cited. As to devise, see post, p. 181.

27 Post, p. 140.

28 Case v. Kelly, 183 U. S. 21, 10 Sup. Ct. 216, 1 Cumming, Cas. Priv. Corp.
106, Shep. Cas. Corp. 102.

29 Ante, p. 128.

30 Case v. Kelly, 138 U. S. 21, 10 Sup. Ct. 216, 1 Cumming, Cas. Priv. Corp.
106, Shep. Cas. Corp. 102.

312 Inst. 722; Bogardus v. Trinity Church, 4 Sandf. Ch. (N. Y.) 6383.

32 People v. La Rue, 67 Cal. 526, 8 Pac. 84; Stockton Sav. Bank v. Staples,
98 Cal. 189, 32 Pac. 936.

Clk.Pr.Corp.—9
130 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5

and did not become a part of our law.®* They have been recognized
as in force in Pennsylvania so far as applicable to its conditions,
and as having the effect of rendering void all conveyances or devises
of land to or for the use of a corporation, unless sanctioned by its
charter or by act of the legislature.** Even in Pennsylvania, how-
ever, it has been held by the United States supreme court that a
conveyance of land to a corporation without legislative sanction
vests the title in the corporation, subject to forfeiture at the in-
stance of the commonwealth only.*®

A corporation is not prevented from taking a grant of land in fee
by the fact that its period of existence is limited to a term of years.
Such a corporation may take a fee-simple title, and may sell the land
whenever it is no longer necessary or convenient, though it could not
hold and enjoy the same after the expiration of its charter.?* “Cor-
porations have a fee simple for the purpose of alienation, but they
have only a determinable fee for the purpose of enjoyment. On the
dissolution of the corporation, the reverter is to the original grantor
or his heirs; but the grantor will be excluded by the alienation in
fee, and in that way the corporation may defeat the possibility of a
reverter.” °7 Where a corporation acquires title to land in fee sim-
ple, the land does not revert to the grantor or his heirs on abandon-,
ment of its use for corporate purposes, unless it is so provided in the
charter or in some statute.*§

At common law, none but natural persons can take in joint tenan-
cy. A corporation cannot take such an estate, either jointly with an-
other corporation or with a natural person. The reason assigned by
the early writers is that they hold in different capacities and in dif-

33 2 Kent, Comm. 281-283; Rivanna Nay. Co. v. Dawsons, 3 Grat. (Va.)-19;
Wayette Land Co. y. Louisville & N. R. Co. (Va.) 24 8. FE, 1016: Moore’s Heirs,
~v. Moore’s Devisves, 4 Dana (Ky.) 354; Lathrop vy. Bank, 8 Dana (Ky.) 114;:
Tage y. Heineberg, 40 Vt. 81, 1 Cumming, Cas. Priv. Corp. 76.

34 Methodist Church v. Kcmington, 1 Watts (Pa.) 218.

#5 Runyan v. Coster’s Lessve, 14 Pet. 122. .

36 Nicoll y. Railroad Co., 12 N. ¥. 121, 1 Cumming, Cas. Priv. Corp. 73; ‘Peo-
wle v. Mauran, 5 Denio (N. Y.) 389; VDage v. Heineberg, 40 Vt. 81, 1 Cumming,
Cas. Privy. Corp. 76; Rives vy. Dudley, 8 Jones, Kq. (N. ©.) 126.

27°2 Ikent, Comm.. 282,

38 Page v. Ueineberg, 40 Vt. $1, 1 Cumming, Cas. Priv. Corp. 76.
§ 54) . POWER TO TAKE AND HOLD REAL AND PERSONAL PROPERTY. 1381 ,

ferent rights.*° There is nothing, however, to prevent a corporation
and a natural person, or two corporations, from holding as tenants in
common.*°

Power to Take by Devise.

By the English statute of wills passed in the time of Henry VIIL.,
corporations were not allowed to take real estate by will; and in
some of our states the statute of wills prohibits devises to a corpora-
tion, unless it be expressly authorized by its charter or by statute to
take by devise.*+. In the absence of such a restriction in a statute,
or in the charter of a corporation, it may take real estate by devise
as well as by purchase.*? If the charter of a corporation prohibits
it from taking by devise, it cannot take in another state, though there
may be no prohibitory statute in the latter state, for a‘prohibitory
clause in the charter of a corporation cleaves to it everywhere; but
it has been held ‘that a statute of wills of one state, since it has no
extraterritorial effect, cannot prevent a corporation of that state
from taking by devise in another state, where there is no such pro-
hibition.*$

It seems that the statute of wills, in prohibiting a devise to a cor-
poration, does not render invalid a devise to a natural person in trust

29 Telfair v. Howe, 3 Rich. Eq. (S. ©.) 235.

40 See New York & S. Canal Co. v. Fulton Bank, 7 Wend. (N. Y.) 412, 2
Cumming, Cas. Priv. Corp. 87.

41 See McCartee vy. Society, 9 Cow. (N. Y.) 487; Downing v. Marshall, 23 N.
¥. 366} Starkweather Y. Society, 72 lll. 50. Such a provision does not pre-
yent a éorporation from ‘taking money under a will, though raised by a conver-
sion of ‘land under a power in the will. Downing v. Marshall, supra. But
where ‘real! estate itself is devised to a corporation, which is incapable: of taking
real’ estate in that way, a court of equity has no power to convert-it into money,
and .dire¢t. the payment of the money to it. Such direction must appear in the
will. Starkweather y. Society, supra. A devise to a corporation not authorized
to take land by ‘devise is not made valid by amendment of its charter after the
tostatoi"s death. “White y. Howard, 46 N. Y. 144.

42 White v. Howard, 38 Conn. 342, 1 Cumming, Cas, Priv. Corp. 81. Rivanna
Nav. .€c..v: Dawsons, 3 Grat. (Va.) 19. Moore’s Heirs v. Moore’s Devisees, 4
Dana;.(Ky.) 354. ; /

43 White vy. Howard, supra. Contra, Starkweather v. Society, 72 Ill. 50. But
where the laws of a state prohibit a corporation from taking by devise, a devise
to a foreign corporation is void, though by its charter it is authorized to take by
devise. White v. Howard, 46 N. Y. 144.
132 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5

to apply the rents and profits for the use and benefit of a corpora-
tion, as the devise in such a case is not to the corporation, but to the
trustee; but on this point there is some doubt, and the contrary
has been held under the New York statute.**

Power to Take Mortgage.

If a corporation is authorized to engage in a transaction by which
a third person becomes indebted to it, it has the implied power, in
the absence of prohibition in its charter, to take a mortgage on real
estate to secure the debt; and such a transaction is not within a pro-
hibition against dealing in lands.**

POWER TO ACT AS TRUSTER.

55. A corporation having power to take and hold proper-
ty has the capacity to take and hold the same in
trust, and to execute the trust, if the trust is not
repugnant to the purposes for which it was created.
In the latter case, the trust, if otherwise good, is
not void, but a court of equity will appoint a new
trustee to execute it.:

It was at one time considered that a corporation aggregate had
no capacity to act as trustee, executor, guardian, etc. The reason
given by Blackstone why it could not act as executor or administrator
was that it could not take the necessary oath. Another reason
why it could not act as trustee, which was often assigned, was that a
court of equity sometimes enforced a trust by laying hold of the cun-
science of the trustee, and a corporation aggregate had no con-
science. The reason most commonly given was that appointment as
trustee involved a personal trust, and therefore a corporation lacked
one of the essential requisites of a good trustee,—personal confi
dence. These reasons are all artificial and without weight, and the
old doctrine which was based upon them has been exploded and re-
pudiated; and it is now well settled that a corporation, if authorized
by its charter, as in the case of modern trust companies, hospitals,

44 McCartce v. Society, 9 Cow. (N. Y.) 487; Downing v. Marshall, 23 N. Y.

366.
45 Blunt v. Walker, 11 Wis. 334,
§§ 56-57) POWERS AS TO CONTRACTS AND CONVEYANCES. 133

universities, etc., may act as a trustee to the same extent asa natural
person.*® Statutes have been enacted, in many states, authorizing
the formation of corporations with the power to act as trustee, ex-
ecutor, administrator, or guardian, and such statutes have been held
valid.*7 Independently of any statute, where a corporation has the
power to take real and personal property by conveyance and by
devise, it may also so take and hold property in trust in the same
manner, and to the same extent, as a natural person may. If the
trust is repugnant to, or inconsistent with, the purpose for which
the corporation was created, it cannot be compelled to execute the
trust; but the trust, if otherwise unexceptionable, will not be void,
and a court of equity will appoint a new trustee to carry out its ob-
jects.*® If property is conveyed, bequeathed, or devised to a cor-
poration in trust, and the trusts are in themselves valid, but the cor-
poration, by reason of its purpose, is incompetent to execute them,
the heirs of the grantor or testator cannot take advantage of such
inability. The objection can be raised only by the state in its sov-
ereign capacity, by a quo warranto or other proper judicial proceed-
ing.*®

POWERS AS TO CONTRACTS AND CONVEYANCES.

56. A corporation has no power to enter into any contract
that is not expressly or impliedly authorized by
its charter. But any contract that is reasonably
necessary or proper for carrying out the powers ex-
pressly conferred is impliedly authorized. Among
the powers impliedly conferred upon every corpo-
ration, in the absence of express restrictions in its
charter, are the following:

(a) A corporation has the implied power to purchase
such real and personal property as its purposes

46 Vidal vy. Mayor, etc., 2 How. 127, 183; Trustees of Phillip’s Academy v.
King, 12 Mass. 546; Chambers yv. City of St. Louis, 29 Mo. 548; Minnesota
Loan & Trust Co. v. Beebe, 40 Minn. 7, 41 N. W. 282.

47 Minnesota Loan & Trust Co. v. Beebe, 40 Minn. 7, 41 N. W. 282.

48 Vidal v. Mayor, etc., 2 How. 127, 1838.

491d.
134 POWERS AND LIABILITIES OF CORPORATIONS. » (Ch. 5

may require; but it has no power to purchase
property for a purpose foreign to the objects for
which it was created.

(b) A corporation generally has the implied power to
sell and convey or mortgage real or personal prop-
erty owned by it. Buta railroad company, or other
quasi public corporation, cannot dispose of or
mortgage property which is needed in order to
carry on the business for which it was created,
unless expressly authorized. Nor can a corporation
transfer or mortgage its franchise without statutory
authority.

(c) It has the power to borrow money whenever the
nature of its business renders it proper or expe-
dient.

(d) It has the power to execute a bond for any purpose
for which it may contract a debt.

(e) In this country, but not in England, it has the power
to make or indorse promissory notes, and to draw,
indorse, or accept bills of exchange, if it is a usual
or proper means of accomplishing the objects for
which it was created.

(f) Subject to certain exceptions, it has no power to en-
ter into a contract of suretyship or guaranty un-
less the power is expressly conferred. And it can-

_ not bind itself by an accommodation note or bill.

(g) It has no implied power to enter into a contract of
partnership. But it may contract jointly with an-
other,

(h) Though there are some cases to the contrary, by the
better opinion a corporation has no power, unless
expressly authorized, to subscribe for, purchase, or
hold stock in another corporation. But it may in
good faith take and hold stock in another corpo-
ration to secure a loan previously made by it, ora
debt due it, or in payment of such loan or debt.
§§$ 56-57) POWERS AS TO CONTRACTS. AND CONVEYANCES. 135

(i) In some jurisdictions it is held that a corporation
has no implied power to purchase its own stock,
either for the purpose of selling or reissuing it, or
for the purpose of holding or retiring it, though it
may take its own stock to secure a loan previously
made or a debt due it, or in payment of such loan
or debt. In other jurisdictions it may thus pur-
chase its own stock, subject to the rights of credit-
ors.

57. The presumption is that contracts of a corporation are
within its powers, and the burden of showing the
contrary rests upon the party who objects.

Since a corporation has such powers only as are expressly or im-
_pliedly conferred upon it, by its charter, it follows that it cannot
legally enter into any contract that is not expressly or impliedly au-
, thorized.°° A contract in excess of its powers is said to be ultra
vires. Whether it is void or not is a question. upon which the courts
‘do not agree. We shall consider the effect of ultra vires contracts
in a subsequent chapter. Asa rule, so long as the contract is execu-
tory, it cannot be enforced. The fact that the particular contract
may be, or is even sure to be, profitable to the corporation by greatly
increasing its business or its property, is altogether immaterial.**
Nor can it make any difference that there is nothing illegal about

50 Coleman v. Railway Co., 10 Beav. 1, 1 Cumming, Cas. Priv. Corp. 136;
East Anglian Rys. Co. v. Wastern Counties Ry. Co., 11 C. B. 775, 1 Cumming,
Cas. Priv. Corp. 142; Franklin Co. v. Lewiston Inst. for Savings, 68 Me. 43, 1
Cumming, Cas. Priv. Corp. 348; Pearce vy. Railroad Co., 21 How. 441, 1 Cum-
ming, Cas. Priv. Corp. 146; Downing v. Road Co., 40 N. H. 230, 1 Cumming,
Cas. Priv. Corp. 148; W. D. Smith, Cas. Corp. 129, Shep. Cas. Corp. 75; Direct-
ors, ete., of Ashbury Railway Carriage & Iron Co. v. Riche, L. R. 7 H. L. 6538;
1 Cumming, Cas. Priv. Corp. 152; Thomas v. Railroad Co., 101 U. S. 71, 1
Cumming, Cas. Priv. Corp. 164; W. D. Smith, Cas. Corp. 1382, Shep. Cas. Corp.
70; Davis v. Railroad Co., 181 Mass. 258, 1 Cumming, Cas. Priv. Corp. 173;
Wecekler v. Bank, 42 Md. 581; Chewacla Lime Works v. Dismukes, 87 Ala. 344,
6 South: 122; Tomkinson v. Railway Co., 35 Ch. Div. 675.

51 Coleman y. Railway Co., 10 Beav. 1, 1 Cumming, Cas. Priv. Corp. 136;
Daris v. Railroad Co., 181 Mass. 258, 1 Cumming, Cas. Priv. Corp. 173; Tom-
kinson vy. Railway Co., 35 Ch. Div. 675; and the other cases cited above.
136 POWERS AND LIABILITIES OF CORPORATIONS, (Ch. 5

the subject-matter of the contract. It is unauthorized, and that is
enough.

It has been held, for instance, that a railroad company, which has
been given the power only to construct, maintain, and operate a cer-
tain railroad, and to do all that may be necessary for the purpose
of carrying on and working the road, has no power to pledge its funds
for the purpose of supporting or aiding in the support of another
corporation. to operate a connecting steamboat line, however much
such an arrangement may increase the traffic on the railroad.®? So,
it has been held that a railroad company has no implied power to
purchase and operate a steamboat, at least on waters at the terminus
of its line, or at any other place where a steamboat is not necessary
to the operation of the road; °* or to lease and operate another rail-
road; °* or to lease or transfer its own road to another corporation
or person; ** or to enter into a consolidation agreement with another
railroad corporation; °° or to lease or transfer to another a telegraph
line which it has constructed and is operating under its charter.*’

So, where a corporation was empowered to lay out and maintain a
road from some point in the vicinity of Mt. Washington to the top

52 Coleman v. Railway Co., 10 Beav. 1, 1 Cumming, Cas. Priv. Corp. 136.
But see Green Bay & M. R. Co. v. Union Steamboat Co., 107 U. S. 98, 2 Sup.
Ct. 221.

53 Pearce v. Railroad Co., 21 How. 441, 1 Cumming, Cas. Priv. Corp. 146;
Central Railroad & Banking Co. v. Smith, 76 Ala. 572. It would, doubtless be
different if a corporation were chartered to construct and operate a railroad along
a route crossing a wide river, or under other circumstances rendering transporta-
tion by water necessary to the operation of the road.

54 Hast Anglian Ry. Co. v. Eastern Counties Ry. Co., 11 OC. B. T75, 1 Cum-
ming, Cas. Priv. Corp. 142.

56 Thomas v. Railroad Co., 101 U. S. 71, 1 Cumming, Cas. Priv. Corp. 164, W.
D. Smith, Cas. Corp. 132, Shep. Cas. Corp. 70; New York & M. L. R. Co. y.
Winans, 17 How. (U. 8.) 30; Pennsylvania R. Co. v. St. Louis, A. & T. H. R.
Co., 118 U. S. 290, 6 Sup. Ct. 1094, and 7 Sup. Ct. 24; Black v. Canal Co., 22
N. J. Eq. 390; Central Transp. Co. v. Pullman’s Palace-Car Co., 139 U. S. 24,
11 Sup. Ct. 478; Oregon Ry. & Nav. Co. v. Oregonian Ry. Co., 130 U. S. 1, 9
Sup. Ct. 409; post, p. 142.. ;

56 Pearde v. Railroad Co., 21 How. (U. S.) 441, 1 Cumming, Cas. Priv. Corp.
146; Clearwater v. Meredith, 1 Wall. (U. S.) 25. oa

57 American Union Tel. Co. v. Union Pac. Ry. Co., 1 McCrafy, 188, 1 Fed. 745,
1 Cumming, Cas. Priv. Corp. 284; post, p. 142.
8§ 56-57) POWERS AS TO CONTRACTS AND CONVEYANCES. 1387

of the mountain, to take tolls of passengers and for carriages, to
build and own tollhouses, and to take land for their road, it was held
that the corporation had no power to purchase omnibuses, wagons,
horses, etc., and engage in the carriage of passengers and their bag-
gage on its road.** And a manufacturing corporation authorized to
engage in the manufacture of firearms and other implements of war
cannot engage in the manufacture of railroad locks."° , :

It has been held that a railroad, manufacturing, banking, or other
business corporation cannot enter into a valid contract to pay money
to defray the expenses of holding a festival or carnival, though by
bringing strangers into the place their business may be greatly in-
creased.°® This, however, is very doubtful, and there are decisions
to the contrary.*? We shall presently see more at length that, as a
rule, a corporation, unless expressly authorized, has no power to be-
come surety or guarantor fer another, or to enter into a contract of
partnership, or to deal in stock of another corporation. To these
rules, however, as we shall see, there are some exceptions.°* Other il-
lustrations are given below.**

'

58 Downing v. Road Co., 40 N. H. 230, 1 Cumming, Cas. Priv. Corp. 148,
W. D. Smith, Cas. Corp. 129, Shep. Cas. Corp. 75.

59 Whitney Arms Co. v. Barlow, 63 N. Y. 62, 1 Cumming, Cas. Priv. Corp. 253.
So, a corporation for the purpose of manufacturing and dealing in metal goods
cannot contract with another company, engaged in manufacturing carbons for
electric lighting, to sell its carbons for a term of years. Holmes, Booth & Hay-
dens v. Willard, 125 N. Y. 75, 25 N. E. 1083.

60 Davis v. Railroad Co., 131 Mass. 258, 1 Cumming, Cas. Priv. Corp. 173.
And see Tomkinson v. Railway Co., 85 Ch. Div. 675.

61In Richelieu Hotel Co. vy. International Military Encampment Co., 140 III.
248, 29 N. B. 1044, however, it was held that a subscription by an hotel com-
pany to a fund to establish a military encampment, which would be likely to
attract strangers, necessarily requiring hotel accommodations, was not ultra vires.
So, it has been held by the Illinois court that a business corporation may sub-
scribe money in consideration of securing the location of a post office near its
place of business. B. S. Green Co. v. Blodgett, 159 Ill. 169, 42 N. E. 176, af-
firming 55 lil. App. 556. And in Temple Street Cable Ry. Co. v. Hellman, 103
Cal. 684, 87 Pac. 530, the giving of its note by a street-railroad company, as
an inducement to the establishment of a ‘baseball park, which would increase its
traffic, was sustained against an attack upon it as ultra vires.

62 Post, pp. 148-155.

68 National banks have no authority to sell railroad bonds on commission.
Wecekler v. Bank, 42 Md. 581. A railroad corporation cannot engage in bank-
ing, as by issuing paper designed to circulate as bank notes, or deal in notes and
138 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5

Powers Impliedly Conferred.

As has been stated generally in a former section, power to enter
into a particular contract need not be expressly conferred. On the
contrary, the power to make all such contracts as are necessary and
usual in the course of business, or are reasonably incident to the ob-
jects for which the corporation was created, is always implied, where
there is no positive restriction in the charter.** “When a charter
or act of incorporation and valid statutory law are silent as to what
contracts a corporation may make, as a general rule it has power to
make all such contracts as are necessary and usual in the course of
business, as means to enable it to attain the object for which it was
created, and none other. The creation of a corporation for a specific
purpose implies a power to use the necessary and usual means to ef-
fectuate that purpose.” ®

Thus, a corporation, unless restricted: by its charter, has the im-
plied power to lease or mortgage property lawfully held by it under
bills. People v. River Raisin & L. E. R. Co., 12 Mich. 389; Goodrich v. Reyn-
olds, 31 Ill. 490. In Byrne v. Manufacturing Co., 65 Conn. 386, 31 Atl. 833,
ithe officers of an insolvent corporation, for the purpose of avoiding dissolution,
transferred all its property to another corporation, which had been organized
to continue its business, and accepted, in payment, stock in the new corporation,
to be held by trustees named by such officers. The contract was held ultra
vires. A railroad corporation has no power to employ a person to make a re-
port on mines of which its road is the outlet, though its business is benefited
thereby. Georg v. Railroad Co. (Nev.) 38 Pac. 441. A corporation authorized by
its charter to make contracts of fire and marine insurance, to loan money on
bottomry, respondentia, or mortgage, to buy mortgaged property when necessary
to secure debts, and to purchase and hold property necessary to carry on its busi-
ness, but being expressly prohibited from exercising banking powers, cannot loan
money on the discount of notes; and this would be so without such express pro-
hibition, New York Firemen Ins. Co. v. Ely, 5 Conn. 560. <A society incorpo-
rated for religious worship has no power to contract for a steamboat excursion,
.to raise money for church purposes, and cannot recover for expenses or loss of antici-
pated profits by reason of the defendant’s breach of such a contract. Harriman vy.
‘Baptist Church, 63 Ga. 186.

84 Morville v. Society, 123 Mass. 129, 186. And see Union Bank vy. Jacobs, 6
‘Humph. (Tenn.) 515, 1 Cumming, Cas. Priv. Corp. 302, W. D. Smith, Cas. Corp.
139, Shep. Cas. Corp. 126; London & N. W. Ry. Co. v. Price, 11 Q. B. Div.
485, 2 Cumming, Cas. Priv. Corp. 83; Simpson v. Hotel Co., 8 H. L. Cas. 712;
-Ft. Worth City Co. v. Smith Bridge Co., 151 U. §. 294, 14 Sup. Ct. 339, Shep.
Cas. Corp. 98.

65 Munn v. Commission Co., 15 Johns. (N. Y.) 52.
§§ 56-57) POWERS AS TO CONTRACTS AND CONVEYANCES. 139

its charter, and not immediately needed for its own business; ** or
to sell property that will no longer be needed at all; *” or:to borrow
money when necessary, and to execute instruments to secure the
loan.** A corporation established “for the purpose of manufactur-
ing and selling glass” may contract to purchase glassware from a
like corporation to keep up its own stock and supply its. customers
while its works are being put in order.®® <A corporation authorized
to purchase and hold waterpower created by the erection of dams,
and to hold real estate, may, when the water power has been lawfully
extinguished, sell its lands, and, as part of the contract of sale, agree
to raise the grade.7° So, a railroad corporation may agree to trans-
port as a common carrier, over connecting railroads, goods intrusted
to it for carriage over its own line.’ Many other illustrations will
appear in the following paragraphs.

As a general rule, subject to exceptions which we shall presently
notice, when a corporation is given general authority to engage in
business, and there are no special restraints in its charter, it takes
the power as a natural person enjoys it, with all its incidents and
accessories. It may, like a natural person, make all contracts, not
prohibited, which are necessary or proper to enable it to attain its.
legitimate objects.’ A business corporation may incur liability for
a reward by offering the same for the apprehension of criminals who
have committed crimes against its property or its employés.”* If

.

-66 Post, p. 142.

67 Dupee v. Water-Power Co., 114 Mass. 37; post, p. 142.

68 Post, pp. 145-148.

69 Lyndeborough Glass Co. v. Massachusetts Glass Co., 111 Mass. 315. Buta
corporation for the purpose of manufacturing and selling gold and silver ware can-
not, as a part of its business, engage in the purchase and sale of goods of the same
general character, but which it cannot advantageously manufacture. People v.
_ Campbell, 144'N. Y. 166, 38 N. EH. 990.

70 Dupee vy. Water-Power Co., 114 Mass. 37.

71 Swift vy. Steamship Co., 106 N. Y. 206, 12 N. E. 588, 2 Cumming, Cas. Priv.
Corp. 98; Hill Manuf’g Co. v. Boston & L. R. Corp., 104 Mass. 122; Ohio & M.
Ry. Co. v. McCarthy, 96 U. S. 258.

72 Wright v. Hughes, 119 Ind. 324, 21 N. H. 907.

73 Norwood & B. Co. v. Andrews, 71 Miss. 641, 16 South. 262; Central. R. & B.
Co. v. Cheatham, 85 Ala. 292, 4 South. 828; American Exp. Co. v. Patterson,
73 Ind. 430; Ricord v. Railroad Co., 15 Nev. 167.
140 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5

the charter of a street-railroad company specifies a particular motive .
power, it excludes all other motive powers; but, if the motive power
is in no way limited or defined, any motive power may be used that
may be fit and appropriate to enable the company to operate its
road.7*

Power to Purchase Real or Personal Property.

We have already seen that a corporation, unless prohibited, has the
capacity to take and hold the title to both real and personal property.
It must not be supposed, however, that it has an unlimited power to
purchase property, for it has not. It has the implied power, in the ab-
sence of express restrictions, to purchase any property, real or per-
sonal, that may be reasonably necessary or proper to accomplish
the purposes for which it was created.7> But it has no power to pur.
chase property for a purpose foreign to the objects of its creation.”®
A corporation established “for the purpose of manufacturing and sell-
ing glass” may contract to purchase glassware from a like corpora-
tion, in order to keep up its own stock and supply its customers while
its works are being put in order, for this is necessary in order to car-
ry on its business.”* <A railroad company has the implied power to
purchase iron rails for use in building its road, but a purchase of
rails to sell them again on speculation would be ultra vires; and the

74 Halsey v. Railway Co., 47 N. J. Eq. 380, 20 Atl. 859.

75 Personal property: Lyndeborough Glass Co. v. Massachusetts Glass Co., 111
Mass. 315; Moss v. Averell, 10 N. Y. 449. Real property: Ante, p. 128; Co.
Litt. 44c, 8300b; 2 Kent, Comm. 281; Spear v. Crawford, 14 Wend. (N. Y.) 20;
Nicoll v. Railroad Co., 12 N. Y. 121, 1 Cumming, Cas. Priv. Corp. 73; Old Colony
R. Corp. v. Evans, 6 Gray (Mass.) 25, 38; Regents of University of Michigan v.
Detroit Young Men’s Soc., 12 Mich. 188. As.we have seen, a corporation may
purchase and take a fee-simple title to land, though the period of its existence is
limited to a term of years. Ante, p. 180.

76 Personal property: Pearce v. Railroad Co., 21 How. 441, -1 ‘Cumming, Cas.
Priv. Corp. 146; Downing v. Road Co., 40 N. H. 230, 1 Cumming, Cas. Priv.
Corp. 148, W. D. Smith, Cas. Corp. 129, Shep. Cas. Corp. 75; Day v. Buggy Co.,
57 Mich. 146, 23 N. W. 628, 1 Cumming, Cas. Priv. Corp. 261; Northwestern
Packet Co. v. Shaw, 37 Wis. 655, 1 Cumming, Cas. Priv. Corp. 245; (Bosshardt &
Wilson Co. v. Crescent Oil Co., 171 Pa. St. 109, 32 Atl. 1120,) Real property:
Bank of. Michigan y. Niles, Walk. (Mich.) 99, 1 Cumming, Cas. Priv. Corp. 291;
Case v. Kelly, 183 U. 8. 21, 10 Sup. Ct. 216, 1 Cumming, Cas, Priv. Corp. 106,
Shep. Cas. Corp. 102.

77 Lyndeborough Glass Co. vy. Massachusetts Glass Co., 111 Mass. 315.
§§ 56-57) POWERS AS TO CONTRACTS AND CONVEYANCES. 141

same is true of other corporations. A manufacturing corporation,
though it may purchase materials to use in manufacture, cannot pur-
chase to sell on speculation.”® A railroad, steamboat, or canal com-
pany can purchase grain or other produce for its own use, but it can-
not purchase the same to transport it to another market, and sell it.”°
A bank authorized by its charter to carry on the business of bank-
ing “by discounting bills, notes, and other evidences of debt, * * *
and by exercising such incidental powers as may be necessary to
carry on such business,” has no power to buy notes or bonds, and
deal in them in this way.*® Nor can a railroad company deal in
bills or notes.** But either a bank or a railroad company can take
bills or notes in the course of its business, as to secure a debt due to
it; and the same is true of all other corporations.*?

And so it is with purchases of real estate. A railroad, banking,
or manufacturing corporation may purchase such real estate as may
be necessary for the convenient transaction of its business; but it
cannot enter into a valid contract to purchase land, not for use in its
business, but as a speculation.**

It has been said that a corporation has no power, unless it is ex-
pressly conferred, to purchase property of any kind on credit, unless
it is needed for immediate use, or the investment of existing funds.**

78 Day v. Buggy Co., 57 Mich. 146, 28 N. W. 628, 1 Cumming, Cas. Priv. Corp.

261. And see Chewacla Lime-Works v. Dismukes, 87 Ala. 344, 6 South. 122,
(Bosshardt & W. Co. v. Crescent Oil Co., 171 Pa. St. 109, 32 Atl. 1120. )

79 Northwestern Packet Co. v. Shaw, 37 Wis. 655, 1 Cumming, Cas. Priv. Corp.
245.

80 Farmers’ & Mechanics’ Bank v. Baldwin, 23 Minn. 198; Niagara County Bank
y. Baker, 15 Ohio St. 68; Talmage v. Pell, 7 N. Y. 328; First Nat. Bank v.
Pierson, 24 Minn. 140. But see National Pemberton Bank v. Porter, 125 Mass.
333.

81 Goodrich vy. Reynolds, 31 Ill. 490.

82 Goodrich y. Reynolds, supra; McIntire v. Preston, 5 Gilm. (IIl.) 48.

83 President, etc., of Bank of Michigan v. Niles, Walk. (Mich.) 99, 1 Doug. 401.
1 Cumming, Cas. Priv. Corp. 291; Case v. Kelly, 133 U. S. 21, 10 Sup. Ct. 216,
1 Cumming, Cas. Priv. Corp. 106, Shep. Cas. Corp. 102; Pacific R. Co. v. Seely, 45
Mo. 212.

84 Franklin Co. v. Lewiston Inst. for Savings, 68 Me. 43, 1 Cumming, Cas.
Priv. Corp. 343.
142 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5

Power to: Sell, Lease, Mortgage, or Pledge Property.

In the absence of express restrictions in its charter, and subject
to exceptions to be presently noticed, a corporation has the im-
plied power to sell and convey or transfer, or to lease, all or a part of
its real or personal property.?® And whenever a corporation has the
power to borrow money, or to otherwise incur debts, it has, as inci-
dental thereto, unless expressly restricted, the implied power to ex-
ecute a mortgage on its property, real or personal, or to pledge its
property, to secure its debts, whether the debts have been previously
contracted, or are contracted at the time, or are to be contracted in
the future.** The power of a corporation to execute a mortgage on

85 Brown v. Winnisimmet Co., 11 Allen (Mass.) 326; Hendee v. Pinkerton, 14
Allen (Mass.) 381, 1 Cumming, Cas. Priv. Corp. 336; State v. Western Irr.
Canal Co., 40 Kan. 96, 19 Pac. 349; Leggett v. Banking Co., 1 N. J. Eq. 541;
‘Dupee v. Water-Power Co., 114 Mass. 87; Aurora A. & H. Soe. v. Paddock, 80
TIL 263; Benbow vy. Cook, 115 N. C. 324, 20 S. E. 453; Reynolds’ Widow v.
Commissioners, 5 Ohio, 204; Miners’ Ditch Co. v. Zellerbach, 27 Cal. 548; Simp-
son v. Hotel Co., 8 H. L. Cas. 712. “All civil corporations, * * * unless ex-
pressly, restrained by the act which establishes them, or by some subsequent act,
lave, and always have had, an unlimited control over their respective proper-
lies, and may alienate in fee, or make what estates they please, for years, for
life, or in tail, as fully as any individual may do with respect to his own prop-
erty.” 1 Kyd, Corp. 108.

86 Barry v. Exchange Co., 1 Sandf Ch. (N. Y.) 280; Curtis v. Leavitt, 15
N. Y. 9; Wright v. Hughes, 119 Ind. 824, 21 N. BE. 907; Hureka Iron & Steel
Works v. Bresnahan, 60 Mich. 332, 27 N. W. 524; In re Patent.File Co., 6 Ch.
App.'83, 1 Cumming, Cas. Priv. Corp. 322; W. D. Smith, Cas. Corp. 125, Shep.
Cas. Cerp. 109; Aurora A. & H. Soe. v. Paddock, 80 Ill. 263; Reichwald y. Ho-
tel Go.; 106 Ill: 439: Jones v. Indemnity Co., 101 U. 8. 622, 1 Cumming, Cas. Priv.
Corp. 826; Railroad Co. v. Howard, 7 Wall. 892; Booth v. Robinson, 55 Md. 419;
Hendee-v. Pinkerton, 14 Allen (Mass.) 381, 1 Cumming, Cas. Priv. Corp. 336:
Thompson v. Lambert, 44 Iowa, 239; Detroit v. Mutual Gaslight Co., 43 Mich.
194, 5 N. W. 1089; Evans v. Heating Co., 157 Mass. 837, 31 N. E. 698% Lieg-
gett v. Banking Co., 1 N. J. Eq. BAL;( Gordon v. Preston, 1 Watts (Pa.) 385;
Leo vy. Railway Co., 17 Fed. 273; Duncomb y. Railroad Co., 84 N. Y¥. 190; Jack-
son v. Brown, 5 Wend. (N. Y.) 590; Memphis & LL. R. Co. v. Dow, 19 Fed. 388;
Bardstown & L. R. Co. v. Metcalfe, + Mete. (IXy.) 199; Jessup v. Bridge, 11
Towa, 572; Hays v. Coal Co., 29 Ohio St. 8830. And a corporation having the
power to execute a mortgage on its property to secure its debts may, in the ab-
senee of special restrictions, execute a. mortgage to secure future advances:
Barry v. Exchange Co., supra. Jones vy. Indemnity Co., supra; Richards v.
Railroad Co., 44 N. H, 127,
§§. 56-57) POWERS AS TO CONTRACTS AND CONVEYANCES. | 143!

its property can only be co-extensive with its power to alienate ab:
solutely, since every mortgage may become an absolute conveyance '
by foreclosure.*’ In like manner a corporation may make an assign-'
ment of its property for the payment of its debts.*°

In the absence of statutory authority a corporation can neither:
sell nor mortgage its franchises.*® But the power to mortgage cor- '
porate franchises may be, and often is, conferred by statute.°°

By the weight of authority, a railroad company, or other corpora:
tion that is vested with the power of eminent domain, and charged -
with peculiar duties to the public, as telegraph, gas, and water com-
panies, cannot, in the absence of express authority from the legis--
lature, alienate, by absolute conveyance or by lease, property that is:
essential to enable it to properly perform its functions.°* Nor, by

87 Com. vy. Smith, 10 Allen (Mass.) 448, 1 Cumming, Cas. Priv. Corp. sal; W.
D. Smith, Cas. Corp. 127, Shep. Cas. Corp. 111.

88 Post, p. 553. :
89 Carpenter vy. Mining Co., 65 N. Y. 43, 50; Beebe v. Power Co., 13 Mise.
Rep. 737, 35 N. Y. Supp. 1;.. Susquehanna Canal Co. v. Bonham, 9 Watts & S.
(Pa.) 27; Arthur vy. Bank, 9 Smedes & M. (Miss.) 394; City Water Co. v. State, .
88 Tex. 600, 32 S. W. 1083; New Orleans, J. & G. N. R. Co. v. Harris, 27 Miss.
517; Stewart v. Jones, 40 Mo. 140; Daniels v. Hart, 118 Mass. 5438; Richard-.

gon v. Sibley, 11 Allen (Mass.) 65.

90 See Lord vy. Gas Co., 99 N. Y. 547, 2 N. E. 909; Davidson v. Gaslight Co.,
99 N. Y. 558, 2 N. EB. 892; East Boston Freight R. Co. v. Eastern R. Go., 13°
Allen (Mass.) 422.

91Com, v. Smith, supra. “In the case of a railroad company,” it was’ said:
by Hoar, J., in this case, ‘created for the express and sole purpose of construct-*
ing, owning, and managing a railroad; authorized to take land for this purpose :
under the power of eminent domain; whose powers are to be exercised by offi-'
cers expressly designated by statute; having public duties, the discharge of’
which is the leading object of its creation; required to make returns to the’
legislature,—there are certainly great, and, in our opinion, insuperable objections’
to the doctrine that its franchise can be alienated, and its powers and privileges:
conferred. by its own act upon another person or body, without authority other
than that derived from ‘the fact of its own incorporation. The franchise to: be!
a corporation clearly”cannot be transferred by any corporate body, of its own!
will. Such a franchise is not in its own nature transmissible. * * * And al-
though the franchise to exist as a corporation is distinguishable from the fran-
chises to be enjoyed and used by the corporation after its creation, yet the trans-'
fer of. the latter differs essentially from the mere alienation of ordinary corpo-
rate property. The right of a railroad company to continue in business depends -
upon the performance of its public duties. Having once established its road, ‘if
144 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5

the weight of authority, can it execute a mortgage on such prop-
erty, in the absence of express authority, even to secure legitimate
debts; for, as has been stated, the power to mortgage can only be co-
extensive with the power to alienate absolutely, since every mortgage
may become an absolute conveyance by foreclosure.®? A railroad
company, or similar corporation, however, has the same implied pow-
er ag any other corporation, in the absence of special restraint, to
alienate property which it has acquired otherwise than by the exer-
cise of the power of eminent domain, and which is not necessary to
enable it to perform its functions.°* And it has, of course, the same
power to mortgage such property, if it does so for an authorized pur-
pose.** :

The legislature generally expressly authorizes these quasi public
corporations to mortgage their property and franchises under cer-
tain circumstances. Of course, authority to mortgage for a specified
purpose would, under familiar rules of construction, exclude all other

that and the franchise of managing, using, and taking tolls and fares upon the
same are alienated, its whole power to perform its most important functions is
at an end. A manufacturing company may sell its mill, and buy another; but
a railroad company cannot make a new railroad at its pleasure.” And see Beman
vy. Rufford, 1 Sim. (N. 8S.) 550; Winch v. Railway Co., 5 De Gex & S. Sz:
Thomas v. Railroad Co., 101 U. 8. 71, 1 Cumming, Cas. Priv. Corp. 164, W. D.
Smith, Cas. Corp. 182, Shep. Cas. Corp. 70; New York & M. L. R. Co. v. Winans, 17
How. 30; Black v. Canal Co., 22 N. J. Eq. 390; Central Transp. Co. vy. Pull-
man’s Palace-Car Co., 139 U. S. 24, 11 Sup. Ct. 478, 2 Cumming, Cas. Priv. Corp.
44; St. Louis, V. & T. H. R. Co. v. Terre Haute & I. R. Co., 145 U. S. 398, 12
Sup. Ct. 953, 2 Cumming, Cas. Priv. Corp. 78; American Union Tel. Co. v. Un-
ion Pac. Ry. Co., 1 McCrary, 188, 1 Fed. 745, 1 Cumming, Cas. Priv. Corp. 284;
Chicago Gaslight & Coke Co. v. People’s Gaslight & Coke Cv., 121 III. 530, 18
N. E. 169; Coe v. Railroad Co., 10 Ohio St. 372; note 85, supra, and cases
there cited. But see Bardstown & L. R. Co. v. Metcalfe, 4 Mete. (Ky.) 199;
Miller v. Railroad Co., 86 Vt. 452.

92 Com. v. Smith, supra, and other cases cited above; Richardson v. Sibley,
11 Allen (Mass.) 65. But see Hunt v. Gaslight Co., 95 Tenn. 136, 31 S. W.
1006, where it was held that, when its charter does not confer the power of em-
inent domain or exclusive privilege, a gas company can mortgage its entire
property to secure bonds and floating indebtedness, though the charter does not
expressly confer the right to mortgage.

93 Hendee v. Pinkerton, 14 Allen (Mass.) 381, 1 Cumming, Cas. Priv. Corp.
336; Coe v. Railroad Co., 10 Ohio St. 372.

94 Hendee v. Pinkerton, supra.
§§ 56-57) POWERS AS TO CONTRACTS AND CONVEYANCES. 145

purposes. If the legislature confers upon such a corporation power
to mortgage its property without limitation, it authorizes a mortgage
of the entire corporate property.°> If it confers the power to sell
and transfer or alien absolutely, this will give the power to mort-
gage.°® And power to mortgage includes, as a necessary incident,
the power to borrow money and issue bonds therefor.°* Where a
railroad company has express authority to mortgage its property,
a mortgage executed by it, covering both its property and franchise,
will not be avoided as to the property by the fact that there was no
authority to mortgage the franchise.*®

Power to Borrow Money.

Except in so far as there may be express restrictions in its char-
ter, a private corporation may, like an individual, borrow money,
whenever the nature of its business renders it proper or expedient
that it should do so.°®* But if the purposes for which a corporation
is organized and chartered do not require it to borrow money, it can-
not do so; and it cannot do so for an unauthorized purpose.!°

95 Pumphrey v. Threadgill, 9 Tex. Civ. App.. 184, 28 S. W. 450. As to what
passes under a general railroad mortgage, the effect on after-acquired property,
ete., see Philadelphia, W. & B. R. Co. v. Woelpper, 64 Pa. St. 366; Galveston..
H. & H. R. Co. v. Cowdrey, 11 Wall. 459; Fosdick v. Schall, 99 U. 8S. 235; Ham-
mock y. Trust Co., 105 U. S. 77.

96 Hast Boston Freight R. Co. v. Eastern R. Co., 13 Allen (Mass.) 422; Mc-
Allister v. Plant, 54 Miss. 106.

97 Gloninger v. Railroad Co., 1389 Pa. St. 13, 21 Atl. 211.

98 Id.

98 Barry v. Exchange Co., 1 Sandf. Ch. (N. Y.) 280; Curtis v. Leavitt, 15 N.
Y. 9; Nelson v. Eaton, 26 N. Y. 410; Wright v. Hughes, 119 Ind. 324, 21 N. B.
907; In re Patent File Co., 6 Ch. App. 88, 1 Cumming, Cas. Priv. Corp. 322, W. D.
Smith, Cas. Corp. 125, Shep. Cas. Corp. 109; Heironimus v. Sweeney (Md.) 34
Atl. 823; Reichwald v.' Hotel Co., 106 Ill 439; Fifth Ward Sav. Bank v. First
Nat: Bank, 48 N. J. Law, 513, 7 Atl. 318; Booth v. Robinson, 55 Md. 419:;.
Commercial Bank of New Orleans v. Newport Manuf’g Co., 1 B. Mon. (IKy.) 13;.
Union Gold Min. Co. v. Rocky Mountain Nat. Bank, 2 Colo. 248; Bradbury v..
Ganoe Club, 158 Mass. 77, 26 N. HB. 182; Hays v. Coal Co., 29 Ohio St. 330..
A mutual fire insurance company can borrow money to pay losses, and give its-
notes therefor. Orr v. Insurance Co., 114 Pa. St. 387, 6 Atl. 696.

100In re Cork & Youghal Ry. Co, 4 Ch. App. 748, 1 Cumming, Cas. Priv-.
Corp. 265; In re National Building Socieiy, 5 Ch. App. 309, 1 Cumming, Cas.
Priv. Corp. 274; Wenlock v. River Dee Co., 19 Q. B. Div. 155, 1 Cumming,

Clk.Pr.Corp.—10
146 POWERS AND LIABILITIES OF CORPORATIONS. €Ch. 6

It has been held, for instance, that building associations have
no implied power to borrow money.*®* It seems clear that they have
no power to borrow money for the purpose of lending it out again,
for this is not within their purpose.*°?

Power to Execute Bonds.

Corporations, including railroad companies, have the implied pow-
er to execute a bond for any purpose for which they may lawfully
contract a debt, in the absence of restrictions in their charter. “A
bond is merely an obligation under seal. A corporation having the
capacity to sue and be sued, the right to make contracts, under which
they may incur debts, and the right to make and use a common seal,
a. contract under seal is not only within the scope of its powers, but
was originally the usual, and peculiarly appropriate, form of cor-
porate agreement.” *°* When a statute specifies a particular man-
ner in which bonds shall be executed by a corporation, as is often the
case, a failure to comply with the statute renders the bonds in-
valid.*°*

Bonds of corporations, and the coupons attached thereto, will be
regarded as negotiable instruments, and as subject to the rules of
law relating to such instruments, if it appears from the form in which
they were issued, and the mode of giving them circulation, that they
were intended to have this character; and they will be transferable
like negotiable bills and notes, and subject to the rules protecting
bona fide holders.*°>

Cas. Priv. Corp. 277; Bacon v. Insurance Co., 31 Miss. 116; Adams & Westlake
Co. v. Deyette (S. D.) 65 N. W. 471. °

101 In re National Building Society, supra.

102 State v. Oberlin Building & Loan Ass’n, 35 Ohio St. 258, 1 Cummiig, Cas.
Triv. Corp. 566.

103 Com, vy. Smith, 10 Allen (Mass.) 448, 1 Cumming, Cas. Priv. Corp., 331,
W. D. Smith, Cas. Corp. 127, Shep. Cas. Corp. 111. And see White Water Val-
ley Canal Co. v. Vallette, 21 How. 414; Barry v. Exchange Co., 1 Sandf. Ch.
(N. Y.) 280; Curtis v. Leavitt, 15 N.Y. vy.

104 Com. v. Smith, supra:

105 White y. Railroad Co., 21 How. 575, 1 Cumming, Cas. Priv. Corp. 188:
American Nat. Bank y. American Wood-Paper Co., Index QQ, 189, 32 Atl. 305;
Galveston, H. & H. R. Co. v. Cowdrey, 11 Wall. 4591 Carr v. Le Fevre, 27
Pa. St. 418; 'City of Lexington v. Butler, 14 Wall. 282: / Philadelphia & R. R.
Co. v. Smith, 105 Pa. St. 195; Philadelphia & R. R. Co. y. Fidelity Insurance,
§§ 56-57) POWERS AS TO CONTRACTS AND CONVEYANCES. 147

Power to Make Negotiable Instruments.

It has been held in England that a corporation cannot accept a
bill of exchange unless expressly empowered to do so.1°° The
decision is based on the peculiar character of such an instrument,
and on the fact that, as it excludes, as against a bona fide holder
for value, any inquiry into the consideration, it would prevent the
defense of ultra vires. This reasoning applies also to the making
of negotiable promissory notes, and the indorsing of bills and
notes. In this country the rule is different. A corporation has
the implied power to make or indorse promissory notes, and to draw,
indorse, or accept bills of exchange, if it is a usual or appropriate
means of accomplishing the objects and purposes for which it was
created. It has the power to execute negotiable instruments when
it has the power to borrow money.’°? But if such acts are foreign
to the purposes of the charter, or repugnant thereto, the power
does not exist.‘°* The right to set up the defense that the execu-

Yrust & Safe-Deposit Co., Id. 216; Curtis v. Leavitt, 15 N. Y. 9; Woodbury v.
Railroad Co., 72 Fed. 371. .

106 Bateman v. Railway Co., L. R. 1 C. P. 499, 1 Cumming, Cas. Priv. Corp.
312.

107 Union Bank v. Jacobs, 6 Humph. (Tenn.) 515, 1 Cumming, Cas. Priv.
Corp. 302, W. D. Smith, Cas. Corp. 139, Shep. Cas. Corp. 126; Fifth Ward Sav.
Bank y. First Nat. Bank, 48 N. J. Law, 513, 7 Atl. 318; Moss vy. Averell, 10 N.
Y. 449; Mott v. Hicks, 1 Cow. (N. ¥.) 518; Munn v. Commission Co., 15 Johns.
(N. Y.) 44; Olcott v. Railroad Co., 27 N. Y. 546; Commercial Bank v. New-
port Manuf’g Co., 1 B. Mon. (Ky.) 18; Richmond, F. & P. R. Co. v. Snead, 19
Grat. (Va.) 854; Goodrich v. Reynolds, 31 Ill. 490; Ward v. Johuson, 95 Ill.
215; McIntire v. Preston, 5 Gilman (IIL, 48;( Orr v. Insurance Co., 114 Pa. St.
387, 6 Atl. 696; Hardy v. Merriweather, 14 ‘Ind. 203; Ex parte Hstabrook, 2
Low. 547, Fed. Cas. No. 4,534; Bradbury v. Canoe Club. 153 Mass. 77, 26 N. B.
182; Narragansett Bank v. Atlantic Silk Co., 3 Metc. (Mass.) 282. A railroad
company, for instance, being empowered to construct and operate its road, mhy
incur debts in carrying out its object; and, where a debt has been lawfully in-
curred, it may execute a promissory note or accept a bill of exchange in payment
thereof, or it may raise money on a Dill or note for the purpose of making such
payment. Union Bank v. Jacobs, supra. :

108 National Park Bank vy. German-American M. W. & S. Co., 116 N. Y. 281,
22 N. B. 567, 1 Cumming, Cas. Priv. Corp. 318, Shep. Cas. Corp. 182; Bacon
y. Insurance Co., 31 Miss. 116. Thus, a corporation cannot, even for a cousidera-
tion paid, bind itself by indorsing promissory notes for accommodation of the
148 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5

tion or indorsement of a negotiable instrument by a corporation
was ultra vires, in order to defeat a recovery by a bona fide holder
for value, will be shown in explaining the effect of ultra vires con-
tracts.1°°

Contracts of Suretyship and Guaranty—Accommodation Paper.
As a general rule, to authorize a corporation to become guarantor
or surety for another person or corporation, even for a valuable
consideration paid to it, there must be an express grant of such
power in its charter, or it must have been chartered for the pur-
pose of becoming surety for others. The power is not incident to
corporations for railroading, banking, insurance, manufacturing,
ete2° Nor has a corporation any implied authority or power to
accept a bill of exchange as an accommodation, or to execute an
accommodation note, or to indorse a bill or note as an accommoda-
tion.112, Such contracts as these are clearly foreign to the objects

maker. National Park Bank v. German-American M. W. & 8. Co., supra. And’
see note 111, infra, and cases there cited.

109 Post, p. 175. :

110 National Park Bank v. German-American M. W. & S. Co., 116 N. Y. 281,
22 N. E. 567, 1 Cumming, Cas. Priv. Uorp. 318, Shep. Cas. Corp. 182; Mem-
phis Grain & Elevator Co. v. Memphis & C. R. Co. (Tenn.) 5 S. W. 52; Madi-
son. Watertown & Milwaukee Plank-Road Co. v. Watertown & Portland Plank-
Road Co., 7 Wis. 59; Lucas v. Transfer Qo., 70 Iowa, 542; 30 N. W. 771;
Culver v. Real-Estate Co., 91 Pa. St. 367; Hall v. Turnpike Co., 27 Cal. 255;
Filon v. Brewing Co., 60 Hun, 582, 15 N. Y. Supp. 57; Humboldt Min. Co. v.
American Manufacturing, Mining & Milling Co., 10 C. C. A. 415, 62 Fed. 356;
Aetna Nat. Bank v. Charter Oak Life Ins. Co., 50 Conn. 167. No authority in
a corporation to lend its credit to another is to be implied from the fact that it
may be beneficial to the corporation to do so. Germania Safety-Vault & Trust
Co. v. Boynton, 19 C. C. A. 118, 71 Fed. 797. “It is no part of the ordinary
business of commercial corporations, and, a fortiori, still less so of noncommer-
cial corporations, to become surety for others. Under ordinary circumstances,
without positive authority in this behalf in the grant of corporate power, all
engagements of this description are ultra vires, whether in the indirect form of
guing on accommodation bills, or otherwise becoming liable for the debts of oth-
ers.” Green’s Brice, Ultra Vires, 252.

111 National Park Bank v. German-American M. W. & 8S. Co., supra; National
Bank v. Young, 41 N. J. Eq. 531, 7 Atl. 488: Ex parte Estabrook, 2 Low. 547,
Fed. Cas. No. 4,534; Aetna Nat. Bank v. Charter Oak Life Ins. Co., 50 Conn.
167. . See National Bank v. John G. Mattingly & Sons (Ky.) 33 8S. W. 415, where
recovery was allowed on accommodation paper under peculiar circumstances.
§§ 56-57) POWERS AS TO CONTRACTS AND CONVEYANCES. 149

of most corporations. The fact that a consideration is received
by the corporation for entering into the contract can make no dif-
ference.‘*? We shall see, in another place that a corporation can-
not always successfully defend against accommodation paper,
where it has passed into the hands of a bona fide purchaser for
value; *** but this is based on peculiar reasons, and is not incon-
sistent with want of power to make the contract.

There may be circumstances under which a corporation would,
have the power to guaranty the debt of another person or corpo-
ration. Being authorized to make all contracts that may be nec-
essary for accomplishing the purpose of its creation, a corporation,
in making a contract which it is authorized to make, may, as a
part of the consideration, become a guarantor. Thus, a railroad
company, for the purpose of disposing of bonds issued to it by a
municipal corporation in payment of subscriptions to its stock,
may guaranty their payment.’1* So, where one railroad company
makes an authorized lease of its road to another, the lessee may,
as part of the consideration for the contract, guaranty the payment
of bonds issued by the lessor.145 And a railroad company, which
has power by its charter to issue its own bonds, has power to guar-
anty the bonds of another railroad company, which it has taken in
payment of a debt due it, and which it sells or transfers in pay-
ment of its own debt; the guaranty being given to enable it to dis-
pose of the bonds to better advantage.*** And corporations hold-

112 National Park Bank v. German-American M. W. & S. Co., supra.

118 Post, p. 175.

114 Chicago, R. I. & P. R. Co. v. Howard, 7 Wall. 392. \

115 Low v. Railroad Co., 52 Cal. 53. In Wheeler, Osgood & Co. v. Everett Land
Co. (Wash.) 45 Pac. 316, it was held that, where it appears that it was customary
for corporations dealing in lumber to become sureties on building contractors’ bonds
in order to get business, articles of incorporation providing that the corporation
may do all things necessary to carry on the business of manufacturing and dealing
in lumber will be construed as granting the power to become surety on contractors’
bonds, in the absence of express prohibition. This is contrary to the cases cited
in note 110, supra, and cannot be sustained on authority.

116 Rogers L. & M. Works v. Southern Railroad Ass’n, 34 Fed. 278. And see
Arnot vy. Railway Co., 67 N. Y. 315; Bllerman v. Stockyards Co., 49 N. J. Eq.
217, 23 Atl. 287; Marbury v. Land Co., 10 C. C. A. 393, 62 Fed. 335.
150 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5.

ing negotiable paper may indorse the same for the purpose of nego-
tiating it.117
Contracts of Partnership.

A corporation has no power to enter into a contract of partner-
ship, unless the power is expressly conferred upon it. The power
will not be implied, for the manner in which the business of a
corporation is conducted is inconsistent with such a contract.1!®
As was said in a Massachusetts case, in reference to a manufac-
turing corporation which had undertaken to form a partnership:
“There is one obvious and important distinction between such a
society as this charter creates and that of a partnership. An act
of the corporation, done either by direct vote or by agents author.
ized for the purpose, is the manifestation of the collected will of
the society. No member of the corporation, as such, can bind the
society. In a partnership, each member binds the society as a
principal. If, then, this corporation can enter into partnership
with an individual, there would be two principals, the legal person
and the natural person, each having, within the scope of the socie-
ty’s business, full authority to manage its concerns, including even
the disposition of its property.” 11° An agreement among a num-
ber of corporations, or between corporations and natural persons,
engaged in manufacture, to select a committee composed of repre-
sentatives from each, and to turn over to such committee the prop-

117 Bank of Genesee v. Patchin Bank, 13 N. Y. 309.

118 Whittenton Mills v. Upton, 10 Gray (Mass.) 582, 1 Cumming, Cas.: Priv.
Corp. 399; Mallory v. Oil Works, 86 Tenn. 598, 8 S. W. 396; Central R. & B.
Co. v. Smith, 76 Ala. 572; Marine Bank v. Ogden, 29 Ill. 248. Cf. Catskill Bank
v. Gray, 14 Barb. (N. Y.) 471, 2 Cumming, Cas. Priv. Corp. 88, where a corpora-
tion was held liable to third persons as a partner. And see Allen v. Woonsocket
Co., 11 R. I. 288, 2 Cumming, Cas. Priv. Corp. 91. If a corporation does enter into
and carry out a contract of partnership, and receives more than its share of the
profits, it has been held that it cannot defeat an action by the other party to recover
his share on the plea of ultra vires. Standard Oil Co. v. Scofield, 16 Abb. N. C.
372, 2 Cumming, Cas. Priv. Corp. 95.

119 Whittenton Mills v. Upton, supra. But it has been held that it is not ultra
vires for a corporation to enter into a contract with an individual to engage in a
certain venture, and share profits and losses, where all the management of the en-
terprise is intrusted to the corporation. Bates vy. Coronado Beach. Co., 109 Cal.
160, 41 Pac. 855.
§§ 56-57) POWERS aS TO CONTRACTS AND CONVEYANCES. 151

erty and machinery of each, to be managed and operated by the
committee for the common benefit, the profits and losses to be
shared in equal proportions, and the arrangement to last for a
specified time, is a contract of partnership, and therefore within
this rule.1?°

The rule that corporations cannot enter into a partnership agree-
ment does not prevent a corporation and a natural person, or two
corporations, from entering into a joint contract, or taking prop-
erty as tenants in common. Thus, two corporations, or a corpo-
ration and a natural person, may be mortgagees in the same mort-
gage, or obligees in the same bond, or promisees in the same note,
and, in like manner, they may execute a joint note, bond, or other
contract. So, where money is deposited in bank in the joint names
of two corporations, they are tenants in common or joint creditors,
and may maintain a joint action to enforce their rights.***
Power. to Acquire and Hold Stock in Another Corporation.

Though it is otherwise in England and in some of our states,**?
it is very generally held in this country that a corporation has no
implied power to subscribe for, purchase, or hold stock in another
corporation.'?* Not only is it without the power to hold the stock
as its own absolutely, but it has been held that it has no power
to hold it in pledge, if it appears as owner on the books of the cor-

120 Mallory v. Oil Works, supra.

121 New York & S. Canal Co. v. Fulton Bank, 7 Wend. (N. Y.) 412, 2 Cumming,
Cas. Priv. Corp. 87; Marine Bank v. Ogden, 29 Ill. 248.

122Jn re Asiatic Banking Corp., L. R. 4 Ch, App. 252, 1 Cumming, Cas. Priv.
Corp. 359, W. D. Smith, Cas. Corp. 21, Shep. Cas. Corp. 113; In re Barned’s Bank-
ing Co., L. R. 3 Ch. App. 105; Iowa Lumber Co. v. Foster, 49 Iowa, 25; Calumet
Paper Co. v. Stotts Inv. Co. (lowa) 64 N. W. 782.

128 Franklin Co. v. Lewiston Inst. for Savings, 68 Me. 48, 1 Cumming, Cas. Priv.
Corp. 843; Franklin Bank v. Commercial Bank, 36 Ohio St. 350; 1 Cumming,
Cas. Priv. Corp. 348, W. D. Smith, Cas. Corp. 26; Talmage v. Pell, 7 N. Y. 328;
Nassau Bank v. Jones, 95 N. Y. 115, 1 Cumming, Cas. Priv. Corp. 293; Pearson v.
Concord R. Corp., 62 N. H. 537; Mechanics’ & Workingmen’s Mut. Sav. Bank v.
Meriden Ag. Co., 24 Conn. 159; Milbank v. Railroad Co., 64 How. Prac. (N. Y.) 20,
1 Cumming, Cas. Priv. Corp. 853;, Byrne v. Manufacturing Co., 65 Conn. 3386, 31
Atl. 833; Sumner v. Marcy, 3 Woodb. & M. 105, Fed. Cas. No. 13,609; Denny Hotel
Co. v. Schram, 6 Wash. 134, 82 Pac. 1002; Hazlehurst v. Railroad Co., 48 Ga. 13;
Buckeye Marble & Freestone Co. v. Harvey, 92 Tenn. 115, 20 S. W. 427; Valley
Ry. Co. vy. Lake Erie Iron Co., 46 Ohio, 44, 18 ‘N. B. 486; Knowles v. Sandercock,

.
152 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5

poration.124 “Were this not so,” it has been said, “one corpora-
tion, by buying up the majority of the shares of the stock of an-
other, could take the entire management of its business, however
foreign such business might be to that which the corporation so
purchasing said shares was created to carry on. A banking corpo-
ration could become the operator of a railroad, or carry on the
business of manufacturing, and any other corporation could engage
in banking by obtaining the control of the bank’s stock.. Nor
would this result follow any the less certainly if the shares of stock

were received in pledge only, to secure the payment of a debt, pro- .

vided the shares were transferred on the books of the company to
the name of the pledgee. A person in whose name the stock of
the corporation stands on the books of the corporation is, as to

the corporation, a stockholder, and has the right to vote upon the
stock.” 125

It is well settled, however, that a corporation may in good faith
take and hold stock in another corporation to secure a loan pre-

viously made by it, or a debt which is due to it, or in payment of
such loan or debt.1?®

Though dealing in stocks by a national bank is not expressly pro-
hibited by the national banking act, such a prohibition is implied
from a failure to grant the power.’?7 A national bank, however,
in the honest exercise of the power to compromise a doubtful debt
owing to it, or one owing by it, may take stocks with a view to

107 Cal. 629, 40 Pac. 1047. A corporation cannot organize a subordinate corpo-
ration. J.agrove v. Timmerman (S. C.) 24 8S. H. 290. Contra, by statute. The
statute ratifies prior acquisition of stock. In re Buffalo, N. Y. & E. R. Co. (Sup.)
37 N. Y. Supp. 1048. A foreign corporation cannot be allowed to purchase the
stock of, and so control, a domestic corporation. Buckeye Marble & Freestone
Co. v. Harvey, supra. A corporation may in some states be formed for the pur-
pose of dealing in stocks, bonds, etc., in which case it may purchase and hold stock.
Market St. Ry. Co. v. Hellman, 109 Cal. 571, 42 Pac. 225.

124 Franklin Bank v. Commercial Bank, 36 Ohio St. 350, 1 Cumming, Cas. Priv.
Corp. 348, W. D. Smith, Cas. Corp. 26.

125 Id.

126 Talmage v. Pell, 7 N. Y. 328; First Nat. Bank v. National Exch. Bank, 92
U. S. 122, 1 Cumming, Cas. Priv. Corp. 368.

127 First Nat. Bank v. National Exch. Bank, 92 U. S. 122, 1 Cumming, Cas. Priv.
Corp. 368.
§§ 56-57) POWERS AS TO CONTRACTS AND CONVEYANCES. 1538

their subsequent sale or conversion into money, so as to make good
or reduce an anticipated loss. This is not a dealing in stocks.’**

It was held in a late New York case that a purely private corpo-
ration, performing no quasi public duties, could, with the consent
of its stockholders, sell all its property to another corporation, and
take stock of the latter company in payment therefor.*?®

Power of Corporation to Acquire and Hold Its Own Stock.

In England and in most of our states it is held that, unless ex-
pressly authorized, a corporation has no power to purchase its own
stock, either for the purpose of selling or reissuing it, or for the pur-
pose of holding or retiring it, as such a transaction is considered
foreign to the purposes of a corporation, and an illegitimate employ-
ment of its capital.t°° This doctrine has also been sustained on the
ground that to allow a corporation to buy in its own stock, and
thereby release shareholders, would be inconsistent with the indi-
vidual liability imposed by statute upon shareholders for the debts of
the corporation.'®? “I can quite understand,” said Lord Herschell,
“that the directors of a company may sometimes desire that the
shareholders should not be numerous, and that they should be per-
sons likely to leave them with a free hand to carry on their opera-
tions. But I think it would be most dangerous to countenance the
view that, for reasons such as these, they could legitimately expend
the moneys of the company to any extent they please in the pur-
chase of its shares. No doubt, if certain shareholders are disposed to
hamper the proceedings of the company, and are willing to sell their

128 Id.

120 Holmes & Griggs Manutf’g Co. v. Holmes & W. Metal Co., 127 N. Y. 252,
27 N. E. 831, 2 Cumming, Cas. Priv. Corp. $5. And see Treadwell v. Manufac-
turing Co., 7 Gray (Mass.) 398. But see McCutcheon v. Merz Capsule Co., 71
Ted. 787, 19-C. C. A. 108.

130 Trevor v. Whitworth, L. R. 12 App. Cas. 409, 1 Cumming, Cas. Priv. Corp.
384; Coppin v. Railroad Co., 38 Ohio St. 275, 1 Cumming, Cas. Priv. Corp. 393,
W. D. Smith, Cas. Corp. 29, Shep. Cas. Corp. 121; State v. Oberlin Bldg. & Loan
Ass’n, 35 Ohio St. 258, 1 Cumming, Cas. Priv. Corp. 566. And see Adams &
Westlake Co. v. Deyette (S. D.) 65 N. W. 471; Price v. Coal Co. (Ky.) 32 S. W.
267. A sale of its stock by a corporation, with an option to the purchaser to
return it, and receive back his money, is not void as a contract by the corporation
to purehase its own stock. Vent v. Spice Co. (Minn.) 67 N. W. 70.

121 Coppin v. Railroad Co., supra.
154 : POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5

shares, they may be bought out; but this must be done by persons,.
existing shareholders or others, who can be induced to purchase the
shares, and not out of the funds of the company.” 1°? This doctrine
is not inconsistent with the forfeiture or surrender of shares in a
corporation, which involve no payment by the company.***

The doctrine does not prevent a corporation from taking its own
stock as security for, or in payment of, a debt due to it.1** The na-
tional banking act expressly prohibits a national bank from making
any loan or discount on the security of the shares of its own capital
stock, or from becoming the purchaser or holder thereof, unless such
security or purchase shall be necessary to prevent loss upon a debt
previously contracted in good faith; and it is further provided that
stock so purchased or acquired shall, within six months from the date
of its purchase, be sold or disposed of at public or private sale, or,
in default thereof, a receiver may be appointed to close up the busi-
negs.185

The fact that a bank or other corporation has made an ultra vires
purchase of its own stock, or has made a loan upon its own stock,
and acquired it under the contract, can only be objected to by private
individuals before the contract has been executed, or, at least, while
the stock is still in the hands of the corporation. The objection can-
not be raised after the contract has been fully executed, the security
sold, and the proceeds applied to payment of the debt.1#¢

In some states the doctrine that a corporation cannot purchase
its own stock is not recognized, but, on the contrary, it is held that,
in the absence of express restrictions in its charter or in some
statute, a corporation has the implied power to acquire and hold its
own stock, and to sell, reissue, or retire the same, as it may see

182 Trevor v. Whitworth, supra.

133 Id.

184 Taylor v. Exporting Co., 6 Ohio, 177; Coppin v. Railroad Co., supra; First
Nat. Bank v. National Exch, Bank, 92 U. 8. 122; Ex parte Holmes, 5 Cow. (N. YJ)
426; City Bank v. Bruce, 17 N. Y. 507; State v. Smith, 48 Vt. 266, 284; Wil-
liams v. Manufacturing Co., 3 Md. Ch. 418, 452. And it has been held that a cor-
poration may sell property not needed by it, and take its own stock in payment
therefor. Dupee v. Water-Power Co., 114 Mass. 37.

136 First Nat. Bank v. Stewart, 107 U. S. 676, 2 Sup. Ct. 778, 1 Cumming,
Cas. Priv. Corp. 397.

136 Tirst Nat. Bank v. Stewart, supra.
§§ 56-57) POWERS AS TO CONTRACTS AND CONVEYANCES. 155

fit; °°’ that it can take its own stock, for instance, as collateral se-
curity for a loan made by it at the time, or may purchase the same
outright.*** And in such a case the stock does not merge, but may
be reissued.**® This power, as recognized in these states, though
most frequently exercised by banks, is not limited to such corpora-
tions, but extends also to railroad companies, manufacturing com-
panies, and all other kinds of joint-stock corporations.1*°

Even in these states, however, it is held that the power cannot
be exercised to the prejudice of existing creditors of the corporation.
If it is so exercised, a court of equity will grant relief. And even
though the corporation may be solvent, and may act in good faith, a
purchase of its own shares by it may be impeached by existing cred-
itors, who are prejudiced thereby. ‘This rule has been put on the
ground that the capital stock of a corporation is “a fund set apart for
the payment of its debts,” 1*1 and that property paid by a corporation
in the purchase of its stock may be followed by an injured creditor
into the hands of any one but a bona fide purchaser for value.**? But
it is not necessary to resort to the trust-fund doctrine. Such a
transaction is a fraud on existing creditors.‘*® If based on the
trust-fund doctrine, the purchase could be impeached by subsequent
creditors j and it is well settled that this cannot be done.***
Presumption.

The presumption of law being in favor of right doing, the con-
tracts of a corporation will be presumed to be within the legiti-
mate scope and purpose of the corporation until the contrary ap-
pears, and the burden of showing the contrary rests upon the
party who objects.**® The presgm tion is that a conveyance to

187 Sums beter a EA cam 84 Ill. 145, 643, 1 Cum-
ming, Cas. Priv. Corp. 374, 377; W. D. Smith, Cas. Corp. 32, Shep. Cas. Corp.
118.

138 See cases above cited.

139 State v. Smith, 48 Vt. 266.

140 Chicago, P. & S. W. R. Co. v. Town of Marseilles, supra; State v. Smith,
supra.

141 Sanger v. Upton, 91 U. 8S. 56, 60.

142 Clapp v. Peterson, 104 Ill. 26, 1 Cumming, Cas. Priv. Corp. 380.
148 Post, p. 549.

144 Post, p. 550.
145 Downing v. Road Co., 40 N. H. 230, 1 Cumming, Cas. Priv. Corp. 148, W.
156 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5

a corporation authorized to acquire land for some purposes only
was taken by it for a lawful purpose. If the purpose was in fact
illegal, the fact must be affirmatively shown.**®

SAME—FORM AND MODE OF CORPORATE CONTRACTS.

58. It was at one time held that, save in a few cases, a
corporation could not contract except under its
corporate seal. It is now settled, however, that,
except in so far as there may be express restric-
tions in its charter or in some statute, a corpora-
tion can contract by resolutions or by agents, and
without a seal, in any case where a natural person
could contract without a seal. And, like a natural
person, it may be liable quasi ex contractu.

59. If the charter of a corporation, or some statute, pre-
scribes a particular mode or form for entering. into
contracts, that mode and form must be followed.
But—

(a) The statute must be mandatory, and not merely di-
rectory. gf

(b) The statute will not be so construed as to prevent
recovery, where the contract has been executed
and consideration furnished by one of the parties,
unless such a legislative intent is clear.

60.‘ A seal need not be affixed by the officers of a corpo-
ration. It is sufficient if they direct it to be done
by another, or adopt a seal affixed by another.

61. A seal does not prevent inquiry into the consideration
for a corporate contract for the purpose of deter-
mining whether it is ultra vires.

D>. Smith, Cas. Corp. 129, Shep. Cas. Corp. 75; Thomas v. Railroad Co., 101 U.
8. 71, 1 Cumming, Cas. Priv. Corp. 164, W. D. Smith, Cas. Corp. 1582, Shep. Cas.
Corp. 70; Barker v. Insurance Co., 3 Wend. (N. Y.) 94; Nelson v. Haton, 26 N.
Y¥. 410; Patterson v. Robinson, 116 N. Y. 193, 22 N. I. 372; Ellerman vy. Stock
Yards Co., 49 N. J. Eq. 217, 23 Atl 287.

146 Chautauqua County Bank v. Risley, 19 N. Y¥. 369; Regents of University
of Michigan y. Detroit Young Men’s Society, 12 Mich. 188.
§§ 58-61) POWERS AS TO CONTRACTS AND CONVEYANCES. 157

>

Under the old common law, the general rule was that a corporation
could only manifest its intention, and so enter into contracts, by
_the use of its corporate seal.‘47 To this rule there were some ex-
ceptions, based upon necessity or convenience. Whenever to hold
the general rule applicable would occasion very great inconvenience,
or tend to defeat the very object for which the corporation was cre-
ated, it was allowed to contract withont seal. The retainer of an
inferior servant,’** and the doing of acts frequently recurring or too
insignificant to be worth the trouble of affixing the common seal,
were established exceptions. And companies incorporated for the
purpose of trade were allowed to accept bills of exchange and execute
promissory notes.‘*® At length the exceptions were extended so
much that it came to be the established rule that, though a corpora-
tion could not contract directly except under its corporate seal, yet
it might, by mere vote or other corporate act, not under seal, appoint
an agent, whose acts and contracts, within the scope of his authority,
would be binding upon the corporation. As soon as this doctrine be-
came established, the old rule requiring the use of the seal began to
be more and more disregarded, until now it is no longer recognized
to any extent, if at all.°° On the contrary, unless the charter or
some statute provides otherwise, a corporation need only use a seal
where an individual would be required to use one. In all cases
where it is not so restricted, it may appoint or employ an attorney,
agent, or servant by parol or by writing not under seal; *** and any

147 “A corporation,” said Blackstone, “being an invisible body, cannot mani-
fest its intention by any personal act or oral discourse. It therefore speaks and
acts only by its common seal. For, though the particular members may express
their private consents to any act by words or signing their names, yet this does.
not bind the corporation; it is the fixing of the seal, and that only, which unites
the several assents of the individuals who compose the community, and makes
one joint assent of the whole.” 1 Bl. Comm. 475. See Horn v. Ivy, 1 Vent.
47; Bast London Waterworks Co. v. Bailey, 12 Moore, 532, 4 Bing. 283; Dun-
ston y. Coke Co., 3 Barn. & Adol. 125.

148 See Horn v. Ivy, 1 Vent. 47.

149 See Church yv. Coke Co., 6 Adol. & El. 861, per Lord Denman.

150 Bank of Columbia vy. Patterson’s Adm’r, 7 Cranch, 299, 1 Cumming, Cas.
Priv. Corp. 112, per Mr. Justice Story.

151 See Topping v. Bickford, 4 Allen (Mass.) 120, 1 Cumming, Cas. Priv. Corp.
118; Bank of Columbia v. Patterson’s Adm’r, supra; Goodwin v. Screw Co.,
34 N. H. 378, 1 Cumming, Cas. Priv. Corp. 119; Pixley v. Railroad Co., 33 Cal.
158 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5 |

-

contract made by him in writing not under seal, or orally, within the
scope of his authority and of the legitimate purposes of the corpora-
tion, will be binding as the contract of the corporation.**? Anda
corporation may, like a natural person, ratify any contract made by
a person on its behalf, which it could have authorized him to make.***
So, also, a corporation may be liable, like a natural person, on con-
tracts implied, as a matter of fact, from corporate acts,*** and on
quasi contractual obligations, or contracts implied, as a matter of
law, because of benefits conferred, or because of duties imposed, by
law.*5

183, 1 Cumming, Cas. Priv. Corp. 121; Hand v. Coal Co., 143 Pa. St. 408, 22 Atl.
709; Lathrop v.' Bank, 8 Dana (Ky.) 114. The seal of a corporation is not
necessary to the validity of a power of attorney to confess judgment. Ford v.
Hill (Wis.) 66 N. W. 115.

152 Bank of Columbia vy. Patterson’s Adm’r, supra. And see Mott v. Hicks, 1
Cow. (N. Y.) 518; Fleckner v. Bank, § Wheat. 338, 3857. Australian Royal Mail
Steam Nav. Co. v. Marzetti, 32 Eng. Law & Eq. 572; Muscatine Water Co. y.
Muscatine Lumber Co., 85 Iowa, 112, 52 N. W. 108; Regents of University of
Michigan v. Detroit Young Men’s Soc., 12 Mich. 138; City of Selma v. Mullen,
46 Ala. 411; Board of Education of Lllinois vy. Greenebaum, 39 Ill. 609; Town of
New Athens v. Thomas, 82 Ill. 259; B. S. Green Co. v. Blodgett, 159 Il. 169,
42. N. BE. 176; Christian Church of Wolcott v. Johnson, 58 Ind. 278; Fowler v.
Bell (Tex. Civ. App.) 35 S. W. 822.

153 Pixley v. Railroad Co., 33 Cal. 183, 1 Cumming, Cas. Priv. Corp. 121; Pe-
terson v. City of New York, 17 N. Y. 450; Fister v. La Rue, 15 Barb. (N. Y.)
323. In this case it was said: “It is well settled, at least in this country, that
where a person is employed for a corporation by one assuming to dct in its be-
half, and goes on and renders the services according to the agreement, with the
knowledge of its officers, and without notice that the contract is not recognized
as valid and binding, such corporation will be h2ld to have sanctioned and rati-
fied the contract, and be compelled to pay for the services according to the agree-
ment. Having availed itself of the services, and received: the benefits, it is
pound in conscience to pay, and will not be heard to say that the original agrec-
ment was not made by a person legally authorized to contract.”

154 Pixley v. Railroad Co., 33 Cal. 188, 1 Cumming, Cas. Priy. Corp. 121;
Goodwin v. Screw Co., 34 N. H. 378, 1 Cumming, Cas. Priy. Corp. 119; Cicotte
y. Catholic Church, 60 Mich. 552, 27 N. W. 682; Proprietors of Canal Bridge v.
Gordon, 1 Pick. (Mass.) 297; City of Selma y. Mullen, 46 Ala. 411; Town of
New Athens v. Thomas, 82 Ill. 259.

155 Bank of Columbia v. Patterson’s Adm’r, 7 Cranch, 299, 1 Cumming, Cas.
Priv. Corp. 112; Danforth v. President, ete., 12 Johns, (N. Y.) 227; Seagraves v.
City of Alton, 18 Ill. 366; Trustees of Cincinnati Tp. v. Ogden, 5 Ohio, 23;
Jcfferys v. Gurr, 2 Barn. & Adol. 833.
§§ 58-61) POWERS: AS TO CONTRACTS AND CONVEYANCES. 159

If the charter of a corporation, or some statute applicable to it,
expressly prescribes a certain mode or form for entering into con-
tracts, that mode and form must be followed.1°* The provision,
however, must be mandatory, and not merely directory.1°* Even
where there is such a provision, and it is not.complied with, the
corporation may be liable. Thus, if it enters into a contract, but
not in the form prescribed by its charter or a statute, and receives
the consideration, it cannot always escape liability to pay therefor
on the ground that the contract was not in the prescribed form,
though it might have defeated a recovery so long as the contract
remained wholly executory. In Pixley v. Western Pac. R. Co.,1°*
the charter of a railroad company declared that no contract should
be binding on the company unless in writing. The directors orally
employed the plaintiffs to render services for the company, and, after
the services were rendered, it was sought to defeat a recovery there-
for because the contract was not in writing. The court held, how-
ever, that the charter, properly interpreted, only related to exec-
utory contracts, and did not exempt the company from liability to
pay for the services after. having had the benefit of them. “It may
be,” it was said, “that, while such contract remains executory on
both sides, an action could not be maintained by either party to en-
force it; but where one of the contracting parties has completely.
performed it on his part, and thereby rendered to the other the ‘con-
sideration stipulated, the party, having received the consideration
promised, cannot be permitted to escape liability on the naked let-
ter of the statute, because the meaning of the law is not such as
to afford immunity from liability in such a case.” 1°? So, in North
Carolina, where the Code provides that contracts by corporations
for over $100 must be in writing, it is held that the provision does

156 Head v. Insurance Co., 2 Cranch, 127; Bissell v. Spring Valley Tp., 110
U. S. 162, 3 Sup. Ct. 555. As that all contracts shall be in writing or print, and
signed by a particular officer or officers. Topping v. Bickford, 4 Allen (Mass.)
120, 1 Cumming, Cas. Priv. Coip. 118; Pixley v. Railroad Co., 33 Cal. 183, 1
Cumming, Cas. Priv. Corp. 121.

157 Southern Life Ins. & Trust Co. v. Lanier, 5 Fla. 110; Witte v. Fishing
Co., 2 Conn. 260; Bulkley v. Fishing Co., Id. O52.

158 33 Cal. 183, 1 Cumming, Cas. Priv. Corp. 121.

159 And see Fister vy. La Rue, 15 Barb. (N. Y.) 323.
160 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5

not apply to executed contracts.?®° If, under such a statute, the
verbal contract is executed in part only, the corporation cannot be
compelled to continue the contract, but is liable for what it has
received by the part performance.***

Contracts under Seal.

A seal is said by Lord Coke to be wax, with an impression; and
no doubt anciently wax was the only substance used, but it is no
longer essential. The impression may be made on a wafer attached
to the instrument, or any other substance sufficiently tenacious to
adhere, and capable of receiving an impression. It is therefore held
‘sufficient if the impression is made on the paper itself on which the
instrument is written. It need not be on a separate substance at-
tached to the paper.’®* In some states, statutes have been passed
making a scrawl or scroll sufficient, and in some this has been
held sufficient independently of any statute; but by the weight of
authority, at common law, an impression is essential; +** and in the
case of a corporation, of course, it must be by the duly-authorized
agent of the corporation. It has been held that a fac simile of
the seal of a corporation, printed upon blank forms of obligations,
prepared to be executed by the corporation, at the same time when
the blanks were printed, and by the same agency, was not a seal
at common law.1*

Where a corporation executes a contract or conveyance required
to be under seal, the seal of the corporation must be affixed, and by
an officer or agent duly authorized.?** It is not necessary that it
shall be affixed by the officer personally. In the case of a contraet

160 Curtis v. Mining Co., 109 N. C. 401, 18 S. B. 944; Clowe vy. Product Co.,
114 N. C. 304, 19 S. EB. 153.

161 Roberts v. Woodworking Co., 111 N. C. 482, 16 S. E. 415.

162 Clark, Cont. 74.

168 Id,

164 Bates v. Railroad Co., 10 Allen (Mass.) 251.

165 A deed of conveyance by a corporation must -he executed in the corporate
name and under the corporate seal. A corporation, like an individual, may adopt
any seal which is convenient for the occasion. It must, however, be shown to have
been so adopted, and it must be affixed as the seal of the corporation, and by an
officer or agent duly authorized. Danville Seminary v. Mott, 136 II]. 289, 28 N.
Bi. 54. Seals of the agents who execute the instrument will not do. Regents of
University of Michigan v. Detroit Young Men’s Soc., 12 Mich. 138.
§§ 58-61) POWERS AS TO CONTRACTS AND CONVEYANCES. 161

under seal by a natural person, “if a stranger seal an instrument
by the allowance, or commandment precedent, or agreement subse-
quent, of the person who is to seal it, that is sufficient.”1°° The
same is true of contracts under seal by corporations. Thus, where
the corporate seal was affixed by a printer to the bonds of a cor-
poration, by direction of its officers, and the officers afterwards adopt-
ed his act, and signed and issued the bonds, it was held that this
was a sufficient sealing by the corporation?

In equity, omission of a seal does not always invalidate an instru-
ment executed by a corporation, even in cases where. it would be
invalid at law. A mortgage by a corporation, for instance, may be
a good equitable mortgage, though by the omission of the seal it is
not good as a legal mortgage.**®

Where the deed of a corporation, signed by a person authorized to
execute the same, recites that it is sealed with the corporate seal,
it will be presumed that. what purports to bea seal, placed after the
person’s name, was the seal of the corporation.*® |.

_ The mere fact that a deed has the seal of the corporation attached
does not make it the deed of the corporation, unless the seal was
affixed by some one duly authorized. There is a presumption, how-
ever, that it was so affixed, but the presumption is not conclusive,
and may always be rebutted.**° In the absence of express require-
ment to that effect, it is not necessary that the deed of a corpora-

166 Cruise, Dig. tit. 82, c. 2, § 55.

167 Royal Bank of Liverpool v. Grand Junction Railroad & Depot Co., 100
Mass. 444, 1 Cumming, Cas. Priv. Corp. 131.

168 Allis vy. Jones, 45 Fed. 148.

169 Benbow v. Cook, 115 N. C. 324, 20 s. BE. 453; Saisivougaiy M. P. Ry. &
Nav. Co. v. Hooper, 160 U. 8. 514, 16 Sup. Ct. 379.

170 Koehler v. Iron Co., 2 Black, 715. It was held in this case that, where
neither the president nor the secretary pro tem., who signed a mortgage on behalf
of a corporation, nor the regular secretary, who was the regular custodian of the
seal, had any knowledge of the way in which the mortgage became sealed, the
burden of proof was thrown upon the party seeking to enforce it to show the
circumstances under which the seal was affixed, and that it was rightfully and
properly done. See, also, Bliss v. Irrigation Co., 65 Cal. 502, 4 Pac. 507; Andres
v. Fry (Cal.) 45 Pae. 584; Gorder vy. Canning Co., 36 Neb. 548, 54 N. W. 830;
Yunish vy. Fuel Co. (Minn.) 66 N. W. 198; Leggett v. Banking Co., 1 N. J. Ha..
541.

Clk.Pr.Corp.—11
162 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 5

tion, executed by an agent under authority of a vote at a stock-
holders’ or directors’ meeting, shall recite the vote.*”

Lffect of Seal.

It has been said that a sealed instrument conclusively imports a
consideration, and therefore the holders of corporate bonds may
maintain an action thereon, though they were ‘delivered gratuitous-
ly.17?, This dictum, however, cannot be supported. The seal on a
contract of a corporation has no greater effect than a seal on a nat-
ural person’s contract. The seal does not import a consideration
at all at common law. It merely renders a consideration unneces-
sary.77’ Where there was in fact a consideration, the seal does not
prevent a natural person from defeating an action on his contract,
by showing that the consideration was illegal or immoral.'7* So,
in the case of corporate contracts under seal, want of consideration
may be shown, or the consideration may be shown to have been.
such that the corporation had no authority to enter into the con-
tract. “Although the agreement be under seal,” said Lord Campbell
on this point, “we may examine to see whether there was any; and
what, consideration for the contract to pay money, when we are to
determine whether the contract was or was not ultra vires.” 17°

As we have pointed out, corporate bonds may be negotiable in-
struments, in which case inquiry into the consideration would not
be permitted, in order to defeat liability to a bona fide holder,17*

171 McDaniels v. Manufacturing Co., 22 Vt. 274.

‘tre Foster, J., in Royal Bank of Liverpool vy. Grand Junction Ruilroad & Depot
Co., 100 Mass. 444, 445, 1 Cumming, Cas. Priv. Corp. 181.

178 Anson, Cont, 49; Clark, Cont. 72, 82.

174 Clark, Cont. 83.

175 Mayor, ete., of City of Norwich v. Norfolk Ry. Co., 4 Hl. & Bl. 443.

176 Ante, p. 146.
§ 62) POWERS AND LIABILITIES OF CORPORATIONS. 163

&

r
CHAPTER VI.

POWERS AND LIABILITIES OF CORPORATIONS (Continued).

62. Effect $f Ultra Vires Act—In General.

63. A Corporation May Exceed Its Poweis.
64. Assent of Shareholders.
65, 66. Ultra Vires Conveyances of Land or Transfers of Personalty..
67. Ultra Vires Contracts.
68. Illegal Contracts.

EFFECT OF ULTRA VIRES ACT,

62. If-a corporation performs or threatens to perform an
act which is ultra vires, but not otherwise un-
lawful—

(a) The state may, when the act is done, maintain pro-
ceedings against it to forfeit its charter for mis-
user.

(b) A stockholder or member may, where the act is
threatened, maintain a bill in equity to enjoin the
corporation from performing it. He may sue to
enjoin performance of an ultra vires contract which
the corporation has already entered into, provided
it is not binding on the corporation under the rules
hereafter shown.

(c) As to the effect of an ultra vires conveyance to or
by a corporation, and as to the circumstances un-
der which an action may be maintained on an
ultra vires contract, the authorities, as will be seen,
are conflicting.

There is much conflict in the cases as to the effect of a corpora-
tion’s ultra vires acts and contracts, and as to the circumstances un-
der which they may give rise to actions. It is not possible to state
general rules that will apply in all the states. There are some rules
which are universally recognized, while as to others there is a direct
164 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 6

conflict. On some points there are decisions by the same court which
cannot well be reconciled. All that can be done in a work of this
character is to group the decisions as far as possible, and show the
different positions the courts have taken.

All the authorities agree that where a corporation enters into an
ultra vires contract, or performs an ultra vires act, though the con-
tract or act is only unlawful because it is unauthorized, the state
may, if the act is sufficiently flagrant to justify it, maintain proceed-
ings directly against the corporation to enforce a forfeiture of its
charter for the misuser of power. This question will be fully con-
sidered hereafter.*

The authorities also agree that, under certain conditions, a bill in
equity may be maintained by a stockholder or member against the
corporation to enjoin it from entering into an ultra vires contract,
or from performing a threatened ultra vires act; and such a bill may
also be maintained to prevent it from performing an ultra vires
contract,? unless the contract is enforceable against it, under the
doctrines which we shall presently explain, notwithstanding its ultra
vires character. The fact that a stockholder is not injured by an
ultra vires contract of the corporation, to which all the other stock-
holders have consented, does not prevent him from maintaining a
suit to enjoin its performance.

As to the effect of an ultra vires conveyance to or by a corporation,
as between the parties, and as to whether an action may be main-
tained by or against a corporation under an ultra vires contract,
the authorities are conflicting, as we shall see in the following sec-
tions.

SAME—A CORPORATION MAY EXCEED ITS POWERS.

63. By the term “power,” as applied to corporations, is
meant “authority.” It is possible for a corpora-
tion to exceed its powers and do unauthorized acts,
and out of such acts rights and liabilities may
arise.

1 Post, p. 237. 2 Post, p. 389.
8 Byrne v. Manufacturing Co., 65 Conn. 386, 31 .Atl 833.
§ 63) EFFECT OF ULTRA VIRES ACT. 165

When it is said that a corporation has snch “powers” only as are
expressly or impliedly conferred upon it by the legislature which cre-
ated it, it is not meant that it is unable to do any act in excess of the
powers conferred, but simply that it has no authority or right to do
such an act. It may, in fact, exceed its powers, and rights and lia-
bilities may arise out of its unauthorized or “ultra vires” acts. In
this respect it is like a natural person. Like a natural person, it
may do wrong.‘ If it were otherwise, it could not become liable for
a tort, nor could it be prosecuted for a misdemeanor, such as the
maintenance of a nuisance; and it is perfectly well settled, as we
shall see, that it may be civilly liable for a tort,’ and criminally
responsible for misdemeanor.® Nor could it ever become liable. to
forfeiture of its charter for a violation thereof.’ So, as we shall see,
a corporation may, under some circumstances, incur liability by rea-
son of a contract entered into in excess of its powers.* “Corpora-
tions, like natural persons, have power and capacity to do wrong.
They may, in their dealings and contracts, break over the restraints
imposed upon them by their charters; and when they do so their ex-
emption from liability cannot be claimed on the mere ground that
they have no attributes or faculties which render it possible for them
thus to act.” ®

This point was discussed in Bissell v. Michigan Southern & N. I.
R. Cos.t° It was contended in that case that if the proper officers of
a corporation enter into a contract or transaction which is not within
the authority of the corporation, the transaction cannot be consid-
ered as in any sense that of the corporation, but is, in legal con-
templation, that of the officers personally; in other words, that a cor-
poration cannot exceed its powers, and that for this reason it cannot,
under any conceivable circumstances, be held liable on an ultra vires
contract or transaction, the officers alone being liable. Comstock,

4 See Salt Lake City v. Hollister, 118 U. 8S. 256, 6 Sup. Ct. 1055, 2 Cumming,
Cas. Priv. Corp. 107.

© Post, p. 193.

6 Post, p. 197.

7 Post, p. 237.

8 Post, p. 170; Bissell v. Railroad Cos., 22 N. Y. 259, 1 Cumming, Cas. Priv.
Corp. 187; Life & Fire Ins. Co. v. Mechanic Fire Ins. Co., 7 Wend. (N. Y.) 31.

® Wright v. Hughes, 119 Ind. 324, 21 N. B. 907.

10 22 N. Y. 259, 1 Cumming, Cas. Priv. Corp. 187.
166 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 6

C. J., in repudiating this reasoning, said: “In this view these arti-
ficial existences are cast in so perfect a mold that transgression
and wrong become impossible. The acts and dealings of a corpora-
tion, done and transacted in its name and behalf by its board of di-
rectors, vested with all its powers, are, unless justified by its char-
ter, according to this reasoning, the acts and dealings of the indi-
viduals engaged in them, and for which they alone are responsible.
But such, I apprehend, is not the nature of these bodies. Like
natural persons, they can overleap the legal and moral restraints im-
posed upon them; in other words, they are capable of doing wrong.
To say that a corporation has no right to do unauthorized acts is
only to put forth a very plain truism; but to say that such bodies
have no power or capacity to err is to impute to them an excellence
which does not belong to any created existences with which we are
acquainted. The distinction between power and right is no more to
be lost sight of in respect to artificial than in respect to natural per-
sons.” In another case, where a similar contention was made, it
was said by Sutherland, J., in refuting the doctrine: “This would
be a most convenient distinction for corporations to establish,—that
every violation of their charter, or assumption of unauthorized power
on the part of their officers, although with the full approbation of
their directors, is to be considered the act of the officers, and is not
to prejudice the corporation itself. There would be no possibility
of ever convicting a corporation of exceeding its powers, and thereby
forfeiting its charter, or incurring any other penalty, if this principle
could be established.” 4

SAME—ASSENT OF SHAREHOLDERS.

64. An ultra vires contract, which is not binding upon
the corporation, cannot be made binding by the
assent or ratification of all the shareholders.

We shall see that in some jurisdictions ultra vires contracts may
bind the corporation in certain cases on the principle of estoppel.
Ordinarily, however, an ultra vires contract is null and void, and if
this is the case it cannot be rendered binding upon the corporation

11 Life & Fire Ins. Co. v. Mechanic Fire Ins. Co., 7 Wend. (N. Y.) 31.
§§ 65-66) EFFECT OF ULTRA VIRES ACT. 167

by the assent or ratification of all the shareholders. If the con-
tract is unauthorized by the charter, and illegal, it has been said “it
is unnecessary to consider the effect of dissentient shareholders; for,
if the company is a corporation only for a limited purpose, and a
contract * * * is not within their authority, the assent of all
the shareholders to such a contract, though it may make them all
personally liable to perform such contract, will not bind them in
their corporate capacity, or render liable their corporate funds.” 1?

SAME—ULTRA VIRES CONVEYANCES OF LAND, OR
TRANSFERS OF PERSONALTY.

65. An ultra vires conveyance of land to or by a corpo-
ration, which has the power to take and convey,
but which in the particular instance has done so
for an unauthorized purpose, is not void, but vests
the title in the grantee. But, if there is no power
at all to take or convey land, the conveyance is
absolutely void. The same rule applies to trans-
fers of personal property.

66. When the title to property which it has no authority
to hold has not vested in the corporation, the courts
will not aid it to acquire the title.

Where a corporation, having the power to acquire and hold land
for certain purposes only, takes a conveyance of land for a purpose
not authorized, or takes more land than it is authorized to hold,
the conveyance is not absolutely void. The state may proceed di-
rectly against it for exceeding the powers conferred upon it, but
the question is solely between it and the state. Neither the gran-
tor nor any other private individual can attack the conveyance in
a suit by or against the corporation to recover the land. /8o long
as the state remains inactive, no one can complain; for, as was said

12 Per Jervis, C. J., in Hast Anglian Rys. Co. v. Wastern Counties Ry. Co., 11
GC. B. 775, 1 Cumming, Cas. Privy. Corp. 142. And see Directors, etc., of Ashbury
Railway Carriage & Iron Co. v. Riche, L. R. 7 H. L. 653, 1 Cumming, Cas. Priv.
Corp. 152; Thomas vy. Railroad Co., 101 U. 8. 71, 1 Cumming, Cas. Priv. Corp.
164; Germania Safety-Vault & Trust Co. v. Boynton, 19 ©. C. A. 118, 71 Fed. 797.
aoe

168 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 6

in a California case, it would lead to infinite embarrassments if in
suits by corporations to recover possession of their property in-
quiries were permitted as to the necessity of such property for the
purposes of their incorporation, and the title made to rest upon the
existence of that necessity.1* If a corporation is absolutely pro-
hibited from acquiring or holding land, and not merely restricted in
the purposes for which it may do so, or as to the amount, a convey-
ance to it is absolutely void, and the objection, therefore, may be
raised, not only by the state in a proceeding against the corporation,
but also by the grantor, or any other private individual, collaterally,
as in a suit by or against the corporation to recover the land.'*

In Case v. Kelly ** a clear distinction was made by the supreme
court of the United States between cases in which the title to land,
which a corporation has no power to hold, has vested in it, and cases
in which the title has not vested in it, and the corporation seeks the

13 Natoma Water & Mining Co. v. Clarkin, 14 Cal. 544. And see Leazure vy.
Hillegas, 7 Serg. & R. (Pa.) 313, 1 Cumming, Cas. Priv. Corp. 85; Ayers v.
Banking Co., L. R. 3 P. C. 548, 2 Cumming, Cas, Priv. Corp. 20; Hough v. Land
Co., 73 Ill. 23, 1 Cumming, Cas. Priy. Corp. 90; Barnes v. Suddard, 117 Il. 287,
7 N. B. 477; Banks v. Poitiaux, 3 Rand. (Va.) 186, 15 Am. Dec. 706; Bone vy.
Canal Co. (Pa. Sup.) 5 Atl. 751; Hamsher vy. Hamsher, 132 Ill. 278, 23 N. B.
1123; Fayette Land Co. v. Louisville & N. R. Co. (Va.) 24 8. E. 1016; Jones v.
Habersham, 107 U. S. 174, 2 Sup. Ct. 336; Barrow v. Turnpike Co., 9 Humph.
(Tenn.) 304; Mallett v. Simpson, 94 N. C. 37; Hanson v. Little Sisters of the
Poor, 79 Md. 434, 32 Atl. 1052; Gilbert v. Hole, 2 8. D. 164, 49 N. W. 1; Amer-
ican Mortg. Co. of Scotland v. Tennille, 87 Ga. 28, 13 S. E. 158; Long v. Railway
Co., 91 Ala. 519, 8 South. 706. It has been held, however, that where property
is given by will to a corporation, which has no capacity to take or hold it, or
whose capacity to take or hold is limited by its charter or by the general statute
law, the bequest or devise will be invalid in so far ag it exceeds the limit, and
that the objection may be raised by any person interested under the will. Stark-
weather v. Bible Soc., 72 Ill. 50; Wood v. Hammond, 16 R. I. 98, 17 Atl. 324;
Cromie’s Heirs v. Society, 3 Bush (IXy.) 865; Chamberlain vy. Chamberlain, 43 N.
Y. 424; In re McGraw’s Estate, 45 Hun, 354, affirmed 111 N. Y. 66, 19 N. E. 283,
2 Cumming, Cas. Priv. Corp. 22. Bui see, contra, where the devise is merely: of
more land than the corporation is permitted to hold, Hanson v. Little Sisters of the
Poor, 79 Md. 434, 32 Atl. 1052; Jones v. Habersham, 107 U. S. 174, 2 Sup. Ct.
336.

14 See Hayward v. Davidson, 41 Ind. 212; Carroll v. City of East St. Louis,
67 TH. 568.

15 138 U. 8. 21, 10 Sup. Ct. 216, 1 Cumming, Cus. Priv. Corp. 106.
§§ 65-66) EFFECT OF ULTRA VIRES ACT. 169

aid of the court to acquire title; and it was held that in the latter
case the court should not aid the corporation. In the case at bar,
land had been donated to a railroad company for purposes not au-
thorized by its charter, and conveyed to officers of the company. A
receiver of the company brought suit to charge them as trustees for
the company, and to recover the land. It was held that the suit
could not be maintained. “We need not stop here,” said the court,
“to inquire whether this company can hold title to lands which it
is impliedly forbidden by its charter to do, because the case before
us is not one in which the title to the lands in question has ever been
vested in the company, or attempted to be so vested. The company
is plaintiff in this action, and is seeking to obtain the title to such
lands. It has no authority by the statute to receive such title’and
to own such lands, and the question here is, not whether the courts
would deprive it of such lands if they had been conveyed to it, but
whether they will aid it to violate the law, and obtain a title which
it has no power to hold. We think the questions are very different
ones, and that, while a court might hesitate to declare the title to
lands received already,.and in the possession and ownership of the
company, void on the principle that they had no authority to take
such lands, it is very clear that it will not make itself the active
agent in behalf of the company in violating the law, and enabling
the company to do that which the law forbids.”

The rules above stated apply also to ultra vires transfers of per-
sonal property and assignments of choses in action to or by a cor-
poration. If a corporation purchases or sells personal property,
and possession is delivered, third persons cannot dispute the title
under the transfer, and contend that the property remains in the
seller, on the ground that the corporation had no power to take and
hold or to transfer the same. Nor can the purchaser of property
from a corporation defend an action on a note given to the corpora-
tion for the price, on the ground that the corporation had no power
to hold the property.1®°-- The same is true where a corporation: pur-
chases a note, in excess of its powers. The note is valid, and the

16 Sec Ryers vy. South Australian Banking Co., L. R. 3 P. C. 548, 2 Cumming,
Cas. Priv. Corp. 20; Edwards v. Fairbanks, 27 La. Ann. 449; 2 Mor. Corp. § 712;
Holmes & Griggs Manuf’g Co. v. Holmes & Wessell Metal Co., 53 Hun, 52, 5 N.
Y. Supp. 987; Rutland & B. R. Co. v. Proctor, 29 Vt. 93.
170 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 6

inaker, when sued thereon by the corporation, cannot defeat the ac-
tion by alleging that the purchase was ultra vires.**

SAME—ULTRA VIRES CONTRACTS.

67. On the question whether, and under what: circum-
stances, an action will lie on an ultra vires con-
tract, the authorities are in direct conflict, and there
is much confusion in the cases. The different po-
sitions which have been taken by the courts may
be stated thus: ,

(a) Some of the courts hold that a contract by a corpo-
. ration which is objectionable only because it
is ultra vires or unauthorized is on that
ground alone illegal and void, as being con-
trary to public policy, and that, as a rule, no

action can be maintained upon it. But

(1) Where the contract is not clearly ultra vires,
but is so only because of facts or circum-
stances of which the other. party has neither
actual nor constructive notice, an action on
the contract may be maintained by the other
party against the corporation.

(2) Some courts have held that contracts of corpo-
rations which they have no authority at all
to make are void, but that contracts which
are within the general scope of their powers,
but which are in some particulars in excess
of those powers, are valid, unless by reason
of such excess they are against public policy.

(3) A transaction, or contract, if severable, may be
valid in’ part, though in part it is ultra vires.

(4) A negotiable instrument executed or indorsed
by a corporation is good as against it in the
hands of a holder for value and without no-

17 National Pemberton Bank v. Porter, 125 Mass. 333, 28 Am. Rep. 285. But
see ante, p. 141; Farmers’ & Mechanics’ Bank v. Baldwin, 28 Minn. 198.
§ 67)

EFFECT OF ULTRA VIRES ACT. 171

tice, unless the corporation clearly had no
power at all to execute or indorse such in-
struments.

(5) Where either party has received benefits under
the contract in the form of money, property, or
services, an action quasi ex contractu or suit
for an accounting may be maintained to re-
cover therefor. _

(6) Equity will not grant a corporation affirmative
relief against an ultra vires contract, unless
it restores the consideration, if any, received
by it.

(7) If a corporation borrows money without au-
thority, but applies it to’ the payment of
valid debts, so that its liabilities are not in-
creased, the lender, or holders of obligations
or securities issued for the loan, will be sub-
rogated in equity to ‘the rights of the cred-
itors of the corporation whose debts have
been so paid.

(b) Most courts hold that the contracts of a corpora-

tion which are objectionable only because they are
ultra vires, are not so far illegal that no action
can be maintained upon them, and that the plea of
ultra vires should not prevail, whether interposed
for or against the corporation, when it would be
inequitable and unjust to allow it; as where the
party seeking to enforce the contract has per-
formed. it on his part.

The Doctrine that an Ultra Vires Contracg is Illegal and Void.
Some of the courts have held that the ultra vires contract of a
corporation, though it is unlawful only because it is unauthorized,
is revertheless illegal and void on that ground alone, as any ex-
cess of its powers by a corporation is contrary to public policy.**

18 Franklin Co. v. Lewiston Inst. for Savings, 68 Me. 43, 1 Cumming, Cas.
Priv. Corp. 348. ‘The contracts of corporations which are not authorized by their
172 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 6

According to this doctrine, most of the rules relating to unlawful
agreements generally, like immoral agreements and agreements in
restraint of trade,’® apply to ultra vires contracts by a corporation;
and no action can be maintained on such a contract, either by or
against the corporation, unless the case falls within one of the ex-
ceptions hereafter mentioned. So long as the contract is wholly
executory on both sides, there is no question as to the correctness
of the rule that no action can be maintained upon it.2° These courts,
however, go further than this. They hold that the fact that the
other party has incurred expenses or sustained losses, or even fully
performed on his part, on the faith of the corporaticn’s ultra vires
promise, cannot render the corporation liable on the contract itself,
except as hereafter shown.?* And of course, under this doctrine,

charters are illegal, because they are made in contravention of public policy. * * *
Although the unauthorized contract may be neither malum in se nor malum pro-
hibitum, but, on the contrary, may be for gome benevolent or worthy object,—as to
build an almshouse or a college, or to purchase and distribute tracts or books of
instruction,—yet, if it is a violation of public policy for corporations to exercise
powers which have never been granted to them, such contracts, notwithstanding
their praiseworthy nature, are illegal and void.” Per Sélden, J., in Bissell v. Rail-
road Co., 22 N. Y. 259, 1 Cumming, Cas. Priv. Corp. 202.

19 Clark, Cont. 470-500.

20 Nassau Bank v. Jones, 95 N. Y. 115, 1 Cumming, Cas. Priv. Corp. 293.

21 See opinion of Selden, J., in Bissell v. Railroad Co., 22 N. Y. 259, 1 Cum-
ming, Cas. Priv. Corp. 202 (collecting cases); Davis v. Railroad Co, 181 Mass.
258, 1 Cumming, Cas. Priv. Corp. 173 (but see Slater Woollen Co. v. Lamb, 143
Mass. 420, 9 N. E. 823, 1 Cumming, Cas. Priv. Corp. 260); East Anglian Rys.
Co. v. Eastern Counties Ry. Co., 11 C. B. 775, 1 Cumming, Cas. Priv. Corp. 142;
Directors, ete., of Ashbury Railway Carriage & Iron Co. v. Riche, L. R. 7 H. L.
653, 1 Cumming, Cas. Priv. Corp. 152; Pearce v. Railroad Co., 21 How. 441, 1
Cumming, Cas. Priv. Corp. 146; Thomas vy. Railroad Co., 101 U. S. 71, 1 Cum-
ming, Cas. Priv. Corp. 164, W. D. Smith, Cas. Corp. 182, Shep. Cas. Corp. 70;
Downing v. Road Co., 40 N. H. 230, 1 Cumming, Cas. Priv. Corp. 148, W. D.
Smith, Cas. Corp. 129, Shep. Cas. Corp. 75; Northwestern Union Packet Co.
v. Shaw, 37 Wis. 655, 1 Cumming, Cas. Priv. Corp. 245; Straus v. Insurance Co.,
5 Ohio St. 59; Central Transp. Co. v. Pullman’s Palace Car Co., 189 U. 8. 24, 11
Sup. Ct. 478; Miller v. Insurance Co., 92 Tenn. 167, 21 S. W. 39; Buckeye M. &
F. Co. v. Harvey, 92 Tenn. 115, 20 8S. W. 427; Bacon v. Insurance Co., 31 Miss. 116;
Chewacla Lime Works v. Dismukes, 87 Ala. 344, 6 South. 122; Miners’ Ditch Co.
y. Zellerbach, 37 Cal. 543; Albert v. Bank, 1 Md. Ch. Dec. 407; Abbott v. Packet
Co., Id. 542. ‘Thus, where two railroad companies, in excess of their powers, con-
§ 67) EFFECT OF ULTRA VIRES ACT. 173

performance by the corporation would not render the other party
liable.??_ We are speaking here only of cases in which the action is
brought directly on the contract. Actions quasi ex contractu in
disaffirmance of the contract may be maintained.2* Not only is
the defense of ultra vires available to the corporation in an action
by the other party on the contract, but it is also available to the
other party in an action by the corporation. The contract, according
to the doctrine of these cases, being wholly null. and void, cannot
be made the foundation of an action by either party.?*

“The reasons,” said Mr. Justice Gray, “why a corporation is not
liable upon a contract ultra vires,—that is to say, beyond the pow-
ers conferred upon it by the legislature, and varying. from the objects
of its creation, as declared in the law of its organization,—are: (J)
The interests of the public that the corporation shall not ‘transcend
the powers granted; (2) the interest of the stockholders, that the cap-
ital shall not be subjected to the risk of enterprises not contemplated
by the charter, and therefore not authorized by the stockholders in
subscribing for the stock; (8) the obligation of every one entering
into a contract with a corporation to take notice of the legal limits.
of its powers.” 25

Same—Iagnorance of Ulira Vires Character of Transaction.
Even in those states where the courts hold ultra vires contracts
illegal and void, they make an exception to the rule where the party

solidated, and as a consolidated company purchased property in excess of their
powers, and gave notes therefor, it was held that an indorsee of the notes, who
had notice of the circumstances under which they were given, could not maintain
an action against the corporations thereon. Pearce v. Railroad. Co., supra. So.
where a corporation purchased and received property which it was not authorized
to purchase or receive, it was held that an action would not lie against it for the
price. Downing v. Road Co., supra. And where a railroad company and a manu-
facturing company joined in an ultra vires subscription to contribute to’defray the
expenses of a festival, and the festival was held, and the expenses paid by the
committee, it was held that the committee could not maintain an action on the
subscription. Davis v. Railroad Co., supra.

22 Oregon Ry. & Nav. Co. v. Oregonian Ry. Co., 130 U. S. 1, 9 Sup. Ct. 409.

23 Post, p. 177- :

24 Downing v. Road Co., 40 N. H. 230, 1 Cumming, Cas. Priv. Corp. 148, W. D.
Smith, Cas. Corp. 129, Shep. Cas. Corp. 75.

26 Pittsburgh, O. & St. L. Ry. Co. v. Keokuk & H. Bridge Co., 181 U. S. 371, 9
Sup. Ct. 770. .
174 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 6

dealing with the corporation did not know, and is not chargeable
with knowledge of, the ultra vires nature of the contract into which
he entered. The cases are virtually agreed that, if the officers of a
corporation make a contract with a man in regard to matters ap-
parently within the powers of the corporation, but which, upon proof
of extrinsic facts, of which he had no notice, and of which he is not
chargeable with notice, is shown to have been ultra vires, the cor-
poration may be held liable, unless it may and does avoid liability
by taking timely steps to prevent loss or damage to the other party.”®
Thus, if a corporation empowered to build and operate a certain line
of railroad should purchase rails for the purpose of building an-
other line, or for the purpose of speculating in them, without the
knowledge of the vendor, the corporation could be held on the con-
tract.*" So, if a corporation, which is limited by its charter as to
the amount of indebtedness it may incur, should purchase property,
and in doing so exceed that amount, the seller, being ignorant of the
amount of the company’s indebtedness at the time of the purchase,
could hold it on the contract.?®

It is held, however, that where a corporation is created, and its
powers conferred by a public act, a man who enters into a contract
with it, which is clearly in excess of its powers as shown by the act,
cannot enforce the contract, for he is chargeable with knowledge of
public laws, and therefore of the powers of the corporation.?® Thus
it has been held that if a corporation, not being authorized by its
charter, enters into a contract of guaranty or suretyship, this is
clearly in excess of its powers, and that the other party is charge-
able with knowledge of this fact, and cannot hold it liable.®°

Same— Unauthorized Exercise of Authorized Powers.

Some of the courts have made this distinction: That contracts of
corporations which they have no authority at all to make are void
and unenforceable; but that contracts which are within the general

26 Miners’ Ditch Co. v. Zellerbach, 37 Cal. 543; Lucas v. Transfer Co., 70 Iowa,
542, 30 N. W. 771; Bissell v. Railroad Co., 22 N. Y. 259, 1 Cumming, Cas. Priv.
Corp. 196, per Comstock, C. J.; Boyce v. Coal Co., 37 W. Va. 73,716 S. EB. 501.

27 Dictum in Lucas v. Transfer Co., supra.

28 Humphrey v. Association, 50 Iowa, 607.

29 Lucas v. Transfer Co., 70 Iowa, 542, 30 N. W. 771.

30 Lucas v. Transfer Co., supra.
§ 67) EFFECT OF ULTRA VIRES ACT. 175

scope of their powers, but which are, in some particulars, in excess
of those powers, are valid, unless by reason of such excess they are
against public policy. The Wisconsin court applied this rule to a
case in which a corporation had exceeded its powers in lending
money for two years, instead of one, and upon note and mortgage,
instead of upon bond and mortgage, and held that the corporation
could maintain an action upon the securities.**_ The same principle
was applied where a bank limited by its charter to taking ten per
cent. interest on loans discounted a note at twelve per cent. It was
held that the loan was valid as to ten per cent. interest, and void only
as to the excess.** On this point, however, the cases are conflict-
ing.?5

Same—WSeverable Transaction.

A contract or transaction by a corporation, if severable, may be
valid in so far as it is within the powers of the corporation, though
in part it is ultra vires. Thus, if a railroad company, having im-
plied authority to issue bonds in order to raise money for its busi-
ness, but without authority to execute a mortgage on its property,
issues bonds secured by a mortgage, the invalidity of the mortgage
cannot be set up to defeat a recovery on the bonds.** So where a
railroad or other corporation has express authority to mortgage its
property, a mortgage executed by it, covering both its property and
its franchise, will not be avoided as to the property by the fact that
there was no authority to mortgage the franchise.*®

Same—Negotiable Bills and Notes— Bonds.

A negotiable bill or néte accepted, made, or indorsed by a corpora-
tion, in excess of the powers conferred upon it by its charter, stands,
of course, upon exactly the same footing as other contracts, as be-
tween the original parties. Difficult questions arise in cases where
the instrument has passed into the hands of one who claims to be a
bona fide holder for value. These rules seem to be well settled in

31 Germantown Farmers’ Mut. Ins. Co. v. Dhein, 43 Wis. 420. And see Rock
River Bank v. Sherwood, 10 Wis. 230; Littlewort v. Davis, 50 Miss. 403.

32 Rock River Bank v. Sherwood, supra.

33 Bank of Chillicothe v. Swayne, 8 Ohio, 257.

34 Philadelphia & S. R. Co. v. Lewis, 33 Pa. St. 33. And see Pittsburgh, C. &
St. L. Ry. Co. v. Keokuk & H. Bridge Co., 181 U. S. 371, 9 Sup. Ct. 770.

88 Gloninger v. Railroad Co., 139 Pa. St. 18, 21 Atl. 211.
176 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 6

most jurisdictions. If the execution or indorsement-of a negotiable
instrument by a corporation is obviously foreign to the purposes of
its charter, such an instrument is void into whosoever’s hands it
may come, for every person is chargeable with notice of its ultra vires
character; but if a corporation is of such a character that:it may
have occasion to execute or to take and indorse such instruments in
the conduct of its business, and it accepts a bill or executes a note,
or indorses a bill or note, for a purpose that is foreign to its objects,
as where it gives its paper as an accommodation, or in payment for
property which it has no authority to purchase, the instrument will
be binding in the hands of a purchaser for value and without no-
tice.2* If the purchaser had notice in fact, or if the circumstances
were such as to put him on inquiry, and charge him with notice, of
the ultra vires character of the transaction, he cannot recover, unless
under rules hereafter shown the original holder could recover.*7 An
indorser of the note of a corporation which is expressly prohibited
from issuing notes, though the note is negotiable in form, is not
liable thereon.?®

As we have seen, the bonds issued by a corporation, and the cou-
pons attached thereto, will be regarded as negotiable instruments,
and as subject to the rules of law relating to such instruments, if it
appears from the form in which they were issued, and the mode of
giving them circulation, that they were intended to have this. char-

86 Norton, Bills & N. 211-215; Monument Nat. Bank v. Globe Works, 101 Mass.
57, 1 Cumming, Cas. Priv. Corp. 315; National Park Bank v. German-American
M. W. & S, Co., 116 N. Y. 281, 22 N. B®. 567, 1 Cumming, Cas. Priv. Corp. 318,
Shep. Cas. Corp. 182; National Bank v. Young, 41 N. J. Eq. 531, 7 Atl. 488; Ex
parte Estabrook, Fed. Cas. No. 4,534; Ridgway v. Bank, 12 Serg. & R. (Pa.) 256;
Southern Loan Co. v. Morris, 2 Pa. St. 175; McIntire v. Preston, 5 Gilman (II.)
48; Auerbach v. Mill Co., 28 Minn. 291, 9 N. W. 799; Jacobs Pharmacy Co. ¥.
Southern Banking & Trust Co. (Ga.) 25 S. E. 171; Marshal] Nat. Bank vy. O'Neal .
(Tex. Civ. App.) 34S. W. 344.

37 National Park Bank v. German-American M. W. & S. Co., supra. In this case
a corporation without authority indorsed promissory notes for the accommodation
of the maker, who himself had them discounted. It was held that the faet that
the maker had them discounted for his own benefit, being unexplained, was notice
to the discounter that the indorsement was not in the usual course of business, but
merely for the accommodation of the maker, and that the discounter, therefore,
could not. hold the corporation liable. And see Price v. Coal Co. (Ky.) 82 8..W, 267.

88 Southern Loan Co. v. Morris, 2 Pa. St. 175. :
§ 67) EFFECT OF ULTRA VIRES ACT. 177.

acter. And they will be subject to the rules protecting bona fide:
purchasers of negotiable instruments.?®

Same—Actions Quasi ex Contractu—Suit in Equity for Accounting.

If a corporation has received money or property or the benefit of
services under an ultra vires contract, the courts are virtually agreed:
that it may be compelled to refund the value of that which it has actu-
ally received in an action quasi ex contractu, or, in a proper case, in
a suit for an accounting.*® Thus, where a manufacturing company
purchased materials for the purpose of selling them again on specula-
tion, it was held that the seller, after delivering part and repudiating
the contract, could recover the value of the materials delivered. “It
is to be observed,” said the court, “that the contract, though void in
law, involved no element of criminality, and nothing of an immoral
nature. The case is not, therefore, one in which the law will leave
the parties without redress for the consequences of criminal or im-
moral action. The plaintiff has a right to sell her manufacture, and
to be paid for it; the defendant has received something of value from
her, and there is manifest equity in its being required to make pay-
ment, notwithstanding it exceeded its powers in the purchase.” **
And if money is paid by a: corporation under a contract which is
merely ultra vires, and not otherwise lawful, it may recover the
money in an action for money had and recéived. Thus, where a
transportation company entered into an ultra vires contract to pur-
chase wheat, and paid part of the price, it was held that on failure

89 Ante, p. 146, and cases there cited.

40 Day v. Buggy Co., 57 Mich. 146, 23 N. W. 628, and 1 Cumming, Cas. Priv.
Corp. 261; Northwestern Union Packet Co. v. Shaw, 37 Wis. 655, 1 Cumming,
Cas. Priv. Corp. 245; Davis v. Railroad Co., 131 Mass, 258, 1 Cumming, Cas. Priv.
Corp. 173; Morville v. Tract Soc., 123 Mass. 128; White v. Bank, 22 Pick. (Mass.)
181, 1 Cumming, Cas. Priv. Corp. 289; New Castle Northern R. Co. v. Simpson,
23 Fed. 214; Logan County Nat. Bank v. Townsend, 139 U. S. 67, 11 Sup. Ct.
496; In re Cork & Y. Ry. Co., 4 Ch. App. 748, 1 Cumming, Cas. Priv. Corp. 265;.
Nashua & L. R. Corp. v. Boston & L. R. Corp., 164 Mass. 222, 41 N. EB. 268;.
Anthony v. Machine Co., 16 R. I. 571, 18 Atl. 176; Manville v. Mining Co., 17
Fed. 425; Moore v. Tanning Co., 60 Vt. 459, 15 Atl. 114; Manchester & L. R.
R. v. Concord R. R. (N. H.) 20 Atl. 383. And see Paul v. City of Kenosha, 22
Wis. 260; Louisiana v. Wood, 102 U. S. 294; Brown v. City of On 39 -
Kan. 37, 17 Pac. 465; Humphrey v. Association, 50 Iowa, 607.

42 Day v. Buggy Co., supra.

Clk.Pr.Corp.—12
178 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 6

of the other party to deliver the wheat the money could be recovered
back by the corporation.*?
Same—Relief in Equity against Ultra Vires Contract.

Where a corporation has received the consideration for an ultra
vires contract, and then comes into a court of equity asking to have
the contract declared void, and to be restored to the rights which it
parted with, the relief will not be granted unless the corporation
restores the consideration which it has received. In American Union
Tel. Co. v. Union Pac. Ry. Co., *® a railroad company, authorized also
to construct and operate a telegraph line, leased the telegraph line
to another without authority, and received the consideration. It
afterwards brought suit in equity to set the lease aside, and recover
possession of the property. Judge McCrary held that the relief
would not be granted unless it returned the consideration which it
had received.

If an ultra vires contract has been fully executed, neither party can
maintain an action at law or a suit in equity to recover.what he or it
has parted with. Thus one who has sold, received payment for, and
conveyed land to a corporation cannot sue to rescind the convey-
ance on the ground that the corporation had no power to purchase.
Nor, under the same circumstances, Could the corporation rescind the
purchase and recover what it has paid.**

Sume—Borrowing Money—Subrogation of Lender.

In equity, if a corporation borrows money without authority, but
applies it in whole or in part, directly or indirectly, to the payment of
valid debts, the lender will not lose the money thus applied, but will
be subrogated to the rights of the creditors of the corporation thus
‘paid, and to that extent may enforce his claim against the corpora-
tion. And if for such loan the corporation, without authority, issues
debentures or bonds, the holders of them will occupy the same posi-
.tion as the lender.*® This doctrine depends on the fact that liabili-

+2 Northwestern Union Packet Co. v. Shaw, supra.

-431 McCrary, 188, 1 Fed. 745, and 1 Cumming, Cas. Priv. Corp. 284.

-44 Long v. Railway Co., 91 Ala. 519, 8 South. 706.

45 In re Cork & Y. Ry. Co., 4 Ch. App. 748, 1 Cumming, Cas. Priv. Corp. 265.
This and similar cases, said Sir G. M. Giffard, L. J., in Re National Permanent
Benefit Building Soc., 5 Ch. App. 309, 1 Cumming, Cas. Priv. Corp. 274, “were
decided upon a principle recognized in old cases, beginning with Marlow v. Pitfeild,
§ 67) EFFECT OF ULTRA VIRES ACT. 179

ties of the company are not increased, and it is not to be applied
where the money borrowed does not go to pay valid debts of the
company.*® But it is applicable as well where the money is applied
to the payment of debts accruing subsequent to the borrowing as
when it is applied to debts then existing.*7 “The test is, has the
transaction really added to the liabilities of the company? If the
amount of the company’s liabilities remains, in substance, unchanged,
but there is merely for the convenience of payment a change of the
creditor, there is no substantial borrowing in the result, so far as
relates to the position of the company. Regarded in that light,
it is consistent with the principle of equity that those who pay le-
gitimate demands, which they are bound in some way or other to
meet, and have had the benefit of other people’s money, advanced to
them for that purpose, shall not retain that benefit, so as, in sub-
stance, to make those other people pay their debts. I take that to be
a principle sufficiently sound in equity; and if the result is that by
the transaction which assumes the shape of an advance or loan, noth-
ing is really added to the liabilities of the company, there has been
no real transgression of the principle on which they are prohibited
from borrowing.” **

The Doctrine Allowing a Recovery on an Ultra Vires Contract.
In New York, Ilinoig, Michigan, Indiana, and many other states,
the doctrine that the ultra vires contracts of a corporation are so far
contrary to the public policy and illegal that they cannot form the
foundation of an action, except as heretofore shown, is repudiated
as being unjust, and not founded upon any sound principle of public

1 P. Wms. 558, where there was = loan to an infant, and the money was spent
in paying for necessaries; and in another case of a more modern date, where there
was money actually lent to a lunatic, and it went in paying expenses which were
necessary for the lunatic. In such case it has been held that, although the party
lending the money could maintain no action, yet, inasmuch as his money had
gone to pay debts which would be recoverable at law, he could come into a court
of equity, and stand in the place of those creditors whose debts had been so paid.
* * * It is a very clear and definite principle which ought not to be departed
from.” And see Wenlock v. River Dee Co., 19 Q. B. Div. 155, 1 Cumming, Cas.
Priv. Corp. 277, and 10 App. Cas. 354.

46 In re National Permanent Benefit Building Soc., supra.

47 Wenlock v. River Dee Co., supra.

48 Per Lord Selborne in Blackburn Building Soc. v. Cunliffe, 22 Ch. Diy. 61, 71.
180 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 6

policy. And the doctrine in these states is, to use the language of the

_ New York court in a leading case, that “the plea of ultra vires should
not, as a general rule, prevail, whether it is interposed for or against
the corporation, when it would not advance justice, but, on the con-
trary, would accomplish a legal wrong.” *® This is clearly the better
doctrine, and is supported by the great weight of decision in this
country. Want of authority, as was pointed out by Comstock, C. J.,
in a New York case, may render a contract void; but mere want of
authority, without more, does not render a contract illegal, so that
it can under no circumstances give rise to an action. Contracts are
illegal either in respect to the consideration or the promise. "Where
both of these are lawful and right, the maxim “Ex turpi causa non
oritur actio,” can have no application. The incapacity of the con-
tracting party, whether it be a corporation, an infant, a married
woman, or a lunatic, has nothing to-do with the legality of the con-
tract. A promise by a corporation, therefore, founded on a lawful
consideration, and to do that which in itself is lawful to be done,
although not within the powers granted by its charter, and therefore
ultra vires, is not illegal,°° and there is no good reason why it should
not be held that causes of action may arise out of it. “A transgres-
sion of this nature is a simple excess of power (using that word to ex-
press the rules of action prescribed in their charters, and by which
they ought to regulate their conduct), but is not tainted with ille
gality, so as to avoid the contract or dealing on that ground. This
proposition, it seems hardly necessary to repeat, is applied only to
transactions which involve or contemplate no violation of the code
of private or criminal law, but, on the contrary, are innocent and law-
ful in themselves.” °1

49 Whitney Arms Co. v. Barlow, 63 N. Y. 62, 1 Cumming, Cas. Priv. Corp. 253;
Kadish v. Association, 151 Ill. 531, 388 N. E. 286; Portland L. & M. Co. v. City
of East Portland, 18 Or. 21, 22 Pac. 536. And cases cited in the following notes.

50 Per Comstock, C. J., in Bissell vy. Railroad Co., 22 N. Y. 259, 1 Cumming,
Cas. Priv. Corp. 187, 198. Compare the opinion of Selden, J., in this case.

51 Per Comstock, C. J., in Bissell v. Railroad Co., supra. It was further said:
“The words ‘ultra vires’ and ‘illegality’ represent totally different and distinct
ideas. It is true that a contract may have both of these defects, but it may also
have one without the other. For example, a bank has no authority to engage ip
benevolent enterprises. A subscription, made by authority of the board of di-
rectors, and under the corporate seal, for the building of a church or college, or an
§ 67) EFFECT OF ULTRA VIKES ACT. 181

In accordance.with this view, it is held in most states that, if a
contract entered into by a corporation is objectionable merely be-
cause it is in excess of the powers conferred upon the corporation by
its charter, not being otherwise contrary to law, and it has been
so far performed or acted upon by one of the parties that it would
be inequitable to hold the contract void, the other party cannot de-
feat an action brought on the contract itself by setting up the de-
fense that it was ultra vires.5? Thus it has been held that if a cor-
poration enters into an ultra vires contract to purchase goods, and
the goods are delivered to it, so that it receives the benefit of the

almshouse, would be clearly ultra vires, but it would not be illegal. If every cor-
poration should expressly assent to such an application of the funds, it would still
be ultra vires, but no wrong would be committed, and no public interest violated.
So a manufacturing corporation may purchase ground for a schoolhouse or a place
of worship for the intellectual, religious, and moral improvement of its operatives;
it may buy tracts and books of instruction for distribution among them. Such
dealings are outside of the charter; but, so far from being illegal or wrong, they are
in themselves benevolent and praiseworthy. So a church corporation may deal in
exchange. This, although ultra vires, is not illegal, because dealing in exchange is,
in itself, a lawful business, and there is no state policy in restraint of that busi-
ness.”

52 Bissell v. Railroad Co., 22 N. Y. 259, 1 Cumming, Cas. Priv. Corp. 187;
Parish v. Wheeler, 22 N. Y. 494, 2 Cumming, Cas. Priv. Corp. 58; Whitney Arms
Co. v. Barlow, 63 N. Y. 62, 1 Cumming, Cas. Priv. Corp. 253; Holmes & Griggs
Manuf’g Co. v. Holmes & Wessell Metal Co., 127 N. Y. 252, 27 N. E. 831; Denver
Fire Ins. Co. v. McClelland, 9 Colo. 11, 9 Pac. 771, 1 Cumming, Cas. Priv. Corp.
227: Bradley v. Ballard, 55 Il. 413, 1 Cumming, Cas. Priv. Corp. 249, W. D.
Smith, Cas. Corp. 137, Shep. Cas. Corp. 68; Heims Brewing Co. v. Flannery, 137
Ill. 809, 27 N. HE. 286; Day v. Buggy Co., 57 Mich. 151, 23 N. W. 628, 1 Cumming,
Cas. Priv. Corp. 261; Carson City Sav. Bank v. Carson City El. Co., 90 Mich. 550,
51 N. W. 641; Dewey v. Railway Co., 91 Mich. 351, 51 N. W. 1063; Slater Woolen
Co. v. Lamb, 143 Mass. 420, 9 N. E. 828, 1 Cumming, Cas. Priv. Corp. 260 (Sem-
ble); Camden & A. R. Co. v. May’s Landing, etc., R. Co., 48 N. J. Law, 530, 7
Atl. 523; State Board of Agriculture v. Citizens’ St. Ry. Co., 47 Ind. 407, 1 Cum-
ming, Cas. Priv. Corp. 222; Chicago & A. Ry. Co. v. Derkes, 103 Ind. 520, 3 N.
EH. 239; Wright v. Hughes, 119 Ind. 324, 21 N. 8. 907; City of Corpus Christi vy.
Central Wharf & Warehouse Co., 8 Tex. Civ. App. 94, 27 S. W. 803; Steger v.
Davis, 8 Tex. Civ. App. 23, 27 S. W. 1068; Wright ». Pipe Line Co., 101 Pa. St.
204; Seymour v. Society, 54 Minn. 147, 55 N. W. 907; Magee v. Improvement
Co., 98 Cal. 678, 33 Pac. 772; Manchester & L. R. Co. v. Concord R. Co., 66 N.
H. 100, 20 Atl. 883; Union Hardware Co. v. Plume & Atwood Manuf’g Co., 58
Conn, 219, 20 Atl. 455.
182 POWERS AND LIABILITIES OF CORPORATIONS. (Ch, 6

contract, the other party may maintain an action on the contract it-
self for the price agreed ‘upon.®’ So it has been held that, if the price
has been paid under an ultra vires contract for the purchase of goods,
an action may be maintained on the contract for failure to deliver the
goods. And if a corporation sells and delivers goods in carrying ona
business that is merely ultra vires, it has been held that the pur-
chaser cannot defeat an action for the price on the ground that the
sale was ultra vires.°* So, if a corporation borrows money for an
unauthorized purpose, and gives its note or other obligation therefor,
it cannot set up the ultra vires character of the contract to defeat an
action thereon.5> And the same rule applies where a corporation
lends money or furnishes other consideration under an ultra vires
contract, and takes the other party’s note therefor. The other party
cannot set up the ultra vires character of the contract to defeat an
action by the corporation.*®

On the same principle it has been held that if a corporation en-
gages in the business of an innkeeper, it cannot escape an innkeep-
er’s liability to a guest, as for property lost, by setting up that the
business was not authorized by its charter.°7 So where a street-rail-
way company agreed to pay a certain sum if the state board of agri-
culture would hold the state fair at a certain place, it was held that
the company could not set up the defense of ultra vires to defeat lia-
bility on its contract, after the fair was held at the place agreed upon,
and it had the benefit therefrom in its increased traffic.°* So where
a fire insurance company which had issued a policy of insurance

53 Wright v. Pipe Line Co., 101 Pa. St. 204; Dewey v. Railroad Co., 91 Mich.
351, 51 N. W. 1063; Towers Excelsior & Ginnery Co. v. Inman, 96 Ga. 506, 23
S. E. 418; and other cases in note 52, supra.

54 Slater Woolen Co. v. Lamb, 148 Mass. 420, 9 N. E. 823, 1 Cumming, Cas.
Priv. Corp. 260.

55 Bradley v. Ballard, 55 Ill. 418, 1 Cumming, Cas. Priv. Corp. 249, W. D.
Smith, Cas. Corp. 187, Shep. Cas. Corp. 68.

56 Steam Nav. Co. v. Weed, 17 Barb. (N. Y.) 378, 2 Cumming, Cas. Priv. Corp.
55; Logan v. Association, 8 Tex. Civ. App. 490, 28 S. W. 141; Gorrell v. Insur-
ance Co., 11 C. C. A. 240, 63 Fed. 371; Poock v. Association, 71 Ind. 357; Pan-
coast v. Insurance Co., 79 Ind. 172.

57 Magee v. Improvement Co., 98 Cal. 678, 33 Pac. 772.

58 State Board of Agriculture y. Citizens’ St. Ry. Co., 47 Ind. 407, 1 Cumming,
Cas. Priy. Corp. 222,
§ 67) EFFECT OF ULTRA VIRES ACT. 183:

against loss of crops caused by hail, and received the premium, sought
to escape liability for a loss on the ground that it had no power to.

insure against loss by hail, the court held that the defense should not
be allowed.°°

Same—Action Maintainable by the Corporation.

According to this doctrine, as shown by the illustrations referred
to in the preceding paragraph, the right of action is not limited to
the other party to the contract, but the corporation may maintain
an action where it has performed its part of the contract. “It is
very well settled,” said the New York court in a leading case, “that
a corporation cannot avail itself of the defense of ultra vires whe
the contract has been, in good faith, fully performed by the saa
party, and the corporation has had the full benefit of the perform;
ance and of the contract. * * * Thesame rule holdse converso.
If the other party has had the benefit of a contract fully performed
by the corporation, he will not be heard to object that the contract
and performance were not within the legitimate powers of the cor-
poration.” °°

Same—The Ground of This Doctrine.

The true ground of this doctrine is that of equitable estoppel,
whereby the defendant is not permitted to rely upon or show the in-
validity of the contract. “In such a case the contract is assumed
by the court to be valid, the party seeking to avoid it not being per-
mitted to attack its character in this respect.”*! The reasons by
which the courts have been influenced are obvious. It was said by
Chief Justice Comstock: Commercial manufacturing, and trading
corporations “are brought into relation with almost every member
of the community, and I think it greatly to be desired that in laying
down the rules of law which are to govern in such relations, we
should avoid a system of destructive technicalities. Those rules
should be founded in the principles of justice which are recognized

59 Denver Fire Ins. Co. vy. McClelland, 9 Colo. 11, 9 Pac. 771, 1 Cumming, Cas.
Priv. Corp. 227.

60 Whitney Arms Co. v. Barlow, 63 N. Y. 62, 1 Cumming, Cas. Priv. Corp. 253.

61 Denver Fire Ins. Co. v. McClelland, 9 Colo. 11, 9 Pac. 771, 1 Cumming, Cas.
Priv. Corp. 227.
184 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 6

in other and analogous dealings among men.” ®? It would be carry-
ing the doctrine concerning ultra vires contracts to an unwarranted
extent, said the Indiana court, “to hold that a corporation might
obtain the money of another, and, with the fruits of the contract in
its treasury, interpose the defense of ultra vires; or, having used
the money with the consent or acquiescence of its stockholders, ask
that the lender be restrained from collecting it back, on the ground
that the money was obtained in violation of the charter of the cor-
poration. Like natural persons, corporations must be held to the
observance of the recognized principles of common honesty and good
faith, and these principles render the doctrine of ultra vires unavail-
ing when its application would accomplish an unjust end, or result
in the perpetration of a legal fraud. After-a corporation has re-
ceived the fruits which grow cut of the performance of an act ultra
vires, and the mischief has all been accomplished, it comes with an
‘ill grace then to assert its want of power to do the act or make the
«contract, in order to escape the performance of an obligation it has
assumed. The most that can be said in the present case is that there
was a defect of power to engage in the transaction in which the
money borrowed was used. The power to borrow money was ple-
nary, and subject to no restrictions. In such a case, although the
lender may know that it is the purpose of the borrower to use the
money in an irregular way, yet, if the contract between the lender
and borrower is not in violation of law, or declared void by statute,
the money may be recovered, unless the lender was in some way im-
plicated in furthering the borrower’s design or accessory to the pro-
hibited or illegal act.” °

Same—LNecessity for Performance by the Plaintiff.
The courts which hold this doctrine require that there shall have
been some performance on the part of the plaintiff which will render

62 Per Comstock, C. J., in Bissell v. Railroad Co., 22 N. Y. 259, 1 Cumming,
Cas. Priv. Corp. 187, 199.

63 Wright v. Hughes, 119 Ind. 324, 21 N. E. 907. ‘The rule requiring the ob-
servance of good faith and fair dealing is as applicable to corporations as to in-
dividuals. Neither can involve others in onerous engagements, and with the con-
sideration of the contract in their possession, disavow their acts, to the damage
and discomfiture of others, unless it clearly appears that there was an absolute
want of capacity to make the contract.” Louisville, N. A. & C. Ry. Co. y. Flan-
magan, 113 Ind. 488, 14 N. B. 370.
§ 67) EFFECT OF ULTRA VIRES ACT. 185

it unjust and inequitable to permit the defendant to set up the ultra
vires character of the contract in defense. They will not lend their
aid to enforce an ultra vires contract that is wholly executory.**
And the fact that the contract has been partly performed on one or
both sides does not always require enforcement as to the residue.
It will not be enforced unless its enforcement is necessary to do jus-
tice. Thus, where a corporation empowered to purchase material
for manufacturing purposes purchased a quantity of material for the
purpose of selling it again on speculation, the seller knowing of its
purpose, it was held that the contract was void; that either party
could repudiate it after part performance by both parties, and on re-
pudiation of it by the seller, and in a suit by him to recover the
value of the material already delivered, the corporation could not
recover damages for his failure to perform the residue.*§

Same—Answers to Arguments against This Doctrine.

One of the arguments used in support of the doctrine that no ac-
tion can be maintained against a corporation on an ultra vires con-
tract is that one dealing with a corporation is bound to know the
extent of its powers to contract; that the act under which it exists,
and the record of its charter or articles of association, furnish no-
tice of the extent and limitation of its corporate powers and au-
thority to contract. In answer to this it was said by the supreme
court of Colorado: “While, as a general proposition, this is true, yet
it must be conceded that this constructive notice is of a very vague
and shadowy character. Every one may have access to the stat-
utes of the states affecting companies incorporated thereunder, and
to their articles of incorporation; but to impute a knowledge of the
probable construction the courts would put upon these statutes and
articles of incorporation to determine questions raised upon a given
contract proposed is carrying the doctrine of notice to an extent
which can only be denominated preposterous.” °° And Chief Jus-

64 Nassau Bank v. Jones, 95 N. Y. 115, 1 Cumming, Cas. Priv. Corp. 293; Brad-
dey v. Ballard, 55 Ill. 413; Bosshardt & Wilson Co. v. Crescent Oil Co., 171 Pa.

St. 109, 32 Atl. 1120.
65 Day v. Buggy Co., 57 Mich. 151, 23 N. W. 628, 1 Cumming, Cas. Priv. Corp.

‘261.
66 Denver Fire Ins. Co. v. McClellarid, 9- Colo. 11, 9 Pac. 771, 1 Cumming, Cas.

Privy. Corp. 227.
186 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 6

tice Comstock observed in a New York case that “a traveler from
New York to Mississippi could hardly be required to furnish himself
with the charters of all the railroads on his route, or. to study a
treatise on the law of corporations,” in order to satisfy himself that
the railroad companies are not operating their roads in an ultra vires
manner.®?

Another argument in support of the doctrine that an action should
not be allowed on an ultra vires contract is that public policy and
the interests of the state require that corporations shall be kept
within the legitimate exercise of their powers. In answer to this
it has been said: “This may be true to a certain extent, and the state
may interpose to revoke their charters for an abuse thereof; but we
take it that it is no more the public policy of the state to protect the
business of private corporations than that of its individual citizens;
and to invoke public policy in a case like the one at bar [a case in
which a corporation pleaded ultra vires in an action against it on a
contract fully performed by the other party by payment of the con-
sideration], in order to prevent a corporation from doing wrong, by
punishing the other party, would differ little from asking a court,
on the ground of public policy, to prevent the obtaining of money or
goods through false pretenses by holding that the party defrauded
should be punished by the loss of his money or goods.” *

It has also been said that the interests of the stockholders require
that corporations be held strictly within their legitimate powers,
so that the capital shall not be subjected to the risk of enterprises.
not contemplated by the charter, and therefore not authorized by the
stockholders in subscribing for the stock. In answer to this argu-
ment, it is sufficient to say that the stockholders control or influence
the corporation, and are acting as a corporation for their personal
benefit, while persons dealing with it have no control or influence
over it, nor interest in it. There is no reason, therefore, why the
stockholders should be protected at the expense of the public.

67 Per Comstock, C. J., in Bissell v. Railroad Co., 22 N. Y. 259, 1 Cumming,
Cas. Priv. Corp. 187.

68 Denver Fire Ins. Co. y. McClelland, 9 Colo. 11, 9 Pac. 771, 1 Cumming, Cas. -

Priv. Corp. 227.

\
a

§ 68) ILLEGAL CONTRACTS. 187

Same—Specifie Performance.

It has been held that a court of equity will not compel specific
performance of an ultra vires contract, even though it may have
been partly performed by the complainant. In a Michigan case,
a bank had entered into an ultra vires contract to purchase land
from a third person, and sell it to the defendant. After the land
had been purchased by the bank, the defendant refused to carry out
the contract, and the bank brought suit in equity for specific per-
formance. The court held that the relief could not be granted, as
it could not, consistently with equitable principles, assist the bank
to carry into execution a contract to violate its charter, and that the
purchase of the property by the bank after the contract was made
could make no difference. “Equity,” it was said, “will aid no one
in doing that which is unlawful.” *

ILLEGAL CONTRACTS.

68. Contracts of a corporation may be illegal on other
grounds than because they are ultra vires; that is,
unlawful in the sense in which a contract by an in-
dividual may be unlawful. A contract which is il-
legal in this sense is subject to the same rules that
govern illegal contracts by individuals. Generally,
no action can grow out of it. 4

Contracts of corporations may not only be ultra vires, but, like the
contracts of an individual, they may, on other grounds, be illegal in
the sense of the maxim, “Ex turpi causa non oritur actio.” In the
absence of express statutory provision to the contrary, a corporation
can make no contract which would be illegal if it were made by an
individual. Thus a contract by a corporation, like a contract by
an individual, is illegal if it contemplates the publication of a libel,
or a fraud upon third persons, or the doing of an act which is pro-
hibited by statute under a penalty, or if it is contrary to public poli-
cy, as in the case of wagering contracts, contracts in restraint of
trade, ete. A corporation authorized by its charter to engage in the

69 Bank of Michigan vy. Niles, Walk. (Mich.) 99, 1 Doug. 401, 1 Cumming, Cas.
Priv. Corp. 291.
188 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 6

business of manufacturing and selling an article or product, and to
own the property necessary for that purpose, has no right to buy
up the business and property of al] the other persons and companies
engaged in the business, for the purpose of obtaining a monopoly;
and, if it does so, quo warranto proceedings may be maintained by
the state to oust it from the exercise of its franchise.7° The princi-
ples of law which apply to illegal contracts are substantially the same
where the contract is by a corporation as where it is by an individual.
The student, therefore, must refer in this connection to works on the
general law of contracts.71 There are a few questions that are pe-
culiar to corporations. ;

Even in those jurisdictions where the ultra vires contracts of a
corporation are not regarded as illegal in the sense that no action
can be maintained upon them, unless there is an express prohibition
in the charter or in some statute, there are some exceptions. An
ultra vires contract that is not expressly prohibited will nevertheless
be declared illegal if it is in its nature and effect clearly contrary to
public policy. Thus it has been held in New York that a contract by
which a bank, organized under the laws of the state, subscribes for or
agrees to purchase stock in a railroad company, and so to be a
stockholder therein, and subject to liability as such, is not merely
ultra vires, but is illegal, though not expressly prohibited. “The
spirit of the law,” it was said, “as well as a sound public policy, for-
bid these institutions from risking the moneys intrusted to their care
in doubtful speculations or enterprises.” 7?

Contracts Disabling Corporations from Performing Duties to the

Public.

A railroad, steamboat, gas, water, or other like corporation can
make no contract which will interfere with its performance of the du-
ties which it owes to the public. Such a contract is not merely ultra
vires. It is illegal, and absolutely void, as being contrary to public
policy. It is a well-settled principle “that where a corporation, like
a railroad company, has granted to it by charter a franchise in-
tended in large measure to be exercised for the public good, the due

70 Distilling & Cattle Feeding Co. v. People, 156 Ill. 448, 41 N. EB. 188; post,
p. 240.

71 See Clark, Cont. 374-507.

72 Nassau Bank v. Jones, 95 N. Y. 115, 1 Cumming, Cas. Priv. Corp. 293.
§ 68) ILLEGAL CONTRACTS. 189

performance of those functions being the consideration of the pub-
lic grant, any contract which disables the corporation from perform-
ing those functions, which undertakes, without the consent of the
state, to transfer to others the rights and powers conferred by the
charter, and to relieve the grantees of the burden which it imposes,
is a violation of the contract with the state, and is void as against
public policy.” 78
Liffect of Express Prohibition in Charter.

If the charter of a corporation, instead of merely not authorizing
a certain contract, expressly prohibits it, the contract stands upon a
different footing from one that is merely ultra vires. Asa rule, it is
illegal and void, and no action can be maintained upon it, or grow
out of it. The maxim, “Ex turpi causa non oritur actio,” applies.’*
In White v. Franklin Bank’® the defendant had taken a deposit for
a certain time, and promised to repay it at the expiration of that
time, in violation of a statute declaring that no bank should make or
issue any note, bill, check, draft, acceptance, certificate, or contract,
in any form whatever, for the payment of money, at any future day
certain, etc. It was held that the transaction was illegal and void,
because expressly prohibited by statute, and that no action could be
maintained on the contract.

If the charter of a corporation, including statutes applicable to it,
merely prohibits certain contracts, and does not declare that con-
tracts in violation of the prohibition shall be void, and the purpose

78 Thomas vy. Railroad Co., 101 U. S. 71, 1 Cumming, Cas. Priv. Corp. 164, W.
D. Smith, Cas. Corp. 132, Shep. Cas. Corp. 70. And see York & M. L. R. Co. v.
Winans, 17 How. 30; American Union Tel. Co. v. Union Pac. Ry. Co., 1 McCrary,
188, 1 Fed. 745; 1 Cumming, Cas. Priv. Corp. 284; Black v. Canal Co., 22 N.
J. Eq. 390. In Thomas v. Railroad Co., supra, one railroad company had leased
its road to another, and the transaction was held illegal as against public policy.
In American Union Tel. Co. v. Union Pac. Ry. Co., supra, a railroad company,
authorized to also construct and operate a telegraph line, leased the telegraph line
to another corporation, and the lease was held illegal and void. In Visalia Gas
& Electric Light Co. v. Sims, 104 Cal. 326, 37 Pac. 1042, a contract by which a
corporation organized to operate gas and electric light works leased them to another
was held ultra vires, and void as against public policy.

74 Leavitt v. Palmer, 3 N. Y. 19; White v. Bank, 22 Pick. (Mass.) 181, 1 Cum-
ming, Cas. Priv. Corp. 239.

75 22 Pick. (Mass.) 181, 1 Cumming, Cas. Priv. Corp. 289.
190 POWERS AND LIABILITIES Of CORPORATIONS. (Ch. 6

of the statute does not show an intention on the part of the legis-
lature to make such contracts void, they are binding; and objection
on the ground that they were prohibited can only be raised by the
state in a direct proceeding against the corporation to forfeit its
charter.7* The national banking act impliedly prohibits national
banks from lending money on real estate. In National Bank v. Mat-
thews 77 a loan was made by a national bank on a note secured by a
deed of trust on real estate, and a maker of the note and grantor in
the deed filed a bill in equity to enjoin a sale under the deed to sat-
isfy the note. The supreme court of the United States, assuming
the transaction to be within the prohibition, held that the statute, in
prohibiting such a contract, did not make it void, and that the state
only could object to the excess of power in a proceeding to forfeit
the bank’s charter. “We cannot believe,” said the court, “it was
meant that stockholders, and perhaps depositors and other creditors,
should be punished and the borrower rewarded, by giving success to
this defense whenever the offensive fact should occur. The impend-
ing danger of a judgment of ouster and dissolution was, we think,
the check, and none other, contemplated by congress. This has been
always the punishment prescribed for the wanton violation of a
charter, and it may be made to follow whenever the proper public ,
authority shall see fit to invoke its application. A private person
cannot, directly or indirectly, usurp this function of the govern-
ment.”78 So where a bank charter prohibited directors or other of-
ficers of the bank from borrowing money from the bank under pen-
alty of fine and imprisonment, and an officer borrowed money from
the bank in violation thereof, it was held that the claim. of the bank
to recover the loan was enforceable.”®

Liffect of Illegality—Actions in Disaffirmance of Illegal Contract.
It is a well-settled doctrine of the law of contracts, that where
money has been paid by one party to another under a contract that is

76 National Bank v. Matthews, 98 U. S. 621, 1 Cumming, Cas. Priv. Corp. 95;
National Bank v. Whitney, 103 U. 8. 99, 1 Cumming, Cas. Priv. Corp. 102; Silver
Lake Bank v. North, 4 Johns. Ch. (N. Y.) 370.

7798 U.S. 621, 1 Cumming, Cas. Priv. Corp. 95.

78 Mr, Justice Miller dissented, holding that it was the intention of congress to
make such contracts void. ‘The case was adhered to and followed in National
Bank v. Whitney, supra.

79 Lester v. Bank, 83 Md. 558,
§ 68) ILLEGAL CONTRACTS. 191

illegal as involving moral turpitude, both parties being particeps
criminis, no action can be maintained to recover it back. The same
is true generally where the contract is illegal because prohibited by
statute, or because contrary to public policy. The rules of law gov-
erning these cases may be thus stated:

In no case can an action be sustained to enforce the illegal agree-
meut itself.*° And, as a general rule, where an illegal agreement has
been executed in whole or in part by the payment of money, or the
transfer of property, or rendition of services, the court will not lend
its aid to enable the party, even in disaffirmance of the contract, to
recover back the money, or to recover the value of the goods or serv-
ices.8*_ The latter rule is subject to some exceptions.®?

In some cases, where the contract is merely malum prohibitum, a
locus peenitentiz remains, and while the prohibited promise is un-
performed money or goods delivered in consideration of it may be re-
covered. This exception is not at all peculiar to contracts of corpora-
tions.®*

Again, where the contract is only illegal because prohibited by
statute, and the parties are not in pari delicto, the one who is less
guilty may disaffirm the contract, and recover what he has parted
with. Such is the case where the party asking relief was induced to
enter into the contract under the influence of fraud or duress.** So
it is, also, where the statutory prohibition was intended for the pro-

80 Clark, Cont. 491. 81 Clark, Cont. 491.

82 In New York it is held that where a corporation discounts commercial paper
without authority it may recover the money loaned, though the securities are void.
“It is no doubt the general rule of law,’ said the court in such a case, “that no
right of action can spring out of an illegal contract. And the rule that an illegal
contract cannot be enforced applies as well to contracts malum prohibitum as to
contracts malum in se. But it does not necessarily follow that all the conse-
quences attending a contract which is contrary to public morals, or founded on an
immoral consideration, attend and affect a contract malum prohibitum merely.
The law in the former case will not undertake to relieve the parties from the
position in which they have placed themselves, or to adjust the equities between
them. But in the latter case, while the law will not enforce the prohibited con-
tract, it will take notice of the circumstances, and, if justice and equity require a
restoration of money or property received by either party thereunder, it will, and
in many cases has, given relicf.’” Pratt v. Short, 79 N. Y. 437.

83 Clark, Cont. 494, 84 Clark, Cont. 498.
192 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 6

tection of the party asking relief.°° As illustrating this principle
may be mentioned cases in which banks or other corporations are
prohibited from issuing notes, bills, or other securities. It is held
by some courts in these and similar cases that the prohibition is in-
tended to protect the public against the prohibited securities, that
the corporation is the only offender, and that the persons who re-
ceive them may recover the money paid for them, not being in pari
delicto. “The corporation issuing the bills contrary to law and
against penal sanction is deemed more guilty than the members of
the community who receive them, whenever the receiving of them
is not expressly prohibited. The latter are regarded as the persons
intended to be protected by the law; and if they have not themselves
violated an express law in receiving the bills, the principles of jus-
tice require that they should be able to recover the money received by
the bank for them.” °°

Most courts hold that where the direct object of a contract is in-
nocent in itself, but the intention of one of the parties is unlawful,—
as where goods are bought or money borrowed to be used for an un-
lawful purpose, which is not malum in se,—the fact that the other
party knows of the unlawful purpose does not render the agreement
illegal, so as to prevent his maintaining an action thereon, unless
it is made part of the contract that the money or goods shall be used
for such purpose, or unless he has done something in aid or further-
ance of the unlawful design beyond merely entering into the con-
tract.27 And this principle has been applied to contract8 with a cor-
poration, where the corporation intended to use the money or goods
obtained by it under the contract for an illegal purpose.®*

85 Clark, Cont. 500; Thomas v. City of Richmond, 12 Wall. 349; White v.
Bank, 22 Pick. (Mass.) 181; 1 Cumming, Cas. Priv. Corp. 239; Tracy v. Talmage,
14 N. Y. 162, 2 Cumming, Cas. Priv. Corp. 67; Oneida Bank v. Ontario Bank,
21 .N. Y. 490.

86 Thomas v. City of Richmond, supra.

87 Clark, Cont. 478-486, where the cases are collected, and the conflict in the
decisions of the different states is pointed out.

88 Tracy v. Talmage, 14 N. Y. 162, 2 Cumming, Cas. Priv. Corp. 67. And see
Curtis v. Leavitt, 15 N. Y. 1.
§ 69) POWERS AND LIABILITIES OF CORFORATIONS. 193

CHAPTER VII.
POWERS AND LIABILITIES OF CORPORATIONS (Continued).

69. Liability for Torts.
70-72. Responsibility for Crime—Contempt of Court.

LIABILITY FOR TORTS.

69. A private corporation is liable for the torts of its
servants and agents committed in the course of
their employment, to the same extent as a natural
person would be. And it may be liable for wrongs
involving a mental element, as malicious wrongs,
fraud, etc. But it cannot commit a tort, like
slander, which, from its nature, cannot be com-
mitted by deputy.

At one time it was doubted whether a corporation could be sued
for a tort, but it is now settled that for most torts it may be liable
to the same extent as a natural person would be under the same cir-
cumstances. It is said that a corporation has no power to do an
act not authorized by its charter, and, as we have seen, this is true
in a sense; but it is not meant by this that it cannot do wrong.'
The word “power” is used in the sense of “authority.” A corpora-
tion has no right to exceed the powers conferred upon it, but it has
the capacity to do so; and if, in doing so, it commits a tort, it is as
fully liable as a natural person would be under similar circumstan-
ces.2. “Corporations are liable for every wrong of which they are

1 Ante, p. 164; post, p. 197.

2 Chestnut Hill & S. H. Turnpike Co. v. Rutter, 4 Serg. & R. (Pa.) 6, 1 Cum-
ming, Cas. Priv. Corp. 431; Goodspeed v. Bank, 22 Conn. 580, 1 Cumming, Cas.
Priv. Corp. 4483; New York, L. E. & W. R. Co. v. Haring, 47 N. J. Law, 137, 2
Cumming, Cas. Priv. Corp. 110; Philadelphia, W. & B. R. Co. v. Quigley, 21
How. 202, 1 Cumming, Cas. Priv. Corp. 453, Shep. Cas. Corp. 144; Yarborough
y. Bank, 16 East, 6, 1 Cumming, Cas. Corp. 426; Hutchinson v. Railroad Co., 6
Heisk. (Tenn.) 634, 2 Cumming, Cas. Priv. Corp. 102; Maund v. Canal Co., 4
Man, & G. 452, 1 Cumming, Cas. Priv. Corp. 429; Central Railroad & Banking.

Clk.Pr.Corp.—13
194 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 7

guilty, and in such cases the doctrine of ultra vires has no applica-
tion.” * The maintenance of a ferry by an educational corporation
is ultra vires. The corporation is nevertheless liable for injuries
to a passenger being transported thereon for hire, caused by the
negligence of the employé in charge.* As we shall see in a subse-
quent chapter, some courts do not hold a corporation liable for torts
of employés in ultra vires transactions.®

A corporation, being impersonal, cannot personally commit a tort.
It can act only through an agent, and it can, therefore, commit no
tortious act that cannot be committed by a natural person by deputy.
For such wrongful acts as can only be committed by the wrongdoer
directly, it cannot be liable.* A natural person cannot commit slan-
der by deputy, nor can a corporation commit slander." On the
other hand, it is well settled that for any tort which can be commit-
ted by an agent corporations may be liable. “Wherever they can
competently do or order any act to be done on their behalf, * * *
they are liable to the consequences of such act, if it be of a tortious
nature, and to the prejudice of others.”*® Thus a corporation may
be liable in trover for the conversion of goods;® in trespass quare
clausum fregit;?° in trespass de bonis asportatis; +1 in trespass for
assault and battery, false imprisonment, etc.;1? in case for obstruct-

Co. v. Smith, 76 Ala. 572, 52 Am. Rep. 353; Eastern Counties Ry. Co. v. Broom,
6 Exch. 314, 1 Cumming, Cas. Priv. Corp. 434; Green v. Omnibus Co., 7 C. L.
(N. 8.) 290, 1 Cumming, Cas. Priv. Corp. 440; Nims v. Mt. Hermon Boys’ School,
160 Mass. 177, 35 N. E. 776; Mersey Docks & Harbour Board Trustees y. Gibbs,
L. R. 1H. L, 93.

8 Merchants’ Bank v. State Bank, 10 Wall. 604. But see Gunn v. Railroad Oo.,
74 Ga. 509, 2 Cumming, Cas. Priv. Corp. 111.

4 Nims v. Mt. Hermon Boys’ School, 160 Mass. 177, 35 N. HB. 776.

5 Post, p. 523.

“1 Jagg. Torts, 170.

71 Jagg. Torts, 170; Townsh. Sland. & L. § 265.

8 Yarborough v. Bank, 16 Hast, 6, 1 Cumming, Cas. Priv. Corp. 426.

* Yarborough v. Bank, supra; Beach v. Bank, 7 Cow. (N. Y.) 485. Trespass
stor mesne profits. M’Cready v. Guardians of the Poor, 9 Serg. & R. (Pa.) 94.

10 Maund vy. Canal Co., 4 Man. & G. 452, 1 Cumming, Cas. Priv. Corp. 429.

11 Maund v. Canal Co., supra.

12 Eastern Counties Ry. Co. v. Broom, 6 Exch. 314, 1 Cumming, Cas. Priv.
Corp. 484; New York, L. E. & W. R. Co. vy. Haring, 47 N. J. Law, 137, 2 Cum.
ming, Cas, Priy. Corp. 110; Wheeler & W. Manuf’g Co. v. Boyce, 36 Kan. 350,
$ 69) LIABILITY FOR TORTS. 195

ing, diverting, or polluting a water course;** and for nuisances gen-
erally.?4

Liability in tort will also attach to a corporation for the negli-
gence of its servants or agents in omitting to perform a duty resting
upon the corporation.1® And it may be liable for negligence in the
performance of acts by its servants or agents. Thus it may be lia-
ble for negligence in the custody or use of a vicious dog, or other
animate instrumentality, or of powder, poison, or other inanimate
instrumentality. A railroad company is liable in tort for negli-
gence in the running or management of its trains, or for keeping its
premises in an unsafe condition. And any other private corporation
which keeps its premises in an unsafe condition will be liable for in-
juries caused thereby.'®

It has been contended that, since a corporation is merely an arti-
ficial being, without mind or soul, it cannot commit a tort involving
a mental operation, and that it cannot, therefore, be liable for mali-
cious wrongs, or wrongs involving a specific intent, such as libel,
malicious prosecution, or fraud.*" It is now well settled, however,
that the mental attitude of its agents, like their acts, may be im-
puted to a corporation, and that a corporation may be guilty of
malice in contemplation of law.7* Corporations, therefore, have
been held liable for a libel published by their agents;1® for a mali-

13 Pac. 609; Moore v. Railroad Corp., 4 Gray (Mass.) 465; Krulevitz v. Railroad
Co., 140 Mass. 573, 5 N. E. 500; Denver & R. G. Ry. Co. v. Harris, 122 U. 8.
597, 7 Sup. Ct. 1286; Id., 3 N. M. 109, 2 Pac. 369.

13 Chestnut Hill & S. H. Turnpike Co. v. Rutter, 4 Serg. & R. (Pa.) 6, 1 Cum-
ming, Cas. Priv. Corp. 431.

14 Baltimore & P. R. Co. v. Fifth Baptist Church, 108 U.S. 317, 2 Sup. Ct. 719.

16 Nims v. Mt. Hermon Boys’ School, 160 Mass. 177, 35 N. EB. 776; Riddle v.
Proprietors of the Locks, etc., 7 Mass. 169; Mersey Docks & Harbour Board
‘Trustees v. Gibbs, L. R. 1 H. L. 93; Hutchinson v. Railroad Co., 6 Heisk. (Tenn.)
634, 2 Cumming, Cas. Priv. Corp. 102; Townsend v. Turnpike Road, 6 Johns. (N.
Y.) 90; Hooker v. New Haven & N. Co., 14 Conn. 146.

16 See cases cited above.

17 Childs vy. Bank, 17 Mo. 213.

181 Jagg. Torts, 168; Green v. Omnibus Co., 7 C. B. (N. 8.) 290, 1 Cumming,
Cas. Priv. Corp. 440; Goodspeed v. Bank, 22 Conn. 530, 1 Cumming, Cas. Priv.
Corp. 443; Merrills v. Manufacturing Co., 10 Conn. 384. See Lake Shore &
M. S. Ry. Co. v. Prentice, 147 U. S. 101, 18 Sup. Ct. 261, Shep. Cas. Corp. 153.

19 Philadelphia, W. & B. R. Co. v. Quigley, 21 How. 202, 1 Cumming, Cas.
195 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 7

cious criminal prosecution; ?° for a malicious and vexatious attach-
ment;?1 and for conspiracy;?2 and corporations have repeatedly
been held liable for false representations made by their agents.
The rule is well settled that, in cases of fraud, a corporation will be
liable whenever an individual would be held liable.?*

In Green y. London General Omnibus Co.,24—a leading English
case,—the plaintiff was the proprietor of an omnibus line, engaged
in the carriage of passengers, and the defendant was a corporation,
and the proprietor of a rival line. The declaration sought to re-
coyer damages for acts alleged to have been wrongfully and mali-
ciously done by the defendant for the purpose of obstructing, and
which did obstruct, the plaintiff in his business; such as the inten-
tional driving of the defendant’s vehicles against those of the plain-
tiff. The defendant demurred on the ground that a corporation
could not be guilty of a willful and intentional wrong; but the court
held that the declaration was good. In Goodspeed v. East Haddam
Bank,?*—a leading case in this country,—the action was brought
against a bank for maliciously prosecuting a vexatious suit, and it
was held that the action could be maintained.”*

Priv. Corp. 453, Shep. Cas. Corp. 144; Bacon v. Railroad Co., 55 Mich. 224, 21
N. W. 324.

20 Turner v. Insurance Co., 55 Mich. 236, 21 N. W. 326; Krulevitz v. Railroad
Co., 140 Mass. 573, 5 N. E. 500; Reed v. Bank, 180 Mass. 445; Copley v. Machine
Co., 2 Woods, 494, Fed. Cas. No. 8,213.

21 Goodspeed v. Bank, 22 Conn. 580, 1 Cumming, Cas. Priv. Corp. 443; Western
News Co. v. Wilmarth, 33 Kan. 510, 6 Pac. 786.

22 Buffalo Lubricating Oil Co. v. Standard Oil Co., 106 N. Y. 669, 12 N. EB. 826.

28 Barwick v. Bank, L. R. 2 Exch. 259; Nevada Bank of San Francisco y.
Portland Nat. Bank, 59 Fed. 388; Cragie y. Hadley, 99 N. Y. 181, 1 N. BE. 537:
Fifth Ave. Bank of New York vy. Forty-Second St. & G. St. Ferry R. Oo., 187
N, Y. 281, 33 N. E. 378; Shaw v. Mining Co., 18 Q. B. Div. 103; Tome vy. Rail-
road Co., 39 Md. 36.

247 ©. B. (N. S.) 200; 1 Cumming, Cas. Priv. Corp. 440.

25 22 Conn. 530, 1 Cumming, Cas. Priv. Corp. 443. ;

26 It was said by Church, C. J., in this case: “The claim is that, as a cor-
poration is ideal only, it cannot act from malice, and therefore cannot commence
and prosecute a malicious or vexatious suit. This syllogism or reasoning might
have been very satisfactory to the school men of former days; more so, we think,
than to the jurist who seeks to discover a reasonable and appropriate remedy for
every wrong. ‘To say that a corporation cannot have motives, and act from mo-
§§ 70-72) RESPONSIBILITY FOR CRIME—CONTEMPT OF COURT. 197

A corporation may not only be held liable for the actual damages
resulting from a malicious wrong, but it may also, by the weight of
authority, be held liable for exemplary damages, where, under sim-
ilar circumstances, a natural person would be held so liable.??

Authority of Servant or Agent.

A corporation is liable for the acts of its servants and agents, in-
cluding their wrongful acts, on the same principles, and to the same
extent only, as a natural person is liable for the acts of his servant
oragent. Ifa corporation expressly authorizes its servant or agent
to do a particular act, there can be no question as to its liability.
Thus, if a majority of the stockholders should by vote direct an
agent to enter unlawfully upon the land of another, the corporation
would clearly be liable in trespass. Difficulties arise in those cases
where the authority of the agent is to be implied. It is the general
rule that a corporation, like a natural person, is liable for any act
of its servant or agent that is committed in the conduct of its busi-
ness, and in the course of his employment. This rule will be con-
sidered in treating of the liability of a corporation for the acts of
its agents.*®

RESPONSIBILITY FOR CRIME—CONTEMPT OF COURT.

70. A corporation may be criminally responsible for omis-
sion to perform a duty imposed upon it by law, or
for nonfeasance. ,

tives, is to deny the evidence of our senses, when we see them thus acting, and
effecting thereby results of the greatest importance every day. And if they can
have any motive, they can have a bad one; they can intend to do evil, as well as
to do good. If the act done is a corporate one, so must the motive and intention
be. In the present case, to say that the vexatious suit, as it is called, was insti-
tuted, prosecuted, and subsequently sanctioned by the bank in the usual modes of
its action, and still to claim that, although the acts were those of the bank, the
intention was only that uf the individual directors, is a distinction too refined, we
think, for practical application.”

27 Wheeler & Wilson Manuf’g Co. v. Boyce, 86 Kan. 350, 18 Pac. 609; Denver
& R. G. Ry. Co. v. Harris, 122 U. S. 597, 7 Sup. Ct. 1286; Merrills v. Manufac-
turing Co., 10 Conn. 384. Compare Lake Shore & M. 8. Ry. Co. v. Prentice,
147 U. S. 101, 18 Sup. Ct. 261, Shep. Cas. Corp. 153.

28 Post, p. 523.
198 POWERS AND IIABILITIES OF CORPORATIONS. (Ch. 7

71. In most states, but not in all, it is held that it may be
criminally responsible for some acts of misfeasance,
such as maintaining a nuisance. But it cannot com-
mit a crime which involves a mental operation, nor
crimes involving an element of personal violence.

72. A corporation may be punished for contempt of court.

Nonfeasance.

Though there is dictum in some of the old cases to the contrary,
it is now perfectly well settled that a corporation may be indicted for
omission to perform a duty to the public imposed upon it by law, and,
though it cannot be imprisoned, it may be fined, and deprived of its
charter.2® Thus a railroad company may be indicted and fined for
failure to comply with a statute requiring it to keep a bridge in re-
pair across a cut where its road crosses a public highway.*°

Misfeasance.

It has been held that a corporation cannot be indicted for misfea-
sance,—that it “can neither commit a crime or misdemeanor by any
positive or affirmative act, nor incite others to do so.” ** Thus, in
the case from which this quotation is taken, it was held in Maine that
a corporation could not be indicted for maintaining a nuisance by
obstructing a navigable river, though the obstruction was directed
by a majority of the stockholders; but that the indictment should
have been against the individuals.*? :

The great weight of modern authority, however, is against this
position, and to the effect that an indictment will lie against a cor-
poration for misfeasance as well as for nonfeasance,** provided the

29 Clark, Cr. Law, 78-80; Reg. v. Railway Co., 3 Q. B. 228; New York & G. L.
R. Co. v. State, 50 N. J. Law, 303, 13 Atl. 1, affirmed 53 N. J. Law, 244, 23 Atl.
168. In Anon., 12 Mod. 559, Case 935, it was said that “a corporation is not in-
dictable, but the particular members of it are.” But it does not appear what the
indictment was for.

30 New York & G. L. R. Co. v. State, supra.

31 State v. Great Works Milling & Manufacturing Co., 20 Me. 41; Com. v.
President, etc., of Swift Run,Gap Turnpike Co., 2 Va. Cas. 8362; State v. Ohio &
M. R. Co., 23 Ind. 362 (since changed by statute in Indiana. See State v. Balti-
more, O. & C. R. Co., 120 Ind. 298, 22 N. E. 307).

32 State'v. Great Works Milling & Manufacturing Co., supra.

83 Clark, Cr. Law, 79; Reg. v. Great North of England Ry. Co., 2 Cox. Cr.
§§ 70-72) RESPONSIBILITY FOR CRIME—CONTEMP? OF COURT. 199

offense involves no mental element, nor element of personal violence.
Thus corporations have repeatedly been held liable for nuisance by
obstructing a navigable river, or other public highway.** And an in-
dictment has been sustained against a corporation for nuisance in
keeping a disorderly house,** and for permitting gaming on its prem-
ises.°* “Corporations” said the Massachusetts court, “cannot be
indicted for offenses which derive their criminality from evil inten-
tion, or which consist in a violation of those social duties which
appertain to men and subjects. They cannot be guilty of treason
or felony, of perjury, or offenses against the person. But beyond
this there is no good reason for their exemption from the conse-
quences of unlawful and wrongful acts committed by their agents
in pursuance of authority derived from them.” *”

Offenses Involving Mental Element or Personal Violence.

We have seen that a corporation may be held liable in tort for
malicious wrongs, such as libel and malicious prosecution, and for
fraud, the malice or evil intent of its agent being imputed to it; and
that it may also be held liable in a civil action for assault and bat-
tery; and that exemplary or punitive damages may be recovered in
proper cases.** There is a strong tendency in some jurisdictions to

Cas. 70; Com. v. Proprietors of New Bedford Bridge, 2 Gray (Mass.) 339; State
v. Passaic Co. Agricultural Soc., 54 N. J. Law, 260, 23 Atl. 680; Com. v. Pulaski
Co. Agricultural & Mechanical Ass’n, 92 Ky. 197, 17 8S. W. 442.

34 Reg. v. Great North of England Ry. Co., supra; Com. v. Proprietors of New
Bedford Bridge, supra; Louisville & N. R. Co. v. State, 3 Head (Tenn.) 523;
State v. Louisville & N. R. Co., 91 Tenn. 445, 19 S. W. 229; St. Louis, A. & T.
Ry. Co. v. State, 52 Ark. 51, 11 S. W. 1035; State v. Chicago, M. & St. P. Ry.
Co., 77 Iowa, 442, 42 N. W. 365; State v. Roanoke Railroad & Lumber Co., 109
N. ©. 860, 18 S. B. 719; State v. Monongahela R. R. Co., 37 W. Va. 108, 16S. E.
519; Chicago & EH. I. R. Co. v. People, 44 Ill. App. 632; Delaware Division Canal
Co. v. Com., 60 Pa. St. 367; Northern Cent. R. Co. v. Com., 90 Pa. St. 305;
Pittsburgh & Allegheny Bridge Co. v. Com. (Pa. Sup.) 8 Atl. 217; Palatka & I.
R. R. Co. v. State, 23 Fla, 546, 8 South. 158; Savannah, F. & W. Ry. Co. v.
State, 23 Fla. 579, 3 South. 204; State v. Warren R. Co., 29 N. J. Law, 353;
State v. Central R. Co., 32 N. J. Law, 220.

35 State v. Passaic Co. Agricultural Soc., 54 N. J. Law, 260, 23 Atl. 680.

36 Com. vy. Pulaski Co. Agricultural & Mechanical Ass’n, 92 Ky. 197, 17 8. W.
442, -

37 Com. v. Proprietors of New Bedford Bridge, 2 Gray (Mass.) 339.

38 Ante, p. 197.
200 POWERS AND LIABILITIES OF CORPORATIONS. (Ch. 7

extend this doctrine so as to include criminal prosecutions. Dr.
Wharton says that there is no good reason why the same acts for
which corporations are subject to civil suit may not equally be the
basis of criminal proceedings, when they result in injury to the public
at large.?® And it has been said in a late New Jersey case, after
adverting to the fact that a corporation is civilly liable for malicious
wrongs: “It is difficult, therefore, to see how a corporation may be
amenable to civil suit for libel and malicious prosecution and private
nuisance, and be mulcted in exemplary damages, and at the same
time not be indictable for like offenses where the injury falls upon
the public. That malice and evil intent may be imputed to corpora-
tions has been repeatedly adjudged.” *°

There are no cases thus far in which a corporation has been held
liable criminally for malicious wrongs, or for wrongs involving a
specific evil intent, or for wrongs involving the element of personal
violence. On the contrary, actual authority, as far as it goes, is
against any such doctrine.**

Contempt of Court.

A corporation may be guilty of a contempt of court by reason of
acts or omissions of its officers, as where they violate an injunction.
And in such a case it is well settled that the court has the same pow-
er to punish it by a fine, as it would have in the case of a natural
person.*?

391 Whart. Cr. Law, § 87.

40 State v. Passaic Co. Agricultural Soc., 54 N. J. Law, 260, 28 Atl. 680.

41 See Clark, Cr. Law, 79; Orr v. Bank, 1 Ohio, 36; Com, v. Proprietors of
New Bedford Bridge, 2 Gray (Mass.) 339.

42 People v. Albany & V. R. Co., 12 Abb. Prac. (N. Y.) 171; Golden Gate Con-
solidated Hydraulic Min. Co. v. Superior Court, 65 Cal. 187, 3 Pac. 628; Mayor,
etc., of New York v. New York & Staten Island Ferry Co., 64 N. Y. 624; U.S. v.
Memphis & L. R. R. Co., 6 Fed. 237.
§§ 73-74) THE CORPORATION AND THE STATE. 201

CHAPTER VIII.

THE CORPORATION AND THE STATE.

73-14. Power of the State over Corporations—Charter as a Contract.
7%. Police Power of the State.
76. Power of Eminent Domain.
77. Reservation of Power to Repeal or Amend Charter.
78. Offer of Amendment—Power of Majority.
79-81. Taxation of Corporations,

POWER OF THE STATE OVER CORPORATIONS—CHARTER
AS A CONTRACT.

78. The charter of a private corporation involves a con-
tractual obligation within the meaning of the con-
stitutional declaration that no state shall pass any
law impairing the obligation of contracts, and it
cannot be impaired by repeal or amendment con-
trary to its terms.

(a) There is a contract between the corporation and the
state which cannot be so impaired.

(b) There is also a contract between the corporators and
the corporation, which cannot be impaired.

(c) But repeal or amendment of a charter is not uncon-
stitutional as impairing the obligation of contracts
between the corporation and third persons.

74. The constitutional provision referred to does not pre-
vent legislation affecting the charter of a corpora-

‘ tion under the following circumstances:

(a) It does not prevent the state from passing laws in
the valid exercise of its police power.

(b) It does not prevent the state from taking the prop-
erty and franchises of a corporation for public use,
under the power of eminent domain, if due com-
pensation is made.
202 THE CORPORATION AND THE STATE. (Ch. &

(ec) It does not prevent the repeal, alteration, or amend-
ment of a charter, if the power to repeal, alter, or
amend was reserved by the state in granting the
charter.

Theoretically, the British parliament, with respect to its power to.
enact laws, is omnipotent. There is no written constitution impos-
ing restraints upon it. And, among other unlimited powers, it has.
the power to repeal or alter charters of corporations, as it may see
fit. The power is not often exercised, it is true, but it exists, and
at certain periods of English history it has been arbitrarily exer-
cised. Parliament, if it should choose, could grant a charter, and
then, after the corporators have invested their money in the enter-
prise, repeal it, however great the loss might be. In this country
the power of the legislature is not supreme, but is restricted in very
many respects by constitutional provisions. In the constitution of
the United States it is declared that “no state shall pass any law
impairing the obligation of contracts.”1 And it is now settled be
yond any controversy that the charter of a private corporation is a
contract, within the meaning of the constitution.? In the Dart-
mouth College Case,’ a charter had been granted by the king of
England to the trustees of Dartmouth College, a charity founded by
private persons. Nearly forty years afterwards the legislature of
New Hampshire undertook to alter this charter in material re
spects. The New Hampshire court sustained the act, but the deci-
sion was reversed by the supreme court of the United States, on the
ground that the charter was a contract within the meaning of the
constitution, and that the acts in question, in materially altering it,

1 Const. U. S. art. 1, § 10.

2 Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 1 Cumming, Cas.
Priv. Corp. 490, W. D. Smith, Cas. Corp. 148, Shep. Cas. Corp. 248; Hazen v.
Bank, 1 Sneed (Tenn.) 115; Zimmer v. State, 30 Ark. 677; Downing v. Board, 129
Ind. 448, 28 N. HB. 128, 614; Ruggles v. People, 91 Ill. 256; Illinois Cent. R. Co.
v. People, 95 Ill. 318; State v. Greer, 78 Mo. 188; Hamilton v. Keith, 5 Bush
(IXy.) 458; Cary Library v. Bliss, 151 Mass. 364, 25 N. E. 92; and cases hereafter
cited and referred to. Contra, Mechanics’ & Traders’ Branch of State Bank v.
Debolt, 1 Ohio St. 591; Bank of Toledo v. City of Toledo, 1 Ohio St. 622; Skelly
y. Bank, 9 Ohio St. 606,

8 Supra.
§§ 73-74) POWER OF THE STATE OVER CORPORATIONS, 203

without the consent of the corporation, impaired its obligation, and
were void.

The constitutional prohibition against acts impairing the obliga-
tion of contracts applies only in the case of private corporations.
The charters of public corporations may be repealed or amended by
the legislature at pleasure. As we have seen, however, colleges,
hospitals, asylums, and other charitable institutions, founded by pri-
vate means, are private corporations, and within the protection of the
constitution, though they may have been founded for the benefit of.
the public.*

If the legislature, without having reserved the right to do so, re-
peals the charter of a corporation outright, there can be no question
but that the repeal is unconstitutional and void. Difficult ques-
tions, however, arise where the charter is not repealed, but merely
altered or amended. The rule in such cases is that, if the legisla-
ture alters the charter of a corporation in any material respect, it
impairs the obligation thereof, unless the alteration or amendment
is authorized under the rules hereafter shown. In the Dartmouth
College Case,® above referred to, the charter of the corporation vested
the whole power of governing the college, of appointing and remov-
ing tutors, of fixing their salaries, of directing the course of study
to be pursued by the students, and of filling up vacancies created
in their own body, in the trustees appointed by the charter, and the
charter expressly stipulated that the corporation, thus constituted,
should continue forever, and that the number of trustees should for-
ever consist of twelve, and no more. The acts of the legislature of
New Hampshire increased the number of trustees to twenty-one,
gave the appointment of the additional members to the executive
of the state, and created a board of overseers, to consist of twenty-
five persons, of whom twenty-one were to be appointed by the execu-
tive of the state, with the power to inspect and control the acts of
the trustees. It was held that this was a material alteration of the
charter, and that the acts therefore were void.®

4 Dartmouth College v. Woodward, supra; Downing y. Board, supra; Cary
Library v. Bliss, supra; ante, p. 29.

5 Supra.

6 See, also, Downing v. Board, 129 Ind. 443, 28 N. HE. 123, 614; Cary Library v.
Bliss, 151 Mass. 364, 25 N. E. 92. In Zimmer v. State, 30 Ark. 677, by the terms
204 THE CORPORATION AND THE STATE. (Ch. 8

Alteration of a charter, where the power has not been reserved,
is unconstitutional if it impairs the contracts between the corpora-
tion and the stockholders or members. Thus, where the charter of
a corporation is not subject to alteration, amendment, or repeal,
the legislature cannot change or interfere with the mode of voting
at corporate meetings, as by allowing cumulative voting, etc.” Nor
can it authorize a majority of the stockholders or members to accept
amendments of the charter, or to engage in enterprises not author-
ized by the charter, without the consent of the minority,® or to con-
solidate with another corporation, and transfer the corporate prop-
erty to it.° Nor can a charter be altered by requiring a less amount
of capital stock, so as to make previous subscribers liable as share-
holders before the amount of stock required at the time of their sub-
scription is subscribed.?° Such alterations and amendments as these
are unconstitutional, not as impairing the implied contract between
the corporation and the state, but as impairing the contract be-
tween the corporation and the dissenting members by compelling
them to embark in an enterprise different from that agreed upon.

As we have seen in a former chapter, it is a settled rule for the
construction of charters that in case of ambiguity and doubt they
are to be construed most strictly in favor of the public and against
the corporation. And this rule is important in connection with the
subject now under discussion.11

The state, in granting a charter to a private corporation, does not
impliedly stipulate that it will not afterwards create a similar cor-

of an irrepealable charter, the corporation was authorized to form a union or con-
solidate with another corporation; and its officers, agents, and servants were ex-
empted from military and road duty, and from jury service. It was held that it
could not be deprived of any of these privileges and exemptions by subsequent
legislation.

7 State v. Greer, 78 Mo. 188; Hays v. Com., 82 Pa. St. 518. Compare New
Haven & D. R. Co. v. Chapman, 38 Conn. 56.

8 Zabriskie v. Railroad Co., 18 N. J. Eq. 178, 1 Cumming, Cas. Priv. Corp. 781;
New Orleans, J. & G. N. R. Co. vy. Harris, 27 Miss. 517; Black v. Canal Co.,
24 .N. J. Eq. 455.

9 Lauman v. Railroad Co., 30 Pa. St. 46.

10 Oldtown & L. R. Co. vy. Veazie, 39 Me. 571.

11 See Proprietors of Charles River Bridge v. Proprietors of Warren Bridge, 11
Pet. 420, 1 Cumming, Cas. Priv. Corp. 506; ante, p. 125,
§§ 78-74) POWER OF THE STATE OVER CORPORATIONS. 205

poration to compete with the former, or pass any other valid law,
which will have the effect of rendering the first charter valueless.
So long as it does not impair the obligation of its contract with the
first corporation, as embodied in the charter, it may pass any valid
law it may see fit, though the effect of such law may be to render
the charter practically worthless. In Proprietors of the Charles
River Bridge v. Proprietors of the Warren Bridge,’? the state of
Massachusetts had chartered the plaintiff to build a bridge across
the Charles river, and to take tolls for the use thereof. After the
bridge had been built and maintained for a number of years, the
state chartered the defendant corporation, and authorized it to
build another bridge over the Charles river in close proximity to
the plaintiff’s bridge, and under the defendant’s charter its bridge
in the course of a few years became the property of the state, and
a free bridge. It was held that the defendant’s charter was valid,
though its effect was to indirectly destroy the value of the plain-
tiff’s charter, franchises, and property, since the state did not ex-
pressly bind itself not to authorize another bridge, and no such stip-
ulation could be implied. And so the state may charter a railroad
or turnpike company to run its road along the same route as a pre-
viously chartered railroad, turnpike, or canal company, provided no
exclusive privileges have been in terms granted to the prior corpo-
ration.'®

In the absence of constitutional limitations, however, the legisla-
ture may grant an exclusive privilege to a private corporation,‘
and, if it does so in its charter, the grant constitutes a contract in
the sense of the federal constitution, and cannot be impaired by
subsequent legislation.1> Thus where a state created a corporation
to construct a bridge, and the charter expressly stipulated that no
other bridge should be built within a certain distance of it, a sub-

1211 Pet. 420, 1 Cumming, Cas. Priv. Corp. 506. And see In re Opening of
Hamilton Avenue, 14 Barb. (N. Y¥.) 405.

13 White River Turnpike Co. v. Vermont Cent. R. Co., 21 Vt. 590; Tuckahoe
Canal Co. v. Tuckahoe & J. River R. Co., 11 Leigh (Va.) 42; Washington & B.
Turnpike Co. v. Baltimore & O. R. Co., 10 Gill & J. (Md.) 392.

14 Ante, p. 36.

15 New Orleans Gaslight Co. v. Louisiana Light & Heat Producing & Manuf’g
Co., 115 U. 8. 650, 6 Sup. Ct. 252.
206 THE CORPORATION AND THE STATE. (Ch. &

sequent charter authorizing another corporation to construct a bridge
within the prohibited distance was held unconstitutional."* The
same rule applies where the legislature charters a gas, or water, or
electric lighting company, and grants it an exclusive privilege of
supplying a city and its inhabitants with light or water.*’ In some
states the constitution now restricts the power of the legislature to
grant exclusive privileges.7®

The repeal of a charter or dissolution of a corporation under stat-
utory authority is not a violation of the federal constitution as im-
pairing the obligation of contracts made by the company with third
persons./® Two reasons for so holding were given by the supreme
court of the United States in Mumma v. Potomac Co.”° In the first
place, the obligation of the contracts of the company survives the
dissolution, and the creditors may enforce their claims against any
property belonging to the company which has not passed into the
hands of bona fide purchasers, but is still held in trust for the com-
pany, or for the stockholders, at the time of its dissolution in any
mode permitted by the local laws. In the second place, it was said,
“independently of this view of the matter, it would be extremely dif-
ficult to maintain the doctrine contended for by the plaintiff in error
upon general principles.. A corporation, by the very terms and
nature of its political existence, is subject to dissolution by a surren-
der of its corporate franchises, and by a forfeiture of them for will-
ful misuser and nonuser. Every creditor must be presumed to un-
derstand the nature and incidents of such a body politic, and to con-
tract with reference to them. And it would be a doctrine new in
the law that the existence of a private contract of the corporation
should force upon it perpetuity of existence contrary to public policy,
and the nature and objects of its charter.”

“There is a distinction between the obligation of a contract and

16 The Binghamton Bridge, 3 Wall. 51.

17 New Orleans Gaslight Co. v. Louisiana Light & Heat Producing & Manuf’g
Co., supra; New Orleans Waterworks Co. v. Rivers, 115 U. S. 674, 6 Sup. Ct. 278.

18 See ante, p. 36.

19 Mumma v. Potomac Co., 8 Pet. 281, 1 Cumming, Cas. Priv. Corp. 459; Thorn-
ton v. Railway Co., 123 Mass. 32, 1 Cumming, Cas. Priv. Corp. 462; Read vy.
Frankfort Bank, 23 Me. 318.

208 Pet. 281, 1 Cumming, Cas. Priv. Corp. 459.
§ 75) POLICE POWER OF THE STATE. 207

the remedy for its enforcement. Whatever pertains merely to the
remedy may be changed or modified, at the discretion of the legis-
lature, without impairing the obligation of the contract, provided the
remedy be not wholly taken away, nor so hampered or reduced in
effectiveness as to render the contract practically incapable of en-
forcement.” ??_ This principle applies to laws affecting existing cor-
porations, the charters of which are not subject to alteration, amend-
ment, or repeal by the legislature. Thus a statute which prescribes
.a mode of service of judicial process upon a corporation, different
from that provided for in its charter, or which otherwise authorizes
new remedies, is not void as impairing the obligation of a contract.??

POLICE POWER OF THE STATE.

75. There is nothing in the federal or state constitutions
depriving the legislatures of the power to pass any
laws, in the exercise of the police power of the
state, which may be necessary or proper for the
protection of the public safety, health, comfort, mor-
als, or the property: of the citizens; and such laws
are valid, though they may detract from the pow-
ers of existing corporations, or impose burdens
upon them. The legislature cannot divest itself of
this power.

In this country the legislatures of the different states have the
same unlimited power in regard to legislation as the British parlia-
ment, except in so far as they may be restrained by the state or fed-
eral constitution. They can pass any law affecting existing corpora-
tions, however much it may increase their burdens or restrict their
powers, provided no constitutional provision is violated.** The con-
stitutional provision against laws impairing the obligation of con-
tracts does not prevent the legislatures from regulating corporations,

21 Black, Const. Law, 538.

22 Cairo & F. R. Co. v. Hecht, 95 U. S. 168. See, also, Carey v. Giles, 9 Ga.
258; Chicago Life Ins. Co. vy. Auditor of Public Accounts, 101 Ill. 82.

23 Thorpe vy. Railroad Co.. 27 Vt. 140, 1 Cumming, Cas. Priv. Corp. 521.
208 THE CORPORATION AND THE STATE. (Ch. 8

under the police power of the state, in the use of their franchises.**
The constitution was not intended to deprive the legislatures of this
power, and the legislatures could not divest themselves of it if they
would. “Whatever differences of opinion,’ it has been said, “may
exist as to the extent and boundaries of the police power, and how-
ever difficult it may be to render a satisfactory definition of it, there
seems to be no doubt that it does extend to the protection of the
lives, health, and property of the citizens, and to the preservation
of good order and the public morals. The legislature cannot, by any
contract, divest itself of the power to provide for these objects.
They belong emphatically to that class of objects which demand the
application of the maxim, ‘Salus populi suprema lex;’ and they are
to be attained and provided for by such appropriate means as the
legislative discretion may devise. That discretion can no more be
bargained away than the power.” 7°

It may be laid down as a general rule that the legislature may
control the action of corporations, prescribe their functions and du-
ties, and impose restraints upon them, to the same extent as upon
natural persons, in all matters coming within the general range of
legislative authority; subject to the limitation of not impairing the
obligation of contracts, provided the essential franchise is not taken
away without compensation.?® Nothing is better settled than that,
under its police power, a state may subject persons to restraints and
burdens in order to secure the general comfort, health, and prosperity
of the people at large; and this power extends to corporations as
well as to natural persons. Thus, if the state creates a corporation
and authorizes it to erect a powder mill, or to maintain a burying
ground, or a slaughterhouse, fertilizer manufactory, or tannery at a
certain place, at a time when the place is remote from inhabitants,
it may afterwards require the business to be suspended or removed,

24 Thorpe v. Railroad Co., 27 Vt. 140, 1 Cumming, Cas. Priv. Corp. 521; Beer
Co. v. Massachusetts, 97 U. S. 25, 1 Cumming, Cas. Priv. Corp. 533; Answer of
the Justices, 9 Cush. (Mass.) 604; Galena & C. U. R. Co. v. Loomis, 13 ll. 548.
56 Am. Dec. 471; Chicago Life Ins. Co. v. Needles, 113 U. 8. 574, 5 Sup. Ct.
681; Eagle Ins. Co. of Cincinnati v. State of Ohio, 153 U. S. 446, 14 Sup. Ct. 868.

25 Beer Co. v. Massachusetts, 97 U. S. 25, 1 Cumming, Cas. Priv., Corp. 533.
And sce Town of Lake View v. Rose Hill Cemetery Co., 70 Ill. 191.

26 Thorpe v. Railroad Co., 27 Vt. 140, 1 Cumming, Cas. Priv. Corp. 521; Ward
y. Farwell, 97 Il. 593.
§ 75) POLICE POWER OF THE STATE. 209

or secured from doing harm, at the sole expense of the corporation,
if in process of time dwellings approach the locality, so as to render
the further pursuit or maintenance of the business at that place
destructive to the health or comfort of others.??

In Boston Beer Co. v. Massachusetts ?* a corporation had been
chartered to manufacture and sell malt liquors. Afterwards the
legislature passed a prohibitory liquor law, and it was contended
by the corporation that this law, if applicable to it, was void, as be-
ing an impairment of its contract with the state. The court held
the law valid as to the corporation, on the ground that, though it was
given by its charter the right to manufacture and sell malt liquors,
the charter could not be construed as conferring any greater or more
sacred right than any citizen had to manufacture malt liquor; nor
as exempting the corporation from any control therein to which a
citizen would be subject, if the interests of the community should
require it. “If the public safety or the public morals,” it was said,
“require the discontinuance of any manufacture or traffic, the hand
of the legislature cannot be stayed from providing for its discontin-
uance by any incidental inconvenience which individuals or corpora-
tions may suffer. All rights are held subject to the police power
of the state.” Other illustrations are given below.?®

27 Thorpe v. Railroad Co., supra; Fertilizing Co. v. Hyde Park, 97 U. S. 659;
Coates v. Mayor, etc., of New York, 7 Cow. (N. Y.) 585; Brick Presbyterian
Church y. Mayor, etc., of New York, 5 Cow. (N. Y.) 538; Town of Lake View v.
Rose Hill Cemetery Co., 70 Ill. 191.

2897 U. S. 25, 1 Cumming, Cas. Priv. Corp. 533.

29 The state cannot prohibit existing railroad companies from carrying unobjec-
tionable freight and passengers; but it may regulate them in the conduct of their
business, so as to secure the safety of persons and property. It is perfectly com-.
petent, therefore, for the legislature to prohibit them from carrying persons or live
stock infected with contagious diseases, or to require them to stop at crossings, to
maintain switchmen and watehmen, to provide a certain number of brakemen, to
use proper rails and maintain a proper track, or to maintain fences and cattle
guards along their road; and it may require them to bear the expense of such
safeguards. Thorpe v. Railroad Co., 27 Vt. 140, 1 Cumming, Cas. Priv. Corp. 521;
Com. v. Eastern R. Co., 108 Mass. 254, 1 Cumming, Cas. Priv. Corp. 546; Nelson
v. Railroad Co., 26 Vt. 717; Galena & C. U. R. Co. v. Loomis, 13 Ill. 548, 56 Am.
Dee. 471; Horn v. Railway Co., 38 Wis. 463; Ohio & M. R. Co. v. McClelland,
25 Ill, 140; Hegeman v. Railroad Corp., 16 Barb. (N. Y.) 353. And it may require
a railroad company to stop at county seats to take on and let off passengers. Chi-

Clk.Pr.Corp.—14
210 THE CORPORATION AND THE STATE. (Ch. &

In the exercise of the police power the state cannot, in the case of
a corporation, any more than in the case of a natural person,
pass any law taking or destroying property which is actually in
existence, and in which the right of the owner has become vested,

cago & A. R. Co. v. People, 105 Ill. 657. And it may require a railroad company,
at its own expense, to construct a bridge over a highway, even though it may not
have reserved the power to amend or repeal its charter. People v. Boston & A.
R. Co., 70 N. Y. 569. And it may prohibit railroad companies from crossing each
others’ tracks at grade. Pittsburg & C. R. Co. v. Southwest P. Ry. Co., 77 Pa.
St. 178. So a city ordinance may prohibit existing railroad companies from run-
ning steam engines on a certain street. Railroad Co. v. Richmond, 96 U. S. 521.
The state, having chartered a bank with power to receive money on deposit, and
pay away the same, and to discount bills of exchange, and make loans, could not
afterwards make it unlawful for the bank to transfer by indorsement or other-
wise any bill or note, etc., for this would be a violation of the charter, and not at
all necessary as a police measure. Jemison v. Bank, 23 Ala. 168. But the state
may bind existing savings banks, or other banks, by genera] laws relating to invest-
ments of deposits. Answer of the Justices to Inquiry of the Senate, 9 Cush.
(Mass.) 604. And it has been held that it may pass a law making stockholders of
existing corporations liable for the future debts of the corporation. Child v. Coffin,
17 Mass. 64; Gray v. Coffin, 9 Cush. (Mass.) 192; Stanley v. Stanley, 26 Me. 191.
And it may reduce the rate of interest, or prohibit speculations in exchange, or
depreciated paper, or the issuing of bills of a given denomination, ete. See Thorpe
y. Railroad Co., 27 Vt. 140, 1 Cumming, Cas. Priv. Corp. 521. The state has the
same power to tax corporations as it has to tax individuals, provided it has not
expressly surrendered the right in granting the charter, though the power clearly
abridges the beneficial use of the franchise, and is capable of being so exercised
as virtually to destroy it. Providence Bank v. Billings, 4 Pet. 514; post, p. 219.
The right to have migratory fish pass in their accustomed course up and down
rivers and streams is a public right, and may be regulated and protected by the
legislature in such a manner as it may deem appropriate; and every grant of 2
right to maintain a mill dam across a stream where such fish are accustomed to
pass is subject to the implied condition or limitation that a sufficient and reason-
able way shall be allowed for the fish, unless cut off by express provision or ob-
vious implication in the grant. Commissioners on Inland Fisheries v. Holyoke,
Water-Power Co., 104 Mass. 446; Com. y. Essex Co., 13 Gray (Mass.) 239, 1
Cumming, Cas. Priv. Corp. 550. The state may pass a law requiring existing cor-
porations, like insurance companies, banks, ete., having extensive dealings with the
public, to make periodical statements of their condition, and providing for com-
pulsory liquidation of their business in case of insolvency; or make other pro-
visions of this nature for the protection of the public. Such laws are valid police
regulations. Attorney General v. North America Life Ins. Co., 82 N. Y. 172; Chi-
cago Life Ins, Co. v. Needles, 113 U. S. 574, 5 Sup. Ct. 681; Eagle Ins. Co. v.

7
§ 76) POWER OF EMINENT DOMAIN. 211

even though the law may be for the public good, unless
it makes due compensation therefor. Thus, if the state were to char-
ter a corporation unqualifiedly for the purpose of manufacturing and
selling malt liquors, it could not afterwards pass a liquor law pro-
hibiting the sale of liquors already manufactured by the corporation
without making due compensation therefor, though it could prohibit
further manufacture.®°

So, the right of members to vote at corporate meetings for direct-
ors, and on other corporate matters, is a property right, and, if
the mode of voting is prescribed by an irrepealable charter, it is pro-
tected by the constitutional prohibition against laws impairing the
obligation of contracts, so that the state cannot interfere with it
either by constitutional or legislative enactment. A law regulating
the mode of voting at corporate elections cannot be called a police
regulation.**

POWER OF EMINENT DOMAIN.

76. The property of a corporation, including its franchises,
may, like the property of an individual, be taken
for public use under the power of eminent domain,
on making due compensation therefor.

The power of the state to take private property for public use un-
der the power of eminent domain, on making compensation to the
owner, extends to the property and franchises of a corporation, as
well as the property of individuals. “The property of corporations,
including their franchises, may be taken for public use under the

Ohio, 153 U. S. 446, 14 Sup. Ct. 868; Ward v. Farwell, 97 Ill. 593; Chicago Life
Ins. Co. v. Auditor of Public Accounts, 101 Ill. 82. Railroad companies may be
made liable to laborers employed by contractors in constructing their roads. Branin
y. Railroad Co., 31 Vt. 214. And a state may regulate the charges of railroad and
warehouse companies, and other corporations engaged in a public employment af-
fecting the public interest. Munn v. Illinois, 94 U. S. 118; Chicago, B. & Q. R.
Co. y. Iowa, Id. 155; Stone v. Trust Co., 116 U. S. 307, 6 Sup. Ct. 334, 388, 1191;
Ruggles vy. People, 91 Ill. 256; Illinois Cent. R. Co. v. People, 95 IH. 313. But
the regulation must be reasonable. Stone v. Trust Co., supra.

30 Beer Co. v. Massachusetts, 97 U. S. 25, 1 Cumming, Cas. Priv. Corp. 533.
And see Planters’ Bank v. Sharp, 6 How. 301.

81 State v. Greer, 78 Mo. 188.
212 THE CORPORATION AND THE STATE. (Ch. 8

power of eminent domain, on making due compensation.” °? Thus,
where the legislature, under a reserved power, repealed the charter
of a railroad company operating a railroad through the streets of a
city, it was held that in chartering another corporation it had the
power to authorize it to take the property of the old corporation, on
making due compensation therefor.*?

Laws which take or authorize the taking of corporate property and
franchises for public use under the power of eminent domain, which
cannot legally be done without making compensation, must be dis-
tinguished from laws regulating corporations in the use of their fran-
chises and property, enacted either under the police power of the
state, or under a power to alter or amend the charter reserved by the
state in granting it. Police regulations, as we have seen, may im-
pose burdens and expenses’ upon corporations for the public good,
but this does not form ground for objection by the corporation.**

RESERVATION OF POWER TO REPEAL OR AMEND
CHARTER.

77. The state may, and generally does, reserve the power
to repeal, alter, or amend charters by a provision
to that effect either in the charter itself, or act of
incorporation, or in some general law, or in the
constitution. This reservation, however, gives no
right to impair or take away vested rights.

The state may always, in granting a charter, incorporate such
terms and conditions as it may see fit. Therefore it may reserve
the power to aiter, amend, or repeal the charter. And it may do so

82 Greenwood v. Freight Co., 105 U. S. 18, 1 Cumming, Cas. Priv Corp. 538, W.
D. Smith, Cas. Corp. 160, Shep. Cas. Corp. 260. And see West River Bridge Co.
v. Dix, 6 How. 507; Wastern R. Co. v. Boston & M. R. R., 111 Mass, 125; White
River Turnpike Co. v. Vermont Cent. R. Co., 21 Vt. 590; Boston Water-Power
Co. v. Boston & W. R. Corp., 28 Pick. (Mass.) 360; Central Bridge Corp. y. City
of Lowell, 4 Gray (Mass.) 474; Tuckahoe Canal Co. v. Tuckahoe & J. R. R. Co.,
11 Leigh (Va.) 42; Black v. Cana) Co., 24 N. J. Eq. 455; Board of Trustees of
Illinois & M. Canal v. Chicago & R. I. R. Co., 14 Ill. 314.

83 Greenwood v. Freight Co., supra.

34 Ante, p. 207. See Com. v. Eastern R. Co., 108 Mass. 254, 1 Cumming, Cas.
Priv. Corp. 546,
§ 77) RESERVATION OF POWER TO REPEAL OR AMEND CHARTER. 213

either by incorporating such a condition in the charter itself, or by a
general law in force at the time the charter is granted, or by a pro-
vision contained in the state constitution. In the two latter cases
no reference need necessarily be made in thé charter to the general
law or constitutional provision. If it is applicable, it becomes a
part of the charter, and a term of the contract between the state
and the corporators.**

Where a general law provides, as in many states, that charters
shall be subject to amendment, alteration, or repeal, “at the pleasure
of the legislature,” the reason of a repeal or amendment and the mo-
tive of the legislature are immaterial. “The validity of such action
does not depend on the necessity for it, or on the soundness of the
reasons which prompted it.” *¢

As shown in a previous chapter, an amendment, like the original
charter, must be accepted, to have any effect. Though the legislature
may have reserved the power to alter, amend, or repeal a charter
of a private corporation, and though, under this reservation of power,
it can repeal the charter without regard to the consent or noncon-
sent of the corporation, and may impose an amendment as a condi-
tion of the corporation’s continuing to exercise its franchises, it
cannot, without its consent, compel it to continue under the chdar-
ter as amended. The amendment must be accepted, or it has no
binding force. As was said by the Massachusetts court, “that a
man may refuse a grant, whether from the government or an indi:
vidual, seems to be a principle too clear to require the support of
authorities.” *7 Of course, a corporation cannot conduct its opera-

35 Greenwood v. Freight Ca. 105 U. S. 138, 1 Cumming, Cas. Priv. Corp. 538,
W. D. Smith, Cas. Corp. 160, Shep. Cas. Corp. 260; Beer Co. v. Massachusetts, 97
U. S. 25, 1 Cumming, Cas. Corp. 533; Com. v. Eastern R. Co., 103 Mass. 254, 1
Cumming, Cas. Priv. Corp. 546; Parker v. Railroad Co., 109 Mass. 506; Miller
v. State, 15 Wall. 478; Jackson v. Walsh, 75 Md. 304, 23 Atl. 778; Story v.
Plank-Road Co., 16 N. J. Hq. 18; State v. Commissioner of Railroad Taxation, 37
N. J. Law, 228.

86 Greenwood vy. Freight Co., supra; Com. v. Hastern R. Co., supra. And see
Lothrop v. Stedman, 42 Conn. 584.

37 Wllis v. Marshall, 2 Mass. 279. See Yeaton v. Bank, 21 Grat. (Va.) 598.
In this case it is said: ‘Every amendment or modification of a charter of in-
corporation is nothing more than a new contract, which is not binding upon the
corporate body until accepted by them.” See ante, p. 53, and cases there cited.
214 . THE CORPORATION AND THE STATE. (Ch. 8

tions in defiance of the state; and, if it does not accept an author-
ized amendment of its charter, it must discontinue its operations as
a corporate body.*® And, as we have seen, if a corporation contin-
ues to act as such after an authorized amendment, it may be regarded
as having accepted the amendment.®?®

The state, under a reservation of power to repeal, alter, or amend
a charter, may exercise such power, and to almost any extent, to
carry into effect the original purposes of the grant, and to protect
the rights of the public and the corporators, or to promote the due
administration of the affairs of the corporation; but it cannot im-
pair or destroy vested rights under such a reservation of power.*®
In a case in which the legislature prescribed the rate of fare to be
charged by an existing railroad company, whose charter was subject
to alteration, amendment, or repeal, Mr. Justice Swayne said: “It
is urged that the franchise here in question was properly held by a
vested right, and that its sanctity as such could not be thus in-
vaded. The answer is, ‘Consensus facit jus.” It was according to
the agreement of the parties. The company took the franchise
subject expressly to the power of alteration or repeal by the gen-
eral assembly. There is, therefore, no ground for just complaint
against the state. Where an act of incorporation is repealed, few
questions of difficulty can arise. Equity takes charge of all the
property and effects which survive the dissolution, and administers
them as a trust fund, primarily for the benefit of creditors. If any-
thing is left, it goes to the stockholders. Even the executory con-
tracts of the defunct corporation are not extinguished. The power
of alteration and amendment is not without limit. The alterations
must be reasonable. They must be made in good faith, and be con-
sistent with the scope and object of the act of incorporation. Sheer
oppression and wrong cannot be inflicted under the guise of amend-

38 Yeaton v. Bank, supra.

39 Ante, p. 54, and cases there cited. :

40 See dissenting opinions of Strong, Bradley, and Field, JJ., in the Sinking-
Fund Cases, 99 U. S. 700, 727. And see Sage v. Dillard, 15 B. Mon. (Ky.) 340.
The legislature cannot impair the right to redeem from a mortgage. Ashuelot
R. Co. v. Hlliot, 58 N. H. 451. Nor can it prevent distribution of the assets of
a corporation, whose charter it has repcaled, among those who are entitled to
them. Lothrop v. Stedman, 42 Conn. 584,
§ 77) RESERVATION OF POWER TO REPEAL OR AMEND CHARTER. 215

ment or alteration. Beyond the sphere of the reserved powers, the
vested rights of property of corporations, in such cases, are sur-
rounded by the same sanctions and are as inviolable as in other
cases.” 4 The court then held that the regulation in question did
not take away a vested right, but was a legitimate exercise of the re-
Served power of alteration.

A corporation authorized to construct a dam across a river or
stream may be afterwards required to construct and maintain fish-
ways to permit the passage of migratory fish.*2 But where such a
corporation had built a fishway in its dam, as required by statute,
and had afterwards been granted an enlargement of its charter, up-
on the consideration that it should pay the damage caused to the own-
ers of fishing rights by the dam as already built, with a fishway
known to the legislature to be insufficient, and the corporation paid
such damages, it was held that the right to maintain the dam as it
was, with the insufficient fishway, had been paid for, and was vested
in the corporation, and that this vested right could not be taken
from it by a subsequent act requiring it to construct sufficient fish-
ways at great cost, though the legislature had reserved the right to
-alter, amend, or repeal the charter.**

41 Shields v. Ohio, 95 U. S. 319. In another case it was said: “A power re-
served to the legislature to alter, amend, or repeal a charter, authorizes it to
make any alteration or amendment of a charter granted subject to it, which will
not defeat or substantially impair the object of the grant, or any rights vested
under it, and which the legislature may deem necessary to secure either that
object or any public right.” Close v. Glenwood Cemetery, 107 U. S. 466, 2
Sup. Ct. 267. And see State v. Neff, 52 Ohio St. 375, 40 N. E. 720; People v.
O’Brien, 111 N. Y. 1, 18 N. E. 692.

42 Com, v. Essex Co., 18 Gray (Mass.) 239, 1 Cumming, Cas. Priv. Corp. 550;
Commissioners on Inland Fisheries v. Holyoke Water-Power Co., 104 Mass. 446.

43 Com. v. Essex Co., supra. The court said in this case: “No amendment
-or alteration of the charter can take away the property or rights which have
become vested under a legitimate exercise of the powers granted. It appears to
us, in the present case, that after the government, acting in behalf of the pub-
lic, and also of all those riparian owners whose fish rights would be damnified
‘by the defendant’s dam, with the fishway as it was, entered into a solemn and
formal contract with the defendant company to exempt them from the obliga-
tion of making and maintaining a suitable and sufficient fishway, if such were
practicable, by indemnifying all persons damnified in their several fisheries, and
‘the defendant company had executed their part of the contract by the payment
216 THE CORPORATION AND THE STATE. (Ch. 8

So, where a corporation had built a plank road, and established a
toll gate, as authorized by its charter, it was held that the reserved
power to amend, alter, or repeal its charter did not give the legis-
lature the right to require it to move the toll gate beyond the limits
of a city which had grown up around it, and so to take from the
company the right to collect tolls upon more than two miles of its
road. “A statute which could have this effect,” said Judge Cooley,
“would not be a statute to amend franchises, but a statute to con-
fiscate property; it would not be a statute of regulation, but of
spoliation.” #4

‘The power to alter, amend, or repeal a charter does not give the
legislature thé power to change the charter, and force a new and dif-
ferent charter upon the corporators. As was said in a New Jersey
case: “It can repeal or suspend the charter; it can alter or modify
it; it can take away the charter; but it cannot impose a new one,
and oblige the stockholders to accept it. It can alter or modify
the old one; but power to alter or modify anything can never be
held to imply a power to substitute a thing entirely different. It
is not the meaning of the words in their usually received sense.
Power to alter a mansion house would never be construed to mean a
power to tear down all but the back kitchen and front piazza, and
build one three times as large in its place. In anything altered,
something must be preserved to keep up its identity; and a matter
ef the same kind wholly or chiefly new, substituted for another, is.
not an alteration; it isa change.” *5

Under the reservation of power to amend, alter, or repeal char-
ters, it has been held that the legislature may make the stockholders
of a corporation individually liable for its future debts; ** that it
may vary the measure, and thus enlarge the proportion, of the prof-

of a large sum of money, it was not competent for the legislature, without any
change of circumstances, under their authority to amend and alter the charter
of the company, to pass a law requiring them to do the acts from which, by
the terms of such contract, they had been exempted, and therefore that the said
act was null and void.”

44 City of Detroit v. Detroit & H. P. R. Co., 48 Mich. 140, 5 N. W. 275,
Cumming, Cas. Priv. Corp. 560.

45 Zabriskie v. Railroad Co., 18 N. J. Eq. 178, 1 Cumming, Cas. Priv. Corp.
781, 790.

46 Sherman y. Smith, 1 Black, 587; In re Lee & Co.’s Bank, 21 N. Y. 9; Bailey
§ 77) RESERVATION OF POWER TO REPEAL OR AMEND CHARTER. 217

its which a mutual life insurance company is required by the terms
of its charter to pay a charitable institution; *” that railroad com-
panies may be compelled to make changes in the level, grade, and.
surface of the roadbed, new structures at crossings of other rail-
roads or of highways, or station houses at particular places, in a
manner and to be enforced by forms of process different from those
provided for or contemplated by the original charter, or the general
laws in force when the original charter was granted; *® or to re-
quire a corporation authorized to build and maintain a dam across
a navigable river to construct a lock for purposes of navigation; *®
or to require a corporation authorized to maintain a dam to main-
tain suitable fishways; °° or to revoke an exemption from taxation,
or increase a tax or license fee; ** or to require a corporation to es-
tablish a sinking fund to meet its obligations; ** or to authorize a
city to subscribe for stock, and to appoint two directors; ** or, ac-
cording to some of the decisions, but not all, to authorize cumulative.
voting at stockholders’ meetings at an election of directors; ** or
to increase the number of trustees of an incorporated college, in

vy. Hollister, 26 N. Y. 112; Gardner v. Insurance Co., 9 R. I. 194. In some states
this is a legitimate exercise of the police power of the state. Ante, p. 210, note 2).

47 Massachusetts General Hospital v. State Mut. Life Assur. Co., 4 Gray (Mass.):
227.

48 City of Roxbury v. Boston & P. R. Co., 6 Cush. (Mass.) 424; Fitchburg R.

. Go. vy. Grand Junction R. & D. Co., 4 Allen (Mass.) 198; Com. v. Eastern R.
Co., 108 Mass. 254, 1 Cumming, Cas. Priv. Corp. 546; Albany N. R. Co. v.
Brownell, 24 N. Y. 345 (overruling Miller v. Railroad Co., 21 Barb. [N. Y.] 518).
In Mayor, etc., of Worcester v. Norwich & W. R. Co., 109 Mass. 103, the legis-
lature had passed an act requiring certain railroad companies to unite in a pas-
senger station in the city of Worcester, to extend their tracks in the city to the-
union station, and after the extension to discontinue parts of their existing loca-
‘tions. The act was held to be constitutional and valid, as it was a reasonable-

exercise of the reserved right to amend, alter, or repeal the charters of the cor-
porations.

49 South Bay Meadow Dam Co. v. Gray, 30 Me. 547.

50 Commissioners on Inland Fisheries v. Holyoke Water-Power Co., 104 Mass..
446.

51 Post, p. 228.

52 Union Pac. R. Co. v. U. S., 99 U. S. 700.

53 New Haven & D. R. Co. v. Chapman, 38 Conn. 56.

54 Cross v. Railway Co., 35 W. Va. 174, 12 8S. E. 1071. But see Orr v. Bracken.
Co., 81 Ky. 598; Hays v. Com., 82 Pa, St. 518.
218 : THE CORPORATION AND THE STATE. (Ch. 8

which the state is part owner, and to require a majority of them to
consist of certain state officers, instead of being elected, as formerly,
by the private stockholders; ** or to regulate the charges of rail-
road companies, water companies, and other quasi public corpora-
tions.°¢

A reserved power of amending or repealing the charter of a cor-
poration is a legislative power, and cannot authorize the legisla-
ture to exercise judicial powers. This would be unconstitutional.
For instance, it cannot authorize the legislature to foreciose a mort-
gage on the corporate property.°” It may, however, appoint a re-
ceiver or trustee to settle the affairs of an insolvent corporation.
This is a legislative act.°* It is also perfectly competent for the
legislature to reserve to itself the right to repeal a charter for a vio-
lation thereof or other default. Such a reservation is not a reserva-
tion. of judicial power, and for that reason unconstitutional, for an
inquiry by the legislature into the affairs or defaults of a corporation,
with a view to discontinue it, is not a judicial act.®*

It has been held by some of the courts that, where the legislature
reserves the power at any time to annul and vacate the charter of a
corporation, if it shall fail to go into operation, or shall abuse or
misuse its privileges, the legislature reserves the power of deter-
mining whether these contingencies have happened and a future
legislature may repeal the charter without any judicial proceeding
or prior notice.°° But the weight of authority is against this view.
Most of the courts have held that under such a reservation the in-
vestigation and determination of the question. whether the occasion
has arisen upon which the reserved power of the legislature may
be exercised, is one of judicial, and not of legislative, cognizance,
and that the power can be exercised only after a judicial investiga-
tion and determination, after notice to the corporation, and an op-
portunity to be heard.*? In some jurisdictions it is held that the

55 Jackson v. Walsh, 75 Md. 304, 28 Atl. 778.

56 Shields v. Ohio, 95 U. S. 319; Spring Valley Waterworks v. Schottler, 110
‘U.S. 347, 4 Sup. Ct. 48; Parker v. Railroad Co., 109 Mass. 506.

57 Ashuelot R. Co. v. Hilliot, 58 N. H. 451.

58 Lothrop v. Stedman, 42 Conn. 584; Carey v. Giles, 9 Ga. 253.

59 Crease v. Babcock, 23 Pick. (Mass.) 334; Lothrop v. Stedman, 42 Conn. 584.

60 Miners’ Bank of Dubuque v. U. S., Morris (Iowa) 482.

61 Flint & Fentonville Plank-Road Co. vy, Woodhull, 25 Mich. 99; State v.
§§ 79-81) TAXATION OF CORPORATIONS. 219

legislature may exercise the power of repeal before a judicial in-
vestigation, and without notice, but that its action is subject to re-
view by the courts.®?

Where a charter is offered before, but is not accepted until after,
the adoption of a constitutional provision, or enactment of a stat-
ute, making all charters subject to amendment, alteration, or repeal,
the provision enters into and forms a part of the contract between
the corporation and the state, as the contract is not made until the
charter is accepted.®*

78. OFFER OF AMENDMENT—POWER OF MAJORITY.

We are dealing here only with the power of the state to alter or
amend a charter without the consent of the members of the corpora-
tion. Of course, there is nothing to prevent the legislature from
authorizing a corporation to engage in new enterprises, if all the
members see fit to accept the amendment. It is like the case where
both parties to a contract rescind it by mutual agreement, and sub-
stitute a new contract. The power of the majority of the members
to bind a dissenting minority by accepting an amendment of the
charter thus offered will be discussed in a subsequent chapter.**

TAXATION OF CORPORATIONS.

79. Unless a corporation is expressly exempted from tax-
ation by its charter, the state may tax it to the
same extent as it may tax individuals, without im-
pairing the contract implied between the state and
the corporation. But the power to tax is not un-
limited. Thus:
(a) Taxes can be imposed only for a public purpose.

Noyes, 47 Me. 189; Chesapeake & Ohio Canal Co. v. Baltimore & O. R. Co., 4
‘Gill, & J. (Md.) 122; Regents of University of Maryland v. Williams, 9 Gill & J.
(Md.) 365.

62 Erie & N. EB. Railroad v. Casey, 26 Pa. St. 287.

63 Attorney General vy. Chicago & N. W. R. Co., 35 Wis. 599; Stone v. Wis-
eonsin, 94 U. S. 181.

64 Post, p. 447.
220 THE CORPORATION AND THE STATE. (Ch. 8

(b) The taxing power is limited to persons, property,
and business within the jurisdiction of the state.

(c) Provisions of the state constitution must not be vio-
lated, as provisions requiring uniformity and equal-
ity of taxation.

(d) In the absence of constitutional limitations, double
taxation is not prohibited, but in a number of
states it is prohibited by the constitution. Even
when not prohibited, it is unjust, and in construing
statutes all presumptions are against it.

(e) Provisions of the federal constitution must not be vi-

olated, such as

(1) The provision that no state shall deny to any
person within its jurisdiction the equal pro-
tection of the laws. This prohibits unequal
taxation.

(2) The provision that no state shall pass any law
impairing the obligation of contracts. This
prevents taxation of a corporation in viola-
tion of the express terms of its charter.

(3) As government bonds cannot be taxed, capital
invested in them is exempt.

(4) No tax can be imposed which will amount to a
regulation of or interference with interstate
commerce. :

(5) The states cannot interfere by taxation with
the operation of corporations created by con-
gress for the purpose of carrying into effect
the constitutional powers of the federal gov-
ernment, except in so far as it may be per-
mitted by congress.

80. By the weight of authority, a state, in creating a cor-
poration, or afterwards for a consideration, but not
otherwise, may agree that it shall be exempt from
taxation, in whole or in part; and it cannot, in
§§ 79-81) TAXATION OF CORPORATIONS. 221

such a case, impose a tax in violation of the char-
ter without impairing the obligation of its contract.
But

(a) Exemption from taxation must be clearly shown.
All presumptions are against it.

(b) An exemption from taxation may be, revoked if the
state has reserved the power to repeal, alter, or
amend the charter.

81. A corporation cannot escape liability for taxes on the
plea of ultra vires. .

Unless the case comes within one of the exceptions hereafter ex-
plained, a state has the same power to tax corporations as it has
to tax natural persons, and no greater power than this. In the ab-
sence of express exemption from taxation, the imposition of a tax
upon the property of a corporation is not a violation of its charter,
and so within the constitutional prohibition against laws impairing
the obligation of contracts, for exemption from taxation is not an im-
plied term of the contract between the corporation and the state.**

Object of Taxation.

The legislature can only use the power of taxation in aid of a pub-
lic object, an object which is within the purpose for which govern-
ments are established. It cannot, therefore, be exercised in aid of
private enterprises, even though the local public may be benefited in
a remote or collateral way. Thus a tax cannot be imposed to aid
a manufacturing enterprise of individuals.** This principle is not
peculiar to the taxation of corporations. In Lowell v. City of Bos-
ton *? it was held that a statute authorizing the city of Boston to is-
sue bonds, which, of course, might require taxation to pay them, and
to lend the proceeds on mortgage to the owners of land, the build-
ings upon which were burned by the great fire of 1872, was uncon-
stitutional.

65 Providence Bank v. Billings, 4 Pet. 514. As to the taxation of railroad com-
panies, see State Railroad Tax Cases, 92 U. S. 575-618; Indianapolis & St. L. R.
Co. v. Vance, 96 U. S. 450; Delaware Railroad Tax, 18 Wall. 206.

66 Loan Association v. Topeka, 20 Wall. 655; City of Parkersburg v. Brown,
106 U. S. 487, 1 Sup. Ct. 442.

67111 Mass. 454.
222 THE CORPORATION AND THE STATE. (Ch, 8:

Jurisdiction.

| The power of taxation of a state is limited to persons, property,
and business within her jurisdiction. All taxation must relate to one
of these objects.** Bonds issued by a railroad company, for in-
stance, are property in the hands of the holders, and, when held by
non-residents of the state in which the company was incorporated,
they cannot be taxed by the state, and it can make no difference that
they are secured by a mortgage on land in the state.*® A law, there-
fore, which requires a corporation to retain a certain percentage of
the interest due on bonds made payable out of the state to citizens.
of another state, and held by them, is not a legitimate exercise of the
taxing power."°

Property Taxable.

The statutes generally provide very specifically what property of
corporations shall be taxed, and how the taxes shall be assessed.
But the construction of the statutes is not always clear. In corpora-
tions there are sometimes four elements of taxable value, namely:
(1) The franchises of the corporation; (2) capital stock in the hands of
the corporation; (8) corporate property, such as real estate, moneys,
credits, and other personal property, other than such stock; and (4}
shares of stock in the hands of the individual stockholders. Any one
of these may be taxed, provided no constitutional limitations, fed-
eral or state, are violated. And where the shares of stock in a cor-
poration are taxed, the legislature may require that the tax shall be
paid by the corporation, and allow it to collect the same from the
stockholders, or deduct it from dividends,’? unless the corporation,
by its charter, is exempt from taxation, so that this might be a tax
upon it."?

68 Case of State Tax on Foreign-Held Bonds, 15 Wall. 300; South Nashville St,
R. Co. v. Morrow, 87 Tenn. 406, 11S. W. 348; Com. v. Standard Oil Co., 101 Pa.
St. 119; Com. v. Chesapeake & O. R. Co., 27 Grat. (Va.) 344.

69 Case of State Tax on Foreign-Held Bonds, supra; South Nashville St. R.
Co. v. Morrow, supra; Com. v. Chesapeake & O. R. Co., supra.

70 Case of State Tax on Foreign-Held Bonds, supra.

71 Town of St. Albans v. National Car Co., 57 Vt. 68,

72 Post, p. 280, and note 111.
§§ 79-81) TAXAT.ON OF CORPORATIONS. 223

Double Taxation.

In many jurisdictions double taxation is prohibited by the consti-
tution. In the absence of such prohibition, it is no doubt within the
power of the legislature to assess taxes in such a way as to subject
the corporation or the stockholders to double taxation.7* But an in-
tention to impose double taxes is never to be presumed. It is un-
just, and therefore “all presumptions are against such an imposi-
tion.” 7* Thus, where a charter exempted the stock of a corpora-
tion from taxation, but taxed its property, it was held that the ex-
emption extended to shares of stock in the hands of the individual
shareholders, the capital represented by which had been converted
by the corporation into property which was liable to taxation.7®

A tax on the franchises of a corporation is not a tax on its prop-
erty. Both may be taxed, and it will not be double taxation.’*
Some of the courts have held that the capital stock and the property
of a corporation and the property of the individual shareholders
in their shares are distinct property interests, and that the taxation
of both does not amount to double taxation, and is authorized.’
Other courts hold that this is double taxation, and in a number of
states it is expressly provided that, where a corporation is taxed on
its capital stock or property, the stockholders shall not be taxed on
their shares.7* In Maryland, by the declaration of rights, every own-
er of property is required to pay taxes in proportion to its actual

73 See Board of Revenue of Montgomery Co. v. Montgomery Gaslight Co., 64
Ala. 269; Pittsburg, F. W. & C. R. Co. v. Com., 66 Pa. St. 77.

74 State of Tennessee v. Whitworth, 117 U. 8. 129, 6 Sup. Ct. 645, 647; Wright
y. Railroad Co., 64 Ga. 783; Boston & Sandwich Glass Co. v. City of Boston, 4
Mete. (Mass.) 181; City of Fall River v. County Com’rs of Bristol, 125 Mass. 567;
State v. Hannibal & St. J. R. Co., 37 Mo. 265.

75 State of Tennessee v. Whitworth, supra.

78 See Manufacturers’ Ins. Co. v. Loud, 99 Mass. 146.

77 Ogden vy. City of St. Joseph, 90 Mo. 522, 3 S. W. 25; Farrington v. Tennessee,
95 U. S. 686; Sturges v. Carter, 114 U. S. 521, 5 Sup. Ct. 1014; Bradley v.
Bauder, 36 Ohio St. 28; South Nashville St. R. Co. v. Morrow, 87 Tenn. 406, 11
S. W. 348; State Bank of Virginia v. City of Richmond, 79 Va. 113; Danville
Banking & Trust Co. v. Parks, 88 Il. 170; Belo v. Commissioners, 82 N. C. 415;
City of Memphis v. Ensley, 6 Baxt. (Tenn.) 553.

78 See article by Edward ©. Moore, Jr., Esq., 19 Am. Law Rev. 755. See Grif-
fith v. Watson, 19 Kan. 23; Burke v. Badlam, 57 Cal. 594; Osborn v. Railroad
Co., 40 Conn. 494; Salem Iron Factory Co. y. Inhabitants of Danvers, 10 Mass. 514.
224 THE CORPORATION AND THE STATE. (Ch. 8

worth. This has been held to prohibit double taxation, and it is
held that the payment of a tax on the capital stock of a corporation
is a bar to taxation on the corporate property, as the capital stock
represents the whole property of the corporation; and this princi-
ple has been recognized in other states, though not in all.7®

Place of Taxation.

Personal property, including shares of stock, in the absence of any
law to the contrary, follows the person of the owner, and has its
situs at his domicile; but for the purposes of taxation it may be
separated from him, and he may be taxed on its account at the place
where it is actually located.®°° Shares of stock in a domestic corpora-
tion may therefore be taxed at the place within the state where the
corporation is located, without regard to the place of residence of
the holders; and the state may tax the shares of nonresidents as well
as of residents.* | When a contrary rule is not declared by statute,
the situs of shares of stock, for the purpose of taxation, is the resi-
dence of the owner.*? Shares in a foreign corporation may be taxed
to a resident owner.®?

Restrictions in the Federal Constitution—Federal Corporations.

The constitution of the United States imposes some limitations
upon the taxing power of the states. We can only mention these
shortly, leaving the reader to follow up the subject by referring to
works on taxation and constitutional law.

Under the constitutional provision that no state shall deny to any
person within its jurisdiction the equal protection of the laws, a
state cannot impose unequal taxation; but all taxes must be uniform,

79 See 19 Am. Law Rev. 757; State v. Sterling, 20 Md. 520; State v. Cumber-
land & P. R. Co., 40 Md. 22; County Com’rs of Frederick Co. v. Farmers’ &
Mechanics’ Nat. Bank, 48 Md. 117; Jones v. Davis, 85 Ohio St. 474; Whitney v.
City of Madison, 28 Ind. 331. Contra, Lackawanna Iron & Coal Co. vy. Luzerne
Co., 42 Pa. St. 424,

80 Tappan vy. Bank, 19 Wall. 490.

81 So as to shares in nat?onal banks. 13 Stat. 112; Tappan v. Bank, 19 Wall.
490; South Nashville St. R. Co. v. Morrow, 87 Tenn. 406, 11 8S. W. 348; Town
of St. Albans v. National Car Co., 57 Vt. 68.

82 Ogden v. City of St. Joseph, 90 Mo. 522, 3S. W. 25.

83 Cooley, Tax’n, 22; Sturges v. Carter, 114 U. S. 521, 5 Sup. Ct. 1014; Bradley
y. Bauder, 36 Ohio St. 28.
§§ 79-81) TAXATION OF CORPORATIONS. 225

and must be uniformly assessed. Corporations are’ persons within
the protection of this rule.*+

If the state, in granting a charter, has stipulated that it will not
tax the corporation, or that it will tax it in a certain way only, or on
certain property only, or to a certain amount only, it cannot after-
wards tax in violation of the stipulation, without violating the clause
of the federal constitution, by which it is declared that no state shall
pass any law impairing the obligation of contracts. This subject will
be more fully explained on a subsequent page.®®

A state cannot tax United States government bonds. Therefore
it cannot tax the capital of corporations—like national banks, for
instance—which is invested in such bonds.

A state can impose no tax upon railroad or other corporations that
amounts to a regulation of or interference with foreign or interstate
commerce, for by the federal constitution the power to regulate com-
merce is vested exclusively in congress. Thus a state could not im-
pose a tax upon freight or passengers transported by a-railroad com-
pany into or through the state. A state law imposing a tax on
freight or passengers, so far as it applies to articles or persons car-
ried through the state, or taken up in the state and carried out of it,
or taken up out of the state and brought into it, is unconstitutional
and void.*® But astate may tax a corporation on freight or passen-
gers transported from point to point in the state. And a tax upon

84 By section 4 of the thirteenth article of the constitution of California, “a
mortgage, deed of trust, contract, or other obligation by which a debt is secured,”
is treated, “for the purposes of assessment and taxation, as an interest in the
property affected thereby”; and, “except as co railroad and other quasi public cor-
porations,” the value of the property affected, less the valtie of the security, is to
be assessed and taxed to its owner, and the value of the security is to be assessed
and taxed to its holder. But by section 10 of the same article, “the franchise,
roadway, roadbed, rails, and rolling stock of all railroads operated in more than
one county” are to be assessed at their actual value, and apportioned to the coun-
ties, cities, and districts in which the roads are located, in proportion to the num- .
ber of miles of railway laid therein; no deduction from this value being allowed
for any mortgages on the property. It has been held that in the different modes
thus prescribed of assessing the value of the property of natural persons and the
property of railroad corporations, as the basis of taxation, there is a departure
from the rule of equality and uniformity. Railroad Tax Cases, 13 Fed. 722.

85 Post, p. 227.

86 State Freight Tax Case, 15 Wall. 232; Crandall v. Nevada, 6 Wall. 35.

Clk.Pr.Corp.—15
226 THE CORPORATION AND THE STATE. (Ch. §

the gross receipts of a railroad company, after they have reached
its treasury, is not an interference with interstate commerce, though
‘part of the receipts may have been derived from transportation of
persons or property into, out of, or through the state.*” The same
principles apply to telegraph companies and all other corporations
engaged in interstate or foreign commerce.** The effect of the in-
terstate commerce clause of the federal constitution on the power
of the states to tax foreign corporations is considered in dealing
with the law relating to foreign corporations.®°®

- Since the states have no power, by taxation or otherwise, to im-
pede or in any manner control the operation of the constitutional
laws enacted by congress to carry into effect the powers vested in
the national government, it follows that, where congress creates a
corporation as a means of executing a power conferred by the fed-
eral constitution,®® the franchises of the corporation cannot be taxed
by a state without the consent of congress.°* A state, however,
may tax property owned by the corporation within its limits, and
it may tax shares in the corporation against resident owners.°?

The states can exercise no control over national banks, nor in any
way affect their operation, except in so far as congress may see fit
to permit.°* The franchises, therefore, of a national bank, could
not be taxed by a state. Congress, in the national banking act, has
expressly declared the shares in national banks to be taxable by the
states against the holders as personal property,®* provided “the taxa-

s7 State Tax on Railway Gross Receipts, 15 Wall. 284. But, if the tax is levied
specifically upon the gross receipts for the carriage of freight or passengers into,
out of, or through the state, it is void. Fargo v. Michigan, 121 U. 8. 230, 7 Sup.
Ct. 857; Philadelphia & Southern S. S. Co. v. Pennsylvania, 122 U. S. 326, 7 Sup.
Ct. 1118.

88 Telegraph Co, vy. Texas, 105 U. S. 460.

89 Post, p. 618.

90 Ante, p. 39.

91 McCulloch v. Maryland, 4 Wheat. 816; California v. Central Pac. R. Co., 127
U.S. 1, 8 Sup. Ct. 1073.

92 McCulloch v. Maryland, supra; Railroad Co. v. Peniston, 18 Wall. 5.

®8 Farmers’ & Mechanics’ Nat. Bank v. Dearing, 91 U. S. 29.

94 This allows taxation of shares in national banks against other national banks
which may hold them. National Bank y. City of Boston, 125 U. 8S. 60, 8 Sup. Ct.
772.
§§ 79-81) TAXATION OF CORPORATIONS, 227

tion shall not be at a greater rate than is assessed upon other mon-
ied capital in the hands of individual citizens of such state,” ** and
provided shares owned by nonresidents shall be taxed where the
bank is located. Real property of national banks is also declared
taxable by the states. Capital of national banks invested in United
States government bonds is, of course, not taxable.

Exemption from Taxation.

Some of the state constitutions expressly prohibit the legislature
from granting exemptions from taxation, except to charitable institu-
tions, and in certain other special cases. And some of the state
courts have held, independently of any such prohibition, that the
taxing power of the state is a power which the legislature cannot
barter away, and that a grant of exemption from taxation is rev-
ocable.** But, according to the decisions of the supreme court of
the United States, and the decisions of most of the state courts, in
the absence of constitutional restrictions, a state may, in granting a
charter, stipulate that the corporation shall be exempt from taxa-
tion, or that it shall be taxable only to a certain amount, or on cer-
tain property, or in a certain way; and if it does so in clear and
unmistakable terms, it cannot afterwards impose a tax in violation
of the charter, without impairing the obligation of its contract with
the corporation, and so violating the federal constitution.*®

If an exemption of the property of a corporation from taxation,

95 Rey. St. U. S. § 5219. As to the effect of this provision, see People v. Weaver,
100 U. S. 539; Boyer v. Boyer, 118 U. S. 689, 5 Sup. Ct. 706; Mercantile Bank
v. City of New York, 121 U. S. 188, 7 Sup. Ct. 826; Davenport Nat. Bank v.
Board of Equalization, 123 U. S. 88, 8 Sup. Ct. 73; National Bank v. City of
Boston, 125 U. S. 60, 8 Sup. Ct. 772; Whitbeck v. Bank, 127 U. S. 193, 8 Sup.
Ot. 1121.

87 Mechanics’ & Traders’ Branch of State Bank v. Debolt, 1 Ohio St. 591; Bank
of Toledo v. City of Toledo, Id. 622; Skelly v. Bank, 9 Ohio St. 606; Mott v.
Railroad Co., 30 Pa. St. 9. And see West Wisconsin Ry. Co. v. Board of Sup’rs,
35 Wis. 257.

98 Jefferson Branch Bank v. Skelly, 1 Black, 436; Home of the Friendless v.
Rouse, 8 Wall. 430; Wilmington R. R. v. Reid, 18 Wall. 264; Dodge v. Woolsey,
18 How. 331; Farrington v. Tennessee, 95 U. S. 679; New Orleans v. Houston,
119 U. S. 265, 7 Sup. Ct. 198; Northwestern University v. People, 99 U. 8S. 309;
Nichols v. Northampton Co., 42 Conn. 103; Bank of Commerce v. McGowan, 6 Lea
(Tenn.) 708; Mobile & O. R. Co, v. Moseley, 52 Miss. 127; Neustadt v. Railroad
Co., 31 Ill. 484,
228 THE CORPORATION AND THE STATE. (Ch. 8

conceded by an act of the legislature, was spontaneous, and no serv-
ice or duty or other condition was imposed upon the corporation, it
may be revoked at the pleasure of the legislature, for there is no con-
sideration.®®

It is well settled that exemption from taxation must be expressed
in the charter in clear and unmistakable terms. An intention to
grant exemption can never be implied from doubtful language. In
this respect a charter will be strictly construed, and every doubt will
be resolved in favor of the state and against the corporation.’
For example, it has been held that an exemption of the capital stock
of the corporation from taxation is not an exemption of property into
which the capital stock has been converted.*°! And a grant to one
company of the powers and privileges of another, for the purpose of
making and repairing a railroad, does not include an exemption from
taxation, which was one of the privileges of the other company.°?
And an exemption of the real estate of a charitable corporation from
taxation cannot be construed as exempting it from an assessment
for a local improvement.?°*

If the legislature has reserved the power to repeal, alter, or amend
the charter of a corporation, which it has exempted in whole or in
part from taxation, the exemption is subject to revocation.1°* And,
under such a reservation, if the charter fixes the taxes which the

99 Rector, ete., of Christ Church v. County of Philadelphia, 24 How. 300; Tucker
v. Ferguson, 22 Wall. 527; Wilmington & W. R. Co. v. Alsbrook, 110 N. C. 137;
148. E. 652, affirmed, 146 U. S. 279, 18 Sup. Ct. 72.

100 Delaware Railroad Tax, 18 Wall. 206; People y. Commissioners of Taxes,
82 N. Y. 459, and cases cited in the following notes.

101 Memphis & C. R. Co. v. Gaines, 97 U. S. 697.

102 Annapolis & Elk Ridge R. Co. v. Commissioners, 103 U. S. 1; Wilmington
& W. R. Co. v. Alsbrook, 110 N. C. 137, 14 S. DB. 652, affirmed, 146 U. S. 279, 18

Sup. Ct. 72; Philadelphia, W. & B. R. Co. v. Maryland, 10 How. 376. Contra, .

Nichols v. New Haven & Northampton Co., 42 Conn. 103. And compare State
Treasurer v. Auditor General, 46 Mich. 224, 9 N. W. 258.

103 Roosevelt Hospital v. Mayor, ete., of City of New York, 84 N. Y. 108.

104 Tomlinson v. Jessup, 15 Wall. 454. And see Nichols v. New Haven &
Northampton Co., 42 Conn. 108; Morris & E. R. Co. v. Commissioners of Rail-
road Taxation, 37 N. J. Law, 228; West Wisconsin Ry. Co. v. Board of Sup'rs of
Trempealeau Co., 35 Wis. 257.
§§ 79-81) TAXATION OF CORPORATIONS. 229

corporation shall be required to pay at a certain amount, they may
be increased.*°®

The cases do not agree as to what property of a corporation is ex-
empt from taxation under a general exemption clause. There is
no doubt that such a clause exempts all property that is reasonably
necessary to carry out the objects for which the company was cre-
ated.*°* It would also seem clear that such a clause exempts prop-
erty which, though it might be dispensed with, is obviously appro-
priate and convenient for such purpose, for such property may well
be said to be necessary.*°" It does not, however, exempt property
which is not necessary, and which is not obviously appropriate and
convenient, though it may be property which the corporation is au-
thorized to hold.*°®

105 Union Passenger Ry. Co. v. Philadelphia, 101 U. S. 528.

106 In Lehigh Coal & Nay. Co. v. Northampton Co., 8 Watts & S. (Pa.) 334, it
was held that, inasmuch as an incorporated canal was not taxable by the laws of
Pennsylvania, not only the bed, berme bank, and tow path of the canal, but also
the lock houses and collectors’ offices, were exempt, as they were considered con-
stituent parts of the canal, or necessarily incident thereto. And in Railroad v.
Berks Co., 6 Pa. St. 70, it was held that the exemption of a railroad covered water
stations and depots, including the offices, oi] houses, places to hold cars, etc., such
places being necessary to the construction and operation of the road.

107In Camden & A. Railroad & Transp. Co. v. Commissioners of Mansfield, 23
N. J. Law, 510, it was said that property of a corporation is exempt from taxation,
under a general exemption clause, only in so far as it is necessary, and not merely
convenient, for the company to acquire and hold for the purposes for which it was
incorporated; but in a later case it was held that this dictum was too narrow,
and that the exemption includes whatever is obviously appropriate and convenient
in carrying into effect the franchise granted. New Jersey Railroad & Transp.
Co. v. Hancock, 35 N. J. Law, 545. And see Illinois Cent. R. Co. vy. Irvin, 72
Il, 456.

108 Tn Railroad Co. v. Berks Co., it was held that the exemption of a railroad.
from taxation, while it covered water stations, depots, offices, oil houses, places to
hold cars, etc., did not include warehouses, coal lots, coal shutes, aud wood yards,
used or intended to be used as depots for merchandise, coal, wood, etc., for trans-
portation, and machine shops for the manufacture of engines. In Camden & A.
Railroad & Transp. Co. v. Commissioners of Mansfield, 23 N. J. Law, 510, it was
held that exemption of a railroad company from taxation did not include dwelling
houses and lots of land situated near the line of their road, and used exclusively by
workmen and mechanics in the employ of the company. Compare Northwestern
University v. People, 99 U. S. 309.
230 THE CORPORATION AND THE STATE. (Ch. 8

Where it is held that the property of stockholders in their shares,
and the property of the corporation in its capital stock, are distinct
property interests, a tax on shares of stock in the hands of the stock-
holders is not a tax or the capital of the corporation, in violation of
an exemption. Thus the capital of national banks invested in Unit-
ed Siates securities is not taxable by the states, but shares of the
stock in the hands of the individual stockholders may be taxed with-
out deduction on account of such an investment.*°® So the fran-
chises of a corporation may be taxed without deduction for a portion
of its capital invested in government bonds.'?® If a corporation
is exempt from taxation, it cannot be taxed by a statute which pur-
ports to tax the shares of stockholders, but which requires the tax
to be paid by the corporation, leaving it to collect the amount so paid
from the stockholders, without regard to whether there may be any
profits to be paid to the stockholders.*14

Ultra Véres.

The doctrine of ultra vires cannot be set up to defeat liability for
taxes any more than it can be set up to defeat liability for torts,
or to escape responsibility for a misdemeanor. A corporation can-
not escape the taxes due upon its property or business on the ground
that it was not authorized to acquire the property or to engage in
the business.**?

Foreign Corporations.

The right of a state to tax a foreign corporation doing business
within its limits has nothing to do with the present subject,—the
power of the state over corporations of its own creation,—and is

considered in treating of foreign corporations in a subsequent chap-
ter.134

109 Van Allen v. Assessors, 3 Wall. 573; National Bank v. Com., 9 Wall. 353.

110 Manufacturers’ Ins. Co. v. Loud, 99 Mass. 146. —

111 New Orleans v. Houston, 119 U. S. 265, 7 Sup. Ct. 198. ose

112 Salt Lake City v. Hollister, 118 U. S. 256, 6 Sup. Ct. 1055, 2 Cumming, Cas.
Priv. Corp. 107.

113 Post, p. 612,
§ 82) DISSOLUTION OF CORPORATIONS. 231

CHAPTER IX.

DISSOLUTION OF CORPORATIONS,

82. How Dissolution is Effected.
83-84, Equity Jurisdiction.
85. Effect of Dissolution.

HOW DISSOLUTION IS EFFECTED.

82. A private corporation may be dissolved in five ways:

(a) By the weight of authority, by expiration of its
charter.

(b) By an act of the legislature repealing its charter,
under the power of repeal reserved by the state in
granting the charter.

{c) By the loss of an essential integral part, which can-
not be supplied; as by the death or withdrawal of
all the members, where there are no means of sup-
plying their places.

(d) By surrender of its charter with the consent of the
state.

(e) By forfeiture of its charter for misuser or nonuser of

its powers. But

(1) A forfeiture only takes effect upon the judg-
ment of a competent court ascertaining and
decreeing a forfeiture, unless the legislature
has clearly provided otherwise.

(2) Where the acts or omissions of which the cor-
poration has been guilty are, by statute, ex-
pressly made a cause of forfeiture, the court
has no discretion to refuse a Judgment of for-
feiture. But in other cases the court has a
discretion to determine from the circumstances
whether judgment of ouster of the franchise
to be a corporation shall be rendered, or
232 DISSOLUTION OF CORPORATIONS. (Ch. 9

whether the corporation shall be merely oust-
ed from the exercise of the powers illegally
assumed.

(8) The legislature, as the representative of the
state, may waive the right to insist upon a
cause of forfeiture, as by acts recognizing the
right of the body to continue as a corpora-
tion. But, to constitute a waiver, the acts
must be inconsistent with the intention to in-
sist upon a forfeiture.

(4) The forfeiture must be enforced by the state,
by its authorized representative. It cannot
be enforced or insisted upon by private indi-
viduals, either collaterally or directly.

(5) A forfeiture may be enforced by scire facias
where there is a legal existing body, capable
of acting, but who have abused their power ;
or by an information in the nature of quo
warranto where the body is merely a corpo-
ration de facto, or where it is neither a cor-
poration de facto nor de jure. The procedure
is now generally fixed by statute.

These are the only ways mentioned in the books by which a cor-
poration can cease to exist. It can be dissolved in no other way,
except by express statutory provision.*

Expiration of Charter.

According to the better opinion, and by the weight of authority,
after the period of existence of a corporation has expired by force of
express provision in its charter, or in a general law, it becomes ipso
facto dissolved, and no longer has any existence at all, either de
jure or de facto, for there is no law under which it can longer exist.’

1 Folger v. Insurance Co., 99 Mass. 267; Morley v, Thayer, 3 Fed. 737, 748.

2 Bradley v. Reppell (Mo.) 32 S. W. 645; Grand Rapids Bridge Co. v. Prange,
35° Mich. 400; Sturges v. Vanderbilt, 73 N. Y. 384; Dobson v. Simonton, 86
N. C. 492; Krutz v. Town Co., 20 Kan. 397; La Grange & M. R. Co. v. Rainey,
7 Caldw, (Tenn.) 432; 2 Mor. Corp. § 1006.
§ 82) HOW DISSOLUTION IS EFFECTED. 233

Some courts hold, contrary to this proposition, that the fact that
the charter of a corporation has expired does not terminate its ex-
istence, so as to prevent it from doing business, and suing and being
sued; that it remains a de facto corporation, and subject to ail the
rules relating to such bodies, including the rule that its existence
and right to do business can only be questioned by the state in a
direct proceeding.®

Dissolution by Act of the Legislature.

As shown in a former chapter, the British parliament is, in theory
at least, omnipotent, there being no constitutional restraints upon
its action; and in England, therefore, corporations hold their char-
ters at the will of the legislature. But in this country the power
of the state legislatures and of congress is greatly restricted by con-
stitutional provisions, the chief one of which, as far as the present
subject is concerned, is the provision contained in the federal con-
stitution, and also in most of the state constitutions, that no state
shall pass any law impairing the obligation of contracts. The char-
ter of a corporation, as we have seen, is a contract between the state
and the corporators, and the state cannot dissolve a corporation
which it has created, without the consent of the corporators,* unless
it has reserved the right to do so, or unless the corporation has been
guilty of such an abuse of its franchises as to forfeit its charter.
And even in the latter case, as we shall see, the forfeiture must yen-
erally be judicially ascertained and declared.© Whether the state
has reserved the right to repeal a charter, and thereby dissolve the
corporation, is to be determined from the terms of the charter, and
of such statutes as apply to the corporation, and so form a part of its
charter. A corporation is dissolved and ceases to exist for any pur-
pose as a body corporate upon the repeal of its charter by the legis-
lature, by virtue of a power reserved in creating it. And a corpora-
tion is dissolved by a repeal of its charter, where there is no reserva-

3 Miller v. Coal Co., 31 W. Va. 886, 8 S. BE. 600; Bushnell v. Machine Co.,
188 Ill. 67, 27 N. BE. 596.

-4 Ante, p. 201.

5 Post, p. 237.

6 Thornton v. Railway Co., 128 Mass. 32, 1 Cumming, Cas. Priv. Corp. 462,
W. D. Smith, Cas. Corp. 167, Shep. Cas. Corp. 246; Creasep #. Babcock, 23
Pick. (Mass.) 334,
234 DISSOLUTION OF CORPORATIONS. (Ch. 9

tion of power to repeal, if it accepts the repeal.” This, however, is a
surrender of its charter with the consent of the legislature.*®

Loss of Integral Part—Death or Loss of Members.

“A corporation,” said Chancellor Kent, “may also be dissolved
when an integral part of the corporation is gone, without whose ex-
istence the functions of the corporation cannot be exercised, and
when the corporation has no means of supplying that integral part,
and has become incapable of acting. The incorporation becomes
then virtually dead or extinguished.” *® If all the members of a cor-
poration should die or withdraw, and there were no way in which
new members could come in, dissolution would necessarily result.
‘To work a dissolution because of the loss of an integral part of the
corporation, there must be a permanent incapacity to restore the
part.?° Thus it has been held that dissolution does not result from
an omission to continue the succession to certain offices, which are
essential to the existence of the corporation, where the offices are
in fact exercised by officers de facto, or even where there are no of-
ficers at all, if it is possible for the offices to be filled by an election
or otherwise.** The statement that a corporation is dissolved by
the death of all its members can have no application to modern busi-
ness corporations, since the shares, being property, pass by assign-
ment, bequest, or descent, and must ever remain the property of
‘some persons, who must, of necessity, be members of the corporation
as long as it may exist.t? i

Where a corporation is legally organized by the requisite number
of persons, the fact that one person becomes the owner of all ihe
shares of stock does not dissolve the corporation. It is still a cor-
poration aggregate, and the stock may be transferred, and so dis-
tributed again. The property of the corporation remains vested in it,

7 Port Gibson v. Moore, 13 Smedes & M. (Miss.) 157.

8 Post, p. 235.

®2 Kent, Comm. 308, 309; King v. Pasmore, 3 Term R. 199; Philips v.
‘Wickham, 1 Paige (N. Y.) 590.

10 Lehigh Bridge Co. v. Lehigh Coal & Nav. Co., 4 Rawle (Pa.) 9.

11 Lehigh Bridge Co. v. Lehigh Coal & Nav. Ce., supra; Philips v. Wickham,

1 Paige (N. Y.) 590; Russell y. M’Lellan, 14 Pick. (Mass.) 63. And see In re
Belton, 47 La. Ann. 1614, 18 South, 642.

12 Boston Glass Manufactory v. Langdon, 24 Pick. (Mass.) 49, 1 Cumming, Cas.
Priv. Corp. 478, W. D. Smith, Cas. Corp. 165, Shep. Cas. Corp. 244.
§ 82) HOW DISSOLUTION IS EFFECTED. 235

and suits on causes of action accruing in favor of or against it are
brought by or against it as a corporation.1* It has been held that in
such an event the operation of the charter is suspended until, by a
transfer of part of the stock, other members come in;** but this is
very doubtful, to say the least,?®

Surrender of Charter.

It has been said that a corporation may be dissolved by the volun-
tary surrender of its charter; but this statement is too broad. Such
a surrender cannot work a dissolution without an acceptance of the
surrender, or consent on the part of the state. As was said by
Morton, J., in a Massachusetts case: “Charters are in many respects
compacts between the government and the corporators. And, as the
former cannot deprive the latter of their franchises in violation of
the compact, so the latter cannot put an end to the compact without
the consent of the former. It is equally obligatory on both parties.
The surrender of a charter can only be made by some formal, solemn
act of the corporation; and it will be of no avail until accepted by
the government. There must be the same agreement of the parties
to dissolve that there was to form the compact. It is the acceptance
which gives efficacy to the surrender. The dissolution of a corpora-
tion, it is said, extinguishes all its debts. The power of dissolving
itself by its own act would be a dangerous power, and one which can-
not be supposed to exist.” 16

Where a statute authorizes a corporation to surrender its charter,
and transfer its property, rights, etc., to another corporation, and pro-
vides that upon such surrender and transfer, and acceptance there-
of by the other corporation, the said charter shall be vacated and
annulled, such a surrender, transfer, and acceptance result in a dis-

18 Ante, p. 7; Button v. Hoffman, 61 Wis. 20, 20 N. W. 667, 1 Cumming,
Cas. Priv. Corp. 38; Wilde v. Jenkins, 4 Paige (N. Y.) 481; Louisville Bank-
ing Co. v. Eiseman, 94 Ky. 88, 21 S. W. 531, 1049; Swift v. Smith, 65 Md.
428, 5 Atl. 534; Russell vy. M’Lellan, 14 Pick. (Mass3 63; In re Belton, 47
La. Ann. 1614, 18 South. 642.

14 Swift v. Smith, supra; Louisville Banking Co. v. Eisenman, supra.

15 Cases cited in note 7a, supra; Russell v. McLellan, 14 Pick. (Mass.) 70; New-
ton Manut’g Co. v. White, 42 Ga. 148.

16 Boston Glass Manufactory v. Langdon, 24 Pick. (Mass.) 49, 1 Cumming, Cas.
Priv. Corp. 478, W. D. Smith, Cas. Corp. 165, Shep. Cas. Corp. 244. And see
Mylrea v. Railway Co. (Wis.) 67 N. W. 1138.
236 DISSOLUTION OF CORPORATIONS. (Ch. 9

solution of the corporation, and it no longer exists as such for any
purpose.’7 A corporation is dissolved on a repeal'of its charter,
and an acceptance of the repeal by it.*®

A corporation cannot dissolve itself, before the expiration of the
period fixed by its charter, without the consent of all the sharehold-
ers, unless such dissolution is provided for in the charter.’®

Loss or Surrender of Property.

The possession of property is not at all essential to corporate ex-
istence; and it follows, therefore, that the insolvency of a corpora-
tion, or the transfer or loss of all its property, cannot work a dissolu-
tion.*° Of course, if a corporation, by an assignment of all its prop-
erty, violates its charter, the state may enforce a forfeiture; but that
is a different question.

Where a statute declares that the stockholders of a corporation
shall be liable for all debts due and owing by it at the time of its
dissolution, it has been held that it is sufficient dissolution within the
meaning of the statute if a corporation becomes totally insolvent,
and suspends its business.24_ But such insolvency and suspension
of business does not dissolve a corporation for other purposes. It is
merely a quasi dissolution as respects creditors.2* For instance.
it would not prevent a receiver of the corporation from maintain-
ing an action in its name against a director or other person against
whom the corporation has a right of action.?3 :

Abandonment of Franchises or Business.
The neglect of a corporation to exercise or use the franchises
granted to it by its charter, or the abandonment of its franchises,

17 Mumma v. Potomac Co., 8 Pet. 281, 1 Cumming, Cas. Priv. Corp. 459.

18 Port Gibson vy. Moore, 18 Smedes & M. (Miss.) 157.

19 Barton v. Association, 114 Ind. 226, 16 N. EB. 486.

202 Kent, Comm. 309, 310; Boston Glass Manufactory v. Langdon, 24 Pick.
(Mass.) 49, 1 Cumming, Cas. Priv. Corp. 478; W. D. Smith, Cas. Corp. 165,
Shep. Cas. Corp. 244; Parker v. Hotel Co. (‘Tenn.)-B4 S. W. 209; Reichwald v.
Hotel Co., 106 Ill. 489; In re Belton, 47 La. Anné1614, 18 South. 642; State
v. Bank of Maryland, 6 Gill & J. (Md.) 205.

21 Slee v. Bloom, 19 Johns. (N. Y.) 456; Briggs v. Penniman, 8 Cow. (N. Y.}
387.

22 Bank of Niagara vy. Johnson, 8 Wend. (N. Y.) 656; Bradt v. Benedict, 17 N.
Y. 99; Barclay v. Talman, 4 Edw. Ch. (N. Y.) 128, 129.

23 Bank of Niagara vy. Johnson, supra,
§ 82) HOW DISSOLUTION IS EFFECTED. 237

may be ground for proceedings by the state to enforce a forfeiture
of its charter, but it does not, ipso facto, work a dissolution.2* Thus,
where a canal company was incorporated, and authorized to maintain
a dam for the purpose of supplying its canal, it was held, in effect,
that its abandonment of the canal-did not of itself work a forfeiture
of its charter, and a dissolution, so as to make the maintenance of
the dam unlawful, as against third persons.?®

Forfeiture of Charter.

-A corporation may forfeit its charter and right to corporate exist-
ence by an abuse or misuser of its powers and franchises, or by neg-
lect or nonuser. But it is well settled that, as a general rule, the
forfeiture can only take effect upon a judgment of a competent tri-
bunal in a proceeding by the state to enforce the forfeiture.2® What-
ever neglect of duty or abuse of power a corporation may be guilty
of, it does not, in the absence of express statutory or charter provi-
sion, by reason of that alone, lose its corporate existence. Until it
has had a hearing before a competent tribunal, and a forfeiture has
‘been judicially declared by judgment of ouster, it continues to be
corporation for all purposes. In State v. Fourth New Hamp-
shire Turnpike,?” the defendant corporation had neglected to make
returns to the legislature of expenditures and profits, as it was re-

24 Heard v. Talbot, 7 Gray (Mass.) 113, 1 Cumming, Cas. Priv. Corp. 482; Mor-
‘ley v. Thayer, 3 Fed. 787, 748; Parker v. Hotel Co. (Tenn.) 34 8. W. 209; Rus-
sell vy. M’Lellan, 14 Pick. (Mass.) 63; Bradt v. Benedict, 17 N. Y. 98; Mylrea v.
Railway Co. (Wis.) 67 N. W. 1138; Jones v. Herald Co., 44 8. C. 526, 22 S. BE.
‘731.

25 Heard v. Talbot, supra.

262 Kent, Comm, 312; State v. Real-Estate Bank, 5 Ark. 595; King v. Amery,
2 Term R. 515; Colchester v. Seaber, 3 Burrows, 1866; Smith’s Case, 4 Mod. 53;
State v. Fourth New Hampshire Turnpike, 15 N. H. 162, 1 Cumming, Cas. Priv.
‘Corp. 593; Boston Glass Manufactory v. Langdon, 24 Pick. (Mass.) 49, 1 Cumming,
Cas. Priv. Corp. 478, W. D. Smith, Cas. Corp. 165, Shep. Cas. Corp. 244; Heard
y. Talbot, 7 Gray (Mass.) 113, 1 Cumming, Cas. Priv. Corp. 482; Baker v. Backus’
Adm’r, 32 Ill. 79; John vy. Bank, 2 Blackf. (Ind.) 367, 20 Am. Dec. 119; Receivers
of Bank of Circleville v. Renick, 15 Ohio, 322; Trustees of Vernon Soc. v. Hills,
‘6 Cow. (N. Y.) 23; Crump v. Mining Co., 7 Grat. (Va.) 852; Greenbrier Lumber
‘Co. v. Ward, 30 W. Va. 48, 8 8. I. 227; Mylrea v. Railway Co. (Wis.) 67 N. W.
1138,

27 State v. Fourth N. H. Turnpike, 15 N. H. 162, 1 Cumming, Cas. Priv. Corp.
593.
238 DISSOLUTION OF CORPORATIONS. (Ch. 9

quired by its charter to do under penalty of forfeiture, but no pro-
ceedings were taken to obtain a judgment of forfeiture and ouster.
It was held that the charter was not forfeited merely by the neglect,
but that the corporation continued to exist, so that the right to.
enforce a forfeiture could be waived by the state. A provision in
a charter that the corporation shall do certain things—as that it
shall make periodical returns to the legislature of its expenditures
and profits—“under forfeiture of the privileges of the act in future,”
does not absolutely determine the existence of the corporation on a
violation thereof; but the meaning is that the forfeiture shall be
proved in the regular, legal manner, and a judgment of forfeiture:
in proper proceedings by the state is necessary.?®

It is perfectly competent, however, for the legislature, in granting
a charter, or by an authorized amendment of a charter, to provide
that the corporation shall lose its corporate existence without the
intervention of the courts by any omission of duty or violation of its.
charter or default as to limitations imposed, and whether the legis-
lature intended to so provide in any case depends upon the construc-
tion of the language used. In Brooklyn Steam Transit Co. v. City
of Brooklyn,®® the act incorporating a street-railroad company pro-
vided that, unless it should be organized, and should lay at least
a certain amount of its road within a given time, “this act, and all
the powers, rights, and franchises herein and hereby granted, shall
be deemed forfeited and terminated.” The company organized, and’
made preparations to build its road, but did not build any portion
of it before the expiration of the time limited, when it began to lay
foundations for its road in the streets. It was held that under the
provisions of the act it had lost its corporate franchises, and the right
to build the road, and that the city could prevent it from proceed-
ing with the work.*°®
Same— When a Forfeiture will be Decreed.

Where a corporation has been guilty of acts or omissions which,
by statute, are expressly made a cause of forfeiture of its franchise
to be a corporation, the court, in proceedings by the state to en-

28 State v. Fourth N. H. Turnpike, 15 N. H. 162, 1 Cumming, Cas. Priv. Corp..
593.

29 Brooklyn Steam Transit Co. v. City of Brooklyn, 78 N. Y. 524.

80 And see In re Brooklyn, W. & N. Ry. Co., 72 N. Y. 245.
§ 82) HOW DISSOLUTION IS EFFECrED. 239

force such forfeiture, has no discretion to refuse a judgment.* But
in other cases the court is vested with discretion to determine
whether judgment of ouster of the franchise to be a corporation shall
be rendered, or whether the corporation shall be merely ousted from:
the exercise of the powers illegally assumed.*?. In arriving at a
determination of this question, the court will take into consideration,
not only the interests of the public, but also the interests of the
stockholders, and of creditors; and the extent to which corporate
powers have been exceeded, the character of the acts done, etc., will
be considered. Thus, though a building and loan association had
been guilty of direct and repeated violations of its charter, the court,
with some hesitation, however, gave judgment of ouster merely
from the exercise of the powers illegally assumed, as it appeared
that the corporation, if permitted, could wind up its affairs in a few
months, and if it should be dissolved, it would be necessary to ap-
point trustees to wind it up under the statute, which would occasion
delay, and involve increased expense.*? One of the judges dis-
sented on the ground that the violations of its charter were so fla-
grant and persistent as to call for the severest penalties of the law,
and he was in favor of a judgment of ouster from the franchise
of being a corporation. “To justify forfeiture of corporate exist-
ence,” said Judge Finch in a late New York case, “the state, as pros-
ecutor, must show on the part of the corporation accused some sin
against the law of its being which has produced, or tends to pro-
duce, injury to the public. ‘The transgression must not be merely
formal or incidental, but material and serious, and such as to harm
or menace the public welfare; for the state does not concern itself
with the quarrels of private litigants. It furnishes for them suffi-
cient courts and remedies, but intervenes as a party only where some
public interest requires its action.” *4

81 State v. Pennsylvania & Ohio Canal Co., 23 Ohio St. 121; State v. Oberlin
Building & Loan Ass’n, 35 Ohio St. 258, 1 Cumming, Cas. Priv. Corp. 566.

82 State v. Oberlin Building & Loan Ass’n, supra.

33 State y. Oberlin Building & Loan Ass’n, supra.

84 People vy. North River Sugar-Refining Co., 121 N. Y. 582, 24 N. E. 884,
1 Cumming, Cas. Priv. Corp. 570. So, in State v. Minnesota Thresher Manuf’g
Co., 40 Minn. 218, 41 N. W. 1020, it was held that the object of proceedings by

quo waranto is to protect public interests, and therefore, to warrant a forfeiture
of corporate franchises for misuser, the misuser must be such as to work or
240 DISSOLUTION OF CORPORATIONS. (Ch. 9

Where a corporation enters into a partnership or association of
independent corporations through the medium of a trust, for the
purpose of obtaining a monopoly, disregarding all the statutory
restraints as to the consolidation of corporations, and the rules of
law prohibiting combinations in restraint of trade, it is guilty of such
a violation of its charter, and such failure to perform its corporate
duties, as renders it liable to dissolution in proceedings by the state.**

Continued suspension of corporate franchises, and a failure to
perform the implied conditions upon which the charter was granted,
amount to a nonsuer, for which the charter may be forfeited.** But
neither a mere temporary suspension of operations, nor an assign-
ment for the benefit of creditors, is alone sufficient ground for for-
feiture.**

Where a penalty is fixed by the charter or statute under which a
corporation is organized for the omission or commission of a par-

threaten a substantial injury to the public. In the syllabus by the court it is
said: “Acts ultra vires, or in excess of powers, are not necessarily a misuser of
franchises, such as will warrant their forfeiture. To justify such forfeiture, the
ultra vires acts must be so substantial and continued as to so derange or destroy
the business of the corporation that it no longer fulfills the end for which it was
created. Ultra vires acts may be such as to justify interference by the state by
injunction to prevent a continuance of the excess of powers, while they would not
be a sufficient ground for a forfeiture of the corporate franchises in proceedings
by quo warranto.. If the unauthorized acts affect merely stockholders and cred-
itors who have an adequate legal remedy, the state will not interferé.” If an in-
surance company makes contracts of insurance, and accepts premiums, when it is
in such a condition that there is no probability of its ever being able to pay losses,
it is guilty of such an abuse of its franchises, as affords ground for forfeiture.
Ward v. Farwell, 97 Ill. 598. For another instance of abuses held ground for for-
feiture, see Bank of Vincennes v. State, 1 Blackf. (Ind.) 267.

35 People v. North River Sugar-Refining Co., stipru. And see State vy. Ne-
braska Distilling Co., 29 Neb. 700, 46 N. W. 155; Distilling & Cattle Feeding
Co. v. People, 156 Hl. 448, 41 N. HE, 188; State v. Standard Oil Co., 49 Ohio St.
137, 80 N. E. 279; People v. Chicago Gas Trust Co., 130 IL 268, 22 N. B. 798.
But see U. 8S. v. EH. C. Knight Co., 156 U. S. 1, 15 Sup. Ct. 249.

36 State v. Commercial Bank of Manchester, 18 Smedes & M. (Miss.) 569; State
vy. Real-Estate Bank, 5 Ark. 595. As where a railroad company, without au-
thority of law, leases its road to another company, with all its rights, property,
and franchises, for a long period of time, and abandons the operation of its
road. State vy. Atchison & N. R. Co., 24 Neb. 148, 838 N. W. 43.

37 State vy. Commercial Bank of Manchester, supra.
§ 82) HOW DISSOLUTION IS EFFECTED. 241

ticular act, the penalty prescribed is generally the only punishment
that can be inflicted for doing or omitting to do the act. It is no
ground for forfeiture, the presumption being that the legislature in-
tended the penalty as satisfaction for the breach.?®

If a corporation has not complied with the law in its organiza-
tion, so that, though it is a corporation de facto, it is not a corpora-
tion de jure, the remedy is by quo warranto by the state. Private
individuals, as we have seen, cannot attack the existence of the cor-
poration, or question its right to do business.°® In quo warranto
by the state, however, its charter will be forfeited. Thus, where
the state, by quo warranto proceedings, directly challenged the right
of certain persons to act as a railway corporation, and it appeared
that many of the subscribers for the stock were notoriously insol-
vent, and had no expectation, at the time they subscribed, of ever
paying their subscription, thus leaving the amount subscribed in
good faith less than that required by the statute, it was held that a-
judgment of forfeiture was proper.*® So, where a corporation is
illegally formed by a trust combination for the purpose of obtaining
a monopoly in the manufacture and sale of an article, and controlling
the production, and the price, quo warranto will lie.**

Same— Wawer of Forfeiture.

It is well settled that the state may waive the right to insist upon
a forfeiture of the charter of a corporation because of a violation
thereof, just as one individual may waive the right to object to the
breach of a term of his contract with another. And such a waiver
is generally established by showing that the legislature, with knowl-
edge of the ground of forfeiture, recognized the continued existence
and right to existence of the corporation.** Thus, where the char-
ter of a turnpike corporation required it to make returns to the legis-
lature, every sixth year, of its expenditures and profits, under pen-

88 State vy. Real-Estate Bank, 5 Ark. 595.

89 Ante, p. 86.

40 Holman v. State, 105 Ind. 569, 5 N. HE. 702.

41 Distilling & Cattle Feeding Co. v. People, 156 Ill. 448, 41 N. BH. 188. See
ante, p. 71.

42 State v. Real-Estate Bank, 5 Ark. 595; State v. Fourth New Hampshire
Turnpike, 15 N. H. 162, 1 Cumming, Cas. Priv. Corp. 593; State v. Bailey, 19
Ind. 452; Mylrea vy. Railway Co. (Wis.) 67 N.. W. 1138.

Clk.Pr.Corp.—16
242 DISSOLUTION OF CORPORATIONS. (Ch, 9

alty of forfeiture, and the corporation failed to make such returns
for over twenty years, it was held that the legislature, by accepting
and acquiescing in returns made after such violation of the charter,
and also by passing an act authorizing the corporation to change
its route, waived any right it may have had to insist upon a for-
feiture.*? The doctrine of waiver of a forfeiture by the state by
subsequent legislative acts does not apply where, by the terms of the
charter, the franchise absolutely determines upon failure to perform
certain conditions.**

If the acts relied upon as a waiver of a cause of forfeiture are
perfectly consistent with the intention to insist upon a forfeiture,
they will not be regarded as a waiver. Thus where a corporation
had violated its charter by taking usury, it was held by the New
York court that, even conceding that the governor and senate could
waive a forfeiture, the right to insist upon a forfeiture was not waived
by the act of the governor and senate in appointing a state director
of the corporation. “Notwithstanding the existing cause of for-
feiture,” it was said, “the defendants were a corporation de facto,
and might continue to exercise their franchise until judgment of
ouster should be pronounced against them. In the meantime it was
the duty of the governor and senate, as well as all others, to treat
the defendants as a legally existing corporation. The appointment
of a state director was, therefore, perfectly consistent with the in-
tention to continue this prosecution, and insist on the forfeiture.” **

The right to insist upon a forfeiture can be waived only by the
legislature, legally acting as such. Neither the attorney general,
nor the governor, nor the state senate alone, nor any other man or
body of men, save only the legislature, has this power.**

Same—The State Only can Enforce Forfeiture.

Proceedings to forfeit the charter of a corporation must be brought
directly by the state, or by its authorized representative acting in
its name. As a general rule, no advantage can be taken of the mis-
user or nonuser of its powers and franchises by a corporation, or of

48 State v. Fourth New Hampshire Turnpike, supra.

44 State y. Fourth New Hampshire Turnpike, supra.

45 People v. Phoenix Bank, 24 Wend. (N. Y.) 431, 1 Cumming, Cas. Priv. Corp.
' 597.

46 People v. Phoenix Bank, supra.
§ 82) HOW DISSOLUTION IS EFFECTED. 243

failure to comply with conditions subsequent in its charter, by pri-
vate individuals, either collaterally or directly.*7 In Heard v. Tal-
bot,*® a canal company, which was authorized to maintain a dam for
the purpose of supplying its canal with water, abandoned the use
of the canal. Private individuals afterwards brought suit for the
flowing of their land by reason of the maintenance of the dam, and
contended that the abandonment of the canal worked a forfeiture
of the right to maintain the dam, and that its maintenance was, there-
fore, unlawful. The court held, however, that the abandonment of
the canal was merely a violation of its charter by the corporation,
and, while it might be cause for forfeiture in proceedings by the
state to enforce a forfeiture, it could not thus be taken advantage of
collaterally by private individuals.*®

472 Kent, Comm. 312; Heard v. Talbot, 7 Gray (Mass.) 113, 1 Cumming, Cas.
Privy. Corp. 482; Com. v. Union F. & M. Ins. Co., 5 Mass. 230; Baker v. Backus’
Adm’r, 32 Ill. 79; Toledo & A. A. R. Co. v. Johnson, 49 Mich. 148, 13 N. W. 492:
Trustees of Vernon Soc. v. Hills, 6 Cow. (N. Y¥.) 23; Crump vy. Mining Co., 7
Grat. (Va.) 852; John v. Bank, 2 Blackf, (Ind.) 867; Boston Glass Manufactory
y. Langdon, 24 Pick. (Mass.) 49, 1 Cumming, Cas. Priv. Corp. 478, W. D. Smith,
Cas. Corp. 165, Shep. Cas. Corp. 244; Greenbrier Lumber Co. v. Ward, 30 W.
Va. 48, 3 S. E. 227; Bank of Circleville v. Renick, 15 Ohio, 322. Coutra, by
statute, State v. Webb, 97 Ala. 111, 12 South, 377.

487 Gray (Mass.) 113, 1 Cumming, Cas. Priv. Corp. 482.

49 The court said in this- case: ‘‘Although the disuse of the canal and its
abandonment by the corporation may be a gross disregard of the duty imposed
on them by law, and an essential violation of the terms and conditions implied
from the contract entered into with the government by the acceptance of the
charter, and upon due proceedings had, might be a sufficient ground upon which
to decree a forfeiture of all their corporate rights and privileges, they do not
constitute any valid ground upon which the exercise by the corporation of any
of the powers conferred by their charter can be defeated or denied by third
persons in collateral proceedings. his results from the very nature of an act
ef incorporation. It is not a contract between the corporate body, on the one
hand, and individuals whose rights and interests may be affected by the exercise
of its powers, on the other. It is a compact between the corporation and the
government from which they derive their powers. Individuals, therefore, cannot
take it upon themselves, in the assertion of private rights, to insist on breaches
of the contract by the corporation, as a ground for resisting or denying the ex-
ercise of a corporate power. That can be done only by the government with
which the contract was made, and in proceedings duly instituted against the cor-
poration. It would not only be a great anomaly to allow persons, not parties
to the contract, to insist on its breach, and enforce a penalty for its violation;
244 DISSOLUTION OF CORPORATIONS. (Ch. 9

Nor can private individuals institute direct proceedings to en-
force a forfeiture of a charter. An information in the nature of quo
warranto may be granted to inquire into the election or admission
of an officer or member of a corporation, when moved for by any
person interested in or injured by such election or admission. But
private persons cannot move for such an information in order to ob-
tain a judgment of forfeiture of the charter of a corporation. Such
an information can be prosecuted only by the authority of the state,
acting by its proper officers.°° This necessarily results from the
doctrine that the state may waive a forfeiture.

Same—Modes of Proceeding to Enforce Forfeiture.

There are at common law two modes of proceeding judicially to
ascertain and enforce the forfeiture of a charter for misuser or non-
user.°* One is by scire facias; and that process is proper where there
is a legal existing body, capable of acting, but which has abused its
power. The other mode is by information in the nature of a quo,
warranto, which is in form a criminal, and in its nature a civil, rem-
edy; and that proceeding applies where there is a body corporate
de facto only, but which takes upon itself to act, though, from some
defect in its constitution, it cannot legally exercise its powers, or
where an association assumes to act as a corporation without even
color of authority. Both of these modes of proceeding against cor-
porations are at the instance and on behalf of the state. Private in-
dividuals, as we have seen, cannot institute proceedings, unless there
is some statute expressly allowing them to do so. The judgment in

such proceedings is that the parties be ousted from the exercise of
* corporate powers and privileges. The mode of proceeding is now
very generally prescribed and regulated by statute, and in most states
information in the nature of quo warranto is the mode in all cases.

but it would be against public policy, and lead to confusion of rights, if corpo-
rate powers and privileges could be disputed and defeated by every person who
might be aggrieved by their exercise. Therefore, it has been often held that a
cause of forfeiture, however great, cannot be taken advantage of or enforced
against corporations collaterally or incidentally, or in any other mode than by &
direct proceeding for that object in behalf of the government.”

50 Com. v, Union Fire & Marine Ins. Co., 5 Mass. 230, 1 Cumnitig, Cas. Priv.
Corp. 599.

512 Kent, Comm. 313, 314.
§§ 83-84) EQUITY JURISDICTION. 245

EQUITY JURISDICTION.

82. A court of equity has no jurisdiction, unless it is con-
ferred, as in some jurisdictions, by statute, to dis-
solve a corporation, and distribute its assets, at
the suit of a stockholder or any other private in-
dividual. Some exceptions to this rule have been
recognized.

84. Nor, generally, has a court of equity any jurisdiction
to enforce a forfeiture, or enjoin exercise of unau-
thorized privileges and powers, at the suit of the
state; but it may entertain an information to en-
join acts which constitute a public nuisance, and
which require immediate interference, and it may
assume jurisdiction in case of a charitable trust
where the beneficiaries are numerous and indefi-
nite, and the breach of trust cannot be effectively
redressed except by suit in behalf of the public.

At the Suit of Private Individuals.

We shall see in a subsequent chapter that under certain cireum-
stances a court of equity has jurisdiction to control and regulate
the management of corporations at the suit of individual stockhold-
ers, where its interference is necessary to protect their equitable
rights.°2. But a very different question is presented when a stock-
holder or any other private individual, comes into a court of equity,
and asks to have a corporation dissolved, and its assets distributed ;
and by the overwhelming weight of authority a court of equity has
no inherent jurisdiction in such a case.°* Such jurisdiction is some-

52 Post, p. 389.

58 Strong v. McCagg, 55 Wis. 624, 13 N. W. 895; Hardon v. Newton, 14
Blatchf. 376, Fed. Cas. No. 6,054, 1 Cumming, Cas. Priv. Corp. 487; Hodges v.
Screw Co., 3 R. 1. 9; Verplanck vy. Insurance Co., 1 Edw. Ch. (N. Y.) 84; Bay-
less v. Oure, 1 Freem. Ch. (Miss.):161; State v. Merchants’ Insurance & Trust
Co., 8 Humph. (Tenn.) 235; Com. v. Union Fire & Marine Ins. Co., 5 Mass. 232;
Folger v. Insurance Co., 99 Mass. 274; Neall v. Hill, 16 Cal. 145; Howe v.
Deuel, 43 Barb. (N. Y.) 504; Waterbury v. Express Co., 50 Barb. 157; Bel--
mont y. Railway Co., 52 Barb. 687; Denike v. Cement Co., 80 N. Y. 599.
246 DISSOLUTION OF CORPORATIONS. (Ch. 9

times expressly conferred by statute under particular circumstances.
Without this, it does not exist. “General jurisdiction of writs
against corporations no more implies a power to destroy a corpora-
tion at the suit of an individual than jurisdiction of private suits
against individuals authorizes the court to entertain a prosecution
for crime, to pass sentence of death, and to issue a warrant for exe-
cution. The only modes of dissolving a corporation known to the
common law were by the death of all its members; by act of the
legislature; by a surrender of the charter, accepted by the govern.
ment; or by forfeiture of the franchise, which could only take effect
upon a judgment of a competent tribunal on a proceeding in behalf
of the state; and neither a court of law nor a court of equity had
jurisdiction to decree a forfeiture of the charter or dissolution of the
corporation at the suit of an individual.” ** When by statute a court
of equity is given such jurisdiction under particular circumstances,
it can only interfere when the case comes within the statute.*®

This doctrine has been held subject to exceptions. In a late
Michigan case ** it was said: “The general rule undoubtedly is that
courts of equity have no power to wind up a corporation, in the ab-
sence of statutory authority. This rule is, however, subject to quali-
fications. It has been held that when it turns out that the purposes
for which a corporation was formed cannot be attained it is the duty
of the company to wind up its affairs; that the ultimate object of
every ordinary trading corporation is the pecuniary gain of its
stockholders; that it is for this purpose, and no other, that the
capital has been advanced; and, if circumstances have rendered it
impossible to continue to carry out the purpose for which it was
formed with profit to its stockholders, it is the duty of its mana-
ging agents to wind up its affairs. To continue the business of the
company under such circumstances would involve both an unauthor-
ized exercise of corporate franchises and a breach of the charter con-
tract.”. And it was held that in a suit by a stockholder against the
corporation, its directors, and other stockholders, for an accounting
and the appointment of a receiver to wind up the affairs of the com-
pany, where it appeared that the defendants owned a majority of the

64 Folger v. Insurance Co., supra. 55 Hardon vy. Newton, supra.
56 Miner v. Ice Co., 93 Mich. 97, 53 N. W. 218, 2 Cumming, Cas. Priv. Corp
234,

 
§§ 838-84) EQUITY JURISDICTION. 247

stock, and had for a number of years controlled the corporation in
their own interest, and for their own profit, fraudulently excluding
the complainant, and paying no dividends to him, the failure to pay
being due to their fraud, and not to natural causes, the court had
jurisdiction to wind up the corporation, and distribute its assets.
“This corporation,” it was said, “has utterly failed of its purpose,
not because of matters beyond its control, but because of fraudulent
mismanagement and misappropriation of its funds. Complainant
has a right to insist that it shall not continue as a cloak for a fraud
upon him, and shall not longer retain his capital to be used for the
sole advantage of the owner of the majority of the stock; and a court
of equity will not so far tolerate such a manifest violation of the rules
of natural justice as to deny him the relief to which his situation en-
titles him. TI think a court of equity, under the circumstances of this
case, in the exercise of its general equity jurisdiction, has the power
to grant to this complainant ample relief, even to the dissolution of
the trust relations.”

At the Suit of the State.

A court of equity has no inherent jurisdiction to forfeit the char-
ter of a corporation, or decree a dissolution, at the suit of the state.
A court of equity does not administer punishment or enforce for-
feitures for transgressions of law, but is limited in its jurisdiction to
the protection of civil rights, and it is also limited in its jurisdiction
to cases in which there is no adequate remedy at law. An informa-
tion, therefore, cannot be maintained in equity in the name of the
state or the attorney general to forfeit the charter of a corpora-
tion for misuse or nonuser, or to enjoin a corporation or pretended
corporation from exercising unauthorized powers, unless, in the lat-
ter case, there is some peculiar ground for equitable interference;
but the only remedy is at law by quo warranto or scire facias.*”

A court of equity, however, has jurisdiction to grant relief by in-
junction in two cases: (1) Where the acts complained of constitute
or threaten a public nuisance, which affects or endangers the public
safety or convenience, and requires immediate judicial interposition,

57 Attorney General vy. Tudor Ice Co., 104 Mass. 239, 1 Cumming, Cas. Priv.
Corp. 585; Attorney General v. Utica Ins. Co., 2 Johns. Ch. (N. Y¥.) 3871; At-
torney General v. Stevens. 1 N. J. Eq. 369. Contra, Chicago Fair Grounds

Ass'n vy, People, 60 Ill. App. 488.
i
248 DISSOLUTION OF CORPORATIONS, (Ch. 9

like obstruction of highways and navigable rivers; °* and (2) where
there is a charitable trust, and the beneficiaries are so numerous and
indefinite that the breach of trust cannot be effectively redressed ex-
cept by suit in equity in behalf of the public.®*

EFFECT OF DISSOLUTION.

85. When a corporation is dissolved, it is dead, and, in
the absence ofa statute to the contrary, it no long-
er exists for any purpose. Therefore, after disso-
lution,

(a) It can exercise no power, the right to exercise which
depended upon its charter.

(b) It cannot be sued, nor can a suit previously com-
menced be prosecuted to judgement, nor can it sue.

(c) At common law.

(1) Debts due to or from it were extinguished.

(2) Real property undisposed of at the time of the
dissolution reverted to the grantors or their
heirs.

(3) Personal property owned by it at the time of
dissolution escheated to the state.

(ad) But a court of equity, under its general jurisdiction
to enforce and administer trusts, has jurisdiction
to avoid the effect of the common law to the ex-
tent of causing the debts due a dissolved corpora-
tion to be collected, and taking control of the cor-
porate property and distributing it, so as to pro-
tect the equitable interests of creditors and share-
holders.

(e) In most states, if not in all, there are now statutory
provisions under which the business of dissolved

58 Attorney General v. Jamaica Pond Aqueduct Corp., 183 Mass. 361, 1 Cum-
ming, Cas. Priv. Corp. 589; Attorney General v. Great Northern Ry. Co., 4 De
Gex & S. 75.

59 Attorney General vy. Garrison, 101 Mass. 223; Jackson v. Phillips, 14 Allen
(Mass.) 5389; Parker vy. May, 5 Cush. (Mass.) 336,
g 85) EFFECT OF DISSOLUTION. 249

corporations may be liquidated and settled, and the
equities of shareholders and creditors may be en-
forced.

When the charter of a corporation is repealed, or the corporation
is otherwise dissolved, the corporation or members can no longer ex-
ercise any powers the right to exercise which depended upon the
charter. If the corporation be a bank, for instance, authorized to
lend money and issue circulating notes, it cannot make new loans or
issue new notes. If the corporation was chartered to operate a rail-
road, and authorized to use the streets of a city for that purpose, it
can no longer use the streets or exercise the franchise of running
a railroad in the city. In short, whatever power is dependent solely
upon the grant of the charter, and which could not be exercised by
unincorporated private persons, under the general laws of the state,
is abrogated by the repeal of the law which granted these special
rights.°°

When a corporation has been legally dissolved, it is no longer in
existence for any purpose. It is dead. It cannot be recognized for
the purpose of proceedings by or against it any more than could a
dead natural person. Thus scire facias to revive a judgment recov-
‘ered against a corporation cannot be maintained against it, and a
judgment had thereon, after the corporation has been legally dis-
solved.*. Nor can an action be maintained against it, or an action
previously commenced be prosecuted to judgment. A judgment ren-
dered against a corporation after it has been legally dissolved is as.
wholly void as if it had been rendered against a dead person.** Nor
can an action be brought by or in the name of a corporation after
its dissolution.**

60 Greenwood vy. Freight Co., 105 U. S. 18; 1 Cumming, Cas. Priv. Corp. 538;
W. D. Smith, Cas. Corp. 160; Shep. Cas. Corp. 260.

61 Mumma vy. Potomac Co., 8 Pet. 281, 1 Cumming, Cas. Priv. Corp. 459.

62 Thornton v. Railway Co., 128 Mass. 32, 1 Cumming, Cas. Priv. Corp. 462, W.
D. Smith, Cas. Corp. 167, Shep. Cas. Corp. 246; Sturges v. Vanderbilt, 73 N. Y.
384; Dobson v. Simonton, 86 N. C. 492; Krutz v. Town Co., 20 Kan. 397. As to
whether expiration of charter ipso facto amounts to a dissolution, within this
tule, see ante, p. 282,

62 Boston Glass Manufactory v. Langdon, 24 Pick. (Mass.) 49, 1 Cumming,
Cas, Priv. Corp. 478, W. D. Smith, Cas. Corp. 165, Shep. Cas. Corp. 244.
250 DISSOLUTION OF CORPORATIONS. (Ch. 9

Chancellor Kent said: “According to the old settled law of the
jand, where there is no special statute provision to the contrary,
upon the civil death of a corporation, all its real estate remaining
unsold reverts back to the original grantor and his heirs. The
debts due to and from the corporation are all extinguished. Nei-
ther the stockholders nor the directors or trustees of the corporation
can recover those debts, or be charged with them, in their natural
capacity. AJl the personal estate of the corporation vests in the
people, as succeeding to this right and prerogative of the crown at
common law.” °*

Such were the common-law rules,** but, as respects private busi-
ness corporations, they are now obsolete. They were established
before modern trading and commercial corporations came into exist-
ence. With the growth of such corporations, the legislatures and
the courts have been obliged to abolish or change many of the com-
mon-law rules,—these among others. These rules have not been
recognized in equity. While a private corporation holds the legal
title to the corporate property as a distinct legal person, it holds it
in equity merely for the benefit of the stockholders and of creditors.
If the corporation is dissolved, and ceases to exist, the debtors of
the corporation are not, in equity, released from their liability, the
creditors of the corporation are not left without a remedy to recover
the amount due them, and the property of the corporation does not
revert to the grantors, or escheat to the state, instead of belonging
to the stockholders. It is true that the legal title to the property
does not vest in the stockholders, but they still retain the beneficial
interest therein; and, if the legislature has made no provision by
which they can reach it, and enforce their rights, they may come into
a court of equity, and obtain relief. Such a court has jurisdiction,
unless it has been taken away by statute, to reach the property of
the defunct corporation, to cause the debts due to it to be collected,
and to distribute the assets, after payment of the creditors, to the
beneficial owners, that is, to the members or stockholders.*®

642 Kent, Comm. 307; Co. Litt. 13b.

651 Bl. Comm. 484; 2 Kyd, Corp. 516; Hightower v. Thornton, 8 Ga. 486;
Port Gibson v. Moore, 18 Smedes & M. (Miss.) 157; State Bank y. State, 1
‘Blackf. (Ind.) 267; Fox v. Horah, 1 Ired. Eq. (N. C.) 358.

66 Bacon v. Robertson, 18 How. 480, 1 Cumming, Cas. Priv. Corp. 468; High-

 
§ 85) ‘ EFFECT OF DISSOLUTION. 251

There are now statutes in most states, if not in all, prescribing the
mode by which the business of dissolved corporations may be liq-
uidated and settled, and by which the equities of the creditors and
members respectively may be enforced. In many states there are
statutes by which corporations whose powers would expire by ex-
press limitation in their charters or otherwise are continued bodies
corporate for a certain length of time from and after the day on
which their powers would cease, for the purpose of prosecuting and
defending suits, and of enabling them to gradually settle and close
their business, and divide their capital stock, but not for the pur-
pose of continuing business.°7 Such statutes are not invalid as im-
pairing the obligation of contracts, nor are they invalid as being
retrospective, because, as it generally the case, they are made ap-
plicable to corporations previously created, as well as to those
created afterwards.®*

If a corporation, when it ceases to exist, has no members, and
owes no debts, the common-law rule by which its property reverts or
escheats applies. It has been held, for instance, that where a cor-

tower v. Thornton, 8 Ga. 486; Folger v. Insurance Co., 99 Mass. 267. When the
charter of a corporation expires, the officers or trustees may safely distribute
the assets to those who appear on the books of the company as stockholders,
and need not require production of the stock certificates. ‘‘As between adverse
claimants of the certificate, the possession of it, with the transfer upon it, is
often the test of the title. But when the corporation itself is not dealing with
its stockholder on the security of his stock, and is merely performing a corporate
duty, its own record is all it needs to consult, for whoever would demand the
privileges of a stockholder should produce the evidence of his title, and ask to be
permitted to participate.” Bank of Commerce’s Appeal, 73 Pa. St. 59. The
same is true of the payment of dividends. See rost, p. 348. Where a corpora-
tion exists by law, after the expiration of its charter, solely for the purpose
of winding up its affairs, a majority in interest of its stockholders cannot sell
its property to a new corporation, of which they are directors and stockholders,
at a valuation estimated by themselves, against the will of the minority, and
compel such dissenting stockholders either to receive shares of stock in the new
corporation in return for their old shares, or to be paid theretor on the basis
of the estimated valuation of the property, and the minority may have the prop-
erty publicly sold. Mason y. Mining Co., 133 U. S. 50, 10 Sup. Ct. 224, Shep.
Cas. Corp. 215.
67 Foster v. Bank, 16 Mass. 245, 1 Cumming, Cas. Priv. Corp. 464,
68 Foster v. Bank, 16 Mass. 245, 1 Cumming, Cas. Priv. Corp. 464.
252 DISSOLUTION OF CORPORATIONS. ‘ (Ch. 9

poration which, like a mutual insurance company, has no stock-
holders, ceases to exist, the last policy having expired, and there no
longer being any members, the common-law rule, which gives its
surplus assets to the state, still applies, and the assets do not go
to the former policy holders, nor to the original corporators.®°

The common-law rule still applies to public and religious or char-
itable corporations. This question came up before the supreme court
of the United States in a late case. Congress had repealed the char-
ter granted by the territory of Utah, to the corporation known as.

tue

the Church of Jesus Christ of Latter-Day Saints, and it was held ~

that its property reverted and escheated to the United States, and
that it made no difference that all the property was held in trust
for the corporation by individuals.7° “When a business corpora-
tion,” it was said, “instituted for the purposes of gain or private in-
terest, is dissolved, the modern doctrine is that its property, after
payment of its debts, equitably belongs to its stockholders. But
this doctrine has never been extended to public or charitable corpo-
rations. As to these, the ancient and established rule prevails,
namely, that when a corporation is dissolved, its personal property,
like that of a man dying without heirs, ceases to be the subject of
private ownership, and becomes subject to the disposal of the sov-
ereign authority; while its real estate reverts or escheats to the
grantor or donor, unless some other course of devolution has been
directed by positive law, though still subject, as we shall hereafter
see, to the charitable use.” The court held that, as the real estate
of the corporation was acquired by it from the United States un-
der the town-site act, it reverted to the United States, and that its
personal property also vested in the United States, to be applied,
under the cy-pres doctrine, either by the court, or by the direction
of congress, to some kindred object, whereby the general purposes
of religion and charity may be promoted.”

69 Titcomb v. Insurance Co., 79 Me. 315, 9 Atl. 732, 1 Cumming, Cas. Priv.
Corp. 476.
70 And see Fox v. Horah, 1 Ired. Eq. (N. C.) 358.

71 Late Corporation of Church of Jesus Christ v. U. S., 186 U. S. 1, 10 Sup.
Ct. 792.
§ 86) MEMBERSHIP IN CORPORATIONS. 253

CHAPTER X.

MEMBERSHIP IN CORPORATIONS,

3 86. How Membership is Acquired.
87-88. “Capital Stock” and “Capital.”
89-90. Nature of Shares of Stock.
91. Certificates of Stock.
92. Subscriptions to Stock—Subscriptions after Incorporation.

93-97. Subscriptions Prior to Incorporation.
98. Who inay Become Subscribers.
99. Form of Subscription—Statutory Formalitics,
100. Mutual Consent.
101. ‘Subscriptions Induced by Fraud.
102. Subscriptions under Mistake,
1038. Subscription by Agent.
104-106. Agents to Receive Subscriptions.
107-109. Conditional Subscriptions.
110-112. : Subscriptions upon Special Terms.
118. Conditional Delivery of Subscription.
114-115. Subscription of Entire Capital, and Distribution,
116, Payment of Deposit.
117. Delivery of Certificate.
118-121. Remedy of Corporation on Subscriptions.
122-125. Calls.
126. Assignment of Unpaid Subscription.
127-182. Release and Discharge of Subscriber,
183. EXstoppel of Subscriber.

HOW MEMBERSHIP IS ACQUIRED.

86. Membership in a corporation is acquired by contract
with the corporation.

(a) In nonstock corporations the mode of forming the
contract of membership is regulated by the char-
ter and by-laws. :

(b) In stock corporations membership is determined by

the ownership of one or more shares of the
capital stock, which may be acquired
254 MEMBERSHIP IN CORPORATIONS. (Ch. 10

(1) By subscription to the capital stock, either be-
fore or after incorporation.

(2) By purchase from the corporation.

(3) By transfer from the owner.

Membership in a corporation is always the result of contract, ex-
press or implied. A person cannot be made a member or stockhold--
er of a corporation without his consent. Nor can he acquire mem-
bership without his consent and the consent of the corporation, as
the representative of all the members. Membership, therefore, is.
the result of a contract between the individual and the corporation.
It is sometimes said to be the result of a contract between the cor-
porators, but this is inaccurate. Such is the case in a partnership,
but in a corporation the contract of membership is a ‘contract with
the corporators in their collective capacity; that is, with the corpo-
ration.

Membership in Nonstock Corporations.

The nature of the contract of membership, and the mode of form-
ing it, will necessarily vary according to the nature of the corpora-
tion. In nonstock corporations the matter is regulated by the char-.
ter, or by the by-laws where the charter is silent. Usually, the:
charter or enabling act under which such a corporation is formed pro-
vides for the original membership necessary to constitute a cor-
poration, and new members are taken in, after the corporation has
come into existence, under the rules prescribed by the charter or
by-laws. Such is the case, for instance, with mutual insurance
and mutual benefit corporations, incorporated trade unions, lit-
erary societies, etc. No one can be made or become a member in
such a corporation without his consent.1 And, on the other hand,
after the corporation has become organized, no one can become a

1 An act of the legislature by which ‘‘the members of’? several mutual fire insur-
ance companies are made a new corporation, and which ‘“‘shall not affect the legal.
rights of any person,’’ and is to take effect ‘“‘when accepted by the members of said
corporations,” does not constitute a member of one of the old companies, who does:
not expressly assent to it, a member of the new corporation, although the act be
duly accepted by a majority of the members of each of the old companies. Hamil-
ton Mut. Ins. Co. v. Hobart, 2 Gray (Mass.) 543. See, to the same effect, Gardner
vy. Insurance Co., 33 N. Y. 421,
§ 86) HOW MEMBERSHIP IS ACQUIRED. : 255.

member without its consent, and by compliance with its charter, and
its authorized by-laws. In a late Illinois case the question arose-
whether the complainant was a member of the Chicago Live-Stock
Exchange, a corporation organized by commission merchants en-
gaged in buying and selling live stock for others at the stockyards.
A by-law of the corporation provided that members should be ad-
mitted upon written application, indorsed by two members, and ap-
proved by at least seven directors, and payment of an initiation fee
or presentation of a certificate of membership duly transferred to.
the applicant. It. was held that one to whom a certificate of mem-.
bership had been duly transferred, but who had made no application.
for membership, was not a member of the corporation. The asso-
ciation, it was said, had an undoubted right to adopt this by-law,
and, as it prescribed the mode, and the only mode, in which mem--
bership in the exchange could be acquired, no one could justly claim
to be a member, who had not been admitted in the mode thus pre-
scribed.?

A court of equity has no power to compel a corporation to admit
a person to membership against the will of those whose consent is,.
according to the charter, or an authorized by-law, essential to the
eligibility of the applicant.?
Membership in Stock Corporations

Membership in joint-stock corporations is determined by the own-.
ership of shares of stock. Ownership of shares is acquired by con-
tract with the corporation. This may be by a contract of subscrip-
tion either before * or after ° the corporation is organized, or by a
purchase of shares from the corporation after its organization,® or:
by a purchase and transfer of shares from one who owns them.’
In the latter case there is a novation of the contract of membership.*
The transferee, as we shall see, is substituted by the implied or
express consent of the corporation to all the rights and privileges.
of the transferror, and generally assumes his liabilities.

2 American Live-Stock Commission Co. v. Chicago Live-Stock Exch., 143 Il. 210,.
32 N. EH. 274.

31d. 6 Post, p. 262.

4 Post, p. 263. 7 Post, p. 406.

5 Post, p. 261. 81 Mor. Corp. § 159.
256 MEMBERSHIP IN CORPORATIONS. (Ch. 10

“CAPITAL STOCK” AND “CAPITAL.”

87. The “capital stock” of a corporation is the amount in
money or property subscribed and paid in, or se-
cured to be paid in, by the shareholders, and al-
ways remains the same unless changed by legis-
lative authority

88. The ‘‘capital” of a corporation includes all the prop-
erty of the corporation, and may therefore be
greater or less in value than the capital stock.

The terms “capital” and “capital stock,” as applied to corpora-
tions, are often used by the courts and in statutes as if they were
synonymous, but, strictly speaking, they are not so. They do not
mean the same thing. The capital stock of a corporation is the
amount in money or property subscribed and paid in, or secured to
be paid in, by the shareholders, and always remains the same un-
less changed by legislative authority.® The capital of a corpora-
tion is a broader term, and includes all the funds, securities, credits,
and property, of whatever kind, which the corporation possesses.*®
Thus, if a banking corporation is organized with a capital stock of
-$100,000, and after this is paid in it makes profits amounting to
$00,000, which it keeps instead of distributing it in the way of
dividends, it has a capital of $150,000, but its capital stock remains,
ag at the start, $100,000. As was said by Chief Justice Green,
capital stock, as employed in acts of incorporation, is never used

® Christensen v. Eno, 106 N. Y. 97, 12 N. E. 648; State v. Morristown Fire Ass'n,
23 .N. J. Law, 195; Williams v. Telegraph Co., 98 N. Y. 162, 188; Barry v. Ex-
change Co., 1 Sandf. Ch. (N. Y.) 280.

10 Christensen v. Eno, 106 N. Y. 97, 12 N. E. G48. ‘The word ‘capital’ is unam-
biguous. It signifies the actual estate, whether in money or property, which is
owned by an individual or a corporation, In reference to a corporation, it is the
aggregate of the sum subscribed and paid in, or secured to be paid in, by the share-
holders, with the addition of all gains or profits realized in the use and investment
of those sums, or, if losses-have been incurred, then it is the residue after deduct-
ing such losses.” People v. Commissioners of Taxes, etc., for the City and County
of New York, 23 N. Y. 192, 219. :

i
§§ 89-90) NATURE OF SHARES OF STOCK. 257

to indicate the value of the property of the company. It is very
generally, if not universally, used to designate the amount of cap-
ital prescribed to be contributed at the outset by the stockholders
for the purposes of the corporation. The value of the corporate as-
sets may be greatly increased by surplus profits, or be diminished
by losses, but the amount of the capital stock remains the same.
The funds of the company may fluctuate; its capital stock remains
invariable, unless changed by legislative authority.*+

NATURE OF SHARES OF STOCK.

89. A share of stock in a corporation is the right to par-
take, according to the amount put into the fund
representing the capital stock, of the surplus profits
of the corporation, and ultimately, on its dissolu-
tion, of so much of this fund as is not liable for the
debts of the corporation.

90. A share of stock is in the nature of a chose in action,
and it is personal property, though the corporation
may own real estate. Thus

(a) A sale of shares is not within that clause of the stat-
ute of frauds requiring agreements for the sale of
land or an interest therein to be in writing.

(b) On the death of the owner, shares are distributed as
personal estate, and do not go to the heirs as real
estate.

(ec) In most states a sale of shares, like a sale of other
choses in action, is within that clause of the statute
of frauds relating to agreements for the sale of
‘“‘eoods, wares, and merchandises.”

(d) Shares of stock, being intangible, and in the nature
of choses in action, were not subject to execution
at common law; but by statute they are now very
generally made subject to execution and attach-
ment.

11 State v. Morristown Fire Ass’n, 23 N. J. Law, 195.

Clk.Pr.Corp.—17
258 MEMBERSHIP IN CORPORATIONS. (Ch. 10

Shares of stock “are intangible, and rest in abstract legal con-
templation.” 72 When it is said that a person owns a certain num-
ber of shares of stock, it is meant that he has a right to share in
the profits of the corporation, and in its property on dissolution,
after payment of its debts, in the proportion that the number of his
shares bears to the whole capital stock. A share of the capital
stock is the right to partake, according to the amount put into the
fund representing the capital stock, of the surplus profits of the cor-
poration, and ultimately, on the dissolution of it, of so much of the-
fund thus created as remains unimpaired, and is not liable for the
debts of the corporation.*®

Shares of stock are not a chattel interest. The holders do not own
the property of the corporation.‘+ They are in the nature of a chose
in action.t® Thus shares of stock belonging to a married woman
are not personal property in possession so as: to vest in her hus-
band at common law; but, like choses in action, they must be re-
duced to his possession.*®

The fact that the corporation owns real estate, or even that all
of its property is real estate, does not make the shares of its stock
real property. They are in the nature of choses in action, and are
personal property. It follows that an agreement for the sale of
shares in a corporation owning real estate is not an agreement for
the sale of land, or of an interest in land, so as to.render writing
necessary under the staute of frauds.*? So, on the death of a share-
holder in a corporation, the capital stock of which is represented
by real estate, his shares are to be distributed as personal estate,
and do not go to the heirs as real property.*® (

12 Burrall v. Railroad Co., 75 N. Y. 211, 217.

18 Burrall y. Railroad Co., 75 N. Y¥. 211, 216; Ohio Life Insurance & Trust Co. v.
Merchants’ Insurance & Trust Co., 11 Humph. (Tenn.) 1; Fisher vy, Bank, 5 Gray
(Mass.) 373, 1 Cumming, Cas. Priv. Corp. 664.

14 Ante, p. 6 et seq.

15 Fisher v. Bank, 5 Gray (Mass.) 373, 1 Cumming, Cas. Priv. Corp. 664.

16 Tiff. Pers. & Dom. Rel. 89; Ang. & A. Corp. §§ 560, 561; Slaymaker v.
Bank, 10 Pa. St. 878; Arnold v. Ruggles, 1 R. I. 165.

17 Humble v. Mitchell, 11 Adol. & H. 205, 1 Cumming, Cas. Priv. Corp. 602.
And they will pass by a will not executed according to the provision of the statute of
frauds relating to devises of land. Bligh v. Brent, 2 Younge & C. 268.

18 Russell vy. Temple (Mass.) 3 Dane, Abr. 108.
§§ 89-90) NATURE OF SHARES OF STOCK. 259

It is held in England that shares of stock are not “goods, wares,
or merchandise,” within the meaning of the seventeenth section of
the statute of frauds, and that a contract for the sale thereof to the
value of more than £10 need not be in writing, as the statute is there
considered as referring to corporeal movable property only, and
not as including choses in action which are incapable of part de-
livery..° In this country some of the courts have followed the Eng-
lish rule; *° but in most states the construction placed upon the stat-
ute is different, and it is held to include incorporeal as well as cor-
poreal property, and therefore to include shares of ‘stock.2?. In some
states the statute is broader in its terms than the original statute.
In New York and several other states it expressly includes choses
in action, and in Florida it uses the term “personal property,” and
these statutes of course apply to stock in corporations.*?

Execution and Attachment.

A share of stock, being in the nature of a chose in action, could
not be reached by execution at common law, and it is not subject
to attachment, unless expressly made so by statute.?* In most states,
however, if not in all, statutes have been enacted, making shares
of stock and other choses in action subject to execution, and the
statutes providing for attachment generally make shares of stock
subject to that remedy. It is not necessary that the statute shall
expressly mention shares of stock. If it uses terms clearly showing

19 Humble v. Mitchell, 11 Adol. & E. 205, 1 Cumming, Cas. Priv. Corp. 602;
Knight v. Barber, 16 Mees. & W. 66.

20 Webb v. Railroad Co., 77 Md. 92, 26 Atl. 113; Whittemore v. Gibbs, 24 N.
H. 484; Vawter v. Griffin, 40 Ind. 593.

21 Tiff. Sales, 43, 44; Clark, Cont. 138; Tisdale v. Harris, 20 Pick. (Mass.) 9,
1 Cumming, Cas. Priv. Corp. 604; Boardman vy. Cutter, 128 Mass. 388; North
y. Forest, 15 Conn. 400; Pray v. Mitchell, 60 Me. 430; Hinchman v. Lincoln, 124
U. S. 38, 8 Sup. Ct. 369; Greenwood v. Law, 55 N. J. Law, 168, 26 Atl. 134;
Hudson v. Weir, 29 Ala. 294; Green v. Brookins, 23 Mich. 48, 54.

22 Artcher v. Zeh, 5 Hill (N. Y.) 200; Peabody v. Speyers, 56 N. Y. 230; Mayer
vy. Child, 47 Cal. 142; Spear v. Bach, 82 Wis. 192, 52 N. W. 97; Southern Life
Insurance & Trust Co. v. Cole, 4 Fla. 359.

281 Cook, Stock, Stockh. & Corp. Law, §§ 480-491; Denton v. Livingston, 9
Johns. (N. Y.) 96; Blair v. Compton, 33 Mich. 414; Van Norman v. Jackson Cir-
cuit Judge, 45 Mich. 204, 7 N. W. 796; Barnes v. Hall, 55 Vt. 420; State Ins.
Co. v. Sax, 2 Tenn. Ch. 507, 509; Goss & P. Manuf’g Co. v. People, 4 Ill. App.
510; Haley v. Reid, 16 Ga. 487; Foster v. Potter, 37 Mo. 525.
260 MEMBERSHIP IN CORPORATIONS. (Ch. 10

an intention to include such property, it will be given effect ac-
cordingly. Thus shares of stock would clearly be included under
the term “choses in action.” They have been held to be included
under the terms “estate,” ?* “rights and credits.” 25 But there are
some cases in which the statutes are more strictly construed, and
in which shares of stock have been held not to be included under the
phrase “real and personal property,” or “estate, both real and per-
sonal.” 7°

To render a levy of execution or attachment on shares of stock
and a sale thereunder valid, the provisions of the statute as to the
mode of making the levy and sale, and the formalities to be observed,
must be strictly observed.?7

The situs of shares of stock for most purposes is in the state by
which the corporation was created, and they can be levied upon
in that state only.?® 3, a

CERTIFICATES OF STOCK.

91. A certificate of stock is simply a written acknowledg-
ment by the corporation of the interest of the holder.
in its property and franchises.

24 Chesapeake & O. R. Co. v. Paine, 29 Grat. (Va.) 502, 505. And see Union
Nat. Bank v. Byram, 131 Ill. 92, 22 N. E. 842.

25 Curtis v. Steever, 36 N. J. Law, 304.

26 Haley v. Reid, 16 Ga. 437; Foster v. Potter, 37 Mo. 525. But see Union
Nat. Bank v. Byram, 131 Ill. 92, 22 N. EB. 842.

271 Cook, Stock, Stockh. & Corp, Law, § 481; Titcomb v. Insurance Co., 8.
Mass. 326; Howe v. Starkweather, 17 Mass. 240; Blair vy. Compton, 33 Mich.
414; Van Norman v. Jackson Circuit Judge, 45 Mich. 204, 7 N. W. 796; Mor-
ton v. Grafflin, 68 Md. 545, 13 Atl. 341; Voorhis v. Terhune, 50 N. J. Law, 147,
13 Atl. 391; Armour Bros. Banking Co. v. St. Louis Nat. Bank, 118 Mo. 12, 20
8. W. 691; Moore y. Opera-House Co., 81 Iowa, 45, 46 N. W. 750; Commercial
Nat. Bank v. Farmers’ & Trajers’ Nat. Bank, 82 Iowa, 192, 47 N. W. 1080;
Keating v. Stock Co., 88 Tex. 467, 18 S. W. 797; McNaughton v. McLean, 73
Mich. 250, 41 N. W. 267; Goss & P. Manuf’g Co. v. People, 4 Ill. App. 510;
People v. Goss & Phillips Manuf’g Co., 99 Ill. 355.

281 Cook, Stock, Stockh. & Corp. Law, § 485: Plimpton vy. Bigelow, 93 N. Y.
592; Armour Bros. Banking Co. v. St. Louis Nat. Bank, 113 Mo. 12, 20 S. W.
691, Compare Young v. Iron Co., 85 Tenn. 189, 2 8. W. 202.
§ 92) SUBSCRIPTIONS TO STOCK. 261

Shares in the capital stock of a corporation are usually represent-
‘ed by certificates issued by the corporation to the stockholders, stat-
ing that the holder is the owner of a certain number of shares,
and generally prescribing the mode in which they may be trans-
ferred, as on the books of the company in person or by attorney,
and on surrender of the certificate. A stock certificate is merely
evidence of the stockholder’s rights. “The issuing of the original
certificates is in no sense a transfer of stock. The interest of the
parties to whom they are issued is the same before as after such
issue. The certificate is simply a written acknowledgment by the
company of the interest of the subscribers in its property and fran-
chises.” 29 A certificate of steck is not a security, much less a
negotiable instrument.*° It is not necessary to constitute a sub-
scriber a stockholder.®+

SUBSCRIPTIONS T@SlOCK—SUBSCRIPTIONS AFTER INCOR-
"PORATION.

92. A subscription to the stock of an existing corporation,
when accepted, is a contract between the subscrib-
er and the corporation, and is subject to the rules
governing other kinds of contracts.

When a corporation is already organized, a subscription to its
capital stock is like any other contract with the corporation. It is
a contract between the corporation and the subscriber, and is sub-
ject to the principles governing the formation of other contracts.
There must be an offer by one party and acceptance by the other,
resulting in mutual agreement. If the corporation opens subscrip-
tion books or solicits subscriptions, and a person subscribes for
shares, he makes an offer to the corporation; and when the subscrip-
tion or offer is accepted by the corporation, it becomes binding. Or
the solicitation of subscriptions may be a general offer by the cor-
poration, and a subscription in accordance with the offer would be
an acceptance, and result in a contract without further assent on

29 Burr v. Wilcox, 22 N. Y. 551, 557. 80 Post, p. 427. 31 Post, p. 316.
262 MEMBERSHIP IN CORPORATIONS. (Ch. 10

the part of the corporation.*? In these cases there is a contract
between the subscriber and the corporation, which ipso facto makes
the subscriber a shareholder, and binds him to pay the amount of
the subscription.*®

There must also be a consideration for the promise of the subscrib-
er and for the undertaking of the corporation to recognize him as
a stockholder. The consideration for the latter is the subscriber’s
promise to pay for his stock, and the consideration for the former is
the acquisition by the subscriber of an interest in the franchises and
property of the corporation and the right to share in the profits.**
It follows that the obligation must be mutual. “A stock subscrip-
tion is a transaction between the subscriber and the company, and
the obligation of one can only be sustained by the corresponding ob-
ligation of the other. If both are not bound, neither is bound, and
the transaction is a nullity.” °°
Distinguished from a Sale of Shares.

A subscription to the capital stock of a corporation after its or-
ganization must be distinguished from a sale of shares by it. A
purchase of shares, if fully executed, will make the purchaser a
stockholder, but it does not make him a subscriber; and the rules
governing subscriptions and sales of shares are different. Thus, as
we shall see, in the case of a subscription, failure of the corporation
to issue or tender a certificate of stock,which is merely evidence of

32 Greer v. Railway Co., 96 Pa, St. 391. In this case plaintiff opened books
for subscriptions, placing one of them in the defendant’s hands for solicitation
of subscriptions. Defendant entered his own name on the book as a subscriber,
and kept the book for six months without attempting to withdraw his name.
He then cut his name out, and returned the book to plaintiff. He claimed that
he had a right to withdraw at any time before he returned the book, but it was
held that the contract of subscription was binding upon him, because the com-
pany, in soliciting subscriptions, “made a continuing offer, which became an
agreement with each acceptant for the number of shares for which he sub-
scribed.”

33 Hartford & N. H. R. Co. v. Kennedy, 12 Conn. 499, 506; Spear v. Craw-
ford, 14 Wend. (N. Y¥.) 20; Walter A. Wood Harvester Co. v. Robbins, 66 Minn.
48, 57 N. W. 317, W. D. Smith, Cas. Corp. 44; McClure v. Ruilway Co., 90 Pa.
St. 269.

34 Post, p. 267.

86 Per Campbell, J., in Carlisle v. Railroad Co., 27 Mich. 315, 318.
§§ 93-97) SUBSCRIPTIONS TO STOCK. 263

the ownership of shares, does not prevent the subscriber from be-
coming a shareholder, with all the rights and subject to all the lia-
bilities of shareholders, unless there is a stipulation to that effect in
the subscription.*® On a sale of stock, however, the rule is different.
Such a sale stands on the same footing as a sale of any other
property, and tender of the certificate is a condition precedent to
the right to maintain an action for the price.**

SAME—SUBSCRIPTIONS PRIOR TO INCORPORATION.

93. A preliminary agreement by a number of persons to
form a corporation and take stock therein is not a
contract by the subscribers with each other, and
cannot be enforced by one or more against any
other, but is enforceable only by the corporation
when formed.

94. Such an agreement, if not made as a step authorized
by statute in the process of forming the corpo-
ration, is a mere continuing offer to the corpora-
tion by each subscriber, and may be revoked, or
will lapse on the subscriber’s death or insanity at
any time before the corporation is organized. But
the organization of the corporation before revoca-
tion or lapse operates as an acceptance of the offer,
and the subscriptions then become binding and ir-
revocable, and may be enforced by the corpora-
tion.

95. Such an agreement, if made as a step authorized by
statute in the process of forming the corporation,
is valid by virtue of the statute, though there is no
consideration or mutuality prior to the organiza-
tion of the corporation, and is binding on each sub-
scriber from the time of signing, and is irrevocable

86 Post, p. 316; Marson v. Deither, 49 Minn. 423, 52 N. W. 38.
87 Post, p. 317; Marson v. Deither, supra; Clark v. Improvement Co., 57 Ind.

1835. And see Thrasher v. Railroad Co., 25 Ill. 393; St. Paul, S. & T. F. R. Co.
v. Robbins, 23 Minn. 489; Weiss v. Iron Co., 58 Pa. St. 295.
, 264 MEMBERSHIP IN CORPORATIONS. (Ch. 10

y

thereafter; but it can be enforced only by the cor-
poration.

96. An agreement to pay money to trustees to be by them
paid to a corporation thereafter to be created, the.
trustees to return to the subscribers stock in the
corporation, is a valid contract between the sub-
scribers and the trustbes.®

97. Some of the courts make a distinction between a
present subscription to the stock of a corporation
to be formed and an agreement to subscribe ata
future time. According to these cases, the former
renders the party a stockholder, and liable on his
subscription, when the corporation is organized;
but the latter merely renders him liable to an
action for damages on failure to take ‘stock, the
measure of damages being the difference between
the market and par value of the stock.

The usual method of subscribing to the stock of a corporation
which it is proposed to organize is for the parties to sign an agree-
ment to form the corporation, and take stock in it when formed.
Sometimes, but not always, they in terms promise to pay the amount
of their subscriptions to the corporation. The better opinion is that
such an agreement, at least in so far as the promises to subscribe
are concerned, is not a contract by the subscribers with each other,
and cannot be enforced by one or more of them against any other.

Common-law Subscriptions.

If the agreement is not made as a step authorized by statute in
the process of forming the corporation, but depends upon the com-
mon law, it is a mere offer by each subscriber to the corporation not
yet in existence to take stock, and thereby become a shareholder;
and when the corporation is organized and accepts the offer, there
is a binding contract of subscription between the corporation and
the subscriber, by virtue of which, ipso facto, the subscriber be-

88 The above propositions are taken in substance from Pror. Collin’s syllabus

for his class on Corporations in the Cornell University Law School.
eee,
&§ 93-97) SUBSCRIPTIONS TO STOCK. 265

comes a shareholder, with all the rights and privileges, and subject
to all the liabilities, of a shareholder, and the subscription may be
enforced by the corporation.®® Before the corporation is formed,
the subscriptions, as we shall see, are not binding, for there is
no consideration or mutuality; and, besides this, the other party
to the contract is not yet in existence. But the formation of the
corporation and acceptance of the -Subscriptions supplies the ele-
ment of consideration and the other party, and renders them binding.

In Strasburg R. Co. v. Echternacht *° it was held by the supreme
court of Pennsylvania that such a subscription could not result in
a contract between the subscriber and the corporation when formed,
so as to entitle the corporation to maintain an action on it, since
it was thought that the nonexistence of the corporation at the time
of signing the subscription rendered the formation of a contract
with it in this way impossible. This decision, if it has not been
in effect overruled by later decisions of the Pennsylvania court,**
is in conflict with the decisions in almost all of the other states.
It is not at all necessary, as was assumed in the case referred to,
that a contract shall result, if at all, at the time the offer or pro-
posal is made. A continuing offer may be made, and a contract will
result when it is subsequently accepted according to its terms.
Nor is it necessary that an offer, to result in a contract, shall be

39 Athol Music Hall Co. v. Carey, 116 Mass. 471; Penobscot R. Co. v. Dum-
mer, 40 Me. 172; Danbury & N. R. Co. v. Wilson, 22 Conn. 485; Richelieu Hos
tel Co. v. International Military Enc. Co., 140 Ill. 248, 29 N. E. 1044, W. D.
Smith, Cas. Corp. 48, Shep. Cas. Corp. 16° Tonica & P. R. Co. v. McNeely, 21
UL 71; Marysville Electric Light & Power Co. v. Johnson, 93 Cal. 538, 29 Pac.
126; Buffalo & N. Y. C. R. Co. v. Dudley, 14 N. Y. 336; Buffalo & J. R. Co.
v. Gifford, 87 N. Y. 294; Instone v. Bridge Co., 2 Bibb (IXy.) 576; Bullock v..
Turnpike Co., 85 Ky. 184, 8 S. W. 129; Gleaves v. Turnpike Co., 1 Sneed
(Tenn.) 491; Chaffin v. Cummings, 87 Me. 76, 83; Schaeffer v. Insurance Co:,
46 Mo. 248; Red Wing Hotel Co. v. Friedrich, 26 Minn, 112, 1 N. W. 827;
Taggart v. Railroad Co., 24 Md. 563; Hughes v. Manufacturing Co., 34 Md. 316,
326; Low v. Railroad Co., 45. N. H. 370; Ashuelot Boot & Shoe Co. v. Hoit, 50
N. H. 548, 556.

4021 Pa. St. 220, 60 Am. Dee. 49.

41 See Edinboro Academy v. Robinson, 37 Pa. St. 210; Hedge’s & Horn’s Appeal,.
63 Pa. St. 278; McClure vy. Railway Co., 90 Pa. St. 269; Shober’s Adm’rs vy. Lan-
caster Co. Park Ass’n, 68 Pa. St. 429; Steamship Co. v. Murphy, 6 Phila. 224.
266 . MEMBERSHIP IN CORPORATIONS. (Ch. 10

made to an ascertained person.*? Therefore, while it is true that
a subscription to the capital stock of a corporation not yet formed
is not, and cannot be, a contract with the corporation at the mo-
ment the subscription paper is signed, the corporation not being
then in existence, this does not prevent its resulting in a contract at
a subsequent time. It is a continuing offer or proposal on the part
of the subscriber to take shares in the corporation when formed,
and, by the weight of authority,** to pay the amount of the sub-
scription; and when the corporation is organized as contemplated,
before the offer is withdrawn, and accepts the subscription, it then,
becomes a binding contract between the subscriber and the corpora-
tion.

In Athol Music Hall Co. v. Carey 4** the defendant and others
signed a written agreement by which, in terms, they severally prom-
jsed and agreed to and with each other that they would associate
themselves into a corporation, and pay to the treasurer of the cor-
poration the amount of the several shares set against their respec-
tives names; and it was held that the corporation, when it was or-
ganized and accepted the promises, could maintain an action against
the subscribers on the agreement. “In agreements of this nature,”
it was said, “entered into before the organization is formed, or the
agent constituted to receive the amounts subscribed, the difficulty
is to ascertain the promisee, in whose name alone suit can be brought.
The promise of each subscriber, ‘to and with each other,’ is not
a contract capable of being enforced between each subscriber and.
each other who may have signed previously, or who should sign after-
wards, nor between each subscriber and all the others collectively
as individuals. The undertaking is inchoate and incomplete as a
contract until the contemplated organization is effected, or the
mutual agent constituted to represent the association of individual
rights in accepting and acting upon the propositions offered by the
several subscriptions. When thus accepted, the promise may be
construed to have legal effect according to its purpose and intent,

42 See Anson, Cont. 31; Clark, Cont. 55.
43 Post, p. 318.
44116 Mass. 471,
§3 93-97) SUBSCRIPTIONS TO STOCK. 267

and the practical necessity of the case, to wit, as a contract with
the common representative of the several associates.” *°

Some of the courts regard an agreement by a number of persons
to subscribe for stock in a corporation to be formed as a contract
between the parties for the benefit of the corporation when formed,
and allow the corporation to maintain an action thereon as upon a
contract made for its benefit.** This view, however, could not be
sustained in those jurisdictions where, as at common law, a person
for whose benefit a contract is made, but who is not a party to it,
cannot maintain an action thereon.

*

Consideration for Subscription.

At common law a consideration is just as essential to a contract of
subscription, and to the express or implied promise of the subscriber
10 pay the same, as in the case of any other kind of contract. It might
be rendered unnecessary in the case of an existing corporation by sub-
scribing under seal in those jurisdictions where a seal dispenses with
the necessity for a consideration.*" And, as will be presently seen,
the legislature, in providing for subscriptions preliminary to the or-
ganization of a corporation, may expressly or impliedly make them
binding without a consideration.** Except in these cases, a sub-
scription is not binding unless there is a sufficient consideration. In
the case of subscriptions to stock a consideration arises from the ben-
efit received by the subscriber in acquiring an interest in the cor-
porate franchises and property, and a right to share in the profits, or,
as it has been otherwise expressed, there is a consideration in the ti-
tle which the subscriber acquires to shares.*®

45 And see the other cases cited in note 39, supra.

46 See Marysville Electric Light & Power Co. v. Johnson, 93 Cal. 538, 29 Pac. 126;
International Fair & Exp. Ass’n v. Walker, 83 Mich. 386, 47 N. W. 338.

47 Hudson Real-Estate Co. v. Tower, 156 Mass. 82, 30 N. E. 465.

48 Post, p. 271.

49 Walter A. Wood Harvester Co. v. Robbins, 56 Minn. 48, 57 N. W. 317, W.
D. Smith, Cas. Corp. 44; Buffalo & N. Y. City R. Co. v. Dudley, 14 N. Y. 336;
Worcester Turnpike Corp. v. Willard, 5 Mass. 80; Athol Music Hall Co. v.
Carey, 116 Mass. 471; Griswold v. Trustees, 26 Ill. 41; Gleaves v. Turnpike Co.,
1 Sneed (Tenn.) 491; East Tennessee & V. RB. Co. v. Gammon, 5 Sneed. (Tenn.)
567; Selma & T. R. Co. v. Tipton, 5 Ala. 787; Danbury & N. R. Co. v. Wil-
son, 22 Conn. 435; Instone vy. Frankfort Bridge Co., 2 Bibb. (Ky.) 576.
268 MEMBERSHIP IN CORPORATIONS. (Ch. 10

It follows that a subscription, to be binding on the subscriber, must
be binding on the corporation, so that it is bound to recognize the sub-
scriber as a shareholder. In Fanning v. Insurance Co.*° the defend-
ant, prior to the organization of the plaintiff corporation, orally prom-
ised to take shares of stock, and gave her note to pay therefor, and the
plaintiff brought an action on the note after its organization. The
court held that the verbal subscription was not sufficient to make the
defendant a shareholder, and that, therefore, there was no considera-
tion for her promise.

It has been said that there is a consideration for a subscription in
the corresponding promises of the other subscribers,** but this is not
true. It is not a case of mutual promises, where the promise of one
party forms the consideration for the promise of the other. The
promises are all to the corporation. Each is, as we have seen, an
offer to the corporation until it is organized and accepts it. Then it
becomes a promise to it, not to the other subscribers. One sub-
scriber is not liable to an action by the others on his subscription.

Revocation or Lapse of Subscription.

As we have just seen, in the case of subscriptions, or rather offers to
subscribe, to the stock of a proposed corporation, until the corpora-
tion is organized and accepts the subscription, it is not binding at
common law, for the reason, among others, that until then there is no
consideration for it. There is no mutuality. Until the corporation is
bound to recognize the subscriber as a shareholder, he receives no
consideration for his subscription. It follows, necessarily, from
this that the offer to subscribe may be revoked or withdrawn by the
subscriber at any time before the corporation is organized and ac-
cepts it, or before organization if that alone constitutes acceptance
so as to make the subscriber a shareholder.®?

5087 Ohio St. 339.

51 Athol Music Hall Co. v. Carey, 116 Muss. 471; Tonica & P. R. Co. v. Me-
Neely, 21-Ill. 71; Carlisle v. Railroad Co., 27 Mich. 315.

52 Hudson Real-Estate Co. v. Tower, 156 Mass. 82, 30 N. B. 465; Id., 161
Mass. 10, 36 N. E. 680, W. D. Smith, Cas. Corp. 45, Shep. Cas. Corp. 23; Wal-
lace v. Townsend, 43 Ohio St. 587, 3 N. 1. 601; Muncy Traction Engine Co.
v. De La Green (Pa. Sup.) 13 Atl. 747; Auburn Bolt & Nut Works v. Shultz,
143 Pa. St. 256, 22 Atl. 904; Lewis v. Mill Co. (Tex. Civ. App.) 23 8. W. 338;
§§ 93-97) SUBSCRIPTIONS TO STOCK. 269

i

It also follows that the offer to subscribe will be revoked or lapse
if the subscriber dies or becomes insane before the corporation is
organized and accepts it, for the continuance of an offer is in the
nature of its constant repetition, which necessarily requires some one
capable of making a repetition, and this can no more be done by a
dead or insane man than a contract can, in the first instance, be made
by a dead or insane man.*?

Not only is such an offer revocable because of the want of consid-
eration, but it is revocable for the further reason that until the cor-
poration is organized there cannot, in the nature of things, be any
contract, since one of the parties—the corporation—is not yet in ex-
istence. The right to revoke exists, therefore, where the subscrip-
tion is under seal.**

In order that withdrawal of a subscription may be effectual, it is
necessary, as in the case of other contracts, that notice thereof shall
be communicated. An uncommunicated revocation can have no effect
whatever. It is not necessary that the notice of revocation be given
to all the other subscribers, nor at a mecting of subscribers. It is
sufficient if it be given to the person or persons to whom the sub-
scription was given, or to the person or persons who have been
chosen to represent the subscribers in forming the corporation.®*® It

Patty v. Mill Co., 4 Tex. Civ. App. 224, 28 S. W. 336; Plank’s Tavern Co. v.
Burkhard, 87 Mich. 182, 49 N. W. 562.

53 Pratt v. Trustees, 93 Ill. 475; Beach vy. First Methodist Episcopal Church,
96 Ill. 177; Phipps v. Jones, 20 Pa. St. 260; Wallace v. Townsend, 43 Ohio St.
#37, 8 N. B. 601.

54 “Until the organization of the corporation, the subscription is a mere propo-
sition or offer, which may be withdrawn, like any other unaccepted offer. Un-
less the signer is bound upon a contract, he is not bound at all. It is open to
bim to withdraw. It is not on the ground that there was no sufficient consid-
eration. ‘The seal would do away with any doubt on that score. But it is on
the ground that for the time being, and until the corporation is organized, the
writing does not take effect as a contract, because the contemplated party to the
contract, on the other side, is not yet in existence, and for this reason, there
being no contract, the whole undertaking is inchoate and ineomplcte, and, since
there is no contract, the party may withdraw.” Hudson Real-Estate Co. v.
Tower, 156 Mass. 82, 30 N. B. 465; I1d., 161 Mass. 10, 36 N. EE. 680, W. D.
Smith, Cas. Corp. 45: Shep. Cas. Corp. 23.

55 Fludson Real-Estate Co. v. Tower, 161 Mass. 10, 36 N. E. 680, W. D.
Smith, Cas. Corp. 45, Shep. Cas. Corp. 23. In Hudson Real-Estate Co. v. Tow-
270 MEMBERSHIP IN CORPORATIONS. | (Ch. 10

was held in an early English case that all the other subscribers must
not only have notice, but must consent, before one of the subscribers
can withdraw; °* but now, in England as well as in this country, such
consent is unnecessary. If all the other subscribers should object,
it would nevertheless be the right of a subscriber to withdraw before
the corporation is formed.*’

Since, upon organization of the corporation and acceptance of sub-
scriptions, they are changed into binding contracts, a subscriber can-
not afterwards withdraw without the consent of the corporation and
of all the other subscribers; nor will his subscription be affected by
his death or insanity after that time.**

The supreme court of Minnesota has held in a late case as follows:
“A subscription by a number of persons to the stock of a corporation
to be thereafter formed by them has in law a double character: First.
It is a contract between the subscribers themselves to become stock-
holders without further act on their part immediately upon the forma-
tion of the corporation. As such a contract it is binding and ir-
revocable from the date of the subscription (at least in the absence of
fraud or mistake), unless canceled by consent of all the subscribers
before acceptance by the corporation. Second. It is also in the pa-
ture of a continuing offer to the proposed corporation, which, upon
acceptance by it after its formation, becomes as to each subscriber a
contract between him and the corporation.” And it was further held
that the promoter of a proposed corporation, who solicits and procures
subscriptions, is the agent of the body of subscribers to hold the sub-
scriptions until the corporation is formed, and then turn them over

er, supra, the defendants subscribed under seal for stock in a corporation. Aft-
erwards articles of incorporation were executed, and officers elected; but, before
the incorporation was complete, the defendants orally informed the president
that, if a certain change in the policy was made, they would no longer be asso-
ciates, and would not pay their subscriptions. The change of policy was made,
and it was held that was a sufficient withdrawal by the defendants, and notice
thereof.

56 Kidwelly Canal Co. v. Raby, 2 Price, 93.

57 Hudson Real-Estate Co. v. Tower, 161 Mass. 10, 86 N. BE. 680, W. D. Smith,
Gas. Corp. 45, Shep. Cas. Corp. 23.

58 Richelieu Hotel Co, v. International Military Enc. Co., 140 Ill. 248, 29 N. E.
1044, W. D. Smith Cas. Corp. 48, Shep. Cas. Corp. 16; Athol Music Hall Co. v.
Carey, 116 Mass, 471; post, p. 329,
§§ 93-97) SUBSCRIPTIONS TO STOCK. Q7t

to it without any further act of delivery on the part of the subscribers ;.
and hence, that a delivery of a subscription to such promoter is a
complete delivery, so that it becomes eo instanti a binding contract as
between the subscribers.®® This decision is sound in so far as it holds.
that the subscriptions are continuing offers to the proposed cor-
poration, and become binding when it is organized and accepts them;
but it is opposed to the weight of authority in so far as it holds that
an agreement by a number of persons to subscribe to the stock of a
proposed corporation is a contract between the subscribers, and bind-
ing upon them, so as to be irrevocable before the corporation is

organized. The authorities cited by the court do not sustain this
view.

Subscriptions under Statutes.

Thus far we have been speaking of those agreements to form a cor-
poration and subscribe for stock that depend upon common-law prin-
ciples only, and that are not made as a step authorized by statute in
the process of forming the corporation. Such an agreement made as a
step authorized by statute in the process of forming the corporation
stands upon a somewhat different ground. Like the agreements of
which we have been speaking, it can only be enforced by the cor-
poration after its organization; but it is binding on each subscriber,
by virtue of the statute, from the time of signing, and he cannot re-
voke his subscription before the corporation is completely organized.
In Buffalo & New York Railroad Co. v. Dudley ®° a railroad company
had been organized under a statute which appointed commissioners
to open books and receive subscriptions to its capital stock. The de-
fendant, among others, subscribed on the books, and otherwise com-
plied with the statute. The corporation was completely organized,
and accepted the subscriptions before the defendant atterhpted to
withdraw his, and therefore his subscription could be sustained as a
continuing offer accepted by the corporation, and thereby changed
into a binding promise supported by a sufficient consideration; but the
court went further than this, and said that no consideration or
mutuality was necessary, and that the subscription could not have
been revoked even before the corporation was organized. “The rules.

59 Minneapolis Threshing Mach. Co. v. Davis, 40 Minn. 110, 41 N. W. 1026.
6014 N, Y. 336.
272 MEMBERSHIP IN CORPORATIONS. (Ch. 10

of the common law,” it was said, “in regard to consideration and
mutuality, do not apply to the case. Those rules may, I think, be
regarded as superseded by the statute, which not only expressly au-
thorizes subscriptions to be made in anticipation of the existence of
the corporation, but impliedly, at least, recognizes their validity. Sec-
tion 4 of the act by which the plaintiffs are incorporated provides,
among other things, as follows: ‘And the said commissioners shall,
at the time of any subscription, require the payment to them, by the
person or persons subscribing, of five dollars towards and upon every
hundred dollars so subscribed, and unless the same shall be paid, the
subscription shall be invalid’ This plainly implies that, if the re-
quired payment is made, the subscription shall be valid. But even
without this clause it would, I think, be held that a statute which au-
thorizes subscriptions in view of a subsequent incorporation, and regu-
lates the manner in which they shall be made, nrust necessarily have
the effect to give validity to such subscriptions, if made in accordance
with the requirements of the act.” The same principle applies where
the statute provides for subscriptions by signing formal articles of
association, which are to be filed as required by the statute, or formal
subscription papers. One who subscribes for stock by signing such
articles or papers in compliance with the statute cannot revoke his
subscription before the incorporation is perfected.**

Agreements to Pay Subscription to Trustees for Corporation when

Formed.

“An agreement to pay money to trustees, to be by them paid to a
corporation thereafter to be -created, the trustees to return to the
subscribers stock in the corporation accordingly, is a valid contract
between the subscribers and the trustees.” °? In West v. Crawford °°
the defendant and others entered into an agreement to form a cor-
poration, and to take a certain number of shares of the stock, and
expressly promised to pay a certain percentage of the par value
thereof to one West within five days after filing of the articles of in-

61 Lake Ontario, A. & N. Y. R. Co. v. Mason, 16 N. Y¥. 451; Johnson v. Wa-
bash & Mt. Vernon Plank-Road Co., 16 Ind. 389; Coppage v. Hutton, 124 Ind.
401, 24 N. HE. 112; Greenbrier Industrial Exposition v. Rodes, 37 W. Va. 738, 17
8. E. 305.

62 Prof. Collin’s Syllabus, Cornell Univ. Law School.

63 80 Cal. 19, 21 Pac. 1123.
§§ 93-97) SUBSCRIPTIONS TO STOCK. 273

corporation, and they constituted the said West their agent to collect
the amount which might become due from them. It was held that
West could maintain an action against them on their express promise
as trustee of an express trust; and in a later case,** the corporation
having been formed, and the money having been collected by West, it
was held that the corporation could maintain an action against him for .
the same as money received by him to its use. It was held that the
fact that the defendants did not sign the articles of incorporation, or
otherwise comply with the statute under which the corporation was
formed, and did not, therefore, become members of the corporation,
was immaterial, as their liability to West was based on their express
promise to pay the money to him for the use of the corporation. The
agreement was sustained on the ground that the promises of the
parties were mutual, and each was a consideration for the others.**

Distinction between Present Subscription and Agreement to Subscribe.

Some of the courts make a distinction between a present subscrip-
tion to the stock of a projected corporation and a mere agreement to
subscribe, and the distinction has been recognized and approved by Mr.
Morawetz and other writers on the law of corporations. The former, it
is held, makes the parties stockholders, and renders them liable to the
corporation on their promises, when itisorganized. Butthelatter, itis
held, is not a subscription or offer to the future corporation, but merely
an agreement between the parties that they will subscribe at some fu-
ture time; and until they do actually subscribe upon the books, or in
some other formal way, no binding contract of subscription with the
corporation can result.°* In Thrasher vy. Pike County R. Co.*’ the de-
fendant and others signed a paper as follows: “We, the undersigned,
agree to subscribe to the stock of the Pike County Railroad the sums
set against our names, when the books may be opened for subscrip-
tions.” The corporation brought an action on this agreement, count-
ing upon the agreement as a promise to subscribe, and alleging a
failure to subscribe as a breach, and plaintiff claimefl to recover the
par value of the shares for which the defendant agreed to subscribe, or

64 San Joaquin Land & Water Co. v. West, 94 Cal. 399, 29 Pac. 785.
65 And see Hecla Consolidated Gold Min. Co. v. O’Neill, 65 Hun, 619, 19 N.
Y. Supp. 592.
661 Mor. Corp. §§ 46, 49.
67 25 Ill. 393.
Clk.Pr.Corp.—18
274 MEMBERSHIP IN CORPORATIONS. : (Ch. 10

the amount of calls made upon the stock. It was held that it could
not recover on such a cause of action, as the promise set up in the
declaration was merely an agreement to subscribe when subscription
books should be opened, and did not make the defendant a stockholder,
so as to be liable to calls. The promise was regarded as like an agree-
ment to purchase property, rendering him liable only for the actual
loss sustained by plaintiff by reason of his failure to take the stock.**

It is very doubtful whether this distinction is sound. Prof. Collin
says that it is unsound, and disappears as mere dicta upon a thorough
sifting of the cases.°® Every agreement to subscribe to the stock of
a corporation to be organized, unless there is a failure to comply with
statutory requirements, should be held a continuing offer to the cor-
poration, resulting in a binding contract of subscription when the cor-
poration is organized as contemplated.”°

68 See, also, Stowe v. Flagg, 72 Ill. 397, 402; Quick v. Lemon, 105 Ill. 578,
585. In Mt. Sterling Coal-Road Co. v. Little, 14 Bush. (Ky.) 429, the defend-
ant signed the following writing: ‘Ihe undersigned propose to subscribe for
the number of shares, of $50 each, to the capital stock of the Mt. Sterling Coal-
Road Company, when the charter shall have been obtained and the company
organized,” etc. It was held, following Thrasher vy. Pike County R. Co., supra,
that this was not a subscription, but an agreement to subscribe, for breach of
which the plaintiff could only recover as damages the difference between the
market and par value of the stock. In Rhey v. Plank-Road Co., 27 Pa. St. 261,
the defendant, to induce the plaintiff to locate its road along a certain route,
signed an agreement that, if it should do so, one O’Neil “will ‘subscribe $500
additional stock, for which I hold myself ‘personally responsible.” The road
having been located, the plaintiff sued defendant for breach of the contract. It
was held that it could not recover the par value of the stock, but only the dam-
ages resulting from failure to take the stock, the measure of which was the
difference between the par value and the actual value of the stock. In Lake
Ontario Shore R. Co. v. Curtiss, 80 N. Y. 219, the defendant and others signed
the following instrument: ‘We, the undersigned, citizens of Unionville and vi-
cinity, pledge ourselvés to subscribe for and take stock in and for the construc-
tion of the Lake Qntario Shore Railroad, to the amount set opposite our names,
respectively, on condition said road be located and built through, or north of, the
village of Unionville.” It was held that this was not a subscription, but a mere
agreement between the signers, to which the corporation was not a party, and
upon which it could not maintain an action.

69 Syllabus for Class in Corporations in Cornell University Law School.

70 See Bullock v. Railroad Co., 85 Ky. 184, 3 S. W. 129, qualifying Mt. Ster-
ling Coal-Road Co, vy. Little, supra. :
§ 98) SUBSCRIPTIONS TO STOCK. 275

SAME—WHO MAY BECOME SUBSCRIBERS.

98. Any person who is capable of contracting may sub-
scribe for stock in a corporation, in the absence of
express restrictions in the charter or act under
which the corporation is organized.

The charter or act under which a corporation is organized may re-
quire the subscribers to its stock to be residents of the state or of the
United States, or impose other restrictions. But, in the absence of

‘such restrictions, any person who is capable of entering into a binding
contract may become a subscriber. It makes no difference that he is
a nonresident of the state, or an alien.”*

An infant may subscribe for shares in a corporation, but he may
repudiate the contract either before or after attaining his majority,
provided, in the latter case,he has not ratified it before electing to dis-
affirm.’? If he elects to disaffirm, he must do so within a reasonable
time after his majority, and before accepting benefits under the con-
tract after majority, or he will be held to have ratified the contract,
and will be liable for calls.** As we shall see, where the statute under
which a corporation is formed requires that a certain amount of stock
shall be subscribed before organization, there must be unconditional
and binding subscriptions to that amount, and subscriptions by in-
fants cannot be counted.**

Persons non compotes mentis, whether their incapacity is the result
of insanity, idiocy, senile dementia, or drunkenness, may avoid their
stock subscriptions to the same extent, and subject to the same qual-
ifications, as in the case of any other contract.

Where the common law in regard to the contractual capacity of
married women still obtains, a subscription by a married woman is

71 Com. v. Hemingway, 131 Pa. St. 614, 18 Atl. 990.

72 Tiff. Pers. & Dom. Rel. 376; London & N. W. Ry. Co. v. M’Michael, 20
Law J. Exch. 97; Ebbett’s Case, 5 Ch. App. 302; Luimsden’s Case, 4 Ch. App. 31.

73 Tiff, Pers, & Dom. Rel. 376; Clark, Cont. 241; Lumsden’s Case, supra;
Fbbett’s Case, supra; Cork & B. Ry. Co. v. Cazenove, 10 Q. B. 935; Mitchell’s
Case, L. R. 9 Eq. 363; Dublin & W. Ry. Co. v. Black, 8 Exch. 181.

74 Post, p. 308.
276 MEMBERSHIP IN CORPORATIONS. (Ch. 10

absolutely void.7* In some states, by statute, a married woman may
contract to the same extent as a feme sole, and in such a case she
may bind herself by a stock subscription. In other states her in-
capacity has only been partially removed. Whether she can subscribe
for stock in these states must depend upon the particular statute, and
the extent to which it has removed her common law disabilities.7* In-
dependently of any statute, a married woman may take shares by pur-
chase, gift, or bequest, and hold the same, just as she may take and
bold any other chose in action.77. And in such a case she will incur
statutory liability as a stockholder.** She is not prohibited from pur-
chasing stock by a statute providing that married women shall not be
capable of making any contract to affect their real or personal estate,
without the written consent of her husband, as the statute applies to
executory contracts only.7®

We have seen in a former chapter that by the weight of authority in
this country a corporation cannot purchase or subscribe for stock in
another corporation. This is not because a corporation is incapable of
making such a contract, but because it is generally not within the pur-
poses for which it was created, and is, therefore, ultra vires. A cor-
poration may be authorized by its charter to hold stock in other cor-
porations.*®°

A corporation cannot, in its own name, or in the name of others as
trustees for it, subscribe for shares of its own stock.®*

Municipal corporations are often expressly authorized’to subscribe
for stock in railroad corporations for the purpose of aiding them; but

751 Cook, Stock, Stockh. & Corp. Law, § 66; National Commercial Bank v.
McDonnell, 92 Ala. 387,,9 South. 149; Pugh and Sharman’s Case, L. R. 18 Ea.
566.

76 That she may bind her separate estate by subscription, under the married
woman’s acts, see 1 Cook, Stock, Stockh, & Corp. Law, § 66.

77 Porter v. Bank of Rutland, 19 Vt. 410; Robinson vy. Turrentine, 59 Fed.
554; Keyser v. Hitz, 133 U. S. 188, 10 Sup. Ct. 290.

78 Robinson v. Turrentine, supra.

79 Post, p. 586.

80 Ante, p. 151.

11 Cook, Stock, Stockh. & Corp. Law, § 64; Holladay y. Elliott, 8 Or. 85;
Allibone y. Hager, 46 Pa. St. 48.
§ 99) SUBSCRIPTIONS TO STOCK. 277

they have no implied authority to subscribe for stock in any corpora-
tion.®?

There is nothing to prevent the directors and other officers and
agents of a corporation from subscribing for its stock, if there is no
fraud.®*

SAME—FORM OF SUBSCRIPTION—STATUTORY FORMALI-
TIES.

99. At common law no formalities are necessary to a con-
tract of subscription. By the better opinion it may
be entered into verbally. But, where the statute
or charter prescribes particular formalities, they
must generally be followed.

At Common Law.

At common law no particular form is necessary to the validity
of a contract of subscription, but all that is necessary is that an
intention shall appear on the part of the subscriber to take stock
and on the part of the corporation to recognize him as a stock-
holder. If such an intention appears, the fact that the writing is
informal can make no difference.** The term “subscription” ety-
mologically signifies writing; and some of the courts have held that
writing is necessary to a valid contract of subscription.®® By the
better opinion, however, at common law, writing is not at all nec-
essary. A contract of subscription, like other contracts, may be en-
tered into verbally unless writing is required by the charter or by
some statute.*® Such a contract is not within the statute of frauds.**

821 Cook, Stock, Stockh. & Corp. Law, §§ 90-103.

831 Cook, Stock, Stockh. & Corp. Law, § 65; Walker v. Devereaux, 4 Paige
(N. Y.) 229; Sims v. Railroad Co., 37 Ohio St. 556. ‘

84 Nulton v. Clayton, 54 Iowa, 425, 6 N. W. 685. A subscription is not ren-
dered invalid by a mistake in the name vf the corporation, but the contract will
operate in favor of the corporation for whose benefit it was intended. Milford
& C. Turnpike Co. v. Brush, 10 Ohio, 111.

85 Fanning v. Insurance Co., 37 Ohio St. 339. In Vreeland y. Stone Co.,
29 N. J. Eq. 188, the court, in holding a verbal contract of subscription invalid,
expressly bases the decision on the ground that the charter required writing.

86 1 Cook, Stock, Stockh. & Corp. Law, § 52; 1 Mor. Priv. Corp. § 54; York

 

87 See the cases cited above.
278 MEMBERSHIP IN CORPORATIONS. (Ch. 10

formalities Required by Statute.

If the general or special law under which a corporation is organ-
ized prescribes particular formalities, compliance with the law is
generally essential to a valid contract of subscription, for the leg-
islature has a right to fix a particular mode for entering into such
a contract. As was said by Judge Campbell in a Michigan case,
no person can obtain rights of membership in a corporation except
in compliance with its charter or governing law, and, if that pre-
scribes any conditions or special methods of becoming a member,
the law is imperative. There may be cases of mutual dealing which
will estop the parties, but no contract of subscription can be valid
if not in conformance with the statute.*®

Thus, where the statute or charter requires subscriptions in writ-
ing, verbal subscriptions are invalid.*® So, where the statute under
which a corporation is formed requires the associates to organize
the corporation, and subscribe formal ‘articles of association, a per-
son who signs preliminary subscription papers, but does not sub-
scribe the articles of association, does not become a shareholder,
and cannot be held liable to the corporation as a subscriber. In
Poughkeepsie & S. P. R. Co. v. Griffin °° the statute under which the
plaintiff corporation was organized, after providing for the opening
of books for subscriptions, declared that when a certain amount of
stock should be subscribed, and a certain percentage paid thereon,
the subscribers might meet and elect directors, and that thereupon
they should subscribe articles of association, in which should be set
forth certain matters, and that each subscriber to such articles
should subscribe thereto his name and place of residence, and the
number of shares taken by him. It then provided for filing the ar-
ticles of association in the office of the secretary of state, and de-
clared that thereupon the persons who should so subscribe, and

Park Bldg. Ass’n vy. Barnes, 39 Neb. 834, 58 N. W. 440, W. D. Smith, Cas. Corp.
42, and Shep. Cas. Corp. 21; Colfax Hotel Co. v. Lyon, 69 Iowa, 688, 29 N. W.
780; Bullock v. Turnpike Co., 85 Ky. 184, 3 S. W. 129: Webb vy. Railroad Co.,
77 Md. 92, 26 Atl. 118; Wemple y. Railroad Co., 120 Ill. 196, 11 N. B, 906. And
see Chaffin v. Cummings, 37 Me. 76.

88 Carlisle v. Railroad Co., 27 Mich. 315, 318. See 1 Mor. Priv. Corp. § 67.

89 Vreeland vy. Stone Co., 29 N. J. Eq. 188.

9024 N. Y. 150.
§ 99) SUBSCRIPTIONS TO STOCK. 279

such persons as should from time to time become stockholders,
should be a body corporate. The defendant, with others, signed a
paper, agreeing to take a certain number of shares of stock, but he
did not subscribe the articles of association. It was held that he
was not liable as a subscriber, as the statute contemplated subscrip-
tions only by subscribing the articles of association, and the paper
signed by him was merely a preliminary agreement for the purpose
-of bringing the parties together.® So, where the statute provides
that the persons desiring to organize a corporation should make,
sign, and acknowledge the articles of association, one who signs,
but does not acknowledge, them, does not become liable as a sub-
scriber.®?

Same—Subscriptions after Incorporation.

This principle applies to subscriptions after incorporation as well
as subscriptions prior to and in contemplation of incorporation.
Sometimes the disposal of unsubscribed stock is left to the unre-
stricted discretion of the corporation, but this is not always the
case. To prevent abuse, unfairness, and fraud, the charter or gov-
erning statute often prescribes the method of subscribing to stock in
corporations after they have been organized; and, unless a subscrip-
tion is in compliance therewith, the subscriber does not become a
member of the corporation, and therefore is not liable on his subscrip-
tion, in the absence of elements of estoppel. In Carlisle v. Saginaw
Val. & St. L. R. Co.®? the charter of the corporation declared that
the persons who should subscribe the articles of association, and all
other persons who should, from time to time thereafter, subscribe
to or become the holders of the capital stock of said corporation,
“in the manner to be prescribed by its by-laws,” should be a body
corporate. It was held that a subscription made after incorpora-
tion, but before any by-laws were adopted, gave no rights to either

91 And see Troy & B. R. Co. y. Tibbits, 18 Barb. (N. Y.) 297; Dutchess. & C.
G. R. Co. v. Mabbett, 58 N. Y. 397; Sedalia, W. & S. Ry. Co. v. Wilkerson, 83
Mo. 235; Monterey & S. V. R. Co. v. Hildreth, 58 Cal. 128. Compare, how-
ever, Peninsular Ry. Co. v. Duncan, 28 Mich. 180; Greenbrier Industrial Ex-
position v. Rodes, 37 W. Va. 738, 17 8. E. 305.

92 Coppage v. Hutton, 124 Ind. 401, 24 N. E. 112; Greenbrier Industrial Ex-
position v. Rodes, 37 W. Va. 738, 17 8. BE. 305.

9327 Mich. 315.
280 MEMBERSHIP IN CORPORATIONS. (Ch. 10

party, and, nothing having been done to operate as an estoppel, the
subscriber was held not bound by a subsequent by-law adopting
his subscription. So, as we shall see, if the statute or articles of
association appoint or prescribe particular agents to receive sub-
scriptions, no other person has authority to receive them, and a sub-
scription received by another agent is not binding either on the
corporation or on the subscriber.°**

Same—Directory Provisions.

The fact that the statute prescribes a particular way in which
subscriptions may be received will not be held to render invalid
subscriptions made in other ways, and good at common law, unless
the intent of the legislature to make the designated mode exclusive
is clear. Thus, where the statute under which a corporation was
formed provided that when the articles of association should be
filed as therein provided the directors named in the articles might,
in case the whole capital stock should not be subscribed, open books
of subscription to fill up the capital stock, it was held that the leg-
islature did not intend to prohibit other modes of receiving sub-
scriptions, and that a subscription which was good at common law
was binding, though not received in the mode prescribed by the
statute.°®

Same— Substantial Compliance with Statute.

Not every slight departure from the directions of the statute will
render a subscription invalid. It is enough if there is a’substantial
compliance. Thus it has been held that, if the statute requires the
directors to open books of subscription for the purpose of filling up
the capital stock, it is a sufficient compliance with the provision if
they adopt a book provided before the corporation was organized,
and accept subscriptions, with the assent of the persons who made
them, made and entered therein before organization. “The statute,”
it was said, “can mean no more than that the subscriptions are to
be made in a book provided by the directors for that purpose, and,

‘if they adopt one some one else has provided, every purpose of the

94 Post, p. 203.

95 Buffalo & J. R. Co. v. Gifford, 87 N. Y. 294. And see Stuart yv. Railroad
Co., 32 Grat. (Va.) 146.
§ 100) MUTUAL CONSENT. 281

statute is satisfied.” °° So where the statute requires articles of as-
sociation to be signed, setting forth the name of the corporation, its
duration, and certain other matters, it has been held that it is suffi-
cient if several separate papers, exact copies or transcripts of each
other, setting forth the prescribed facts, are signed by the corpo-
rators, some signing one and some signing another of them. The
several papers may be regarded as one instrument.°*

MUTUAL CONSENT.

100. Mutual consent on the part of the subscriber and of
the corporation is essential to a valid contract of
subscription.

No true contract can exist without mutual consent. This is true
of contracts of subscription to the capital stock of a corporation.
In the absence of elements of estoppel, no person can be held liable
as a subscriber to the stock of a corporation unless he has con-
sented to become a stockholder, and to become so in that corpora-
tion.®®

For this reason a person who subscribes to the stock of a corpora-
tion which it is proposed to form for a particular purpose, and with
particular powers, does not become a shareholder, and is not liable
on his subscription, if a corporation is formed by the other sub-
scribers, without his consent, for a different purpose, or with dif-
ferent powers. In Dorris v. Sweeney,°® the defendant signed a sub-
scription paper for the formation of a corporation for the purpose
of purchasing a patent “for preserving fruit or other products out
of season,” erecting a building, and “stocking the same with fruits.
to be preserved.” Some of the subscribers organized a corporation
under the general manufacturing act for “the manufacturing of pre-
served fruits, and the canning of fruits and other products, and the

96 Buffalo & J. R. Co. v. Gifford, 87 N. Y. 294, 801. See Woodruff v. Mc-
Donald, 33 Ark. 97.

97 Lake Ontario, A. & N. Y. R. Co. v. Mason, 16 N. Y. 451.

98 Dorris v. Sweeney, 60 N. Y. 463; Ticonic Water Power & Manuf’g Co. v.
Lang, 63 Me. 480; Richmond Factory Ass’n y. Clarke, 61 Me. 351; Machias
Hotel Co. v. Coyle, 35 Me. 405.

9960 N. Y. 463.
282 MEMBERSHIP IN CORPORATIONS. (Ch. 10

preserving and keeping of fruits and other articles from decay,” etc.
It was held that the defendant was not liable on his subscription,
‘because the business of the company embraced branches in which
he had never agreed to engage. So, in Richmond Factory Ass'n
vy. Clarke,?°® where a number of persons, including the defendant,
‘signed an agreement to associate themselves together under a gen-
eral law for the purpose of forming a manufacturing company, and
the attorney general, to whom they had to apply under the law for
a certificate, refused it, and some of those so subscribing, without
the concurrence of the defendant, procured from the legislature a
special act of incorporation to effectuate the purpose originally con-
templated, it was held that the corporation so created could not
enforce the defendant’s original subscription.

On the same principle, where the subscription paper or the articles
of association are materially altered without the consent of one
-of the subscribers thereto, he cannot be held liable on his subscrip-
tion.7°? And one who signs articles of association cannot be held
liable as a subscriber if those articles are abandoned, and others
substituted without his consent.1°? So, where the certificate of in-
corporation varies materially from the preliminary subscription, a
‘subscriber is not bound,—as where, by the subscription, the cor.
poration should expire on a certain date, and the certificate fixes
.a much later date for expiration.+°*

A subscription paper, to bind the subscribers, must,be complete.
Nothing must be left for further arrangement or consent. “A sig-
nature to an incomplete paper, wanting in any substantial partic-
ular, when no delegation of authority is conferred to supply the
-defect, does not bind the signer without further assent on his part
to the completion of the instrument.” 1°* This applies to subscrip-
tions. Therefore, where parties subscribed articles of association,

100 61 Me. 351.

101 Burrows v. Smith, 10 N. Y. 550; Katama Land Co. v. Jernegan, 126 Mass.
“155.

102 Southern Hotel Co. v. Newman, 30 Mo. 118. See, also, Richmond St. R.
Co. v. Reed, 83 Ind. 9.

108 Greenbrier Industrial Exposition v. Rodes, 37 W. Va. 738, 17 8. E. 305.
‘See, also, Bucher v. Railroad Co., 76 Pa. St. 306.

104 Dutchess & C. C. R. Co. v. Mabbett, 58 N. Y¥. 397.
§ 101) SUBSCRIPTIONS INDUCED BY FRAUD. 283

leaving blank the spaces for the names of the directors, it was held
that they were not bound as subscribers on the insertion of names
of directors without their consent.?°*

SUBSCRIPTIONS INDUCED BY FRAUD.

101. A subscription induced by the fraud of agents of tho
corporation authorized to solicit or receive sub-
scriptions, or by unauthorized agents whose receipt
of the subscription has been ratified by the corpo-
ration, is voidable at the option of the subscriber
to the same extent, and subject to the same rules,
as a contract between individuals would be. In
detail:

{a) To constitute fraud—

(1) There must be a false representation or willful
concealment of a material existing fact, and
not a misrepresentation as to the law, nor
mere expressions of opinion or promises.
Representations as to the effect of the con-
tract of subscription, or as to the rights and
powers of the corporation under its charter,
are as to matters of law, and do not vitiate

. the subscription.

(2) The representation must be made with intent
to deceive.

(8) It must be relied upon, and must actually de-
ceive.

(4) It must result in injury to the subscriber.

(b) Fraud renders the subscription voidable, and not
void. Therefore

(1) The subscription cannot be avoided after it has
been ratified. Receiving benefit from it, or
acting as a stockholder with knowledge of
the fraud, is a ratification.

105 Dutchess & C. C. R. Co. v. Mabbett, 58 N. Y. 897. And see McClelland v.
Whiteley, 15 Fed. 322.
284 MEMBERSHIP IN CORPORATIONS. (Ch. 10

(2) It cannot be avoided if the subscriber has been
guilty of laches in discovering the fraud, or,
after its discovery, in repudiating the con-
tract.

So long as a corporation is a going concern, having the manage-
ment and possession of its property, contracts made with it are gov-
erned by the same principles of law as contracts between individuals;
and it is therefore well settled that if one is induced to become a
subscriber to its capital stock by the fraud of the corporation or
of its officers or agents, and within a reasonable time after dis-
covery of the fraud, there having been no laches on his part in dis-
covering it, repudiates his subscription before the company becomes
insolvent, he is entitled to be relieved of all liability on his subscrip-
tion; and the fact that the company subsequently becomes insolvent,
and action is‘brought by its assignee or receiver, can make no dif-
ference.*°* And, though there are some cases to the contrary,’” it
is reasonable, and perhaps safe in most states, to say that, in the
absence of statutory provisions to the contrary, if the fraud is not
discovered until after the corporation becomes insolvent, and the
subscriber has not been guilty of laches, he may even then avoid
his subscription; for it cannot be said that under such circumstances
the equities of creditors of the corporation are superior to those of
the defrauded subscriber.*°*

Authority of Agents.

It was at one time held in England that, if the agents of a cor-
poration by false and fraudulent representations induce a person to
subscribe for shares, this does not entitle the subscriber to avoid

*

106 Fear y. Bartlett, 81 Md. 435, 82 Atl. 322, W. D. Smith, Cas. Corp. 58, and
Shep. Cas. Corp. 26; Savage v. Bartlett, 78 Md. 561, 28 Atl. 414; Vreeland v.
Stone Co., 29 N. J. Eq. 188; Ramsey v. Manufacturing Co., 116 Mo. 313, 22 S.
W. 719; Rockford, R. I. & St. L. R. Co. v. Shunick. 65 11. 223; Walker v. Rail-
road Co., 34 Miss. 245; Directors, etc., of Central Ry. Co. of Venezuela vy. Kisch,
L. R. 2 A. L. 99; Crump v. Mining Co., 7 Grat. (Va.) 352; Bradley v. Poole, 98
Mass. 169; and cases hereafter cited.

107 Turner v. Insurance Co., G5 Ga. 649.

108 Ramsey vy. Manufacturing Co., 116 Mo. 318, 22 S. W. 719; dictum in Savage
v. Bartlett, 78 Md. 561, 28 Atl. 414,
§ 101) SUBSCRIPTIONS INDUCED BY FRAUD. 285

the contract, nor give him a right of action against the corpora-
tion, but that his remedy is by action against the agents in-
dividually.?°® This view was based on the theory that the agents,
im perpetrating the fraud, exceed their authority, and that the fraud
therefore cannot be imputed to the corporation. These decisions
have since been overruled, and it is now well settled, both in England
and in this country, that, where the board of directors or other
agents of a corporation, having authority to solicit or receive sub-
scriptions for stock, induce a person to subscribe by false and fraud-
ulent representations, the fraud is imputable to the corporation, and
the subscriber may avoid his subscription.11° Some of the cases pro-
ceed on the theory that the representations are within the agent’s
apparent authority, while others proceed on the theory that the cor-
poration cannot seek to reap the fruits of the contract without adopt-
ing the means by which it was obtained. If a person solicits sub-
scriptions for a corporation without authority, and is guilty of fraud,
the corporation, in afterwards ratifying his act in receiving the sub-
scription, becomes bound by his fraud, and the subscription may be
avoided.**1

What Constitutes Fraud.

The rules for determining what representations or concealment of
facts constitute such fraud as will avoid a contract of subscription
are the same as in the case of any other contract. “Contracts of
this description between an individual and a, conipany, so far as.
misrepresentation or suppression of truth is concerned, are to be
treated like contracts between any two individuals. If one man
makes a false statement, which misleads another, the way in which
that is to be treated affords the example for the way in which a

109 See note by Hon. Seymour D. Thompson in 14 Am. Law Rev. 177, 178;
Holt’s Case, 22 Beay. 48; Felgate’s Case, 2 De Gex, J. & S. 456; Dodgson’s Case,
3 De Gex & S. 85.

110 Note by Hon. Seymour D. Thompson, supra. See Western Bank of Scot-
jand y. Addie, 5 Ct. Sess. Cas. (3d Series) 80; Ranger v. Railway Co., 5 H. L. Cas,
72; Directors, etc., of Central Ry. Co. of Venezuela v. Kisch, L, R. 2 H. L. 99;
Crump y. Mining Co., 7 Grat. (Va.) 352; cases cited in note 106, supra, and in the
following notes. .

111 Walker vy. Railroad Co., 34 Miss. 245.
286 MEMBERSHIP IN CORPORATIONS. (Ch. 10

contract is to be treated where a company makes a false statement,
which misleads an individual.” +7?

Before going into details, it may be said, substantially in the lan-
guage of Judge Chalmers in a Mississippi case,’**® that, to avoid a
subscription upon the ground of false representations by an agent
of the corporation, it must appear that the statement was not made
as an opinion, but as an ascertained and existing fact. It must not
only be false in fact, but must also be either known to be so by the
party uttering it, or his position must be one that made it his duty
to know the truth. The resisting subscriber must show that he acted
upon such statement; that his own position was such as warranted
him in so acting; and that the statement was as to a fact material
to the question of his subscription, and was relied upon by him.
If the representations are as to matters controlled by the charter,
apd as to which the subscriber is bound to know that the. agent
has no right to make representations inconsistent therewith, they
will not avoid the subscription. As to matters not controlled by
the charter, false and fraudulent representations, which come with-
in these limitations, and’ by which one has been entrapped into a
subscription, will avoid the contract, just as fraud vitiates contracts
of every character.

Fraud generally consists of a false representation of a material
fact. But it must be borne in mind that concealment of facts may
render a representation false.144 Thus, where a subscription to
stock in a corporatién was obtained by the representation that a
prominent business man had subscribed for a large amount, but
the fact that he had paid nothing for his shares was concealed, his
subscription having been obtained for the express purpose of influen-
cing others to subscribe, it was held that such concealment made the
representation false and fraudulent, and was ground for avoiding
the subscription.7?°

112 Per Lord Romilly in Directors, ete., of Central Ry. Co. of Venezuela v. Kisch,
L. R. 2 H. L. 99, 125.

113 Selma, M. & M. R. Co. v. Anderson, 51 Miss, $29.

114 Clark, Cont. 324.

116 Coles v.. Kennedy, 81 Iowa, 360, 46 .N. W. 1088, and W. D. Smith, Cas,
Corp. 56. And see Crump vy. Mining Co., 7 Grat. (Va.) 382.

\
§ 101) SUBSCRIPTIONS INDUCED BY FRAUD. 287

It is well settled that a misrepresentation of misunderstanding of
the law will not vitiate a contract, where there is no misunderstand-
ing of the facts. And this principle applies to subscriptions to the:
capital stock of a corporation as fully as to other contracts. It
follows that misrepresentations by a corporation, or by its officers
or agents, as to the legal effect of contracts of subscription to its.
stock, or as to the rights and powers of the corporation under its
charter, though made for the purpose of inducing persons to sub-
scribe, will not vitiate subscriptions, or constitute any defense in
an action thereon, for such representations are as to a matter of
law, subscribers being bound to take notice of the provisions of the
charter, and of all general laws affecting the corporation, and of the
terms and legal effect of subscription papers which they sign.**®

Mere expressions of opinion or promises by the corporation or its:
officers or agents, though fraudulently made for the purpose of in-
ducing a subscription, will not render the subscription voidable.
The representation must.be as to an existing fact. Thus it has been
held that promises and representations as to what will be done by
the corporation, and as to the advantages that will accrue to the
subscribers, or as to the value of its assets and stock, or the holding
out of flattering prospects, do not constitute such fraud as will
vitiate a subscription induced thereby.1*? So, false representations.

116 Upton vy. Tribilcock. 91 U. S. 45, 1 Cumming, Cas. Priv. Corp. 824. In this
case the defendant had subscribed for shares in a corporation, and taken certificates,
under which, by law, he became liable to assessment for the full amount of the
shares. In an action on his subscription he set up fraud on the part of the agents
of the corporation, relying upon false representations by them that 20 per cent. only
of his subscription was required to be paid, and that 80 per cent. was nonassessa-
ble. It was held that these representations, being as to matter of law, were no
defense. See, also. in support of the text, Parker v. Thomas, 19 Ind. 213; Wight
vy. Railroad Co., 16 B. Mon. (Ky.) 4; New Albany & S. R. Co. v. Fields, 10 Ind.
187; Bllison vy. Railroad Co., 36 Miss. 572; Clem v. Railroad Co., 9 Ind. 488.
Compare Wert v. Turnpike Co., 19 Ind. 242.

117 Richelieu Hotel Co. v. International Military Encampment Co., 140 Ill. 248,
29 N. EB. 1044, W. D. Smith, Cas. Priv. Corp. 48, Shep. Cas. Corp. 16; Columbia
Blectrie Co. v. Dixon, 46 Minn. 463, 49 N. W. 244; Walker vy. Railroad Co., 34
Miss. 245; Saffold v. Barnes, 39 Miss. 399; Hughes v. Manufacturing Co., 34
Md. 316, 326; Armstrong v. Karshner, 47 Obio St. 276, 24 N. HE. 897. Compare
Union Nat. Bank v. Hunt, 76 Mo. 439.
288 MEMBERSHIP IN CORPORATIONS. (Ch. 10

in respect to such matters as the ability of a railroad company to
coustruct the road, and the time within which it will be done, will
not avoid a subscription to its stock.***

False representations, however fraudulently they may have been
made, will never avoid a subscription, unless the subscriber believed
in them, and relied upon them, so that his subscription was induced
by them. This is a well-settled principle, applicable to all contracts,
including subscriptions.**®

On the other hand, it is also well settled that, where there has
been fraudulent misrepresentation or willful concealment of facts,
by which a person has been induced to enter into a contract, it is
no answer to his claim to be relieved from it, that he might have
known the truth by proper inquiry; and this principle applies
where a subscription to stock is induced by fraud.*?°

To render a representation fraudulent, and ground for avoiding a
subscription, there must have been knowledge of its falsity, actual
or imputable, and an intent to deceive.*?*

The rule that fraud must result in injury, in order to render a
contract voidable, applies where a subscriber seeks to avoid his
contract on the ground of fraud.*?* In Connecticut & P. R. Co.
v. Bailey 7*° the defendant sought to defeat an action on his sub-
scription to the stock of a corporation on the ground that subscrip-
tions previous to his, and on the strength of which he was induced
to subscribe, were fictitious, because of a secret agreement with the
subscribers that they should not be called upon to pay. It was held
that, as these subscribers were bound according to the expressed
and absolute terms of their subscriptions, and could not avail them-
selves of the secret agreement, the fraud did not injure the defend-
ant, and that he could not avoid his contract. It was also said that

118 Bish v. Bradford, 17 Ind. 490: Parker v. Thomas, 19 Ind. 213. See, also,
Wight v. Railroad Co., 16 B. Mon. (Iy.) 4; Walker v. Railroad Co., 34 Miss. 245.
119 Parker v. Thomas, 19 Ind. 213; Walker v. Railroad Co., 34 Miss. 245, 256.

120 Directors, etc., of Central Ry. Co. of Venezuela vy. Kisch, L. R. 2 H. L. 99.

121 Salem Milldam Corp. v. Ropes, 9 Pick. (Mass.) 187; Goodrich v. Reynolds,
31 Ill. 490.

122 Connecticut & P. R. Co. v. Bailey, 24 Vt. 465, W. D. Smith, Cas. Corp. 63,
Shep. Cas. Corp. 28; Anderson v. Railroad Co., 12 Ind. 376; Keller y. Johnson,
11 Ind. 337.

122 24 Vt. 465, W. D. Smith, Cas. Corp. 63, Shep. Cas. Corp. 28.

ae
§ 101) SUBSCRIPTIONS INDUCED BY FRAUD. 289

the different subscriptions were independent, and that the defend-
ant had no right to rely on them.??* For a like reason, where a
note is given in payment of a subscription previously made, the
subscription cannot be avoided because of false representations at
the time the note was given.1?5

Subscription Voidable and not Void—Ratification and Rescission—

Laches. .

It is well settled that a subscription induced by false and fraud-
ulent representations is not absolutely void, but, like other con-
tracts induced by fraud, is merely voidable at the option of the
subscriber. It is valid until repudiated.’?® If the defrauded sub-
scriber affirms the subscription after discovery of the fraud, he
cannot afterwards repudiate it.1?27. And he will be held to have af-
firmed it if it appears that, with knowledge of the fraud, he took
part as an officer or as a shareholder in the management of the cor-
poration, or paid assessments on his shares, or took any benefit from
his shares.??8

To entitle a subscriber to be relieved from liability on his sub-
scription on the ground that he was induced to subscribe by fraud,

124 And see Chouteau Ins. Co. v. Floyd, 74 Mo. 286; Blodgett v. Morrill, 20 Vt.
509.

126 Goodrich v. Reynolds, 31 Ill. 490.

126 See Upton v. Englehart, 3 Dill. 496, Fed. Cas. No. 16,800; Farrar v. Walker,
3 Dill. 506, note, Fed. Cas. No. 4,679; and cases in the following notes.

127 City Bank of Macon v. Bartlett, 71 Ga. 797.

128 City Bank of Macon vy. Bartlett, 71 Ga. 797; Fear v. Bartlett, 81 Md.
485, 382 Atl. 322, W. D. Smith, Cas. Corp. 58, Shep. Cas. Corp. 26. There may
be circumstances under which a payment by the subscriber will not be held
an affirmance. In Fear v. Bartlett, supra, it appeared that the defendant, who
was unable to read or write, was induced by the fraud of a corporation to sub-
scribe to its capital stock. Two months later he discovered the fraud, and im-
mediately repudiated the contract. A year afterwards one of the directors came to
the defendant, and told him he wanted to get $10,000 to save the property of the
company, and that he had paid $5,000 in cash on account of his stock, and wanted

_ to try and save what he had paid. To this the defendant replied that he would
never give another dollar towards his subscription; but finally he said he was will-
ing to give $1,000 to save what he had already paid on his subscription, and there-
upon he gave his check for that amount. It was held that under the circumstances,
the defendant having testified that he did not intend a payment on his subscription,
he should not be held to have affirmed his subscription.

Clk.Pr.Corp.—19
290 MEMBERSHIP IN CORPORATIONS. (Ch. 10

he must have exercised care and vigilance to discover the fraud,
and, having discovered it, he must have acted promptly in repudiat-
ing his contract. “A man must not,” said Lord Romilly, “play fast
and loose; he must not say, ‘I will abide by the company if suc
cessful, and I will leave the company if it fails; and therefore, when-
ever a representation is made, of which any one of the shareholders
has notice, and can take advantage to avoid his contract with the
company, it is his duty to determine at once whether he will depart
from the company, or whether he will remain a member.” *?°

In England, under the companies act, a person who has been in-
duced to subscribe to the stock of a corporation by fraud must not
only repudiate the subscription within a reasonable time after dis-
covery of the fraud, but he must take steps to have his name re-
moved from the books of the company; and the proceedings to have
his name removed must be instituted before the insolvency of the
company. In the absence of a statute requiring this step on the
part of the subscriber, it is held with us that removal of his name
from the books of the corporation is not necessary to relieve a sub-
scriber on the ground of fraud, but it is sufficient if he repudiates
the subscription, and gives the company notice thereof.1?°

SUBSCRIPTIONS UNDER MISTAKE.

102. If a person, without fault or negligence, signs a sub-
scription paper under a mistake as to its nature,
, the subscription is not merely voidable, but void

‘on the ground of mistake.

Fraud, as we have just seen, renders a subscription voidable. Mis-
take, on the other hand, renders a contract absolutely void. There are
very few cases in which mistake can be set up to defeat a subscription.
Perhaps it is safe to say that the only case is where the mistake was

129 Ashley’s Case, L. R. 9 Eq. 263, 268. And see Upton v. Tribilcock, 91 U.
8. 45, 1 Cumming, Cas. Priv. Corp. 824; Ogilvie v. Insurance Co., 22 How. 380;
Upton vy. Englehart, 3 Dill. 496, Fed. Cas. No. 16,800; Farrar v. Walker, 3 Dill.
506, note, Fed. Cas. No. 4,679; Directors, ete., of Central Ry. Co. of Venezuela
y. Kisch, L. R. 2 H. L. 99; City Bank of Macon v. Bartlett, 71 Ga. 797; Ameri-
can Building & Loan Ass’n v. Rainbolt (Neb.) 67 N. W. 493.

180 Savage v. Bartlett, 78 Md. 561, 28 Atl. 414,
§ 108) SUBSCRIPTION BY AGENT. 291

as to the naturé of the transaction, and was induced by the deceit or
other fault of the corporation or of some third party against which
ordinary diligence could not guard.7*?. It has been said that: “Ifa
person signs a subscription paper, entirely misunderstanding the na-
ture of the instrument which he is signing, his subscription must be
treated as null and void for want of mutual consent. In this case the
question of fraud is not material.” 1°? This is undoubtedly the law if
the subscriber was not guilty of negligence in signing the paper.*** If
one should falsely read a subscription paper to a man who is unable to
read, and he should sign it, without being guilty of negligence, the sub-
scription would be void ab initio on the ground of mistake, and not
merely voidable on the ground of fraud.***

Subscriptions cannot be avoided because of a mistake as to the ad-
vantages to be gained by the incorporation. Thus it has been held
that a subscription to a mill-dam corporation could not be avoided
on the ground that the published estimate of the capacity of a mill
was erroneous, and that the parties could not derive the expected
benefits from the corporation, where there was no fraudulent intent
to deceive those subscribing on the faith of the estimate.*** Mistake
of law can no more be set up as a defense in case of a subscription
than in the case of any other contract.*?®

SUBSCRIPTION BY AGENT.

103. A contract of subscription may be made by one per-
~ gon as agent for another, subject to the rules gov-
erning other contracts by agents. Some courts
hold that one who assumes to subscribe as agent
without authority does not himself become a stock-
holder, and so liable on the subscription, but is
liable in damages for assuming to act without
authority, while others hold him as a stockholder.

181 See Clark, Cont. 289, for the cases in which mistake renders a contract void.
1321 Mor. Corp. § 97.

133 Clark, Cont. 291, 292.

134 Rockford, R. I. & St. L. Co. v. Shunick, 65 Ill. 223.

185 Salem Milldam Corp. v. Ropes. 9 Pick. (Mass.) 187.

136 Clark, Cont. 305.
292 MEMBERSHIP IN CORPORATIONS. (Ch. 10

A contract of subscription, like any other contract, may be made
by one person as agent for another, if he has authority, and, the sub-
scription being accepted, and the shares apportioned to the agent
for the principal, or to the principal, the latter becomes a stockholder
as fully as if he had subscribed himself.1°7 And where a person as-
sumes to subscribe as agent for another without authority, the other
inay become a stockholder, and liable on the subscription by ratifica-
tion.138

It has been held by some of the courts that if a person subscribes
another’s name for shares in a corporation, without authority to do
so, or where the other is not capable of subscribing, he thereby binds
himself, and becomes a stockholder.1*® Other courts hold that he
will be liable for damages in an action on the case for assuming to
act without authority, but that he does not himself become a member
of the corporation, and cannot be held liable on the subscription.**°
Ordinarily, it is immaterial that a subscription is made by an agent
for an undisclosed principal; but such a subscription may be express-
ly or impliedly prohibited by the statute or charter. Thus, where an
act incorporating a railroad company and appointing commissioners
to open books and receive subscriptions required them, in case of
subscriptions in excess of the capital stock, to distribute the stock
among the subscribers in their discretion, and in a manner most ad-
yantageous to the company, it was held that, since the commissioners,
to perform their duty, must know who the subscribers are, a sub-
scription by an agent for an undisclosed principal, for the purpose of
evading the statute, was prohibited and unlawful.1#

187 Burr v. Wilcox, 22 N. Y. 551. It is, of course, essential that authority be
shown. See McClelland vy. Whiteley, 15 Fed. 322.

188 Rutland & B. R. Co. v. Lincoln, 29 Vt. 206. Declarations by the alleged
principal to strangers, that he had taken the amount of stock subscribed for by the
alleged agent, were held insufficient to show a ratification. Rutland & B. R. Co.
v. Lincoln, supra. See, also, as to what constitutes ratification, Ticonic Water-
Power Manuf’g Co. v. Lang, 63 Me. 480; McClelland v. Whiteley, 15 Fed. 322.

139 State v. Smith, 48 Vt. 266, 284; National Commercial Bank v. McDonnell,
02 Ala. 887, 9 South. 149; Allibone v. Hager, 46 Pa. St. 48,

140 Salem Milldam Corp. v. Ropes, 9 Pick. (Mass.) 187.

141 Perkins v. Savage, 15 Wend. (N. Y.) 412.
§§ 104-106) SUBSCRIPTION BY AGENT. 293

SAME—AGENTS TO RECEIVE SUBSCRIPTIONS.

104. The person receiving a subscription to stock in a cor-
poration that has been organized must be duly
authorized, or the corporation must ratify his act,
to render the subscription binding.

105. If the charter, enabling act, or articles of association
appoint particular agents to receive subscriptions,
prior to or after organization, no other person has
authority to receive them. They may, however, act
by deputy.

106. Agents appointed to receive subscriptions have such
authority only as is conferred upon them; but un-
authorized acts or stipulations may be ratified by
the corporation.

Corporations can only contract by agent when the agent has been
given authority to enter into the contract. A contract entered into
by a person purporting to act as agent for a corporation, but who has
not been given authority for the purpose, does not bind the corpora-
tion, and therefore does not bind the other party.**” This is true of
subscriptions taken by a.person without authority.*** Such a sub-
scription will become binding, however, if the corporation ratifies its
receipt, and adopts it.+*+

It often happens that the charter, or enabling act, or articles of as-
sociation appoint or prescribe particular agents to receive subscrip-
tions to the stock of a corporation which it is proposed to organize, or
which has been organized. When this is the case, no other person
has any authority to receive subscriptions. A subscription received
by any other person is absolutely void. In Shurtz v. Schoolcraft &
Three Rivers R. Co.'*® the articles of association of a railroad com-
pany, as provided by the general Jaw under which it was formed, nam-
ed five commissioners to open books for subscriptions to stock. The
commissioners did not open books, but a subscription paper was cir-
culated by an agent appointed by the board of directors, and the de-

142 Post, p. 498. 144 Post, p. 500.
143 Essex Turnpike Corp. v. Collins, 8 Mass, 292. 1459 Mich. 269.
294 MEMBERSHIP IN CORPORATIONS. (Ch. 10

fendant subscribed thereon, and subsequently on several occasions
promised to pay his subscription. It was held that the subscription
was a nullity, and that the defendant was not liable on it.’*®

It has been held that the receiving of subscriptions by commis-
sioners appointed for that purpose is a ministerial act, since any one
has a right to subscribe by complying with the statute, and that it
may, therefore, be performed by an agent or deputy appointed by the
commissioners, and that the commissioners may ratify a subscription
received by one without authority.**7 But where the commissioners
are required to distribute stock when more than the authorized
amount has been subscribed, this power is a judicial one, being “a
power to exercise a discretion founded on such considerations as
‘may appear to them beneficial to the company’s interests,” and can-
not be exercised by deputy. There being no provision that a majority
shall constitute a quorum, all of the commissioners must be present
to hear and consult, though a majority may then decide. A dis-
tribution at a meeting of less than all the commissioners is coram non
judice and void.**®

Agents appointed to receive subscriptions, either before or after
incorporation, have such authority only as is conferred upon them.**®
If they do unauthorized acts, or enter into unauthorized stipulations
with subscribers, such acts or stipulations may become binding on
the corporation by ratification or adoption, if within its powers.'*°

SAME—CONDITIONAL SUBSCRIPTIONS.

107. A conditional subscription to stock of a corporation
is a subscription to take effect only on the fulfill-
ment of a condition precedent. The subscriber does
not become a shareholder, nor liable on his subscrip-
tion, until the condition is substantially performed
according to its terms. When it is so performed,
the subscription becomes absolute and unconditional.

146 And see Parker v. Railroad Co., 33 Mich. 23; Northern Cent. Michigan R.

Co. vy. Eslow, 40 Mich. 222.

147 Crocker v. Crane, 21 Wend. (N. Y.) 211. And see Penobscot R. Co. v.

White, 41 Me. 512.

148 Crocker vy. Crane, 21 Wend. (N. Y.) 211.
149 Post, p. 493. 150 Post, p. 500.

 
§§ 107-109) CONDITIONAL SUBSCRIPTIONS. 295

108. Conditional subscriptions after organization of a cor-
poration are valid. Such subscriptions prior to and
for the purpose of organization have also been sus-
tained; but, by the better opinion, where it is pro-
posed to organize a corporation under a charter or
enabling act requiring a certain amount of stock to
be subscribed, all subscriptions prior to organiza-
tion must be absolute and unconditional. In some
states, where a conditional subscription is made in
such a case, the subscription is held void; but in
others the condition only is void, and the subscrip-
tion is valid.

109. Conditions precedent may be waived either by ex-
press agreement or by conduct showing such an
intent.

By conditional subscription is meant a subscription the liability on
which and the rights under which are dependent upon a condition
precedent. Until the condition is fulfilled, no rights or liabilities at all
arise out of the subscription. There is another class of subscriptions
sometimes erroneously called “conditional subscriptions.” These are
absolute subscriptions on special terms. They are described by some
writers and courts as subscriptions on conditions subsequent, but the
better term is that applied by Mr. Morawetz, “subscriptions upon
special terms.” +51, They are subscriptions which are absolute in so
far as the liability thereon is concerned, and which make ‘the sub-
scriber a shareholder before compliance with the stipulations con-
tained therein. The stipulations are merely terms of the contract
of membership for the breach of which by the corporation the sub-
scriber must resort to his remedy against it, as by action for dam-
ages.15?_ This class of subscriptions will be considered in the next
section, and we will then see more at length the distinction between
them and subscriptions upon conditions precedent, and the principles
upon which it is determined whether a particular stipulation is a con-
dition precedent or merely a special term. :

1511 Mor. Corp. § 82 et seq. 162 Post, p. 302.
296 MEMBERSHIP IN CORPORATIONS. (Ch. 10

Subscriptions after Organization of the Corporation.

A person, in subscribing for stock in a corporation which has already
been organized, has a right to make his subscription dependent upon
the performance or fulfillment of a condition precedent, provided the
corporation sees fit to accept such a subscription, and provided such
subscriptions are not expressly or impliedly prohibited by its charter.
In other words, he has a right to agree with the corporation that he
will take stock and become a shareholder when a certain thing hap-
pens or is done. To allow such subscriptions after the corporation
has been organized is not contrary to public policy. In such a case
the subscriber does not become a shareholder, and therefore is not
entitled to the rights nor subject to the liabilities of a shareholder,
until the condition is performed according to its terms. His sub-
scription is merely an agreement, or, according to some opinions, an
offer, to become a shareholder when the condition has been fulfilled.
Upon its fulfillment, without any further act or assent on his part, he
becomes a shareholder and is liable on his subscription.**?

Thus, where a subscription to stock in a railroad company is ex-
pressly made upon condition that the road shall be located upon a
certain route, the location of the road upon that route is a condition
precedent to any liability on the subscription. The subscriber does
not become a shareholder at all until then, but when the road is so
located the subscription becomes absolute and unconditional, and the
subscriber becomes eo instanti a shareholder, with all the rights and
privileges and subject to all the liabilities of the other. sharehold-
ers.15# So, a subscription to stock of a railroad company may be

158 Taggart v. Railroad Co., 24 Md. 563; Webb v. Railroad Co., 77 Md. 92, 26
Atl. 113; Corey v. Morrill, 61 Vt. 598, 17 Atl. 840; Ashtabula & N. L. R. Co.
vy. Smith, 15 Ohio St. 328; Chase v. Railroad Co., 38 Ill. 215; Armstrong v.
Karshner, 47 Ohio St. 276, 24 N. E. 897; Philadelphia & W. GC. R. Co. v. Hick-
man, 28 Pa. St. 518; Caley v. Railroad Co., 80 Pa. St. 363; Hanover Junc-
tion & S. R. Co. v. Grubb, 82 Pa. St. 86; Montpelier & W. River R. Co. y.
Langdon, 46 Vt. 284,

154 MeMillan v. Railroad Co., 15 B. Mon. (Ky.) 218; Henderson & N. R. Co.
vy. Leavell, 16 B. Mon. 364; Taggart v. Railroad Co., 24 Md. 568; Baltimore
& D. P. R. Co. v. Pumphrey, 74 Md. 86, 21 Atl. 559; New Albany & S. R. Co.
vy. McCormick, 10 Ind. 499; Parker vy. Thomas, 19 Ind. 218. Such a condition
vnly requires location of the road on the route designated. It does not require
actual construction and completion of the road before calling for payment of
§§ 107-109) CONDITIONAL SUBSCRIPTIONS. 297

made upon, condition that the road shall be put under contract for
grading or construction between certain points,’®® or that it shall be
completed in whole or in part, or completed and put in operation,**°
or that a contract shall be made for equipping and ironing it.1°7 So
a person may subscribe on condition that a certain amount of stock
shall be subscribed. In such a case he does not become a share-
holder, and is not liable on his subscription, until bona fide binding
and absolute subscriptions to the amount specified and of the kind
specified have been received; and, if some of the subscriptions relied
upon to make up the required amount were conditional, it must be
shown that the conditions have been performed, so that the subscrip-
tions have become absolute.7®®

As stated above, in the case of a subscription upon condition
precedent, the condition must be performed before any liability on
the subscription will attach. And it must be performed according to
its terms, and within the time limited, or within a reasonable time,

subscriptions. Miller v. Railroad Co., 40 Pa. St. 237. In New York it has
peen held that it is contrary to public policy to allow subscriptions to the capital
stock of a railroad, turnpike, or other similar corporation, on condition that the
road shall be located on a certain route, or that its station. or depot shall be
located at a particular point, as it was considered that the directors should be
left free to so act in these respects as to best serve the interests of the public.
They hold that such a subscription is void, and the subscriber does not become
an shareholder on performance of the condition. Butternuts & Oxford Turnpike
Co. v. North, 1 Hill (N. Y.) 518; Ft. Edward & F. M. Plank-Road Co. v. Payne,
15 N. Y. 583. Most courts, however, sustain such a condition, at least if the
company is not restricted from also locating lines, stations, or depots along other
routes, or at other points, or otherwise doing whatever the public convenience
may require, and many of them sustain such conditions without qualification.
See the cases cited above.

156 Connecticut & P. R. R. Co. v. Baxter, 32 Vt. 805.

156 Paducah & M. R. Co. v. Parks, 86 Tenn. 554, 8 S. W. 842; Armstrong \.
Karshner, 47 Ohio St. 276, 24 N. EB. 897; Lesher v. Karshner, 47 Ohio St. 302,
24 N. E. 882; Webb v. Railroad Co.. 77 Md. 92, 26 Atl. 113.

157 Brand v. Railroad Co., 77 Ga. 506, 1S. EB. 255.

158 Philadelphia & W. C. R. Co. v. Hickman, 28 Pa. St. 318; Union Hotel
Co. v. Hersee, 79 N. Y. 454; Brand v. Railroad Co., 77 Ga. 506, 1 S. BE. 255;
People’s Ferry Co. v. Balch, 8 Gray (Mass,) 303; Troy & G. I. Co. v. Newton,
Id. 596; New York Exchange Co. v. De Wolf, 31 N. Y. 273; post, p. 308. Of
course void subscriptions, like subscriptions at common law by married women,
cannot be considered in determining whether the required amount has been sub-
298 MEMBERSHIP IN CORPORATIONS. (Ch. 10

where no time is specified.1*® A substantial performance, however,
as is the case with other contracts, is sufficient.*®°

In some of the cases it is said that a conditional subscription
which the corporation is authorized to receive is a mere continuing
offer until the condition is performed; that the condition must be
performed to constitute an acceptance of it; and that until then it
may be withdrawn.1*+ But other courts, more properly, it seems,
hold that after acceptance or assent by the corporation to a condi-
tional subscription, which it is authorized to take, the subscriber is
bound until performance of the condition to await such perform-
ance; that he cannot withdraw the subscription unless the perform-
ance is unreasonably delayed.1®? If performance of the condition is
unreasonably delayed, he may withdraw,'** or perhaps the subscrip-
tion would lapse without express withdrawal.*** If a time is specified
for performance of the condition, the subscription will lapse, and be-
come void, if it is not performed within that time.*®®

A conditional subscription, which is not a present valid contract.
because the corporation has no authority at the time it is made to
accept conditional subscriptions, will constitute a continuing offer to
subscribe upon the specified conditions; and when those conditions
are performed, if the offer be not before withdrawn, it will become an
absolute and unconditional subscription.**® The difference between
such a subscription and a conditional subscription which the corpora-
tion is authorized to receive is that the former becomes a binding

scribed. Hahn’s Appeal (Pa.) 7 Atl. 482. Where the condition of a subscrip-
tion to stock of a railroad company is that, in the judgment of the directors, a
sufficient amount be subscribed to build the road, the condition is performed
when the board of directors in good faith pass a resolution that sufficient stock
has been subscribed, though they may be mistaken. Cass v. Railway Co., 80 Pa.
St. 31.

159 Ticonic Water Power & Manuf’g Co. v. Lang, 63 Me. 480.

1601 Cook, Stock, Stockh. & Corp. Law, § 86; O’Neal v. King, 3 Jones (N.
C.) 517.

161 Webb v. Railroad Co., 77 Md. 92, 26 Atl. 113.

162 Armstrong v. Karshner, 47 Ohio St. 276, 24 N. H. 897,

1683 See Stevens v. Corbitt, 83 Mich. 458.

164 See Blake ‘v. Brown, 80 Iowa, 277, 45 N. W. 751.

165 Ticonie Water Power & Manuf’g Co, v. Lang, 63 Me. 480.

166 Armstrong v. Karshner, 47 Ohio St. 276, 24 N. EB. 897,
§§ 107-109) CONDITIONAL SUBSCRIPTIONS. 299

contract when accepted, though the subscriber does not become a
shareholder, nor liable as such, until the condition is performed, while
the latter does not become binding until the condition is performed,
and may, at any time before then, be withdrawn.'**

Subscriptions Prior to Incorporation.

Subscriptions upon conditions precedent, made prior to procuring
a special charter, or prior to the organization of the corporation un-
der a general law, have been sustained in some cases.*°* But the
validity of such subscriptions is very doubtful, for they allow in-
dividuals to obtain charters from the government on subscriptions
which may never become binding. Furthermore, they may operate
as a fraud upon other persons who subscribe absolutely, and on the
faith of the other subscriptions, and upon creditors who trust the
corporation on the faith of such subscriptions.

It has been held, and may perhaps be regarded as established law,
that where the charter or enabling act, under which it is proposed to
organize a corporation, requires a certain amount of stock to be sub-
scribed before corporate powers can be exercised, persons subscribing
for stock prior to organization of the corporation, and for the purpose
of organization, cannot attach conditions, but their subscriptions must
be absolute and unconditional. The commissioners or other agents
have no power to receive subscriptions dependent upon conditions
precedent. As was said by the Pennsylvania court, “the commis-
sioners who are appointed to receive subscriptions are not the ac-
credited agents of the corporation, for it is not yet in being, but are
rather the agents of the public, acting under limited and definite
powers, which every one is bound to know; and, if he be misled by
representations which such agents have no right to make, it is his
own folly. Any other rule would lead to the procurement from the
commonwealth of valuable charters without any absolute capital for
their support, and thus give rise to a system of speculation and fraud
which would be intolerable.” 1®° So, in Burke v. Smith,*7° it was
said by Mr. Justice Strong, speaking of the invalidity of conditional

167 Armstrong v. Karshner, supra.

168 See Montpelier & W. R. R. Co. v. Langdon, 46 Vt. 284; People’s Ferry Co.
. Balch, 8 Gray (Mass.) 303.

164 Caley v. Railroad Co., 80 Pa. St. 363.

17016 Wall. 390.

-
300 MEMBERSHIP IN CORPORATIONS. ‘ (Ch. 10

subscriptions prior to organization of a railroad corporation: “When
a company is incorporated under general laws, * * * and the
law prescribes that a certain amount of stock shall be subscribed be-
fore corporate powers shall be exercised, if subscriptions, obtained
before the organization was effected, may be subsequently rendered
unavailable by conditions attached to them, the substantial require-
ments of the laws are defeated. ‘The purpose of such a requisition is
that the state may be assured of the successful prosecution of the
work, and that creditors of the company may have, to the extent,
at least, of the required subscription, the means of obtaining satis-
faction of their claims. The grant of the franchise is, therefore, made
dependent upon securing a specified amount of capital. If the sub-
scriptions to the stock can be clogged with such conditions as to ren-
der it impossible to collect the fund which the state required to be
provided before it would assent to the grant of corporate powers, a
charter might be obtained without any available capital. Conditions
attached to subscriptions, which, if valid, lessen the capital of the
company, thus depriving the state of the security it exacted that the
railroad would be built, and diminishing the means intended for the
protection of creditors, are, therefore, a fraud upon the grantor of
the franchise, and upon those who may become creditors of the cor-
poration. They are also a fraud upon unconditional stockholders,
who subscribed to the stock in the faith that capital sufficient would
be obtained to complete the projected work, and who may be com-
pelled to pay their subscriptions, though the enterprise has failed, and
their whole investment has been lost. It is for these reasons that
such conditions are denied any effect.”

In New York it is held that a conditional subscription prior to such
an incorporation is a nullity, and that no rights or liabilities at all can
arise out of it.17* In Pennsylvania it is held that the condition only
is void, and that the subscription is to be treated as absolute and un-
conditional.*7?

171 Troy & B. R. Co. v. Tibbits, 18 Barb. (N. Y.) 207.
172 Caley v. Railroad Co., 80 Pa, St. 868; Boyd vy. Railway Co., 90 Pa. St. 169;

Pittsburgh & S. R. Co. v. Biggar, 84 Pa. St. 455; Bavington vy. Hailroad Co.
Id. 35s,
&§ 107-109) CONDITIONAL SUBSCRIPTIONS. 301

Conditions must be Expressed in the Writing.

In Pennsylvania, because of the fact that the courts of law in that
state have equitable jurisdiction, a written contract that is absolute
on its face may be shown by parol evidence to have been conditional,
and oral conditions precedent may be shown to defeat a recovery on
a written subscription that is absolute on its face.17* In most, if not
in all, of the other states the rule excluding parol evidence to vary a
written contract will render oral conditions void, and a condition, to
have any effect, must be expressed in the writing.*"*

Waiver of Condition Precedent. .
“Performance of a condition precedent in a subscription may be
se by the subscriber, and in such a case he cannot set up non-
performance to escape liability on the subscription.17* And the
waiver may not only be by an express agreement, either oral or writ-
ten, but it will be implied from any conduct on his part which clearly
shows an intention not to insist upon the condition. Thus, in the
absence of special circumstances negativing an intent to waive a con-
dition, a waiver will be implied if the subscriber, knowing, or with the
means of knowing, that the condition has not been complied with,
acts asa shareholder, or pays his subscription.*”®

178 See Miller v. Railroad Co., 87 Pa. St. 95.

1741 Thomp. Corp. § 1149; Masonic Temple Ass’n of Minneapolis v. Channell,
43 Minn. 358, 45 N. W. 716; Wight v. Railroad Co., 16 B. Mon. (Ky.) 4; Fair-
field County Turnpike Co. v. Thorp, 13 Conn. 173.

1751 Thomp. Corp. § 1336; O’Donald v. Railroad Co., 14 Ind. 259; Slipher v.
Earhart, 83 Ind. 178; Chamberlain v. Railroad Co., 15 Ohio St. 226; Hutchins
y. Smith, 46 Barb. (N. Y.) 235; post, p. 310.

176 Cornell’s Appeal, 114 Pa. St. 158, 6 Atl. 258; Mack’s Appeal (Pa. Sup.) 7
Atl. 481. But see, contra, Atlantic Cotton Mills v. Abbott, 9 Cush. (Mass.) 423.
The decision in this case is the result of the ruling in Massachusetts that a sub-
scription raises no implied promise to pay, and that the express promise is collateral
to it. That part payment of a subscription is a waiver of unperformed conditions
precedent, see Cornell’s Appeal, supra; Mack’s Appeal, supra. Giving uncondi-
tional notes for the amount of a subscription is a waiver of a condition precedent
in the subscription, if it appears from the dates on which they are payable, or from
other circumstances, that performance of the condition was not intended to precede
payment of the notes. Keller v. Johnson, 11 Ind. 387. But it is otherwise if the
circumstances under which the notes were given do not show an intention to waive
the condition. Parker y. Thomas, 19 Ind. 213.
302 MEMBERSHIP IN CORPORATIONS. (Ch. 10

SUBSCRIPTIONS UPON SPECIAL TERMS.

110. Subscriptions upon special terms are absolute sub-
scriptions, by virtue of which the subscriber be-
comes a shareholder, and liable on his subscription,
without performance of the stipulations, the stipu-
lations being merely terms of his contract of mem-
bership.

111. Subscriptions upon special terms are valid except

(a) Where the stipulations are ultra vires, or inconsist-
ent with the charter or articles of incorporation.

(b) Where they operate as a fraud upon the other share-
holders by subjecting the subscriber to lighter
burdens, or giving him greater rights and priv-
ileges.

(c) Where they operate as a fraud upon the creditors of
the corporation who contract with it on the faith
of the capital stock being fully paid.

112. Only the managing agents of a corporation—as the
directors—have power to accept subscriptions on
special terms, but they may adopt or ratify such
subscriptions taken without authority by commis-
sioners prior to incorporation, or by other agents.

The distinction between conditional subscriptions or subscriptions .
upon conditions precedent, which we have considered in the preceding
section, and subscriptions upon special terms, or, as they are some-
times inaptly termed, subscriptions upon conditions subsequent, is a
very important one. In the former, as we have seen, the subscriber
does not become a shareholder at all, nor liable on his subscription,
until the condition has been performed.'*7 In the latter, liability on
the subscription, and the right to membership, do not depend at all
upon performance of the stipulations. The subscriber becomes a
shareholder at once, with all the rights and liabilities of a share-
holder, and the stipulations are merely terms of his contract of mem-

177 Ante, p. 294,
§§ 110-112) SUBSCRIPTIONS UPON SFECIAL TERMS. 303

bership, for the breach of which he must seek his remedy against the
corporation.*7& In Paducah & M. R. Co. v. Parks *7° a subscription
to stock in a railroad company provided that one-fourth should be
paid when the road should be completed to a certain county line, the
remainder “to be paid in four equal installments of four months as
the work progresses through the county, provided the company estab-
lishes a depot on said road” at a certain point. It was held that
completion of the road to the specified county line was a condition
precedent to any liability on the subscription, being made so by ex-
press terms, but that the erection of the depot was an independent
stipulation, and not a condition precedent to rights of membership
and liability on the subscription. So, in Red Wing Hotel Co. v.
Friedrich,'®° the defendants had subscribed for shares in a hotel com-
pany to be organized, the shares to be paid for at such times and in
such amounts as the board of directors might from time to time re-
quire. The subscription provided that it was upon the condition that
the hotel to be built by the company should be located on a certain
block. It was held that the building of the hotel was not a condition
precedent to the right of the corporation to assess the shares and
collect the assessments, as it was evident that the parties intended
that the hotel should be built with money realized on the subscrip-
tions.+®?

Whether a particular stipulation in a subscription is a condition
precedent or merely an independent stipulation or special term is.
purely a question of intention, and the intention is to be determined

178 “A subscription on a condition subsequent contains a contract between the
corporation and the subscriber whereby the corporation agrees to do some act,
thereby combining two contracts,—one, the contract of subscription; the other, an
ordinary contract of a corporation to perform certain specified acts. The subscrip-
tion is valid, and enforceable whether the conditions are performed or not. The
condition subsequent is the same as a separate collateral contract between the cor-
poration and the subscriber, for breach of which an action for damages is the
remedy.” 1 Cook, Stock, Stockh. & Corp. Law, § 78, quoted with approval in
Morrow v. Steel Co., 87 Tenn. 262, 10 S. W. 495. And see 1 Mor. Priv. Corp. § 82.

179 86 Tenn. 554, 8 8S. W. 842.

18026 Minn. 112, 1 N. W. 827.

181 For other illustrations of special terms, as distinguished from conditions preced-
ent, see Johnson v. Railroad Co., 81 Ga. 725, 8 S. E. 531; American Building &
Loan Ass’n y. Rainbolt (Neb.) 67 N. W. 493.
304 MEMBERSHIP IN CORPORATIONS. (Ch. 10

by considering, not only the words of the particular clause, but also
the language of the whole contract, the situation of the parties, the
nature of the act required, and the whole subject-matter to which it
relates.18? The courts lean strongly towards holding stipulations to
be special terms, rather than conditions precedent. While the va-
lidity of conditional subscriptions is too firmly established to be now
questioned, the courts do not favor them, and they will not hold a
stipulation to be a condition precedent unless the intention to make
it so is clear. This is.proper, for, if a subscriber desires to make his
liability dependent upon the performance of stipulations by the cor-
poration, it is very easy for him to do so in express terms.78* A
stipulation certainly can never be considered a condition precedent
when it appears that it was contemplated that the subscriber should
vote at stockholders’ meetings, or otherwise act as a shareholder.+**
And clearly, when a subscription is conditioned that the money ac-
quired therefrom shall be expended in a certain way, the stipulation
is a special term, and not a condition precedent, for the money can-
not be expended until it has been paid.**®

Validity of Subscriptions upon Special Terms.

A corporation has no authority to receive subscriptions upon special
terms where the stipulations are beyond its powers, or inconsistent
with the charter or articles of incorporation. This is clear, and does
not require the citation of authorities. Nor has it the power to re-
ceive a subscription upon such terms as will operate as a fraud upon
the other shareholders by subjecting the subscriber to lighter bur-

182 See Lane v. Brainerd, 30 Conn. 565; Johnson v. Railroad Co., 81 Ga. 725,
8 8S. E. 581.

188 Paducah & M. R. Co. v. Parks, 86 Tenn. 554, 8 S. W. 842.

1841 Mor. Priv. Corp. § 89; Morrow v. Steel Co., 87 Tenn. 262, 10 S. W. 495,
501.

185 Henderson & N. R. R. v. Leavell, 16 B. Mon. (IXy.) 358. In Connecticut &
P. R. Co. v. Bailey, 24 Vt. 465, W. D. Smith, Cas. Corp. 63, Shep. Cas. Corp. 28,
there was a requirement in the charter of a railroad company that it should, within
a certain time, expend a given sum in the construction of its road. The court
held that this was not a condition precedent to liability on subscriptions. It would
have been the same had the provision been expressly incorporated in the subscrip-
tion. “It would be extremely inconsistent,” it was said, “‘to say that the corpora-
tion must expend that sum in the construction of its road, and at the same time
deny the right and power of collecting their subscriptions for that purpose.”
&§ 110-112) SUBSCRIPTIONS UPON SPECTAI TERMS. 805

dens, or giving him greater rights and privileges, or as a fraud upon
creditors of the corporation by withdrawing the capital. It is well
settled, therefore, that an agreement between a corporation and a
subscriber, by which the subscription is not to be payable, or is to be
payable in part only, whether it be for the purpose of pretending that
the stock is really greater than it is, or for the purpose of preventing
the predominance of certain shareholders, or for any other purpose, is
illegal and void, and cannot be interposed as a defense in an action
on the subscription.**® Jn these cases the stipulation itself only is
void, and does not affect the subscription. The courts hold the sub-
scriber to his subscription as if the unlawful agreement had not been
made, as the only means of preventing fraud and protecting the other
subscribers and creditors.1®"

An agreement that a subscriber need not pay at all, or that he need
pay part only of his subscription, is void as against creditors of the
corporation, even-though the corporation and all the other share-
holders may be parties to it; but, if no rights of creditors intervene,
and the subscription is not necessary to make up the amount of stock
required by the charter, so that there is no fraud upon the state, the
agreement is binding upon the corporation and the other sharehold-
erg:788

Subject to the restrictions above stated, a corporation may accept
subscriptions upon special terms. A railroad company may agree to
build a depot at a certain place in order to procure subscriptions from
the residents of that neighborhood.**® It may be agreed that the

186 White Mountain R. Co. v. Hastman, 34 N. H. 124; Melvin v. Insurance Co.,
80 ill. 446; Union Mut. Life Ins. Co. v. Frear Stone Manuf’g Co., 97 Ill. 537;
Hickling v. Wilson, 104 Ill. 54; Bates v. Lewis, 3 Ohio St. 459; Henry v. Rail-
road Co., 17 Ohio, 187; Meyer v. Blair, 109 N. Y. 600, 17 N. E. 228; York Park
Bldg. Ass’n v. Barnes, 39 Neb. 834, 58 N. W. 440, W. D. Smith, Cas. Corp. 42,
Shep. Cas. Corp. 21; Northrop v. Bushnell, 88 Conn. 498; Burke v. Smith, 16
Wall. 890; Upton v. Tribileock, 91 U. S. 45, 1 Cumming, Cas. Priv. Corp. 824;
Robinson v. Railroad Co., 32 Pa. St. 334; Connecticut & P. R. R. Co. v. Bailey,
24 Vt. 465, W. D. Smith Cas. Corp. 68, Shep. Cas. Corp. 28; Blodgett v. Morrill,
20 Vt. 509. So, an agreement that a subscriber may withdraw the money paid for
his shares, and cancel the subscription, is void. Melvin v. Insurance Co., supra;
post, p. 330.

187 See the cases above cited.
188 Winston v. Brooks, 129 Ill. 64, 21 N. H. 514.

189 Paducah & M. R. Co. v. Parks, 86 Tenn. 554, § S. W. 842.
Clk.Pr.Corp.—20
306 MEMBERSHIP IN CORPORATIONS. (Ch. 10

stuck may be paid for in work or in materials, provided the work or
materials are an equivalent in value.*®° “In general, subscriptions to
the capital stock of a corporation may be conditional as to the time,
manner, or means of payment, or in any other way not prohibited by
statute, or the rules of public policy, and not beyond the corporate
powers of the corporation to comply with.” ***

Who may Receive Subscriptions on Special Terms.

Only the managing agents of a corporation are authorized to re-
ceive subscriptions upon special terms. They cannot be received
prior to incorporation by the commissioners appointed to receive sub-
scriptions, unless such authority is expressly conferred upon them
by the charter or articles of association.1°? But a subscription upon
special terms, received by such agents without authority, may, if not
withdrawn, be treated as a continuing offer to the corporation, and
will become binding if accepted by the managing agents after the
corporation has been organized.*®* An agent to solicit subscriptions,
appointed by the managing agents of a corporation after its organiza-
tion; cannot accept subscriptions upon special terms unless authority
to do so has been conferred upon him. If he does accept such a sub-
scription, however, without authority, the managing agents may rat-
ify his act, and render the subscription binding.

CONDITIONAL DELIVERY OF SUBSCRIPTION.

113. If a subscription absolute in its terms is delivered in
escrow, to take effect as a contract only upon the
fulfillment of a condition— ;

(a) It does not take effect until the condition is fulfilled,
if the delivery was to a stranger, and not to the
corporation or its agent, and the condition may
be shown by parol evidence.

(b) Most courts, perhaps, hold the rule to be the same
where it was so delivered to the corporation or its
agent; but some courts apply the rule governing
deeds that there can be no delivery in escrow to

190 Post, p. 379. 192 1 Mor. Corp. § 83.
191 1 Cook, Stock, Stockh. & Corp. Law, § 88. 193 1 Mor. Corp. § 86.
§ 118) CONDITIONAL DELIVERY OF SUBSCRIPTION. 307

the other party or his agent, and that in such case
the oral conditions are void, and the delivery ab-
solute.

(c) The subscriber may be estopped to set up the oral
conditions to escape liability on his subscription,
if others have subscribed and paid their subscrip-
tions in the belief that his subscription was abso-
lute, or if persons have contracted with the cor-
poration in such belief.

A writtén subscription to stock, like other written instruments,
may be delivered to some third person in escrow; that is, to take ef-
fect as a contract only on the happening of a contingency. In sucha
case it will not take effect until the condition is fulfilled. It is a
well-settled rule that, to constitute a good delivery of a deed in
escrow, the instrument must be delivered to some third person. If it
is delivered to the other party or his agent, the condition is void, and
the delivery absolute, for a delivery in fact outweighs verbal condi-
tions.*°* Some courts have applied this rule to contracts not under
seal, and have held that delivery of a written subscription to the
agent of a corporation is an absolute delivery to the corporation. It
has been so held where a subscription was delivered to the commis-
sioners appointed to receive subscriptions,’®® and, it seems, where it
was delivered to the promoter of a corporation, the promoter being
regarded as the agent of the body of subscribers to take and hold sub-
scriptions.1°® It has been held by most courts, however, that where
a contract absolute in its terms is not under seal, it is admissible to
show by parol! evidence that it was delivered, even when delivered to
the other party or his agent, with the understanding that it should not
be operative as a contract from its delivery, but only on the happen-
ing of a contingency.1°? And in these jurisdictions the rule must
apply to subscriptions as well as to other simple contracts.***

Assuming that the rule last stated does apply to subscriptions, the

194 Clark, Cont. 78, and cases there cited.

195 Wight v. Railroad Co., 16 B. Mon. (Ky.) 4.

196 Minneapolis Threshing-Mach. Co. v. Davis, 40 Minn. 110, 41 N. W. 1026.
197 Westman vy. Krumweide, 30 Minn. 313, 15 N. W. 255.

198 Cass v. Railway Co., 80 Pa. St. 31.
3808 , MEMBERSHIP IN CORPORATIONS. (Ch. 10
doctrine of equitable estoppel may prevent the subscriber from set-
ting up the defense to defeat an action on his subscription. Accord-
ing to this doctrine, where a person, by his words or conduct, will-
fully causes another to believe in the existence of a certain state of
facts, and induces him to act on that belief, so as to alter his own pre-
vious condition, he is estopped from denying the truth of such facts
to the prejudice of the other. It has been held, therefore, that where
a person subscribes to the stock of a proposed corporation, and de-
livers the subscription to the promoter, or other agent, and other per-
sons, without notice of any oral condition attached to such delivery,
also subscribe to the stock, and pay the same in, and in reliance on
the subscriptions the corporation is organized, engages in its busi-
ness, expends large sums of money, and contracts liabilities therein,
such person, when sued for installments due on his stock subscrip-
tions, will not be allowed to defeat a recovery by showing that he at-
tached a secret oral condition to the delivery of his subscription.?°°

SUBSCRIPTION OF ENTIRE CAPITAL—DISTRIBUTION.

114. There is an implied condition that the whole amount
of stock specified in the charter, articles of associa-
tion, contract of subscription, or fixed by the cor-
porators or directors when authorized to settle the
same, shall be actually taken by bona, fide, bind-
ing, absolute, and unconditional subscriptions, be-
fore the subscribers shall be liable on their sub-
scriptions. But

(a) The implication may be rebutted by the terms of
the charter, articles of association, or contract of
subscription.

(b) A subscriber may expressly or impliedly waive the
condition. '

115. Where stock is subscribed in excess of the authorized
amount, and a distribution becomes necessary, the
distribution is a condition precedent to liability on
subscriptions.

199 Minneapolis Threshing-Mach. Co, v. Davis, 40 Minn. 110, 41 N. W. 1026.
§§ 114-115) suBSCRIPTION OF ENTIRE CAPITAL—DISTRIBUTION. 809

Where the charter or articles of association fix the amount of
the capital stock of the corporation, there is generally an implied
condition that the full amount shall be actually taken before the
subscribers shall be liable on their subscriptions.2°° The same im-
plication arises where the contract of subscription fixes the amount
of the capital stock.?°* And it arises where the amount is fixed by
the corporators or board of directors, when they are authorized to
settle the same. In such a case the amount of stock must be set-
tled and subscribed.?°? The rule also applies where the charter au-
thorizes the corporation, when organized under a fixed capital, to
increase it. When so increased, the amount fixed becomes the cap-
ital which must be subscribed before legal assessments can be
made.?°> The condition need not be expressed. It arises by im-

200 Anderson v. Railroad, 91 Tenn. 44, 17 S. W. 803, W. D. Smith, Cas. Corp.
53, Shep. Cas. Corp. 12; Salem Milldam Corp. v. Ropes, 6 Pick. (Mass.) 23; Stone-
ham Branch R. Co. vy. Gould, 2 Gray (Mass.) 277; Penobscot R. Co. v. Dum-
mer, 40 Me. 172; Penobscot R. Co. v. White, 41 Me. 512; Denny Hotel Co. of
Seattle v. Schram, 6 Wash. 134, 32 Pac. 1002; Connecticut & P. R. R. Co. v.
Bailey, 24 Vt. 465, W. D. Smith, Cas. Corp. 68, Shep. Cas. Corp. 28; Hughes
vy. Manufacturing Co., 84 Md. 316, 331; Bray v. Farwell, 81 N. Y. 600; New
Hampshire Central Railroad v. Johnson, 30 N. H. 390; Read v. Gas Co., 9 Heisk.
(Tenn.) 545; Masonic Temple Ass’n of Minneapolis v. Channell, 43 Minn. 353,
45 N. W. 716; Anvil Min. Co. v. Sherman, 74 Wis. 226, 42 N. W. 226; Exposi-
tion Ry. & Imp. Co. v. Canal St. E. Ry. Co., 42 La. Ann. 370, 7 South. 627;
International Fair & Exposition Ass’n v. Walker, 88 Mich. 62, 49 N. W. 1086;
Portland & F. R. Co. v. Spillman, 23 Or. 587, 32 Pac. 688; Hale v. Sanborn,
16 Neb. 1, 20 N. W. 97.

201 See People’s Ferry Co. v. Balch, 8 Gray (Mass.) 303; Troy & G. R. Co. v.
Newton, Id. 596; Atlantic Cotton Mills v. Abbott, 9 Cush. (Mass.) 423; Union
Hotel Co. v. Hersee, 79 N. Y. 454; Brand v. Railroad, 77 Ga. 506, 1S. B. 255;
Philadelphia & W. C. R. Co. v. Hickman, 28 Pa. St. 318; ante, p. 297,

202 Anderson v. Railroad, 91 Tenn. 44, 17 S. W. 803, W. D. Smith, Cas. Corp.
53, Shep. Cas. Corp. 12; Troy & G. R. Co. v. Newton, 8 Gray (Mass.) 596; Pro-
prietors of Cabot & West Springfield Bridge v. Chapin, 6 Cush. (Mass.) 50;
Atlantic Cotton Mills v. Abbott, 9 Cush. (Mass.) 423; Haskell v. Worthington,
94 Mo. 560, 7 S. W. 481; Rockland, Mt. D. & S. Steamboat Co. v. Sewall, 80
Me. 400, 14 Atl. 939.

208 Read v. Gas Co., 9 Heisk. (Tenn.) 545. And see Haton v. Bank, 144
Mass, 260, 10 N. E. 844; Winters v. Armstrong, 37 Fed. 508. In Nutter v.
Railroad Co., 6 Gray (Mass.) 85, a railroad company voted to issue 600 additional
shares for the purpose of raising money to pay off indebtedness, and to allow
each stockholder to take one new share for every two shares held by him, pro-
310 MEMBERSHIP IN CORPORATIONS. (Ch. 10

plication, says Mr. Cook, “from the just and reasonable under-
standing of a subscriber that he is to be aided by other subscrip-
tions”; and “the rule is supported also by public policy, in that
corporate creditors have a right to rely on the belief that the full
capital stock of the corporation has been subscribed.” ?°*

The implication may be rebutted by the terms of the charter,
articles of association, or contract of subscription, as where the
corporation is authorized to commence business before the whole
capital stock is subscribed.?°> And a subscriber may expressly
or impliedly waive the condition. A waiver will generally be im-
plied if the subscriber consents to the letting of contracts, the crea-
tion of debt, or the doing of any corporate act involving the ne-
cessity of calling in the subscribed stock, unless the charter ex-
pressly forbids the doing of any corporate act until the requisite

yided he should, by a certain day, subscribe therefor, and pay a part of the
amount, and give notes for the remainder. It was held that there was no implied
condition that the whole 600 shares should be issued, and that the failure of
the corporation to issue that amount was no ground for maintaining an action
by a subscriber for some of such stock to recover back the money paid by him
thereon, nor for defeating an action on the notes given by him.

2041 Cook, Stock, Stockh. & Corp. Law, § 176. And see Stoneham Branch R.
Co. v. Gould, 2 Gray (Mass.) 277; Denny Hotel Co. of Seattle v. Schram, 6
Wash. 134, 32 Pac. 1002.

205 Arkadelphia Cotton Mills v. Trimble, 54 Ark. 316, 15 S. W. 776; Schloss
v. Trade Co., 87 Ala. 411, 6 South. 360; Anderson v. Railroad Co., 91 Tenn.
44, 17 S. W. 8038, W. D. Smith, Cas. Corp. 58, Shep. Cas. Corp. 12; West v.
Crawford, 80 Cal. 19, 21 Pac. 1123; Penobscot & K. R. Co. v. Bartlett, 12
Gray (Mass.) 244; Willamette Freighting Co. v. Stannus, 4 Or. 261; Astoria
& 8. C. R. Co. v. Hill, 20 Or. 177, 25 Pac. 379; Port Edwards, C. & N. Ry. Co.
v. Arpin, 80 Wis. 214, 49 N. W. 828. Where the corporation is authorized to
begin business when a part of its capita) stock is subscribed, subscription of that
amount only is necessary before assessments can be made. Schenectady & S.
Plank-Road Co. v. Thatcher, 11 N. Y. 102; Boston, Barre & G. R. Co. v. Wel-
lington, 118 Mass. 79. And see the other cases cited in this note. In Arka-
delphia Cotton Mills vy. Trimble, 54 A:k 316, 15 S. W. 776, the articles of
association provided that “the capital stock of said corporation shall be $50,000,
of which $14,500 has been subscribed, * * * and the residue may be issued
and disposed of as the board of directors may from time to time order and di-
rect.” The company had begun business before the defendant subscribed for his
stock. It was held that the implied condition that no subscription shall be
payable until the whole capital stock is subscribed did not arise, And see Nut-
ter v. Railroad Co., note 208, supra.
'
§§ 114-115) supscrIPTION OF ENTIRE CAPITAL——DISTRIBUTION. 811

stock is taken.*°° So a waiver may be implied if a subscriber acts
as a stockholder or officer of the corporation,?°’ or pays installments

on his subscription, knowing that the entire capital stock has not
been subscribed.?°®

It has been held that an assessment for the purpose of defray-
ing preliminary expenses, as expenses incurred in obtaining the act
of incorporation, and ascertaining the practicability and utility of
the enterprise, is valid.?°®

It is almost too clear to require the citation of authority that sub-
scriptions cannot be counted in order to make up the required
amount, unless they are binding. Subscriptions, therefore, by mar-
ried women, infants, and insane persons, which are void or voidable
under the law of the particular jurisdiction, cannot be taken into
consideration unless paid in.2*° Nor can ultra vires subscriptions
by a corporation be considered.?11_ Unauthorized and unratified sub-
scriptions by one as agent for another cannot be counted in those
jurisdictions where it is held that the person assuming to act as
agent does not himself become a shareholder.**? It is otherwise
where, as in some states, it is held that he does himself become a

206 Anderson vy. Railroad Co., 91 Tenn. 44, 17 S. W. 8038, W. D. Smith, Cas.
Corp. 53, Shep. Cas. Corp. 12; Hamilton v. Railroad Co., 144 Pa. St. 34, 23 Atl.
13; Gibbons v. Ellis, 88 Wis. 434, 53 N. W. 701. See California Southern
Hotel Co. v. Callender, 94 Cal. 120, 29 Pac. 859.

207 Masonic Temple Ass’n v. Channell, 48 Minn. 3538, 45 N. W. 716; Cor-
nell’s Appeal, 114 Pa. St. 153, 6 Atl. 258; Auburn Opera-House & P. Ass’n v.
Hill (Cal.) 32 Pac. 587. There is no such waiver, however, from the fact that
a subscriber, without knowledge that the requisite amount of stock had not been
taken, on several occasions consented to and waived notice of stockholders’
meetings, and on one occasion voted by proxy at a special meeting. Portland
& F. R. Co. v. Spillman, 23 Or. 587, 32 Pac. 688. See International Fair &
Exp. Ass’n v. Walker, 88 Mich. 62, 49 N. W. 1086.

208 See Cornell’s Appeal, 114 Pa. St. 153, 6 Atl. 258.

209 Salem Milldam Corp. v. Ropes, 6 Pick. (Mass.) 23; Central Turnpike Corp.
y. Valentine, 10 Pick. (Mass.) 142; Anvil Min. Co. v. Sherman, 74 Wis. 226, 42
N. W. 226.

210 Phillips v. Bridge Co., 2 Mete. (Ky.) 219; Appeal of Hahn (Pa.) 7 Atl.
482; ante, p. 275.

211 Denny Hotel Co. v. Schram, 6 Wash. 134, 32 Pac. 1002; ante, p. 151.

212 Salem Milldam Corp. v. Ropes, 9 Pick. (Mass.) 187; California Southern
Hotel Co. v. Russell, 88 Cal. 277, 26 Pac. 105; ante, p. 291,
812 MEMBERSHIP IN CORPORATIONS. (Ch. 10

shareholder, and liable on the subscription.?** Conditional sub-
scriptions cannot be taken into consideration unless the conditions
have been fulfilled, so that they have become absolute and uncon-
ditional; and the burden of showing this is on the corporation or
creditors seeking to enforce the subscriptions.?** Subscriptions by
fictitious persons, or persons known to be insolvent, cannot be count-
ed.**®> But apparent responsibility is all that can be required. A
subscription cannot be avoided, nor an action thereon defeated, be-
cause of the financial irresponsibility of other subscribers for shares
necessary to be subscribed, if the other subscriptions were taken in
good faith from persons apparently responsible.?*® Whether a sub-
scription upon special terms can be counted depends upon whether
the terms reduce the amount to be paid upon the subscription below
par, or for any other reason render the subscription invalid. If
they do, they cannot be counted.?17 Some courts allow consider-
ation of subscriptions entered into in good faith, payable in labor
or materials, if the value of the labor or materials equals the amount
of the subscription.?7* By the weight of authority, however, such
subscriptions cannot be considered.??°

218 See State v. Smith, 48 Vt. 266, 284.

214 Brand v. Railroad Co., 77 Ga. 506, 1 S. E. 255; Oskaloosa Agr. Works v.
Parkhurst, 54 Iowa, 357, 6 N. W. 547; Portland & F. R. Co. v. Spillman, 23
Or. 587, 32 Pac. 688; California Southern Hotel Co. v. Russell, 88 Cal. 277, 26
Pace, 105; Central Turnpike Corp. v. Valentine, 10 Pick. (Mass.) 142.

215 Lewey’s Island R. Co. v. Bolton, 48 Me. 451. See Denny Hotel Co. of
Seattle v. Schram, 6 Wash. 134, 32 Pac. 1002.

216 Penobscot R. Co. v. White, 41 Me. 512; Salem Milldam Corp. v. Ropes,
9 Pick. (Mass.) 187. It is otherwise if the corporation treats such subscriptions
as invalid, and ignores them. Salem Milldam Corp. v. Ropes, supra.

217 See New York Exchange Co. v. De Wolf, 81 N. Y. 273; Blodgett v. Mor-
rill, 20 Vt. 509. In Rutland & B. R. Co. v. Thrall, 35 Vt. 536, the full amount
of stock was subscribed, but subscriptions contained a provision that interest
should be paid by the corporation on all sums assessed and paid in, from the
time of payment until the plaintiff's road should be put in operation. It was
held that this provision did not amount to an agreement to pay back to the sub-
scribers a part of the capital stock, so as to result in the whole stock not being
subscribed.

218 See Phillips v. Bridge Co., 2 Metc. (Ky.) 219.

219 1 Cook, Stock, Stockh. & Corp. Law, § 180; New York, H. & N. R. Co.
v. Hunt, 39 Conn. 75 (compare Ridgefield & N. Y. R. Co. v. Brush, 48 Conn. 86);
Troy & G. R. Co. v. Newton, 8 Gray (Mass.) 596,
§ 116) PAYMENT OF DEPOSIT. 313

The fact that the full amount of capital stock has been subscribed
may be shown by the records of the corporation, subject, of course,
to rebuttal by evidence to the contrary.?®° If the legislature has ap-
pointed commissioners to take subscriptions, and made it their
duty, when the required amount is raised, to notify a meeting of
subscribers for the organization of the corporation, and, after or-
ganization, to certify the fact to the secretary of state, the cer-
tificate of the commissioners showing that the required amount of
stock was subscribed is conclusive, and a subscriber cannot defeat
an action on his subscription by alleging that some of the subscrip-
tions were not bona fide.??+
Excessive Subscription—Distribution.

If more than the authorized amount of stock is subscribed, so that
a distribution becomes necessary in order to determine who are
stockholders, and the number of shares each subscriber is entitled
to, a distribution is necessary before a subscriber can be held lia-
ble.?22__ In the distribution of stock the commissioners act judicially,
and all must be present to hear and consult, though a majority may
decide. A distribution at a meeting of less than all of them is coram
non judice and void.??%

PAYMENT OF DEPOSIT.

116. There is a conflict of opinion as to the effect of a
failure to comply with a requirement in the char-
ter or general law that a deposit, or percentage of
each subscription, shall be paid at the time of sub-
scribing.

220 Penobscot R. Co. v. Dummer, 40 Me. 172.

221 Connecticut & P. R. R. Co. v. Bailey, 24 Vt. 465, W. D. Smith, Cas.
Corp. 68, Shep. Cas. Corp. 28.

222 Burrows v. Smith, 10 N. Y. 550. Such excessive subscription must be
affirmatively shown, in an action on a subscription, in order to put the corpora-
tion to proof of a distribution; the presumption being that no more than the au-
thorized amount was subscribed. Buffalo & N. Y. C. R. Co. v. Dudley, 14°N.
Y. 336, 346.

228 Crocker vy. Crane, 21 Wend. (N. Y.) 211.
314 MEMBERSHIP IN CORPORATIONS. (Ch. 10

(a) Where the subscription is prior to organization, it
is held:

(1) In some states, that the provision is for the
benefit of the public, and that noncompli-
ance renders a subscription void.

(2) In other states, that the provision is for the
benefit of the corporation, and may be waived
by it, or that the subscriber cannot take ad-
vantage of his own wrong in failing to pay.

{b) Where the subscription is after incorporation, the
provision will be construed as intended for the
benefit of the corporation, unless the -intention of —
the legislature to the contrary is clear, and non-
compliance is no defense in an action on the sub-
scription.

It is often provided, both in general laws authorizing the for-
mation of corporations and in special charters, that a deposit, or
a certain percentage of subscriptions, shall be paid at the time of
subscribing. There is a direct conflict of opinion as to the object
of this provision, and the authorities, therefore, do not agree as to
the effect of a failure to comply therewith on subscriptions. Some
courts have thought that the object in the case of subscriptions prior
to organization, is to insure bona fide subscriptions, and “to prevent
the subscription list from being filled with the names of nominal
subscribers and the creatures of others,” ??* and that the provision
is intended not merely for the benefit of the corporation, but as a
protection to the public, to prevent charters from being obtained
fraudulently and by irresponsible persons. These courts hold that
payment of the deposit in the case of subscriptions prior to incorpo-
ration is a condition precedent to the right of the subscriber to
membership, and to his liability on his subscription; and that the
condition, being imposed on grounds of public policy, and not merely
for the benefit of the particular corporation, cannot be waived,

224 President, ete., of Hibernia Turnpike Road y. Henderson, 8 Serg. & R.
(Pa,) 219, 226,
§ 116) PAYMENT OF DEPOSIT. 815

either by the commissioners appointed to receive subscriptions or
by the corporation itself when organized.??> Other courts hold ei-
ther that the provision is intended for the benefit of the corporation,
‘and may therefore be waived by it, or that it is the duty of the sub-
scriber to pay, and that he cannot take advantage of his own wrong
in failing to do so; and they therefore hold that failure to pay the
deposit, while it would give the corporation a right to refuse to rec-
ognize the subscription, does not render it void, and cannot be set
up to defeat an action by the corporation or its creditors against the
subscriber.??® Perhaps the former of these views is supported by
the weight of authority. The latter seems the better sustained by
reason. Of course, if the legislature clearly expresses the intention
that there shall be no liability on the subscription if the deposit is
not paid, the statute must be given this effect.

It would seem clear that a provision requiring payments by sub-
‘scribers to the stock of a corporation that is already organized must
be considered as intended for the benefit of the corporation only, and
may be waived by it, and so it has been held.??7 Where a statute
appointed commissioners to open books and receive subscriptions,
and provided that when a certain amount should be subscribed they
should certify that fact to the governor, who should thereupon issue

225 Jenkins v. President, etc., 1 Caines, Cas. (N. Y.) 86; President, etc. of
Highland Turnpike v. M’Kean, 11 Johns. (N. Y.) 98; Black River & N. R. Co.
v. Clarke, 25 N. Y. 208; Beach v. Smith, 50 N. Y. 116; New York & O. M. R.
‘Co. v. Van Horn, 57 N. Y. 473; President, etc., of Hibernia Turnpike Road v.
Henderson, 8 Serg. & R. (Pa.) 219; Boyd v. Railway Co., 90 Pa. St. 169; Tag-
gart v. Railroad Co., 24 Md. 563.

226 Wight v. Railroad Co., 16 B. Mon. (Ky.) 4, citing President, etc., of Union
‘Turnpike Road v. Jenkins, 1 Caines (N. Y.) 381, which was reversed in Jenkins
v. President, etc., 1 Caines, Cas. (N. Y.) 86; Illinois River R. Co. v. Zimmer,
20 Ill. 654, relying on Wight v. Railroad Co., supra; Stuart v. Railroad Co., 32
‘Grat. (Va.) 146, 166 (where no reasons are given nor authorities cited); Henry
y. Railroad Co., 17 Ohio, 187 (dictum); Minneapolis & St. L. Ry. Co. v. Bas-
‘sett, 20 Minn. 535 (Gil. 478). Compare Vermont Cent. R. Co. v. Clayes, 21
Vt. 30 (distinguished in Taggart v. Railroad Co., 24 Md. 563).

227 This distinction was expressly recognized in Taggart v. Railroad Co., 24
Md. 563, and was so decided in Oler v. Railroad Co., 41 Md. 598, and Webb vy.
Railroad Co., 77 Md. 92, 26 Atl. 118. And see Montpelier & W. R. R. Co. v.
Langdon, 46 Vt. 284. But see Black River & U. R. Co. v. Clarke, 25 N. Y.
208, and the other New York cases cited in note 225, supra.
316 MEMBERSHIP IN CORPORATIONS. (Ch. 10

letters of incorporation, it was held that a provision in that section
of the statute requiring five dollars on each share to be paid the
commissioners at the time of subscribing only applied to subscrip-
tions received by the commissioners, and that the corporation, after
organization, could receive subscriptions without such payment.22*

Where payment of a deposit at the time of subscribing is required
by the statute, payment not at the time, but subsequently, renders
the subscription binding.??® So, where a person subscribed for
stock on the understanding that the first installment of 10 per cent.
required to be paid at the time of subscribing should be paid in sub-
sequent services, and he subsequently claimed more for such serv-
ices actually rendered than such installment, and the corporation
paid him the balance, it was held that the subscription was bind-
ing.?°° Payment is often expressly required to be made in money or
cash, and, even in the absence of such an express requirement, the
statute would be construed to mean payment in money or its equiv-
alent. Payment by a note is not sufficient.2*4 A check may be re-
ceived for the deposit in the usual course of business, and, if pre-
sented and paid, will be a compliance with the statute; ?** but the
commissioners cannot receive indorsed checks if it is known that
the drawers have no funds, nor could a check be taken and held for
the purpose of evading the statute.?®* The deposit may be paid in
services which the company has a right to contract and pay for, as
this is equivalent to payment in cash.?**

DELIVERY OF CERTIFICATE.

117. A certificate of stock, being merely evidence of the
ownership of shares, is not necessary to make a
subscriber a stockholder, with all the rights, und

228 Philadelphia & W.C. R. Co. v. Hickman, 28 Pa. St. 318. And see Southern
Life Insurance & Trust Co. v. Lanier, 5 Mla. 110.

229 Black River & U. R. Co. v. Clarke, 25 N. Y. 208.

230 Beach v. Smith, 30 N. Y. 116.

231 Boyd v. Railway Co., 90 Pa. St. 169. Compare Greenville & OC. R. Co.
vy. Woodsides, 5 Rich. (S. C.) 145.

232 Rothchild v. Hoge, 43 Fed. 97, 100.

233 Crocker vy. Crane, 21 Wend. (N. Y.) 211.

234 Beach v. Smith, 80 N. Y. 116.

'
§ 117) DELIVERY OF CERTIFICATE. 317

subject to all the liabilities, of stockholders. Nor
is delivery or tender of a certificate necessary before
action on a subscription, unless made so by the
terms of the subscripion.

A certificate of stock is merely evidence of the ownership of shares
by the holder, and is not at all necessary to membership, even where
issuance of certificates is required by the charter. In such a case,
if the corporation refuses to issue a certificate to a subscriber, a
court of equity might compel it to do so; but mere failure to issue
or tender a certificate does not prevent a subscriber from becoming
a shareholder, with all the rights, and subject to all the liabilities,
of shareholders.?*° Nor is the tender of a certificate necessary be-
fore bringing an action on a subscription.?** The parties may, how-
ever, expressly contract that the stock shall not be paid for until
the certificate has been issued and delivered, and in such a case no
action can be: maintained by the corporation on the subscription
until it has delivered or tendered a certificate.2*7 The rule that a
certificate need not be delivered or tendered in order to maintain
an action on a subscription does not apply to the case of a sale of
stock, but such a contract stands on the same footing as a contract
of sale of any other property.??§

235 Chester Glass Co. v. Dewey, 16 Mass. 94; Brigham v. Mead, 10 Allen
(Mass.) 245; Wemple v. Railroad Co., 120 Ill. 196, 11 N. HE. 906; Walter A.
Wood Harvester Co. v. Robbins, 56 Minn. 48, 57 N. W. 317, W. D. Smith,
Cas. Corp, 44; Columbia Electric Co. v. Dixon, 46 Minn. 463, 49 N. W. 244;
Beckett v. Houston, 32 Ind. 393, 398; Spear v. Crawford, 14 Wend. (N. Y.) 20;
Rutter v. Kilpatrick, 68 N. Y. 604; Webb v. Railroad Co., 77 Md. 92, 26 Atl.
113; New Albany & S. R. Co. v. McCormick, 10 Ind. 499; Miller v. Road Co.. 52
Ind. 51; Schaeffer v. Insurance Co., 46 Mo. 248; Fulgam v. Railroad Co., 44
Ga. 597; Chaffin v. Cummings, 37 Me. 76; Courtright v. Deeds, 37 Iowa, 503,
Mitchell v. Beckman, 64 Cal. 117, 28 Pac. 110.

236 Cases above cited.

237 See Marson vy. Deither, 49 Minn. 428, 52 N. W. 38; Courtright v. Deeds,
37 Iowa, 503.

238 Marson v. Deither, 49 Minn. 423, 52 N. W. 38; Summers y. Sleeth, 45 Ind.
598; Fulgam vy. Railroad Co., 44 Ga. 597.
318 MEMBERSHIP IN CORPORATIONS. (Ch. 10

REMEDY OF CORPORATION ON SUBSCRIPTIONS.

118. In most states a subscription to the capital stock of a
corporation implies a promise to pay assessments,
upon which the corporation may maintain assump-
sit. In Massachusetts and several other New Eng-
land states an express promise must be shown.

119. A corporation has no inherent power to forfeit or sell
shares upon nonpayment of assessments; but the
power is almost always expressly conferred. The
power must be exercised in strict accordance with
the charter or statute, or the forfeiture or sale will
be invalid.

120. The fact that the corporation is given the remedy by
forfeiture does not prevent it from maintaining
assumpsit. The remedies are cumulative.

121. A forfeiture releases the subscriber from further lia-
bility, but it is otherwise where the charter pro-
vides for a sale of the shares, and leaves the sub-
scriber liable for any deficiency.

Action to Recover Assessments.

In several of the New England states, including Massachusetts, it
is the settled doctrine that a mere subscription, or agreement to take
shares in a corporation, though accepted and acted upon by the cor-
poration after its organization, does not raise an implied promise on
the part of the subscriber to pay assessments on the shares, so as to
entitle the corporation to maintain assumpsit on the subscription;
that to support such an action an express promise to pay must be
shown; and that an agreement to take shares is not an express prom-
ise to pay assessments.**® In these states, in the absence of an ex-

239 Andover & Medford Turnpike Corp. v. Gould, 6 Mass. 40; Mechanics’
Foundry & Machine Co. v. Hall, 121 Mass. 272; Katama Land Co. vy. Jernegan,
126 Mass. 155; Franklin Glass Co. v. Alexander, 2 N. H. 380; dictum in Con-
necticut & P. R. R. Co. v. Bailey, 24 Vt. 465, W. D. Smith, Cas. Corp. 68,
Shep. Cas. Corp. 28. But see Windsor Electric Light Co. v. Tandy, 66 Vt. 248,
29 Atl 248,
§§ 118-121) REMEDY OF CORPORATION ON SUBSCRIPTIONS. 819

press promise, the only remedy of the corporation is that given it by
the statute, generally to forfeit, or forfeit and sell, the shares of de-
linquent shareholders. In most states the courts repudiate this doc-
trine, and it is held that the mere fact of subscription, where the sub-
scription has been accepted by the corporation, raises an implied
promise on the part of the subscriber to pay assessments, on the
ground that there is a legal liability to pay them; and that, ‘“when-
ever there is a legal liability, the law creates a promise upon which:
an action of assumpsit will lie.” °*° As we have seen, there is a
sufficient consideration for the promise in the interest acquired by the
subscriber in the corporate franchises and property, and the right to.
share in the profits.

Forfeiture and Sale of Shares.

A corporation has no inherent power to forfeit or sell the shares:
of stock of a delinquent shareholder for nonpayment of assessments.
That is not a common-law remedy, and can only be exercised when
it is expressly conferred by the charter, or by some statute, or by
agreement of the stockholders.?*4 The power, however, is almost al-
ways conferred either to sell the shares to pay overdue assessments,
or to forfeit them to the use of the corporation. It cannot be con-
ferred by a by-law unless it is expressly authorized.**?

In declaring a forfeiture of stock for nonpayment of assessments,
the corporation must adopt a course of proceeding reasonable and

240 Instone v. Bridge Co., 2 Bibb (Ky.) 576; Hughes v. Manufacturing Co.,
84 Md. 316, 326; Windsor Electric Light Co. v. Tandy, 66 Vt. 248, 29 Atl. 248;.
Dayton v. Borst, 31 N. Y. 485; Buffalo & N. Y. City R. Co. v. Dudley, 14 N. Y.
336; Rensselaer & Washington Plank-Road Co. v. Barton, 16 N. Y. 457, note;
Spear v. Crawford, 14 Wend. (N. Y.) 20; Upton v. Tribilcock, 91 U. S. 45, 1
Cumming, Cas. Priv. Corp. 824; Griswold v. Trustees, 26 Ill. 41; Hartford &
N. H. R. Co. v. Kennedy, 12 Conn. 499, 506; Danbury & N. R. Co. v. Wilson,
22 Conn. 435; Miller v. Road Co., 52 Ind. 51; East Tennessee & V. R. Co. v.
Gammon, 5 Sneed (Tenn.) 566; Bavington v. Railroad Co., 34 Pa. St. 358; Dexter
& Mason Plank-Road Co. v. Millerd, 3 Mich. 91; Carson v. Mining Co., 5 Mich.
288,

241 Budd v. Multnomah St. Ry. Co., 15 Or. 413, 15 Pac. 659, W. D. Smith,
Cas. Corp. 60; Minnehaha Driving Park Ass’n v. Legg, 50 Minn. 333, 52 N..
W. 898; In re Long Island R. Co., 19 Wend. (N. Y.) 37. And see Perrin y.
Granger, 30 Vt. 595.

242 Post, p. 454,
320 MEMBERSHIP IN CORPORATIONS. (Ch. 10

just to the stockholder. Reasonable notice to him that his stock will
be forfeited, unless by a specified time the overdue assessments are
paid, is necessary to effect a forfeiture.?** In all cases the power to
forfeit or sell must be exercised in the manner prescribed. A sale
or forfeiture of shares without following the requirements of the
charter or st&tute is just as invalid as if made without any power at
all,?** and an invalid sale may constitute a conversion of the shares
for which the corporation will be liable in damages.?*® In Budd v.
Multnomah St. Ry. Co.?** a statute provided that a corporation might
make by-laws for the sale of stock for nonpayment of assessments,
and it was held that a sale without a valid by-law authorizing it was
invalid, and constituted a conversion of the shares. In this case the
board of directors had passed a resolution ordering these particular
shares to be sold, but it was held that this was not a by-law, because
directed only against a particular shareholder.?*” A sale of shares
after a valid tender of the amount due for assessments is unauthoriz-
ed and void, and a suit in equity may be maintained to set the same
aside, and restrain a transfer of the shares to the purchaser.”*® To
authorize a forfeiture or sale of shares for nonpayment of assess-
ments, the assessments must be valid. A sale for nonpayment of
several assessments, one of which is invalid, is void.?4®° The measure
of damages for conversion of shares by illegally selling them for non-
payment of assessments is not the full value of the shares, but their
value less the amount of unpaid calls due thereon.?5° i

If a corporation follows the provisions of its charter relating to the

243 Rutland & B. R. Co. v. Thrall, 35 Vt. 586; Germantown Passenger Ry.
Co. v. Fitler, 60 Pa. St. 124.

244 Budd v. Multnomah St. Ry. Co., 15 Or. 413, 15 Pac. 659, W. D. Smith, Cas.
Corp. 60; Portland, S. & P. R. Co. v. Graham, 11 Metc. (Mass.) 1; Germantown
Passenger Ry. Co. v. Fitler, 60 Pa. St. 124. As where a private sale is made,
instead of a sale at public auction, as required by the statute. Portland, S. & P.
R. Co, v. Graham, supra.

245 Budd v. Multnomah St. Ry. Co., 15 Or. 413, 15 Pac. 659, W. D. Smith, Cas.
Corp. 60.

24615 Or. 413, 15 Pac. 659, W. D. Smith, Cas. Corp. 60.

247 As to the validity of by-laws, see post, p. 454,

248 Mitchell v. Mining Co., 67 N. Y. 280.

249 Stoneham Branch R. Co. v. Gould, 2 Gray (Mass.) 277.

250 Budd vy. Railway Co., 15 Or. 413, 15 Pac. 659, W. D. Smith, Cas. Corp. 60.
§§ 118-121) REMEDY OF CORPORATION ON SUBSCRIPTIONS. 821

forfeiture of stock, its right to forfeit at the end of the time limited is
perfect, and a stockholder who is in default can claim no further de-
lay nor any other notice than that prescribed and given. When a
forfeiture is regularly declared in accordance with the charter, equity
will not relieve against it.?5*

Action and Forfeiture as Cumulative Remedies.

‘The fact that the corporation is given the right to proceed against
delinquent shareholders by forfeiture of their shares, or by forfeiture
and sale of them, does not prevent it from maintaining assumpsit for
assessments, either on an express promise, or on the implied promise
which arises in most states. The statutory remedy is merely cumula-
tive, unless it is clearly made exclusive, and the corporation may pro-
ceed in either way.?°?

Whether assumpsit can be maintained after resorting to the statu-
tory remedy depends upon the nature of the statutory remedy. If,
under the charter, the stock of a delinquent shareholder is merely for-
feited to the use of the corporation,—that is, reclaimed by it to its
own use,—on his failure to pay an assessment, the charter having, in
effect, made the issue of the stock, not absolute, but in the nature of
a conditional sale, the remedy by action is taken away.*°? And when
forfeiture is made an alternative, and not a cumulative, remedy, the
same result follows.?54 The reason is that such a forfeiture neces-
sarily involves a total loss of interest in the thing forfeited by the
party in default, and a resumption by the corporation of the entire
consideration of the debtor’s promise. The stock forfeited vests
absolutely and beneficially in the company, and the debtor can have

261 Germantown Pass. Ry. Co. v. Fitler, 60 Pa. St. 124.

252 Instone v. Bridge Co., 2 Bibb (Ky.) 576; Worcester Turnpike Corp. v. Wil-
lard, 5 Mass. 80; Hartford & N. H. R. Co. v. Kennedy, 12 Conn. 499, 506; Goshen
& M. T. Co. v. Hurtin, 9 Johns. (N. Y.) 217; Buffalo & N. Y. City R. Co. v. Dud-
ley, 14 N. Y. 336; Selma & T. R. Co. v. Tipton, 5 Ala. 787; Connecticut & P. R.
Ce. v. Bailey, 24 Vt. 465, W. D. Smith, Cas. Corp. 63, Shep. Cas. Corp. 28; High-
tower v. Thornton, 8 Ga. 486; Hughes v. Manufacturing Co., 34 Md. 316, 326;
Tar River Nav. Co. v. Neal, 3 Hawks (N. C.) 520, 535; Grays v. Turnpike Co.,
4 Rand. (Va.) 578, 583.

253 Small v. Hydraulic Co., 2 N. Y. 330; Mills v. Stewart, 41 N. Y. 384; Allen
v. Railroad Co., 11 Ala. 437; Rutland & B. R. Co. v. Thrall, 35 Vt. 536.

254 Edinburgh L. & N. Ry. Co. v. Hebblewhite, 6 Mees. & W. 707; Giles v.
Hutt, 8 Exch. 18; Great Northern Ry. Co. v. Kennedy, 4 Exch. 417.

Clk.Pr.Corp,—21
322 MEMBERSHIP IN CORPORATIONS. (Ch. 10

no benefit from it or its proceeds, though the corporation might after.
wards sell it for more than was due from him.?**

Where, however, the security reserved by the charter to the cor-
poration is less than forfeiture; where it is simply a power of sale to
pay unpaid assessments, with the right reserved to the debtor to any
surplus that may remain, so that the issue of the stock is absolute,
and not conditional, and the security is in the nature of a mortgage or
pledge,—-a sale of stock for nonpayment of assessments does not take
away the company’s right of action, but it may maintain an action
for a deficiency after applying the proceeds of the stock.?®* An un-
successful attempt to follow the remedy by forfeiture and sale could
not bar an action to recover assessments. The shares not being
sold, the liability of the shareholder on his promise would remain.?**
In some charters it is expressly provided that, if the shares of a de-
linquent stockholder shall not sell for a sum sufficient to pay his as-
sessments, with interest and charges of sale, he shall be held liable to
the corporation for any deficiency. Of course, in such a case, a for-
feiture and sale does not preclude an action for a deficiency.?**

Not only does a forfeiture of shares by a corporation for nonpay-
ment of assessments put an end to any liability of the shareholder to
the corporation on his subscription, as shown above, but it relieves
him from liability to existing or future creditors of the corporation
if it becomes insolvent, provided there is no fraud or collusion.***
But a forfeiture by collusion between the shareholder and directors
will not release him.?®° .

CALLS.

122. If the time of payment of a subscription is fixed by
the charter, statute, or subscription, no call is nec-
essary to render the subscriber liable. But a call

255 In Carson v. Mining Co., 5 Mich. 288. And see Small vy. Hydraulic Co., 2 N.
Y. 330.

256 Carson vy. Mining Co., 5 Mich. 288.

257 Instone v. Bridge Co., 2 Bibb (Ky.) 576.

258 Danbury & N. R. Co. v. Wilson, 22 Conn. 435, 456.

269 Mills v. Stewart, 41 N. Y. 384.

260 1 Cook, Stock, Stockh. & Corp, Law, §§ 127, 128. See Slee v. Bloom, 19
Johns. (N. Y.) 456.
§§ 122-125) CALLS. 323

is essential to liability where it is expressly re-
quired by the charter, statute, or subscription, or,
by the weight of authority, where the time of pay-
ment is left to the directors or stockholders. A
call is not necessary after repudiation of the sub-
scription.

123. Calls to be valid, must be made

(a) In the manner prescribed.

(b) By the person or board designated. If no person is
designated, the power vests in the board of direct-
ors.

(c) And it must operate uniformly upon all the share-
holders.

124. When the charter or subscription requires notice of
assessments, the requirement must be complied
with ; but, in the absence of any such requirement,
notice is not necessary. Proof of actual notice ob-
viates objections to the form or manner of the
notice.

125. Interest runs on assessments from the time they are
payable.

Necessity for Call.

Where, by the charter, statute, or terms of the subscription itself,
the subscription is payable immediately, or where it is payable at a
stated time or times, or within a certain time, and that time has
elapsed, no call is necessary to render the subscriber liable to an ac-
tion thereon.?*1 Where, however, the contract of subscription, or
the charter, or statute, or articles of association, or a valid by-law
existing at the time of subscription, which always form a part of the
contract of subscription, expressly make the subscription payable on
call by the directors or majority of the stockholders, the subscrip-
tion does not become payable, and no action can be maintained upon
it, until a valid call is made in accordance with the provision; and by

261 Ruse v. Bromberg, 88 Ala. 619, 7 South. 384; New Albany & S. R. Co. v.
Pickens, 5 Ind, 247; Phoenix Warehousing Co. v. Badger, 67 N. Y. 294.
824 MEMBERSHIP IN CORPORATIONS. (Ch. 10

the weight of authority the same rule applies where the charter and
contract of subscription are silent as to the time of payment.’*? In
New York it is held, contrary to the weight of authority, that where
the charter provides that the directors may require subscribers to
pay the amount of their subscriptions “in such manner and in such
installments as they may deem proper,” and further provides for for-
feiture of shares for nonpayment, the provision is designed to apply
only to proceedings to forfeit shares, that the subscription is payable
generally and unconditionally, and that no call is necessary before
bringing suit on the subscription.2** No call is necessary after the
subscriber has repudiated his subscription.***

262 North & S. St. R. Co. v. Spullock, 88 Ga. 283, 14 S. H. 478; Glenn v. How-
ard, 65 Md. 40, 8 Atl. 895; Ruse v. Bromberg, 88 Ala, 619, 7 South. 384; Seymour
vy. Sturgess, 26 N. Y. 184; Banet v. Railroad Co., 18 Ill. 504; Spangler v. Railway
Co., 21 Ill. 276. See Williams v. Taylor, 120 N. Y. 244, 24 N. HB. 288. In North
& S. St. R. Co. v. Spullock, supra, a contract of subscription provided that the
subscription should be paid ‘tin such installments and at such times as may be de-
cided by a majority of the stockholders or board of directors, or a trustee empow-
ered for the purpose by a majority of the stockholders.” In a suit on the subscrip-
tion it was not shown that the stockholders, directors, or trustee had ever provided
in what installments the subscription should be paid, or fixed any time or times for
such payment, or made any call for payment; and it was therefore held that a
judgment of nonsuit was proper. In Seymour v. Sturgess, supra, the by-laws of a
corporation declared that no call for stock should be made, except upon the vote
and by the direction of at least five of the directors. It was held that one who be-
came a subscriber after the enactment of the by-law was entitled to the benefit of
it, as it constituted a part of his contract, and that there was no liability on his
subscription in the absence of such a call. In Glenn v. Howard, supra, the ques- :
tion arose whether recovery on a call for an unpaid subscription, which, by the
terms of the charter, was payable ‘‘as required by the president and directors,” not
made until after discharge of the subscriber in bankruptcy, was barred by such
discharge. The court held that if the call had been made before the discharge, so
as to become a debt provable in the bankruptcy proceedings, it would have been
barred by the discharge, but that since there was no debt so provable before the
call, and since the call was pot made until after the discharge, it was not barred.
Where it was provided that the directors might require payment of the sums sub-
scribed at such times and in such proportions as they should deem best, but that
no assessinent should exceed $10 on a share, it was held that the directors were not
prevented from laying several assessments, not exceeding $10 each, by one vote.
Rutland & B. R. Co. v. Thrall, 35 Vt. 536.

268 Lake Ontario, A. & N. Y. R. Co. v. Mason, 16 N, Y. 451, 463.

264 Cass v: Railway Co., 80 Pa. St. 31.
§§ 122-125) CALLS. 325

Validity of Call.

Assessments and calls for unpaid subscriptions, to be valid, must
be made in a proper manner, and by the proper authority. If the
charter or an authorized by-law prescribes a particular mode for mak-
ing them, that mode must be followed. So if it specifies who shall
exercise the power, the provision must be regarded, and a call or as-
sessment made by any other authority will be ineffectual.**° Gen-
erally, the power is conferred upon the board of directors, and when
this is the case it must be exercised by them, and in their official
capacity as a board. By the weight of authority, they cannot dele-
gate the power to others,?°* but it has been held that they may ratify
an exercise of the power by others.2°7 Sometimes the power is con-
ferred upon the whole body of shareholders. If the charter is silent
as to who shall exercise the power, it will devolve upon the directors,
since they are the proper persons to perform such corporate acts.?°°

Where calls are required to be made by the board of directors, the
hoard, to make a valid call, must be legally constituted.*°® It is not
enough that the call is made by directors de facto, for the rule that
the acts of directors de facto cannot be questioned collaterally is only
-for the protection of third persons dealing with the corporation, and
is not applicable as between the stockholders and the directors.*"°
To constitute a valid assessment, in the absence of any special re-
quirement in the charter, all that is necessary is that there shall be
some act or resolution of the directors, in their official capacity as a
board, legally constituted, which shows a clear intention to render
due and payable a part or all of the unpaid subscriptions.*”*

265 People’s Mut. Ins. Co. v. Westcott, 14 Gray (Mass.) 440; Moses v. Tomp-
kins, 84 Ala. 618, 4 South. 763.

266 1 Cook, Stock, Stockh. & Corp. Law, § 110; Rutland & B. R. Co. y. Thrall,
35 Vt. 586; Silver Hook Road v. Greene, 12 R. I. 164; Banet v. Railroad Co., 13.
In. 504,

267 Rutland & B. R. Co. vy. Thrall, supra; Read v. Gas Co., 9 Heisk. (Tenn.) 545.

268 1 Cook, Stock, Stockh. & Corp. Law, § 109; Budd v. Multnomah St. Ry.
Co., 15 Or. 418, 15 Pac. 659, W. D. Smith, Cas. Corp. 60.

_ 269 People’s Mut. Ins. Co. v. Westcott, 14 Gray (Mass.) 440; Moses v. Tomp-
kins, 84 Ala. 618, 4 South. 763.

270 Moses v. Tompkins, 84 Ala. 618, 4 South. 763; People’s Mut. Ins. Co. v.
Westcott, 14 Gray (Mass.) 440.

271 Budd v. Multnomah St. Ry. Co., 15 Or. 418, 15 Pac. 659, W. D. Smith, Cas.
Corp. 60.
326 MEMBERSHIP IN CORPORATIONS. (Ch. 10

A call, to be valid, must operate uniformly upon all the sharehold-
ers. One of them cannot legally be required to pay in a larger pro-
portion of his subscription, or to pay at an earlier day, than the oth-
ers, unless his contract expressly permits it.2"* Of course, the ex-
istence of debts against the corporation is not necessary to a valid
assessment.?78 Where several assessments have been made, the di-
rectors may abandon or waive one that is void, and sue for those
that are valid.24 The necessity for a call on unpaid subscriptions
is to be determined by the board of directors, when the power to
make calls is vested in them, and the propriety of their determina-
tion on this point cannot be questioned by the shareholders.?75

A call cannot be made, except for preliminary expenses,?* until
the corporation is sufficiently organized to enter upon the transac-
tion of business, unless there is some express provision in the charter
or contract of subscription authorizing it to be made before then,
for until then it cannot be necessary. Thus, where a subscriber
agreed to pay for his stock at such times and in such installments
as the same might be called for by the corporation, and a statute
declared that the corporation should not transact business until
half of its capital stock should be subscribed, it was held that no call
could be made until the condition of the statute should be fulfilled.?7”
It would be otherwise if no particular amount of stock were required
to be subscribed before the corporation could begin operations.?7®

272 Great Western Tel. Co. v. Burnham, 79 Wis. 47, 47 N. W. 378; Pike-v.
Railroad Co., 68 Me. 445; 1 Mor. Corp. § 154; 1 Cook, Stock, Stockh. & Corp.
Law, § 114. ‘But, if some shareholders,” says Mr. Morawetz, ‘‘have already con- «
tributed more than others, it would be not only the right, but the duty, of the
directors to make calls upon the other shareholders in such amounts as to equalize
the contributions of all.” 1 Mor. Corp. § 154.

273 Penobscot. R. Co. v. White, 41 Me. 512.

274 Read v. Gas Co., 9 Heisk. (Tenn.) 545.

275 Budd v. Multnomah St. Ry. Co., 15 Or. 413, 15 Pac. 659, W. D. Smith, Cas.
Corp. 60.

276 Salem Milldam Corp. v. Ropes, 6 Pick. (Mass.) 28; Central Turnpike Corp.
y. Valentine, 10 Pick. (Mass.) 142; Anvil Min. Co, v. Sherman, 74 Wis. 226, 42
N. W. 226.

277 Anvil Min, Co. v. Sherman, 74 Vis. 226, 42 N. W. 226, collecting cases; ante,
p. 308.

278 Id,
&§ 122-125) CALLS. : 327

Notice and Demand.

Where the charter or subscription requires notice or demand as a
condition precedent to suits to recover installments of stock, and
there is no waiver of the condition, the prescribed notice must be
given, or the prescribed demand made, or an action on a subscrip-
tion cannot be maintained.?*® But, in the absence of such a re
quirement, no notice or demand is necessary. The subscribers must
take notice of the acts of the directors as to calls.2*° Unless no-
tice by publication is allowed by the charter or subscription, notice
in a paper to which defendant is not a subscriber is not sufficient.?**
Nor would notice in any paper be sufficient unless it were shown
that the subscriber read it, and so had actual notice. The fact that
notice is not given in the way prescribed by the charter or statute,
as by mail or publication, will not invalidate a call, if actual notice
is shown. Proof of actual notice obviates all such objections.?*®?

!nterest.

An unpaid subscription bears interest from the time the sub-
scriber is in default; that is, from the time he should pay the same.
Where it is payable at once, and without call, interest commences
to run at once. Where it is payable on call, interest runs from the
time fixed for payment in the call.*8* If notice of the assessment
is required, interest runs, not from the date of the call, but from
the time notice is given.?**

279 Rutland & B. R. Co. v. Thrall, 35 Vt. 586; Banet v. Railroad Co., 13 Ill. 504;
Spangler v. Railway Co., 21 Ill. 276.

280 Heaston v. Railroad Co., 16 Ind. 275.

281 Lake Ontario, A. & N. Y. R. Co. v. Mason, 16 N. Y. 451, 463.

282 Jones v. Sisson, 6 Gray (Mass.) 288; Schenectady & Saratoga Plank-Road
Co. v. Thatcher, 11 N. Y. 102. And see Lexington & W. C. R. Co. v. Chandler,
18 Mete. (Mass.) 311.

"283 Gould v. Town of Oneonta, 71 N. Y. 298. So, where the comptroller of the
currency orders the receiver of a suspended national bank to collect unpaid sub-
scriptions, interest runs from the date of the order. Casey v. Galli, 94 U. S. 678.

284 Hambleton y. Glenn, 72 Md. 331, 20 Atl. 115.
328 MEMBERSHIP IN CORPORATIONS. (Ch. 10

ASSIGNMENT OF UNPAID SUBSCRIPTION.

126. Where liability on a subscription has become fixed
by a valid call, or where no call is necessary, it
may be assigned by the corporation like any other
debt.

Where the whole amount of an unpaid subscription has been regu-
larly called in by the corporation, it stands like any other liquidated
demand, in favor of the corporation, and the debt may be assigned
by the corporation, even before judgment, to the same extent as it
could assign any other debt.2®> The assignment, in such a case,
like all assignments of choses in action, is subject to equities, and
cannot deprive the debtor of any rights as a stockholder which he
would possess if no assignment had been made.?®* Where a sub-
scription is made payable without the necessity for a call, it may be
assigned at any time.

RELEASE AND DISCHARGE OF SUBSCRIBER.

127. A subscriber may be released in whole or in part
from his contract by the corporation with the ‘con-
sent of all the other shareholders; but. he cannot
withdraw and surrender his shares without the
consent of the corporation; nor can he do so with
the consent of the corporation, unless the other
subscribers consent; nor can he do so withthe con-
sent both of the corporation and the other subscrib-
ers, if the amount due from him is required to pay
corporate debts.

128. Violation of or noncompliance with its charter by a
corporation, whereby its charter has become subject
to forfeiture, does not release a subscriber.

285 Wells v. Rodgers, 60 Mich. 294,15 N. W. 462. 286 Id.
§§ 127-132) RELEASE AND DISCHARGE OF SUBSCRIBER. 829

129. Alteration or amendment of the charter of a corpora-
tion by the legislature with the corporation’s con-
sent, will release a dissenting subscriber, except

(a) Where the amendment is immaterial, as regards its
effect on the contract between the subscriber and
the corporation.

: (b) Where it is authorized by a provision in the charter
or in a general law.

180. Abandonment of its business and franchises by a cor-
poration will release a subscriber
(a) If the abandonment is complete and final, and
(b) If no rights of creditors intervene.

131. A subscriber is released by forfeiture of his stock to
the corporation for nonpayment of assessments,
but not by a sale of his shares to pay assessments,
where, under the charter, he is liable for any
deficiency. ‘

182. A subscriber is released by a valid transfer of his.
shares, whereby the transferee takes his place, and
assumes his liability as a shareholder.

Withdrawal and Release—Reduction of Shares.

We have, in another place, considered the right of a subscriber
to revoke or withdraw his subscription before it is accepted by the
corporation, and we have seen that the right of revocation exists
until such acceptance, except where the subscription is a step au-
thorized by statute in the process of forming the corporation.?*’
We come now to the question whether a subscriber whose offer
has been accepted by the corporation, so as to create a contract,
can withdraw, and thereby avoid liability on his subscription. It
is clear that he cannot do so without the consent of the corporation,
—the other party to the contract. He cannot, merely by announ-
cing his withdrawal, or withdrawal in part, from the company, and
surrendering his shares, or some of them, absolve himself from lia-
bility or further liability on his subscription.?** It follows that an

287 Ante, p. 268, 288 Ante, p. 270; Selma & T. R. Co. v. Tipton, 5 Ala. 787.
330 MEMBERSHIP IN CORPORATIONS. (Ch. 10

assignment of his stock or a part of it to a fictitious person will not
release him.?8® And he cannot withdraw from his contract, or re-
‘duce his shares, even with the consent of the corporation, if the other
subscribers do not consent; nor can he withdraw or reduce his
shares by virtue of an agreement between him and the corporation,
made at the time of subscribing, for the corporation has no power
to make such an agreement with a subscriber either at the time of
‘subscribing or afterwards. Such an agreement would be a fraud
upon the other subscribers.2°° A subscriber may, however, with-
draw entirely, and surrender his shares, or reduce the number of
shares subscribed for, with the consent both of the corporation and
of the other shareholders, if in doing so he inflicts no injury upon
the creditors of the corporation.?®+ But he cannot be permitted to
do so after debts have been incurred which there are no means to
pay other than the capital stock subscribed, for the capital stock,
as against creditors, cannot be squandered or given away.?°? And
where a subscriber is sued by a creditor or receiver of the corporation
‘on his original subscription, and claims in defense that the number
of his shares was reduced, or that he withdrew, it is incumbent on
him to show that it was at a time when it might lawfully be done.?®
Even if a subscriber can claim a discharge on the ground that he
offered to pay for his stock, and the officers of the corporation re-
fused to receive payment, or to issue him a certificate, he cannot
do so unless he treats it as a discharge. If he does not so treat it,
but continues active in the company’s business until it becomes
insolvent, he will be liable.?°*

289 Muskingum Valley Turnpike Co. v. Ward, 18 Ohio, 120.

290 Melvin v. Insurance Co., 80 Ill. 446; White Mountain R. Co. v. Eastman, 34
N. H. 124; Hughes v. Manufacturing Co., 34 Md. 316, 330; Gill v. Balis, 72 Mo.
432; Chouteau Ins, Co. v. Floyd, 74 Mo. 286; Cartwright v. Dickinson, 88 Tenn.
476, 12 S. W. 1030; ante, p. 304.

201 Payne v. Bullard, 23 Miss. 88.

292 Payne v. Bullard, 23 Miss. 88; Upton v. Tribilcock, 91 U. S. 45, 1 Cumming,
Cas. Priv. Corp. 824; Webster v. Upton, 91 U. 8. 65; Potts v. Wallace, 146 U. S.
‘GE9, 18 Sup. Ct. 196; Slee v. Bloom, 19 Johns. (N. Y.) 456; Phoenix Warehousing
Co. v. Badger, 67 N. Y. 294; Bouton v. Dement, 123 Ill. 142, 14 N. E. 62; post,
bp. 549,

298 Payne vy. Bullard, 23 Miss. 88.

294 Potts v. Wallace, 146 U. S. 689, 13 Sup. Ct. 196.
$§ 127-1382) RELEASE AND DISCHARGE OF SUBSCRIBER. 331

Violation of Charter by Corporation—Mismanagement by Officers and

Agents.

Failure of a corporation, after it has been organized, to comply
with the provisions of its charter, or acts done in excess of its pow-
ers and in violation of its charter, whereby the charter has become
subject to forfeiture at the instance of the state, cannot be set up
by a shareholder to defeat an action on his subscription, either by
the corporation itself or by its creditors, for, as has been shown in
a previous chapter, it is exclusively for the state to determine wheth-
er it Will exercise its prerogative of forfeiting or annulling the
charter.?°> Nor does the mere mismanagement of the affairs of the
corporation by its officers and agents warrant the withdrawal there-
from of stockholders, and the repudiation of the obligations as-
sumed by them as such.?°* The shareholders’ remedy in such cases
is by suit for injunction,?*’ or, in a proper case, by suit to hold the
officers who are guilty of the wrongful acts liable to the corpora-
tion.?°§

Alteration or Amendment of Charter.

It is well settled that an amendment of the charter of a corpo-
ration subsequent to subscriptions to its capital stock, whereby the
objects and purposes of the corporation are materially enlarged or
changed, will release from liability a subscriber who does not as-
sent thereto, though the corporation and the other shareholders con-
sent, unless the amendment was authorized by some provision in
the charter or in the general laws.?°® In Proprietors of Union Locks
and Canals v. Towne,®°° the original charter of a corporation em-

295 Ante, p. 287; Mississippi, O. & Red River R. Co. v. Cross, 20 Ark. 443; Cen-
tral Plank-Road Co. v. Clemens,.16 Mo. 359; Agricultural Branch R. Co. v. Win-
chester, 13 Allen (Mass.) 29; Little v. O’Brien, 9 Mass. 423; Taggart v. Railroad
Co., 24 Md. 563; Connecticut & P. R. R. Co. v. Bailey, 24 Vt. 465, W. D. Smith,
Cas. Corp. 63, Shep. Cas. Corp. 28; Milford & Chillicothe Turnpike Co. v. Brush, 10
Ohio, 111; Cravens v. Mills Co., 120 Ind. 6, 21 N. HE. 981.

296 American Building & Loan Ass’n v. Rainbolt Gish) ‘67 N. W. 493.

297 Ante, p. 164; post, p. 389.

298 Post, p. 389.

299 Proprietors of Union Locks & Canals v. Towne, 1 N. H. 44; Hartford & N.
H.R. Co. v. Croswell, 5 Hill (N. Y.) 383; 1 Cumming, Cas. Priv. Corp. 894; Mid-
dlesex Turnpike Corp. v. Locke, 8 Mass. 268; ante, p. 204; post, p. 447.

3001 N. H. 44,
332 MEMBERSHIP IN CORPORATIONS. (Ch. 10

powered it to render the Merrimack river navigable between certain
points, and for that purpose to purchase land, not exceeding six
acres, and to collect tolls for forty years not averaging over twelve
per cent. on the capital invested. After the defendant had sub-
scribed for shares, an amendatory act was passed, on the petition of
the corporation, abolishing all limitation upon the amount and dura-
tion of the toll collected, and authorizing the corporation to purchase
und hold one hundred acres of land. The defendant did not assent
to this alteration, and it was therefore held that he was not liable
on his subscription. By his subscription it was said, in effect, the
defendant entered into a special contract with the corporation, the
terms of which contract were limited by the specific provisions,
rights, and liabilities, detailed in the act of incorporation; and, to
make a change in this contract, the assent of both parties was in-
dispensable.3°?

An act altering the charter of a corporation, and accepted by the
corporation, does not release a. dissenting subscriber from liability
on his subscription, where the corporation has been enjoined from
proceeding under the amendment, at the suit of another dissenting
shareholder, and has, in effect, abandoned the act, and proceedings
under it.3°?

If alteration or amendment of the charter is authorized by a pro-
vision therein or in the general laws, as explained in another chap-
ter,?°? this provision is a part of the subscriber’s contract, and an
alteration or amendment in accordance with the provision will not
discharge him from liability.*°* And it is well settled that a sub-
scriber will not be discharged by immaterial alterations or amend-
ments, though there is considerable diversity of opinion as to what
alterations are immaterial.®°> It is held in some states that a sub-

301 This subject will be considered at some length in a subsequent chapter, where
we shall call attention to points on which the decisions are in conflict. See post,
p. 447.

302 Rutland & B. R. Co. v. Thtall, 35 Vt. 586,

303 Ante, p. 212,
304 Buffalo & N. ¥. C. R. Co. v. Dudley, 14.N. ¥. 336, 348; Armstrong v. Karsh-

ner, 47 Ohio St. 276, 24 N. E. 897; Nugent v. Supervisors, 19 Wall. 241; Illinois
River R. Co. v. Zimmer, 20 Ill. 654; Schenectady & Saratoga Plank-Road Co, v.
Thatcher, 11 N. Y. 102.

805 Post, p. 447,
§§ 127-132) RELEASE AND DISCHARGE OF SUBSCRIBER. 833

scriber will not be discharged by a material alteration made in or-
der to facilitate the execution of the object for which the corpora-
tion was originally established, and which is beneficial to him, or
clearly not prejudicial. As to this, however, there is much diversity
of opinion. The question is considered in treating of the power of
the corporation to bind dissenting stockholders.*°®

Loss or Abandonment of Business, Property, or Franchises by

Corporation.

Abandonment of its business, property, or franchises by a cor-
poration will release a subscriber from further liability on his sub-
scription, where there are no debts for the payment of which un-
paid subscriptions must be.enforced. But such abandonment is no
defense where it is sought to enforce subscriptions for the benefit
of creditors.*°”? To release a shareholder, the abandonment must be
complete and final, and no rights of creditors must intervene. In
McMillan v. Railroad Co.*°* it was therefore held that a subscriber
to stock in a railroad company was not released from liability on
his subscription by the facts that the company had suspended opera-
tions on its road, that it would require large additional expenditure
of money and labor to complete its construction, and that the means
of the company were wholly inadequate to accomplish its object.
“The defendant,” it was said, “could only be absolved from liability
for the payment of his stock by alleging and proving a final aban-
donment of the work by the company, and also that its payment was
not necessary for the purpose of satisfying any existing demand
against the corporation.”

Mere delay in prosecuting the work for which the corporation was
organized is not an abandonment, and will not discharge sub-
scribers. Thus the mere failure of a railroad company to complete
its road and extend it to the terminus named in the charter will
not release a subscriber on the ground that it has abandoned the
completion of its road, where there has been no formal or legal
abandonment of that part of the road.*”°

It is well settled that neither the failure of a railroad company to

306 Post, p. 447,

307 Phoenix Warehousing Co. v. Badger, 67 N. Y. 20-4.
308 15 B. Mon, (Ky.) 218.

309 Buffalo & J. R. Co. v. Gifford, 87 N. ¥. 204.
334 MEMBERSHIP IN CORPORATIONS. (Ch, 10:

complete its road nor the nonuser of a part of it constitutes a de-
fense to a suit on a subscription to its capital stock, unless such
failure or nonuser violates some condition to that effect expressed
in the subscription.*+° A shareholder is not released from liability
for his unpaid subscription by the fact that the property and fran-
chises of the corporation have been sold under foreclosure of a
mortgage thereon, for the unpaid subscriptions continue part of
the assets of the corporation for the benefit of all the stockholders.
and of creditors.*11_ Clearly, a sale of its property by a railroad com-
pany or other corporation, under a power conferred upon it by the
provisions of its charter or of a law in force at the time of a sub-
scription, does not release a subscriber, for such provisions form a
part of his contract.**?

Forfeiture of Shares. j

A. subscriber, who has forfeited his shares for nonpayment of
assessments, where the charter provides for a forfeiture, and not
merely for a sale which will leave him liable for a deficiency, is re-
leased from any further liability, either to the corporation or to its
creditors. Upon such a forfeiture he ceases to be a shareholder for:
any purpose. This question has been considered in a previous.
section.*+%

Transfer of Shares.

Shares of stock are transferable by the holder without the con-
sent of the other shareholders or of the corporation; and the effect
of the transfer, provided it is valid, so that the transferee takes:
the transferror’s place, and assumes his liability, is, in most juris-
dictions, to release the transferror from any further liability as a
shareholder. This question will be dealt with more at length in a:
subsequent section.***

810 Armstrong v. Karshner, 47 Ohio St. 276, 24 N. E. S97.
311 Buffalo & J. R. Co. v. Gifford, 87 N. Y. 294.

312 Armstrong vy. Karshner, 47 Ohio St. 276, 24 N. E. 897.
313 Ante, p. 319.

314 Post, p. 409.

ea
§ 183) ESTOPPEL OF SUBSCRIBER. 335.

ESTOPPEL OF SUBSCRIBER.

188. A person who subscribes for stock in a corporation,
and takes part in its organization or management,
is generally estopped to deny the validity of his
subscription.

We have seen in a previous chapter that one who subscribes for
stock in a corporation after its organization or attempted organiza-
tion is estopped to deny its corporate existence, and to say that it
has not been legally organized, for the purpose of defeating an ac-
tion on his subscription; since by contracting with the alleged cor-
poration he admits its corporate existence.*+® We have also seen
that this rule has no application to one who subscribes for stock
previous to and in anticipation of incorporation, and who has not,
by his subsequent acts, acquiesced in the mode of incorporation,
but that in such a case it is an implied condition of his subscription
that the proposed corporation shall be legally and regularly organ-
ized; and, if it is not, he may set it up as a defense to a suit on his.
subscription.*+® If, however, a subscriber to stock in a corporation
to be formed takes active part in its organization, or in its manage-
ment after organization, he cannot be heard to say that it was not
legally organized when sued upon: his subscription either by the
corporation or by its creditors.*!7 These questions all relate to.
estoppel to deny the legality of organization and existence of the
corporation.

A subscriber may also be estopped to deny the validity of his
subscription. It may be laid down as a general rule that one who
subscribes for stock in a corporation, and takes part in its organiza-
tion or management, cannot defeat an action on his subscription by
showing that in subscribing he failed to comply with the formalities
prescribed by the charter or by statute, or that the subscription was.
for any other reason invalid.**®

315 Ante, p. 100, and note 43.

316 Id,

317 Td.

318 Selma & T. R. Co. y. Tipton, 5 Ala. 787; President, ete, of Centre & K..
Turnpike R. Co. v. M’Conaby, 16 Serg. & R. (Pa.) 140.
336 MEMBERSHIP IN CORPORATIONS. (Ch. 11

CHAPTER XI.

MEMBERSHIP IN CORPORATIONS (Continued).

134. Right of Members to Inspect Books and Papers of Corporation,
135. Right to Vote at Meetings.
136-137. Profits and Dividends.
138-140. Increase of Capital Stock.
141. Shareholders’ Right to Preference.
142-145. Preferred Stock.
146-148. Watered and Bonus Stock.
149-151. Action by Stockholders for Injuries to Corporation—Interference in
Management.
152. Expulsion of Members,

RIGHT OF MEMBERS TO INSPECT BOOKS AND PAPERS OF
CORPORATION.

134. A stockholder has the right to inspect the books and
papers of the corporation, either personally or by
an agent, provided he does so for a proper purpose,
and ata proper time. And, if the right is denied
him, it may be enforced by a writ of mandamus
either to the corporation or to the custodian of the
books and papers; or. the stockholder may maintain
an action for any damages sustained.

It is well settled in this country that any stockholder of a corpora-
tion is entitled to inspect the books and papers of the company for
proper purposes and at proper times; and, if the right is wrong-
fully denied him by the corporation or its officers, he may maintain
an action for any damages which he may have sustained thereby,’
or he may enforce his right by petition for a writ of mandamus to
compel the corporation or the oflicer having charge of the books and
papers to permit an inspection,*? or he may sue for the penalty

1 Legendre vy. Association, 45 La. Ann. 669, 12 South. 887.
2 Lyon vy. Screw Co., 16 R. I. 472, 17 Atl. 61; Huyler v. Cattle Co., 40 N. J.
Eq. 892, 2 Atl. 274; People v. Throop, 12 Wend. (N. Y.) 183; Cockburn vy. Bank.
§ 1384) RIGHT OF MEMBERS TO INSPECT BOOKS AND PAPERS. 337

where one is prescribed by statute? The writ may issue against
the officer having the custody of the books, on his refusal to allow
an inspection, and the corporation is not a necessary party.*

In the case of a partnership, every partner has an absolute and
unrestricted right to examine the books and papers of the firm; but
the right of stockholders of a corporation in this respect is not un-
‘limited. By the weight of authority, at common law, the court will
not issue a writ of mandamus to compel the corporation to allow
an inspection, unless the petitioner shows some good reason for

naking an examination. The writ will not be issued to enable a
stockholder to make an examination for the purpose of accomplish-
ing purely personal or speculative ends, nor will it be issued “at the
caprice of the curious or suspicious”;® but the petitioner must
show a specific and a proper purpose.” This rule, said the Rhode
Island court, sufficiently protects the stockholder in all his substan-
tial rights, and at the same time prevents an undue interference
with the company in the conduct of its affairs. If a stockholder
shows no good cause for a writ of mandamus, he is not injured by
its refusal, and a company should not be hampered by frivolous and

18 La. Ann. 289; Foster v. White, 86 Ala. 467, 6 South. 88; Stone v. Kellogg,
62 Ill. App. 444.

3 Lewis v. Brainerd, 538 Vt. 519, Shep. Cas. Corp. 179, W. D. Smith, Cas. Corp. 86.

4 Swift v. State, 7 Houst. 388, 6 Atl. 856; People v. Throop, 12 Wend. (N. Y.)
183; Foster v. White, 86 Ala. 467, 6 South. 88; State v. Bergenthal, 72 Wis, 314,
39 N. W. 566.

5 See Lyon v. Screw Co., supra.

8 Com. v. Iron Co., 105 Pa. St. 111.

7 Lyon v. Screw Co., supra; People v. Lake Shore & M. 8. R. Co., 11 Hun, 1,
affirmed in Re Sage, 70 N. Y. 220; Com. v. Iron Co., supra; Phoenix Iron Co. v.
Com., 113 Pa. St. 568, 6 Atl. 75; State v. Hinstein, 46 N. J. Law, 479; Appeal
of Empire Pass. Ry. Co. (Pa.) 19 Atl. 629. The right, said the Pennsylvania court,
“is not to be exercised to gratify curiosity, or for speculative purposes, but in good
faith, and for a specific, honest purpose, and where there is a particular matter in
‘dispute, involving and affecting seriously the rights of the relator as a stockholder.”
Pheenix Iron Co..v. Com., supra. In Appeal of Empire Pass. Ry. Co., supra, it
was held that mandamus would not lie to compel a corporation to allow a stock-
holder to make a list of the other stockholders, in order that they might be in-
duced to join him in a suit which he proposed to institute against the corporation,
and to share with him the expense of such suit.

Clk.Pr.Carp.—22
338 MEMBERSHIP IN CORPORATIONS. (Ch. 11

vexatious demands by one who may have secured stock in hostility
to its interests.2 A stockholder showing a prima facie case of fraud,
and for the purpose of obtaining information to enable him to file
a bill to obtain relief against the fraud, is entitled to an inspection.
And the mere fact that he is hostile to and on bad terms with the
officers of the corporation does not deprive him of the right.7° But
a stockholder has no right of inspection where his purpose in mak-
ing the examination is improper, or hostile to the interests of the
corporation. Thus it has been held that not even a director of a
corporation has the right to examine its letter files for the purpose
of making memoranda for the benefit of a new and rival company
in the organization of which he is interested, and that the secretary,
in forcibly taking them from him, is not guilty of an assault and bat-
tery.??

It has been said, in effect, that a stockholder is entitled to in-
spection, though his only object is to ascertain whether. the affairs
of the corporation have been properly conducted by the directors
or managers, and that he need not first show that there has been
inismanagement, or even that there are grounds for suspecting it.?
By the better opinion, however, mere suspicion, without grounds
therefor, does not entitle him to a writ of mandamus.?*

The right of inspection need not be exercised by the stockholder
personally; but may be exercised by an agent, as by a clerk, or an
attorney, or an expert accountant.- The right is personal in the
sense that only a stockholder possesses and can enjoy it, but the in-

8 Lyon v. Screw Co., supra.

® Phoenix Iron Co. vy. Com., 118 Pa. St. 568, 6 Atl. 75.

10 Huylar v. Cattle Co., 40 N. J. Eq. 392, 2 Atl. 274.

11 Hemingway v. Hemingway, 58 Conn. 4438, 19 Atl. 766.

12 “Such a right is necessary to their protection. To say that they have the
right, but that it can be enforced only when they have ascertained in some way
without the books that their affairs have been mismanaged, or that their interests
are in danger, is practically to deny the right, in the majority of cases. Often-
times frauds are discoverable only by examination of the books by an expert ac-
countant. The books are not the private property of the directors or managers, but
are the record of their transactions as trustees for the stockholders.” Huylar v.
Cattle Co., 40 N. J. Hq. 392, 2 Atl. 274, 278.

13 See cases cited in note 7, supra.
§ 134) RIGHT OF MEMBERS TO INSPECT BOOKS AND PAPERS. 339

spection and examination may be made by another for him; other-
wise it would often be unavailing.*

Often the right of inspection is expressly given by statute, or by
the charter or by-laws of the corporation, and under some provisions
the right is broader than at common law. In Alabama the Code
declares that “the stockholders of all private corporations have the
right of access to, of inspection and examination of, the books, rec-
ords, and papers of the corporation, at reasonable and proper times.”
There are similar statutes in other states. Under such a statute it
was held by the Alabama court in a late case that any stockholder
has an absolute right of inspection, subject only to the express limi-
tation that the right shall be exercised at reasonableand proper times,
and to an implied limitation that it shall not be exercised from idle
curiosity, or for improper or unlawful purposes. In other respects
the right is absolute. “The shareholder is not required to show
any reason or occasion rendering an examination opportune or
proper, or a definite or legitimate purpose. The custodian of the
books and papers cannot question or inquire into his motives and
purposes. If he has reason to believe that they are improper or
illegitimate, and refuses the inspection on this ground, he assumes
the burden to prove them as such.” *®

Sometimes, by statute, a corporation is made liable to a penalty
for refusal to allow a stockholder to inspect its books, and officers
or agents who are guilty of such refusal are subjected to a criminal
prosecution. No damage need be shown to entitle a stockholder to
recover the penalty, for it is imposed as a punishment for the viola-
tion of duty, and its recovery is not dependent upon any pecuniary
logs.1®

14 Foster v. White, 86 Ala. 467, 6 South. 88; State v. Oil Works, 28 La. Ann.
204.

15 Foster v. White, 86 Ala. 467, 6 South. 88. For other cases in which the right
was expressly given, in absolute terms, by a statute, or by the charter or by-laws,
see Cotheal vy. Brouwer, 5 N. Y. 562; People v. Steamship Co., 50 Barb. (N. Y.)
280; State v. Bergenthal, 72 Wis. 314, 39 N. W. 566; Winter v. Baldwin, S89 Ala.
488, 7 South. 734. The statute applies to national banks. Winter vy. Baldwin,
supra.

16 Kelsey ¥. Fermentation Co., 51 Hun, 636, 3 N. Y. Supp. 728. The right to
recover the penalty for such refusal is not waived by subsequently calling again,
and making an examination. Id.
340 MEMBERSHIP IN CORPORATIONS. (Ch. 11

RIGHT TO VOTE AT MEETINGS.

135. A stockholder has a right to vote at corporate meet-
ings.

This right will be considered at length when we come to treat of
the management of the corporation, and of stockholders’ meetings,

PROFITS AND DIVIDENDS.

186: A dividend is a fund which the corporation has set
apart from its profits to be divided among its mem-
bers.

187. The chief rules in relation to profits and dividends

are as follows:

(a) A stockholder has no legal right to a share of the
profits of the corporate business until a dividend is
declared.

(b) But when a dividend is lawfully and fully declared,
he acquires, as against the corporation, an absolute
legal right to his share; and the declaration of the
dividend cannot be revoked.

(c) A dividend can lawfully be declared only out of the
surplus or net profits. The capital cannot be dis-
tributed.

(d) Whether a dividend shall be declared, even where.
there are profits, rests within the sound discretion
of the directors; and they will be controlled in the
exercise of this discretion at the suit of stockhold-
ers, only where they abuse it, and act jrandulently,
oppressively, or unreasonably.

(e) All who are stockholders at the time the dividend
is declared are entitled to share therein in propor-
tion to their stock, without regard to when the div-
idend was earned, or when they became stockhold-
ers; and the directors cannot discriminate between
them.

.
§§ 1386-137) PROFITS AND DIVIDENDS. 841

‘

(f) It is generally for the directors to determine how
and when the dividend shall be payable.

(1) They may make it payable in money or in
property. If no mode of payment is speci-
fied, it is payable in lawful money.

(2) They may pay it by issuing new stock, when
authorized to increase the capital stock, and
thus retain the surplus in the business. This
is called a stock dividend.

(g) The corporation may set off against his share of the
dividend a debt due by the owner of stock at the
time it is declared. :

(h) When a dividend has been declared,

(1) A stockholder may maintain assumpsit against
the corporation as for money had and re-
ceived. _

(2) Or, in some cases, he may sue in equity.

(8) Demand is necessary before suit.

(4) Interest and the statute of limitations begin to
run from the time of demand.

(5) Mandamus will not lie to compel payment.

(i) Before a dividend has been declared
(1) No action, as for a debt, can be maintained by

a stockholder to recover a share of the profits.

(2) But he may maintain a suit in equity to com-
pel the corporation to declare and pay a div-
idend if it is wrongfully withheld.

(3) Mandamus is not a proper remedy.

(j) If a dividend is wrongfully declared and paid, when

there are no surplus profits,

(1) The directors are not personally liable to the
corporation or to creditors in the absence of
a statute, if they acted in good faith, and
without negligence.

(2) But they are liable if they acted fraudulently
or negligently.
842 MEMBERSHIP IN CORPORATIONS. (Ch.'11

(8) The property or funds wrongfully distributed
may be followed and recovered by the cor-
poration or by creditors in the hands of any
one who is not an innocent purchaser or re-
cipient for value.

If the business of a corporation is successful, and profits are real-
ized, it sets apart from time to time, from these profits, a fund to be
divided among its members in proportion to the amount of their
shares. This fund is called a dividend. The term, as applied to
corporate stock, has a technical, but well understood, meaning. It
indicates “corporate funds derived from the business and earnings
of the corporation, appropriated by a corporate act to the use of and
to be divided among the stockholders.” +7 “Dividends” and “profits”
are not synonymous terms. Dividends are paid out of the profits,
but they can exist only where they have been declared or set apart
by the directors out of the profits. Profits are not dividends until,
as expressed in the above quotation, they are “appropriated by a
corporate act” to be divided among the shareholders. In Hyatt v.
Allen *® the plaintiff sold to the defendant stock in a corporation,
reserving “all profits and dividends of and upon such stock” up to
a certain time. A dividend having been partly earned before the
time specified, but not declared until afterwards, it was held that
the plaintiff was not entitled to any part of it under the reservation
in the contract, for there was no dividend until it was declared.

Until dividends are declared, the surplus profits are part of the
assets of the company, and do not belong to the stockholders indi-
vidually, nor is there any debt due from the corporation to them,
even though the circumstances are such that a dividend ought to be
declared.1* It follows that, where a corporation becomes insolvent
before its surplus fund has been set apart for the stockholders by
declaring a dividend, the surplus, as well as the capital stock, must,
if necessary, be applied to satisfy its debts, to the exclusion of any

17 Hyatt vy. Allen, 56 N. Y. 553.

1856 N. Y. 553.

19 Lockhart v. Van Alstyne, 31 Mich.'76; Beveridge v. Railroad Co., 112 N. Y.
1, 19 N. E. 489, 496; Scott v. Fire Co., 7 Paige (N. ¥.) 198; Phelps v. Bank, 26
Conn. 269; Hill v. Mining Co. (Mo.) 21 S. W. 508.
Q

§§ 1386-137) PROFITS AND DIVIDENDS. 343

claim by the stockholders.?° So, until a dividend has been declared,
the stockholders cannot maintain an action against the corporation
to recover their proportion of a surplus as a debt, their remedy be-
ing by suit in equity to compel the directors to declare and pay a
dividend.?*

It was said in an Alabama case that “dividends unpaid are assets
of the company and liable for its debts,” ?? but this is not true if the
dividend has been declared and set apart. It is only true of surplus
profits not set apart. When the directors of a corporation have
lawfully declared a dividend from profits earned and received, the
right of the stockholders to payment becomes vested, and there is
a debt due them from the corporation; or, if money or other
property equal to the amount of the dividend is specifically set apart
as a fund appropriated to the payment of the dividend, the share
of each stockholder therein is thereby severed from the common
fands of the corporation, and becomes his individual property.”*
When a dividend is declared, the right of the stockholders thereto

_ becomes vested, and the board of directors cannot afterwards, with-
out their consent, revoke its action in declaring the dividend, and
refuse to pay it.2* Nor can insolvency of the corporation arising
after the dividend has been declared and set apart defeat the right
of the stockholders to their shares as against creditors.?° To give
the shareholders a vested right therein, the dividend must have been
fully declared. Therefore it has been held in a late Massachusetts
case that, where the fact that a dividend has been voted by the di-
rectors is not made public, nor communicated to the stockholders,
and no fund is set apart for payment, the vote may be rescinded.”®

20 Scott v. Fire Co., 7 Paige (N. Y.) 198.

21 Lockhart v. Van Alstyne, 31 Mich. 76; Beveridge v. Railroad Co., 112 N. Y. 1,
19 N. E, 489; post, p. 851, and-cases there cited.

22 Curry v. Woodward, 44 Ala. 305.

23 Beers v. Spring Co., 42 Conn. 17; King v. Railroad Co., 29 N. J. Law, 82;
Le Roy v. Insurance Co., 2 Edw. Ch. (N. Y.) 657; In re Le Blane, 14 Hun (N. Y.)
8, 75 N. ¥. 598; Tord v. Thread Co. 158 Mass. 84, 32 N. E. 1036; Wheeler v.
Sleigh Co., 39 Fed. 347, 2 Cumming, Cas. Priv. Corp. 208.

24 Beers v. Spring Co., 42 Conn. 17.

25 Le Roy v. Insurance Co., 2 Edw. Ch. (N. Y.) 657; In re Le Blanc, 14 Hun
(N. Y.) 8

26 Ford v. Thread Co., 158 Mass. 84, 32 N. L. 1036.
844 MEMBERSHIP IN CORPORATIONS. (Ch. 12

When Dividend May be Declared.

There are varying statutory or constitutional provisions in a num-
ber of states expressly restricting the right to pay dividends. Thus
it is provided in some states that no dividend shall be paid except
out of net profits properly applicable thereto, and which shall not
in any way impair or diminish the capital; or except from surplus.
profits, arising from the business of the corporation; or if the pay-
ment of it will leave insufficient funds to meet the liabilities of the
corporation, or will diminish the amount of its capital stock, etc.
The object of these provisions is to prevent a corporation from pay-
ing dividends when there are no available funds, and to prevent it
from impairing its capital by distributing any part of it among the
stockholders. The statutes generally impose penalties on the di-
rectors for violating their provisions to which they are not liable at
common law; but the principle upon which they are based, and the
prohibition which they express, are fully recognized by the common
law. Even at common law, dividends can lawfully be declared only
out of the surplus or net profits.

The terms “net profits” or “surplus profits” mean that which re-
mains as the clear gain of the corporation after deducting the capital
invested, the expenses incurred, and the losses sustained.*” As a
rule, dividends cannot be declared out of borrowed money, for bor-
rowed money is not profits;** but money might be borrowed tem-
porarily for the purpose of paying dividends, if the corporation has.
used its current profits to make improvements for which it might
have borrowed money.?° ,

“Profits” consist of earnings actually received. It has, therefore,
been held that interest accrued, but not payable, and interest ac-
crued, but not paid, though secured by safe mortgages, and drawing
interest, are not “surplus profits,” within the meaning of a statute
prohibiting a corporation from paying dividends except from surplus.
profits.®°

27 Park vy. Locomotive Works, 40 N. J. Eq. 114, 3 Atl. 162; Main v. Mills, 6
Biss. 98, Fed. Cas. No. 8,974. See Miller v. Bradish, 69 Iowa, 278, 28 N. W. 594;
Hubbard v. Weare, 79 Iowa, 678, 44 N. W. 915.

28 Davis v. Mining Co., 2 Utah, 74, 88.

29 Excelsior Water & Mining Co. v. Pierce, 90 Cal. 131, 27 Pac. 44.

30 People v. San Francisco Sav. Union, 72 Cal. 199, 18 Pac. 498.
§§ 136-137) PROFITS AND DIVIDENDS. 34:

The capital stock of an insurance company is not the primary fund
for the payment of losses which may accrue upon existing risks, but
premiums received for insurance and the interest on the capital stock
constitute the primary and natural fund for the payment of the debts.
and losses of the company. Therefore the unearned premiums re-
ceived by an insurance company on which the risks are still running
are not surplus profits of the company, out of which dividends can be
legally declared, without leaving a sufficient surplus on hand to meet
the probable losses upon risks then assumed and not yet terminated,
independent of the capital stock of the company.**

In deciding whether a dividend was rightfully or wrongfully made,
the transaction must be viewed from the standpoint of that time,
and not in the light of subsequent events. Notes or overdrafts, for
instance, by persons then considered perfectly solvent, should not be
considered as losses because they afterwards proved to be such.*?

The directors of a corporation cannot lawfully diminish the capital
required to enable the corporation to do business, either by directly
distributing a part of it among the stockholders, or by indirectly
doing so by distributing funds as dividends when there are no sur-
plus profits. It would be a fraud upon creditors of the corporation,
who deal with it on the faith of its capital stock, to divert the same
by distribution among the stockholders as a dividend.** Though a
corporation may agree to pay interest on certificates of stock paid
in, if it is paid out of the surplus profits,** an agreement to pay in-
terest cannot be enforced where the corporation has no means or
resources from which payment can be made, except its capital
stock.2> It would seem clear that if land in which the capital of a
corporation is invested, or a part of it, is taken under the power of
eminent domain, the money received as compensation therefor will

31 De Peyster vy. Insurance Co., 6 Paige (N. Y.) 486; Scott v. Fire Co., 7 Paige
(N. Y.) 198; Lexington Life, Fire & Marine Ins. Co. v. Page, 17 B. Mon. (Ky.)
412. Indeed, it was held in the case last cited fhat the safest and only allowable
principle to act upon in such cases is to exclude such premiums altogether from the
computation of profits.

32 Main v. Mills, 6 Biss. 98, Fed. Cas. No. 8,974.

38 See Reid v. Manufacturing Co., 40 Ga. 98, 104; Wood v. Dummer, 3 Mason,
308, Fed. Cas. No. 17,944, and 1 Cumming, Cas. Priv. Corp. 805; post, p. 563.

34 McLaughlin v. Railway Co., 8 Mich. 100.

35 Painesville & H. R. Co. vy. King, 17 Ohio St. 534.
316 MEMBERSHIP IN CORPORATIONS. (Ch. 11

take the place of the land as part of the capital, and cannot be dis-
tributed as dividends. A sum paid in on capital stock does not be-
come profit, and liable to distribution as profits, on the stock being
forfeited for nonpayment of the balance due thereon.*’

In the case of a mining corporation, the profits subject to distribu-
tion are the net proceeds of its mining operations, without any de-
duction for decrease in value of the mine by reason of the ore being
taken out. And the same principle applies to all corporations or-
ganized for the purpose of utilizing a wasting property,—a prop-
erty that can be used only by consuming it,—as a mine, a lease, ora
patent. Such a corporation is not to be considered as having dis-
tributed its capital merely because it has distributed the net pro-
ceeds of its operations, though the value of the property constituting
its capital is necessarily thereby decreased.** Except in such cases,
however, before profits can lawfully be set apart and paid out as a
dividend, a proper sum must be set aside to represent the wear and
tear upon the plant and property of the corporation, so that a fund
will be created for the purpose of repairing and renewing the prop-
erty when it shall become necessary.*®

Where a corporation reduces its capital stock under statutory au-
thority, it cannot distribute among the stockholders an amount equal
to the difference between the original capital stock and the reduced
capital stock, without regard to the present value of its property...
The reduced amount becomes the amount which it is bound to pro-
vide as capital, and which it is prohibited from depleting by pay-
ments to stockholders. It must therefore retain property actually
equal in value to the amount of the reduced capital over and above
its debts. If it does this, and a surplus remains, this may lawfully
be distributed among the stockholders.*°

36 See Heard v. Eldredge, 109 Mass. 258.

87 Gratz v. Redd, 4 B. Mon. (Ky.) 178, 187.

38 Excelsior Water & Mining Co. v. Pierce, 90 Cal. 181, 27 Pac. 44.

39 Davison v. Gillies, 16 Ch. Div. 347, note, 2 Cumming, Cas. Priv. Corp. 223;
Dent v. Tramways Co., 16 Ch. Div. 344, 2 Cumming, Cas. Priv. Corp. 225.

40 Seeley v. Bank, 8 Daly, 400, 78 N. Y. 608; Strong y. Railroad Co., 93 N. Y.
426. “The surplus, if any, which a corporation reducing the amount of its cap-
ital, under the act of 1878, is at liberty to pay to its stockholders, must, in every
case, be ascertained, and depends upon the result of an examination into its affairs,
and not upon the difference between the original amount of capital and the reduced
$§ 136-137) PROFITS AND DIVIDENDS. 347

Discretion of the Directors as to Declaring Dividend.

When a corporation has a surplus, whether a dividend shall be
declared, and, if declared, how much it shall be, and when and where
it shall be payable, rests largely in the discretion of the directors;
and in the exercise of their discretion they will not be controlled or
interfered with by the courts, unless they act fraudulently, oppress-
ively, or unreasonably.** The stockholders of a corporation are not
entitled, as a matter of absolute right, to the payment of a dividend
whenever the earnings of the corporation in any year exceed its lia-
bilities. Though there may be a large surplus, the board of directors
may, if, in their opinion, the interests of the corporation make it
necessary or advisable, expend the same in improvements, or in ex-
tending the business of the corporation, if the business as extended
is within its powers; or may, under some circumstances, retain it as
a surplus fund, instead of dividing it among the stockholders... And
whether they will do so is generally for them to decide.*?

Directors will not be allowed to abuse their discretion as to de-
claring dividends, and to use their power illegally, wantonly, or op-
pressively. They must act reasonably and in good faith. If the
right ‘to a dividend is clear, and there are funds from which it can
properly be made, a court of equity will interfere to compel the com-
pany to declare it.*?

amount; and whenever, by sales of property, or by means of earnings, or other-
wise, the corporation comes in possession of funds which are in excess of the re-
duced amount fixed as capital, it can distribute that amount without violating any
law.’ Strong v. Railroad Co., supra.

41 Post, p. 351; Williams v. Telegraph Co., 98 N. Y. 162, 192, 2 Cumming, Cas.
Priy. Corp. 208; Hunter v. Roberts, Throp & Co., 83 Mich. 63, 47 N. W. 131;
Jackson’s Adm’rs y. Plank-Road Co., 31 N. J. Law, 277, 2 Cumming, Cas. Priv.
Corp. 201; Belfast & M. L. R. Co. v. City of Belfast, 77 Me. 445, 1 Atl. 362, 366;
New York, L. E. & W. R. Co. v. Nickals, 119 U. S. 296, 7 Sup. Ct. 3u9, 2 Cum-
ming, Cas. Privy. Corp. 228, W. D. Smith, Cas. Corp. 88, Shep. Cas. Corp. 188;
Wolfe v. Underwood, 96 Ala. 329, 11 South. 344; Beveridge v. Railroad Co., 112
N. Y. 1, 19 N. E. 489; and cases hereafter cited.

42 New York, L. E. & W. R. Co. v. Nickals, 119 U. S. 296, 7 Sup. Ct. 209, 2
Cumming, Cas. Priv. Corp. 228, W. D. Smith, Cas. Corp. 88, Shep. Cas. Corp. 188;
Pratt v. Pratt, Read & Co., 38 Conn. 446, 2 Cumming, Cas. Priv. Corp. 219; Smith
v. Manufacturing Co., 29 Ala. 508; State v. Baltimore & O. R. Co., 6 Gill (Md.)
363.

48 Fougeray v. Cord, 50 N. J. Hq. 185, 24 Atl. 499, 2 Cumming, Cas. Priv. Corp.

°
348 MEMBERSHIP IN CORPORATIONS. (Ch. 11

Who are Entitled to Dividends.

The profits of a corporation are to be distributed pro rata among
those who are its stockholders at the time when the dividend is de-
clared, no matter when the profits may have been earned, and with-
out regard to the length of time particular members may have been
stockholders. This is well settled.** And it is also well settled that
the directors in declaring dividends have no right to discriminate
between stockholders, unless the contract under which particular
shares were issued gives them the right.*® “The dividends must.be
general on all the stock, so that each stockholder will receive his pro-
portionate share. The directors have no right to declare a dividend
on any other principle. They cannot exclude any portion of the
stockholders from an equal participation in the profits of the com-
pany.” #8

A person who becomes a stockholder without limitations in his
contract, even immediately before a dividend is declared, is entitled
to share therein, and the directors cannot exclude him. In Jones y.
Terre Haute & Richmond R. Co.*’ the plaintiff, who held bonds of the
defendant corporation, by their terms convertible into stock, sur-
rendered them, and received stock therefor. Shortly afterwards the
directors declared a dividend. It was held that the plaintiff was
entitled to his proportionate share, and that the board of directors
could not discriminate against him.

241; Belfast & M. L. R. Co. v. City of Belfast, 77 Me. 445, 1 Atl. 362, 367; Pratt
y. Pratt, Read & Co., 33 Conn. 446, 2 Cumming, Cas. Priv. Corp. 219; Beers v.
Spring Co., 42 Conn. 17; Scott v. Fire Co., 7 Paige (N. ¥.) 198; post, p. 352.

44 Goodwin v. Hardy, 57 Me. 148; March v. Railroad Co., 43 N. H. 515; Jones
v. Railroad Co., 57 N. Y. 196; Boardman v. Railway Co., St N. Y. 157; Hill v.
Newichawanick Co., 8 Hun, 459, 71 N. Y. 593; Phelps v. Bank, 26 Conn. 269.
“This rule,” says Morawetz, ‘is based on reasons of convenience, amounting almost
to a necessity. It would be practically impossible to apportion the earnings of a
corporation, whose shares are constantly changing hands, so as to give each holder
Q& proportionate part of the profits earned while he was owner of the shares.” 1
Mor. Corp. § 162.

45 Jones v. Railroad Co., 57 N. Y. 196; Ryder v. Railroad Co., 18 Ill. 516; Stod-
dard v. Foundry Co., 34 Conn. 542; Hill v. Mining Co. (Mo. Sup.) 21 S. W. 508.

46 Ryder v. Railroad Co., supra. Where the directors, in declaring a dividend,
wrongfully except a particular stockholder, the exception is void and of no effect.
Hill v. Mining Co., supra.

4757 N. Y. 196.
§§ 136-137) PROFITS AND DIVIDENDS. 349

A stockholder in a corporation has no legal title to a share in the
profits until a dividend is declared. Until then a transfer of his
shares will carry with it the right to share in the profits already
earned, and dividends subsequently declared will belong to the trans-
feree.*® It is otherwise with a dividend declared before the trans-
fer, but not paid. In the absence of a special agreement to the con-
trary, it belongs to the transferror, and does not pass by the trans-
fer; and the fact that the dividend is payable at a future day, or that
no time for payment is fixed, can make no difference.*® Soa legatee
of shares is not entitled to a dividend thereon declared before, but
payable after, the death of the testator. The dividend forms part
of the corpus of the estate and passes to the executor.®° So, where
the owner of stock by will directs the income of his estate to-be paid
to his widow, and dies after a dividend has been declared, but be-
fore it is payable, the dividend goes to the executors as part of his
estate, and is not payable to the widow as income.**

Where, by the terms of a certificate of stock, the shares are trans-
ferable only on the books of the company, the corporation will be
protected by a payment of dividends to the person who appears on
the books as the owner of shares, if it has no notice of any transfer,
and will not be liable after such payment to a person to whom the
shares were transferred before the dividends were declared, but who
neglected to have the transfer entered on the books.*? If the corpo-

48 Post, p. 412; Boardman v. Railway Co., 84 N. Y. 157, 177; Jermain v. Rail-
way Co., 91 N. Y. 483; Phelps v. Bank, 26 Conn. 269; March v. Railroad Co., 43
N. H. 515; Gemmell v. Davis, 75 Md. 546, 23 Atl. 10382. But, if the purchaser of
stock fails to comply with his contract to purchase, he loses the right, not only
to the stock, but also to dividends declared after the sale. Phinizy v. Murray, 83
Ga. 747, 10 S. BE. 358. The right to dividends not yet declared need not be sepa-
rately assigned. It passes as an incident to the stock. See the cases above cited,—
particularly, Boardman v. Railway Co., supra. And see Kaufman v. Woolen
Mills Co. (Va.) 25 S, FE. 1003.

49 Wheeler v. Sleigh Co., 89 Fed. 847, 2 Cumming, Cas. Priv. Corp. 203; Hill v.
Newichawanick Co., 8 Hun, 459, 71 N. Y¥. 593; Hopper v. Sage, 112 N. Y. 530, 20
N. E. 350; In re Kernochan, 104 N. Y. 618, 11 N. 1. 150; Bright v. Lord, 51 Ind.
272, 19 Am. Rep. 732. Contra Burroughs v. Railroad Co., 67 N. C. 376, 12 Am.
Rep, 611.

50 De Gendre v. Kent, L. R. 4 Eq. 283; Wheeler v. Sleigh Co., supra.

51In re Kernochan, 104 N. Y. 618, 11 N. EB. 150.

52 Post, p. 420; Brisbane v. Railroad Co, 94 N. Y. 204, W. D. Smith, Cas.
350 MEMBERSHIP IN CORPORATIONS. (Ch. 1h

ration has notice of the transfer, it will be liable to the transferee-
or his assignee for dividends subsequently declared, though the trans-.
fer is not registered, and an action may be maintained against it
therefor without suing to compel it to register the transfer.°* The
pledgee of stock, whose name appears on the books of the corpora-
tion, or whose rights are known to the corporation, is entitled to divi-.
dends subsequently declared, as between himself and the corpora-
tion, and the corporation will be liable to him therefor if it pays them:
to the pledgor.**

How Payable.

If there is no statutory or charter requirement that dividends shall
be paid in cash, it is within the discretion of the directors whether
they shall be made payable in cash, or in property, or whether they
shall declare a stock dividend when authorized to increase the capi-
tal stock.®® Ifa dividend is made payable in cash, or payable gen-
erally, the corporation becomes a debtor, and must discharge the
debt, as it is bound to discharge all its other debts, in lawful cur-
rency.°°

Steck Dividends.

Where a corporation has the power to increase its capital stock,.
and has assets from which it may legally declare a dividend, it may,.
if its interests so require, hold back such assets, and issue stock there-
for, instead of distributing the assets among the stockholders by de-

Corp. 94, and Shep. Cas. Corp. 177; Cleveland & M. R. Co. v. Robbins, 35 Ohio.
St. 483. :

68 Robinson v. Bank, 95 N. Y. 637, 2 Cumming, Cas. Priv. Corp. 157; Hill v.
Mining Co. (Mo. Sup.) 21 8S. W. 508; Gemmell v. Davis, 75 Md. 546, 23 Atl. 1082;.
Central Nebraska Nat. Bank vy. Wilder, 32 Neb. 454, 49 N. W. 369; Guarantee
Co. of North America v. East Rome Town Co., 96 Ga. 511, 283 S. B. 503; Armour:
y. Town Co. (Ga.) 25 8S. E. 504.

54 Boyd v. Worsted Mills, 149 Pa. St. 363, 24 Atl. 287. See, also, as to the right
of a pledgee of stock to dividends: Fairbank v. Bank, 132 Ill. 120, 22 N. B. 524;.
Central Nebraska Nat. Bank y. Wilder, 32 Neb. 454, 49 N. W. 369; Gemmell v-
Davis, 75 Md. 546, 23 Atl. 1032; Guarantee Co. of North America vy. East Rome:
Town Co., 96 Ga. 511, 23 8. E. 503; Armour v. Town Co. (Ga.) 25 S. B. 504.

55 Williams v. Telegraph Co., 03 N. Y. 162, 192, 2 Cumming, Cas. Priv. Corp. 209.

56 Williams v. Telegraph Co., 93 N. Y. 162, 192, 2 Cumming, Cas. Priv. Corp..
209; Scott v. Banking Co., 52 Barb. (N. Y.) 45; Ehle v. Bank, 24 N. Y. 548.
§§ 186-137) PROFITS’ AND DIVIDENDs. 851

claring a dividend payable in money.5? This is called a stock divi-
dend. Such a dividend, if stock is issued only to the extent of the
surplus profits, and the amount paid in as the capital stock of the
corporation remains, ig not a violation of the prohibition against re-

ducing or withdrawing the capital stock by distribution among stock-
holders.*®

Set-Off against Debt Due to Corporation.

A corporation may retain dividends, and apply them upon debts.
due to it from stockholders at the time the dividend is declared.®®
This right does not rest upon any idea that the corporation has a
lien, but it is the right of set-off, for the dividend is a simple debt
owing by the corporation to the stockholder.®® If shares are as-
signed, and notice of the assignment is given to the corporation be-
fore the dividend is declared, the right to the dividend passes to the
assignee, and the corporation cannot set off a debt to it from the
assignor, incurred before the assignment.*! In New York it has
been held that the corporation may exercise this right of set-off if
the debt became due before notice of the assignment was given,
though the dividend may not have been declared until after such no-
tice.%?

Remedies of Stockholders.

As has been seen, a dividend lawfully set apart from the surplus
profits of a corporation becomes thereupon the individual property
of the stockholders, to be received by them on demand. It is a sev-
crance from the common funds of the company of so much for the
use and benefit of each stockholder in his individual right. If, upon
demand by a stockholder, the corporation refuses to pay him his.
share, he may maintain an action against it for money had and re-
ceived to his use; °** or, according to some of the cases, by a suit

57 Williams v. Telegraph Co., 93 N. Y. 162, 2 Cumming, Cas. Priv. Corp. 209.

58 Williams v. Telegraph Co., supra.

59 Bates v. Insurance Co., 3 Johns. Cas. (N. Y.) 238; Sargent v. Insurance Co., 8.
Pick. (Mass.) 90; Hagar v. Bank, 63 Me. 509.

60 Gemmell v. Davis, 75 Md. 546, 23 Atl. 1032.

61 Gemmell vy. Davis, supra.

62 Bates v. Insurance Co., supra.

63 King v. Railroad Co., 29 N. J. Law, 82, 87; West Chester & P. R. Co. v..
Jackson, 77 Pa, St. 321, 328.
352 MEMBERSHIP IN CORPORATIONS. (Ch. 11

in equity.°* If no time is fixed for payment of the dividend, but it
is made payable at such time as may be directed by the board of
directors, it is to be paid within a reasonable time; and if the board
refuses to pay, or fix a time for payment, a stockholder may enforce
his rights in equity.°® If the directors of a corporation, in making
a distribution of dividends, omit to apportion a quota thereof to
certain shares of stock, the owner of such shares may maintain as-
sumpsit against the corporation for breach of the contract which
the law implies from the relationship of the parties, that an equal
‘distribution of dividends will be made.** A demand is necessary after
a dividend has been declared, before an action can be brought by a
stockholder against the corporation to recover his share.*’ And it
follows that interest and the statute of limitations run from the
time demand is made, and only from that time.®*

The remedy of a stockholder who is wrongfully excluded from his
right to share in a dividend is against the corporation.*® He cannot
follow the assets of the company into the hands of other stockhold-
ers, to whom dividends have been paid, and maintain an action
against them for moncy had and received."°

An action cannot be maintained against a corporation by a stock-
holder for a dividend, as for a debt due, until the dividend has been
declared, though there may be funds from which it is the duty of
the directors to declare a dividend. “A right to a dividend from the
profits of a corporation is no debt until the dividend is declared.
Until that time the dividend is only something that may possibly
come into existence, but the obligation on the part of the corporation
to declare it cannot be treated as the dividend itself.” 72

64 Le Roy vy. Insurance Co., 2 Edw. Ch. (N. Y.) 657; Beers v. Spring Co., 42
‘Conn. 17.

65 Beers v. Spring Co., 42 Conn. 17.

66 Jackson’s Adm’rs v. Newark Plank-Road Co., 31 N. J. Law, 277, 2 Cumming,
Cas. Priv. Corp. 201; Hill v. Mining Co. (Mo.) 21 S. W. 508.

67 Hagar v. Bank, 68 Me. 509; State v. Baltimore & O. R. Co., 6 Gill (Md.) 363,
387; Bank of Louisville v. Gray, 84 Ky. 565, 2 S. W. 168.

68 State v. Baltimore & O. R. Co., supra; Bank of Louisville vy. Gray, supra;
Philadelphia, W. & B. R. Co. y. Cowell, 28 Pa. St. 329,

69 Jones v. Railroad Co., 57 N. Y. 196.

70 Peckham y. Van Wagenen, 83 N. Y. 40.

71 Lockhart v. Van Alsiyue, 31 Mich. 76, per Cooley, J. And see State v. Balti-
§§ 186-1387) PROFITS AND DIVIDENDS. 853

Jf the directors unreasonably and wrongfully refuse or neglect to
declare dividends when there are surplus profits out of which they
may be declared, and there is no good reason for withholding them,
a stockholder may maintain a suit in equity to compel them to de-
clare and pay them.’? Mandamus is not a proper remedy in such
a case."* Nor will mandamus lie to compel the payment of a div-
idend after it has been declared.** It must be borne in mind in this
connection that it is only in a clear case that the court will interfere
with the discretionary powers of the directors by compelling them
to declare a dividend.”®

Remedies where Dividends are Unlawfully Paid.

If the directors or trustees act in good faith, and without negli-
gence, they are not liable.to the corporation or to creditors, at com-
mon law, for declaring and paying dividends when they should not
have done so, and thereby diminishing the capital stock.7* But if they
have been guilty of a fraudulent breach of trust, or of gross negli-
gence, in paying dividends when they had no right to pay them, they
are personally liable to creditors.*7 Their liability under statutes
will, of course, depend upon a construction of the statutes. Gen-
erally, they are not liable if they act in good faith, and without neg-
~ ligence.’§

more & O. R. Co., 6 Gill (Md.) 363; Williston v. Railroad Co., 18 Allen (Mass.) 400;
Boardman vy. Railway Co., 84 N. Y. 157; Hill v. Mining Co. (Mo.) 21 S. W. 508.

72 Fougeray vy. Cord, 50 N. J. Eq. 185, 24 Atl. 499, 2 Cumming, Cas. Priv. Corp.
241; Pratt v. Pratt, Read & Co., 33 Conn. 446, 2 Cumming, Cas. Priv. Corp. 219;
Beers v. Spring Co., 42 Conn. 17; Scott v. Fire Co., 7 Paige (N. Y.) 198; King v.
Governor, etc., of Bank of England, 2 Barn. & Ald. 620, 2 Cumming, Cas. Priv.
Corp, 218; ante, p. 347.

73 Rex v. Governor, etc., of Bank of England, 2 Barn. & Ald. 620, 2 Cumming,
Cas. Priv. Corp. 218.

74 People v. Central Car & Manuf’g Co., 41 Mich. 166, 49 N. W. 925.

75 Ante, p. 347.

76 Excelsior Petroleum Co. v. Lacey, 68 N. Y. 422; Lexington & O. R. Co. v.
Bridges, 7 B. Mon. (Ky.) 556; post, p. 515.

77 Gratz v. Redd, 4 B. Mon. (Ky.) 178, 195; Scott v. Fire Co., 7 Paige (N. Y.)
198; post, p. 515.

78 As to the liability under the New York statute, see Rorke v. Thomas, 56 N.
Y. 559; Excelsior Petroleum Co. v. Lacey, 63 N. Y. 422; Van Dyck v. McQuade,
86 N. Y. 88; post, p. 609.

Clk.Pr.Corp.—23
854 MEMBERSHIP 1N CORPORATIONS. (Ch, 11

If dividends are illegally declared and paid when there are no sur-
plus profits, they may be reclaimed either by the corporation or by
its assignee for the benefit of creditors, or by the creditors them-
selves; and the fact that the directors acted in good faith, under a
misconception as to what constituted the profits of the company out
of which dividends were payable, is immaterial, for the recovery by
the corporation may be sustained on the principle which allows a
recovery of money paid under mistake.’® If the capital stock of a
corporation is wrongfully paid away by the directors it may be
pursued by creditors into the hands of any one who is not an inno-
cent purchaser or recipient of the same for a valuable considera-
tion.2° If such a wrong is threatened, a creditor may maintain a
bill in equity for an injunction.**

Same—Grants and Bequests of Income and Profits.

When the owner of stock grants or bequeaths the income and
‘profits to a person for life or for a term of years, difficult questions
arise as to the right to dividends. On some points the courts do not
agree, while on others the law is well settled.

A grant or bequest of the income or profits of an estate including
shares of stock, does not entitle the grantee or legatee to dividends
declared upon the stock before the grant or will takes effect, though
they may not be payable until afterwards. Therefore, where the
owner of stock left a will, by which he empowered his executors “to
receive the rents, interest, and income” of so much of his estate as
was given them in trust, including shares of stock, and apply the
same to the use of his widow during her life, it was held that a div- |
idend declared on the stock before his death, but not payable until
afterwards, formed part of the estate, and went to the executors
as such, and was not payable to the widow as income. “As soon,”
it was said, “as the profits in shares of stock are ascertained and de-
clared, they cease to be the property of the company, and the owner
of the shares becomes entitled to the dividend. It at once forms
part of his estate. The fact that they are made payable at a future

79 Lexington Life, Fire & Marine Ins. Co. vy. Page, 17 B. Mon. (Ky.) 412. And
see Gratz v. Redd, 4 B. Mon. (Ky.) 178, 189, 191; Main vy. Mills, 6 Biss. 98, Fed.
Cas. No. 8,974; Grant v. Ross (Ky.) 87 S. W. 263.

80 Gratz v. Redd, supra. And see Reid v. Manufacturing Co., 40 Ga. 98, 104.

81 Reid v. Manufacturing Co., supra.
§§ 136~137) PROFITS AND DIVIDENDS. 355

time is immaterial. The dividend to which the life tenant may be
entitled as income can only be that which the company may declare
after that relation is acquired. In this case the dividend represented
profits or income, but had become a debt before the will took ef-
fect.” §?

Perhaps by the weight of authority, dividends declared after the
grant or bequest takes effect, though earned before, go to the grantee
or legatee as income or profits.*? In some states, however, the
rule is otherwise; and it is held that: “When the stock of a .cor-
poration is by the will of a decedent given in trust, the incomes there-
of for the use of a beneficiary for life, with remainder over, the
surplus profits which have accumulated in the lifetime of the tes
tator, but which are not divided until after his death, belong to the
corpus of his estate; while the dividends of earnings made after
his death are income, and are payable to the life tenant, no matter
whether the dividend be in cash or script or stock.” &4

The fact that the dividend is declared, not out of profits made by
the corporation, but out of the original capital, in a case where
such a dividend may be declared, is immaterial. It still goes to
the legatee or grantee as income or profits from the shares.**

82 In re Kernochan, 104 N. Y. 618, 11 N. BE. 150. And see De Gendre v. Kent,
L. R. 4 Eq. 283; Wheeler v. Sleigh Co., 39 Fed. 347, 2 Cumming, Cas. Priv. Corp.
208. But see, contra, Burroughs v. Railroad Co., 67 N. C. 376, 12 Am. Rep. 611.
A bequest of ‘‘dividends,” it has been held, passes a dividend declared before, but
payable after, the testator’s death. Cogswell v. Cogswell, 2 Edw. Ch. (N. Y.) 281.

83 King v. Follett, 3 Vt. 385. And see Appeal of Merchants’ Fund Ass’ns, 136
Pa, St. 48, 20 Atl. 527. But compare Smith’s Appeal, infra.

84 Smith’s Appeal, 140 Pa. St. 344, 21 Atl. 488. In this case it was held that,
where shares of stock are bequeathed in trust to pay the income to a certain
person for life, with remainder over, profits realized from a sale by the trustees of
extra shares of stock issued after testator’s death, to them and other stockholders,
in lieu of corporate profits applied to the improvement of the corporate property
during testator’s lifetime, should be distributed as capital, and not as income. And
see Harp’s Appeal, 28 Pa. St. 368, where there was an apportionment between a
life beneficiary and the corpus of the estate of new stock representing profits
earned partly before and partly after the testator’s death. See, also, Cobb v. Fant,
36 8. C. 1, 14S. BE. 959.

85 Reed v. Head, 6 Allen (Mass.) 174. In this case the cash dividends declared
by a land company were held to belong to the tenant for life, though they were
derived from a sale of its real estate, which was its capital. See, also, Balch v.
856 MEMBERSHIP IN CORPORATIONS. (Ch. 11

There is a direct conflict of opinion on the question whether, when
a corporation, instead of declaring a dividend payable in cash, de-
clares a stock dividend—that is, a dividend payable in stock,—
thereby increasing the capital stock, the new stock thus issued goes
to the legatee or grantee of the income or profits, or forms part of
the corpus of the estate, so as to go to the remainder-man.** In
Massachusetts it is held that cash dividends, however large, are to
be regarded as income, and go to the grantee or legatee of the in-
come; and that stock dividends, however made, are to be regarded
as an increase of the capital, and should be kept for the remainder-
man. In Minot v. Paine,*’—a leading case,—the income of a trust
fund, which included shares of stock in a corporation, was payable
to a person for life, the capital then to be conveyed to another. It
was held that shares of additional stock distributed to the trustee
as a dividend on the original shares were to be regarded as an in-
crease of the capital to be kept for the remainder-man, and not as
income, although such shares represented net earnings of the cor-
poration.®® The same rule obtains in some other jurisdictions.**
It is known as the “Massachusetts rule.” Whether the distribution
by a corporation of its earnings among its stockholders is an appor-
tionment of stock or a division of profits depends entirely upon the
substance and intent of the action of the corporation, as shown by
its votes. Even when, at the time of the creation of new shares
to be distributed among the old stockholders, a dividend is declared
in cash to the same amount, the thing received by each stockholder,
whether in stock or in cash, is to be deemed capital, and not income,
if such appears, upon a view of the whole action of the corporation,

Hallet, 10 Gray (Mass.) 402; Appeal of Merchants’ Fund Ass’ns, 136 Pa. St.
43, 20 Atl. 527. So where cash dividends were declared by a manufacturing com-
pany out of money received from the sale of patent rights and a large amount of
castings. Harvard College v. Amory, 9 Pick. (Mass.) 446.

86 See article, 19 Am. Law Rev. 737.

8799 Mass. 101, 96 Am. Dee. 705. :

88 And see Atkins v. Albree, 12 Allen (Mass.) 359, and cases cited below.

89 Gibbons v. Mahon, 1386 U. S. 549, 10 Sup. Ct. 1057, Shep. Cas. Corp. 194,
where the question is considered at length, and the cases reviewed; Spooner
vy. Phillips, 62 Conn. 62, 24 Atl 524; Hotchkiss y. Quarry Co., 58 Conn. 120,
19 Atl. 521; In re Brown, 14 R. I. 871; Greene vy. Smith, 17 R. I. 28, 19 Atl.
1081, And see In re Kernochan, 104 N. Y. 618, 11 N. BE. 149.
§§ 136-137) PROFITS AND DIVIDENDS. 357

to be the real character of the transaction.°° In Rand v. Hubbell **
-a corporation voted to increase the number of shares of its capital
stock, so as to allow each stockholder to increase the number of
shares held by him by one-half, and commanded the directors to do
whatever was required by law for that purpose. A vote of the di-
rectors, passed on the same day, declared that a dividend in cash
should be payable to each stockholder at the time within which he
was allowed by the vote of the corporation to take his new shares,
and should be applied by him in payment for those shares, and di-
rected the treasurer to issue such shares to old stockholders only.
Each stockholder received a check for the amount of his dividend,
and immediately exchanged the check for a certificate of the shares
apportioned to the stock held by him. The checks were then de-
stroyed. It was held that the stock thus issued constituted a stock
dividend, and in the case of shares of old stock held by a trustee
the new shares must be considered an addition to the capital of the
trust fund.

In Pennsylvania and some of the other states the Massachusetts
rule is not recognized, but it is held that, where a corporation de-
clares a dividend out of the profits payable in additional shares,
such shares go to the life tenant as income.®? “Where a corpora-
tion,” said the Pennsylvania court, “having actually made profits,
proceeds to distribute such profits among the stockholders, the ten-
aut for life would be entitled to receive them, and this without regard
to the form of the transaction. Equity, which disregards form and
grasps the substance, would award the thing distributed, whether
stock or, moneys, to whomsoever was entitled to the profits.” °°
This has been called the “American rule”; ** but the term seems a

90 Daland v. Williams, 101 Mass. 571; Leland v. Hayden, 102 Mass. 542; Rand
y. Hubbell, 115 Mass. 461, 15 Am. Rep. 121.

91115 Mass. 461, 15 Am. Rep. 121.

92 Harp’s Appeal, 28 Pa. St. 368; Moss’ Appeal, 83 Pa. St. 264; Appeal of
Philadelphia Trust, Safe-Deposit & Ins..Co. (Pa. Sup.) 16 Atl. 734; Smith's Estate,
140 Pa. St. 344, 21 Atl. 488; Hlite’s Devisees v. Hite’s Dx’r, 93 Ky. 257, 20 S. W.
778. And see Gilkey v. Paine, 80 Me. 319, 14 Atl. 205; In re Woodruff’s Estate,
Tuck. (N. Y.) 58; Clarkson v. Clarkson, 18 Barb. (N. Y.) 646. But see In re
Kernochan, 104 N. Y. 618, 11 N. B. 149.

93 Moss’ Appeal, 83 Pa. St. 264.

941 Cook, Stock, Stockh. & Corp. Law, § 554.
858 MEMBERSHIP IN CORPORATIONS. (Ch. 11

misnomer. The Massachusetts rule is supported by the weight of
actual authority.®®

In England the rule is that an ordinary or usual dividend, whether
paid in cash or in stock or property, belongs to the life tenant, while
an extraordinary cash or stock or property dividend belongs to the
corpus of the estate.°®

Whether, on the death of a person entitled to the income and
profits of shares of stock for life, a dividend declared after his death
in part out of profits earned by the corporation during his life may
be apportioned between his estate and the remainder-man, is not
clear. In some jurisdictions this may. be done by statute, and in
some it has been done independently of any statute.°* By the
weight of authority, however, in the absence of statutory provision,
the whole of such a dividend goes to the remainder-man.** Accord-
ing to the well-settled rule, the estate of the life tenant is entitled
to a dividend declared during his life, though not payable until after-

wards.°®
INCREASE OF CAPITAL STOCK.

138. A corporation cannot, directly or indirectly, increase
its capital stock beyond the amount fixed by its
charter, unless the power to do so is conferred upon
it by the legislature. Any attempted increase, in
the absence of legislative sanction, is absolutely
void.

139. Where the power to increase its capital has been con-
ferred upon a corporation, it must be exercised by
vote of the stockholders, and not by the directors.

95 See the cases cited in notes 87-91, supra.

96 1 Cook, Stock, Stockh. & Corp. Law, §§ 556, 557, and cases there cited; Smith’s
Estate, 140 Pa. St. 344, 21 Atl. 438. :

97 Ex parte Rutledge, 1 Harp. Hq. (S. C.) 65, 14 Am. Dec. 696. In this case a
person who was entitled for life to dividends on certain bank stock, “to be paid
half-yearly as they shall be received from the bank,” died just before a semiannual
dividend was declared. It was held that the dividend should be apportioned, and
the part which had accrued at the time of his death paid to his executor.

981 Cook, Stock, Stockh. & Corp. Law, § 558; Foote, Appellant, 22 Pick. (Mass.)
299,

89 Ante, p. 348,
§§ 138-140) INCREASE OF CAPITAL STOCK. 859

140. Where the stock of a corporation is increased, a per-
son does not become a stockholder by merely sub-
scribing therefor. He must pay for it.

A corporation having a fixed capital divided into a fixed number
of shares has no power of its own volition, or by any act of its of-
ficers or agents, to enlarge its capital or increase the number of
shares into which it is divided, unless such.power is expressly con-
ferred upon it by its charter, or by an authorized amendment thereof.
The power must be conferred upon it by the legislature. Unless the
power has been conferred upon it, every attempt to do so, either
directly or indirectly, is void, and certificates issued in excess of the
authorized capital are of no validity whatever.?°°

Where the charter of a corporation authorizes it to increase its
capital stock, the exercise of the power effects so great and radical
a change in the constitution of the corporation that it must be ex-
ercised by the stockholders. It cannot be exercised by the board
of directors without the consent of the stockholders, unless such
authority is conferred by the charter, or in a subsequent enabling
act; and such subsequent enabling act would not bind the stock-
holders without their acceptance of it.?°?

Where a corporation is fully organized, and increases its capital
stock under power conferred by its charter, subscriptions to the new
stock do not stand on the same footing as a subscription made prior
to and for the purpose of effecting organization. The latter makes
the subscriber a stockholder before it is paid. In the case of stock
issued by a corporation after it has been organized, it is different.
To constitute a subscriber for the new stock a stockholder, some-
thing more than the mere subscription is necessary. The stock
must be paid for.1°? The mere subscription to such stock, while it

100 New York & N. H.R. Co. v. Schuyler, 34 N. Y. 30, 49. In this case an
officer of a corporation fraudulently issued certificates of stock in excess of the
authorized capital. It was held that such certificates were void, and should be can-
celed at the suit of the corporation, but the corporation was held liable to persons
defrauded thereby.

101 Bidman vy. Bowman, 58 Ill. 444, 11 Am. Rep. 90; Chicago City Ry. Co. v.
Allerton, 18 Wall. 233.

102 Baltimore City Pass. Ry. Co. v. Hambleton, 77 Md. 341, 26 Atl. 279; St.
Paul, 8S. & T. F. R. Co. vy. Robbins, 23 Minn. 439.
360 MEMBERSHIP IN CORPORATIONS. (Ch. 11

constitutes a valid contract on the part of the company to issue
the stock to the subscriber upon his paying for it, and, on his part,
to receive and pay for it, does not give him an interest in the com-
pany, nor vest in him the title to the stock.?°

If the stock of a corporation is increased without authority, and
certificates thereof issued, the increase and the certificates are void,
and can neither confer any rights, nor impose any liabilities upon
the holders, except where the persons seeking to enforce the liability
are bona fide creditors of the corporation, who relied upon the valid-
ity of the stock, and as against whom the holders of such stock
would be estopped to deny its validity in order to escape liability.1°*
If there was no power at all to increase the stock, creditors are
chargeable with notice of the want of power, and cannot claim to
have been misled, and therefore no estoppel will arise.1°® It is
otherwise if there was power to make the increase, but a failure to
comply with the preliminaries prescribed by the statute.?°®

SAME—SHAREHOLDERS’ RIGHT TO PREFERENCE.

141. The stockholders of a corporation are entitled to a
preference over strangers, in proportion to their
shares, in subscribing for an increase of the capital
stock, and an action for damages will lie against

' the company if it deprives them of this right.

It is well settled that when the capital stock of a corporation is
increased under a power conferred by its charter, each of the stock-
holders has the right to take a proportionate number of the new
shares before they can be offered or issued to strangers. He may
waive this right, but, if he does not, and is deprived of it, he may
maintain an action against the company in assumpsit, and recover
for the loss.*°* The measure of the damages to be recovered is the

. 103 St, Paul, 8S. & T, F. R. Co. vy. Robbins, supra.

104 Sayles v. Brown, 40 Fed. 8; New York & N. H. R. Co. v. Schuyler, 34 N. Y.
30, 49; Veeder v. Mudgett, 95 N. Y. 295.

105 Scovill v. Thayer, 105 U. S. 143.

106 Veeder vy. Mudgett, 95 N. Y. 295.

107 Gray v. Bank, 3 Mass. 364; Eidman vy. Bowman, 58 Ill. 444, 11 Am. Rep.
8§ 142~145) PREFERRED STOCK. 361

excess of the market value of the stock above the par value at the
time of payment of the last installment, with interest on the ex-
cess.1°S This rule does not apply to original stock bought in by the
corporation, or taken by it for debts due to it, and which is held
as assets, and sold for the payment of liabilities, or for the general
benefit.*°°

PREFERRED STOCK.

142. Preference or preferred shares of stock are shares.
which give the holders rights and privileges which
are not given to the holders of common stock,—
usually the prior right to dividends to a certain
amount.

143. A corporation may, in the absence of prohibition in
its charter, provide for the issue of preferred stock,
if it does so before any stock is issued; but, by the
weight of authority, it cannot do so, in the absence
of legislative authority, after common stock has
been issued, without the consent of the holders of
such common stock, as it would thereby interfere
with their vested rights under their contracts. ;

144. It has been held that the legislature may authorize a.
corporation to create preferred stock by amending
the charter after common stock has been issued.

145. The issue of preferred stock may take the form of a.
borrowing; but generally the subscribers or pur-
chasers become stockholders, and not creditors, and
they have the rights and are subject to the liabili-
ties of stockholders. Thus:

(a) Their dividends are payable only out of the net earn-
ings applicable to the payment of dividends, and.
creditors are entitled to be first paid.

90; Jones v. Morrison, 81 Minn. 140, 16 N. W. 854, collecting cases; Humboldt
Driving Park Ass’n v. Stevens, 34 Neb. 528, 52 N. W. 568; State v. Smith, 48 Vt.
266, 289,

108 Gray v. Bank, supra. 109 State vy. Smith, 48 Vt. 266, 289.
362 MEMBERSHIP IN CORPORATIONS. (Ch. 11

(b) They are subject to the statutory liability for corpo-
rate debts, if the corporation becomes insolvent.

(c) They are entitled to vote at stockholders’ meetings,
and to all the other rights of stockholders, except
in so far as their contract may provide otherwise.

“Preferred stock” or “preference stock” is so called because the
holders are given a preference of some sort over the ordinary stock-
holders. The ordinary stock is called “common stock.” Generally,
the preference consists in the right to receive dividends from the
earnings of the company before the holders of the common stock
can share in such earnings.11° Sometimes the payment of the divi-
dend is guarantied, in which case the stock is called “guarantied
stock.”711_ Preferred stock is usually issued in order to raise money
for corporate purposes instead of borrowing the money on bond and |
mortgage, and the preference is given to facilitate its disposal.

Power to Oreate Preferred Stock.

Sometimes the power to issue preferred stock is expressly con-
ferred by the charter of a corporation.‘t? Where the charter does
not expressly give the power, and does not prescribe how the shares
shall be issued, but leaves the question to be determined by the
corporation, and to be fixed by by-laws or otherwise, and there is
ho statutory prohibition in the way, a corporation may, before of-
fering its stock, provide by its by-laws for the issuing of preferred
stock, and then offer its stock to the public for subscription. Sub-
seribers would then know what to expect, and would contract and *
be bound accordingly.11* By the weight of authority, however, when
this is not done, but, on the contrary, the stock is divided into equal
shares, and is so subscribed for, no right to create preferred stock
being reserved, the stockholders acquire a vested right under their.
contract to share equally in the earnings of the corporation, and in
its property on dissolution; and this right cannot be impaired with-

110 Totten v. Tison, 54 Ga. 139,

111 Gordon’s Ex’rs y. Railroad Co., 78 Va. 501.

112 Belfast & M. L. R. Co. vy. City of Belfast, 77 Me. 445, 1 Atl. 362.

118 See Kent v. Mining Co., 78 N. Y. 159; Davis v. Proprietors of the Second
Univ. Meetinghouse, 8 Mete. (Mass.) 321.
§§ 142-145) PREFERRED STOCK, 363

out their consent by the subsequent creation and issue of preferred
stock, unless it is done under valid legislative authority.*t+

Some of the courts hold, and some seem to hold, that a corporation
has the power to create and issue preferred stock on the ground that
‘such a transaction is virtually a borrowing of money, and that cor-
porations have the power to borrow money, and may do it in this
way.*?> But such a transaction cannot, in any sense, be regarded
‘as a borrowing, except, perhaps, where the preferred stock is issued
as security merely, and is redeemable by the corporation.‘*® Nor

114 Kent v. Mining Co., 78 N. Y. 159; Campbell v. Zylonite Co., 122 N. Y. 455.
25 N. E. 853. And see Banigan v. Bard, 134 U.S. 291, 10 Sup. Ct. 565. “Shares
of stock are in the nature of choses in action, and give the holder a fixed right in
the division of the profits or earnings of a company so long as it exists, and of its
-effects when it is dissolved. That right is as inviolable as is any right in property,
and can no more be taken away or lessened, against the will of the owner, than
-can any other right, unless power is reserved in the first instance, when it enters
into the constitution of the right, or is properly derived ‘afterwards from a superior
lawgiver. The certificate of stock is the muniment of the shareholder’s title, and
evidence of his right. It expresses the contract between the corporation and its
co-stockholders and himself; and that contract cannot, he being unwilling, be taken
away from him, or changed as to him, without his prior dereliction, or under the
conditions above stated.” Kent v. Mining Co., supra. Such a transaction, not
being within the corporate powers of the company, is not binding upon one who
holds stock under an unregistered assignment in blank as security for a debt,
‘though consented to by the registered owner. Campbell v. Zylonite Co., supra.

115 See Hazlehurst v. Railroad Co., 48 Ga. 13. It was so held in West Chester
& P. R. Co. v. Jackson, 77 Pa. St. 321, where it was said: ‘A corporation may
issue new shares, and give them a preference, as a mode of borrowing money,
where it has the power to borrow on bond and mortgage, as preferred stock is only
a form of mortgage.” In this case, however, provision was made for redemption
of the stock, and attention was particularly called to this feature of the case by
the court.

116 “The idea of a borrowing is not filled out unless there is in the agreement
therefor a promise or understanding that what is borrowed will be repaid or re-
‘turned,—the thing itself, or something like it, of equal value,—with or without com-
pensation for the use of it in the meantime. * * * The transaction is not to be
looked upon as other than a preference of one class of stockholders to another,—as
‘giving to the first class a perpetual, inextinguishable, prior right to a ae of the
earnings of the company before the other class might have anything therefrom.”
‘Kent v. Mining Co., 78 N. ¥. 159. The issue of preferred stock may take the form
of a borrowing, as where the stock is made redeemable, and is issued,’ like a bond,
merely as security. See Totten v. ‘ison, 54 Ga, 139; post, p. 367, notes 1382-134.
364 MEMBERSHIP IN CORPORATIONS. (Ch. 11

can such a transaction be sustained under the power to make or alter
by-laws, for “the power to make by-laws is to make such as are not
inconsistent with the constitution and the law, and the power to
alter has the same limit, so that no alteration could be made which
would infringe a right already given and secured by the contract of
the corporation.” +17

In several cases it has been held that an act of the legislature au-
thorizing a corporation to issue preferred stock is valid, and not un-
constitutional as impairing the obligation of the contracts between
the corporation and existing stockholders, the issuing of preferred
stock being regarded as a legitimate mode of raising money.**®

Same—Laches and Estoppel of Stockholders.

Stockholders who do not consent to the creation of preferred stock
must not be guilty of laches in raising objection. If the corpora-
tion, by vote of a majority of the stockholders, determines to issue
preferred shares, and puts the shares on the market, or offers them
on subscription, shareholders who do not consent must assert their
rights without delay, so as to prevent injury to innocent third per-
sons who may take the shares from the corporation or by transfer
from subscribers. If, with knowledge of the action of the corpora-
tion, actual or constructive, they acquiesce for an unreasonable time,
they will be held to have assented, and will not be heard to com-
plain.*7®

A person who takes preferred stock in a corporation may be es-
topped to deny the validity of its issue as against creditors. In Ban-
igan v. Bard,**° for instance, it was held that the holder of preferred .
stock in a corporation issued without statutory authority, who was
active in passing the resolution authorizing its issue, and who vol-
untarily subscribed and paid for it, and held it for 28 months, vot-
ing upon it, and using it to obtain control of the corporation’s af-
fairs, could not, upon the insolvency of the corporation, assert its
invalidity, and recover the money paid for it. So it has been held

' 117 Kent v. Mining Co., 78 N. Y. 159; post, p. 454.

118 Rutland & B. R. Co. v. Thrall, 35 Vt. 536, 545; City of Covington v. Cov-
ington & Cincinnati Bridge Co., 10 Bush (Ky.) 69.

119 Kent vy. Mining Co., 78 N. Y. 159, where relief was held tu be barred by a
delay of four years.

120 134 U.S. 291, 10 Sup. Ct. 565, affirming 39 Fed. 18. '
§§ 142-145) PREFERRED STOCK. 865

that persons who receive preferred stock, and for several years accept
the interest guarantied to be paid thereon, cannot raise the objec-
tion that the corporation had no power to issue the stock.1?+

Rights und Liabilities of Preferred Stockholders.

The rights of holders of preferred stock will depend upon the con-
struction of their contract with the corporation.’?? Generally, they
are given the right to have dividends on their stock paid out of the
earnings of the corporation before anything is paid to the holders of
common stock. Sometimes they are given the right to certain divi-
dends before payment of dividends on common stock, and, in addi-
tion to this, they are entitled to share in the remaining profits pro
rata with the holders of the common stock.

Ordinarily, a preferred stockholder is not to be-regarded as a cred-
itor of the corporation. He is a stockholder like the holders of
common stock, the only difference being that he is entitled to a
preference over them.'?* And it is well established that dividends
on preferred stock are payable only out of the net earnings, which
are applicable to the payment of dividends. They are not payable
absolutely and unconditionally, but only out of profits made by the
company. The preference is limited to profits whenever earned.'**

121 Branch y. Jesup, 106 U. 8S. 468, 1 Sup. Ct. 495, 506. Contra, American Tube
Works y. Boston Mach. Co., 189 Mass. 5, 29 N. E. 63.

122 Of course, the charter and by-laws of the corporation in force at the time
preferred stock is issued form a part of the contract between the corporation and
holders of the preferred stock. See Belfast & M. L. R. Co. v. City of Belfast, 77
Me. 445, 1 Atl. 362.

123 Miller v. Ratterman, 47 Ohio St. 141, 24 N. E. 496; Belfast & M. L. R. Co.
v. Belfast, 77 Me. 445, 1 Atl. 362; Taft v. Railroad Co., 8 R. I. 310; Williston v.
Railroad Co., 13 Allen (Mass.) 400.

124 Lockhart v. Van Alstyne, 31 Mich. 76; Chaffee v. Railroad Co., 55 Vt. 110,
W. D. Smith, Cas. Corp. 96; Miller v. Ratterman, 47 Ohio St. 141, 24 N. E.. 496;
Taft v. Railroad Co., 8 R. I. 310; St. John v. Railway Co., Fed. Cas. No. 12,226,
affirmed 22 Wall. 186; Williston v. Railroad Co., 138 Allen (Mass.) 400. Compare
Gordon’s Ex’rs v. Railroad Co., 78 Va. 501. ‘“‘An agreement to pay dividends on
preferre1 stock out ‘of the net earnings does not mean the net earnings of the cor-
poration as it was when the preferred stock was issued. The corporation may,
after the agreement, incur new obligations, which will diminish the net earnings
applicable to such dividends.’”’ St. John v. Railway Co., 22 Wall. 186, affirming
Fed. Cas, No. 12,226; Warreu y. King, 108 U. S. 389, 2 Sup. Ct. 789. affirming 2
366 MEMBERSHIP IN CORPORATIONS. (Ch. 11.

“A dividend among preference stockholders exclusively is understood.
to imply that the sum divided has been realized as profits, though.
the carnings do not yield a dividend to the stockholders in gen-
eral.” 125 Even a general guaranty of dividends on preferred stock is.
not a guaranty of payment in any event, but only in the event that
dividends are earned.*?®

If the contract with preferred stockholders merely provides that
the preferred shares shall be entitled to a dividend of a certain per
cent. annually when earned, the dividends are cumulative, and the
arrearages of one year are payable out of the earnings of subsequent
years.127_ But the dividends may be made dependent upon the profits.
of each particular year, and in such a case they would not be cumula-
tive.7?8

If the payment of dividends on preferred stock is made dependent
upon the profits of each particular year, “as declared by the board of
directors,” the holders of such stock are not entitled of right to divi-
dends payable out of the net profits accruing in any particular year,
unless the directors formally declare, or ought to declare, a dividend
payable out of such profits; and whether a dividend should be de-
clared in any year is a matter belonging, in the first instance, to the
directors to determine with reference to the condition of the com-
pany’s property and affairs as a whole. The circumstances may jus-

Fed. 36. In Dent v. Tramways Co., 16 Ch. Div. 344, 2 Cumming, Cas. Priv. Corp.
225, a corporation had unlawfully paid dividends for several years without setting.
apart a fund to provide for repairs and renewals by reason of wear and tear.
Afterwards they sought to make up this fund out of the profits of the current
year, instead of paying dividends on preferred stock, which was entitled to divi- ~
dends out of the profits of the particular year only. It was held that this could not
be done,

125 Per Cooley, J., in Lockhart v. Van Alstyne, 31 Mich. 76.

126 Miller v. Ratterman, 47 Ohio St. 141, 24 N. E. 496; Lockhart vy. Van Alstyne.
81 Mich. 76; Taft v. Railroad Co., 8 R. I. 310, and cases there cited; Williston v.
Railroad Co., 18 Allen (Mass.) 400.

127 Henry v. Railway Co., 3 Jur. (N. 8.) 1183; Boardman v. Railway Co., 84 N-
Y¥. 157; Hazeltine v. Railroad Co., 79 Me. 411, 10 Atl. 828; Jermain v. Railway
Co., 91 N. Y. 483. And see Lockhart v. Van Alstyne, 31 Mich. 76; Cotting v-
Railroad Co., 54 Conn. 156, 5 Atl. 851.

128 New York, L. E. & W. R. Co. v. Nickals, 119 U. S. 296, 7 Sup. Ct. 209, 2
Cumming, Cas. Priv. Corp. 228, W. D. Smith, Cas. Corp. 88, Shep. Cas. Corp. 188.
§§ 142-145) PREFERRED STOCK. 3867

tify them in expending money on improvements instead of declaring
a dividend.*?°

Being stockholders, the owners of preferred shares are subject to
all the liabilities of stockholders, including the statutory liability for
corporate debts.**°

The ownership of preferred stock, as a general rule, carries with it
the right to vote upon the same at any meeting of the holders of
the capital stock. But to this rule there may be exceptions. It is:
competent for a corporation in issuing certificates of preferred stock
to stipulate therein that the holders shall not be entitled to vote the
same at stockholders’ meetings, and the stipulation will be binding
upon them.?*?

Preferred stock may be issued in such a way, and under such
terms, as to make the transaction strictly a borrowing; and the
holders of the stock may therefore become creditors of the corpora-
tion, and not stockholders.13? In such a case the dividends might
be payable, like the claims of other creditors, out of the gross earn-
ings,?** and the holders of the stock would not be subject to the stat-
utory liability for debts of the corporation. “The relation of the
holder of preferred stock is, in some of its aspects, similar to that of
a creditor; but he is not a creditor, save as to dividends, after the
same are declared. Nor does he sustain a dual relation to the cor-
poration. He is either a stockholder or a creditor. He cannot, by

129 New York, L. HE. & W. R. Co. v. Nickals, supra, reversing 15 Fed. 575.

180 Railroad Co. v. Smith, 48 Ohio St. 219, 31 N. B. 743.

181 Miller v. Ratterman, 47 Ohio St. 141, 24 N. H. 496.

182 In Totten v. Tison, 54 Ga. 189, preferred stock secured by first mortgage
bonds was issued in order to procure money, under an agreement that the stock
might be redeemed by the corporation, or converted into common stock, at the end
of two years, at the option of the holders. At the end of the two years, the cor-
poration being unable to redeem the shares, the certificates were surrendered by
the holders, and exchanged for the mortgage bonds. The holders of the certificates
never took any part or voted at stockholders’ meetings, nor were they entered on
the books of the corporation as stockholders. In a contest between creditors over
the assets of the corporation, after insolvency, it was held that the holders of
these bonds were entitled to claim as creditors. The court recognized the general.
rule that preferred stockholders are not in the position of creditors, but held that
it did not apply to the peculiar facts of this case; that the transaction was, in.
effect, a loan.

133 See Gordon’s Ex’rs v. Railroad Co., 78 Va. 501.
368 MEMBERSHIP IN CORPORATIONS. (Ch. t1

virtue of the same certificate, be both. If the former, he takes a risk
in the concerns of the company, not only as to dividends and a pro-
portion of assets on the dissolution of the company, but as to the
statutory liability for debts in case the corporation becomes insol-
vent. If the latter, he takes no interest in the company’s affairs, is
not concerned in its property or profits as such, but his whole right
is to receive agreed compensation for the use of the money he fur-
nishes, and the return of the principal when due. Whether he is the
one or the other depends upon a proper construction of the contract
he holds with the: company.” 13+

WATERED AND BONUS STOCK.

146. By the weight of authority, in the absence of consti-
tutional or statutory prohibition, where a corpora-
tion issues stock gratuitously, or under an agree-
ment by which the holder is to pay less than its
par value, either in money or in property or serv-
ices—

(a) The transaction is binding upon the corporation.

(b) It is binding as against stockholders who participate
or acquiesce therein.

(c) But it is a fraud upon dissenting stockholders, and
they may sue in equity to enjoin or cancel the issue.

(d) If the stock is original stock, issued on subscription,
the transaction is a fraud upon creditors of the cor-:
poration, who deal with it on the faith of the stock
being full paid; and, if the corporation becomes in-
solvent, the original holders of such stock, and
purchasers with notice, may be held liable for its
par value to pay such creditors. "

(e) When a corporation is an active and going concern,
it may issue stock at its market, instead of its par,
value, in payment of a debt, or to raise money or
purchase property necessary for carrying on its

184 Miller vy. Ratterman, 47 Ohio St. 141, 24 N. E. 498,
§§ 146-148) WATERED AND BONUS STOCK. 369

business, and, if the stock is issued as full paid, and
the transaction is in good faith, the holders of the
stock will not be liable to creditors.

(f) If stock is issued as a bonus, and without considera-
tion, the holders will be liable for the par value of
the stock to creditors who deal with the corpora-
tion on the faith of the stock being full paid. This
rule is not recognized in New York.

(g) In any case, only those creditors who have dealt
with the corporation on the faith of the stock
being full paid can complain. Therefore, the
holders of stock issued as full paid, without
being paid in fact, are not liable

(1) To persons who became creditors before the
stock was issued.

(2) Or who became creditors with knowledge of the
facts.

147. In the absence of constitutional or statutory prohibi-
tion, stock may be paid for in property or services,
if they are such as the corporation has the power
to purchase or engage; and by the weight of au-
thority the transaction will be valid as against cred-
itors, if it was free from fraud, though the property
may in fact have been worth less than the stock.
If the overvaluation is intentional, the transaction
is fraudulent as a matter of law, and obvious and
gross overvaluation, if unexplained, is conclusive
evidence of intentional overvaluation.

148. These rules are to some extent inapplicable under
peculiar constitutional or statutory provisions in
force in some states.

Lffect as to the Corporation.

In the absence of constitutional or statutory prohibition, or ex-
press prohibition in its charter, a corporation may bind itself by an
issne of stock as full paid on receipt of partial payment only, either

Clk.Pr.Corp.—24
3870 MEMBERSHIP IN CORPORATIONS. (Ch. 11

in money or in property or services. It cannot repudiate the agree-
ment, and recover from the holder of the stock the difference be-
tween what he has paid and the par value. And it can make no dif-
ference whether the agreement is made with original subscribers or
whether the stock is issued by the corporation in order to raise
money, pay debts, or obtain property after it has become an active
and going concern.***

In Scovill v. Thayer 7*° it was agreed between a corporation and all
of its stockholders that only 20 per cent. should be paid on their
shares. Mr. Justice Woods said: “As between them and the com-
pany, this was a perfectly valid agreement., It was not forbidden
by the charter of the company, or by any law or public policy, and
as between the company and its stockholders was just as binding as
if it had been expressly authorized by the charter. If the company,
for the purpose of increasing its business, had called upon the stock-
holders to pay up that part of their stock which had been satisfied by
‘discount,’ according to their contract, the stockholders could have
successfully resisted such a demand. No suit could have been main-
tained by the company to collect the unpaid stock for such a purpose.
The shares were issued as full paid, on a fair understanding, and that
bound the company.”

In Arapahoe Cattle & Land Co. v. Stevens,**’ a corporation, in or-
der to procure money for carrying on its business, entered into a
contract with plaintiff, a person not connected with it, by which it
agreed to pay him in stock 33% per cent. of any sum he should pro-
cure to be loaned to it. Plaintiff procured a bank to lend the cor-
poration $5,000, and the court held that the transaction was not
ultra vires, but, in the absence of fraud, was binding upon the cor-
poration, though the price agreed to be paid was extravagant.

A corporation free from indebtedness, if acting in good faith, has

135 Scovill v. Thayer, 105 U. S. 148; Harrison v. Railway Co., 13 Fed. 522;
Kenton Furnace Railroad & Manuf’g Co. v. McAlpin, 5 Fed. 737; Christensen v.
Eno, 106 N. Y. 97, 12 N. B. 648; Union Mut. Life Ins. Co. v. Frear Stone Manuf’s
Co., 97 Ill. 537 ; First Nat. Bank v. Gustin Minerva Con. Min. Co., 42 Minn. 327,
44 N. W. 198, 1 Cumming, Cas. Priv. Corp. 850. Compare, however, Morrow v-
Steel Co., 87 Tenn. 262, 10 S. W. 495; Ooregum Gold-Min. Co. v. Roper [1892]
App. Cas. 125, 2 Cumming, Cas. Priv. Corp. 247.

186105 U.S. 143. 187 13 Colo, 534, 22 Pac, 823.
8§ 146-148) WATERED AND BONUS STOCK. ' 371

the power, as between itself and its stockholders (all the stockhold-
ers uniting therein), to agree, in consideration of the surrender by
the stockholders to it of accumulated profits and of the increased
value of its property, to treat stock upon which only 50 per cent.
has been paid as full-paid stock; and the corporation cannot after-
wards, in its own behalf, or on behalf of subsequent creditors with
notice, disturb the arrangement.'*® So, if a corporation with the
assent of all the stockholders, issues stock as a gratuity to stock-
holders who have been called upon to pay calls on their original
subscriptions in excess of what was expected, the transaction is
binding upon the corporation according to the intention, and it can-
not hold the stockholders liable on the stock.1*°®

If the issue of stock without consideration, or without receiving
its par value in money or property, is not only prohibited by the
constitution or by statute, but the issue is declared void, stock so
issued can have no effect at all. It is absolutely void, and the hold-
ers do not become stockholders.‘*® The effect of particular consti-
tutional and statutory provisions is considered in a subsequent para-
graph.

Liffect as to Stockholders.

A stockholder may maintain a bill in equity to enjoin a threat-
ened and unauthorized issue of stock gratuitously, or for less than
its par value; and, where stock has already been so issued, a stock-
holder who has not participated or acquiesced in the transaction
may maintain a bill to cancel the same.**+ But a stockholder who
has participated or acquiesced in the transaction cannot complain.'*”
And clearly a stockholder who has not only acquiesced in the trans-
action, but has also received part of the stock so issued, will not be
heard to complain. A dissenting stockholder must raise objection

188 Kenton Furnace, Railroad & Manuf’g Co. v. McAlpin, 5 Fed. 737.

139 Christensen v. Eno, 106 N. Y. 97, 12 N. E. 648.

140 Arkansas River Land, Town & Canal Co. v. Farmers’ Loan & Trust Co., 13
Colo. 587, 22 Pac. 954.

141 Parson v. Joseph, 92 Ala. 408, 8 South. 788; Perry v. Tuscaloosa Cotton
Seed Oil Mill Co., 98 Ala. 364, 9 South. 217; Fisk v. Railroad Co:, 53 Barb. (N.
Y.) 513. ;

142 1 Cook, Stock, Stockh. & Corp. Law, § 39; Scovill v. Thayer, 105 U. 8. 143;
Uallanan vy. Windsor, 78 Iowa, 198, 42 N. W. 652.
372 - MEMBERSHIP IN CORPORATIONS. (Ch. 11

without delay, or relief may be barred by laches. If he knows of
the issue or contemplated issue, and neglects for an unreasonable
time to take any steps to cancel or prevent it, he will be deemed to
have acquiesced, and he cannot afterwards complain.***

Lifect as to Creditors.

The fact that a corporation or stockholders cannot complain of a
transaction in which stock is issued as full paid on payment of a
part only of its par value does not necessarily preclude creditors
from objecting. In some cases they may recover from the holder
of such stock the difference between its par value and the amount
paid. In other cases they cannot do so. In dealing with this
branch of the subject, we shall first consider original subscriptions.
We shall then consider the issue of stock by a corporation when it
is an active corporation, or, as it is sometimes expressed, “a going
concern.” We shall then consider questions relating to the valua-
tion of property or services received in payment for stock, and finally
we shall ascertain the effect of peculiar constitutional or statutory
provisions on the subject.

Same— Payment of Original Subscriptions.

All the courts will no doubt agree that an original subscriber to
the capital stock of a corporation must pay its par value, in order
to be protected against claims of creditors of the corporation on its
becoming insolvent: Nothing less than this will make the stock
full paid as against creditors. The earlier English ‘cases held that,
where a corporation issues stock under an agreement with the sub-
scriber by which only a part of the par value is to be paid in, the
contract, if void at all, is void in toto, or, if valid at all, is valid
in toto; and that in either view the assignee in insolvency of the
corporation cannot compel the holders of such stock to pay the dif-
ference between what they have paid or agreed to pay and the par
value of the stock.** Under a statute, however, and, it seems, in-
dependently of any statutory provision, the later English cases hold
otherwise.**® And in this country it has for a long time been well

143 Taylor y. Railroad Co., 13 Fed. 152."

144 Currie’s Case, 3 De Gex, J. & S. 367; ,De Ruvigne’s Case, 5 Ch. Div. 306;
Andvrson’s Case, 7 Ch. Div. 94.

345 In re Addlestone Linoleum Co., 58 Law T. (N. S.) 428; In re London Cellu-
§§ 146-148) WATERED AND BONUS STOCK. 373

settled that one who subscribes for stock in a corporation under an
agreement by which he is to pay less than the par value cannot
stand on his agreement where the corporation becomes insolvent,
and it becomes necessary to hold him for the full amount of his
subscription in order to satisfy the claims of creditors of the corpora-
tion who have dealt with it on the faith of the stock having been
fully paid up. The agreement may be binding upon the corporation
and upon participating or assenting stockholders, but it is void as
against such creditors. The rule does not depend upon any consti-
tutional or statutory prohibition, and the question of actual fraud
is altogether immaterial.1*¢ :

Some of the cases base this rule on the doctrine laid down by
Mr. Justice Story in Wood v. Dummer,‘*’ that the capital stock of
a corporation is a trust fund for the payment of its debts. “The
reason,” said Mr. Justice Woods in Scovill v. Thayer,'*® “is that the
stock subscribed is considered in equity as a trust fund for the pay-
ment of creditors. It is so held out to the public, who have no means
of knowing the private contracts made between the corporation and
its stockholders. The creditor has, therefore, the right to presume
that the stock subscribed has been or will be paid up, and, if it is
not, a court of equity will, at his instance. require it to be paid.”
And it was said by Mr. Justice ‘Brown in a later case: “It is the
settled doctrine of this court that the trust arising in favor of cred.

loid Co., 59 Law T. (N. 8S.) 109. And see Ooregum Gold Min. Co. of India vy.
Roper [1892] App. Cas. 125, 2 Cumming, Cas. Priv. Corp. 247.

148 Upton v. Tribilcock, 91 U. S. 45, 1 Cumming, Cas. Priv. Corp. 824; Ogilvie
y. Insurance Co., 22 How. 380, 1 Cumming, Cas. Priv. Corp. 814; Sawyer v. Hoag,
17 Wall. 610, 1 Cumming, Cas. Priv. Corp. 818; Hawley v. Upton, 102 U. S. 314;
Scovill v. Thayer, 105 U. S. 143; Camden v. Stuart, 144 U. S. 104, 12 Sup. Ct. 585;
In re Glen Iron Works, 17 Fed. 324; Marsh v. Burroughs, 1 Woods, 4638, Fed.
Cas, No. 9,112; Union Mut. Life Ins. Co. vy. Frear Stove Manuf’g Co., 97 11]. 587;
Hickling v. Wilson, 104 Il]. 54; Alling v. Wenzel, 133 Ill. 264; 24 N. E. 551; First
Nat. Bank of Deadwood v. Gustin Minerva Con. Min. Co., 42 Minn. 327, 44 N. W.
198, 1 Cumming, Cas. Privy. Corp. 850; Payne v. Bullard, 23 Miss. 88; White
Mountains R. Co. v. Eastman, 34 N. H. 124; Northrop v. Bushnell, 88 Conn. 498;
Ooregum Gold-Min. Co. of India v. Roper [1892] App. Cas. 125, 2 Cumming, Cas.
Priv. Corp. 247. See, also, Gogebic Inv. Co. v. Iron Chief Min. Co., 78 Wis. 427,.
47 N. W. 726.

147 3 Mason, 808, Fed. Cas. No. 17,944, 1 Cumming, Cas. Priv. Corp. 805.

148105 U. S. 143. .
374 MEMBERSHIP IN CORPORATIONS. (Ch. 11

itors by subscriptions to the stock of a corporation cannot be de-
feated by a simulated payment of such, nor by any device short of
actual payment in good faith; and, while anv settlement or satisfac-
tion of such subscription may be good as between the corporation

and the stockholders, it is unavailing as against the claims of cred-

itors.” 14° The supreme court of Minnesota in a late case holds, in

an opinion by Judge Mitchell, that the rule is not based on any trust-

fund doctrine at all, but upon the ground of fraud,—the fraud con-

sisting in impliedly representing to the public that the stock has

been paid in full, when it has been paid in part only, or when nothing

at all has been paid. “By putting it upon the ground of fraud,” it

was said, “and applying the old and familiar rules of law on that

subject to the peculiar nature of a corporation and the relation

which its stockholders bear to it and to the public, we have at once

rational and logical ground on which to stand. The capital of a

corporation is the basis of its credit. It is a substitute for the in-

dividual liability of those who own its stock. People deal with it

and give it credit on the faith of it. They have a right to assume

that it has paid-in capital to the amount which it represents itself

as having; and if they give it credit on the faith of that representa-

tion, and if the representation is false, it is a fraud upon them; and,

in case the corporation becomes insolvent, the law, upon the plainest

principles of common justice, says to the delinquent stockholder,

‘Make that representation good by paying for your stock.’ It cer-

tainly cannot require the invention of any new doctrine in order to

enforce so familiar a rule of equity. It is the misrepresentation of.
fact in stating the amount of gapital to be greater than it really is

that is the true basis of the liability of the stockholder in such

cases.” 15°

Same—Increase of Capital Stock.

Where the capital stock of a corporation is increased, if the in-
crease is for the purpose of adding to the original capital stock, and
enabling the corporation to do a larger and more profitable business,

149 Camden v. Stuart, 144 U. 8. 104, 12 Sup. Ct. 585.
150 Hospes v. Car Co., 48 Minn, 174, 50 N. W. 1117, 1 Cumming, Cas. Priv.

Corp. 885, See post, p. 589, where the trust-fund doctrine is discussed.
®
§§ 146-148) WATERED AND BONUS STOCK. 3875

subscribers to or purchasers of such stock stand practically upon
ihe same basis as subscribers to the original stock; and they are
jiable for the par value of the stock.1*+ In Flinn v. Bagley **? the
defendants had subscribed and agreed to pay certain sums of money
towards the increased capital stock of a corporation, with the under-
standing that they were to receive stock therefor at 66% cents on
the dollar, which was all the existing stock was worth, and all that
the new stock could be sold for. The arrangement having been car-
ried out, and certificates of stock issued, it was held that, though
the case was a hard one upon the defendants, and no fraud was in-
tended, the assignee in bankruptcy of the corporation could hold
‘them for the remaining onethird of the par value of the stock. If
‘a corporation increases its capital stock, and distributes part of the
new stock among the stockholders as full paid, without any consid-
eration, they will be liable to creditors of the corporation for its
par value.***

Same—Issue of Stock at Market Value by Actiwe Corporation to

Pay Debts, ete.

As has just been shown, in the case of original subscriptions to the
capital stock of a corporation, and subscriptions to an increase of
‘stock, the par value must be paid to protect the subscriber against
the claims of creditors. A distinction has been made between these
cases and cases in which an active corporation issues stock for the
purpose of paying its debts, or for the purpose of procuring thoney
for the prosecution of its business where its original capital has be-
come impaired by. loss or misfortune; and it has been held that in
the latter cases, in the absence of constitutional or statutory pro-
hibition, it may issue stock as full paid on payment of its actual
value, instead of its par value; and, if the transaction is honest and
fair, the holders of the stock will not be liable to creditors on the
theory that the stock is not paid up. There are some decisions

161 Handley v. Stutz, 189 U. S. 417, 11 Sup. Ct. 530, 1 Cumming, Cas. Priv.
Corp. 855; Flinn v. Bagley, 7 Fed. 785, 1 Cumming, Cas. Priv. Corp. 845; Ricker-
son Roller-Mill Co. v. Farrell Foundry & Mach. Co., 75 Fed. 554.

162 7 Wed. 785, 1 Cumming, Cas. Priv. Corp. 845.

168 Handley v. Stutz, 139 U. 8. 417, 11 Sup. Ct. 530, 1 Cumming, Cas. Priv. Corp.
855.
376 MEMBERSHIP IN CORPORATIONS. (Ch, 11

against this view,'** but it is supported by reason and by the weight
of authority.***

In Clark v. Bever,?*® decided in 1891, a railroad company, of which
the defendant’s intestate was president and a stockholder, had a set-
tlement with a construction company, of which he was also a mem-
ber, for work done in building the road. The railroad company, be-
ing unable to pay the claim of the construction company, delivered
to it 3,500 shares of its stock at 20 cents on the dollar, and they were
accepted in full satisfaction of the debt. The stock was not worth
anything on the market, and was issued directly to the defendant's
intestate, and no other payment than the 20 per cent. was ever made
on the stock. A judgment creditor of the railroad company filed a
bill to compel the payment by the defendant of his claim upon the
theory that he was liable for the par value of the stock, whatever
may have been its market value at the time it was issued. It was
held that he could not recover.

So also, by the weight of authority, in the absence of constitu-
tional or statutory prohibition, where an active corporation finds its
original capital impaired by loss or misfortune, it may, for the pur-
pose of recuperating itself and providing new conditions for the suc-
cessful prosecution of its business, issue new stock, when authorized
to increase its capital stock, and may put it upon the market and sell
it for the best price that can be obtained; and if the sale is fairly
made; the purchasers cannot be held liable to creditors of the corpo-
ration, on its becoming insolvent, for the difference between the
amount paid by them and the par value of the stock.15? In Handley

154 Jackson v. Traer, 64 Iowa, 469, 20 N. W. 764, Rothrock, C. J., and Seevers,
J., dissenting (disapproved in Clark v. Bever, infra).

155 Clark v. Bever, 189 U. S. 96, 11 Sup. Ct. 468; Fogg v. Blair, 139 U. S. 118,
11 Sup. Ct. 476; Handley vy. Stutz, 139 U. 8S. 417, 11 Sup. Ct. 530, 1 Cumming,
Cas. Priv. Corp. 855; Van Cott v. Van Brunt, 82 N. Y. 535; Stein v. Howard,
65 Cal. 616, 4 Pac. 662.

156 139 U. S, 96, 11 Sup. Ct. 468. See, also, Fogg v. Blair, 189 U. 8. 118, 11
Sup. Ct. 476; Union Loan & Trust Co. v. Southern California Motor-Road Co.,
51 Fed. 840.

157 As we have seen, this does not apply where the stock is increased for the put-
pose of providing a larger capital and doing an extended business, and not to
restore capital impaired by losses. Ante, p, 374.
eo

§§ 146-148) WATEKED AND BONUS STOCK. O71

vy. Stutz,*°* an active corporation, for the purpose of paying its debts,
and obtaining money to prosecute its business, issued bonds; but,
finding it impossible to negotiate them, it issued shares of capital
stock in an amount equaling the par value of the bonds as an addi-
tional inducement to their purchase. The bonds and stock were sold
at a price fairly representing their market value, without any unfair
dealing on the part of any one connected with the transaction. Un-
der these circumstances it was held that the purchasers could not be
called upon to respond for the par value of the stock at the suit of
the creditors of the corporation. “To say,” said the court, “that a
corporation may not, under the circumstances above indicated, put
its stock upon the market, and sell it to the highest bidder, is prac-
tically to declare that a corporation can never increase its capital by a
sale of shares, if the original stock has fallen below par. The whole-
some doctrine, so many times enforced by this court, that the capital
stock of an insolvent corporation is a trust fund for the payment
of its debts, rests upon the idea that the creditors have a right to
rely upon the fact that the subscribers to such stock have put into
the treasury of the corporation, in some form, the amount represent-
ed by it; but it does not follow that every creditor has a right to
trace each share of stock issued by such corporation, and inquire
whether its holder, or the person of whom he purchased, has paid its.
par value for it. It frequently happens that corporations, as well as
individuals, find it necessary to increase their capital in order to raise
money to prosecute their business successfully, and one of the most
frequent methods resorted to is that of issuing new shares of stock
and putting them upon the market for the best price that can be
obtained; and, so long as the transaction is bona fide, and not a
mere cover for ‘watering’ the stock, and the consideration obtained
represents the actual value of such stock, the courts have shown no.
disposition to disturb it. Of course, no one would take stock so is-
sucd at a greater price than the original stock could be purchased
for, and hence the ability to negotiate the stock and to raise the
nioney must depend upon the fact whether the purchaser shall or
shall not be called upon to respond for its par value.” 1°?
158 139 U. S. 417, 11 Sup. Ct. 530, 1 Cumming, Cas. Priv. Corp. 855.

159 See, also, Stein v. Howard, 65 Cal. 616, 4 Pac. 662; Dummer vy. Smedley
(Mich.) 68 N. W. 260.
378 MEMBERSHIP IN CORPORATIONS. (Ch. 11

If an active corporation can issue stock at its market value in pay-
ment of its debts, or to raise money necessary to carry on its busi-
ness, as held in the cases referred to above, there seems to be no
good reason why they cannot issue stock at its market value in pay-
ment for property or services which are necessary for the prosecu-
tion of its business, and which it can procure in no other way, and
which it has the power to purchase or engage. And there are cases
which hold that it can do so if the transaction is honest and fair. In
Van Cott v. Van Brunt *®° a railroad company in good faith made a
contract for the construction of its road, and agreed to pay therefor
in its stock on the basis of its actual, instead of its par, value. The
court of appeals of New York held that the contract was valid, and
that the holders of the stock could not be held liable to creditors for
the difference between what was thus paid and its par value. This
decision has been criticized by text writers and by some of the courts,
but it has often been approved, and has lately been reaffirmed by
the New York court.

Same— Gratuitous Issue of Stock.

In New York it is held that the liability of a shareholder in a cor-
poration to pay for stock does not arise out of the relation, but de-
pends upon his contract with the corporation, express or implied, or
upon some statute fixing his liability, and that, in the absence of
either contract or statute, one to whom shares have been issued as a
gratuity does not, by accepting them, commit any wrong upon cred-
itors, or‘ make himself liable to pay the par value of the shares for
the payment of corporate debts.1°? According to the better opin-
ion, however, the rule is otherwise; and if a person accepts stock
in a corporation, which is issued to him as a gratuity, and the cor-
poration becomes insolvent, the law will create a promise to pay
therefor in favor of creditors.1%?

160 82 N. Y. 585. See dictum in Barr v. Railroad Co., 125 N. Y. 268, 26 N. E.
145. And see Coe v. Railroad Co., 52 Fed. 531.

161 Christensen v. Eno, 106 N. Y. 97, 12 N. EB. 648.

162 Stutz v. Handley, 41 Fed. 531; Handley v. Stutz, 139 U. S. 417, 11 Sup.
‘Ct. 530; 1 Cumming, Cas. Priv. Corp. 855. And see Skrainka v. Allen, 7 Mo.
App. 434, 76 Mo. 384; Washburn v. Green, 133 U. S. 30, 10 Sup. Ct. 280; Murrow
vy. Steel Co., 87 Tenn. 262, 10 S. W. 495.
$§ 146-148) WATERED AND BONUS STOCK. 379

Same—Payment for Stock in Property or Services.

It. is clear on principle, and well established by authority, that
the directors of a corporation, in the absence of constitutional or
statutory prohibition, may receive property or services in payment
for stock, either from original subscribers or from persons to whom
they sell stock, in any case in which they would have the power to
purchase the property or contract for the services.‘°* Such power
is often expressly conferred by statute, but this is not necessary,
for it exists at common law. Where the directors have the power
to contract a debt for property or services, it would be absurd to say
that they cannot pay for the same in stock, or receive the same in
payment of subscriptions, and to require them to first contract the
debt, and then pay it with money received for stock or on subscrip-
tions. Whether the stock must be paid for at its par value instead of
its market value has been considered in the preceding paragraphs,
and it has been seen that subscribers must pay the par value, but
that, by the weight of authority, an active corporation may some-
times issue stock in payment of debts, or to raise money for the
prosecution of its business, at its market value.

Same— Value of the Property or Services.

It is expressly provided by statute in some jurisdictions that prop-
erty or services received in payment for stock must be taken at their
money value. This is nothing more than a declaration of the com-
mon law in so far as dissenting stockholders and subsequent cred-
itors of the corporation are concerned. Even in the absence of such
a ‘statute, for a corporation to issue stock for property intentionally
overvalued would be a fraud upon dissenting stockholders; and, even
if all the stockholders should consent, it would be a fraud upon per-
sons dealing with the corporation. Dissenting stockholders could
sue to enjoin the issue of stock for property intentionally overvalued,
or to cancel it if issued; and persons afterwards dealing with the
corporation could hold the persons to whom the stock is thus issued
liable for the difference between the amount of their stock and the
real value of the property.

163 Carr v. Le Fevre, 27 Pa. St. 418; Brant v. Ehlen, 59 Md. 1; Liebke v.
Knapp, 79 Mo. 22, 49 Am. Rep. 212; Coffin v. Ransdell, 110 Ind. 417, 11 N. E. 20;
Spargo’s Case, 8 Ch. App. 407, 412.
380 MEMBERSHIP IN CORPORATIONS. (Ch. 11

Where a. corporation receives property or services in payment for
stock, and issues the stock as full paid, actual fraud or intentional
overvaluation of the property or services must be shown before the
holders of the stock can be held liable to creditors of the corporation
on the ground that the stock is not full paid. It is not enough to
show an overvaluation due to mere error of judgment.*®* “The
transaction may be impeached for fraud, but not for error of judg-
ment, or mistaken views of the value of the property, inasmuch as
good faith and the exercise of an honest judgment is all that is re-
quired.” +®° In Gamble v. Queens County Water Co.*** a shareholder
in a water company, at his own expense, and for his own benefit,
built a system of pipes, etc., suitable for an extension of the com-
pany’s plant, and the corporation purchased the same from him, is-
suing in payment stocks and bonds of the value of $110,000. The
cost of the work was from $80,000 to $85,000. It was held that the
difference was not so large as to necessarily indicate fraud, and the
transaction was upheld.

Some of the cases hold that an actual fraudulent intent must be
shown in order that a person who pays for his stock in property may
be held liable to creditors on the ground that the property was over-
valued, and some opinions contain dicta to this effect.1®? But by
the better opinion this is not necessary. The directors of a corpora-
tion have no right to take in payment for stock property that is in-

a

164 Coit v. Amalgamating Co., 119 U. S. 348, 7 Sup. Ct. 231, 1 Cumming, Cas.
Priv. Corp. 847 (as construed in Handley v. Stutz, 189 U. 8. 417, 11 Sup. Ct. 530,
1 Cumming, Cas. Priv. Corp. 855); Bank of Ft. Madison vy. Alden, 129 U. S. 372,
9 Sup. Ct. 332; Schenck v. Andrews, 57 N. Y. 183; Douglass v. Ireland, 73 N. Y.
100; Lake Superior Iron Co. v. Drexel, 90 N. Y. 87; Gamble y. Water Co., 123
N. Y. 91, 25 N. E. 201.

165 Douglass v. Ireland, 73 N. Y. 100.

166 123 N. Y. 91, 25 N. HE, 201.

167 See Phelan v. Hazard, 5 Dill. 45, Fed. Cas. No. 11,068; Coit v. Amalga-
mating Co., 119 U. S. 343, 7 Sup. Ct. 231, 1 Cumming, Cas. Priv. Corp. 847;
Young v. Iron Co., 65 Mich. 111, 31 N. W. 814; Whitehill v. Jacobs, 75 Wis. 474,
44 N. W. 630; Coffin v. Ransdell, 110 Ind. 417, 11 N. E. 20; Clow v. Brown (Ind.
Sup.) 31 N. BE. 861; Carr vy. Le Fevre, 27 Pa. St. 418; Brant v. Eblen, 59 Md. 1;
Bickley v. Schlag, 46 N. J. Eq. 533, 20 Atl. 250; Clayton v. Knob Co., 109 N. C. 385,
14S. E. 37; Walburn v. Chenault, 43 Kan, 352, 23 Pac. 657; Grant v. Railroad
Co., 4 C. C. A. 511, 54 Fed. 569. :
§§ 146-148) WATERED AND BONUS STOCK. 381

tentionally overvalued. Laying aside all question as to whether
there is an actual intention to defraud, such a transaction would be
a fraud in law, both upon dissenting stockholders and upon persons
dealing with the corporation on the faith of its stock being fully
paid up, and it would be just as invalid as against creditors as a pay-
ment for stock in money at a discount. If the nature of the property
and the extent of the overvaluation are such that the overvaluation
may possibly have been due to error of judgment, then, to render the
transaction invalid as against creditors, actual fraud must be shown,
and the question is one of fact.1** If, on the other hand, the over-
valuation is so gross and obvious that it could not have been due to
mere error of judgment, the transaction will be held fraudulent as a
matter of law.*°® This seems to be the fair result of the cases, if the
opinions are read in the light of the facts actually before the court.
In Wetherbee v. Baker *”° five persons agreed for the purchase of
a tract of land, and organized themselves into a corporation under a
land improvement act. In the certificate of incorporation the capital
stock was fixed at $100,000, and these persons subscribed for all of
it, and became the directors of the company. The consideration of
the purchase was $50,000. The deed was made directly to the cor-
poration, and it gave its obligations for the whole purchase money.
The directors then appraised the lands at $100,000, and credited $50,-
000 of the valuation as a credit of 50 per cent. on the subscriptions.
The land was not worth more than the original purchase money, and
the corporation acquired no other property. It was held that, as
against creditors of the corporation, the allowance of a credit of 50
per cent. on the subscriptions was invalid, and that the stockholders

168 See Douglass v. Ireland, 73 N. Y. 100; Lake Superior Iron Co. v. Drexel,
90 N. Y. 87.

169 See Boynton v Andrews, 63 N. Y. 93; Boynton v. Hatch, 47 N. Y¥. 225; Na-
tional Tube-Works Co. v. Gilfillan, 124 N. Y. 302, 26 N. B. 5388; Wetherbee vy. Ba-
ker, 35 N. J. Hg. 501; Shickle v. Watts, 94 Mo. 410, 7S. W. 274; Northwestern
Mut. Life Ins. Co. v. Cotton-Exchange Real-Estate Co., 46 Fed. 22; Blyton Land
Co. vy. Birmingham Warehouse & Elevator Co., 92 Ala. 407, 9 South. 129, 1 Cum-
ming, Cas, Priv. Corp. 870; Boulton Carbon Co. vy. Mills, 78 Iowa, 460, 43 N. W.
291; First Nat. Bank of Deadwood v. Gustin Minerva Con. Min. Co., 42 Minn. 327,
44 N. W. 198; 1 Cumming, Cas. Priv. Corp. 850; Garrett v. Mining Co., 118 Mo.
330, 20 S. W. 965. Compare Libby v. Tobey (Ale.) 19 Atl. 904.

170 35 N. J. Ka. 501.
882 MEMBERSHIP IN CORPORATIONS. (Ch. 11

were liable for the whole amount of their subscriptions as they ap-
peared in the certificate of incorporation.

Tn Douglass v. Ireland +"? the entire capital stock of a corporation,
$300,000, was issued to one of its trustees in consideration of the as-
signment to the company of two contracts for the purchase of min-
ing property, upon which nothing had been paid, the contract price
being $40,000. One-third of the stock was immediately transferred to.
the company, to be sold to raise a working capital, and was sold at
from 40 to 60 cents on the dollar. Defendant, knowing the circum-
stances, and having participated as trustee of the corporation in the
transaction, purchased $25,000 of the stock at 40 cents. The jury
found the value of the property to be $68,000. It was held that the.
evidence justified a finding of fraud, and that the defendant was lia-
ble to creditors of the corporation.

When property taken by a corporation in payment for stock is not
only grossly overvalued, but there are other circumstances from
which actual fraudulent intent may be inferred, there can be no
question but that the stockholder is liable to subsequent creditors:
of the corporation, who became such in ignorance of the circumstan-
ces under which the stock was issued, for the difference between the:
value of the property and the par value of the stock.'”?

Jn determining the value of property thus received in payment for:
stock, the true valuation is the value to the company; and where the
property has been produced by the labor and at the expense of the
person from whom it is received, a fair profit to him is to be includ-
ed.** If the property is taken by the corporation at an honest val-

17173 N. Y. 100.

172 Lloyd v. Preston, 146 U. 8. 630, 18 Sup. Ct. 131, affirming 36 Fed. 54.

173 Gamble v. Water Co., 123 N. Y. 91, 25 N. H. 201. In this case a shareholder
in a water company, having built a system of pipes, ete., suitable for an extension.
of the company’s plant, and having sold the same to the corporation for stock and
bonds, it was held ‘that, in determining the value of the property, the question was.
the value to the company, and that there should be included in the estimate, in addi-
tion to the money actually expended for labor and materials, an adequate charge by
the owner and his assistant for personal services in superintending the work, inter-
est upon the money invested, amounts saved by fortunate purchases of material, and.
a reasonable profit upon the undertaking, having regard to the nature and risks of
the work. As to the elements to be considered in estimating value, see Camden v..
Stuart, 144 U. S. 104, 12 Sup. Ct. 585. .
§§ 146-148) WATERED AND BONUS STOCK. 383

uation, fairly made and agreed upon, the transaction will not be ren-
dered invalid by the fact that its value, estimated in the light of sub-
sequent events, does not equal the amount at which it was receiv-
ed.1** It will be presumed, in the absence of any proof as to the

value of property received in payment for stock, that it was ade-
quate.175

Same— Creditors Who Cannot Complain.

The true reason why creditors of an insolvent corporation can
hold the persons to whom the corporation has’ issued stock as full
paid, when nothing at all, or only a part of it, has been paid, being
that holding such stock out to the public as full paid is a fraud upon
persons dealing with the corporation on the faith of the stock being
actually fully paid for, only those creditors who come within the rea-
sonof therulecancomplain.**® It follows that creditorscannot attack
a transaction by which a corporation has issued stock gratuitously or
for a cash discount, or for property worth less than the amount of
the stock, if they knew the facts, and did not give credit to the cor-
poration in the belief that the stock was fully paid. In Coit v. North
Carolina Gold Amalgamating Co.77 it was held that where, upon
the purchase of additional property by a corporation, its capital
stock was increased by the issue to the stockholders, upon the sur-
render of their old certificates, of new stock to a much greater extent
than the value of the additional property, the stockholders could
not be held liable on the stock at the suit of a creditor who was cog-
nizant of the whole transaction, and acquiesced in it.17§ So, when
the stock of a corporation is increased, and the increased stock issued
for less than its value, persons who became creditors of the corpora-
tion prior to the increase cannot hold the purchasers or holders of

174 Coit v. Amalgamating Co., 119 U. S. 344, 7 Sup. Ct. 281, 1 Cumming, Cas.
Priv. Corp. 847; Carr v. Le Fevre, 27 Pa. St. 4138.

175 Davis v. Chemical Co., 101 Ala. 127, 8 South. 496,

176 Ante, p. 874,

177119 U. S. 848, 7 Sup. Ct. 231, 1 Cumming, Cas. Priv. Corp. 847.

178 And see Whitehill v. Jacobs, 75 Wis. 474, 44 N. W. 630; First Nat. Bank v.
Gustin Minerva Con. Min. Co., 42 Minn. 327, 44 N. W. 198, 1 Cumming, Cas. Priv.
Corp. 850; Hospes v. Car Co., 48 Minn. 174, 50 N. W. 1117, 1 Cumming, Cas.
Priv. Corp. 885; Rickerson Roller-Mill Co. v. Farrell Foundry & Machine Co., 75
Fed. 554,
384 MEMBERSHIP IN CORPORATIONS. (Ch. 11

such stock liable for its value; for they could not, by any legal pre-
sumption, have trusted the corporation upon the faith of such
stock.17° But persons who become creditors after the increase is
voted are entitled to look to those who subsequently receive the
stock, though their debts are contracted before the stock is re-
ceived.7®°

“The whole doctrine that the capital stock of corporations is a
trust fund for the payment of creditors rests upon the equitable con-
sideration that the distribution of the capital among stockholders
without making adequate provision for the payment of debts, or the
issue of fictitiously paid-up stock, is a fraud upon creditors who con-
tract with the corporation in reliance upon its capital remaining in-
tact, or in reliance upon the professed capital having been in fact
paid up in full. But, when the reason for the rule does not exist,
the rule itself ceases to apply. This trust does not arise absolutely
in every case in favor of any and every creditor. It is not true, and
no case can be found which holds, that it is in the power of a cred-
itor in every and all cases, as a matter of right, to institute an in-
quiry as to the value or amount of the consideration given for stock
issued as fully paid up, any more than it would be his right, in
any and every case, to inquire into the distribution of the capital
among the shareholders. It is only those creditors who can fairly
allege that they have relied, or whom the law presumes to have re-
lied, upon the amount of capital stock of the company, who have a
right to make such inquiry, or in whose favor equity will impress a
trust upon the subscription to the stock, and set aside a fictitious
arrangement for its payment.” 15?

Lffect of Constitutional and Statutory Provisions.

Jn a number of states constitutional or statutory provisions have
been adopted or enacted with a view to preventing the issue of wa-
tered stock. These provisions vary somewhat in the different states.

179 Handley vy. Stutz, 189 U. S. 417, 11 Sup. Ct. 530, 1 Cumming, Cas. Priv.
Corp. 855, affirming 41 Fed. 531. And see Graham v. Railroad Co., 102 U. 8. 148,
1 Cumming, Cas. Priv. Corp. 1006.

180 Handley y. Stutz, supra.

181 First Nat. Bank v. Gustin Minerva Con. Min. Co., 42 Minn. 327, 44 N. W.
198, 1 Cumming, Cas. Priv. Corp. 850.
§§ 146~148) WATERED AND BONUS STOCK. 385

Even where they are similar, the courts have not always agreed
in construing them. ;

In quite a number of states it is provided, in substance, that no
corporation shall issue stock except for labor done, services per-
formed, or money or property actually received; and all fictitious
increase of stock shall be void. If effect is given to the language
of this statute, it seems clear that stock issued by a corporation with-
out any consideration at ‘all is absolutely void, and the holders do
rot become stockholders at all for any purpose. It was so held by
the supreme court of Colorado, where a holder of such stock sought
to maintain an action, the right to maintain which depended upon
his being a stockholder.**? It would seem to follow necessarily
from this construction that the corporation could refuse to recognize
him as a stockholder, and that he could not be held liable to cred-
itors.188 A contract which contemplates the violation of this pro-
vision is illegal and void.t** While a contract by a corporation to
issue stock in violation of the statute for labor and property is ex-
ecutory, the corporation may maintain a suit to rescind the con-
tract.185 In such a case it has been held the contractor may recover
from the corporation the value of the labor and materials actually
furnished by him, if his conduct has been free from actual bad
faith.1*® By the better opinion, a person who has entered into a
contract to take stock to be issued in violation of the statute may
withdraw before it is issued, and recover money paid by him under
the contract, for, if an illegal agreement is not malum in se, but
merely malum prohibitum, a locus peenitentie remains; and, while
the illegal object has not been carried out by performance of the
agreement, it may be repudiated, and money paid under it may be
recovered,/®? But, if the stock has been issued, and the illegal ob-

182 Arkansas River L. T. & C. Co. v. Farmers’ Loan & Trust Co., 13 Colo. 587,
22 Pac. 954.

188 But see Nenny v. Waddill, 6 Tex. Civ. App. 244, 25 S. W. 308.

184 Williams v. Evans, 87 Ala. 725, 6 South. 702; Garrett v. Mining Co., 113 Mo.
330, 20 S. W. 965.

185 New Castle Northern Ry. Co. v. Simpson, 21 Fed. 533.

186 New Castle Northern Ry. Co. v. Simpson, supra.

187 Congress & Empire Spring Co. v. Knowlton, 103 U. 8. 49, affirming 14
Blatchf. 364, Fed. Cas. No. 7,908; Clark, Cont. 494. Contra, Knowlton v. Spring
Co., 57 N. Y. 518,

Clk.Pr.Corp.—25
386 : MEMBERSHIP IN CORPORATIONS. (Ch. 11

ject thereby carried out, such an action cannot be maintained.'**

The constitution of Arkansas provides that “no private corpora-
tion shall issue stocks or bonds except for money or property actually
received or labor done, and all fictitious increase of stock or indebted-
ness shall be void.” In Memphis & L. R. R. Co. v. Dow *®° the su-
preme court of the United States, construing this provision, held
that it was not intended to make the validity of every issue of stock
or bonds by a private corporation depend upon the inquiry whether
the money, property, or labor actually received therefor was of
equal value in the market with the stock or bonds so issued; or to
restrict corporations, acting with the approval of their stockholders,
in the exchange of their stock or bonds for money, property, or labor,
upon such terms as they may deem proper, provided the transac-
tion is a real one, based upon a present consideration, and having
reference to legitimate corporate purposes, and is not a mere device
to evade the law. And the court held that the provision did not
prevent mortgage bondholders, who bought in the property and
franchises of a corporation upon foreclosure, from fixing the terms
upon which they would surrender those interests, and that they
might reorganize upon substantially the same basis, asto capital stock
and bonded indebtedness, as that of the old corporation, although
under that arrangement they received both stock and bonds to a
large amount, of which the amount of the stock alone was sufficient
to cover the full value of the property, rights, and privileges of the
reorganized company.

In California, under such a provision, it was held that an in-
crease of stock in a water company, and an issue of the same at the
actual market value, which was less than the par value, for the pur-
pose of enlarging the works, was not a fictitious issue, and was au-
thorized.*°°

In Peoria & S. R. Co. v. Thompson?! it was held that a similar

188 Clarke v. Lumber Co., 59 Wis. 655, 18 N. W. 492. *

189 120 U. S. 287, 7 Sup. Ct. 482. Compare New Castle Northern Ry. Co. v.
Simpson, 21 Fed. 533..

190 Stein v. Howard, 65 Cal. 616, 4 Pac. 662. And see Mathis y, Pridham, 1
Tex. Civ. App. 58, 20 S. W. 1015; Nelson v. Hubbard, 96 Ala. 238, 11 South. 428,
482. -

191108 Ill. 187.
§§ 146-148) WATERED AND BONUS STOCK. , 387

provision in Illinois applying to railroad companies was intended to
prevent reckless and unscrupulous speculators, under the guise or
pretense of building a railroad or of accomplishing some other legit-
imate corporate purpose, from fraudulently issuing and putting upon
the market bonds or stocks that do not, and are not intended to,
represent money or property of any kind, either in possession or in
expectancy, the stock or bonds in such case being entirely fictitious;
that it was not intended to interfere with the usual and customary
methods of raising funds by railroad companies by the issue of its
stock or bonds, for the purpose of building their roads, or of accom-
plishing other legitimate corporate purposes.

Such a provision prohibits the issue of stock to subscribers on
payment in cash of a less sum than its par value.*®? And it has
been held that it prohibits a corporation from doubling its capital
stock, and distributing the new stock among the stockholders as a
stock dividend on the ground that its original capital stock has been
invested in property which has more than doubled in value.?**

As we have seen, the New York court has held, in the absence of
constitutional or statutory prohibition, that a corporation, in issuing
stock in payment of property, may issue it at its actual, instead of
its par, value.1°* The New York statute relating to manufacturing
corporations provides that on the purchase of property by such a
corporation, stock may be issued “to the amount of the value of the
property” in payment, and that the stock so issued shall be taken
to be full-paid stock. It has been held that the statute means that
the stock must be issued at its par value, though that may be greater
than its market value.1®®

In Alabama there are constitutional and statutory provisions pro-
hibiting the issue of stock except for money or property actually re-
ceived, and requiring all stock subscriptions to be paid in money,
or in labor or property at its money value. Under these provisions
it was said in Elyton Land Co. v. Birmingham Warehouse & Elevator
Co.!°* that subscribers who pay their subscriptions in labor or prop-

192 Williams v. Evans, 87 Ala. 725, 6 South. 702.

193 Fitzpatrick v. Publishing Co., 83 Ala. 604, 2 South. 727.
194 Van Cott v. Van Brunt, 82 N. Y. 535.

195 Gamble v. Water Co., 123 N. Y. 91, 25 N. EB. 201.

196 92 Ala. 407, 9 South. 129, 1 Cumming, Cas. Priv. Corp. 870.
888 MEMBERSHIP IN CORPORATIONS. (Ch. 11

erty of a less money value than the amount of their subscriptions,
though this is done by all the subscribers, and though there is no
fraud, are liable to creditors of the corporation for the difference
between the value of the property and the amount of their subscrip-
tions. The dictum in this case goes much further than was neces-
sary. .The defendants had organized a corporation with a capital
stock of $250,000, and subscribed for the whole amount. In pay-
ment of their subscription they transferred to the company a bond
for title for land for which they had paid only $5,000. For the bal-
ance_of the purchase money (about $50,000) the company executed its
notes. The land was worth no more than was paid for it. Here,
therefore, was a case in which there was so great a difference be-
tween the amount of stock and the value of the property that the
ecurt could have held it to be a case of fraud in law, and the decision,
on the facts, is nothing more than an application of the doctrine
explained in a preceding paragraph. The New York cases under
a similar provision are to the same effect.'®? It is not to be supposed
that the Alabama court would hold a transaction by which a cor-
poration receives property in payment for stock invalid as against
creditors, where there was no actual fraud, and the overvaluation
was not intentional, but was due merely to error of judgment.
Liability of Transferees.

Where stock is issued by a corporation as full paid on payment
of a part only, and the person to whom it is issued transfers the same
to a purchaser with notice, the transferee stands in the transferror’s
shoes, and will be liable on the stock to the same extent as the trans-*
ferror. But, if the transfer is to a purchaser without notice, no such
liability attaches. The stock, in his hands, must be regarded as
full paid.7®* It was said by the court of appeals of Maryland in
Brant v. Ehlen:+°® “The liability for subscription to the stock of a
corporation is founded on contract. Where one agrees to take a
certain number of shares, the law implies a promise to pay for them

197 Ante, p. 381.

198 Brant v. Ehlen, 59 Md. 1; Du Pont v. Tilden, 42 Fed. 87; Steacy v. Rail-
road Co., 5 Dill. 348, Fed. Cas. No. 13,329; Cleveland Rolling-Mill Co. v. Texas &
St. L. Ry. Co., 27 Fed. 250; Young v. Iron Co., 65 Mich, 111, 81 N. W. 814. And
see Libby v. Tobey, 82 Me. 397, 19 Atl. 904.

199 59 Md. 1.
§§ 149-151) AcTIONS FOR INJURIES TO CORPORATION. 889

according to the terms of his subscription. If they are sold before
all installments are paid, and are bought with such knowledge, the
law implies a promise on the part of the purchaser to pay whatever
may be due thereon, according to the terms of the original subscrip-
tion. In such cases the purchaser stands in the shoes of the original
subscriber. These are elementary principles, about which there can
be no contention. But where shares are issued by the company to
the subscriber as full-paid shares, and are sold by the subscriber as
such, there is no ground on which a promise can be implied, on the
part of the purchaser without notice, to be answerable, either to the
company or to its creditors, should the representations on the faith
of which he purchased prove to be false. He could not be held liable
on the ground of contract, because he never agreed to purchase any
other shares than full-paid shares; and, if it be said that the shares
were fraudulently issued, he could not be held liable on the ground
of fraud, because he was in no sense a party to the fraud.” Nor can
he be held liable in such a case under the doctrine that the unpaid
subscriptions of an insolvent corporation constitute a trust fund for
the payment of its debts, for the doctrine does not apply in such a
case.?°°

ACTIONS BY STOCKHOLDERS FOR INJURIES TO CORPORA-
TION—INTERFERENCE IN MANAGEMENT.

149. AT LAW-A stockholder cannot maintain an action
at law for an injury to the corporation. Such an
action can only be brought by the corporation.

150. IN EQUITY—tThe corporation is the proper party to
sue in equity to redress or prevent wrongs against
it, committed or threatened, either by strangers,
or by its own officers or agents; but a court of
equity will entertain such a suit by a stockholder,
on behalf of himself and the other stockholders,
where, for any reason, redress or protection can-
not be obtained through the corporation or its offi-
cers.

200 Brant vy. Ehlen, supra.
390 MEMBERSHIP IN CORPORATIONS. (Ch. 11

151. To enable a stockholder to maintain in a court of
equity, in his own name, a suit founded on a right
of action existing in the corporation itself, and in
which the corporation itself is the proper party to
sue, there must exist as the foundation of the suit:

(a) Some action or threatened action of the managing
board of directors or trustees of the corporation
which is beyond the authority conferred upon them
by the charter or other source of organization.

(bo) Or such a fraudulent transaction completed or con-
templated by the acting managers, in connection
with some other party or among themselves, or
with other shareholders, as will result in serious
injury to the corporation, or to the interests of the
other stockholders.

(c) Or the board of directors or trustees, or a majority
of them, must be acting for their own interests, in
a manner destructive of the corporation itself, or
of the rights of the other shareholders.

(a) Or the majority of the stockholders themselves must
be oppressively and illegally pursuing a course
which is in violation of the rights of the other
shareholders, and which can only be restrained by
the aid of a court of equity.

(e) In addition to the existence of grievances calling for
equitable relief, it must appear that the complain-
ant has exhausted all the means within his reach
to obtain, within the corporation itself, the redress
of his grievances. He must apply to the managing
officers to take action in the corporate name; and if
he fails with them, he must, if the matter will ad-
mit of the delay, seek to obtain action by the
stockholders as a body, unless for some reason such
attempt would be useless.

As was explained in treating of the nature of a corporation, the
corporate body exists in law as a legal entity, separate and distinct
§§ 149-151)  acTIONS FOR INJURIES TO CORPORATION. 391

from the members who compose it. The corporation and its mem-
bers are not the same thing for the purpose of suits to redress in-
juries to the corporation. A corporation is a collection of indi-
viduals, it is true; but the individuals in their collective capacity
are represented by the corporation, the artificial person. An in-
 fringement of their collective rights is an injury to the corporation,
for which an action, if brought at all, must be brought by the cor-
poration. For such injuries, as a general rule, the individual mem-
bers cannot sue. This applies not only to injuries inflicted by
strangers, but it also applies to injuries resulting from the wrongs
of the officers or agents of the corporation.

Actions at Law.

It.is well settled that a stockholder cannot maintain an action at
law for injury to the corporation, either by its officers or by a stran-
ger. The property of a corporation belongs to the corporation as a
distinct legal entity separate from the members who compose it,
and for any injury thereto the corporation must sue. Neither a
single stockholder, for instance, nor even all of the stockholders,
could maintain trover or trespass for conversion of or injury to the
corporate property, or replevin to recover the same; but all such
suits must be brought by the corporation.?° Nor can a stockholder
maintain an action at law against the directors or other officers of
a corporation for their negligence or misfeasance in conducting its
affairs, whereby the capital is wasted and lost, though the shares
are thereby rendered worthless. Such an action, when it can be
maintained at all, must be brought by the corporation, for the in-
jury is to the corporation.?°* All injuries to corporate property are
indirectly injurious to the stockholders, but at law their rights must
invariably be asserted through the corporation. If, for any rea-
son, the corporation will not sue for injuries suffered by it, the
remedy of a stockholder, if he has any, is in equity.

201 Ante, pp. 7, 8; Tomlinson y. Bricklayers’ Union No. 1, 87 Ind. 308, 1 Cum-
ming, Cas. Priv. Corp. 38; Button v. Hoffman, 61 Wis. 20, 20 N. W. 667, 1
Cumming, Cas. Priv. Corp. 38.

202 Smith v. Hurd, 12 Metc. (Mass.) 371, 1 Cumming, Cas, Priv. Corp. 792; Tal-
bot v. Scripps, 31 Mich. 268; Allen v. Curtis, 26 Conn. 456.
392 MEMBERSHIP IN CORPORATIONS. (Ch. it

°

Suits in Equity.

It was at one time contended that a court of equity had no juris-
diction over a corporation, as such, at the suit of a stockholder for
violations of its charter. But that it has such jurisdiction is now
well settled. It was said by the supreme court of the United States
in 1855: “It is now no longer doubted, either in England or the
United States, that courts of equity, in both, have a jurisdiction over
corporations, at the instance of one or more of their members, to
apply preventive remedies by injunction, to restrain those who ad-
minister them from doing acts which would amount to a violation
of charters, or to prevent any misapplication of their capital or
profits which might result in lessening the dividends of stockholders,
or the value of their shares, as either may be protected by the fran-
chises of a corporation, if the acts intended to be done create what
is in the law denominated a breach of trust. And the jurisdiction
extends to inquire into, and to enjoin, as the case may require that
to be done, any proceedings by individuals, in whatever character
they may profess to act, if the subject of complaint is an imputed
violation of a corporate franchise, or the denial of a right growing
out of it, for which there is not an adequate remedy at law.” ?°°

If a case arises of injury to a corporation by some of its members,
or by its officers, or by strangers, for which no adequate remedy re-
mains except that of a suit by individual members in their private
characters, asking in such character the protection of those rights
to which in their corporate character they are entitled, a court of
cquity will regard the claims of justice as superior to any difficulties"
arising out of technical rules respecting the mode in which corpora-
tiens are required to sue, and will entertain a suit by stockholders
individually.2°* Therefore it is well settled that if the majority of

203 Dodge v. Woolsey, 18 How. 331; 1 Cumming, Cas. Priv. Corp. 739. And
see Pratt v. Pratt, Read & Co., 33 Conn. 446, 455, 2 Cumming, Cas. Priv. Corp.
219; Hartford & N. H. R. Co. v. Croswell, 5 Hill (N. Y.) 383; Stevens v. Rail-
road Co., 29 Vt. 545; Hardon vy. Newton, 14 Blatchf. 376, Fed. Cas. No. 6,054, 1
“ Cumming, Cas. Priv. Corp. 487; Bacon v. Robertson, 18 How. 480, 1 Cumming,
Cas. Priv. Corp. 468; Robinson v. Smith, 8 Paige (N. Y.) 222; and cases cited in
note 205, infra.

204 Dictum of Vice Chancellor Wigram in Foss v. Harbottle, 2 Hare, 461, 1 Cum-
ming, Cas. Priv. Corp. 693. And see the cases hereafter cited.
§§ 149-151)  AcTIONS FOR INJURIES TO CORPORATION. 893
the stockholders do or threaten to do acts which are ultra vires of
the corporation, or which constitute a violation of the rights of the
other stockholders, and the directors cannot or will not take steps
to redress or prevent the wrong, or if the directors or other officers
do or threaten such acts, and the majority of the stockholders par-
ticipate or acquiesce, or if a stranger inflicts an injury, and the cor-
porate officers and majority of the stockholders fraudulently refuse
to sue for redress, a stockholder, on his own behalf, or on behalf
of himself and others, may maintain a suit in equity to redress or
enjoin the wrong, and the suit cannot be defeated on the ground that
the injury is to the corporation, and that it ought to sue.2°® Any
other rule would allow the majority to “freeze out” the minority.
They could violate the rights of the minority at their pleasure, and
could put all the assets of the company into their pockets; and, as
they could prevent a suit by the corporation, the minority would be
without any means of redress.

To entitle a stockholder to maintain a suit in equity to redress a
corporate injury from an act done or to prevent a corporate injury
from an act threatened, either in his own name, or on behalf of him-
self and other stockholders, it must be shown that every reasonable
effort to obtain redress or protection through the regularly consti-
tuted agents and controlling power of the corporation has proved

2065 Atwood v. Merryweather, L. R. 5 Eq. 464, note, 1 Cumming, Cas. Priv. Corp.
717; Simpson v. Hotel Co., 8 H. L. Cas. 712; Menier v. Telegraph Works, 9 Ch.
App. 350, 1 Cumming, Cas. Priv. Corp. 722; Booth y. Robinson, 55 Md. 419; Ma-
son vy. Harris, 11 Ch. Div. 97, 1 Cummipg, Cas. Priv. Corp. 731; Russell v. Water-
works Co., L. R. 20 Eq. 474, 1 Cumming, Cas. Priv. Corp. 725; Dodge v. Wool-
sey, 18 How. 331, 1 Cumming, Cas. Priv. Corp. 789; Chicago City Ry. Co. v. Aller-
ton, 18 Wall. 233, 1 Cumming, Cas. Priv. Corp. 752; Zabriskie v. Railroad Co.,
23 How. 381; City of Davenport v. Dows, 18 Wall. 626, 1 Cumming, Cas. Priv.
Corp. 754; Hawes v. City of Oakland, 104 U. S. 450, 1 Cumming, Cas. Priv. Corp.
756; Nathan vy. Tompkins, 82 Ala. 487, 2 South. 747; Peabody v. Flint, 6 Allen
(Mass.) 52, 1 Cumming, Cas. Priv. Corp. 795; Brewer vy. Boston Theatre, 104
Mass. 378; Miner v. Ice Co., 98 Mich. 97, 53 N. W..218, 2 Cumming, Cas. Priv.
Corp. 284, Shep. Cas. Corp. 181; City of Chicago v. Cameron, 120 Ill. 447, 11 N.
E. 899; Bailey v. Gaslight Co., 27 N. J. Eq. 196, 2 Cumming, Cas. Priv. Corp.
207; Wayne Pike Oo. v. Hammons, 129 Ind. 868, 27 N. E. 487; Allen v. Curtis,
26 Conn. 456; Slattery v. Transportation Co., 91 Mo. 217, 4 S. W. 79; Greaves v.
Gouge, 69 N. Y. 154; Brinckerhoff v. Bostwick, 88 N. Y. 52; Black v. Huggins,
2 Tenn. Ch. 780; Cogswell v. Bull, 39 Cal. 320; Hazard v. Durant, 11 R. I. 195.
394 MEMBERSHIP IN CORPORATIONS. (Ch. 11

unavailing. It must be made to appear from the Dill, not only that
the directors are disabled, by their disqualification or misconduct,
to sue, or that they have wrongfully refused to do so upon a proper
demand; but, where the matter will admit of the necessary delay,
and it is practicable to call upon the stockholders to act, it must
also be shown that this has been done.?°® No doctrine in the law
of corporations is better settled than this. The only difficulty is in
its application to particular cases. It is not enough to show in-
ability or refusal to sue on the part of the directors, but it must be
shown that: for some reason redress cannot be obtained by calling
a meeting of the stockholders, who would have the power to direct
suit to be brought in the name of the corporation, and to remove the
offending directors and elect others who would institute the suit.?"
When the directors or officers of a corporation cause a loss of cor-
porate property by negligence or culpable lack of prudence or fail-
ure to exercise their functions; or fraudulently misappropriate the
corporate property in any manner, whether for their own benefit or
for the benefit of a third person; or obtain any undue advantage,
benefit, or profit for themselves by contract, purchase, sale, or other
dealings under color of their official functions; or misuse the fran-
chise; or violate the rules established by the charter or by-laws for
{heir management of the corporate affairs; or in any other similar
manner commit a breach of their fiduciary obligations towards the
corporation, so that it sustains injury or loss, and a liability devolves
upon themselves,—then the corporation is the party to sue for equita-
ble relief, and in such cases no equitable suit for relief can be main-
tained against the directors or officers by the stockholder or stock- ;

206 Foss v. Harbottle, 2 Hare, 461, 1 Cumming, Cas. Priv. Corp. 693; Mozley v.
Alston, 1 Phil. Ch. 790; Russell v. Waterworks Oo., L. R. 20 Hq. 474, 1 Cum-
ming, Cas. Priv. Corp. 725; Hawes v. City of Oakland, 104 U. S. 450, 1 Cum-
ming, Cas. Priv. Corp. 756; Allen v. Wilson, 28 Fed. 677; Booth v. Robinson, 55
Md. 419; Brewer v. Boston Theatre, 104 Mass. 878; Dunphy v. Association, 146
Mass. 495, 16 N. E. 426, 1 Cumming, Cas. Priv. Corp. 769; Mount y. Trust Co.
(Va.) 25 S. E. 244; Rathbone v. Gas Co., 31 W. Va. 798, 8 S. E. 570; Hersey v.
Veazie, 24 Me. 9; Greaves vy. Gouge, 69 N. Y. 154; Doud v. Railway Co., 65 Wis.
108, 25 N. W. 588; Hazard v. Durant, 11 R. I. 195; Black v. Huggins, 2 Tenn.
Ch. 780; Cogswell v. Bull, 39 Cal. 320.

207 Foss v. Harbottle, 2 Hare, 461, 1 Cumming, Cas. Priv. Corp. 693; Mozley v.
Alston, 1 Phil. Ch. 790; Rathbone yv. Gas Co., 831 W. Va. 798, 8 S. E. 570.
§$§ 149-151)  acTIONS FOR INJURIES TO CORPORATION. 895

holders individually, nor by a stockholder in a representative ca-
pacity on behalf of all the others similarly situated, unless the cor-
poration either actually or virtually refuses to prosecute.?°®

The effort by a stockholder to induce the managing body of the
corporation to sue must have been earnest, and not simulated.*°
No request at all to sue need be made of the directors, nor of the
stockholders as a body, if it is clear that the request would be use-
less.**° Thus, when the president of a corporation was its general
manager, and owned a majority of the stock, it was held that a de-
mand upon him to sue, and his refusal, was sufficient to entitle a
‘stockholder to sue in his own name to have construction bonds of
the company, unlawfully issued by the president, declared ultra vires
and void.?** A stockholder, complaining of misconduct of the treas-
urer of a corporation, is not excused from applying to the directors to
bring suit, before bringing it himself, by. the fact that the treasurer
owns the majority of the stock; but this fact does excuse him from
applying to a stockholders’ meeting.”*?. It is not enough, to excuse
application to the directors or stockholders as a body, to show that
they would probably refuse to take steps to obtain relief.?**

Acts within the Power of the Majority—Discretionary Powers.
“Nothing connected with internal disputes between shareholders
is to be made the subject of a bill by some one shareholder on behalf
of himself and others, unless there be something illegal, oppressive,
or fraudulent; unless there is something ultra vires on the part of
the company qua company, or on the part of the majority of the com-
pany, so that they are not fit persons to determine it; but every liti-
gation must be in the name of the company, if the company really

208 Doud v. Railway Co., 65 Wis. 108, 25 N. W. 533.

209 Bacon v. Irvine, 70 Cal. 221, 11 Pac. 646; Dannmeyer v. Coleman, 11 Fed.
‘97; Hawes v. City of Oakland, 104 U. S. 450, 1 Cumming, Cas. Priv. Corp. 756;
City of Detroit v. Dean, 106 U. S. 537, 1 Sup. Ct. 560.

210 City of Chicago v. Cameron, 120 Ill. 447, 11 N. E. 899; Mack v. Iron Co.,
‘90 Ala. 396, 8 South. 150; Starbuck v. Trust Co. (Shepaug Voting Trust Cases)
60 Conn. 553, 24 Atl. 32.

211 City of Chicago v. Cameron, supra.

212 Dunphy v. Association, 146 Mass. 495, 16 N. H. 426, 1 Cumming, Cas. Priv.
‘Corp. 769. And see Allen v. Wilson, 28 Fed. 677.

218 Foote vy. Mining Co., 17 Fed. 46.
396 MEMBERSHIP IN CORPORATIONS. " (Ch. 11

desire it.’?44 Obviously a stockholder, or a minority of the stock-
holders, cannot maintain a suit to prevent or to set aside a transac-
tion by the majority, if the transaction is within the powers of the
majority. In such a case the will of the majority must govern, and:
the courts will not interfere merely because a minority of the stock-
holders object to the transaction, and deem it injurious to the in-
terests of the corporation. As was said by the Kentucky court, in a
suit for an injunction, relief will not be granted unless the corpora-
tion, represented by the majority, is about to do some act outside of
the scope of its authority, or in disobedience to the provisions of its
constitution; for so long as it exercises the powers granted by the
charter the acts of the company must be treated by the courts as the
acts of all the stockholders. Each and every stockholder contracts
that the will of the majority shall govern in all matters coming within
the limits of the act of incorporation; and in cases involving no
breach of trust, but only error or mistake of judgment upon the
part of the directors who represent the company, individual stock-
holders have no right to appeal to the courts to dictate the line of
policy to be pursued by the corporation.?+®

If the majority of the stockholders are abusing their powers, and
are depriving the minority of their rights, the minority may, in a
proper case, come into a court of equity, and sue in their own names
to maintain their rights. But they cannot sue to set aside some-
thing which the majority were entitled to do, though it may have been
done irregularly. “If the thing complained of is a thing which, in
substance, the majority of the company are entitled to do, or if some-
thing has been done irregularly which the majority of the company
are entitled to do regularly, or if something has been done illegally
which the majority of the company are entitled to do legally,” the
court will not interfere at the suit of individual stockholders.??®

214 Macdougall v. Gardiner, 1 Ch. Div. 18, 1 Cumming, Cas. Priv. Corp. T04.

215 Dudley v. High School, 9 Bush (Ky.) 576, 1 Cumming, Cas. Priv. Corp. 767.
And see Foss v. Harbottle, 2 Hare, 461, 1 Cumming, Cas. Priv. Corp. 693; Dur-
fee v. Railroad Co., 5 Allen (Mass.) 280, 1 Cumming, Cas. Priv. Corp. 773; Bill v.
Telegraph Co., 16 Fed. 14. See ante, p. 351, for the application of this principle
to suits by stockholders to conipel the corporation to declare and pay a dividend.

216 Macdougall y. Gardiner, 1 Ch, Div. 13, 1 Cumming, Cas. Priv. Corp. 704
Ter Mellish, L. J.
§§ 149-151)  AcrIONS FOR INJURIES TO CORPORATION. 397

It has been held, under this doctrine, that a stockholder in a cor-
poration, the charter of which is subject to amendment or repeal at
the pleasure of the legislature, cannot maintain a suit to restrain
the corporation from engaging in a new enterprise, in addition to
that contemplated by the charter, but of the same kind, if it is sanc-
tioned by an express legislative grant, and by a vote of the majority
of the stockholders.**7 As to this proposition, however, there is
much doubt. Perhaps the weight of authority is against it.?*®

A stockholder, or a minority of the stockholders, cannot maintain
a suit to set aside a transaction entered into by the directors fraud-
ulently or in excess of their authority, if it is one which a majority
of the stockholders may lawfully ratify, and thus render binding as
against the minority. In Foss vy. Harbottle ?*° the complaint in a
suit by stockholders was that the directors had fraudulently pur-
chased land from themselves for the corporation at an excessive price.
Vice Chancellor Wigram held that the suit could not be maintained,
since the transaction, though subject to rescission by the corporation,
was not void, but might be ratified by a majority of the members.?*°

Even when it is clear that a corporation has a right to sue to re-
dress or enjoin wrongs committed or threatened, the fact that it re-
fuses to do so does not necessarily entitle a stockholder to sue on
behalf of himself and the other stockholders. As a rule, the courts
will not interfere at the suit of a stockholder to obtain redress for
an injury to the corporation, because of failure or refusal of the di-
rectors, or of the majority of the stockholders, to sue. It is only
when the action of the corporation in refusing to proceed at the re-
quest of a stockholder is fraudulent as against him, or in disregard
of his rights, that he can maintain a suit in his own name in the corpo-
rate right. The court cannot interfere with the management of cor-
porations in matters which are properly within their discretion, so,
long as their discretion is fairly exercised; and it is always assumed,

217 Durfee v. Railroad Co., 5 Allen (Mass.) 230, 1 Cumming, Cas. Priv. Corp.
773.

218 Compare Zabriskie v. Railroad Co., 18 N. J. Eq. 178, 1 Cumming, Cas. Priv.
Corp. 781. See ante, p. 331, and -post, p. 447, where the cases are referred to.

2192 Hare, 461, 1 Cumming, Cas. Priv. Corp. 693.

220 And see Bill v. Telegraph Co., 16 Fed. 14.
398 MEMBERSHIP IN CORPORATIONS. (Ch. 1t

until the contrary appears, that they and their officers obey the law,
and act in good faith towards all their members.?**__ It is generally
discretionary with a corporation whether it will sue for injuries suf-
fered by it; and, so long as it acts fairly in refusing to sue, the courts
will not entertain a suit by an individual stockholder. “It is not al-
ways best to insist upon all one’s rights; and a corporation, acting
by its directors, or by vote of its members, may properly refuse to
bring a suit which one of its stockholders believes should be prose-
cuted. In such a case the will of the majority must control.” *??

The Rule as Stated by the United States Supreme Court.

In Hawes v. City of Oakland ??* the supreme court of the United
States thus states the doctrine governing suits by stockholders:

“We understand that doctrine to be that, to enable a stockholder
in a corporation to sustain in a court of equity, in his own name, a
suit founded on a right of action existing in the corporation itself,
and in which the corporation itself is the appropriate plaintiff, there
nust exist, as the foundation of the suit:

“Some action or threatened action of the managing board of di-
rectors or trustees of the corporation which is beyond the authority
conferred on them by their charter or other source of organization;

“Or such a fraudulent transaction, completed or contemplated, by
the acting managers, in connection with some other party, or among
themselves, or with other shareholders, as will result in serious in-
jury to the corporation, or to the interests of the other shareholders;

“Or where the board of directors, or a majority of them, are acting

221 Per Knowlton, J., in Dunphy v. Association, 146 Mass. 495, 16 N. E. 426,”
1 Cumming, Cas. Priv. Corp. 769.
222 Dunphy v. Association, supra. “There may be a great many wrongs com-
mitted in a company,—there may be claims against directors, there may be claims
_ against officers, there may be claims against debtors; there may be a variety of
things which a company may well be entitled to complain of, but which, as a mat-
ter of good sense, they do not think it right to make the subject of litigation; and
it is the company, as a company, which has to determine whether it will make any-
thing that is a wrong to the company a subject-matter of litigation, or whether it
will take steps to prevent the wrong from being done.” Per Sir W. M. James, L.
J., in Macdougall v. Gardiner, 1 Ch. Div. 18, 1 Cumming, Cas. Priv. Corp. 704.
223 104 U. S. 450, 1 Cumming, Cas. Priv. Corp. 756. And see Dimpfell v. Ohio
& M. R. Co., 110 U. S. 209, 3 Sup. Ct. 573, 1 Cumming, Cas. Priv. Corp. 765.
§§ 149-151)  AcTIONS FOR INJURIES TO CORPORATION. 899

for their own interest, in a manner destructive of the corporation it-
self, or of the rights of the other shareholders;

“Or where the majority of shareholders themselves are oppressive-
ly and illegally pursuing a course in the name of the corporation,
which is in violation of the rights of the other shareholders, and
which can only be restrained by the aid of a court of equity.

“Possibly other cases may arise in which, to prevent irremediable
injury, or a total failure of justice, the court would be justified in
exercising its powers; but the foregoing may be regarded as an out-
line of the principles which govern this class of cases.

“But, in addition to the existence of grievances which call for this.
kind of relief, it is equally important that, before the shareholder is
permitted in his own name to institute and conduct a litigation which
usually belongs to the corporation, he should show to the satisfac-
tion of the court that he has exhausted all the means within his.
reach to obtain, within the corporation itself, the redress of his griev-
ances, or action in conformity to his wishes. He must make an
earnest, not a simulated, effort with the managing body of the cor-
poration to induce remedial action on their part, and this must be
made apparent to the court. If time permits, or has permitted, he
must show, if he fails with the directors, that he has made an honest
effort to obtain action by the stockholders as a body in the matter
of which he complains. And he must show a case, if this is not
done, where it could not be done, or it was not reasonable to re-
quire it.”

Laches and Estoppel.

A stockholder may be precluded by acquiescence, laches, or estop-
pel from bringing suit to redress injuries to the corporation by the
directors, or other officers, or by the majority of the stockholders, or
by third persons; for such suits are subject to the familiar principle
of equity jurisprudence that acquiescence in a course of conduct by
one interested in it, especially when the rights of others are affected
thereby, will induce the court to refuse him relief.?2* Thus it was

224 Dunphy v. Association, 146 Mass. 495, 16 N. EH. 426, 1 Cumming, Cas. Priv.
Corp. 769; Dimpfell v. Railway Co., 110 U. S. 209, 3 Sup. Ct. 578, 1 Cumming,.
Cas, Priv. Corp. 765; Allen v. Wilson, 28 Fed. 677;. Boyce v. Coal Co., 37 W. Va.
400 MEMBERSHIP IN CORPORATIONS. (Ch. 11

held in a late Massachusetts case that a stockholder could not bring
suit for improper investments of corporate funds, made three years
before, if he knew of them at the time, and did not object.??° And
it has often been held that a stockholder is estopped to object to cor-
porate acts done with his consent.?**

Motive of Stockholder.

Ordinarily, the motive of a stockholder in suing to restrain ultra
vires acts by the corporation is immaterial. But he must come ina
bona fide character as a stockholder. In Forrest v. Manchester S.
& L. Ry. Co.,227 the plaintiff, who held a small amount of stock in the
defendant company, sued to enjoin acts alleged to be ultra vires. It
appeared that the other stockholders were opposed to the suit, and
that another corporation, in which the plaintiff was a larger stock-
holder, directed him to institute it, and had indemnified him against
costs, and that the suit was really in the interests of this company.
It was held, without deciding whether the acts complained of were
ultra vires, that the suit, not being instituted by the plaintiff in a
bona fide character as a stockholder, was an imposition on the court,
and could not be maintained.??®

Parties to Suits.

A suit in equity by a stockholder to redress or enjoin injuries to
the corporation can only be maintained on the ground that the rights
of the corporation are involved; and the suit should be so conducted
that any decree on the merits will be binding upon the corporation.
It is therefore necessary to make the corporation a party defendant. ,
It would be wrong, in case the stockholder were unsuccessful in his
suit, to allow the corporation to renew the litigation in another suit;
and to avoid this result a court of equity will not take cognizance of

78, 16 S. E. 501; Alexander vy. Searcy, 81 Ga. 536, 8 S. BE. 680; Peabody v. Flint,
6 Allen (Mass.) 54; Gregory v. Patchett, 33 Beav. 595; Ashurst’s Appeal, 60 Pa.
St. 290; Watt’s Appeal, 78 Pa. St. 370; Stewart vy. Transportation Co., 17 Minn.
872 (Gil. 348).

225 Dunphy v. Association, supra.

226 See the cases cited above.

2274 De Gex, F. & J. 125, 1 Cumming, Cas. Priv. Corp. 713.

228 And see Waterbury v. Express Co., 50 Barb. (N. Y.) 157.
§ 152) EXPULSION OF MEMBERS. 401

a bill brought to settle a question in which the corporation is the
essential party in interest, unless it be made a party to the suit.?*°

Where the subject-matter of the complaint is fraud or misconduct
on the part of the directors or other officers of the corporation, they
also must be made defendants.?*°

If the subject-matter of the suit is an agreement between the cor-
poration, acting by its directors or managers, and some other cor-
poration, or some other person, strangers to the corporation, it is
proper to make that other corporation or person a defendant to the
suit; and the court may grant relief against .such corporation or
person, as by compelling it to return money or property received
under the agreement, if it was ultra vires or fraudulent.?**

EXPULSION OF MEMBERS.

1562. Corporations not having a joint stock have, as an in-
cident, power to remove or expel members for suf-
ficient cause. This right does not exist in joint-
stock corporations. When the charter is silent on
the subject, or grants the power in general terms,
it can be exercised only for the following causes:

(a) Offenses of an infamous character, and indictable at
common law, and of which the party has been con-
victed.

(b) Offenses against the party’s duty to the corporation
as a member of it.

(c) Offenses compounded of these two.

A joint-stock corporation has no power to remove or expel its
stockholders, unless the power to do so is expressly conferred upon

228 Davenport v. Dows, 18 Wall. 626, 1 Cumming, Cas, Priv. Corp. 754. And
see Hersey v. Veazie, 24 Me. 9; Greaves v. Gouge, 69 N. ¥. 154; Black v. Hug-
gins, 2 Tenn. Ch. 780; Brinckerhoff v. Bostwick, 88 N. Y. 52; Allen v. Curtis,
26 Conn. 456; Mount v. Trust Co. ‘(Va.) 25 S. E. 244.

230 Slattery v. Transportation Co., 91 Mo. 217, 4S. W. 79.

231 Russell v. Wakefield Waterworks Co., L, R. 20 Eq. 474, 1 Cumming, Cas..

Clk.Pr.Corp.—26

tad
402 MEMBERSHIP IN CORPORATIONS. (Ch. 11

it by its charter or by agreement with its members.??? In the cage
of other corporations, however, they have the power to remove mem-
bers for good cause, provided they do not thereby violate charter or
statutory provisions. This power need not be expressly conferred
by the charter. It is an incident to every corporation other than a
joint-stock corporation.?° Questions as to the nature and extent of
this power have frequently arisen in connection with incorporated
clubs, literary and medical societies, benevolent societies, boards of
trade, ete.

The power can only be exercised for good cause, and it must be
for some offense that has an immediate relation to the duties of the
party as a member, or for an offense of an infamous character, in-
dictable at law, and of which the party has been convicted. Anda
by-law or rule authorizing expulsion for a less cause is void.?** “It
appears to be well settled that when the charter of a corporation is
silent upon the subject of expulsion, or grants the power in general
terms, there are but three legal causes of disfranchisement: (1) Of-
fenses of an infamous character indictable at common law. (2) Of-
fenses against the corporator’s duty to the corporation as a member
of it. (3) Offenses compounded of the two.” ??°

A member may be expelled from a board of trade for violating a
rule prohibiting members, under penalty of expulsion, from making
any contract for the future delivery of produce before the time fixed
for opening the exchange room, or after the time fixed for closing the
same; ?°* or from making or reporting any false or fictitious purchase

Priv. Corp. 725; Salomons vy. Laing, 12 Beav. 377: Peahody v. Flint, 6 Allen
“(Mass.) 52, 57, 1 Cumming, Cas. Priv. Corp. 795.

232 See Edgerton Tobacco Manuf’g Co. vy. Croft, 69 Wis. 256, 34 N. W. 148;
‘Pulford v. Fire Department, 31 Mich. 465.

2332 Kent, Comm. 297; 1 Thomp. Corp 847; Lord Bruce’s Case, 2 Strange,
‘819; Rex v. Richardson, 1 Burrows, 517; Dickenson v. Chamber of Commerce,
29 Wis. 45; Fawcett v. Charles, 18 Wend. (N. Y.) 473.

2842 Kent, Comm. 297; Com. v. Society, 2 Binn. (Pa.) 441; New York Pro-
itective Ass’n v. McGrath (Super. N. Y.) 5 N. Y. Supp. 8; Otto v. Union, 75 Cal.
308, 17 Pac. 217.

285 State v. Chamber of Commerce, 20 Wis. 63, 71; Dickeuson v. Chamber of
Commerce, 29 Wis. 45; Evans v. Philadelphia Club, 50 Pa. St. 107. See 1
Thomp. Corp. §§ 849-876, collecting the cases.

2286 State v. Chamber of Commerce, 47 Wis. U70, 3. N. W. 760.
§ 152) EXPULSION OF MEMBERS. 403

or sale, or from acting in bad faith or dishonestly.2°7 So a by-law
of a board of trade or similar corporation may authorize expulsion
of a member for nonfulfillment of any contract.??8

On the other hand, it has been held that a by-law of a benevolent
society, authorizing expulsion of a member for vilifying any of the
other members, is void, as such conduct does not affect the interest
or good government of the corporation, and is not indictable by the
law of the land.?°*

If a member is guilty of an offense which renders him liable to in-
dictment, but which has no immediate relation to the corporation or
‘his duties as a member, he cannot be expelled therefor until his guilt
is established by an indictment and trial at law.?*°

If there is no special provision on the subject in the charter, the
power of removal of a member for cause is in the whole body, and not
in the board of managers or other officers.241 But a select body of
the corporation, as the board of directors may possess the power, not
only when it is given by the charter, but in consequence of a by-law
made by the body at large, for the body at large may thus delegate
the power to its agents or managing body.?*?

Strictly speaking, the term “a motion” applies only to officers.
“Disfranchisement” is the term applied to the removal or expulsion
of members.?*®

“Tt is absolutely essential to the validity of the suspension or ex-
pulsion of a member of an incorporated society that the accused
should be notified of the charges against him, and of the time and
place set for their hearing; that the accusing body should proceed

237 Pitcher v. Board of Trade, 121 Ill. 412, 13 N. E. 187.

238 Dickenson v. Chamber .of Commerce, 29 Wis. 45.

239 Com. v. Society, 2 Binn. (Pa.) 441.

2402 Kent, Comm. 297; Com. v. St. Patrick’s Society, 2 Binn. (Pa.) 441.

2412 Kent, Comm. 298; State v. Chamber of Commerce, 20 Wis. 63.

2422 Kent, Comm. 298; Pitcher v. Board of Trade, 121 Ill. 412, 13 N. EB. 187;
State v. Chamber of Commerce, 47 Wis. 670, 3 N. W. 760. Where one appears
before the board of directors of an association charged with violating its rules,
and submits his case to them without obicction to the manner in which the
body is constituted, or the mode of its proceeding, all irregularities therein are
deemed to be waived. Pitcher v. Board of Trade, supra.

2432 Kent, Comm. 2%.
404 MEMBERSHIP IN CORPORATIONS. (Ch. 11

upon inquiry, and consequently upon evidence; and that the accused
should have a fair opportunity of being heard in his defense.” 24+
And, generally, there must be a regular sentence of expulsion.**®
These rules do not apply to mutual benefit corporations whose char-
ter or by-laws provide that nonpayment of an assessment after notice
shall, ipso facto, work a forfeiture of membership or of the member's
benefit certificate.2*® Nor does the rule quoted apply where the
member becomes a nonresident, so that it is impracticable to give
him notice.?#7

In expelling members the corporation or its authorized board acts
in a quasi judicial character, and, so long as it confines itself to the
exercise of the powers vested in it, and in good faith pursues the
method prescribed by its laws, such laws not being in violation of
the laws of the land, or any inalienable right of the member, its sen-
tence is conclusive, like that of a judicial tribunal.?** The courts,
however, will decide whether there were sufficient grounds for ex-
pulsion, and whether the power has been lawfully exercised, and they
will interfere with the sentence if there was not sufficient cause for
expulsion; or if the decision arrived at was contrary to natural jus-
tice; as where the member was not given an opportunity to be heard,
or if the rules of the company were not observed, or if the action of
the company was malicious, and not bona fide.?*®

If a member of a corporation is wrongfully expelled, and denied
rights of membership, mandamus is a proper remedy to compel his re-
instatement.?°° In some states the remedy by injunction is allowed,
while in others it is denied, generally, on the ground that there is an

2441 Thomp. Corp. § 881. See Id. §§ 882-899.

2451 Thomp. Corp. § 898.

2461 Thomp. Corp. §§ 881, 898.

2471 Thomp. Corp. § 881.

248 Otto v. Union, 75 Cal. 308, 17 Pac. 217; Com. v. Pike Beneficial Soc., 8
Watts & S. (Pa.) 250; Burt v. Lodge, 66 Mich. 85, 33 N. W. 18; Robinson v.
Lodge, 86 Ill. 598; Pitcher v. Board of Trade, 121 Ill. 412, 13 N. E. 187.

. 249 Otto v. Union, supra; Savannah Cotton Exchange v. State, 54 Ga. 668; and
cases cited in notes 234, 285, 239, 240, supra.

+501 Thomp. Corp. § 904; State v. Chamber of Commerce, 20 Wis. .63; State
v. Milwaukee Chamber of Commerce, 47 Wis. 670, 3 N. W. 760: Otto v. Union,
§ 152) EXPULSION OF MEMBERS. 405

adequate remedy at law by mandamus.?®* The regularity of the pro-
ceedings and the sufficiency of the evidence in case of expulsion of a

member after notice, trial, and conviction cannot be inquired into col-
laterally.?5?

75 Cal. 308, 17 Pac. 217; Black & White Smiths’ Society v. Vandyke, 2 Whart.
{Pa.) 309.

2511 Thomp. Corp. §§ 909-913.
262 Black & White Smiths’ Society v. Vandyke, 2 Whart. (Pa.) 309.
406

153-154.
155.
156.
157-158.
159-160.
161-162.
163-166.
167.
168-169.

170-171.

172.
173.

MEMBERSHIP IN CORPORATIONS. (Ch, 12

CHAPTER XII.
MEMBERSHIP IN CORPORATIONS (Continued).

Transfer of Shares.

Effect of Transfer.

Lien of Corporation on Shares.

Validity of Transfers.

Mode of Transfer.

Registration of Transfer.

Forged and Unauthorized ‘Transfers.

Liability of Indorser of Forged Certificate.

Liability of Corporation Arising from Unauthorized or Invalid Trans-
fer. :

Liability of Corporation on Certificates Issued Fraudulently, without
Authority, ete.

Remedy against Corporation for Refusal to Recognize Transfer,

Compelling Corporation to Issue New Certificates.

TRANSFER OF SHARES.

153. Except in so far as they may be restricted by charter

or statutory provisions, or by an authorized by-
law, stockholders have an absolute right to trans-
fer their shares in good faith to any one who is
capable in law of taking and holding the same, end
of assuming liability in respect thereto; and this
right is in no way dependent upon the consent of
the corporation or of its officers or the other stock-
holders.

154. An agreement between the stockholders of a corpora-

tion not to sell, pledge, or transfer their shares is
in unreasonable restraint of trade, and void.

By the charters of private corporations, the shares of stock are
often expressly declared to be transferable by the holders, but ex-
press provision is not at all necessary to give the right of transfer.
It exists at common law. In ordinary partnerships, as we have seed,
the consent of all the partners to the admission or retirement of a
§§ 1538-154) TRANSFER OF SHARES. 407

member is necessary, and every such change in membership involves
the dissolution of the old firm and the formation of a new one. In
corporations, however, it is different. One of the very objects of in-
corporation is to avoid this doctrine of the law of partnership. In
the absence of express statutory restrictions, it is always implied
that shares of stock are transferable. Subject to the limitations
hereafter shown, it is well settled that a stockholder has an absolute
right, incident to his ownership, to make an actual and bona fide sale
and transfer of his shares to any person who is capable in law of tak-
ing and holding them, and of assuming liability as a stockholder.
And, in the absence of express restrictions in the charter or in some
statute, the right is not in any way dependent upon the consent of
the directors or of the other stockholders. Unless the power to do
so is expressly conferred by the legislature creating the corporation,
or by an authorized amendment of its charter, neither the directors
nor a majority of the stockholders can, directly or indirectly, pro-
hibit or refuse to recognize bona fide transfers.*_ For instance, a by-
law, not expressly authorized by the legislature, to the effect that
the validity of a transfer shall depend upon the approval and ac-
ceptance of the board of directors, while it may perhaps be lawfully
enforced to protect the rights of the corporation, and. prevent trans-
fers to irresponsible persons, cannot be enforced so as to defeat the
rights of a bona fide and responsible purchaser of shares. “Its en-
forcement,” said the Iowa court, “would operate as an infringement
upon the property rights of others, which the law will not permit.
It would, besides, operate as a restraint upon the disposition of prop-
erty in the stock of the corporation, in the nature of restraint of
trade, which the courts will not tolerate.” ?

A provision in the charter of a corporation that the shares shall be
transferable on the books of the corporation in such manner as the

1 Johnson v. Laflin, 5 Dill. 65, Fed. Cas. No. 7,393, 1 Cumming, Cas. Priv.
Corp. 608, affirmed 108 U. S. 800; Farmers’ & Merchants’ Bank v. Wasson, 48
Iowa, 336; Moore vy. Bank, 52 Mo. 377; Bank v. Lanier, 11 Wall. 369; Weston’s
Case, 4 Ch. App. 20; Gilbert’s Case, 5 Ch. App. 559; Driscoll v. Manufacturing
Co., 59 N. Y. 96; Bank of Attica v. Manufacturers’ & Traders’ Bank, 20 N. Y.
501; Chouteau Spring Co. v. Harris, 20 Mo. 383.

2 Farmers’ & Merchants’, Bank vy. Wasson, 48 Iowa, 336. And see post, p.
457, and cases there cited.
408 MEMBERSHIP IN CORPORATIONS. (Ch. 12

directors shall provide, as is provided in the national banking act, is
merely for the purpose of enabling the corporation to know who are
stockholders, and, as such, entitled to vote, receive dividends, etc.,
and for the protection of bona fide purchasers of shares, and of cred-
itors and persons dealing with the corporation, and does not in any
way restrict the right of the stockholders to sell and transfer their
shares, or clothe the corporation or its officers with the power to re-
fuse to register bona fide transfers.®

Power to refuse to assent to or register a transfer, or power to pre
scribe the manner of transfer, is often given to the directors by the
act of incorporation. Even in such a case, however, the power must
be exercised in a reasonable manner and bona fide, and there must
be some good reason for refusing to recognize or register a transfer.
“The power,” said Mr. Justice Field, “can only go to the extent of pre-
scribing conditions essential to the protection of the association
against fraudulent transfers, or such as may be designed to evade the
just responsibility of the stockholder. It is to be exercised reasona-
bly. Under the pretense of prescribing the manner of the transfer,
the association cannot clog the transfer with useless restrictions, or
make it dependent upon the consent of the directors or other stock-
holders.” * Power given by the charter to regulate transfers does
not give the power to restrain transfers, or prescribe to whom they
may be made, but merely gives the power to prescribe formalities to
be observed in making them. The mere fact that the purchaser of
shares is a business rival of the corporation, and hostile to it, does
not affect his rights as transferee, and is no ground for refusal of a
court of equity to compel the corporation to register the transfer.®

The directors of a corporation have the same right as any other
stockholder to make a bona fide sale and transfer of their shares, and
thus get rid of liability, if they comply with the regulations, and take
no advantage of their position to commit fraud.7. There is nothing

3 Johnson vy. Laflin, 5 Dill. 65, Fed. Cas. No. 7,393, 1 Cumming, Cas. Priv.
Corp. 608, affirmed 103 U. 8S. 800.

+ Johnson y. Laflin, supra, and cases there cited and referred to.

5 Chouteau Spring Co. v. Harris, 20 Mo. 383.

6 Rice v. Rockefeller, 184 N. ¥. 174, 31 N. EB. 907, 2 Cumming, Cas. Priv.
Corp, 181.

7 Johnson v. Laflin, supra; Gilbert’s Case, 5 Ch. App. 559;, Ex parte Littledale,
9 Ch. App. 257.
§ 155) EFFECT OF TRANSFER. 409

to prevent a transfer to an officer of the corporation, as the president
or a director; and, if the transfer is in good faith, it will prevail as
against any claim of the corporation against the transferror, unless
there is some charter or statutory provision to the contrary.®

The stockholders in a corporation cannot make a valid agreement
among themselves not to transfer their shares. Such an agreement,
being in unreasonable restraint of trade, would be contrary to public
policy, and void. In Fisher v. Bush ® a number of stockholders en-
tered into an agreement for the expressed purpose of mutual protec-
tion, and to prevent a sale of the company’s franchise by a majority
of the members of the board of directors, who represented a minority
of the shares, by which they agreed not to “sell, assign, set over,.
pledge, or give power of attorney to vote” their stock, without the
consent of all the parties to the agreement. The agreement was held
void because, for one reason, it was in restraint of trade and against
public policy.

EFFECT OF TRANSFER.

166. By the weight of authority, when a valid and com-
plete transfer of shares is made in good faith, and
in accordance with the principles to be explained
in subsequent sections, and there are no charter or
statutory provisions to the contrary, the transferee
takes the place of the transferror as a stockholder,
and acquires all the rights and assumes all the lia-
bilities which arise after the transfer by virtue of
the shares. In detail:

(a) The transferror—

(1) In most jurisdictions, is not liable for calls
made after the transfer; but he is liable for
calls previously made.

(2) Asarule, he is no longer subject to liability as
a stockholder to creditors of the corporation.

(3) In the absence of a special agreement with the
transferee, which must be known to the cor-

8 Farmers’ & Merchants’ Bank vy. Wasson, 48 Iowa, 336.
© 35 Hun (N. Y.) 641.
410 MEMBERSHIP IN CORPORATIONS. (Ch. 12

poration to be binding upon it, he is not enti-
tled to dividends declared after the transfer,
though earned before; but he is entitled to.
dividends declared before the transfer, though
not paid nor payable until afterwards.

(4) He is not entitled, after the transfer, to vote at
stockholders’ meetings, or otherwise take any
part in the management of the corporation.

(b) The transferee

(1) Is liable for calls made after the transfer.

(2) He is, in most jurisdictions, liable to the same
extent as the other stockholders to creditors
of the corporation, though their claims may
have arisen before the transfer.

(3) He is entitled to all dividends declared after
the transfer, though earned before, in the ab-
sence of an agreement to the contrary with
the transferror, known to the corporation.

(4) He is entitled to vote at stockholders’ meetings,
and to all other rights arising after the trans-
fer by virtue of ownership of shares.

We shall consider in subsequent sections the manner of making a
transfer of shares, and the validity of transfers. In this section will
be considered generally the effect of transfers, assuming that they are
valid and complete. Whenever a valid and effectuai transfer is made.
the effect is, in general, to substitute the transferee in the place of the
transferror as a member of the corporation, and to give him all the
rights, and subject him to al) the liabilities, arising after the transfer,
to which the transferror would have been entitled or subject if the
transfer had not been made.

Liability for Calis.

If the stock is not fully paid up at the time of the transfer, the
transferror, by the weight of authority, is not liable for calls subse-
quently made, unless he is made so by express charter or statutory
provisions, or by special agreement; but the liability for such calls is
§ 155) EFFECT OF TRANSFER. 411

impliedly assumed by the transferee.1° In Pennsylvania the rule is
different; 11 and by statute in some states, as in Virginia, the trans-
ferrors as well as the transferees of stock that is not fully paid are
each made liable for any installment which may have accrued before
the transfer or which may accrue afterwards.'? The rule does not
apply where the shares were issued as full paid, and the transferee is
a bona fide purchaser. In such a case he is not liable for calls.** For
all calls made prior to the transfer, though not payable until after-
wards, the transferror, and not the transferee, is liable.’* But, if such
calls are not paid by the transferror, new calls may be made upon the
transferee, leaving him to his remedy against the transferror.1° After
a transfer has been made in such a manner as to be effective as

101 Mor. Priv. Corp. §§ 159-161; Isham v. Buckingham, 49 N. Y. 216; Web-
ster v. Upton, 91 U. S. 65; Pullman v. Upton, 96 U. S. 328; Huddersfield Cana:
Co. v. Buckley, 7 Term R. 36, 1 Cumming, Cas. Priv. Corp. 906; Hartford &
N. H. R. Co. v. Boorman, 12 Conn. 530; Merrimac Min. Co. v. Bagley, 14
Mich. 501; Bend v. Bank Co., 6 Har. & J. (Md.) 128, 182; Hall v. Insurance Co.. '
5 Gill (Md.) 484, 497; Allen v. Railroad Co., 11 Ala. 487.

11 In Pennsylvania it is held that an original subscriber to the stock of a cor-
poration is not discharged from liability for the amount remaining unpaid on
the subscription by transferring his shares in good faith to another, unless the
corporation consents to release him. See Everhart v. Railroad Co., 28 Pa. St.
339; Pittsburgh & C. R. Co. v. Clarke, 29 Pa. St. 146; Graff v. Railroad Co.,
31 Pa. St. 489; Messersmith v. Bank, 96 Pa. St. 440. To release the transferror,
in Pennsylvania, he must be released and the transferee accepted by the corpora-
tion. It is not enough for the corporation to consent to the transfer and reg-
ister the same. Messersmith v. Bank, supra. The transferee is not liable in
Pennsylvania for future calls, unless made so by express agreement or by stat-
ute. “No implication of a personal promise of the transferee to pay assessments
arises. The company can indemnify themselves only by a sale of the stock, and
pursuit of the original subscriber.’’ Franks Oil Co. v. McCleary, 63 Pa. St. 317.
And see Palmer v. Mining Co., 34 Pa. St. 288. The rule in Ohio seems to be
the same as in Pennsylvania. See Gaff v. Flesher, 33 Ohio St. 107, 111.

12 See Hamilton vy. Glenn, 85 Va. 901, 9 S. E. 129; Hambleton v. Glenn, 72
Md. 331, 20 Atl. 115; McKim v. Glenn, 66 Md. 479, 8 Atl. 180; Morris v. Glenn,
87 Ala. 628, 7 South. 90.

18 Foreman v. Bigelow, 4 Cliff. 508, Fed. Cas. No. 4,934; Steacy v. Railroad
Co., 5 Dill. 348, Fed. Cas. No. 13,329; 1 Cumming, Cas. Priv. Corp. 957; ante,
p. 388.

141 Mor. Priv. Corp. § 161; Schenectady & S. Plank-Road Co. v. Thatcher,
11 N. Y. 102, 108. ,

151 Mor. Priv. Corp. § 161.
412 MEMBERSHIP IN CURPORATIONS. (Ch. 12

against the corporation, the transferror is not liable for assessments
authorized to be made on “stockholders” beyond the amount of their
shares.1®

Light to Dinndends.

It is a general rule, as shown in a preceding chapter, that dividends
on shares belong to the person who is the owner of them at the time
they are declared, without regard to the time during which the
dividends were earned, or the time when such person acquired the
shares.17 In the absence of a special agreement to the contrary, there-
fore, dividends declared before a transfer, though not payable until
afterwards, belong to the transferror, and he may sue the corporation
therefor after the transfer.1* But dividends declared after the trans-
fer, though earned before, belong to the transferee.*® This rule may
be changed by special agreement between the parties, and the agree-
ment will be binding on the corporation if it has notice of it.?° If it
has not such notice, it may safely pay the dividends to the trans-
feree.?1 :

Statutory Liability of Stockholders.

As a rule, where by statute stockholders are made liable for the
debts of the corporation, no liability attaches until the corporate prop-
erty fails, and it.becomes necessary to resort to the stockholders’ lia-
bility, and such persons only as are then stockholders are subject to
the liability. A valid and complete transfer of stock, therefore, in the
absence of express provision to the contrary, relieves the transferror
of all liability to creditors of the corporation, and the transferee be-
comes liable in his place. Such is the general rule; but there are some
decisions to the contrary, and the peculiar provisions of particular
statutes may require a different rule. The subject will be explained
at length in treating of the rights and remedies of creditors.2?

16 Chouteau Spring Co. v. Harris, 20 Mo. 383.

17 Ante, p. 48.

18 Id.

19 Hyatt v. Allen, 56 N. Y. 553; Jones y. Railroad Co., 57 N. Y. 196; Jermain
v. Railway Co., 91 N. Y. 483; March vy. Railroad Co., 43 N. H. 515.

201 Mor. Priv. Corp. § 162.

21 Ante, p. 349.

22 Post, p. 578.
§ 156) LIEN OF CORPORATION ON SHARES. 413

Pledgees, Trustees, etc., of Shares.

Persons to whom shares have been transferred as security for debts
due them from the transferror, and who appear on the registration
books of the corporation as owners of the shares, have the same rights
as against the corporation, and are subject to the same liability to the
corporation and to creditors, as if they owned the shares absolutely.
And the same is true of trustees, or others in whose names the shares
stand on the books, though they have no beneficial interest therein; at
least if it does not appear that they hold as pledgees, trustees, etc.
They are liable, for instance, to the corporation and to corporate cred-
itors for an unpaid balance due on the shares.?* They are also subject
to the statutory liability of stockholders for debts of the corporation,
and their liability is not limited to the extent of their interest.?*

LIEN OF CORPORATION ON SHARES.

156. At common law a corporation has no lien on the
shares of its stockholders for debts due from them;
but such a lien may be created by the charter, or
by statute, or by a by-law, if there is express leg-
islative authority therefor.

It is well settled that at common law a corporation has no lien on
the shares of its stockholders for debts due to it from them.?"° The
reason given is that a different rule would subvert the wholesome
doctrine of the common law against secret liens.2* It follows that
the fact that a stockholder is indebted to the corporation does not
of itself give the corporation any greater or different rights than
any other creditors would have, and is no ground for a refusal of the
corporation to recognize and register a bona fide transfer, unless a
lien is given by the charter, or by statute, or by an authorized by-

23 Pullman v. Upton, 96 U. S. 328, post, p. 583.

24 Post, p. 583. * 7

25 Sargent v. Insurance Co., 8 Pick. (Mass.) 90; Massachusetts Iron Co. v.
Hooper, 7 Cush. (Mass.) 183; Steamship Dock Co. v. Heron’s Adm’x, 52 Pa.
St. 280; Farmers’ & Merchants’ Bank v. Wasson, 48 Iowa, 336; Driscoll v. Man-
ufacturing- Co., 59 N. Y. 96, 102; Bank v. Lanier, 11 Wall. 369; Heart v. Bank.
2 Dev. Ha. (N. C.) 111; Dana v. Brown, 1 J. J. Marsh. (Ky.) 304.

26 Driscoll v. Manufacturing Co., 59 N. Y. 96, 102.
Al4 MEMBERSHIP IN CORPORATIONS. (Ch. 12

law.?7. Whether, in the absence of charter or statutory authority, a
corporation may by a by-law create a lien on its shares for debts due
from its stockholders, is a question upon which the courts do not
entirely agree. By the weight of authority, such a by-law is binding
upon the stockholders, and upon transferees who are not bona fide
purchasers; but it is ineffectual as against bona fide purchasers.”®

The legislature may, in the charter or by statute, give a corporation
a lien on shares for debts due to it by its stockholders, or may give
the corporation the power to create such a lien by a by-law. In such
a case a lien attaches, and a transferee of the stock will take subject
to it, whether he had notice or not; and the corporation may refuse
to register the transfer until the indebtedness is paid.?® A. provision
in the charter of a corporation that shares of stock shall be trans-
ferable only on the books of the corporation, according to rules estab-
lished by it and all debts due and payable to the corporation by a
stockholder must be satisfied before the transfer shall be made, gives
the corporation a lien on shares for debts due by stockholders.*° The
lien given by statute to a corporation upon the shares of stockhold-
ers “indebted” to it, extends to all debts, whether payable presently
or at a future time, except where the statute limits the lien to
debts actually due and payable.**_ Under the national banking act,
a national bank cannot, by by-law or otherwise, acquire a lien upon
the shares of its stockholders for debts due from them to the bank.*?

A corporation, which by its charter or otherwise is given a lien on
its shares for debts due from its stockholders, may waive its rights in
this respect; and, if it induces a purchaser of its shares to alter his
condition in reliance upon its assurances that it has no adverse claim
on the shares, it will be held to have waived any lien it may have
had.*$

27 See the cases cited above.

28 Post, p. 457,

29 Union Bank v. Laird, 2 Wheat. 390; Brent v. Bank, 10 Pet. 596; Bishop v.
Globe Co., 185 Mass. 132.

30 Union Bank vy. Laird, supra.

31 Pittsburgh & C. R. Co. v. Clarke, 29 Pa. St. 146, 151.

82 Bullard v. Bank, 18 Wall. 589.

33 National Bank v. Watsontown Bank, 105 U. S. 217. And see Moore v¥.
Bank, 52 Mo. 377. The acts of an agent of the corporation relied upon as &
waiver must have been within his authority or apparent authority. In Bishop
‘§§ 157-158) VALIDITY OF TRANSFERS, 415

VALIDITY OF TRANSFERS.

157. A stockholder, unless restricted by the charter or by
statute, may transfer his shares, and thereby cease
to be liable as a stockholder, to any one who is
capable of holding them, and assuming the liability
of a stockholder. But, as against the corporation
and its creditors,

(a) He cannot transfer his shares colorably.

(b) In this country, he cannot transfer to a man of straw,
or to an insolvent person, for the purpose of escap-
ing liability. The rule is otherwise in England.

(c) He cannot transfer to a person who is incapable in

law of assuming liability with respect to the
shares, as

(1) To an infant.

(2) To an insane person.

(3) To a married woman, where by the law of the
particular jurisdiction she cannot assume lia-
bility. ‘

(4) To the corporation itself, or to another corpo-
ration, if it is incapable of purchasing and
holding the shares. y

158. Shares are not transferable after dissolution of the
corporation, so as to pass the legal title.

These questions are considered at length in a subsequent chapter
in dealing with the liability of stockholders. It is the general rule
that a stockholder, where there are no restrictions in the charter or
‘in the statutes, has an.absolute right to transfer his shares. This
rule, however, is subject to exceptions. A transfer may be perfectly

v. Globe Co., 185 Mass. 132, it was heid that a corporation was not estopped to
assert its lien by the fact that, on the transferee’s presenting the certificate for
transfer, the person in charge of the transfer book promised to make the trans-
fer and issue a new certificate as soon as a certain officer returned, it not ap-
pearing that such person had any authority, except to receive requests for trans-
_fers, and communicate them to the proper officers.
416 MEMBERSHIP IN CORPORATIONS. (Ch. 12

valid as between the parties themselves, and yet be invalid as against
the corporation and creditors of the corporation. Thus, as we shall
presently see, a stockholder cannot transfer his shares colorably to
an insolvent or irresponsible person, and thereby escape liability as a
stockholder to creditors of the corporation.** And, though in Eng-
land the rule is different, in this country a stockholder cannot trans-
fer to an insolvent person, when he knows that the corporation is in-
solvent, for the purpose of escaping his statutory liability, though the
transaction is an out and out sale and transfer.*> There is also an
implied prohibition against a transfer of shares to an infant or any
other person who is not capable in law of assuming the liabilities, as
well as enjoying the rights, of the transferror in respect thereto.**
So it is with transfers to the corporation, or to some other corpora-
tion, where it has no power to hold the shares.*?

Transfer after Dissolution.

The right of a stockholder in a corporation to sell and transfer his
stock, and to pass the legal title of such stock to the purchaser, ceases
upon the dissolution of the corporation. The interests of the several
stockholders are then reduced to mere equitable rights to their sev-
eral distributive shares of the funds of the corporation, upon princi-
ples of justice and equity among all the stockholders; and in making
distribution each stockholder is to be charged with the debts due from
him to the corporation, so as to equalize the distributive shares of all
the stockholders in the fund after payment of all debts due by them
respectively to the corporation. When a stockholder assigns his in-
terest after dissolution of the corporation, the assignee takes subject
to this rule.*®

MODE OF TRANSFER.

159. In the absence of express regulations by the legis-
lature, or under legislative authority, shares of
stock may be transferred, and the legal title vested
in the transferee, by delivery of the certificate with
a written assignment thereof, or with an assign-
ment in blank indorsed thereon.

84 Post, p. 582. 85 Post, p. 582. 36 Post, p. 581. 37 Post, p. 581.
38 James v. Woodruff, 10 Paige (N. Y.) 541, affirmed 2 Denio (N. Y.) 574.
§§ 161-162) REGISTRATION OF TRANSFER. 417

160. The validity and completeness of a transfer depends
upon the law of the state by which the corporation
was created.

In the absence of a statutory or charter provision, or of a by-law
passed in pursuance of legislative authority, prescribing an exclusive
manner in which the stock of a corporation shall be transferred, the
owper may transfer the same to a purchaser, pledgee, or donee by
the delivery of the stock certificate, with a written assignment there-
of. Such a transfer is sufficient at common law to convey the legal
aswell as the equitable title as against all persons, including the cor-
poration.2® The assignment may be in blank, and indorsed on the
certificate, in which case the shares will pass from person to person
by delivery of the certificate, without further indorsement; the per-
son who may be the holder of the certificate having the right at any
time to fill up the blank with his name.

What Law Governs.

The validity of a transfer of stock in a corporation, and its suffi-
ciency to pass title to the transferee, depend upon the law of the
state by which the corporation was created, and not upon the law of
the state in which the transferror and transferee reside, and the
transfer is made.*® .

REGISTRATION OF TRANSFER.

161. It is generally provided by charter or statutory pro-
visions, or by authorized by-laws, that shares shall
be transferable only on the books of the corpora-
tion. In the absence of such a requirement no
record is necessary. As to the effect of such a re-
quirement, the authorities do not agree. The re-
sult of the cases may be thus stated:

(a) In some states it is held that until a transfer is reg-
istered, or deposited for registration, the

39 Boston Music-Hall Ass’n v. Cory, 129 Mass. 435, 1 Cumming, Cas. Priv.
Corp. 650; McNeil v. Bank, 46 N. Y. 325, 1 Cumming, Cas, Priv. Corp. 620, W.
D. Smith, Cas. Corp. 71; Scott v. Bank, 15 Fed. 494, 1 Cumming, Cas. Priv..
Corp. 687.

40 Black v. Zacharie, 3 How. 483, 1 Cumming, Cas. Priv. Corp. 671.

Clk.Pr.Corp.—27

N
413 MEMBERSHIP IN CORPORATIONS. (Ch. 12

legal title to the shares remains in the trans-
ferror, and the transferee has only an equit-
able title. Under this view, until registra-
tion, .

(1) The transferror remains the owner of the shares,
as far as the acts and dealings of the corpora-
tion are concerned, unless it has notice of the
transfer, in which case it must regard the
equitable title of the transferee. In the ab-
sence of notice, it may hold the transferror
liable as a stockholder, and may pay him
dividends, and accord him Men rights as the
owner of the shares.

(2) The corporation may, as far as it is concerned,
waive registration.

(3) Registration is not necessary to entitle a bona
fide purchaser of shares from the holder of
the legal title to prevail against -equities of
third persons.

(4) Nor is it necessary to entitle an innocent pur-
chaser from the apparent and registered own-
er, under an unauthorized assignment, to pre-
vail against the true owner on the ground of
estoppel.

(5) Registration is necessary to relieve the trans-
ferror from the statutory liability to creditors
of the corporation.

(6) It is also necessary as against bona fide pur-
chasers or pledgees from the transferror.

(7?) In most states, but not in all, attaching or exe-
cution creditors of the transferror after the
transfer, but before registration, will prevail
as against the transferee’s equitable title, if
they have levied in ignorance of the transfer;
but, by the weight of authority, not if they
had notice of it.
§§ 161~162) REGISTRATION OF TRANSFER. 419

(8) In some jurisdictions it is held that failure to
register a transfer, or deposit it for registra-
tion, is prima facie evidence of a secret trust,
and, if unexplained, evidence of an intent to
hinder and defraud creditors, so that, as to
them, the transfer is void. Perhaps in some
states it would be held that failure to deposit
a transfer for registration is conclusive evi-
dence of a secret trust.

(b) In some states it is held that the requirement of reg-
istration is intended solely for the benefit and pro-
tection of the corporation, and may be waived by
it, and that it does not prevent an unregistered trans-
fer from conveying, as against the transferror and
all third persons, the whole title, legal as well as
equitable.

162. Where a transfer is duly registered, issuance of a
new certificate is not necessary to transfer the legal
title.

No record is necessary to perfect the transfer of stock, unless it is
required by statute, or by the charter or by-laws of the corporation.**
Almost all charters or acts of incorporation contain the provision
that the stock shall be transferable on the books of the corporation
in such manner as may be prescribed by the by-laws or articles of as-
sociation. Often it is provided that they shall be transferable “only”
op the books of the corporation. There is no difference in the mean-
ing of these provisions.*? The cases are very far from being clear
or in accord as to the effect of such a provision. On some points
there is a direct conflict.

In some states the provision has been construed literally, and as
excluding any other mode of transferring the legal title; and it is
held in these states that until a transfer is registered, or at least
deposited with the corporation for the purpose of registration, the le-

41 Sayles v. Bates, 15 R. I. 342, 5 Atl. 497.
42 See Williams vy. Bank, 5 Blatchf. 59, Fed. Cas. No. 17,727.
426 MEMBERSHIP IN CORPORATIONS. (Ch, 12

gal title to the shares remains in the transferror, and the transferee
has only an equitable title.**

In other states it is held that such a provision is intended solely for
the protection of the corporation, and can be waived or asserted at its
pleasure. No effect is given to it except for the protection of the cor-
poration, and it does not prevent a stockholder from parting with his
interest by a mere assignment of his certificate, subject only to such

‘liens as the corporation may have upon it,** and excepting the right
_of voting at stockholders’ meetings, receiving dividends, ete. And it
is held that, as between the parties themselves to a sale or pledge of
shares, a delivery of the stock certificate, with an assignment and
power of attorney to transfer the shares on the books of the corpora-
tion, passes the entire title, legal as well as equitable, in the shares,
whether the transfer is registered or not.*5

By the weight of authority, unless authorized to do so by its char-
ter or by some statute, a corporation could not pass by-laws restrict-
ing the power to transfer the title to stock to transfers on the books
of the corporation.*®

Necessity as against the Corporation.

Even in those jurisdictions where an unregistered transfer is re-
garded as passing the legal title as between the parties, and, a for-
tiori, in those jurisdictions where it is held that the equitable title

43 Wisher v. Bank, 5 Gray (Mass.) 373, 1 Cumming, Cas. Priv. Corp. 664; Colt
v. Ives, 81 Conn. 25 (explaining the earlier Connecticut cases); Reed v. Copeland,
50 Conn. 488; Brown v. Adams, 5 Biss. 181, Fed. Cas. No. 1,986; Black v. Zach-
arie, 3 How. 483, 1 Cumming, Cas. Priv. Corp. 671; Scott v. Bank, 15 Fed. 494,
1 Cumming, Cas. Priv. Corp. 687; Johnson v. Laflin, 5 Dill. 65, Fed. Cas. No.
7,393, 1 Cumming, Cas. Priv. Corp. 608 affirmed 103 U. S. 800: Union Bank v.
Laird, 2 Wheat. 390; Sabin v. Bank, 21 Vt. 362; People’s Bank v. Gridley, 91
lll. 457; Becher v. Mill Co., 1 Fed. 276. And it has even been held that delivery of
a certificate, properly indorsed, to the officers of the corporation, with a request to
transfer the same, is not sufficient to pass the legal title. Brown v. Adams, supra.

44 Ante, p. 413.

46 McNeil v. Bank, 46 N. Y. 325, 1 Cumming, Cas. Priv. Corp. 620, W. D. Smith,
Cas. Corp. 71; Isham v. Buckingham, 49 N. Y. 216; Duke v. Navigation Co., 10
Ala. 82; Mandlebaum v. Mining Co., 4 Mich. 465, 2 Cumming, Cas. Priv. Corp.
159; Baldwin v. Canfield, 26 Minn, 43, 1 N. W. 261. And see Blouin ¥, Hart,
30 La. Ann. 714.

46 Sargent v. Railway Co., 9 Pick. (Mass.) 202; Driscoll v. Manufacturing Co.,
59 N. Y. 96.
§§ 161-162) REGISTRATION OF TRANSFER. 421

only passes, a transfer, until registered or deposited for registration,
confers on the transferee, as between himself and the company, no
right beyond that of having the transfer properly entered. Until
that is done, the person in whose name the stock is registered is, as
between himself and the company, the owner to all intents and pur-
poses.47 A ‘transferee, for instance, until he has had his transfer
registered, or deposited it for registration, has no right to vote at
stockholders’ meetings.*® He also takes the risk, as against the
corporation, of payment of the dividends to the person who appears
as owner on the books of the corporation.*® But, of course, he
would be-entitled to recover them from the person so receiving them
in an action for money had and received to his use. Assets of a cor-
poration, on dissolution, may, like dividends, be safely distributed to
those who appear on its books as owners of stock, and the distribu-
tion will be valid as against persons claiming under an unregistered
transfer, of which the corporation had no notice.°° The unregistered
transferee also takes the risk of any lien which the corporation may
acquire on the shares for indebtedness of the registered holder.**
The transferror is not relieved from liability for calls, nor does the
transferee become liable for calls, until.the transfer is registered,
when registration on the books is required.*?

In those jurisdictions where it is held that the provision is for the
protection of the corporation, it may be waived by the corporation.
Therefore, though a transferror may be held liable for calls made sub-
sequently to the transfer, but before registration, he cannot be held
liable where the corporation waives the requirement of registration
expressly or by its mode of doing business, as by failing to keep a |
registry book.®#

47 People v. Robinson, 64 Cal. 373, 1 Pac. 156.

48 Teople v. Robinson, supra.

49 Ante, p. 349,

50 Bank of Commerce’s Appeal, 73 Pa. St. 59.

51 Union Bank v. Laird, 2 Wheat. 390. See Bank of Attica v. Manufacturers’
& Traders’ Bank, 20 N. Y. 501.

52 Marlborough Manuf’g Co. v. Smith, 2 Conn. 579, 583.

53 Isham y. Buckingham, 49 N. Y. 216. And see American Nat. Bank v. Orien-
tal Mills, 17 R. I. 551, 28 Atl. 795; Chemical Nat. Bank v. Colwell, 132 N. Y.
250, 30 N. B. 644.
422 MEMBERSHIP IN CORPORATIONS. (Ch. 12

lf a transfer is valid, the corporation is bound to register it. Any
valid transfer in writing is valid as against the company, if, on being
notified, it refuses to allow registration. A transferror, therefore, is
not liable to the corporation for assessments authorized to be made
on “stockholders” beyond their shares, after a valid assignment has
been made, and the corporation has refused to register it.°*
Wicessity as against Estoppel of Owner in Case of Unauthorized

Transfer.

As we shall presently see, if the true owner of stock holds out an-
other, or allows him to appear as having full power to dispose of the
stock, and innocent third persons are thus led into dealing with the
apparent owner, and taking a transfer from him, they will be pro-
tected, under the doctrine of equitable estoppel, against any claim
by the true owner.°> In such a case it is not necessary, as against
the true owner, that their transfer shall have been registered.*®

Necessity as against Prior Equities of Third Persons.

The fact that a transfer by one who has the legal title to shares,
and the apparent absolute power to dispose of the same, is not regis-
tered, does not affect the right of the transferee to prevail against
prior equities of third persons. Thus a bona fide purchaser of cer-
tificates of stock, upon which a power of attorney, authorizing their
transfer to any person, is indorsed by the person in whose name the
certificates were issued, and who was the last registered holder of the
shares, takes them relieved of a secret trust existing back of the
registry, though his transfer is not registered.5"

Necessity as against Creditors of Corporation.

It is very generally held, even in those states where an unregistered
transfer conveys the legal as well as the equitable title, that the stat-
utory requirement of registration is intended for the protection of the
creditors of the corporation, as well as of the corporation. And it is
therefore held that a stockholder who has transferred his shares is not
relieved from liability to creditors of the corporation until the trans-

54 Chouteau Spring Co. v. Harris, 20 Mo. 383.

55 Post, p. 431.

56 Otis v. Gardner, 105 Ill. 436; and other cases cited post, p. 431.

57 Winter v. Montgomery Gaslight Co., 89 Ala. 544, 7 South. 773, 2 Cummins,
Cas. Priv. Corp. 163.
§§ 161-162) REGISTRATION OF TRANSFER. 423

fer is registered. This question will be considered in a subsequent
chapter.*®

Necessity as against Bona Fide Purchasers and Pledgees.

In those jurisdictions where it is held that an unregistered transfer
does not convey the legal title, it is clear that an unregistered trans-
feree cannot set up the transfer as against a bona fide purchaser or
pledgee from the person who appears as owner on the books of the
corporation. And even in those jurisdictions where it is held that an
unregistered transfer passes the legal as well as the equitable title, as
between the parties, the transferee will lose the shares by a fraudulent
transfer on the books by the registered owner to a bona fide pur-
chaser, though he may hold a certificate.°® But in such a case the
unregistered transferee will have a right of action against the cor-
poration for allowing a transfer on the books in violation of his
rights.°°

An unregistered transfer is not good as against subsequent bona
fide purchasers of the stock at a sale on execution against the trans-
ferror, who appears on the books of the corporation as owner, where
they have no notice of the transfer.*t It is otherwise if they have
such notice.®?

By express provisions of the statute in some states, transfers of
stock, if not registered within a certain time on the books of the cor-
poration, are declared to be void as to bona fide creditors or pur-
chasers without notice.

Necessity as against Oreditors of Registered Owner.
In some of those states where an unregistered transfer does not
convey the legal title it is held that an attachment or execution by 2

58 Shellington v. Howland, 53 N. Y. 371; Dane v. Young, 61 Me. 160; Mc-
Claren v. Franciscus, 48 Mo. 452; post, p. 580. But in Laing v. Burley, 101 Ill.
591, it was held that, where a corporation issues a certificate to a transferee of
sharcs in lieu of the certificate issued to the prior owner, the transferee becomes a
stockholder, and liable as such to creditors of the corporation, though the corpora-
tion fails to register the transfer as required by its by-laws.

59 New York & N. H. R. Co. v. Schuyler, 34 N. Y. 30, 80, 2 Cumming, Cas. Priv.
Corp. 119, 137.

60 New York & N. H. R. Co. v. Schuyler, 34 N. Y. 30, 80, 2 Cumming, Cas. Priv.
Corp. 119, 187.

61 Naglee v. Wharf Co., 20 Cal. 529.

62 Newberry vy. Manufacturing Co., 17 Mich. 141.
424 MEMBERSHIP IN CORPORATIONS. (Ch. 12

creditor of the transferror and registered owner of shares will prevail
against the transfer if it is not registered, or at least deposited for
registration. These cases are based solely upon the ground that the
legal title in such a case remains in the transferror, and is subject to
attachment and execution for his debts, and does not rest on any
idea of fraud, actual or constructive.** And it is further held that,
as against the execution or attachment, it can make no difference that
the corporation had notice of the transfer before the levy.** It has
been held that, where registration is required, actual registration is
necessary as against an execution or attaching creditor, and deposit
for record is not sufficient.** But actual registration is not neces-
sary if receipt for record be made sufficient to pass the title.**

Even if an unregistered transfer be regarded as insufficient to pass
the legal title, it passes an equitable title, and will be upheld as an
equitable assignment. Therefore, by the weight of authority, an
equitable assignment will prevail as against creditors of the transfer-
ror who attach the shares with full knowledge of the transfer." It
is otherwise if they have no notice of the transfer.*® So the corpora-
tion itself, being a creditor of a stockholder, cannot, if it has notice of
an equitable assignment of his shares, attach them before the transfer
is registered, and so prevail as against the transferee, unless it is
given a lien on shares for debts due from stockholders.®®

Some of the courts hold that, when shares are sold or pledged, there
is no necessity to have the transfer registered on the books of the

63 Fisher v. Bank, 5 Gray (Mass.) 373, 1 Cumming, Cas. Priv. Corp. 664; Wil-
liams v. Bank, 5 Blatchf. 59, Fed. Cas. No. 17,727; People’s Bank of Bloomington,
y. Gridley, 91 Ill. 457; Northrop v. Turnpike Co., 8 Conn. 544; Oxford Turnpike
Co. v. Bunnel, 6 Conn. 552; Skowhegan Bank vy. Cutler, 49 Me. 315. Compare
Sibley v. Bank, 183 Mass. 515; Colt v. Ives, $1 Conn. 25.

64 Fisher vy. Bank, supra.

65 Northrop v. Turnpike Co., supra. -

66 Oxford Turnpike Co. v. Bunnel, supra.

67 Black v. Zacharie, 3 How. 482, 1 Cumming, Cas. Priv. Corp. 671; Scripture v.
Soapstone Co., 50 N. H. 571, 1 Cumming, Cas. Priv. Corp. 677; Buttrick v. Rail-
road Co,, 62 N. H. 413; Weston v. Mining Co., 6 Cal. 425; State Ins. Co, v. Gen-
nett, 2 Tenn. Ch. 100; State Ins. Co. v. Sax, Id. 507; Newberry v. Manufactur-
ing Co., 17 Mich. 141.

68 Weston v. Mining Co., 5 Cal. 186; State Ins. Co. v. Gennett, supra; State
Ins. Co. v. Sax, supra; Buttrick v. Railroad Co., supra.

69 Scripture vy. Soapstone Co., supra.
§§ 161-162) REGISTRATION OF TRANSFER. 425

corporation, in order to make it good as against subsequent attaching
creditors of the transferror, unless such a step is expressly required as
against creditors by the charter of the corporation, or by some statute;
and that, in the absence of a charter or statutory provision clearly
showing an intention on the part of the legislature to make a transfer
void as against creditors unless registered, a transfer as at common
law will be sufficient.”° In these states, therefore, in the absence of
such an express statutory provision, there must be. some element of
fraud or estoppel to defeat the rights of an unregistered transferee,
and to give the claims of creditors of the transferror priority.

Of course, in those jurisdictions where it is held that an unregister-
ed transfer conveys the legal as well as the equitable title, the transfer
will prevail as against an attaching creditor of the transferror, even
though he has no notice of the transfer, unless there is some element
of fraud or estoppel. *

Where stock is held in trust by the registered holder, and the whole
beneficial interest is in another, the stock doés not pass to the register-
ed holder’s assignee in bankruptcy or insolvency.*?

Same—Failure to Register as Evidence of Secret Trust.

Transfers of stock, if made with intent to hinder, delay, and de-
fraud creditors, and not in good faith, are void as to creditors of the
transferror to the same extent as a transfer of any other property
with such intent would be. In some jurisdictions, retention of pos-
session of property by the seller is evidence of a secret trust, and, if
unexplained, the sale will be held fraudulent and void as to creditors

70 Broadway Bank v. McElrath, 13 N. J. Eq. 24, 1 Cumming, Cas. Privy. Corp.
‘683; Boston Music Hall Ass’n v. Cory, 129 Mass. 435, 1 Cumming, Cas. Priv.
Corp. 650; Scott v. Bank, 15 Fed. 494, 1 Cumming, Cas. Priv. Corp. 687. In
Broadway Bank vy. McElrath, supra, M. had delivered to the complainants certifi-
-cates of stock in a corporation, accompanied by an assignment, and an irrevocable
power of attorney for the transfer thereof, as security for certain debts. The char-
ter of the corporation provided that its capital stock should be deemed personal
property, and be transferable on the books of the corporation, and also that books
of transfer of stock should .be kept, and shoald be evidence of ownership of said
stock in all elections and other matters submitted to the decision of the stockhold-
ers of the corporation. It was held that, notwithstanding such provisions, the trans-
fer by M., though unregistered, was good as against an attachment subsequently
levied by his creditor.

71 Sibley v. Bank, 183 Mass. 515.
426 MEMBERSHIP IN CORPORATIONS. (Ch, 12

of the seller. In other jurisdictions, retention of possession renders
the. sale, not merely prima facie fraudulent, but conclusively so.
These doctrines as to the effect of retentior of possession by theseller
of property apply to sales of shares of stock. Unless there is such a
change of possession as the nature of the property will permit, the
sale, in some jurisdictions, will be conclusively fraudulent as to cred-
itors; in others, prima facie so. The question therefore arises:
What is a sufficient change of possession on a sale of shares? The
supreme court of New Hampshire has held that, upon a sale or pledge
of stock, there should be such a delivery as the nature of the thing
allows; that, as against a subsequent attaching creditor, the trans-
feree must be clothed with all the usual muniments and indicia of
ownership; that the delivery will not be complete until an entry of
the transfer is made upon. the stock record, or notice is sent to the
office of the corporation for that purpose; and that the omission to
thus perfect the delivery will be prima facie, and if unexplained, con-
clusive, evidence of a secret trust, and therefore, as a matter of law,
fraudulent and void as to the transferror’s creditors.”?

If the failure to register a transfer of shares is explained, and the
presumption of fraud rebutted, in those jurisdictions, at least, where
it is rebuttable, the title of the transferee will prevail as against cred-
itors of the transferror, even though they may attach the shares in ig-
norance of the transfer."* “The ground,” said the Connecticut court,

72 Pinkerton v. Railroad Co., 42 N. H. 424, 1 Cumming, Cas. Priv. Corp. 652.
Where a transfer is made at a distance from the office of the corporation, and
in another state, and the old certificates are surrendered, and new ones issued
by the transfer agent of the corporation appointed for that purpose in such state,
proof that the proper evidence of such transfer was sent to the keeper of the
stock record, to be entered, by the earliest mail, although not received until an
attachment was levied, will be a sufficient explanation of the want of delivery,
and the transfér will be good as against the attaching creditor. Pinkerton y.
Railroad Co., supra. But where a pledge of stock was made in Boston by a
transfer of the certificates to the pledgee, and nothing more was done for nearly
a month, and then the old certificates were surrendered, and new ones issued by
the transfer agent there, and notice given by the first mail to the office of the
corporation in New Hampshire, it was held that the transfer was not good as
against an attachment levied on the shares in New Hampshire before the ‘issu-
ance of the new certificates, and the notice to the office. Pinkerton v. Railroad
Co., supra.

78 Colt v. Ives. 31 Conn. 25; U. S. v. Vaughan, 3 Bin. (Pa.) 394.
§§ 163-166) FORGED AND UNAUTHORIZED TRANSFERS. 427

“on which stock sold, but not legally transferred (that is, on the
books), is open to attachment by the creditors of the vendor, is the
same upon which personal chattels sold but retained in the possession
of the vendor are liable to attachment by the vendor’s creditors. The
principle in each case is, that the retention of possession is a badge
of fraud; that is, is evidence of a fraudulent secret trust. * * *
But it is well settled that this retention of possession in every case is
only a badge; that is, is evidence of fraud, to be regarded as conclu-
sive where the retention of possession is voluntary and unneces-
sary.” 74

Issuance of New Certificate.

A transfer on the books of the corporation is sufficient to vest the
title in the transferee, without the issuance of a new certificate in the
name of the transferee."®> The certificate, as we have seen, is merely
evidence of title to shares, and is not at all necessary to constitute
one a stockholder.7*®

FORGED AND UNAUTHORIZED TRANSFERS.

163. Certificates of stock are not negotiable instruments,
unless expressly made so by statute. Therefore a
transferee under a forged assignment and power of
attorney acquires no title as against the true owner.
And the same is true of an unauthorized transfer
by one who has stolen or found a certificate in-
dorsed in blank by the true owner.

164. A transfer of certificates of stock by one who holds
the legal title in trust, but who appears as absolute
‘owner on the books of the corporation, conveys a
good title, as against the cestui que trust, if the
transferee is an innocent purchaser for value and
without actual or constructive notice of the trust,
but not otherwise.

74 Colt v. Ives, supra.
75 Chouteau Spring Co. v. Harris, 20 Mo. 383.
76 Ante, p. 316.
428 MEMBERSHIP IN CORPORATIONS. (Ch. 12

165. If the owner of a certificate of stock allows another
to appear as owner, with full power to dispose of
it, and innocent third persons are thus led into
dealing with the apparent owner, they will acquire
title, as against him, by estoppel.

166. The doctrine of lis pendens, as constructive notice,
does not apply to transfers of stock..

Certificates of shares of stock in a corporation are not negotiable
instruments, like bills and notes, unless, as is the case in some juris-
dictions, they are expressly made so by statute. And no mere usage
among stockbrokers or others can make them so, for no usage is good
if it conflicts with an established principle of law.’’ Certificates of
stock are on the same footing as other nonnegotiable choses in ac-
tion, and they are’subject, therefore, to the general rule that an as-
signor can transfer no better title than he has himself.7® It follows
from this principle that, in the absence of negligence on the part of
the owner of stock sufficient to operate as an estoppel against him, a
transfer by a person who has no title to shares, and no authority from
the owner to transfer the same, gives the transferee no title, as
against the owner, though he may have purchased them in good faith
for value, and without notice of the want of title or authority in the
transferror. It is accordingly well settled that, in the absence of neg-
ligence, a forged indorsement and transfer of certificates of stock can-
not divest the owner of his title, nor confer any rights, as against
him, upon the transferee; and if the corporation recognizes the
forged indorsement, and transfers the stock, so that the certificate is
lost to the real owner, it may be compelled to replace it, or to pay
him its value.*® On the same principle, an innocent purchaser of a

77 Kast Birmingham Land Co. v. Dennis, 85 Ala. 565, 5 South. 317, 1 Cum-
ming, Cas. Priv. Corp. 647, W. D. Smith, Cas. Corp. 76.

78 Kast Birmingham Land Co. v. Dennis, supra. And see Sewall v. Power
Co., 4 Allen (Mass.) 277, 282; Shaw v. Spencer, 100 Mass. 382; Pollock v. Bank,
7 N. Y. 274; President, Directors & Co. of Mechanics’ Bank v. New York &
N. H. R. Co., 138 N. Y¥. 599; Barstow v. Mining Co., 64 Cal. 388; Hall v. Roal:
Co., 70 Ill. 673; Western Union Tel. Co. v. Davenport, 97 U. S. 369, 1 Cum-
ming, Cas. Priv. Corp. 648.

79 Western Union Tel. Co. v. Davenport, 97 U. S. 369, 1 Cumming, Cas. Priv.
Corp. 643; Hildyard v. South-Sea Co., 2 P. Wms. 76; Sewall v. Power Co.. 4
§§ 163-166) FORGED AND UNAUTHORIZED TRANSFERS. 429

certificate of stock indorsed in blank by the owner, and stolen from
him, or lost by him, without negligence on his part, acquires no title,
as against the owner.®° “Neither the absence of blame on the part
of the officers of the company in allowing an unauthorized transfer
of stock, nor the good faith of the purchaser of stolen property, will
avail as an answer to the demand of the true owner. The great
principle that no one can be deprived of his property without his
assent, except by the processes of the law, requires, in the cases men-
tioned, that the property wrongfully transferred or stolen should be
restored to its rightful owner.” ** :

One who is. entitled to stock, certificates for which have been
wrongfully transferred to another, may maintain a bill in equity to
have the wrongful certificates canceled, and certificates issued to
himself, if the loss of the stock cannot be adequately compensated in
a common-law action.®?

Liability of Transferee.

A corporation may maintain an action for damages against a per-
son who presents a forged or unauthorized power of attorney to trans-
fer stéck, upon the faith of which the corporation transfers the stock
and suffers loss, though such person acted in good faith.**

Transfers by Trustees.

Where the person who appears on the books of the corporations as
the absolute owner of stock holds the stock in trust, a purchaser and
transferee from him, if he has actual or constructive notice of the
trust, takes subject to the equitable rights of the cestui que trust.
And, if the certificate shows on its face that it is held in trust, trans-
ferees are charged wih notice of the trust, and with the duty of inquir-
ing into the authority of the holder to transfer the same.** The rule

Allen (Mass.) 277; Pratt v. Manufacturing Co., 123 Mass. 110; Pollock v. Bank,
7 N. Y. 274; Machinists’ Nat. Bank vy. Field, 126 Mass. 345, 2 Cumming, Cas.
Priv. Corp. 175. And see Tafft v. Railroad Co., 84 Cal. 181, 24 Pac. 436.

80 Kast Birmingham Land Co. v. Dennis, 85 Ala. 565, 5 South. 317, 1 Cum-
ming, Cas. Priv. Corp. 647, W. D. Smith Cas. Corp. 76; Knox v. Eden Muse¢
American Co., 148 N. Y. 441, 42 N. E. 988; Barstow v. Mining Co., 64 Cal. 388, 1
Pac. 349; Sherwood v. Mining Co., 50 Cal. 412.

81 Western Union Tel. Co. v. Davenport, supra.

82 Walker v. Railway Co., 47 Mich. 338, 11 N. W. 187. See post, p. 435.

83 Boston & A. R. Co. v. Richardson, 185 Mass. 473. —

84 Shaw v. Spencer, 100 Mass. 382. But see Albert v. Bank, 1 Md. Ch. 407.
430 MEMBERSHIP IN CORPORATIONS. (Ch. 12

is different where the transferee of a certificate has no notice that it
is held in trust, and there is nothing to put him on inquiry. Itisa
general rule that when the legal title to property, and the apparent
unlimited power of disposition, are vested in a person, the rights of a
purchaser from him for a valuable consideration, without notice of
a secret trust upon which the property is held, are unaffected. The
purchaser in‘such a case acquires an equity equal to the outstanding
equity of which he has no notice, and this, coupled with the legal
title, prevails against the prior equity. This principle is applicable
to transfers of certificates of stock. Ifa person who holds the legal
title to certificates in trust appears on the books of the corporation
as the absolute owner, a purchaser and transferee of the certificates
for value, and without actual or constructive notice of the trust, ac-
quires a good title, as against the cestui que trust. And this is true
whether his transfer has been registered on the books of the corpora-
tion or not.2°> This applies to transfers by executors. In the case ,
of executors, however, purchasers of stock from them, ‘knowing their

character, are chargeable with notice of the contents of the will.**

At common law, executors have the same power over the disposition

of the testator’s personal property as the testator himself would have,

except in so far as there may be restrictions in the will; and, where

such is the case, he has power to sell stock belonging to the estate,

and innocent purchasers will acquire title, though he may be selling

the same to convert it to his own use.*” If his powers are restricted

by statute, as is now generally the case, a sale of stock must be made
in compliance with the statute, or no title will pass. Thus, if an ex-
ecutor sells stock belonging to the estate at a private sale, without an
application to the court, when a statute authorizes a sale at public
auction only, unless an order of court is obtained authorizing a pri-.
vate sale, the sale passes no title to the stock, though the transfer is

entered on the books of the corporation.*®

85 Winter v. Gaslight Co., 89 Ala. 544, 7 South. 773, 2 Cumming, Cas. Priv.
Corp. 168. And see Weyer v. Bank, 57 Ind. 198; Albert vy. Bank, 1 Md. Ch.
407; Lowry v. Bank, Taney, 310, Fed. Cas. No. 8,581.

86 See Lowry v. Bank, Taney, 310, Fed. Cas. No. 8,581.

87 Lowry vy. Bank, supra; Weyer v. Bank, 57 Ind. 198.

88 Weyer v. Bank, supra.
§§ 168-166) FORGED AND UNAUTHORIZED TRANSFERS. 431°

Estoppel of True Owner in Case of Unauthorized Transfer.

Certificates of stock and unauthorized transfers are subject to the
doctrine of equitable estoppel. According to this doctrine, if the true
owner of certificates of stock holds out another, or allows him to ap-’
pear, as having full power of disposition thereof, and innocent third
persons are thus led into dealing with the apparent owner, they will
be protected, as against any claim by the true owner.®® Their rights
in such cases do not depend upon the actual title or authority of the
party with whom they deal directly, but are based upon the conduct of
the real owner, which precludes him from disputing, as against them,
the existence of the title or authority which, through negligence or
mistaken confidence, he caused or allowed to appear to be vested in
the party making the transfer.°° In McNeil v. Tenth Nat. Bank,®?
the owner of shares in a corporation delivered to his brokers, to se-
cure a balance of account, the certificates of the shares, indorsed
with a blank assignment and irrevocable power to transfer the same
on the books of the corporation, signed and sealed by himself, and ex-
pressed to be “for value received”; and the brokers, without his
knowledge or consent, pledged the shares, for their own indebtedness,
to one who had no actual knowledge of the title under which they
held. It was held that the pledgee of the brokers acquired a good
title to the shares, as against the owner, who was estopped to deny
the apparent title of the brokers under his indorsement and irrevocable
power of attorney.

This doctrine applies only on the ground that the owner of the
stock allows the holder of the certificate to appear as owner. It does
not apply, therefore, where the holder of the certificate, in transfer-
ring it without authority, does not pretend to own the stock and to
act for himself, but claims to act for the owner, and under authority
from him. In such a case the owner would not be estopped unless
he held the transferror out as having the particular authority claimed.

‘89 McNeil v. Bank, 46 N. Y. 825, 1 Cumming, Cas. Priv. Corp. 620, W. D.
Smith, Cas. Corp. 71; Cherry v. Frost, 7 Lea (Tenn.) 1; Jarvis v. Rogers, 13
Mass. 105; Colonial Bank v. Cady, 15 App. Cas. 267, 1 Cumming, Cas. Priv.
Corp. 629; Otis v. Gardner, 105 Il]. 486; Mt. Holly Lumberton & Medford Turn-
pike Co. v. Fenee, 17 N. J. Eq. 117; Prall v. Tilt, 28 N. J. Eq. 479; Walker v.
Railway Co., 47 Mich. 388, 11 N. W. 187; Burton’s Appeal, 93 Pa. St. 214. °

909 McNeil v. Bank, supra. 91 Supra.
°
432 . MEMBERSHIP IN CORPORATIONS. (Ch. 12

In Merchants’ Bank of Canada v. Livingston,*? a pledgee of a certifi-
cate of stock which was indorsed by the owner in blank, with an ir.
revocable power of attorney to transfer the same on the books of the
corporation, applied to the plaintiff for a loan, offering the stock as
security. He did not claim to own the stock, nor ask the loan on his
own account, but stated that he wanted it for his client. The plain-
tiff, in good faith, made the loan, and took the certificate as security,
and contended that the owner was estopped, under the doctrine of
McNeil v. Tenth Nat. Bank. It was held that there was no es-

| toppel, as the owner had not held the pledgee out as having authority

, to borrow money for him and pledge the stock as security, though he

‘ would have been estopped if the pledgee had sold or pledged the stock
as his own, as he was clothed with apparent ownership.

Simply intrusting the possession of a certificate of stock to an-
other as depositary, pledgee, or other bailee, or even under a condi-
tional, executory contract of sale, will not preclude the owner from
asserting his title in case of an unauthorized disposition of it by the
person so intrusted; for the mere possession of chattels, by whatever
means acquired, if there is no other evidence of property or authority
to sell from the true owner, will not enable the possessor to give a
good title.°*

If an indorsement of assignment and power of attorney on a cer-
tificate of stock is sufficient to put persons dealing with the holder
upon inquiry as to his title, or if it may mean on its face either an
absolute transfer, or a transfer for a particular purpose only, persons
who take the stock from the holder are chargeable with notice of his
title, and the owner will not be estopped, as against them, to deny
that the transfer was absolute. This principle was applied in Colonial
Bank v. Cady,°* where the executors of the former owner of shares
indorsed the certificates with an assignment and power of attorney in —
blank, and sent them to a broker for the purpose of having them reg-
istered in their names as executors. The broker fraudulently deposit-
ed the certificates with a bank as security for advances. It was held
that the bank acquired no title to the stock, as against the executors,
though it took the certificates in perfect good faith, and without ac-

9274 N. Y. 223; 2 Cumming, Cas. Priv. Corp. 142.
93 McNeil vy. Bank, supra.
94.15 App. Cas. 267, 1 Cumming, Cas. Priv. Corp. 629,
Ca
§§ 163-166) FORGED AND UNAUTHORIZED TRANSFERS. 435.

tual notice of the character in which the broker held them, and for
these two reasons: In the first place, certificates so indorsed by ex-
ecutors were not treated on the stock exchange as being in order, or
received as sufficient security for advances, unless duly authenticated,
and this was sufficient to put the bank upon inquiry. In the second
place, the conduct of the executors in delivering the transfers indorsed
by them as executors was consistent either with an intention to sell
or pledge the shares, or with an intention merely to have themselves.
registered as the owners, and therefore they were not estopped to
assert that they did not intend an absolute transfer.

Effect of Judicial Proceedings.

The question how far a purchaser of stock, where a certificate there-
for is outstanding, is affected by previous or pending judicial pro-
ceedings concerning the ownership of the stock, is not altogether
clear. It has been held in New York that the doctrine of lis pendens
does not apply to a sale of shares of stock, and, therefore, that the
pendency of an action concerning the title to shares, the certificate of
which is outstanding, is not constructive notice to one who purchases
the certificate, and that a judgment rendered after the transfer does
not defeat his title.°> It was held by Judge Woodruff, in the circuit
court of the United States for the Southern district of New York, that
a decree of a court having jurisdiction of the subject-matter and of
the parties, vesting the title to stock in a person other than the holder
of the outstanding certificate, and a transfer made by a master in
pursuance thereof, and made known to the corporation, is a complete
protection to the corporation against purchasers of the outstanding
certificate, though they pay value and have no notice of the decree.°*
Such a decree and transfer could not affect the title of one who pur-.
chased the outstanding certificate before commencement of the ac-.
tion, nor, if the New York cases are sound, after the commencement

95 Holbrook v. Zine Co., 57 N. Y. 616, 2 Cumming, Cas. Priv. Corp. 152. Com-
pare Leitch v. Wells, 48 N. Y. 585. The pendency of an action in another state
concerning the title to stock would not be notice to a purchaser of the outstand-
ing certificate, even if the doctrine of lis pendens were applicable to a sale of
shares. Holbrook yv. Zine Co., supra. : ;

96 Sprague v. Manufacturing Co., 10 Blatchf. 178, Fed. Cas. No. 18,249, 1 Cum--
ming, Cas. Priv. Corp. 661.

Clk.Pr.Corp.—28
434 Ls MEMBERSHIP IN CORPORATIONS. (Ch, 12

of the action, but before the decree.®” And the later cases tend to
hold that a purchaser of outstanding certificates, without notice, even
after a decree in a suit to which he was not a party, declaring them
void and, canceling them, would not be affected by the decree, but
could hold the corporation liable.®*

LIABILITY OF INDORSER OF FORGED CERTIFICATE,

167. Though there is authority to the contrary, by the
better opinion one who indorses a certificate of
stock in blank thereby warrants its genuineness,
and will be liable to subsequent bona fide purchasers.

=

It has been held that the signing of a transfer in blank on a cer-
“tificate of stock is a warranty of the genuineness of the certificate,
and that a transferror, therefore, who indorses a forged certificate in
blank, though he may have taken the same in good faith, and may be
ignorant of the forgery, is liable to subsequent bona fide purchasers.
In Matthews v. Massachusetts Nat. Bank,®® a stock certificate orig-
inally for 2 shares of stock in the name of one Coe, which had been
fraudulently altered so as to purport to be for 200 shares in the name
of the defendant as collateral, was received in good faith by the de-
fendant from Coe as collateral security for a loan from him. On pay-
ment of the loan by Coe the defendant signed a transfer in blank upon
the back of the certificate, and delivered it to Coe. * Afterwards the
plaintiff, in good faith, received the same certificate from Coe as
collateral security for a loan then made to him. The plaintiff’s debt
was not paid by Coe, and, the certificate proving worthless, the plain-
titt sued the defendant for damages, on the ground that the defend-
ant, by its indorsement, warranted the certificate to be genuine. It
~was held that he could recover.

“97 Holbrook v. Zine Co., supra; Joslyn v. Distilling Co., 44 Minn. 183, 46 N.
“W. 337, 2 Cumming, Cas. Priv. Corp. 177; Bean v. Trust Co., 122 N. Y. 622,
26 N. E. 11, 2 Cumming, Cas. Priv. Corp. 179.

98 Cases cited in the preceding note. See post, p. 442.

99 Holmes, 396, Fed. Cas. No. 9,286.
§§ 168-169) LIABILITY FOR UNAUTHORIZED OR INVALID TRANSFER. 435

LIABILITY OF CORPORATION ARISING FROM UNAU-
THORIZED OR INVALID TRANSFER.

168. A corporation is liable to the owner of stock if it
registers a forged or unauthorized or invalid trans-
fer, unless the owner is estopped by negligence.

169. If the holder of the legal title to a certificate of stock

. appears to be the absolute owner, and the corpora-
tion has no notice that the fact is otherwise, it will
incur no liability to the equitable owner by recog-
nizing a transfer from the holder.

As we have just seen, in the absence of elements of estoppel a
forged or unauthorized indorsement or transfer of certificates of
stock cannot divest the owner of his title, nor confer any rights, as
against him, upon the transferee. If, therefore, a corporation recog-
nizes a forged or unauthorized indorsement and transfer, and trans-
fers the stock and issues a new certificate, so that the certificate is
lost to the real owner, it may be compelled to replace it, or pay him
its value. And it can make no difference whatever that the corpora-
tion has not been guilty of fraud or negligence.?°° No liability, how-
ever, will attach to the corporation where the owner of the stock has
been negligent. In such a case he will be estopped to deny the title
of the transferee, and this estoppel will inure to the benefit of the cor-
poration.?°*

" Not only does a corporation, in permitting a transfer of stock to be
made under a power of attorney, take the risk of the power of attor-
ney being genuine and not a forgery, and of its being authorized, but
it also takes the risk of its validity in other respects; and it will be
liable if it was void because executed by a married woman, or if it
was executed by an infant or insane person, and has been avoided.
And it makes no difference that the corporation was not guilty of
actual fault.t°? The corporation has ample means to protect itself,

100 Telegraph Co. v. Davenport, 97 U. S, 369, 1 Cumming; Cas. Priv. Corp: 643:
Taift v. Railroad Co., 84 Cal. 131, 24 Pac. 486. See ante, p. 428, where the cases
are collected.

101 Ante, p. 431. 102 Chew vy. Bank, 14 Md. 299.
436 MEMBERSHIP IN CORPORATIONS. (Ch, 12

for it may refuse to recognize a power of attorney until satisfied of
its genuineness and validity, and may require the personal attend-
ance of the party for the purpose of determining such questions of
fact as may give rise to disputes.*°*

If the holder of a certificate of stock appears to be the absolute
owner, and the corporation has no notice that the fact is otherwise,
it may safely issue a new certificate to his transferee, which, if taken
in good faith and for value, will vest a perfect title in him; and in
such a case no liability attaches to the corporation, in favor of an
equitable owner of the shares, for permitting the transfer and is-
suing the new certificate.1°* But, for the protection of the equitable
owner of shares, the corporation is bound to use reasonable care in
recognizing transfers and issuing new certificates; and if, by the
form of the certificate or otherwise, the corporation has notice that
the transferror is not the absolute owner, but holds the shares by such
a title that he may not have authority to transfer them, the cor-
poration is not obliged, without evidence of such authority, to issue a
certificate to his assignee; and if, without making any inquiry, it does
issue a new certificate, and the equitable owner is injured thereby, he
may hold the corporation liable, and this without proof of fraud or
collusion. All the authorities agree that the corporation is liable
where it has notice that the transferror holds the stock in trust, and
issues a new certificate without inquiry as to whether the transfer is
authorized.7°® 5

In case of transfers by an executor, the corporation is chargeable
with notice of the will and its contents. But, since an executor has
authority to sell stock to pay debts of the testator, the corporation
does not render itself liable by registering a transfer by him, if it has
no regsonable ground for supposing that he is misapplying the as-
sets, though the stock may be specifically bequeathed.?°* If, however,
it has reasonable grounds for supposing the executor is misapplying
the assets, and permits a transfer, it will be liable.t¢?

103 Chew v. Bank, supra.

104 Loring v. Salisbury Mills, 125 Mass. 150.

105 Loring v. Salisbury Mills, supra; Shaw v. Spencer, 100 Mass. 382.
106 Lowry v. Bank, Taney, 310, Fed. Cas. No, 8,581.

107 Lowry v. Bank, supra.
§§ 170-171) LIABILITY ON CERTIFICATES ISSUED FRAUDULENTLY. 487

LIABILITY OF CORPORATION ON CERTIFICATES ISSUED
FRAUDULENTLY, WITHOUT AUTHORITY, ETC.

170. If the officers of a corporation, having apparent author-
ity to issue certificates, issue certificates fraudu-
lently, or without actual authority, or by mistake,
to persons not entitled thereto, it will be liable to
bona fide purchasers and transferees thereof.

171. If a corporation registers a transfer and issues a new
certificate without surrender of the outstanding
certificate, it will be liable on both certificates to
bona fide purchasers and transferees thereof.

A corporation, by issuing a certificate of stock affirming that the
person designated therein is the owner of a certain number of shares,
transferable in the manner indicated thereon, becomes estopped, as
against bona fide purchasers of the certificate, to say that it-was is-
sued without authority, or to a person not entitled. Therefore, if a
corporation recognizes a forged or unauthorized transfer, and regis-
lers the same in the name of the transferee, and issues a new cer-
tificate to him, it will be liable to bona fide purchasers from the
transferee, unless there is some element of estoppel, as against the
real owner, which will prevent him from denying the transferee’s
title. It is not necessary that the corporation shall have been guilty
of fraud or negligence. By thus holding the transferee out as the
owner of stock, it is estopped to deny his title, as against bona fide
-purchasers.2°§

Such a transfer cannot affect the title of the real owner, where
there is no element of estoppel against him, and therefore it cannot
substitute the purchaser as a stockholder in his stead.1°® If the cor-
poration had power to issue new shares, the certificate issued to the
transferee will be valid, and will make the holder a stockholder. If

108 Mandlebaum v. Mining Co., 4 Mich. 465, 2 Cumming, Cas. Priv. Corp. 159;
New York & N. H. R. Co. v. Schuyler, 34 N. Y. 30, 2 Cumming, Cas. Priv. Corp.
119; Simm v. Telegraph Co., 5 Q. B. Div. 188, 2 Cumming, Cas. Priv. Corp. 165;
Machinists’ Nat. Bank v. Field, 126 Mass. 345, 2 Cumming, Cas. Priv. Corp. 175.

109 See dictum in Moores v. Bank, 111 U. S. 156, 4 Sup. Ct. 345, 2.Cumming,
Cas. Priv. Corp. 144.
438 MEMBERSHIP IN CORPORATIONS. (Ch, 12

it had already issued the full amount of stock authorized by its char-
ter, the certificate cannot confer rights of membership, for an increase
of stock would be ultra vires and void; and the remedy of a purchaser
is by action against the corporation for damages, in which he may
recover the value of the stock.**°

It has been held that by registering a forged or unauthorized trans-
.fer, and issuing a new certificate to the transferee, the corporation is
estopped to deny the validity of the transfer, even as against the
transferee himself;111 but by the better opinion the estoppel does
not operate in favor of the transferee, for he has not taken the cer-
tificate on the faith of the corporation’s conduct in issuing it and rec-
ognizing the transfer as valid, but on the faith of the forged or unau-
thorized assignment and power of attorney.*?* And the corporation
in such a case may maintain an action against him for the damages it
may have sustained.1t? Nor does a corporation, by registering a
forged or unauthorized transfer and issuing a new certificate, become
liable to one who takes the certificate with notice of the forgery or
want of authority, or of facts sufficient to put him upon inquiry.7**

If an officer of a corporation, whose duty or apparent duty it is to
issue certificates of stock, issues spurious certificates to himself or to
another, the corporation will be liable to bona fide purchasers or
pledgees of the certificates for the damages sustained by them."

110 See the cases cited in note 108, supra.

111 Ashby v. Blackwell, 2 Eden, 299; decision of Lindley, J., in Simm v. Tele-
graph Co., 5 Q. B. Div. 188, 2 Cumming, Cas. Priv. Corp. 165.

112 Decision of court of appeal in Simm v. Telegraph Co., 5 Q. B. Div. 188,
2 Cumming, Cas. Priv. Corp. 165; Hildyard v. South-Sea Co, 2 P. Wms. 76:
Boston & A. R. Co. v. Richardson, 135 Mass. 473. See Hall v. Road Co., 70 Ill.
673. :

113 Boston & A. R. Co. v. Richardson, 1385 Mass. 473.

114 See Moores v. Bank, 111 U. 8. 156, 4 Sup. Ct. 345, 2 Cumming, Cas. Priv.
Corp. 144.

115 New York & N. H. R. Co. v. Schuyler,-34 N. Y. 30, 2 Cumming, Cas. Priv.
Corp. 119; Titus v. President, etc., 61 N. Y. 237; Tome v. Railroad Co., 39 Md.-
36, 17 Am. Rep. 540; Fifth Ave. Bank v. Forty-Second St. & G. St. Ferry R. Co.,
187 N. Y. 231, 33 N. E. 378, 2 Cumming, Cas. Priv. Corp. 149; Bank of Batavia
v. New York, L. E. & W. R. Co., 106 N. Y. 199, 12 N. E. 438; Manhattan Beach
Co. vy. Harned, 27 Fed. 484; Shaw v. Mining Co., 183 Q. B. Div. 103; Allen v. Rail-
road Co., 150 Mass. 200, 22 N. WH. 917; Farrington v. Railroad Co., 150 Mass. 406,
23 N. E. 109; post, p. 525, note 347,
§§ 170-171) LIABILITY ON CERTIFICATES ISSUED FRAUDUILENTLY. 439

There will be no liability, however, to persons who take the certificates
with notice of their invalidity, or with knowledge of facts sufficient
to put them on inquiry.’7® If the corporation had authority under
its charter to issue additional shares of stock, such certificates will be
binding, and will make the purchasers stockholders. If, however,
the full amount of stock authorized. by the charter had already been
issued, the certificates will be void, and the purchaser’s only remedy
against the corporation is an action for damages.'*’

No liability will attach to a corporation, in the absence of negli-
gence, on account of certificates fraudulently issued by an officer, if
the issuance of them had no relation whatever to the authority con-
ferred upon him.*78

A stock certificate issued by a corporation having power to issue
the same, in which it is stated that a designated person is the owner
of a certain number of shares of stock transferable on the books of
the corporation, on the indorsement and surrender of the certificate,
is a continuing affirmation as to the ownership of the stock, and that
the corporation will not transfer the stock upon its books unless the
certificate is first surrendered. It is an assurance to the commercial
world that the shares of stock are the property of the person desig-
nated, and that he has the power and right to transfer and sell the

116 Moores y. Bank, 111 U. S. 156, 4 Sup. Ct. 345, 2 Cumming, Cas. Priv. Corp.
144. In this case the plaintiff lent money to the cashier of the defendant bank
on his representation that he owned stock in the bank which he would transfer to
her as collateral to secure the loan. He fraudulently signed and issued a certificate
directly to her, using blank certificates which had been signed by the president, andi
left with him to be used if needed, and marked the stub in the certifieate book so as:
to show that the blank had been destroyed. ‘The certificate showed on its face
that stock was transferable only on the books of the bank, and on surrender of the
original certificate. Of course, the plaintiff never saw any original certificate, and
no certificate was or could have been surrendered, and there was no evidence that
the bank had ever ratified the transaction, or received any benefit from it. It was
held that the plaintiff could not hold the bank liable. And see Farrington v. Rail-
road Co., 150 Mass. 406, 23 N. E. 109; Hill v. Publishing Co., 154 Mass. 172, 28.
N. E. 142. Compare Allen v. Railroad Co., 150 Mass. 200, 22 N. E. 917; Shaw v.
Mining Co., 13 Q. B. Div. 103.

117 See the cases above cited.

118 Post, p. 526, and cases there referred to.
440 MEMBERSHIP IN CORPORATIONS. (Ch 12

stock, until this power and right has been lawfully terminated.** It
is therefore not only the right, but the duty, of a corporation not to
register a transfer on its books and issue a new certificate to the
transferee without production and surrender of the original cer-
tificate. This is generally expressly required by the terms of cer-
tificates, or by the charter or by-laws of the corporation, but the duty
is the same where there is no such express requirement.*?° If a cor-
poration does register a transfer and issue a new certificate without
surrender of the outstanding certificate, a bona fide purchaser of the
new certificate may hold it liable thereon. If the corporation had
the power to increase its stock, he will be entitled to shares. If it had
no such power, the purchaser may maintain an action for damages.
Purchasers of the outstanding certificates in such cases have a right to
assume that no transfer has been made by the corporation, and can-
not be affected by a transfer on its books of which they had no no-
tice.t?1_ If the corporation refuses to recognize them as stockholders
by reason of their ownership of the outstanding certificate, they may
maintain an action against it for damages, and recover the value of
the stock.???

REMEDY AGAINST CORPORATION FOR REFUSAL TO REC-
OGNIZE TRANSFER.

172. If a corporation, without legal ground, refuses to rec-
ognize and register a transfer, the transferee may
sue in equity to compel it to do so, or may sue at
law to recover the value of the stock. Some of the
courts hold that mandamus is not a proper remedy,
but it is allowed in some states.

119 Joslyn v. Distilling Co., 44 Minn. 183, 46 N. W. 337, 2 Cumming, Cas. Priv.
Corp. 177.

1201 Cook, Stock, Stockh. & Corp. Law, §§ 358-360.

121 See Hall v. Road Co., 70 Ill. 673.

122 Wirst Nat. Bank v. Lanier, 11 Wall. 369; New York & N. H. R. Co. v.
Schuyler, 34 N. Y. 30, 2 Cumming, Cas. Priv. Corp. 119; Holbrook v. Zinc Co.,,
57 N. Y. 616, 2 Cumming, Cas. Priv. Corp. 152; Bean v. Trust Co., 122 N. Y. 622,
26 N. E. 11, 2 Cumming, Cas. Priv. Corp. 179; Joslyn vy. Distilling Co., 44 Minn.
183. 46 N. W. 337, 2 Cumming, Cas. Priv. Corp. 177.
§ 173) ‘COMPELLING CORPORATION TO ISSUE NEW CERTIFICATES. 441

If a corporation whose shares of stock are transferable only on its
books refuses to register a transfer, without legal ground for such re-
fusal, a court of equity may compel it to register the transfer, in a suit
brought by the transferee for that purpose.’?? Or the transferee
may maintain an action at law to recover damages for such refusal,
and recover the value of the stock. He may maintain an action ex
delicto, or he may maintain assumpsit, for the law implies a promise
by the corporation to perform the duty which it owes to transferees
of shares.*?*

Some of the courts have held that mandamus is not a proper rem-
edy to compel a corporation to recognize a person as a member, or to
register transfers.125 It has been allowed, however, in some
states.7?°

The mere fact that the purchaser of shares is a rival of the corpora-
tion in business, and has been engaged in competition and in litiga-
tion with it, and is hostile to it, is no ground for the refusal of a court
of equity to compel the corporation to register his transfer.*27

COMPELLING CORPORATION TO ISSUE NEW CERTIFI-
CATES.

173. A corporation, not having been guilty of fraud or
wrong, cannot be compelled to issue new certifi-
cates of stock while the old certificates are out-
standing, unless the decree protects it against lia-
bility on the outstanding certificates.

128 Mechanics’ Bank v. Seton, 1 Pet. 299; Rice v. Rockefeller, 184 N. Y. 174,
31 N. EB. 907, 2 Cumming, Cas. Priv. Corp. 181. Walker v. Detroit Transit Ry.
Co., 47 Mich. 338, 11 N. W. 187.

124 Ang. & A. Corp. § 381; Kortright v. Bank, 20 Wend. (N. Y.) 91; Morgan \.
Bank, 8 Serg. & R. (Pa.) 73; Sargent v. Insurance Co., 8 Pick. (Mass.) 90; Case
v. Bank, 100 U. S. 446; Pinkerton v. Railroad Co., 42 N. H. 424, 1 Cumming,
Cas. Priv. Corp. 652; Scripture v. Soapstone Co., 50 N. H. 571, 1 Cumming,
Cas. Priv. Corp. 677.

125 Lamphere v. Lodge, 47 Mich. 429, 11 N. W. 268.

126 Green Mount & S. L. T. Co. v. Bulla, 45 Ind. 1; State v. McIver, 28. C.
25; People v. Crockett, 9 Cal. 112; In re Klaus, 67 Wis. 401, 29 N. W. 582.

127 Rice v. Rockefeller, 184 N. Y. 174, 31 N. H. 907, 2 Cumming, Cas. Priv.
Corp. 181,
442 MEMBERSHIP IN CORPORATIONS. (Ch. 12,

Since a certificate of stock is a continuing affirmation by the cor-
poration that the person designated is the owner of the stock, and
has the right to transfer the same, so long as the certificate is out-
standing, and it will be liable to bona fide purchasers of the certifi-
cate, it follows that the court cannot compel it to issue a new certifi-
eate on the ground that the old certificate was issued to the wrong
person (there having been no fraud on the part of the corporation), so
long as the old certificate is outstanding, unless by the decree it pro-
tects the corporation against liability on the outstanding certifi-
cate.778 The corporation would be liable to bona fide purchasers of
the outstanding certificate even pending a suit to cancel the same and
to compel the issuance of the new certificate, for the doctrine of lis
pendens, as we have seen, does not apply to the sale and transfer of
shares of stock.1?° The later cases seem to show that not even a de-
cree of the court declaring an outstanding certificate void, and cancel-
ing the same, would relieve the corporation from liability to bona fide
purchasers of the outstanding certificate without notice of the suit or
the decree.**°

128 Joslyn v. Distilling Co., 44 Minn. 183, 46 N. W. 337, 2 Cumming, Cas. Priv.
Corp. 177; Bean v. Trust Co., 122 N. Y. 622, 26 N. B. 11, 2 Cumming, Cas. Priv.

Corp. 179.

129 Holbrook y. Zinc Co., 57 N. Y. 616, 2 Cumming, Cas. Priv. Corp. 152.-

130 See the cases cited in note 97, supra. But see, contra, Sprague vy. Manu-
facturing Co., Fed. Cas. No. 13,249, 1 Cumming, Cas. Priv. Corp. 661.
§§ 174-177) MANAGEMENT OF CORPORATIONS. 443

CHAPTER XIII.

MANAGEMENT OF CORPORATIONS—OFFIOERS AND AGENTS.

174-177.
178-181.
182-184.
185-188.
189-190.
191.
192.
193-194.
195-197.
198.
199.
200.
201-202.
203.
204-205.
206.
207-209.
210.
211.
212.
213.

Powers of the Majority of Stockholders,
By-Laws.
Stockholders’ Meetings.

Voting.

Election and Appointment of Officers and Agents.
Qualifications of Directors or Other Officers.
Powers of Directors.
Directors’ Meetings and Resolutions.
Authority of Other Officers and Agents.
Notice to Officer as Notice to Corporation.
Contracts between Stockholder and the Corporation.
Relation between Officers and Corporation.
Contracts or Other Transactions between Officers and the Corporation.
Liability of Officers to the Corporation.
Remedies against Officers.
Liability of Officers and Agents on Contracts.
Liability of Corporation for Torts of Officers and Agents.
Liability of Officers and Agents to [‘hird Persons for Torts.
Compensation of Officers.
Removal of Officers and Agents.
Relation between Officers and Stockholders.

POWERS OF THE MAJORITY OF STOCKHOLDERS.

174. As a rule, each shareholder in a corporation is bound

by all acts and proceedings, within the scope of
the powers and authority conferred by the charter,
which shall be adopted or sanctioned by a vote of
the majority of the corporation, duly taken and
ascertained according to law.

175. But, if the charter invests the board of directors or

other agents with the power to manage the con-
cerns of the corporation, the power is exclusive,
and cannot be controlled or interfered with by tho
stockholders, their remedy being to elect or appoint
new directors or agents.
444 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

176. The majority cannot bind the minority by ultra vires
acts; nor can they defeat or impair contract rights
between the corporation and individual stock-
holders; nor can they act fraudulently or oppress-
ively, as against the minority.

177. There is much conflict as to the power of the major-
ity to bind a dissenting minority by acceptance of
an amendment or alteration of its charter. The
position of the courts may be shortly stated thus:

(a) Where the legislature has not reserved the power to
amend the charter—

(1) By the weight of authority, the legislature can-
not authorize the majority to alter the char--
ter in any material respect, without the con-
sent of the minority.

(2) All the courts agree that it cannot authorize the
majority to engage in a new and different en-
terprise.

(3) Perhaps all the courts agree that immaterial
changes may be made, to facilitate carrying
out the objects of the corporation.

(4) Some courts hold that a material alteration, if
not a great or radical one, may be made to
facilitate carrying out the objects of the cor-
poration.

(b) Where the legislature has reserved the power to
alter or amend the charter—

(1) Some courts hold that each stockholder im-
pliedly consents that the majority may, under
legislative sanction, engage in new enterprises
of the same kind as that authorized by the
charter.

(2) Other courts hold that the reservation is in-
tended for the benefit of the public, and can
be exercised by the state only, and that it
can give no greater power to the majority
than if it did not exist.
§§ 174-177) PowERs OF THE MAJORITY OF STOCKHOLDERS. 445

It is a fundamental principle that the majority of the stockholders
can regulate and control the exercise of the powers conferred upon a
corporation by its charter, and that the majority has the power, by a
vote duly taken and ascertained according to the law by which it is
governed, to bind the minority by any act or proceeding which is with-
in the powers and authority of the corporation. Each and every
shareholder impliedly agrees that the will of the majority shall gov-
ern in all matters coming within the limits of the charter or act of in-
corporation. Thus, the majority of a corporation established solely
for private objects, as a manufacturing or trading corporation, may
wind up its affairs, close out its business, and sell its property, against
the dissent of the minority, whenever, in the exercise of a sound dis-
cretion, they find it expedient to do so.?

Of course, the majority of the stockholders have no power to bind
the minority by any act or proceeding that is not within the powers
conferred upon the corporation by its charter. The majority repre-
sents the corporation, and it can legally do nothing that the corpora-
tion cannot do under its grant of power. The majority cannot, at
least in the absence of legislative authority. binding upon the stock-
holders, change the articles of association or charter. They cannot,
by resolution, dissolve the corporation before expiration of the time
fixed in the charter or articles of association, without the consent of
all the members, unless express authority is conferred by the charter.®

And, while a majority of the stockholders may bind the individual
stockholders in all matters legitimately within the powers of the
company, and subject to the law of the land, they cannot impair or
defeat contract rights between the corporation and individual stock-
holders.* Thus, where a corporation has issued to a stockholder a
certificate in the form of an ordinary certificate of stock, but contain-
ing a promise by the corporation to pay interest thereon until the

1 Durfee v. Railroad Co., 5 Allen (Mass.) 230, 242, 1 Cumming, Cas. Priv.
Corp. 773; Dudley vy. Kentucky High School, 9 Bush (Ky.) 578, 1 Cumming, Cas.
Priv. Corp. 767.

2 Treadwell v. Manufacturing Co., 7 Gray (Mass.) 398. But see Taylor v.
Earle, 8 Hun (N. Y.) 1. As to the power of a corporation to sell its property,
and the limitations thereon, see ante, p. 142.

3 Barton v. Association, 114 Ind. 226, 16 N. E. 486.

4 Durfee vy. Railroad Co., supra.
446 MANAGEMENT OF CORPORATIONS——OFFICERS AND AGENTS. (Ch. 13

happening of a specified event, it cannot, by vote of a majority of the
stockholders, without his consent, oblige him to receive the bond of
the corporation, instead of money, for the interest on such certifi-
cate.5

Nor can the holders of a majority of the stock of a corporation so
conduct and manage its affairs ir. their own interest, or in the inter-
est of others, as to oppress the minority, or commit a fraud upon their
rights. If they attempt to do so, a court of equity will, in a proper
case, grant relief, at the suit of the minority.° “The holders of a
majority of the stock of a corporation may legally control the com-
pany’s business, prescribe its general policy, make themselves its
agents, and take reasonable compensation for their services. But, in
thus assuming the control, they also take upon themselves the correl-
ative duty of diligence and good faith. They cannot lawfully manip-
wate the company’s business in their own interests, to the injury of
other stockholders.”" It is not every question of mere administra-
tion or of policy in which there is a difference of opinion among the
shareholders that gives the minority a right to claim that the action
of the majority is oppressive, and to come into a court of equity for
relief. Generally, the will of the majority must govern, if its action
is within its corporate powers. “The court,” it was said in a New
York case, “would not be justified in interfering, even in doubtful
cases, where the action of the majority might be susceptible of differ-
ent constructions. To warrant the interposition of the court in fa-
vor of the minority shareholders in a corporation or joint-stock asso-
ciation, as against the contemplated action of the majority, where,
such action is within the corporate powers, a case must be made out
which plainly shows that such action is so far opposed to the true in-
terests of the corporation itself as to lead to the clear inference that
no one thus acting could have been influenced by any honest desire to
secure such interests, but that he must have acted with an intent to
subserve some outside purpose, regardless of the consequences to
the company, and in a manner inconsistent with its interests. Other-
wise the court might be called upon to balance probabilities of profit-

5 McLaughlin v. Railroad Co., 8 Mich. 100.

6 Ante, p. 389, and cases there cited; Miner v. Ice Co., 98 Mich. 97, 53 N. W.
218, 2 Cumming, Cas. Priv. Corp. 254.

7 Meeker v. iron Co., 17 Fed. 48.

*
§§ 174-177) POWERS OF THE MAJORITY OF STOCKHOLDERS. 447

able results to arise from the carrying out of the one or the other of
different plans proposed by or on behalf of different shareholders in a
corporation, and to decree the adoption of that. line of policy which
seemed to it to promise the best results, or at least to enjoin the car-
rying out of the opposite policy. This is no business for any court
to follow.” ®

Where Power of Management is in the Directors.

When the charter invests a board of directors or trystees with the
power to manage the concerns of the corporation, the power is exclu-
sive in its character. The stockholders, as such, in their collective
capacity, can do no corporate act. The directors are their represen-
tatives, and they only are authorized to act.? Thus, conferring au-
thority to sell and convey or to lease the property of the corporation,
or to execute corporate obligations, is the exercise of a corporate
power, and, if the charter requires such powers to be exercised by the
board of directors or trustees, such authority cannot be conferred by
a stockholders’ meeting.'° Nor can the stockholders, in such a case,
control or interfere with the board in the exercise of its powers. The
courts will not, even on the petition of a majority of stockholders,
compel the board to do an act contrary to its judgment.*?

Power to Accept Amendment or Alteration of Charter.

Difficult questions arise as to the power of the majority of the mem-
bers of a corporation to bind a dissenting minority by acceptance of
an act amending or altering the charter. On some points the courts
agree, while on others there is a wide difference of opinion, and a con-
flict in the decisions. We considered in a previous chapter the pow-
er of the state to amend a charter irrespective of the consent of the
corporation. Weare to consider here the power of a majority of the
corporation where the legislature merely authorizes a change, leaving
it optional with the corporation whether it will make the change, or
continue under the original charter.

Even where the legislature has not reserved the power to alter or

8 Per Peckham, J., in Gamble v. Water Co., 123 N. Y. 91, 25 N. E. 201.

® McCullough v. Moss, 5 Denio (N. Y.) 575.

10 Gashwiler v. Willis, 33 Cal. 11; Conro vy. Iron Co., 12 Barb. (N. Y.) 27; Me-
Cullough vy. Moss, 5 Derio (N. Y.) 575.

11 McCullough v. Moss, 5 Denio (N. Y.) 575; Wright v. Lee, 2 S. D. 596, 51
N. W. 706, 718, 714.
448 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTs., (Ch. 13

amend a charter, there is nothing to prevent it from doing so wjth the
consent of all the members. It would be just like the case where
both parties to a contract rescind it by mutual agreement, and sub-
stitute a new contract. It seems clear, however, that the legislature
cannot, where it has not reserved the power, alter a charter in any
material respect,—that is, make any fundamental change,—if any one
of the stockholders or members dissent, for it would thereby impair
the obligation of the contract between the dissenting member and
the corporation. Nor can it authorize a majority of the members to
make the alteration. A person, in becoming a member of a corpora-
tion, does not impliedly agree that the majority of the members shall
have the power to bind him by alteration of the objects of the incor-
poration, or by altering his contract of membership. The majority of
the members have no more power to alter the charter, and engage in
a new or different enterprise, against the dissent of the minority,
than two members of a partnership of three would have the power to
change the partnership agreement without the consent of the third,
A leading case on this point is Natusch v.-Irving.’? In this case
a partnership had been formed for life insurance, and, after it was
entered into, an act of parliament made it lawful for such a firm to
enter upon the business of marine insurance, which was prohibited
to them before. A majority of the partners determined to embark in
this new business, but Lord Eldon held that they were barred from do-
ing so by the contract of partnership, unless all the partners agreed.
And in England the same doctrine has been applied to corporations.
And so it has been held in this country.** The legislature, if it has
not reserved the power to alter or amend the charter of a corpora-
tion, cannot authorize a material or fundamental amendment, and
put it in the power of a majority of the members, even by express pro-
vision to that effect, to bind the minority against their dissent; for

122 Coop. t. Cott. 358, Gow, Partn. (8d Ed.) 576, and referred in Zabriskie
v. Railroad Co., 18 N. J. Eq. 178, 1 Cumming, Cas. Priv. Corp. 781, 784.

18In Ashton v. Burbank, 2 Dill. 485, Fed. Cas. No. 582, 1 Cumming, Cas.
Priv. Corp. 902, a charter authorizing 4 company to transact a “life and acci-
dent insurance’ business was amended so as to authorize it to do the business
of ‘‘fire, marine, and inland insurance,” and the amendatory act was accepted by”
a majority of the stockholders, It was held that this released a dissenting
member from liability on a note given by him for an assessment on his stock.
§§ 174-177) PowERS OF THE MAJORITY OF STOCKHOLDERS. 449

this would be to impair the contract between such dissenting mem-
bers and the corporation, and the act would be unconstitutional.

In Proprietors of Union Locks & Canals vy. Towne,'* the original
charter of a corporation empowered it to render the Merrimack river
navigable between certain points, and for that purpose to purchase
lands, not exceeding six acres, and to collect tolls, for 40 years, not
averaging over 12 per cent. on the capital invested. Afterwards an
amendatory act was passed, on the petition of the corporation, abol-
ishing all limitation upon the amount and duration of the toll collect-
ed, and authorizing the corporation to purchase and hold 100 acres
of land. It was held that this amendment was a material alteration
of the charter, and discharged a dissenting subscriber to stock in the
corporation from liability on his subscription. On the same prin-
ciple it has been held that a subscriber to stock in a railroad com-
pany was released from liability on his subscription by an amend-
ment of the charter, without his consent, superadding to the original
object of the corporation an authority to establish a line of water
communication in connection with the railroad, and to increase the
capital stock for that purpose.t® Like decisions have been made
where the charter of a railroad or turnpike corporation was amended
so as to allow it to materially change the location of the road; **
where the capital stock of a corporation was increased from $50,000
to $150,000; 77 where railroad corporations were authorized to con-
solidate; *® where a railroad company was authorized to extend its
road,?®

The general rule, however, seems to be well settled that a member
of a corporation cannot claim release from liability on his subscrip-

141 N. H. 44,

15 Hartford & N. H. R. Co. v. Croswell, 5 Hill (N. Y.) 388, 1 Cumming, Cas.
Priv. Corp. 894.

16 Middlesex Turnpike Corp. v. Locke, 8 Mass. 268; Kenosha, R. & R. I. R.
Co. v. Marsh, 17 Wis. 13, 1 Cumming, Cas. Priv. Corp. 897.

17 Hughes v. Manufacturing Co., 34 Md. 316, 380. But see Schenectady & S.
P. R. Co. v. Thatcher, 11 N. Y. 102.

18 Clearwater v. Meredith, 1 Wall. 25; Kenosha, R. & R. J. R. Co. v. Marsh,
17 Wis. 18, 1 Cumming, Cas. Priv. Corp. 897; Mowrey v. Railroad Co., 4 Biss.
78, Fed. Cas. No. 9.891.

19 Stevens v. Railroad Co., 29 Vt. 545. And see Zabriskie v. Railroad Co.,.
Post, p. 453. But see Durfee v. Railroad Co., post, p. 452.

Clk.Pr.Corp.—29 .
450. MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch.'‘13

tion, or otherwise object, because the. majority have made an im-
material alteration or amendment under legislative authority.. But
.. there is much diversity of opinion as to what alterations are material
' or fundamental within the rule. If the alteration does not material-
ly affect the contract between the corporation and its members, the
majority have the power to make it under legislative sanction, and
they will not be enjoined at the suit of a dissenting member, nor will
he be released from liability on his subscription. This principle has
been applied to amendatory acts, accepted by the majority, changing
the name of the corporation,”° enlarging the time within which a rail-
road company may commence and complete its road,” or an hotel com-
pany may construct its hotel; ?* changing to a slight extent the loca-
tion or grade of the road of a turnpike or railroad company; ?* au-
thorizing the issue of preferred stock for the purpose of raising mon-
ey; °* increasing the number of directors.2* In the latter case it was
said that alterations which change the nature and purposes of the
corporation, or of the enterprise for which it was created, are funda-
mental, while those which work no material change are not funda-
mental, and that an alteration increasing the number of directors,
not being a change of the nature, purpose, or character of the cor-
poration, or of the enterprise, but of the machinery by which that pur-
pose is to be effected, and that enterprise carried on, is not fundamen-
tal, and may therefore be accepted by a majority of the stockholders.
Some of the courts have gone further than this, and, have held that
a majority of the stockholders of a corporation may bind the minority
by acceptance of an act materially altering the charter, if the altera-
tion is made in order to facilitate the execution of the object for which
the corporation was originally established, and which is beneficial to
the stockholders, or clearly not prejudicial, while some have said that

20 Taggart v. Railroad Co., 24 Md. 568; Clark v. Navigation Co., 10 Watts
(Pa.) 364.

21 Taggart v. Railroad Co., 24 Md. 563; Milford & C. Turnpike Co..v. Brush,
‘10 Ohio, 111; Agricultural Branch R. Co. v. Winchester, 13 Allen (Mass.) 29.

22 Union Hotel Co. v. Hersee, 79 N. Y. 454.

28 Milford & C. Turnpike Co. v. Brush, 10 Obio, 111; Banet v. Railroad Co.,
U3 Il. 504; Irvin v. Turnpike Co., 2 Pen. & W. (Pa.) 466.

24 Rutland & B. R. Co. v. Thrall, 85 Vt. 536; Iverhart v. Railroad Co., 28 Pa.
St. 339:

25 Mower v. Staples, 82 Minn, 284, 20 N. W. 225.
§§ 174-177) PowERS OF THE MAJORITY OF STOCKHOLDERS. 451

they may make a change if it is not a great or radical one. Such
seems to be the rule in New York, Illinois, and Missouri, and it per-
haps extends to other states.2* In Banet v. Alton & S. R. Co.,°7 it
was said: “An alteration in a charter may be so extensive as to work
a dissolution of the contract of subscription. An amendment which
essentially changes the nature or objects of a corporation will not be
binding on the stockholders. A corporation formed for the purpose
of constructing a railroad cannot be converted into a company to con-
struct an improvement of a different character, without the consent
of all the corporators. A road intended to secure the advantages of
a particular line of travel and transportation cannot be so changed
as to defeat that general object. The corporation must remain sub-
stantially the same, and be designed to accomplish the same general
purposes and subserve the same general interests. But such amend-
ments of the charter as may be considered useful to the public and
beneficial to the corporation, and which will not divert its property to
new and different purposes, may be made, without absolving the sub-
scribers from their engagements. The straightening of the line of
the road, the location of a bridge at a different place on a stream, or
a deviation in the route from an intermediate point, will not have the
effect to destroy or impair the contract between the corporation and
the subscribers. We regard these conclusions as reasonable and just,
and as well calculated to facilitate the construction of improvements
and promote the best interests of the public and of stockholders. The
incidental benefits which a few subscribers may realize from a par-
ticular location ought not to interfere with the general interests of the
public and of the great mass of the corporators. These interests of
the public and of the corporation may with propriety be consulted and
encouraged, especially where the alteration will not operate to de-
preciate the value of the stock. A shareholder has no cause to com-

26 Illinois River R. Co. v. Zimmer, 20 Ill. 654; Banet v. Railroad Co., 13 IIl.
504; Hartford & N. H. R. Co. v. Croswell, 5 Hill (N. Y.) 888, 1 Cumming, Cas.
Priv. Corp. 894; Pacific R. R. v. Renshaw, 18 Mo. 210; Pacific R: R. v. Hughes,
22 Mo. 291. It has been held in Pennsylvania that granting additional priv-
ileges beneficial to the corporation does not release a subscriber, though it may
extend the liabilities of the company. Gray v. Navigation Co., 2 Watts & S.
(Pa.) 156; Clark v. Navigation Co., 10 Watts (Pa.) 36+.

2713 Ill. 504.
452 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

plain of the loss of a mere incidental benefit, which formed no part of
the consideration of his contract of subscription.”

The question arises whether this doctrine applies where the legisla-
ture has reserved the power to alter, amend, or repeal a charter, and
offers the corporation an amendment of its charter authorizing it to
engage in an enterprise not originally contemplated. On this point
the courts do not agree.

Some courts have taken the view that a person who becomes a
member of a corporation, when such power has been reserved by the
legislature, impliedly agrees that in case an amendment of its char-
ter is offered by the legislature, authorizing it to engage in a new en-
terprise of the same kind as that authorized by the charter, it shall be
for the corporation, as a body, to determine whether it will accept the
same, and that the will of the majority shall govern. In Durfee v.
Old Colony & F. R. R. Co.,?* the legislature, under a reservation of
power to alter, amend, or repeal the charter of a railroad company,
passed an act authorizing it to engage in a new enterprise in addition
to that contemplated by its charter, but of the same kind,—to extend
its road,—and the amendment was accepted by vote of a majority
of the stockholders. It was held that this was a matter in which the
stockholdcrs had impliedly agreed that the will of the majority should
govern, and that the action of the majority was binding upon the dis-
senting minority. “When,” said the court in this case, “it is express-
ly provided between the legislature, on the one hand, and the corpora-
tion, on the other, as part of the original contract of incorporation,
that the former may change or modify or abrogate it, or any portion
of it, it cannot be said that any contract is broken or infringed when
the power thus reserved is exercised with the consent of the artificial
body of whose original creation and existence such reservation formed
an essential part. The stockholder cannot say that he became a mem-
ber of the corporation on the faith of an agreement made by the legis-
lature with the corporation that the original act of incorporation
should undergo no change except with his assent. Such a position
might be asserted with more plausibility if there was an absence of a
clause in the original act of incorporation providing for an alteration
in its terms. In such a case it might, perhaps, be maintained that

285 Allen (Mass.) 280, 1 Cumming, Cas. Priv. Corp. 773.
8§ 174-177) POWERS.OF THE MAJORITY OF STOCKHOLDERS. 453

there was a strong implication that the charter should remain in-
violate, and that the holders of shares invested their property in the
corporation relying upon a contract entered into between it and the
legislature that the provisions of the act creating it should remain un-
changed. But it is difficult to see how such a construction can be
put on a contract which contains an express stipulation that it shall
be subject to amendment and alteration. If it be asked by whom
such amendment or alteration is to be made, the answer is obvious: By
the parties to the contract,—the legislature on the one hand, and the
corporation on the other; the former expressing its intention by means
of a legislative act, and the latter assenting thereto by a vote of the
majority of the stockholders, according to the provisions of its charter.
It is nothing more than the ordinary case of a stipulation that one of
the parties to a contract may vary its terms with the assent of the
other contracting party.” There are other cases to the same effect.?°

Other courts repudiate this view, and hold that no material change
can be made in the charter of a corporation without the consent of all
the stockholders, though authorized by the legislature under a reserv-
ed power to aller, amend, or repeal the original charter. In Zabriskie
v. Hackensack & N. Y. R. Co.,°° a railroad company, whose charter
was subject to alteration, amendment, or repeal by the legislature,
was by an amendatory act authorized to extend its road, and to issue
bonds for the purpose of constructing the extension, and secure them
by a mortgage on its road and franchises. It was held that this act
could not be accepted by the corporation where a stockholder dissent-
ed, and the corporation was enjoined, at the suit of a dissenting stock-
holder, from acting under it. The court said that the reservation by
the state of the power to alter, amend, or repeal the charter was for
the benefit of the public, and to be exercised by the state only, and
was not intended to give a power to one part of the corporators, as
against the other, which they did not have before; that the object of
the provision was to avoid the rule of the Dartmouth College Case,?*
and not the rule of Natusch v. Irving.*?

29 White v. Railroad Co., 14 Barb. (N. Y.) 560; Schenectady & S. Plank-Road
Co. v. Thatcher, 11 N. Y. 102; Buffalo & N. Y. C. R. Co. v. Dudley, 14 N. Y. 336.

3018 N. J. Eq. 178, 1 Cumming, Cas. Priv. Corp. 781.
31 Ante, p. 202.

32 Ante, p. 448. And see South Bay Meadow Dam Co. y. Gray, 30 Me. 547;
Oldtown & L. R. Co. v. Veazie, 39 Me. 571.
454 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

BY-LAWS.

178. Every private corporation for pecuniary profit has
the implied power to enact by-laws for its govern-
ment. But, to be valid, by-laws—

(a) Must be reasonable.

(b) Must not be inconsistent with principles of law, nor
contrary to public policy.

(c) Must be general, and not directed against particular
individuals.

(ad) Must be consistent with the charter or articles of
association, and within the purposes of the corpo-
ration.

(e) Must not impair vested contract rights of stockhold-
ers, either by depriving them of. rights, or by im-
posing additional liabilities.

179. Authorized by-laws are binding upon all the stock-
holders, whether they have expressly assented to
them, or knew of them, or not.

180. By-laws cannot confer rights, or. impose Liabilities,
upon third persons, without their express or im-
plied consent.

181. By-laws may be altered or repealed by the corpora-
tion at pleasure, and they may be waived.

The office of a by-law is to regulate the conduct and define the du-
ties of the members of the corporation to the corporation and be-
tween themselves.** Every private business corporation has the im-
plied power to make by-laws. The power is often expressly confer-
red by the charter or by statute, but this is not at all necessary, for
the power is always implied.** Primarily, the power to make by-

33 Flint v. Pierce, 99 Mass. 68.

34 Sutton’s Hospital Case, 10 Coke, 23a, 30b, 2 Cumming, Cas. Priv. Corp. 14;
1 Bl. Comm. 475, 2 Cumming, Cas. Priv. Corp. 16; 1 Kyd, Corp. 69, 2 Cumming,
Cas. Priv. Corp. 17; 2 Kent, Comm. 278; Norris v. Staps, Hob. 211a; and cases
cited in the following notes.
§§ 178-181) BY-LAWS. 455

laws is in the majority of the stockholders. But they, or the charter,
may authorize the board of directors to make them.25 They may
also, by a by-law, authorize the board to alter or amend by-laws; but
the board, under such a power, has no authority to disregard or alter
another by-law, which was intended to impose a limitation on their
powers.?®

By-laws of a corporation must be proved. They cannot be judi-
cially noticed.*7_ They are to be proved by the records of the cor-
poration, or by secondary evidence if the records cannot be produced.
Validity of By-Laws.

Any by-law prescribing a rule for the government of the corpora-
tion is valid if it is reasonable, and if it is not inconsistent with the
charter or articles of association, nor contrary to any statute or prin-
ciple of the common law, and if it does not impair vested rights.
The corporation, for instance, may provide by its by-laws for the elec-
tion or appointment and the removal of officers and agents, and may
prescribe and limit their powers and duties.** So, it may prescribe
how and when corporate meetings shall be held, how they shall be
conducted, the manner of voting, etc.2® And it may prescribe, for its
own protection, reasonable regulations concerning the transfer of
shares, if it does not unreasonably restrict the right of transfer.‘°

35 Cahill v. Insurance Co., 2 Doug. (Mich.) 124. If the charter authorizes the
directors to adopt by-laws, a majority may do so. Id.

36 Stevens v. Davison, 18 Grat. (Va.) 819.

‘87 Haven v. Asylum, 13 N. H. 532.

88 Com. v. Woelper, 3 Serg. & R. (Pa.) 29; Burden v. Burden, 8 App. Div. 160,
40 N. Y. Supp. 499; Hale v. Mechanics’ Mut. Fire Ins. Co., 6 Gray (Mass.) 169.
They may require officers to give bond. Savings Bank of Hannibal v. Hunt, 72
Mo. 597.

38 State v. Tudor, 5 Day (Conn.) 329; In re Election of Directors of Long Island
R. Co., 19 Wend. (N. Y.) 37; Com. v. Woelper, 3 Serg. & R. (Pa.) 29. But a
by-law cannot change charter or statutory provisions as to voting, nor deprive mem-
bers of the right to vote secured to them by their contract of membership. Brewster
y. Hartley, 37 Cal. 15, 99 Am. Dec. 237; post, p. 478. A by-law may give stock-
holders a vote for each share, contrary to the common-law rule. Com. v. Detwiller,
131 Pa. St. 614, 18 Atl. 990. Contra, Taylor v. Gtiswold, 14 N. J. Law, 222.
A by-law may allow voting by proxy. Com. v. Detwiller, supra; State v. Tudor,
supra; People v. Crossley, 69 Ill. 195. Contra, Taylor v. Griswold, supra.

40 Post, p. 457.
456 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

And corporations other than joint-stock corporations may enact rea-
sonable by-laws providing for the expulsion of members.** ’

It is well settled that by-laws, to be valid, must be reasonable, and
not in contravention of Jaw. And whether they are so or not isa
question for the court to determine.*? For instance, they must not
be in restraint of trade, nor impose a burden without any apparent
benefit.** Nor is a by-law valid if it is inconsistent with other gen-
eral principles of law.** A by-law cannot affect the jurisdiction of
courts, as fixed by law, nor impair the right to sue.*® Nor can it give
the corporation the power to declare shares forfeited for nonpayment
of calls.*¢

To be reasonable, and therefore to be valid, by-laws must be gen-
eral; that is, they must not be directed against particular individuals,
nor in favor of particular individuals, but must operate equally upon
all to whom they may apply. In Budd v. Multnomah St. Ry. Co.,*"
the directors of a corporation passed a resolution to forfeit and sell
the shares of a particular individual for nonpayment of assessments,
and the sale was sought to be upheld under a statute requiring a by-

41 Ante, p. 401.

42 Com. v. Worcester, 3 Pick. (Mass.) 462; State v. Overton, 24 N. J. Law, 435;
Sayre v. Association, 1 Duv. (IXy.) 143; People v. Young Men’s Father Matthew
T. A. B. Soe., 41 Mich. 67, 1 N. W. 931; Palmetto Lodge No. 5 vy. Hubbell, 2 Strob.
(S. C.) 457; Vestry of St. Luke’s Church v. Matthews, 4 Desaus. Eq. (S. C.) 578.
As to reasonableness of by-laws providing grounds for expulsion of members, see
ante, p. 401 et seq. >

48 Matthews v. Associated Press, 136 N. Y. 333, 32 N. E. 981; Sargent v. Insur-
ance Co., 8 Pick. (Mass.) 90; and cases hereafter specifically referred to. The
courts are not as strict now as formerly in holding contracts to be in restraint of
trade. See Clark, Cont. 446. In Matthews vy. Associated Press, supra, it was
held that a by-law adopted by the Associated Press of the State of New York,
a corporation, whose members are newspaper publishers, prohibiting its members
from receiving and publishing the news dispatches of any cther news association
covering a like territory and organized for a like purpose, was held not to be in
unreasonable restraint of trade, nor invalid as restricting the liberty of speech and of
the press.

44 Kent v. Mining Co., 78 N. Y. 159, 182; Sayre y. Association, 1 Duv. (Ky.)
1438.

45 Nute v. Insurance Co., 6 Gray (Mass.) 174; Amesbury v. Insurance Co., Id.
596.

46 In re Election of Directors of Long Island R. Co., 19 Wend. (N. Y.) 37.

+7 15 Or. 413, 15 Pac. 659, W. D. Smith, Cas. Corp. 60.
§§ 178-181) : BY-LAWS. 457

law to authorize such sales. The court held that the resolution was
not valid as a by-law, because it was not general. “I think,” said
Judge Strahan, “that any by-law enacted under this section of the
Code, to be reasonable, ought to be general; that is, it ought to affect
every delinquent subscriber, and all delinquent stock, alike, and it
ought not to be directed against the stock or interests of a particular
stockholder. These are essential requisites to a valid by-law.”
There are many other decisions to the same effect.*®

A corporation may adopt by-laws imposing reasonable regulations
upon the mode of transferring shares, but it cannot prohibit trans-
fers. Nor can it impose unreasonable regulations. It has been
held, for instance, that a by-law prohibiting the transfer of stock by
a stockholder without the consent of all the stockholders, or of a
particular officer, etc., is against public policy and void; and no ex-
ception can be made in the application of this rule on the ground that
the stockholders are few, and were originally co-partners, and that
the one against whom the by-law is invoked consented to and voted
for it.*°

Whether or not, in the absence of express charter or statutory au-
thority, a corporation may, by a by-law, create a lien on its shares for
debts due from its stockholders, is a question upon which the courts
do not entirely agree. By the weight of authority, under the gen-
eral power to regulate the manner in which its stock shall be trans-
ferred and its business conducted, etc., a by-law creating a lien on
shares for debts due from its stockholders will be valid as against

48 “Tt is plain that all corporation by-laws must stand on their own validity, and
not on any dispensation granted to members. They cannot be subjected to any con-
ditions which do not apply to all alike, and cannot be compelled to receive, as mat-
ter of grace, anything which is matter of right. Neither, on the other hand, should
there be personal exemptions of a general nature from any valid regulations that
bind the mass of corporators.”” Per Campbell, C. J., in People v. Young Men's
Father Matthew T. A. B. Soc., 41 Mich. 67, 1 N. W. 931.

49In re Petition of Klaus (Wis.) 29 N. W. 582. And see Farmers’ & Mer-
chants’ Bank of Lineville v. Wasson, 48 Iowa, 336; Sargent v. Insurance Co.,
8 Pick. (Mass.) 90; Bank of Attica v. Manufacturers’ & Traders’ Bank, 20 N. Y.
501; Moore v. Bank, 52 Mo. 377; Johnson v. Laflin, 5 Dill. 65, Fed. Cas. No.
7,393, 1 Cumming, Cas. Priv. Corp. 608, affirmed 103 U. S. 800; Chouteau Spring
Co. v. Harris, 20 Mo. 388. Ante, p. 407.
458 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13:

the stockholders, and as against transferees who do not occupy the
position of bona fide purchasers.*° But such a by-law is not binding
upon bona fide purchasers of shares, without notice of it.’ The
New York court, it seems, has held such a by-law invalid for all pur-
poses, in the absence of legislative authority therefor, on the ground
that it is unreasonable, not only because it interferes with the com-
mon rights of property, and the dealings of third persons, and pre-
vents the free purchase and transfer or delivery of property, but also.
for the reason that it gives to the corporation a summary remedy
which is unknown to the law, and which subjects shares to what is
equivalent to an attachment or an execution without judgment or
suit.°?

In the absence of express authority, a corporation cannot, by a by-
law, provide for forfeiture of stock for nonpayment of assessments
thereon.°* But it can do so if expressly authorized.**

A corporation has no authority to pass by-laws that are inconsist-
ent with the charter or articles of association, or that are beyond the
scope of the purposes of the corporation, as expressed in the charter
o1 articles.°> Thus, a corporation cannot, by a by-law, acquire a lien
on its shares for debts due to it by the stockholders, if it is expressly
or impliedly prohibited from acquiring a lien on shares, as are na-

50 Morgan y. Bank, 8 Serg. & R. (Pa.) 73; Vansands v. Bank, 26 Conn. 144;
Lockwood v. Bank, 9 R. I. 808; Cunningham y. Trust Co., 4 Ala. 652; St.
Louis Perpetual Ins. Co. v. Goodfellow, 9 Mo. 149; Child v. Hudson’s Bay Co.,
2 P. Wms. 207; M’Dowell v. Bank, 1 Har. (Del.) 27. And see 1 Thomp. Corp.
§ 1032, citing, among other cases, People v. Crockett, 9 Cal. 112; Mechanics’
Bank v. Merchants’ Bank, 45 Mo. 518; Bank of Holly Springs v. Pinson, 58
Miss. 421; Planters’ & Merchants’ Mut. Ins. Co. v. Selma Sav. Bank, 63 Ala.
585.

51 Driscoll v. Manufacturing Co., 59 N. Y. 96, 109.

52 Driscoll v. Manufacturing Co., supra.

58 Cahill v. Insurance Co., 2 Doug. (Mich.) 124; In re Hlection of Directors of
Long Island R. Co., 19 Wend. (N. Y.) 37.

54 Budd v. Multnomah St. Ry. Co., 15 Or. 413, 15 Pac. 659, W. D. Smith,
Cas. Corp. 60.

56 Brewster v. Hartley, 37 Cal. 15, 99 Am. Dec. 237; Bergman v. Association,
29 Minn. 275, 138 N. W. 120; Kolff v. St. Paul Fuel Exchange, 48 Minn. 215,
50 N. W. 1036; Presbyterian Mut. Assur. Fund v. Allen, 106 Ind. 593, 7 N. EB.
317; Supreme Council v. Perry, 140 Mass. 580, 5 N. BE. 634; Vestry of St.
Luke’s Church v. Mathews, 4 Desaus. (S. ©.) 578.
§§ 178-181) BY-LAWS. 459

tional banks by the prohibition in the national banking act against
making loans on the security of their shares.5* Where the charter
of a corporation, or a general statute applicable to it, confers power
to enact by-laws for certain specified purposes, it cannot enact a by-
law for any other purpose. The case is within the rule, “Expressio
unius est exclusio alterius.” §7 A corporation whose charter vests
the management of its affairs in a board of directors cannot, by a by-
law, substitute an executive committee for such board.**

Nor can a corporation, by a by-law, deprive a stockholder of vested
contract rights, to which he is entitled by virtue of his contract of
membership, or of any other contract with the corporation, or of any
contract with third persons. In other words, a by-law cannot de-
prive a stockholder of any rights vested in him at the time it is en-
acted, unless he consents, or unless his contract with the company
allows it..° Nor can a by-law impose upon a stockholder, without
his consent, any new liability. Thus, where neither the charter of
a corporation, nor any general statute, imposes on the individual
members a liability to pay its debts, such liability cannot be imposed
by a by-law to which he does not consent.°® A person becoming a
member of a corporation after a by-law has been adopted, prohibit-
ing members from doing certain things, is bound thereby. It is a
part of his contract, and he cannot object to it on the ground that it
deprives him of vested rights.**

A by-law which consists of several distinct and independent parts
may be valid as to one part, though void as to the others. Thus,
where a by-law of a mutual insurance company provided that in case
of loss, if the assured should not acquiesce in the determination by the
directors of the amount thereof, any action for the loss claimed must
be brought within four months after such determination, at a proper

56 Bullard v. Bank, 18 Wall. 589; Bank v. Lanier, 11 Wall. 369; Conklin v.
Bank, 45 N. Y. 655.

57 Treland v. Reduction Co. (R. I.) 32 Atl. 921; ante, p. 128.

58 Temple v. Dodge (Tex. Sup.) 32 S. W. 514.

59 Bergman vy. Association, 29 Minn. 275, 18 N. W. 120; Kent v. Mining Co.,
78 N. Y. 159, 179.

60 Trustees v. Flint, 18 Metc. (Mass.) 539; Reid v. Manufacturing Co., 40
Ga. 98.

61 Matthews v. Associated Press, 186 N. Y. 338, 32 N. EB. 981.
460 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 18

court in the county in which the office of the company was estab-
lished, it was held valid as to the limitation of time for suing, though
void in so far as it affected the jurisdiction of courts.®?

Liffect as to Stockholders.

Authorized by-laws, if regularly adopted, are binding upon all the
stockholders, whether they have signed them, or otherwise expressly
assented to them, or not. They are chargeable with notice of them.
And a stockholder is bound by by-laws adopted before he became
a member, though he may not have had actual knowledge of them.
Of course, invalid by-laws do not bind him. Mere failure of a stock-
holder to object to by-laws that are void because unauthorized un-
der any of the above rules, until an attempt is made to enforce them
against him, does not estop him to object to them.

Liffect as to Third Persons.

In so far as a by-law of a corporation is in the nature of a contract,
the parties thereto are the corporation, upon the one side, and the
individual members, upon the other. The right of any third person
to establish a legal claim through a by-law depends upon whether
he contracted with reference to it. If he did not, then it does not
enter into his contract, and he cannot claim the benefit of it. Thus,
where the members of a corporation signed a by-law by which they
pledged themselves, in their individual as well as their collective
capacity, for all moneys that might be loaned to the company, it was
held that a person who loaned money to the company could not hold
a member individually liable by virtue of the by-law, where there
was no evidence that the loan was made on the credit of it.** ;

Nor, on the other hand, can a by-law impose liabilities on third
persons who contract with the corporation without reference to it,
or deprive third persons of their legal rights against the corporation.
Thus, a by-law of a bank cannot take away from a depositor the right
to money deposited by him, but which, by mistake of the bank, was

62 Amesbury v. Insurance Co., 6 Gray (Mass.) 596.

63 McFadden v. Board, 74 Cal. 571, 16 Pac. 397; Palmetto Lodge y. Hub-
bell, 2 Strob. (S. C.) 457.

64 Matthews v. Associated Press, 136 N. Y. 333, 32 N. E. 981.

65 Kolff v. Fuel Exchange, 48 Minn. 215, 50 N. W. 1086.

o6 Flint v. Pierce, 99 Mass. 68,
§§ 178-181) : BY-LAWS. 461

not credited to him.*’ Nor can a corporation bind a bona fide pur-
chaser of certificates of stock by a by-law, of which he has no notice,
reserving a lien on the shares for an indebtedness due from the
holder.*® Nor are persons dealing with an agent of a corporation
bound by a by-law limiting the apparent authority with which the
corporation has clothed him.*®

If a person enters into a contract with a corporation, with notice
of a by-law, and does not, by special contract, exclude it, the by-law
forms a part of his contract. Thus, where a person entered into the
employ of a corporation at a yearly salary, without any special con-
tract as to the term of service, and continued in its service with no-
tice of a by-law providing that his office should be held at the pleas-
ure of the board of directors, he was held bound thereby.”° It is
otherwise, however, where the by-law is excluded by the terms of
the contract, as it would be, in the case mentioned, by a special con-
tract for a certain term.’*

Repeal and Amendment of By-Laws.

A corporation generally has the power to repeal by-laws and enact
new ones at pleasure,’? but the power to alter by-laws has the same
limits as the power to make them in the first instance. These limita-
tions have just been pointed out. The power to make by-laws, as we
have seen, is to make such only as are not inconsistent with the con-
stitution of the corporation and the law. And a by-law cannot impair
vested rights of a stockholder. So, alteration of a by-law is invalid if
it contravenes these rules. Thus, where a by-law divided the stock of
a corporation into equal shares, giving equal rights, and the stock was
thus issued, a new by-law providing for the surrender of shares, and
issue of preferred stock instead, on payment of a certain additional
sum, was held void, as against dissenting stockholders, because it im-

67 Mechanics’ & Farmers’ Bank v. Smith, 19 Johns. (N. Y.) 115.

88 Driscoll v. Manufacturing Co., 59 N. Y. 96, 109.

%9 Rathbun v. Snow, 123 N. Y. 348, 25 N. E. 3879.

70 Douglass v. Insurance Co., 118 N. Y. 484, 23 N. B. 806.

71 Trustees of Soldiers’ Orphans’ Home v. Shaffer, 63 Ill. 243; Martino v.
Insurance Co., 47 N. Y. Super. Ct. 520.

72 See Smith v. Nelson, 18 Vt. 511; Underhill v. Improvement Co., 93 Cal.
300, 28 Pac, 1049.
462 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

paired their vested rights under the contract with the corporation
under which they took their shares.7®

Though, as we have seen, the directors may, by a by-law, be given
the power to enact and to alter and amend by-laws, they have no
authority, under such a power, to disregard or alter another by-law
which was intended as a limitation on their powers."*

Wawer of By-Law.

A. by-law may not only be repealed, but it may be waived, by the
corporation. If a course of action contrary to a by-law of a private
corporation is acquiesced in by the shareholders, the by-law is there-
by waived, and will not affect the rights of persons dealing with the
corporation in good faith.*®° This is true, even though they may be
shareholders, if they did not have actual notice of the by-law."
And acts of the directors in violation of the by-laws may be rati-
fied by the shareholders, and generally by the same number of share-
holders as would be necessary to enact them.”” But the officers
of a corporation cannot waive by-laws adopted by the stockholders
for the protection of the corporation."®

STOCKHOLDERS’ MEETINGS.

182. A majority of the stockholders can bind the corpora-
tion only at a meeting regularly held and con-
ducted. To constitute a legal meeting, so as to ren-
der the acts and vote of the majority binding:

(a) The meeting must be regularly called by one having
authority. In the absence of provision to the con-
trary, such authority exists in the directors or man-
aging agents.

(b) Notice of the time and place of meeting must be
given to each stockholder, unless the time and

73 Kent v. Mining Co., 78 N. Y. 159, 182.

74 Stevens v. Davison, 18 Grat. (Va.) 819.

75 Clark v. Insurance Co., 6 Cush. (Mass.) 342; Susquehanna Mut. Fire Ins.
Co. v. Elkins, 124 Pa. St. 484, 17 Atl. 24.

76 Underhill v. Improveinent Co., supra.

77 Underhill v. Improvement Co., 93 Cal. 300, 28 Pac. 1049.

78 Mulrey v. Insurance Co., 4 Allen (Mass.) 116; Hale vy. Insurance Co., 6
Gray (Mass.) 169.
§§ 182-184) STOCKHOLDERS’ MEETINGS. 463

place are definitely fixed by statute, or by the char-
ter or by-laws, or by usage. But if all the stock-
holders are present, in person or by proxy, want
of notice is immaterial.

(ce) If the meeting is special, notice of the business to be
transacted must be given. It is otherwise where
the meeting is general; that is, for the transaction
of any business within the powers of the corpora-
tion.

(a) The meeting must be held at a reasonable time and
place. It cannot: be held out of the state, without
the consent of all the stockholders; nor, perhaps,
should it be so held with their consent unless al-
lowed by statute. But, in the absence of express
prohibition, those who participate in such a meet-
ing cannot question its legality.

(e) The meeting must be regularly conducted.

(f) Ifa statute or the charter or by-law provides that a
certain number of stockholders shall be necessary
to constitute a quorum for the transaction of busi-
ness, a less number cannot act, but may adjourn.
In the absence of express provision, no particular
number is necessary to constitute a quorum.

(g) The major part of the legal, votes actually cast at a
meeting constitutes a ‘“‘majority,” and prevails.

(h) A meeting and proceedings are not rendered illegal.
by the fact that one of the stockholders is non com-
pos mentis, or otherwise under legal disability.

(i) Meetings are presumed to have been regular, and to
have been legally conducted, unless the contrary
appears.

183. An adjourned meeting is merely a continuation of the
original meeting, without any loss or accumulation
of powers.
464 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

184. A court of equity has jurisdiction to supervise and
control an election, and appoint a master for that
purpose, when necessary to procure a fair election.

In order that the acts of a majority of the stockholders may be
binding on the corporation, they must be done at a meeting of the
stockholders. It is only at a meeting duly held and regularly con-
ducted that the stockholders represent the corporation.”® Thus, the
assent of a majority of the stockholders to the appointment of an
agent to execute a mortgage on behalf of the corporation, if express-
ed elsewhere than at a meeting, as where the assent of each is given
separately, and at different times, to a person who goes to them pri-
vately, is a nullity, and a mortgage given in pursuance thereof is
void.®°

Calling Meetings.

It is generally expressly provided by the charter or by-laws who
shall call stockholders’ meetings, and no meeting can be legally
called except in compliance therewith. If the charter and by-laws
are silent on the subject, a.meeting may be called by the directors
or the general agent to whom is intrusted the management and con-
trol of its affairs, whenever, in their opinion, the condition and af
fairs of the corporation are such as to render a meeting necessary.”
If all the stockholders are present at a meeting, the fact that it was
called by one not authorized will not render the proceedings invalid.

If the proper officers refuse to perform their duty, positively im-
posed by law, to call a meeting of stockholders for an election of di-
rectors, a stockholder may compel such performance by mandamus.**

Notice of Meeting.

It is essential to the validity of a stockholders’ meeting, and of the
acts and votes of the majority thereat, that due notice of the day,
hour, and place of the meeting shall have been given personally to
each stockholder, unless the stockholders were in fact all present,
in person, or by proxy, or unless the time and place of the meeting

79 Duke v. Markham, 105 N. C. 138, 10'S. B. 1008; Peirce vy. Building Co.,
9 La. 397; Sayles v. Brown, 40 Fed. 8.

80 Duke v. Markham, supra.

81 Stebbins v. Merritt, 10 Cush. (Mass.) 27, 38.

82 People v. Cummings, 72 N. Y. 483.
§§ 182-184) STOCKHOLDERS’ MEETINGS. 465

were definitely fixed by statute, or by the charter or by-laws of the
company, or by usage.®* It is not enough to give notice of the day.
The notice must also specify the hour.** If the meeting is a stated
one,—that is, if the time and place of holding the same are fixed
by. the charter or by-laws, or by statute or usage,—no notice is re-
quired of the time and place of holding it.8® It is immaterial in
what way the time and place of a general meeting are fixed. If
they have been fixed by usage, a tacit understanding of the members,
or in any other way, it is enough.®* The fact that a by-law fixes
the day and place for an annual meeting does not dispense with the
necessity for notice, for the stockholders are entitled to notice of
the hour.’

If the meeting is a special one, notice must be given to each stock-
holder, not only of the time and place of meeting, but also of the
business which will be transacted, and there will be no power to
transact any other business.°* But, if the meeting is a general
one,—that is, for the transaction of all business within the powers
‘of the corporation,—such notice is not necessary.®® Stated meetings
_ are to be regarded as general ones, unless: restricted by statute or
by the charter or by-laws.°°

If all the stockholders have been notified, and are present at the
meeting, in person or by lawful proxy, and no objection is then made
to the regularity of the notification, all objections on that ground
are waived.®* Indeed, the presence of all the stockholders would ob-
viate the objection that there was no notice.°? Acts of the majority

83 Stow v. Wyse, 7 Conn. 214, 18 Am. Dec. 99, and note; Wiggin v. Elder,
ete., 8 Mete. (Mass.) 301; San Buenaventura Commercial Miu. & Manuf’g Co.
v. Vassault, 50 Cal. 534. See State v. Bonnell, 35 Ohio St. 10.

84 San Buenaventura Commercial Min. & Manuf’g Co. v. Vassault, 50 Cal. 534.

85 Warner v. Mower, 11 Vt. 385; Atlantic Mut. Fire Ins. Co. v. Sanders, 36
N. H, 252, 269. And see State v. Bonnell, 35 Ohio St. 10, 15.

86 Atlantic Mut. Fire Ins. Co. v. Sanders, 36 N. H. 252, 269.

87 San Buenventura Commercial Min. & Manuf’g Co. v. Vassault, 50 Cal. 534.

88 Warner v. Mower, 11 Vt. 385; People’s Mut. Ins. Co. vy. Westcott, 14 Gray
(Mass.) 440; Atlantic De Laine Co. v. Mason, 5 R. I. 463; Evans v. Heating
Co., 157 Mass. 87, 31 N. E. 698.

89 Warner v. Mower, 11 Vt. 385. See People v. Batchelor, 22 N. Y. 128, 181.

90 Warner v. Mower, 11 Vt. 385.

81 Stebbins v. Merritt, 10 Cush. (Mass.) 27, 34.

92 See People v. Peck, 11 Wend. (N. Y.) 604, 611.
Clk.Pr.Corp.—80
466 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

at a meeting that was irregular for want of notice may be ratified
by the majority at a subsequent meeting that is regular.**

Time and Place of Meeting.

Meetings cannot be held at an unreasonable or inconvenient time
or place. Ifa particular time or place is fixed by the charter or by-
laws, or by statute, the provisions must be observed. Some of the
courts have held that, as a corporation has no legal existence beyond
the limits of the state by which it was created,** neither the stock-
holders nor the directors of a corporation can hold a meeting, and
do strictly corporate acts, outside the state. This proposition has
been laid down broadly and without qualification. The leading case
on this point is Miller v. Ewer.®® In this case, under a charter
granted by the state of Maine, the corporators met in the state of
New York, and there organized and accepted the charter, and elect-
ed officers and directors. The directors then met in the city of New
York, and authorized the president and secretary to execute a mort-
gage on the corporate property, which was done accordingly. It
was held that the action of the corporators in meeting and electing
directors was a corporate act, and could not be performed outside
of the state of Maine, that the directors were not legally chosen, and
that the mortgage, therefore, was void. The corporators, it was
said, as natural persons, have no power to bring the corporation, the
artificial being, into life and active operation. “The charter con-
fers upon them a new faculty for this purpose,a faculty which
they can have only by virtue of the law which confers it. That law
is inoperative beyond the bounds of the legislative power by which
it is enacted. As the corporate faculty cannot accompany the nat-
niral persons beyond the bounds of the sovereignty which confers it,
and they cannot possess or exercise it there, [they] can have no
amore power there to make the artificial being act, than other per-
‘sons not named or associated as corporators. Any attempt to ex-
ercise such a faculty there is merely a usurpation of authority by
persons destitute of it, and acting without any legal capacity to act
jn that manner. It follows that all votes and proceedings of per-

93 Richardson v. Railroad Co., 44 Vt. 613; Jones v. Turnpike Co., 7 Ind. 547.
94 Ante, p. 74.
95 Miller v. Ewer, 27 Me. 509.
§§ 182-184) STOCKHOLDERS’ MEETINGS. 467

sons professing to act in the capacity of corporators, when assembled
without the bounds of the sovereignty granting the charter, are
wholly void.” °°

It will be noticed that in this case the corporators named in the
charter met and organized outside the state granting the charter.
They did not meet and organize in the state, and then hold a meet-
ing outside the state for the election of the directors. The decision,
therefore, might well have been based on the ground that the cor-
poration had not been legally organized, leaving untouched the ques-
tion whether the stockholders of a corporation which has been duly
and legally organized within the state may hold meetings and trans-
act corporate business in another state. The weight of modern au-
thority seems strongly in favor of holding such a meeting, if held
with the consent of all the stockholders, and if there is no express
prohibition in the charter or by-laws, or in some statute, not abso-
lutely void, but, at most, merely irregular. In Ohio & M. R. Co.
vy. McPherson,°? the stockholders of an [linois corporation, which
had been duly organized in that state, held meetings and transacted
corporate business in Missouri; and subscribers sought to defeat an
action on their subscriptions on the ground that the calls for stock
assessments were made in Missouri, and the votes and proceedings of
the stockholders and directors in that state were void. It was held
that the defense could not be sustained. “After the corporation
had become full-fledged,” it was said, “I gee nothing in reason or
principle why the stockholders could not as well elect directors,
as the directors elect a treasurer, on the Missouri side of the line.
‘The most that could be said, under such circumstances, is that the
election was irregular. The corporation having once been put into
existence, if the members of the board of directors, whether charter
members, or their appointees, or those elected by the stockholders in
St. Louis, accepted their office, and acted under their appointment
or election, as the evidence shows was the case, they became de
' facto directors, and their authority to act on behalf of the corporation
could not be questioned by the appellants, in this collateral suit,

96 And see Bellows v. Todd, 39 Iowa, 209, 217; Ormsby vy. Mining Co., 56 N. Y.

623; Franco-Texan Land Co. v. Laigle, 59 Tex. 339.
9735 Mo. 18.
468 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

without showing a judgment of ouster against them in a direct pro-
ceeding by the government for that purpose.” °°

It has also been held by the supreme court of the United States
that where a stockholders’ meeting is held in a state other than that
by which the corporation was created, and all the stockholders are
present and take part, they and the corporation are estopped to
question the validity of the proceedings.°® Mr. Morawetz says that
“there is no objection to a meeting held in a foreign jurisdiction,
provided all the shareholders give their consent. And, in the ab-
sence of an express statutory prohibition, there appears to be no
1eason why the shareholders in an ordinary business corporation
should not provide in their articles of association that meetings may
be called at convenient places outside of the state under whose laws
the company is formed.” 1°° Meetings cannot be held in another
state unless all the stockholders consent, nor if, as is sometimes the
case, such meetings are expressly prohibited by statute, or by the

-charter or by-laws.’°? A meeting in one of several states of the
stockholders of a corporation chartered in all of those states is valid,
in respect to the property of the corporation in all of the states,
without the necessity of a repetition of the meeting in the other
states.?°?

Conduct of the Meeting. .

Of course, the meeting must be conducted regularly and fairly, and
regulations contained in the charter or by-laws must be observed.’”
But it is not every slight and immaterial irregularity that will vitiate
the proceedings. Thus, the fact that the inspectors at a stockholders’
meeting are not sworn, or are not sworn in the proper manner, will

98 And see Wright v. Lee, 2 S. D. 596, 51 N. W. 706, 714.

99 Handley v. Stutz, 139 U. S. 417, 11 Sup. Ct. 530, 1 Cumming, Cas. Priv. Corp.
855; Heath vy. Smelting Co., 39 Wis. 146.

1001 Mor. Priv. Corp. § 488.

101 In Hodgson v. Railroad Co., 46 Minn. 454, 49 N. W. 197, it was held that a
general stockholders’ meeting for the election of officers held out of the state, all
of the stockholders not consenting, and the by-laws providing that it shall be held
at a specified place in the state, is illegal; and, as against the officers thus elected.
those previously in office have the right to retain control of the affairs of the cor-
poration. And see Ormsby v. Mining Co., 56 N. Y. 623.

102 Graham y. Railroad Co., 118 U. S. 161, 6 Sup. Ct. 1009.

103 Sce Sayles vy. Brown, 40 I’cd. 8,
§§ 182-184) STOCKHOLDERS’ MEETINGS. 469

not invalidate an election, if no objection is interposed at the time
of the election. It is enough that they are duly appointed and enter
on the discharge of their duties, and are therefore inspectors de
facto.1%*

It is not necessary, in the absence of some express requirement,
that the clerk, moderator, inspector, or chairman chosen to preside
over a stockholders’ meeting shall be a stockholder or member. He
acts merely as an agent of the corporation, to preside and see that
the proceedings are conducted in a legal and orderly manner; and
there is nothing in the nature of the office which requires him to be
a member, although, from convenience, the usage is to select one
of the members to perform the duty.’°> Statutory or charter re-
quirements, however, in this respect must be observed.*°®
“Quorum” and ‘‘ Majority.”

By the term “quorum” is meant the number of members of a cor-
poration, board, committee, etc., who must be present in order to take
action. Generally, by statute, or by particular charters or by-laws,
persons owning a majority of the shares must be present or repre-
sented at a stockholders’ meeting, to constitute a quorum, and, unless
there is a quorum present, no action can be taken. Less than a quo-
rum can do no more than adjourn. A majority of the legal votes
actually cast, a quorum being present, will bind the corporation.

At common law no particular number of stockholders need be pres-
ent, except that there must be at least two, for one person could not
hold a meeting. If all the stockholders have been duly notified, or
if the meeting is a stated one, those who assemble, though they rep-
resent less than a majority of the shares, constitute a quorum, and
may act, unless there is express provision to the contrary, and a ma-
jority of these, however few, may bind the corporation. At common
law, therefore, the “majority of the stockholders,” as the term is used
in reference to its power to bind the corporation, does not necessarily
mean persons representing a majority of the shares, or a majority of
persons owning shares. It means, in the absence of a provision to

104 In re Election of Directors of Mohawk & H. R. Co., 19 Wend. (N. Y.) 185;
In re Election of Directors of Chenango County Mut. Ins. Co., Id. 635.

105 Stebbins v. Merritt, 10 Cush. (Mass.) 27, 34.

196 See People v. Peck, 11 Wend. (N. Y.) 604.
470 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

the contrary, the major part of those who are present at a regular cor-

_porate meeting. “There is a distinction taken between a corporate
act to be done by a select and definite body, as by a board of directors,
and one to be performed by the constituent members. In the latter
case a majority of those who appear may act, but in the former a ma-
jority of the definite body must be present, and then a majority of
the quorum may decide. This is the general rule on the subject, and,
if any corporation has a different modification of the expression of
the binding will of the corporation, it arises from the special pro-
visions of the act or charter of incorporation.” 1%"

At a valid stockholders’ meeting, the charter and by-laws being si-
lent on the subject, a majority of the votes cast, though but a minor.
ity of the stock represented, prevails. Those having an opportunity
to vote, and not voting, are held to acquiesce in the result of the votes
actually cast. Therefore, if some of the members become dissatisfied,
and fail or refuse to vote, a majority of the legal votes actually cast,
though less than a majority of all the votes represented at the meet-
ing, will elect.1°°

Disability of Individual Stockholders.

If all of the stockholders are present, or have been duly notified,
the meeting and proceedings are not rendered illegal by the fact that
one of them is non compos mentis, or otherwise under legal disability.
The law does not look into the capacity of the stockholders to transact
business, but only regards the capacity of the aggregate body when
duly assembled. “If it were otherwise,” said Bigelow, J., “the legal
incapacity of a stockholder, such as coverture, infancy, or insanity,
would operate as an effectual obstacle to a valid assembly of any
aggregate corporation. The law confers the attribute of individual-

1072 Kent, Comm. 298; 1 Kyd, Corp. 401; Ex parte Willcocks, 7 Cow. (N. Y.)
402, 410; Field v. Field, 9 Wend. (N. Y.) 394, 403.

108 First Parish in Sudbury vy. Stearns, 21 Pick. (Mass.) 148; State v. Chute, 34
Minn. 135, 24 N. W. 353. See, contra, Com. v. Wickersham, 66 Pa. St. 134. In
this case, at a convention of school directors, 112 were present. Of these, 56.
voted for one candidate for superintendent, while 55 voted for another, and one
refused to vote at all. It was held that the former did not have a majority of the
directors present, as the director not voting was entitled to be counted as present,
and was not to be considered as absent, and the legal intendment was that he voted
for neither or for the minority candidate.
§§ 182-184) STOCKHOLDERS’ MEETINGS. 471

ity on the entire body constituting a corporation, and in which the
individuals composing it are merged. When duly assembled, the
corporation itself becomes the individual or person whose acts and
proceedings the law can alone regard. If, therefore, it is legally
called together, the law presumes that the individual members are
competent to the transaction of business.” *°°

Record and Proof of Action.

In the absence of express requirement to the contrary in the char-
ter or by-laws, the resolutions adopted at a stockholders’ meeting
need not be recorded in the books of the corporation. In the absence
of a record of the proceedings, they may be proved by parol evi-
dence.*?°

Cure of Irregularity by Ratification.

If a stockholders’ meeting is irregularly called or conducted, the
irregularity may generally be waived by the stockholders. They may
ratify acts of the majority which are not binding because of irregu-
larities, and thereby render them binding.**1

Presumption of. Regularity.

Every reasonable intendment is to be made in favor of the regular-
ity of stockholders’ meetings, and the burden is upon one who claims
that they were invalid to show the circumstances rendering them so.
In the absence of evidence to the contrary, their legality will be pre-
sumed. “The maxim of law in such cases is, ‘Omnia rite acta pre-
sumuntur.’” 2! Thus, it has been held that, in the absence of evi-
dence to the contrary, it will be presumed that due notice was given
to all the stockholders.11* So, where the by-laws of a corporation
required the meetings to be held at the counting room of the company,
and it appeared from the records that a meeting was held at the
dwelling house of the general agent, without stating that it was at
the counting room, it was presumed that the counting room was, for

109 Stebbins v. Merritt, 10 Cush. (Mass.) 27, 33.

110 Handley v. Stutz, 189 U. S. 417, 11 Sup. Ct. 530, 1 Cumming, Cas. Priv.
Corp. 855.

111 Richardson v. Railroad Co., 44 Vt. 618; Jones v. Turnpike Co., 7 Ind. 547.

112 Citizens’ Mut. Fire Ins. Co. v. Sortwell, 8 Allen (Mass.) 217.

118 Sargent v. Webster, 18 Metc. (Mass.) 497.
472 MANAGEMENT OF CORPORATIONS—Q¥FICERS AND AGENTS. (Ch. 18

the time being, at such place.**+ So, it will be presumed that a quo-
rum of members was present, unless the contrary clearly appears.*1®

Adjourned Meetings.
A corporation may transact any business at an adjourned meeting
that could have been transacted at the original meeting, for it is but
a continuation of the same meeting. Whether the meeting is con-
tinued without interruption for many days, or by adjournment from
day to day, or from time to time, many days intervening, it must be
considered the same meeting, without any loss or accumulation of
powers.*?®
Liguity Jurisdiction.

A court of equity has jurisdiction to supervise and control an elec-
tion of directors, and to appoint a master for that purpose, when it
appears that through fraud, violence, or other unlawful conduct on
the part of a portion of the corporators, a fair and honest election
cannot be held without the court’s interposition.*?”

It has been held that, if an election is held illegally, a court of
equity has jurisdiction to set it aside at the suit of a dissenting stock-
holder.‘?8 But, by the better opinion, some other ground for equi-
table relief must exist, for otherwise the remedy at law by quo war-
ranto would be adequate. <A court of equity will not primarily take
jurisdiction to determine the legality of an election of directors, or to
remove a director who is in possession of the office. It will inquire
into the regularity of the election, or the right of the person to the
office, only when the question arises incidentally and collaterally in
a suit of which the court has rightful jurisdiction, and when the grant
of the relief depends upon its decision.*?®

114 McDaniels v. Manufacturing Co., 22 Vt. 274.

116 Citizens’ Mut. J’ire Ins. Co. v. Sortwell, 8 Allen (Mass.) 217.

116 Warner v. Mower, 11 Vt. 385; Smith v. Law, 21 N. Y. 296. <And see
Schoff v. Town of Bloomfield, 8 Vt, 472.

117 Tunis v. Railroad Co., 149 Pa. St. 70, 24 Atl. 88,

118 Wright v. Water Co., 67 Cal. 582, 8 Pac. 70.

119 Perry y. Oil-Mill Co., 98 Ala. 364, 9 South. 217; Nathan v. Tompkins, 82
Ala, 437, 2 South, 747,
§§ 185-188) STOCKH@LDERS’ MEETINGS. 473

SAME—VOTING.

185. Unless the right is taken away by express charter or
statutory provision, or by the agreement under
which.shares were acquired, every stockholder is
entitled to vote at corporate meetings; and he can-
not be deprived of the right by by-laws enacted
after his shares were acquired. ‘The following rules
may be particularly mentioned:

(a) Ordinarily the holder of the legal title on the books
of the corporation is entitled to vote.

(b) The pledgor of shares, if. he retains the title, is en-
titled to vote.

(ec) A trustee who holds the legal title, and not the
cestui que trust, is entitled to vote.

(d) Stock held by the corporation itself cannot be voted.

(e) Shares held by two or more jointly, either in their
own right, or as executors, trustees, etc., cannot be
voted unless all agree upon the vote.

(f) The right may be restricted by statute, and the
statute cannot be evaded by transfer of the bare
legal title.

(g) Personal interest in a measure does not disqualify a
stockholder from voting.

186. NUMBER OF VOTES—At common law each share-
holder had only one vote, without regard to the
number of shares owned by him. But now, gen-
erally by charter or statutory provision, and per-
haps by custom, there is a right to one vote for
each share. Sometimes, by statute, a single stock-
holder is restricted as to the number of votes, and
he cannot evade the statute by a colorable transfer.

187. CUMULATIVE VOTING—Cumulative voting is al-
lowed in some states by statute, but the right does
not exist at common law.
474. MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

188. PROX Y—At common law the right to vote can only
be exercised in person; but the right to vote by
proxy—that is, by another under a power of attor-
ney—is generally given by statute, or by the char-
ter or by-laws. In regard to proxies, the following
points may be particularly mentioned:

(a) A proxy can only be given by the légal owner of
stock at the time the vote is cast.

(b) An agreement not to give a proxy is contrary to
public policy, and therefore void.

(c) A proxy, though in terms irrevocable, may never-
theless be revoked, if not coupled with an interest.
Some courts hold such a proxy void as against pub-
lic policy.

Who Entitled to Vote.

Every stockholder has, as incident to his ownership of stock, a right
to vote at stockholders’ meetings, unless he is prohibited from doing
so by some express charter or statutory provision, or by the agreement
under which he holds his shares. He cannot be deprived of this right
by a by-law, unless such a by-law is expressly authorized in advance,
or where it was enacted before he acquired his shares.?7° But there
is nothing to prevent a corporation, on issuing stock, common or pre-
ferred, after its organization, from stipulating that, the holders shall
not have or exercise the right to vote the same.1?1

The general rule is that the holder of the legal title to shares is
entitled to vote them. And, in case of a dispute as to the right to
vote at a stockholders’ meeting, the books of the corporation are
prima facie evidence as to who possesses that right.1?? The inspect-
ors of election are not to inquire beyond the transfer book. Any pri-
vate agreement or understanding between the individual holding the
legal title to the stock in due form and others is a matter between
themselves, with which the corporation has no concern.*?*

120 Ante, p. 455, note 389.

121 Miller v. Ratterman, 47 Ohio St. 141, 24 N. E. 496.

122 Hoppin v. Buffum, 9 R. I. 518, 518; Com. v. Dalzell, 152 Pa. St. 217, 25
Atl. 535; Pender v. Lushington, 6 Ch. Div. .70.

128In re Long Island R. Co., 19 Wend. (N. Y.) 37, 44.
§§ 185-188) STOCKHOLDERS’ MEETINGS. 475

Same—Pledgor and Pledgee.

A person who pledges his stock is entitled to vote upon it until the
title of the pledgee to the stock is perfected.*?* And it has been
held that, if the stock stands on the books of the corporation in the
name of the pledgée, the pledgor may, by suit in equity, compel a
transfer to him, or oblige the pledgee to give him a proxy to vote.**®
But if the pledgor acquiesces in the control of the stock by the
pledgee, who appears as the record owner, and makes no effort to
inform the corporation of his ownership until a contested election
occurs, and then not until the votes have been, or are being, counted,
it will be too late to ask a court of equity to interfere with the de-
clared result of the election.’*® So long as the stock stands on the
books of the corporation in the name of the pledgee, without any
reservation to the pledgor of the right to vote the same, the pledgee
is entitled to vote.*?7

Same—Trustees.

One in whose name stock stands on the books of the corporation
as trustee is entitled to vote upon it, unless the cestui que trust sea-
sonably asserts his right to have it transferred to him.1?®

Same—Shares Held by the Corporation.

A corporation cannot hold its own stock so as to entitle its di-
rectors or trustees to vote upon it.1?® Nor can persons who hold
stock in trust for the benefit of the corporation vote thereon. The
right to vote the stock is suspended while it is so held.**°

124 McDaniels v. Manufacturing Co., 22 Vt. 274; President, ete., of Mer-
chants’ Bank v. Cook, 4 Pick. (Mass.) 405; In re Barker, 6 Wend. (N. Y.) 509:
Ex parte Willcocks, 7 Cow. (N. Y.) 402; Hoppin v. Buffum, 9 R. I. 513.

126 Vowell v. Thompson, 3 Cranch, C. C. 428, Fed. Cas. No. 17,023; Hoppin
v. Buffum, 9 R. I. 518.

126 Hoppin v. Buffum, 9 R. I. 513.

127 See Com. v. Dalzell, 152 Pa. St. 217, 25 Atl. 535. ‘

128 Hoppin v. Buffum, 9 R. I. 513; In re Barker, 6 Wend. (N. Y.) 509; Com.
yv. Dalzell, 152 Pa. St. 217, 25 Atl. 535. And see Wilson y. Proprietors Central
Bridge, 9 R. I. 590.

129 Ex parte Holmes, 5 Cow. (N. Y.) 426. And see Vail v. Hamilton, 85 N. Y.
453.

1830 American Railway-Frog Co. v. Haven, 101 Mass. 398. And see State v.
Smith, 48 Vt. 266.
476 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

Same— Shares Owned Jointly.

Since the right of voting upon stock is in the legal owner, it fol-
lows that stock held jointly by two or more persons, either in their
own right, or as executors, trustees, etc., cannot be voted at all, un-
less all agree upon the vote.***

Same—Restrictions in Charter or Statute.

The right to vote may be restricted by the charter or by statute.
Sometimes it is expressly provided, for instance, that nonresident
stockholders of particular corporations shall not be allowed to vote
at meetings of the corporation. The object of such a provision is
to prevent corporations from being controlled by nonresidents.!*?
And often the number of votes which a single stockholder shall be
allowed to cast is limited. The object is to prevent the corporation
from getting into the control of a single person.***

Same—Lvasion of Statutory or Charter Prohibition.

‘Where, by statute or by the charter, particular stockholders are
prohibited from voting, the prohibition cannot be evaded by trans-
ferring the stock to others merely for the purpose of enabling them to
vote upon it. Thus, where the charter of a corporation provided
that no stockholder should be entitled to cast more than one-fourth
of all the votes at an election of directors, it was held that a stock-
holder who owned more than one-fourth of the shares could not
gratuitously transfer part of the stock for the purpose of enabling
the transferees to vote it, and such transferees were enjoined from
voting at the suit of another stockholder.*** So, where nonresident
stockholders in banking corporations were prohibited from voting,
it was held that the prohibition could not be evaded by gratuitously
transferring stock to residents for the purpose of enabling them to
vote upon it. “The law,” it was said, “ig not to be outwitted by cun-
ning devices.” 13°

131 Tunis v. Railroad Co., 149 Pa. St. 70, 24 Atl. 88

132 State v. Hunton, 28 Vt. 594.

183 Mack y. Iron Co., 90 Ala. 396, 8 South. 150.

184 Mack v. Iron Co., 90 Ala. 396, 8 South. 150; Campbell v. Poultney, 6 Gill
& J. (Md.) 94; Webb v Ridgely, 38 Md. 364. Contra, Pender v. Lushington,
L. R. 6 Ch. Div. 70.

136 State v. Hunton, 28 Vt. 594.
§§ 185-188) STOCKHOLDERS’ MEETINGS. 477

Same— Personal Interest of Stockholder.

The fact that a stockholder has a personal interest in a matter
coming before a stockholders’ meeting, different from that of the
other stockholders, does not disqualify him from voting. “A share-
holder has a legal right, at a meeting of the shareholders, to vote
upon a measure, even though he has a personal interest therein sep-
arate from other shareholders. In such a meeting each shareholder
represents himself and his own interests solely, and he in no sense
acts as a trustee or representative of others.”*°° In Northwest
Transp. Co. v. Beatty,*®’ one of the directors in a corporation con-
tracted with his colleagues to sell to the company a vessel which he
owned, at a certain price. The contract, though fair, was voidable,
but it was subject to ratification by the stockholders; and it was.
held that the vendor director had a right, at a meeting of the stock-
holders, to vote in favor of ratifying the contract and concluding
the purchase, and that his conduct was not to be regarded as op-
pressive towards the minority of shareholders because he individ-
ually owned a majority of the stock.

As we have seen in a preceding section, if a majority of the stock-
holders attempt to manage the affairs of the corporation, not only in
their own interest, but in violation of the charter, or in fraud of
the rights of the minority, a court of equity will interfere, in a proper
case, at the suit of an injured stockholder.***

Number of Votes.

In Taylor v. Griswold,'** it was held that at common law each
stockholder of a corporation has but one vote, without regard to the
number of shares owned by him, and a by-law allowing one vote for
each share was held void. It is generally provided, however, by the
charter of joint-stock corporations, or by statute, that stockholders.
shall have a vote for each share; and this is clearly the just rule,
for “stockholders are interested, not equally, but in proportion to the
number of shares held by them.” 7*° Indeed, it has been said that

136 Gamble vy. Water Co., 123 N. Y. 91, 25 N. E. 201; North West Transp..
Co. v. Beatty, 12 App. Cas. 589; Bjorngaard y. Bank, 49 Minn. 488, 52 N. W. 4s.

18712 App. Cas. 589.

188 Ante, p. 889.

13914 N. J. Law, 222, 27 Am. Dee. 33.

1401 Cook, Stoek, Stockh. & Corp. Law, § 609.
478 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

the custom of giving the shareholders in joint-stock corporations a
vote for each share has become so well established that an intention
toe follow the custom may be implied, in the absence of any indica-
tion to the contrary.’*1 And it has been held, contrary to the deci-
sion in Taylor v. Griswold, that a by-law giving a vote for each share
is valid and binding on all the stockholders.**? As we have seen,
to prevent the corporation from getting into the control of a single
person the number of votes which a single stockholder shall be al-
lowed to cast is limited by statute, and the limitation cannot be.
evaded by transferring the shares to enable the transferees to vote
upon them.***

Cumulative Voting.

In some states, in order to allow the minority of the stockholders
to secure representation on the board of directors, there are statutory
or constitutional provisions allowing cumulative voting. Thus, it is
provided in West Virginia that, in all elections for directors or
managers of corporations, every stockholder shall have the right to
vote for the number of shares of stock owned by him for as many
persons as there are directors or managers to be elected, or to cumu-
late said shares, and give one candidate as many votes as the number
of directors multiplied by the number of his shares of stock shall
equal, or to distribute them, on the same principle, among as many
candidates as he shall think fit.‘** The right to cumulative voting
does not exist unless expressly given by statute.**®

It has been held that, where the legislature has reserved the right
to amend or repeal the charter of a corporation, it may pass an act
allowing cumulative voting.**® This, however, is doubtful; and cer-

1411 Mor. Priv. Corp. § 476.

142 Com. vy. Hemmingway, 131 Pa. St. 614, 18 Atl. 990, 992.

143 Ante, p. 476.

144 See Cross v. Railway Co., 835 W. Va. 174, 12 S. B. 1071. And see Wright
y. Water Co., 67 Cal. 532, 8 Pac. 70; Horton v. Wilder, 48 Kan. 222, 29 Pac. 566.

146 State v. Stockley, 45 Ohio St. 304, 18 N. BE. 279. In this case it was held
that a statute providing that the directors of corporations “shall be chosen, by
ballot, by the stockholders who attend for that purpose, either in person, or by
lawful proxies; each share shall entitle the owner to as many votes as there are
directors to be elected, and a plurality of votes shall be necessary for a choice,”
—did not give the right of cumulative voting.

146 Cross v. Railway Co., 85 W. Va. 174, 12 S. E. 1071.
~ $§ 185-188) STOCKHOLDERS’ MEETINGS. 479

tainly, if no such power has been reserved, such a statute, as ap-
plied to existing corporations, would be unconstitutional, as impair-
ing the contractual rights of the stockholders.**’

Votes by proxy.

The right to vote by proxy must be expressly given, either by a
statute or by the charter or by-laws of the corporation, or it does not
exist. The common law requires all votes to be given in person.**®
It has been held that, since the common law requires this, a by-law
giving the right to vote by proxy is repugnant to law, and therefore
void, ‘unless such a by-law is authorized by the charter.t*® By the
weight of authority, however, a corporation has the implied power to
enact such a by-law.'®®° To authorize a vote by proxy, the case must
be brought within the terms of the statute, charter, or by-law. Thus,
where an act of incorporation provided that each stockholder person-
ally present should be allowed to vote on the stock standing in his
name, and that each stockholder, “being a citizen of the United
States,” might vote by proxy, it was held that an alien stockholder
could not vote by proxy.***

A proxy to vote stock can only be given by the legal owner of the
stock at the time the vote is to be cast. “The right of voting stock
is inseparable from the right of ownership. The one follows as a
sequence from the other, and the right to vote cannot be separated
from the ownership without the consent of the legal owner.” 75? It
follows that, where the owner of stock dies, a proxy to vote thereon
can onlv be given by his executors. It cannot be given by the will;
nor can a provision in the will that the executors shall give a proxy
to a certain person entitle such person to vote the stock, if the ex-
ecutors refuse to give the proxy, for on the death of the owner of stock
his ownership ceases, and the executors become the owners.'*8

147 Ante, pp. 204, 447; State v. Greer, 78 Mo. 188. '

148 Taylor v. Griswold, 14 N. J. Law, 222, 27 Am. Dec. 33; Com. v. Bringhurst,
108 Pa. St. 184, 49 Am. Rep. 119; Philips v.Wickham, 1 Paige, Ch. (N. Y.)
490; People v. Twaddell, 18 Hun (N. Y.) 427.

149 Taylor v. Griswold, supra.

160 Detwiller v. Com., 131 Pa. St. 614, 18 Atl. 990; State v. Tudor, 5 Day
Conn.) 329, 5 Am. Dec. 162; People v. Crossley, 69 I}! 195,

151 In re Barker, 6 Wend. (N. Y.) 509.

162 Tunis y. Railroad Co., 149 Pa. St. 70, 24 Atl. 88.

153 Id.
480 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

A stockholder cannot agree nci to give a proxy to vote his shares.
Such an agreement is against public policy.*** In Fisher v. Bush,***
an agreement between a number of stockholders of a corporation that
they would not sell or assign their shares, nor give a power of attor-
ney to vote the same, without the consent of all the parties to the
agreement, was held void for three reasons; namely, because the
agreement not to sell or assign was in restraint of trade, and there-
‘fore against public policy; because the agreement not to vote by
proxy was pernicious, and contrary to public policy; and because
the promises were without consideration.

A power of attorney or proxy to vote stock, though in terms irrevo-
cable, may nevertheless be revoked at any time before the vote, if it
is not coupled with an interest.1°* It has often been said, and some-
times held, that such a proxy is not contrary to public policy, but
merely revocable.1*? In the late case of Bostwick v. Chapman (She-
paug Voting Trust Cases),15* however, it was held contrary to public
policy to allow a stockholder to strip himself of the power to vote
upon his shares, or to determine how they shall be voted, by giving an
irrevocable proxy to one who has no beneficial interest or title in or
to the stock or in the affairs of the corporation, and that he can do so
neither permanently nor for a term of years. In this case a syndi-
cate owning the majority of the stock of a railroad company had the
title put in a trust company to vote for five years according to the di-
rection of a committee, who had no title whatever to. the stock. The
court held the trust agreement void as against public policy."

154 Bostwick v. Chapman (Shepaug Voting Trust Cases), 60 Conn. 558, 24 Atl. 32.

155 35 Hun (N. Y.) 641.

156 Woodruff v. Railroad Co., 30 Fed. 91.

157 See Brown y. Steamship Co., 5 Blatchf, 525, Fed. Cas. No. 2,025.

158 60 Conn. 553, 24 Atl. 32.

159 In speaking of such a power of attorney, Judge Robinson said in Bostwick v.
Chapman, supra: “This I conceive to be against the policy of the law, whether the
power so to vote be for five years or for all time. It is the policy of our law that
ownership of stock shall control the property and the management of the corporation,
and this cannot be accomplished, and this good policy is defeated, if stockholders
are permitted to surrender all their discretion and will in the important matter of
voting, and suffer themselves to be mere passive instruments in the hands of some
agent, who has no interest in the stock, equitable or legal, and no interest in the
general prosperity of the corporation, And this is not entirely for the protection of
§§ 185-188) STOCKHOLDERS’ MEETINGS. ' 481

Stockholders may irrevocably surrender their voting power, and vest
it in one who is beneficially interested in the conduct of the business
of the corporation, as, for instance, in creditors of the corporation, or
in a trustee for creditors, under an agreement for their security.*®°

A proxy or power of attorney to vote stock must, of course, be
sufficient to show the inspectors that the agent is acting by the au-
thority of the principal, but no peculiar formality is required. It is
sufficient if it appears on its face to confer the requisite authority,
and is free from all reasonable grounds of suspicion of its genuineness
and authenticity.1®

Liffect of Illegal Reception or Rejection of Votes.

When illegal votes are offered, objection must be raised at the time.
If they are not challenged, their receipt will afford no ground for set-
ting the election aside.1?

Before a stockholder can complain that his vote was not taken at a
stockholders’ meeting, he must show that he offered to vote, or that
he properly presented his claim of right to vote, and that it was, ex-
cluded.*** If the charter and by-laws prescribe no different rule, and
the meeting appoints no tellers or inspectors for the purpose, it is
for the meeting to determine, in the first instance, the right to vote.

the stockholder himself, but to compel a compliance with the duty which each
stockholder owes his fellow stockholder to so use such power and means as the
law and his ownership of stock give him, that the general interest of stockholders
shall be protected, and the general welfare of the corporation sustained, and its
business conducted by its agents, managers, and officers, so far as may be, upon
prudent and honest business principles, and with just as little temptation to and
opportunity for fraud, and the seeking of individual gains at the sacrifice of the
general welfare, as is possible. This, I take it, is the duty that one stockholder Mi
a corporation owes to his fellow stockholder; and he cannot be allowed to disburden
himself of it in this way. He may shirk it, perhaps, by refusing to attend stock-
holders’ meetings, or by declining to vote when called upon, but the law will not
allow him to strip himself of the power to perform his duty. To this extent, at |
least, a stockholder stands in a fiduciary relation to his fellow stockholders.” See
Griffith v. Jewett, 15 Wkly. Law Bul. 419; Moses v. Scott, 84 Ala. 608, 4 South.
742,

160 Mobile & O. R. Co. v. Nicholas, 98 Ala. 92, 12 South. 723.

181 In re St. Lawrence Steamboat Co., 44 N. J. Law, 529.

162 In re Election of Directors of Chenango County Mut. Ins. Co., 19 Wend.
{N. Y.) 685.

188 State v. Chute, 34 Minn. 135, 24 N. W. 353.

Clk.Pr.Corp.—31
482 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 18

The president of the corporation or chairman of the meeting has no
right to pass upon it. And one who, upon an adverse opinion ex-
pressed by that officer, refrains from offering his vote, and does not
present his claim of right to the.meeting for it to pass upon, cannot
be heard afterwards to complain.***

It is not a valid objection to an election that illegal votes were re-
ceived, or legal votes rejected, unless the majority is thereby chan-
ged.*®> And, to set aside an election on such a ground, it must be
made to appear alfirmatively that the majority is changed. Such a
result will not be presumed.'*®

Where votes rejected by inspectors at an election of directors,
which, if received, would have elected certain candidates, are ad-
judged to have been erroneously rejected, the only remedy is to set
aside the election. The court has no power to declare those candi-
dates elected for whom the votes wauld have been cast if they had
been received.*°7 But the court may vacate the seats of directors
elected by illegal votes, and declare those elected who received a ma-
jority of the legal votes.1®

ELECTION AND APPOINTMENT OF OFFICERS AND AGENTS.

189. Every private corporation has the inherent power to
appoint officers and agents to supervise and man-
age its affairs.

190. No particular formalities are necessary in the ap-
pointment of officers and agents, except such as
may be prescribed by the charter or by-laws.

A corporation, being impersonal, can only transact its business and
make contracts through the intervention of agents. Generally, the

164 Id,

165 See Trustees of School Dist. No. 3 v. Gibbs, ‘2 Cush. (Mass.) 39, 45; Inhab-
itants of First Parish in Sudbury y. Stearns, 21 Piek. (Mass.) 148; Wardens of
Christ Church v. Pope, 8 Gray (Mass.) 140; Ex parte Murphy, 7 Cow. (N. Y.) 103;
In re Election of Directors of Chenango County Mut. Ins. Co., 19 Wend. (N. Y.)
635; In re Argus Co., 188 N. Y. 557, 34 N. E. 888, 391.

166 Ex parte Murphy, 7 Cow. (N. Y.) 153.

167 In re Election of Directors of Long Island R. Co., 19 Wend. (N. Y.) 37;
People v. Phillips, 1 Denio (N. Y.) 388, 396.

168 Bx parte Desdoity, 1 Wend. (N. Y.) 98.
§§ 189-190) ELECTION AND APPOINTMENT OF OFFICERS AND AGENTS. 483

charter of a modern corporation provides what officers and agents
shall manage the affairs of the company. Usually, the management
is vested in a board of directors, trustees, or managers, who are to be
elected periodically by the stockholders. If the charter is silent on
the subject, the stockholders may nevertheless elect directors, and
invest them with the supervision and management of the corporate
affairs, for the power to appoint agents is inherent in all private cor-
porations.7°® A person, in becoming a member of a private corpora-
tion, impliedly consents that it shall be represented by such officers
and agents as are reasonably necessary for the transaction of its
business, and that they shall possess such powers and perform such
duties as are ordinarily possessed and performed by such officers and
agents.27°

In the appointment of officers and agents of a corporation, no par-
ticular formalities are necessary, except in so far as they may be
prescribed by the charter or by-laws. A seal is not necessary unless
it is so required.17* Nor is a formal vote necessary. ‘“Where one has
the actual charge and management of the general business of a cor-
poration, with the knowledge of the members and directors, this is
evidence of his authority, without showing any vote or other corporate
act constituting him the agent of the corporation.” 17? Usually a
board of directors is elected by the stockholders, and the directors
appoint other officers and agents.‘7* Like a natural person, as we
shall see, a corporation may pecome liable for the acts of a person as
its. agent by allowing him to appear as having authority to act for
it.‘7* And it may ratify and render binding acts done without pre-
vious authority.*7*

169 Ang, & A. Corp. § 231; Hurlbut v. Marshall, 62 Wis. 590, 22 N. W. 852, 855.

170 Protection Life Ins. Co. v. Foote, 79 Ill. 361.

171 Bank of Columbia vy. Patterson’s Adm’r, 7 Cranch, 299, 1 Cumming, Cas.
Priv. Corp. 112; Clark, Cont. 282; 1 Mor. Priv. Corp. § 504; ante, p. 157.

172 Goodwin v. Screw Co., 34 N. H. 378, 1 Cumming, Cas. Priv. Corp. 119.
And see Sherman Center Town Co. v. Swigart, 43 Kan. 292, 23 Pac. 569.

173 Post, p. 487. 174 Post, p. 498. 175 Post, p. 500.
484 MANAGEMENT OF CORPORATIONS—UFFICERS AND AGENTS. (Ch. 18

QUALIFICATIONS OF DIRECTORS OR OTHER OFFICERS.

191. No particular qualification is necessary for directors
or other officers, unless required by statute, or by
the charter or by-laws; but they are generally so
expressly required to be stockholders.

Unless required by statute, or by the charter or by-laws of the cor-
poration, a person, to be a director or other officer, need have no par-
ticular qualifications. He is generally required to be a stockholder,
and, even in the absence of any such requirement, directors are usu-
ally chosen by the stockholders from their own number; but there
is no rule of law that makes the ownership of stock an indispensa-
ble qualification of.a director, where there is no such express require-
ment.!7® Where a director is required to be a stockholder, it has
been held sufficient if he holds stock and appears as owner on the
books of the corporation, though the share may have been transferred
to him merely for the purpose of qualifying him; +7’ but this is doubt-
ful, for such a requirement seems clearly to contemplate beneficial
ownership of stock by directors.*7§

In the absence of express prohibition, a nonresident may be a di-
rector; and where directors are required to be stockholders, and non-
residents are not prohibited from owning stock, a nonresident stock-
holder may be a director.1’® But in ‘some states the directors, or
at least a certain number of them, are expressly required to be resi-
dents of the state.18°

176 Wight v. Railroad Co., 117 Mass. 226, 19 Am. Rep. 412. Contra, dictum in
Penobscot R. Co. v. Dummer, 40 Me. 172, 63 Am. Dec. 654.

177 State v. Lute, 16 Nev. 242.

178 In Re Elias (Sup.) 40 N. Y. Supp. 910, it was held that the New York law
providing that ‘‘the directors of every stock corporation shall be chosen from the
stockholders,” and that, “if a director shall cease to be a stockholder, his office shall
become vacant,’ requires the beneficial ownership of stock, as well as the legal
title, and that a mere trustee of stock is not eligible for the office of director. And
see Chemical Nat. Bank v. Colwell, 182 N. ¥. 250, 30 N. E. GH.

179 Detwiler v. Com. (Pa. Sup.) 18 Atl. 990.

180 See Horton vy. Wilder, 48 Kan. 222, 29 Pac. 566,
§ 192) POWERS OF DIRECTORS, ETC. 485

In the absence of express provision to the contrary, a director may
at the same time hold some other office, as cashier, treasurer, presi-
dent, etc.18! Indeed, it is generally so.

Persons dealing with a corporation are not bound to inquire into
the qualifications of those whom the corporation holds out as its di-
rectors. Ifa corporation elects a person or director who is ineligible
to the office, under the by-laws, and permits him to act as such, it
will be bound by his acts as director.**?

POWERS OF DIRECTORS, ETC.

192. Where the general management of a corporation is
intrusted to a board of directors or other officers,
they have the power to bind the corporation by
any act or contract within the powers conferred
upon it, except that they cannot effect any great
and radical change in the organization of the body,
without the assent of the stockholders, unless the
power is expressly conferred. The board of direct-
ors may delegate an authority to a committee, or
to one of their own number, or to third persons,
to do acts for the company. And they may ratify
acts done without such previous authority. They
cannot, however, delegate the exercise of a dis-
cretion vested in them.

Where the directors are given the management and control of the
corporation, and there are no express limitations on their power,
they are competent to make any contract which may be necessary.
or fit and proper .to enable the corporation to accomplish the pur-
poses of its creation. The expediency of making such a contract is
committed absolutely to their judgment, and so long as they keep
within the power conferred upon the corporation, and act in good
faith, with honest motives and for honest ends, their contracts are
valid, and conclude the corporation and the stockholders.?** Being.

181 Sargent v. Webster, 18 Metc. (Mass.) 497.
182 Despatch Line of Packets vy. Bellamy Manuf’g Co., 12 N. H. 205.
183 Park v. Locomotive Works, 40 N. J. Eq. 114, 3 Atl. 162.
486 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 138

invested with the general management of the business of the com-
pany, the management and transaction of all business within the
powers of the corporation, and the general affairs of the corporation,
devolve upon them.1®* Thus, they may make or authorize a valid as-
signment of the corporate property for the benefit of creditors, where
it is in failing circumstances.15> And they may borrow money, when
necessary, and mortgage or convey real estate or personal property
of the corporation to pay or secure its debts.1** And they may as-
sign over securities belonging to the company,*®’ or compromise a
claim or action pending against it.**® And they may accept an
amendment of the charter authorizing the corporation to take prop-
erty under the power of eminent domain.**?®

As we have seen in a previous section, when the charter of a cor-
poration invests a board of directors or trustees with the power to
manage its concerns the power is exclusive, and they alone can act.
The stockholders cannot act, nor can they interfere with the directors
in their management, or control them otherwise than by electing
new directors.*°°

It must not be supposed that the powers of the directors are un-
limited, for they are not so. They are only invested with the power
to manage the affairs of the corporation, and here their authority
ends. They have no power to effect any radical change in the or-
ganization of the body without the consent of the stockholders.
Such powers are impliedly reserved to the stockholders. Thus,
where the charter of a corporation empowers it to increase its capital
stock, or to make any other fundamental change,.but does not pro-,

.

184 See Eastern R. Co. v. Boston & M. R. R., 111 Mass. 125.

185 Wright v. Lee, 2S. D. 596, 51 N. W. 706, 714; Sargent v. Webster, 13 Metc.
(Mass.) 497; Tripp v. Bank, 41 Minn. 400. 43 N. W. 60; Chamberlain y. Brom-
berg, 83 Ala. 576, 3 South. 434; Chase v. Tuttle, 55 Conn. 455, 12 Atl. 874;
Vanderpoel v. Gorman, 140 N. ¥. 563, 35 N. E. 932; Wilkinson v. Bauerle, 41
N. J. Eq. 685, 7 Atl. 514.

186 Burrill v. Bank, 2 Metc. (Mass.) 163, W. D. Smith, Cas. Corp. 112; Salt-
mersh v. Spaulding, 147 Mass. 224, 17 N. E. 316.

187 President, Directors & Company of Northampton Bank y. Pepoon, 11 Mass.
288. ,

188 Donohoe v. Mining Co., 66 Cal. 817, 5 Pac. 495.

189 Hastern R. Co. v. Boston & M. R. Co., 111 Mass, 125; ante, p. 54.

190 Ante, p. 447.
§ 192) POWERS OF DIRECTORS, ETC. 487

vide by whom the power is to be exercised, it cannot be exercised
by the board of directors without the assent of the stockholders.*®*
Nor, on the same principle, can the board of directors wind up tlie
affairs of the company, and dispose of all its property,?°? unless it is
insolvent, in which case, as we have seen, they may make an assign-
ment for the benefit of creditors.1**

The directors can lawfully do no act that is not within the powers
conferred upon the corporation by its charter. If they attempt to
do so, and, for any reason, relief cannot be obtained through the cor-
poration, a stockholder may maintain a suit to enjoin them.***

Unauthorized acts or contracts done or entered: into by the di-
rectors may be ratified by the stockholders, if within the powers of
the corporation, and ratification will be implied if they delay for an
unreasonable time to take steps to set the transaction aside.1°* Ultra
vires acts, of course, cannot be ratified.

Directors de Facto.

Directors de facto, holding office under color of an election, and
having charge of the affairs of a corporation, are capable of binding
the corporation in all matters legitimately devolving upon directors;
and the fact that their election was void and is set aside, and they
ure removed from office, cannot affect the validity and binding effect
of their acts while in office.*°°

Appoimtment of Agents—Ratification.

The board of directors, having general superintendence and active
management of the affairs of a corporation, constitute the corpora-
tion, to all purposes of déaling with others on its behalf, and ‘do not
exercise a delegated authority, in the sense of the maxim, “Delegatus
non potest delegare,” like agents and attorneys who exercise the
powers especially conferred upon them, and no others. Therefore

191 Kidman v. Bowman, 58 Ill, 444; Railway Co. v. Allerton, 18 Wall, 233;
Com. v. Cullen, 13 Pa. St. 133.

1921 Mor. Priv. Corp. § 513.

193 Ante, p. 486.

194 Ante, p. 389. .

195 State v. Smith, 48 Vt. 266; Steger v. Davis, 8 Tex. Civ. App. 23, 27 S. W.
1068; Aurora Agricultural & H. Soc., 80 Ill. 263; Reichwald vy. Hotel Co., 106
fll. 489; post, p. 500.

196 Mining Co. 'v. Anglo-Californian Bank, 104 U. S. 192.
488 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 138

a board of directors may delegate an authority to a committee, or to
one of their own number, or to some other officer, or to outsiders,
if they choose, to do acts for the company.*®’ Thus, they may au-
thorize a committee of their own number to alienate or mortgage
real estate; and such authority necessarily implies an authority to
execute suitable and proper instruments for that purpose, and to
affix the corporate seal to an instrument requiring it.1°* And the
board may authorize one of their number, or some other officer, to
assign over any securities belonging to the company which it has the
power to assign,?®° or to execute notes for money loaned to the com-
pany.?°°

But the board cannot delegate upon an agent the power to exercise
the discretion conferred upon them by the charter. Thus, the power,
at discretion, to sell or purchase real property, cannot be delegated,
but the board themselves must determine whether to purchase or
sell. They can delegate to an agent the power to purchase or sell,
after they have determined to do so, but they cannot delegate the
power to determine whether the purchase or sale shall be made.*°*

The board may ratify and render valid an act done without pre-
vious authority, in any case where they could have authorized it; and
they may do so impliedly as well as expressly, as by recognizing the
act as binding and acting upon it.*°?

’

DIRECTORS’ MEETINGS AND RESOLUTIONS.

193. Where the management of a corporation is vested in
a board of directors or trustees, they are the agents
of the corporation only when legally acting as a
board. They cannot bind the corporation by indi-
vidual action, but only when regularly assembled
at a board meeting.

197 Potts vy. Wallace, 146 U. S. 689, 13 Sup. Ct. 196.

198 Burrill v. Bank, 2 Mete. (Mass.) 163; W. D. Smith, Cas.- Corp. 112.

199 President, Directors & Company of Northampton Bank vy. Pepoon, 11 Mass.
288. .

200 Leavitt v. Mining Co., 8 Utah, 265, 1 Pac. 356.

201 Bliss v. Irrigation Co., 65 Cal. 502, 4 Pac. 507.

202 Burrill v. Bank, 2 Mete. (Mass.) 163; W. D. Smith, Cas. Corp. 112.
§§ 1938-194) | DIRECTORS’ MEETINGS AND RESOLUTIONS. 489

194. The principal rules relating to directors’ meetings are
these:

(a) In the absence of express prohibition, directors may
meet, and act as agents of the corporation, in another
state.

(b) Notice of the time and place of the meeting must
generally be given each director, unless the
meeting is a stated one. But,

(1) If all the directors are present, want of notice
is immaterial.

(2) If the charter makes less than all the directors
a quorum, with power to transact business,
and does not require notice, a quorum may
meet and transact business without the pres-
ence of, or notice to, the other directors.

(c) In the absence of express provision otherwise, a
majority of the directors constitute a quorum, and
a majority of the quorum may decide any question
upon which they may act.

(ad) A director is disqualified to vote upon any resolution
in. which he is personally interested.

(e) Unless the charter or by-laws so require, the votes
and decisions of the directors need not be recorded.

Directors must Act as a Board.

Where the government of a corporation and management of, its
affairs are vested in a board of directors (or, as in some states, in a
board of trustees), the legal effect is to invest the directors with such
government and management as a board, and not otherwise. The
general rule is that the governing body, as such, of a corporation, are
agents of the corporation only as a board, and not individually. .
They have authority to act for the corporation only when regularly
assembled at a board meeting. The separate action of one or of all
of the directors individually is not the action of the body clothed
with the corporate powers, and does not bind the corporation.*°*

208 Baldwin v. Canfield, 26 Minn. 43, 1 N. W. 261. In this case a conveyance
of land belonging to a corporation was executed in the name of the corporation by
490 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

Special Meetings.

Although, by the rules of the corporation, the directors are to
have stated meetings, it does not follow that they can have none
other. On the contrary, it is a necessary power, incident to the faith-
ful discharge of their trust, that they shall have special or informal
meetings when the interests of the corporation require it.?°*

Place of Meeting.

There is nothing to prevent a corporation from acting by its
agents outside.of the state by which it was created, if the state in
which the acts are done raises no objection. A corporation cannot
itself act outside of the state, for it can have no legal existence save
in the state to whose laws it owes its existence. They can have no
extraterritorial effect.2°> It can, however, appoint agents, and they
may act for it beyond the limits of the state.2°* For most purposes
the directors are merely the agents of the corporation, and act as
such in the management of its affairs. Therefore, as a general rule,
in the absence of express provision to the contrary, they may hold
their meetings, and act for the corporation, in another state than

all the directors acting separately, and not as a board, and without any authority
from the board. It was held void as a conveyance, and equally ineffectual as a
contract to convey. See, also, In re Marseilles Extension R. Co., 7 Ch. App. 161;
D'Arcy. y. Railway Co., L. R. 2 Exch. 158; Filon vy. Brewing Co., 60 Hun, 582,
15 N. Y. Supp. 57; Schumm v. Seymour, 24 N. J. Eq. 143; First Nat. Bank v.
Christopher, 40 N. J. Law, 435; Gashwiler v. Willis, 33 Cal. 11; ‘Tunction R.. Cc
vy. Reeve, 15 Ind. 237; Cammeyer v. United Churches, 2 Sandf. Ch. (N. Y.) 186;
Stoystown & G. Turnpike R. Co. v. Craver, 45 Pa. St. 886; Edgerly v. Emerson,
23 N. H. 555; Buttrick v. Railroad Co., 62 N. H. 418; Yellowjacket Silver Min.
‘Co. v. Stevenson, 5 Nev. 224; Hillyer v. Mining Co., 6 Nev. 51. In Vermont the
rule seems otherwise. In Bank of Middlebury v. Rutland & W. R. Co., 30 Vt.
159, it was held that directors could bind their corporation by acting separately, if
this was their usual practice in iransacting the corporate business. So, in Col-
orado, where the by-laws of a corporation required claims of officers for compensa-
tion to be audited and allowed by the board of directors, it was held a sufticient
compliance for a majority of the directors to approve claims, acting separately ac-
cording to a custom. Longmont Supply Ditch Co. v. Coffman, 11 Colo. 551, 19
Pac. 508.

204 Read vy. Gas. Co., 9 Heisk. (Tenn.) 545.

205 Ante, p. 77. As to stockholders’ meetings, see ante, p. 466.

206 Bank of Augusta vy. Earle, 13 Pet. 521.
$§ 198-194) DiREcToRS’ MEETINGS AND RESOLUTIONS. 491

that by which it was created.?°? Thus, it has been held that they
may meet outside the state, and confer authority upon an agent to
execute a deed, mortgage, or other instrument for the corporation,?°*
or appoint a secretary.?°

Notice of Meeting.

To constitute a valid directors’ meeting, all of the directors must
have notice of the time and place of meeting, unless the meeting is
a stated one, so that each one of them is chargeable with notice, or
unless a less number than all are made a quorum, and given power
to transact business. It is immaterial in what way the day of the
regular meetings of directors is fixed. If it has been fixed by usage,
a tacit understanding of the members, or in any other way, it is
enough.??° The purpose of the meeting need not be specified, un-
less required by the charter or by-laws. When a meeting of directors
is notified without specification of the particular purpose, it is to
be understood that it is called to consider any matters pertaining
to the conduct of the affairs of the corporation that may come be-
fore it.2** It is not necessary that the records of a corporation shall
show that all the directors of the corporation had notice of a di-
rectors’ meeting, or the terms of the notice. In the absence of evi-
dence to the contrary, a,sufficient notice will be presumed.?*? If,
by the charter of a corporation, a certain number of directors are
made a quorum, and given power to transact business, the corpora-
tion is bound by the unanimous concurrence of that number at a
casual meeting, and without notice to the others, unless notice is
expressly required by the charter or by-laws.?*® But in the absence
of such a provision a majority of the directors cannot bind the cor-
poration where one of the directors is not present at the consulta-

207 Post, p. 618; Wright v. Lee, 2 S. D. 596, 51 N. W. 706, 713.

208 Arms v, Conant, 36 Vt. 744; Bellows v. Todd, 39 Iowa, 209, 217; Saltmarsh
y. Spaulding, 147 Mass. 224, 17 N. E. 316.

209 McCall v. Manufacturing Co., 6 Conn. 428.

210 Atlantic Mut. Fire Ins. Co. v. Sanders, 36 N. H. 252, 269.

211 In re Argus Co., 1388 N. Y. 557, 34 N. E. 388, 394.

212 Sargent v. Webster, 13 Metc. (Mass.) 497; Leavitt v. Mining Co., 3 Utah,
265, 1 Pac, 356;. Chuse v. Tuttle, 55 Conn. 455, 12 Atl. 874.

218 Hdgerly v. Emerson, 23 N. H. 555; State v. Smith, 48 Vt. 266; Chase v.
Tuttle, 55 Conn. 455, 12 Atl. 874.
492 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch, 13

tion, and has not been given notice of the proposed action, and the
act is not done at a regular meeting, of which he should know, and
at which he might bé@ present.2?4 The fact that notice of a special
meeting was not given, even where it was required by the charter or
by-laws, is immaterial, if all the directors were present and par-
ticipated in the proceedings.?**

“Quorum”? and ‘‘ Majority.” ;

In the case of a stockholders’ meeting, as we have seen, no par-
ticular number are required to constitute a quorum, unless there is
some charter or statutory provision.?** With directors it is other-
wise. In the absence of provision to the contrary in a statute, or in
the charter or by-laws, a majority of the directors are necessary to
constitute a quorum.?!7_ A less number cannot act so as to bind the
corporagion, but can only adjourn. A majority is always enough to
constitute a quorum, unless more are expressly required.*** It is
not necessary that the president of a corporation should be present
at a meeting of the directors, in order to authorize them to transact
business, unless this is expressly required.?*?

A majority of the quorum have authority to decide any question
upon which the board may act.??° Where the by-laws of a corpora-
tion confer upon the directors power to act in behalf of the corpora-
tion, without special limitation as to the manner, a majority may
act, within the scope of thé authority given to the board, and bind
the corporation, either where there is a consultation of all together,
and a concurrence of a majority, or where there is a regular meet-
ing at which all might be present, and a majority actually attend and
act by a major vote.?** And, where the act done at a meeting pur-

214 Despatch Line of Packets v. Bellamy Manuf’g Co., 12 N. H. 205.

215 Minneapolis Times Co. v. Nimocks, 53 Minn. 381, 55 N. W. 546.

216 Ante, p. 460.

217 Sargent v. Webster, 138 Metc (Mass.) 497.
‘218 Sargent v. Webster, supra; “Leavitt v. Mining Co., 3 Utah, 205, 1 Pac. 356.

219 Sargent v. Webster, 13 Mete. (Mass.) 497.

220 Sargent v. Webster, 13 Metc. (Mass.) 497; Buell v. Buckingham, 16 Iowa,
284; Leavitt v. Mining Co., 3 Utah, 265, 1 Pac. 356. .

221 Despatch Line of Packets v. Bellamy Manuf’g Co., 12 N. H. 205,
§§ 195-197) avurHority oF OTHER OFFICERS AND AGENTS. 493

ports to be the act of the board, it will be presumed that it was the
act of the majority, until the contrary is shown.???

As we have just®seen, a majority of the directors cannot bind the
corporation where one of the directors is not present at the consulta-
tion, and has not been given notice of the proposed action, and the
act is not done at a regular meeting of which he should know, and at
which he might be present.?22 But where, by the charter of a cor-
poration, a certain number of directors are made a quorum, and given
power to transact business, the corporation is bound by the unan-
imous concurrence of that number at a casual meeting, and without
notice to the others, unless notice is expressly required by the char-
ter or by-laws.?**

A director, unlike a stockholder at a stockholders’ meeting, is dis-
qualified to vote upon any resolution in which he is personally inter-
ested. “All the authorities agree that it is essential that the major-
ity of the quorum of a board of directors shall be disinterested in
respect to the matters voted upon.” 72°

Record of Proceedings.

It is not necessary that the votes or decisioris of the directors shall
be recorded, unless recording is required by the charter or by-laws.
If not recorded, they may be proved by parol. If they are recorded,
they must be proved by the record, unless, for some reason, second-
ary evidence may be admissible.?*°

AUTHORITY OF OTHER OFFICERS AND AGENTS,

195. The particular officers and agents of a corporation
have such authority only as is expressly conferred
upon them by the charter, by-laws, or resolution

222 Despatch Line of Packets v. Bellamy Manuf’g Co., 12 N. H. 205; Heintz-
elman vy. Association, 38 Minn. 138, 36 N. W. 100.

223 Ante, p. 491,

2247q, S

225 Miner v. Ice Co., 93 Mich. 97, 53 N. W. 218; Smith v. Association, 78 Cal.
289, 20 Pac. 677; Copeland v. Manufacturing Co., 47 Hun (N. Y.) 235.

226 Hdgerly v. Emerson, 23 N. H. 555; Ten Hyck y. Railroad Co., 74 Mich. 226,
41 N. W. 905.
494 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13.

of the board of directors or of the stockholders, and
such as is implied begause necessary or proper to.
enable them to perform the duties of their office,

196. If a corporation holds an officer out, or allows him to.
appear, as having authority not usual to such an of-
fice, it will be bound by acts done by him within.
the scope of his apparent authority.

197. A corporation may ratify any act done without pre-
vious authority which it could have authorized.
And ratification will be implied from acquiescence,
or acceptance of the benefits, with knowledge of the:
facts.

The powers of the officers of a corporation over its business and
property are strictly the powers of agents,—powers either conferred
by the charter, or delegated to them by the directors or managers,.
in whom, as the representatives of the corporation, the control of its.
business and property is vested. Like the agents of natural persons,
they can bind their prfncipal, the corporation, only within the scope
of their authority. Their authority, like the authority of agents of
natural persons, may be either express or implied. The rules relat-
ing to agency generally apply here.

If the general management of the business of a corporation is in-
trusted to a particular officer by the directors or by the’ corporation,
whatever may be the name given the office.—whether it be “presi-
dent” or “general manager” or “secretary” or “superintendent,’”—.
such officer has the implied power, in the absence of express limita-
tions, to do all acts on behalf of the corporation that may be neces-
sary or proper in performing his duties; that is, in managing the
company’s affairs and conducting its business. Such a general man-
aging officer or agent, for instance, has the implied authority to:
bcrrow money on behalf of the corporation, when needed in its busi-
ness, and to execute its note therefor, and to accept bills or indorse
paper in the usual cotirse of the company’s business.?*7 So, a per-
son appointed superintendent and manager of a corporation at a

227 See Matson vy. Alley, 141 Ill. 284, 31 N. KE. 419.

.
§§ 195-197) sauTHORITY OF OTHER OFFICERS AND AGENTS. 495.

particular place, where the corporation is prosecuting some work,
has, in the absence of express limitation, implied authority to pur-
chase supplies and implements, and engage services, necessary or
proper for carrying on the work, and may bind the corporation by
contracts therefor. His authority extends to all such usual dealings.
‘as are necessary to carry on the business from day to day.??®

No officer of a corporation can bind it by any act or contract that
is not within the line of his ordinary duties, unless authority is ex-
pressly conferred by the charter, or by the stockholders or board of
directors. Thus, it has been held that the president and cashier of
a bank have no authority, in discounting commercial paper, to agree
that the indorser shall not be liable on his indorsement, and such
an agreement is not binding on the bank. All discounts being made
under the authority of the directors, it is for them to fix any condi-
tions which may be proper in lending money.??® So, the treasurer,
secretary, president, or other officer of a corporation has no implied
authority to release a debtor of the corporation from his liability, or
to give up securities belonging to the company, without payment.
Such power must be expressly given, or it must be implied from a
course of dealing known to and sanctioned by the corporation.?*”
Such an officer, for instance, cannot release a subscriber from liabil-
ity on his subscription.23*

The powers of the president of a corporation are such only as he
derives from the board of directors or other authority to which he
owes his appointment. If there is nothing in the charter bestowing
special power upon him, he has, from his office merely, no more:
power over thé corporate property and business than any other di-
rector.28?, His powers depend upon the authority conferred upon
him by the board, and the duties with which he is charged.?** Thus,.

228 Rathbun v. Snow, 123 N. Y. 343, 25 N. EH. 379,

229 Bank of United States v. Dunn, 6 Pet. 51.

280 Moshannon Land & Lumber Co. v. Sloan (Pa. Sup.) 7 Atl. 102.

231 Potts v. Wallace, 146 U. S. 689, 18 Sup. Ct. 196.

282 Titus v. Railroad Co., 37 N. J. Law, 98; 1 Mor. Priv. Corp. § 537; 2 Cook,
Stock, Stockh. & Corp. Law, §§ 712, 716.

23317d.; Walworth County Bank v. Farmers’ Loan & Trust Co., 14 Wis. 825;
Templin vy. Railway Co., 73 Iowa, 548, 35 N. W. 634; Potts v. Wallace, 146 U..
S. 689, 13 Sup. Ct. 196,

s
496 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

in the absence of special authority, he cannot dispose of or mort-
gage the property of the corporation.?°*

It is very generally held that the treasurer of a corporation has no
implied authority, merely by virtue of his office, to borrow money
and execute notes on behalf of the company, or to indorse or trans- .
fer securities belonging to the company.?**> Such power must have
been expressly conferred by the charter or by-laws, or by resolution
of the board of directors, or the directors or managers must have
clothed the treasurer with apparent authority.?*® But in Massa-
chusetts it is held that, in the case of a trading or manufacturing
‘corporation, the treasurer is clothed, by virtue of his office alone,
with the power. to execute notes on behalf of the company; 2*? and
this rule has in a late case been held to apply to gaslight companies,
the business of which requires credit at certain seasons of the
year.?*8 Even in Massachusetts, however, the rule is held not to
extend to a college,?*® nor to a monument association,?*° nor to a
savings bank,*** nor to a horse-railroad company.”*? And two of the
judges dissented from the decision applying the rule to gaslight
companies.*** The treasurer of a corporation has no implied au-
thority to consent to judgment against the company without-suit.?**

224 See cases above cited; and see 2 Cook, Stock, Stockh: & Corp. Law, § 716,
and notes, where the cases are collected. See Leggett v. Banking Co., 1 N. J. Eq.
541.

235 In re Millward-Clift Cracker Co.’s Estate, 161 Pa. St. 157, 28 Atl. 1072;
‘Craft v. Railroad Co., 150 Mass. 207, 22 N. E. 920; Fifth Ward Sav. Bank v.
First Nat: Bank, 48 N. J. Law, 513, 7 Atl. 318; Wahlig v. Manufacturing Co.
(City Ct. N. Y.) 9 N. ¥. Supp. 739; First Nat. Bank yv. Council Bluffs City Water-
works Co. 56 Hun, 412, 9 N. Y. Supp. 859. And see Chemical Nat. Bank of
New York vy. Wagner, 93 Ky. 525, 20 S. W. 535.

236 As to apparent authority, see post, p. 498,

287 Narragansett Bank v. Atlantic Silk Co., 3 Mete. (Mass.) 282; Fay v. Noble,
12 Cush. (Mass.) 1; Merchants’ Nat. Bank of Gardiner vy. Citizens’ Gaslight Co.,
159 Mass. 505, 84 N. EH. 1083.

288 Merchants’ Nat. Bank of Gardiner v. Citizens’ Gas Light Co., supra.

289 Webber v. College, 28 Pick. (Mass.) 302.

240 Torrey v. Association, 5 Allen (Mass.) 327.

241 Tappan v. Bank, 127 Mass. 107.

242 Craft v. Railroad Co., 150 Mass. 207, 22 N. BE. 920,

243 Wield, C. J., and Allen, J., dissented.

244 Stevens v. Iron Co., 57 Mich. 427, 24 N. W. 160.
§8§ 195-197) AUTHORITY OF OTHER OFFICERS AND AGENTS. 497

The cashier of a bank, by custom, is its executive officer, through
whom the whole financial operations of the bank are conducted. He
has implied authority, from his office, without special authority, to
transact the ordinary business of the bank, as to receive deposits, and
packages of money consigned to the bank; to draw and indorse bills
of exchange, checks, and drafts; ?*° and to certify checks.*** So he
has the implied authority to transfer and indorse negotiable notes
or bills belonging to the bank,?*” or to release a debt secured by
mortgage, if he acts in conformity to the rules and practice of the
bank.**8 But he has no authority, unless it is expressly conferred
upon him, to bind the bank by acts and contracts which do not re-
late to the ordinary business of the bank, or to his ordinary duties
as cashier.?4® Where discounts, for instance, are made under the
authority of the board of directors, and not of the cashier, the-cash-
ier can make no special agreement in lending money.?®° Nor can
a cashier contract with the government, on behalf of the bank, for
the transfer of money.?°? The ordinary duties of cashiers of banks
do not comprehend a contract which involves the payment of money,
unless it has been loaned in the usual way, nor can a cashier create
an agency for the bank, unless he has been expressly authorized to
do so.?*? Nor can the cashier of a bank execute a mortgage on its
property.?°*

Persons dealing with a corporation are bound to take notice of
its charter, and generally of its by-laws, and if, by these, contracts
are required to be made by certain officers or agents only, they can-
not hold the corporation liable on a contract made with any other
officer or agent. They are bound, at their peril, to ascertain whether
the person assuming to contract with the corporation has authority

245 Merchants’ Bank v. Central Bank, 1 Ga. 418.
248 Merchants’ Bank v. State Bank, 10 Wall. 604.
247 Wild v. Bank‘of Passamaquoddy, 3 Mason, 505, Fed. Cas. No. 17,646.
248 Ryan v. Dunlap, 17 Ill. 40.
249 Bank of U. 8. v. Dunn, 6 Pet. 51; U.S. v. City Bank, 21 How. 356.
250 Bank of U. S. v. Dunn, supra.
251 U. S. v.. City Bank, supra.
252 7d,
253 Leggett v. Banking Co., 1 N. J. Eq. 541.
Clk.Pr.Corp.—82
498 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

to bind it.25* This principle is qualified by another, which we shall
consider in the following paragraph, namely, that, where a corpora-
ticn allows another to appear as having authority to bind it in a
particular transaction, it will be estopped to deny the apparent
authority with which it has clothed him, to the prejudice of persons
dealing with him, and cannot even set up a by-law to limit such
apparent authority.?°*

Holding Out—Agency by Estoppel.
It is a well-settled principle of the law of agency that third persons
may act upon the apparent authority conferred by the principal upon
.the agent, and are not bound by secret limitations or instructions
qualifying the terms of the written or verbal appointment, and this
applies with full force to a corporation which clothes a person with
apparent authority to act as its agent.*°* An officer of a corporation
may, by the acts of its directors or managers, be invested with the
capacity to bind the company by his acts beyond those powers which
are inherent in and implied from his office. If, in the general course
of the company’s business, the directors or managers haye permitted
an officer to assume the direction and control of its affairs, and have
held him out to the public as its general agent, his authority to act
for the company in a particular transaction may be implied from the
manner in which he has been permitted by the directors or managers
to transact its business.257 Thus, though the treasurer of a corpora-
tion may have no implied authority, by virtue of his office alone, to
borrow money and issue negotiable paper therefor on behalf of the
corporation, nor to draw or accept bills of exchange or indorse notes,
yet, if the directors or other managers allow him to do so, authority
will be implied.?°*

264 Bocock’s Ex’r v. Iron Co., 82 Va. 913, 1 S. E. 325.

255 Post, pp. 499, 500.

256 Rathbun v. Snow, 123 N. Y. 348, 25 N. BE. 379; Marshall v. Express Co., 7
Wis. 1, 73 Am. Dec. 381; Carson City Sav. Bank v. Carson City Elevator Co.,
90 Mich. 550, 51 N. W. 641; Sherman Center Town Co. vy. Swigart, 43 Kan. 292,
23 Pac. 569.

257 Fifth Ward Sav. Bank v. First Nat. Bank, 48 N. J. Law, 513, 7 Atl. 318;
McNeil v. Boston Chamber of Commerce, 154 Mass. 277, 28 N. B. 245; Mining
Co. v. Anglo-Californian Bank, 104 U. S. 192.

258 Fifth Ward Say. Bank vy. First Nat. Bank, 48 N. J. Law, 513, 7 Atl. 318;
§$ 195-197) AUTHORITY OF OTHER OFFICERS AND AGENTS. 499

As we have seen in the preceding paragraph, persons dealing with
a person as agent of a corporation are bound to know whether or not
he has authority to represent it. This does not mean that they can
not assume that his apparent authority is real, nor that, if a person
contracts with an agent acting within the apparent scope of his au-
thority, he is bound, at his peril, to ascertain whether there are any
extrinsic facts limiting his authority in the particular transaction.
If an officer of a corporation acts within the apparent scope of his
authority, persons dealing with him are not bound to have knowledge
of extrinsic facts making it improper to act in the particular case.**°

By-laws of business corporations are, as to third persons, private
regulations, binding as between the corporation and its members, or
third persons having knowledge of them; but they are of no force as
limitations, per se, as to third persons, of an authority which, except
for the by-laws, would be construed as within the apparent scope of
the agency. Therefore, where a corporation, for the purpose of min-
ing, among other things, appointed a person “superintendent and
manager” at a particular place, it was held that he had apparent au-
thority to purchase, on the credit of the corporation, supplies and im-
plements for carrying on the work, and that the rights of persons con-
tracting with him within such apparent authority could not be af.-
fected by a by-law of the corporation, of which they had no notice,
providing that no debt should be contracted by any officer or agent’
of the corporation, nor any obligation created imposing liability upon
it, unless expressly authorized by a majority of the board of trus-
tees.?°¢

The fact that an officer of a corporation, like the treasurer, has
been in the habit of executing and issuing the notes of the corpora-

Page y. Railroad Co., 31 Fed. 257; Credit Co. v. Howe Mach. Co., 54 Conn. 357,
8 Atl 472. “The rule is well settled that if a corporation permit the treasurer to
act as their general fiscal agent, and hold him out to the public as having the gen-
eral authority implied from his general name and character, and by their silence
and acquiescence suffer him to draw and accept drafts, and to indorse notes pay-
able to the corporation, they are bound by his acts done within the scope of such
implied authority.” Lester v. Webb, 1 Allen (Mass.) 34.

259 Credit Co. v. Howe Mach. Co., 54 Conn. 357, 8 Atl. 472; New York & N.
H. R. Co. v. Schuyler, 34 N. Y. 30, 2 Cumming, Cas. Priv. Corp. 119; post,
p. 525,

260 Rathbun v. Snow, 123 N. Y. 348, 25 N. BH. 879.
500 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

tion, signed by himself alone, without authority, does not abrogate
a by-law requiring notes to be countersigned by another officer, or
constitute a holding out of such officer as authorized to so issue notes,
if neither the directors nor stockholders had knowledge that this was
being done.?°

Where a person has been appointed superintendent of a corpora-
tion’s business in a foreign country, though by a resolution expressed
by word in presenti, with the understanding both on the part of the
corporation and of the appointee that his duties and authority are
not to commence until certain preliminary stages of its business shall
be completed, he cannot bind the corporation before that time by
holding himself out as its active agent to one who relies merely upon
his representations, without any knowledge of the resolution.?*?
Agency by Ratification.

A corporation, like a natural person, may become bound by the act
of a person assuming to act for it without authority, if it ratifies the
act. It may ratify, and thereby render binding, any act done without
authority which it could have authorized; and an act may be ratified
by any ofticer or board who or which could have authorized it.?**
And ratification may be implied from the conduct of the corporation
or its authorized agents,as where it accepts the benefits with notice of
the circumstances.?** Thus, if a person, professing to be authorized,
mortgages the personal property of a corporation in order to procure
a loan, and the money obtained thereby comes into the possession of
the corporation, and is retained by it, this will be evidence of a rati-
fication of the mortgage.?°*

Ratification of an act done by one assuming to act as agent relates
back, and is equivalent to a prior authority. When, therefore, the
adoption of any particular form or mode is necessary to confer the

261 Wstate of Millward-Cliff Cracker Co., 161 Pa. St. 157, 28 Atl. 1072.

262 Rathbun yv. Snow, 123 N. Y. 343, 25 N. E. 379.

268 Burrill v. President, etc., 2 Metc. (Mass.) 163, W. D. Smith, Cas. Corp. 112;
M’Laughlin v. Railway Co., 8 Mich. 100; Leggett v. Banking Co., 1 N. J. Ea.
541; Aurora Agricultural & Horticultural Soc. v. Paddock, 80 Ill. 263; Reich-
wald v. Hotel Co., 106 Ill. 489; Grape Sugar & Vinegar Manuf’g Co. v. Small,
40 Md. 395. .

264 Cases above cited.

266 Despatch Line of Packets v. Bellamy Manuf’g Co., 12 N. H. 205.
§§ 195-197) AUTHORITY OF OTHER OFFICERS AND AGENTS. 501

authority in the first instance, there can be no valid ratification, ex-
cept in the same manner. Thus, if a person executes a contract or
conveyance under seal for a corporation, without authority, his act
can be ratified only by an instrument under seal, where, as at common
law, authority to execute a sealed instrument must be under seal.
But parol ratification may render the contract binding as a parol con-
tract, if a seal is not necessary.?°*

Negotiable Instruments.

Where an officer of a,corporation executes and issues negotiable pa-
per, purchasers thereof buy at their peril, as to his authority to exe-
cute it; but there is this exception, namely, that if the officer, in issu-
ing the paper, acted within the apparent scope of his authority, but
in the particular instance acted wrongfully, and the purchaser had no
notice of the wrongful character of the act, or of facts sufficient to
put him on inquiry, the purchaser will be protected, as against the
corporation.?°*

Ultra Vires Contracts by Agents.

If a corporation has no power to enter into a particular contract, it
cannot, by appointing an agent, become bound by such a contract
entered into by him, nor can it become bound by ratification. This
is too clear to require argument. “The powers of agents of corpora-
tions to enter into contracts in their behalf are limited, by the
nature of things, to such contracts as the corporations are by their
charters ‘authorized to make. * * * The same want of power
to give authority to an agent to contract, and thereby bind the cor-
poration, in matters beyond the scope of their corporate objects,
must be equally conclusive against any attempt to ratify such con-
tract. What they cannot do directly they cannot do indirectly.
They cannot bind themselves by the ratification of a contract which
they had no authority to make. The power of the agent must be
restricted to the business which the company was authorized to do.

266 Tq,

267 Chemical Nat. Bank v. Wagner, 98 Ixy. 525, 20 S. W. 5385; Page v. Rail-
road Co., 31 Fed. 257; Wahlig v. Manufacturing Co. (City Ct. N. Y.) 9 N. Y.
Supp. 739; Merchants’ Nat. Bank v. Citizens’ Gaslight Co., 159 Mass. 505, 34 N.
E. 10838; Credit Co. v. Howe Mach. Co., 54 Conn. 357, 8 Atl. 472; Matson vy.
Alley, 141 Ill, 284, 81 N. B. 419.
502 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

Within the scope of the business which they had power to transact,
he, as its agent, may be authorized to act for it, but beyond that he
could not be authorized, for its powers extend no further.” *°8

NOTICE TO OFFICER AS NOTICE TO CORPORATION.

198. Knowledge of facts acquired by an officer or agent of
a corporation is notice to the corporation, if ac-
quired by him while acting within the scope of his
duties, but not otherwise.

It is a well-settled principle of the law of agency that knowledge
of facts acquired by an agent is notice to the principal of such facts,
ti the knowledge is acquired by the agent in the course of his em-
ployment, but not otherwise. This principle is applicable to agents
of corporations. We have seen that the directors of a corporation
represent and have power to bind the corporation only when acting
as a board, at a board meeting. It follows that notice to a director,
or knowledge derived by him, individually, and not while acting of-
ticially, as a member of the board, in the business of the corporation,
is not to be regarded, in law, as notice to the corporation.?®° Ina
Connecticut case, after a defective deed had been recorded, purport-
ing to convey certain land, one of the directors of a corporation, not
acting as agent of the corporation, and having no management of
its business otherwise than as director, went to the town records
for the purpose of ascertaining the situation of the land, and there
saw the record of the deed; but he did not inform the corporation,
or any of its agents, thereof. It was held that the corporation was

268 Downing v. Road Co., 40 N. H. 230, 1 Cumming, Cas. Priv. Corp. 148.
Selling railroad bonds upon commission is not within the scope of the corporute
powers of a national bank, and therefore no action lies against such a corpora-
tion for false representations made by its teller to induce the plaintiff to buy
bonds. Weckler v. Bank, 42 Md. 581.

269 Bank of U. 8. v. Davis, 2 Hill (N. ¥.) 451; Buttrick v. Railroad, 62 N.
H. 413; New Haven, M. & W. R. Co. v. Town of Chatham, 42 Conn. 465;
Farrell Foundry v. Dart, 26 Conn. 376; Farmers’ & Citizens’ Bank v. Payne, 25
Conn. 444.
§ 198) NOTICE TO OFFICER AS NOTICE TO CORPORATION. 5038

not, by reason of these facts, chargeable with any knowledge of the
deed.?7° The same principle has often been applied where it was
sought to charge a corporation with notice in order to defeat its
claim as a bona fide holder of negotiable paper.?"*

This doctrine is by no means limited to directors. It applies to
all officers and agents, the only qualification being that the knowl-
edge must be acquired in the course of their employment.?*? As
was said by the Alabama court in a late case: “Notice to one agent
of a corporation with respect to a matter covered by his agency must
be as efficacious as to its directors or to its president, since these
also are only agents, with larger powers and duties, it is true, but
not more fully charged with respect to the particular thing than he
whose authority is confined to that one thing.”?"* If the officer does
not represent the corporation in the transaction by which he ac-
quires knowledge of facts, or where he is acting in his own interest,
and against the interest of the corporation,—as where an officer of
a corporation procures the corporation to discount a note, of the ille-
gal consideration of which he has knowledge, or where he sells and
conveys land to the corporation with knowledge of outstanding eq-

270 Farrell Foundry v. Dart, 26 Conn. 376.

271 Farmers’ & Citizens’ Bank v. Payne, 25 Conn. 444; and other cases in note
269, supra. .In this case it appeared that a director of a bank had knowledge of the
object for which certain bills of exchange were delivered to a party applying to
the bank for a discount thereof, but this director was not present at the meeting
of the directors at which such application was made, and the bills discounted;
and he did not communicate his knowledge to any other director or officer of the
bank, It was held that such knowledge on the part of the director was not notice
tu the bank.

272 Saint v. Manufacturing Co., 95 Ala. 362, 10 South. 539. Thus, where a
defaulting treasurer of a corporation, whose defalcation was as yet unknown,
stole money from a third person, and placed it with the funds of the corporation,
in order to conceal and make good his defalcation, without the knowledge of any
other officer, it was held that the corporation, having used the money as its own,
did not thereby acquire a good title to it, as against the true owner, since it was
charged with the knowledge of its treasurer, who was its representative in the
transaction. Atlantic Cotton Mills v. Indian Orchard Mills, 147 Mass. 268, 17
N. E. 496; Huron Printing & Binding Co. v. Kittleson, 4 S. D. 520, 57 N. W.
233.

273 Saint v. Manufacturing Co., 95 Ala. 862, 10 South. 539, 544.
504 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

uities,—in which case he could not be supposed to give notice to the
corporation, his knowledge cannot be imputed to the corporation.?7+

CONTRACTS BETWEEN STOCKHOLDER AND CORPORATION.

199. Stockholders or members in a corporation have as
much right to contract with it as if they were stran-
gers, and have the same rights under such con-
tracts as a stranger would have.

The members or stockholders, as we have heretofore pointed out,
compose the corporation, but they are not the corporation. They
have as much right to deal with the corporation as a stranger would
have, and may sue it on its contracts. Thus, they may advance
money to it in excess of the capital contributed, and the result will
be a debt due them by the corporation, which will stand upon ex-
actly the same footing as such a debt due to a stranger.?7> And a
stockholder who is a creditor of the corporation may be preferred in
an assignment made by it in any case where a creditor not connected
with the corporation could be preferred.?7¢

RELATION BETWEEN OFFICERS AND CORPORATION.

200. The officers of a corporation, being its agents, and:
intrusted with the management of its affairs, though
not strictly trustees, occupy a fiduciary relation
towards it, and cannot, directly or indirectly,, de-
rive any personal advantage or profit from their
position which is not enjoyed in common by all the

274 Merchants’ Nat. Bank vy. Lovitt, 114 Mo. 519, 21 S. W. 825; Johnston v.
Shortridge, 93 Mo. 227, 6 S. W. 64; Frenkel v. Hudson, 82 Ala. 158, 2 South.
758; Wickersham vy, Zine Co., 18 Kan. 481; Inverarity y. Bank, 139 Mass. 382,
1. E. 282; Casco Nat. Bank y. Clark, 189 N. Y. 307, 34 N. BE. 908.

275 See Lexington Life, Fire & Marine Ins. Co. v. Page, 17 B. Mon. 412;
ante, p. 8. And a stockholder who is a creditor may take a mortgage to secure
the debt. Gordon v. Preston, 1 Watts (Pa.) 385.

276 Lexington Life, Fire & Marine Ins. Co. v. Page, supra.
§ 200) RELATION BETWEEN OFFICERS AND CORPORATION. 505

stockholders. Any secret profits made by them in
the transaction of the company’s business belong
to the company.

The cases do not agree in the terms used to designate the relation
existing between the directors and other officers of a corporation and
the corporation. In most of the cases they are spoken of as “trus-
tees.” 277 In others they are spoken of as “agents.” 27° And in oth-
ers they are termed “mandataries.” 77° By ‘the better opinion, they
are not strictly trustees, but they are simply the agents of the cor-
poration, and they are governed by the rules of law applicable to other
agents.?8° However much the authorities may disagree in the use
of terms to describe the relation, they all agree that the relation is a
fiduciary one, and it is generally to express this idea that the relation
is spoken of as a “trust relation.”

Since the relation between the directors and the corporation is fidu-

277In re Cameron’s Coalbrook, ete, Ry. Co., 18 Beav. 339; Liquidators of
The Imperial Mercantile Credit Ass’n v. Coleman, L. R. 6 H.iL. 189; Koehler
vy. Iron Co., 2 Black, 721; Robinson v. Smith, 3 Paige (N. Y.) 222, 24 Am. Dec.
216; Shea v. Mabry, 1 Lea (Tenn.) 319. See note, 53 Am. Dec. 637.

278 Ferguson v. Wilson, 2 Ch. App. 77; Allen v. Curtis, 26 Conn. 456; Over-
end & Gurney Co. v. Gibb, L. R. 5 H. L. 480.

279 Spering's Appeal, 71 Pa. St. 11, 10 Am. Rep. 684.

280 See 1 Mor. Corp. § 516; note, 58 Am. Dec. 637; Wayne Pike Co. v.
Hammons, 129 Ind. 368, 27 N. HE. 487. ‘The liability of officers to the corpora-
tion for damages caused by negligent or unauthorized acts rests upon the com-
mon-law rule, which renders every agent liable who violates his authority or
neglects his duty to the damage of his principal.’”’ North Hudson Mut. Bld’g &
Loan Ass’n vy. Childs, 82 Wis. 460, 52 N. W. 600, 605. ‘Bank directors are often
styled ‘trustees,’ but not in any technical sense. The relation between the cor-
poration and them is rather that of principal and agent.’ Briggs v. Spaulding,
141 U. S. 182, 11 Sup. Ct. 924, 929, “It is by no means a well-settled point what
is the precise relation which directors sustain to stockholders. They are, un-
doubtedly, said in many authorities to be trustees; but that, as I apprehend, is
only in a general sense, as we term an agent or any other bailee intrusted with
the care and management of the property of another. It is certain that they are
not technical trustees. They can only be regarded as mandataries,—persons who
have gratuitously undertaken to perform certain duties, and who are therefore
bound to apply ordinary care and diligence, and no more.” Per Sharswood, J.,
in Spering’s Appeal, 71 Pa. St. 11.
506 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

ciary, it follows that a director cannot, directly or indirectly, derive
any personal profit or advantage by reason of his position that is not
enjoyed in common by all the stockholders.?** A director, said the
Pennsylvania court in a late case, is a trustee for the entire body of
stockholders, and both good morals and good law imperatively de-
mand that he shall manage all the business affairs of the company
with a view to promote the common interests, and not his own inter-
ests; and he cannot, directly or indirectly, derive any personal profit
or advantage, by reason of his position, distinct from the other stock-
holders. “By assuming the office, he undertakes to give his best
judgment, in the interests of the corporation, in all matters in which
he acts for it, untrammeled by any hostile interest in himself or oth-
ers. There is an inherent obligation on his part that he will in no
manner use his position to advance his own interest as an individual,
as distinguished from that of the corporation. And all secret profits
derived by him in any dealings in regard to the corporate enterprise
must be accounted for to the corporation, even though the transaction
in which they were made also advantaged the corporation of which
he was director.” 2°? Thus, where the directors of a corporation se-
cured their own debts by a mortgage. of the corporate property, it was
held that the mortgage should be set aside.*** So, where the presi-
dent of a bank, who was also a director, loaned the moneys of the
bank, on a note running to the bank, at a stipulated rate of interest,
but on a secret agreement with the borrowers that he should partici- °
pate in the profits of lands to be purchased with the money, it was
held that he was guilty of a breach of trust, and that the profits so
acquired by him belonged to the bank.?**

281 Arkansas Val. Agr. Soc. v. Eichholtz, 45 Kan. 164, 25 Pac. 613.

282 Bird Coal & Iron Co. v. Humes, 157 Pa, St. 278, 27 Atl. 750; Koehler v.
Tron Co., 2 Black, 715; Farmers’ & Merchants’ Bank v. Downey, 53 Cal. 466;
Parker v. Nickerson, 112 Mass. 195; Wardell v. Railroad Co., 108 U. S. 651;
‘Cook v. Sherman, 20 Fed. 167; Perry v. Cotton-Seed Oil-Mill Co.. 98 Ala. 364.
9 South, 217; Flint & P. M. Ry. Co. vy. Dewey, 14 Mich. 477; Rutland Electric
Light Co. v. Bates, 68 Vt. 579, 35 Atl. 480. Compare Keeney vy. Converse, 99
Mich. 316, 58 N. W. 325, where stockholders were held barred of relief by reason
of laches.

288 Koehler v. Iron Co., supra.

284 Warmers’ & Merchants’ Bank vy. Downey, 53 Cal. 466.
Ԥ 200) RELATION BETWEEN OFFICERS AND CORPORATION. 507

This doctrine does not apply where an officer of a corporation enters
‘into a transaction in which he owes no duty to the corporation. It
is said by Morawetz that a director or other agent of a corporation
may purchase property, and afterwards sell it to the corporation at
an advance, provided it was not his duty at the time of the purchase
to purchase for the corporation, and that he may purchase claims
against the corporation at a discount, and enforce them in full, if he
was under no obligation to purchase them for the corporation; and
this proposition is abundantly supported by authority.’*° If he was
‘under any duty to the company, however, at the time of the purchase,
it may claim the benefit of any profit or advantage realized by him.
As we shall presently see, at some length, the fiduciary relation in
‘which an officer stands towards the corporation disqualifies him to rep-
resent it in making contracts in which he is personally interested.
‘There is much confusion as to the effect of contracts and transactions
between a corporation and its officers. Therefore we will reserve the
‘subject for a separate section.

The doctrine of these cases has been applied to a purchase by a di-
‘rector, at an execution sale, of the corporate property, on the ground
that itis the duty of a director to prevent such a sale, if possible, and,
‘if not, then to endeavor to have the property produce the highest
price, and, in order to the attainment of these objects, to use the
knowledge he has derived from the confidence reposed in him as di-
rector, while, as purchaser, on the other hand, it is to his interest to
‘pay as little as possible, and to use his special knowledge for his own
advantage. And it is held in some states that in such cases actual
fraud or actual advantage need not be shown; that the corporation
has an absolute right to disaffirm the sale and demand a resale.?**
‘Other courts, however, hold that such a purchase is valid, if in good
faith.?87

2851 Mor. Corp. § 521, and cases there cited. See, also, St. Louis, Ft. S. &
W. R. Co. v. Chenault, 836 Kan. 51, 12 Pac. 303, where the treasurer of a rail-
‘road corporation, who, with his own money, and for himself individually, had
.purchased notes of the company at a discount, was allowed to collect their full
face value from the company, on the ground that, at the time of the purchase,
‘he was under no obligation to purchase or to pay them on behalf of the company.

286 Hoyle v. Railroad Co., 54 N. Y. 595.

287 Saltmarsh v. Spaulding, 147 Mass. 224, 17 N. BE. 316; Watt’s Appeal, 78
Pa, §t. 370. :
508 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

CONTRACTS OR OTHER TRANSACTIONS BETWEEN OFFI-
CERS AND THE CORPORATION.

201. An officer cannot, as such, on behalf of the corpora-
tion, contract with or convey to himself in his in-
dividual capacity, unless he acts under the imme-
diate direction of a superior agent.

202. The directors or other officers of a corporation have
no right to represent it in contracts or transactions
with themselves, or in which they are personally
interested. If they do so, the corporation not being
represented by other agents who are disinterested,
the contract or transaction is voidable at the option
of the corporation. But,

(a) By the weight of authority, a contract or transaction
with an officer, or in which he is personally inter-
ested, will be binding upon the corporation if it is
shown to be fair and free from fraud, and if the
corporation was represented by-‘other agents. In
New York and some other jurisdictions it is held,
even in these cases, that the contract or transaction
may be avoided by the corporation, and that the
question of fraud is immaterial.

(b) Such a contract or transaction may be ratified by the
stockholders, either expressly or impliedly, by ac-
quiescence or acceptance of the benefits with knowl-
edge of the facts.

(c) The corporation is liable, on avoiding the contract or
transaction, for the benefits actually received and
retained.

Contract or Transaction by Officer with Himself.

From the nature of things, the directors or other officers or agents
of a corporation cannot contract in their representative capacity with
themselves in their capacity as individuals; nor can they convey to
themselves. Such a transaction would be void for want of two par-
§§ 201-202) TRANSACTIONS BETWEEN OFFICERS AND CORPORATION. 509

ties. “The idea,” said Orton, J., in a Wisconsin case, “that the same
persons constitute different identities of themselves by being called
directors or officers of a corporation, so that, as directors or officers,
they can convey or mortgage to or contract with themselves as private
persons, is in violation of common sense.” ?** But it has been held
that an agent may represent the corporation in making a contract
with himself personally, if he acts under immediate instructions from
a superior agent, or from the board of directors.?®®

Personal Interest of Officer in Contract or Transaction.

It is an elementary principle that the same person cannot be al-
lowed to act for himself, and at the same time, with respect to the
same matter, as the agent for another, whose interests are conflicting.
Thus, a person cannot be a purchaser of property and at the same |
time the agent of the vendor. “The two positions impose different
obligations, and their union would at once raise a conflict between
interest and duty; and, constituted as humanity is, in the majority
of cases duty would be overborne in the struggle.” ?°° The law there-
fore will always condemn the transactions of a party on his own be-
half, directly or indirectly, when, in respect to the matter concerned,
he is the agent of others, and will relieve against them whenever their
enforcement is seasonably resisted.?®* This doctrine applies with full
force to transactions by directors or other officers of a corporation,
on behalf of the corporation, in which they are personally interested.
They will not be permitted to occupy a position in which their own
interests will conflict with the interests of the corporation which they
represent, and which they are bound to protect. It is well settled,
therefore, that, where the directors or other officers or agents of a

288 Haywood v. Lumber Co., 64 Wis. 639, 26 N. W. 184, 187; per Campbell,
J., in People v. Towuship Board of Overyssel, 11 Mich. 222; Miner v. Ice Co.,
93 Mich, 97, 53 N. W. 218.

2891 Mor. Priv. Corp. § 527; Louisville, N. A. & C. Ry. Co. v. Carson, 151
Til. 444, 38 N. E. 140. In this case a lease to a corporation by a lessor, who
also executed the lease on behalf of the company as its vice president and man-
ager, was held good, where it was executed in good faith, under the direction
of the president, and ratified by the corporation by taking possession, and paying
rent according to its terms.

290 Wardell vy. Railroad Co., 163 U. S. 651.

291 Id.
510 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13-

corporation are personally interested in any contract or transaction
into which they enter on behalf of the corporation, the latter may re-
pudiate it. “They cannot, as agents or trustees, enter into nor au-
thorize contracts on behalf of those for whom they are appointed to.
act, and then personally participate in the benefits.” °°? If any prof-
its are made out of such a transaction, they will inure to the benefit
of the corporation. Thus, where the directors of a corporation bought
a steamboat in their individual capacity, and then, as directors, caused
it to be purchased on behalf of the corporation at a large advance
upon its cost and value, it was held that the transaction was fraudu-
lent, and that the profits inured to the benefit of the company, and
could be recovered by it, with interest.2°* This principle has been
applied in a variety of cases. There is no limit to the circumstances.
under which the question may arise. A director of a corporation is
disqualified to vote or act, at a meeting of the board, upon any reso-
lution in which he is personally interested. Thus, he cannot vote
on a resolution authorizing the renewal of notes of the corporation
in his favor.?** Where the directors fix the compensation for their
own services, either as directors or other officers, the transaction will.
be jealously scrutinized by the courts, and will be set aside, at the
election of the corporation, unless it is shown to be fair and free from
fraud.?°5

Extent of Personal Interest.

It can make no difference in the application of this principle that
there are other parties to a contract or transaction with a corporation
in which an officer is personally interested, who occupy no fiduciary
relation to the corporation.*®* The doctrine applies, for instance,
where a contract is made with a firm of which one of the directors is.

2921d.; Goodin v. Canal Co., 18 Ohio St. 169; United States Rolling-Stock Co.
y. Atlantic & G. W. R. Co., 34 Ohio St. 450; Flint & P. M. R. Co. v. Dewey,
14 Mich. 477; Gilman, C. & S. R. Co. v. Kelly, 77 Ill. 426; Alling v. Wenzel,
27 Ill. App. 511; Gallery v. National Exch. Bank, 41 Mich. 169, 2 N. W. 193.

208 Parker v. Nickerson, 112 Mass. 195.

294 Smith vy. Association, 78 Cal. 289, 20 Pac. 677.

295 Jones v. Morrison, 31 Minn. 140, 16 N. W. 854. See Copeland v. Manu-
facturing Co., 47 Hun (N. Y.) 285; Davis v. Railway Co., 22 Fed. 883; Miner
vy. Ice Co., 98 Mich. 97, 53 N. W. 218.

296 Munson v. Railway Co., 103 N. Y. 58, 8 N. E. 355.
§§ 201-202) TRANSACTIONS BETWEEN OFFICERS AND CORPORATION. 511

a member,?*’ or where it is with another corporation of which he is
also a stockholder.?®* The rule has frequently been applied, for in-
stance, where the directors of a railroad company enter into a con-
tract for the construction of its road with a construction firm or cor-
poration of which one or more of the directors are members.?** So
the directors of one corporation cannot act for it in contracting with
another corporation, of which they are also directors.*°°

Where the Corporation 1s Represented by Other Agents.

Most courts hold that a director or other officer may legally con-
tract with the corporation, if, in entering into the contract, the cor-
poration is represented by other agents; that, for instance, a director,
either alone or jointly with strangers, may sell property or lend money
to the corporation, or make any other contract with it, if the contract
is sanctioned by a majority of the board of directors, not including
himself; and that the corporation will be bound if the transaction
is fair, open, and free from fraud.*°? “It cannot be maintained,” said
Mr. Justice Miller in Twin-Lick Oil Co. v. Marbury,*°? “that any rule
forbids one director among several from lending money to the cor-
poration when the money is needed, and the transaction is open and
otherwise free from blame. No adjudged case has gone so far as this.

297 Aberdeen Ry. Co. v. Blakie, 1 Macq. 461.

298 Parker vy. Nickerson, 112 Mass. 195; Gilman, C. & S. R. Co. v. Kelly, 77
Ill. 426. And see Wardell v. Railroad Co., 103 U. S. 651.

299 See Thomas v. Railway Co., 2 Fed. 877; Id., 109 U. S. 522, 3 Sup. Ct. 315;.
Pearson y. Railroad Corp., 62 N. H. 587; Barr v. Railroad Co., 125 N. Y. 263,
26 N. EB. 145; Gilman, C. & S. R. Co. v. Kelly, 77 Ill. 426.

300 See United States Rolling-Stock Co. v. Atlantic & G. W. R. Co., 34 Ohio:
St. 450.

3011 Mor. Priv. Corp. § 527; Twin-Lick Oil Co. v. Marbury, 91 U. S. 587;.
Barr v. Plate-Glass Co., 6 C. C. A. 260, 57 Fed. 86; Beach v. Miller, 180 Ill.
162, 22 N. E. 464; Roseboom v. Whittaker, 132 Ill. 81, 23 N. BE. 339; Mullanphy
Sav. Bank v. Schott, 135 Ill. 665, 26 N. E. 640; Louisville, N. A. & C. Ry. Co.
y. Carson, 151 Ill. 444, 38 N. E. 140; Ten Byck v. Railroad Co., 74 Mich. 226,
41 N. W. 905; Hallam v. Hotel Co., 56 Iowa, 178, 9 N. W. 111; Garrett vy. Plow
Co., 70 Iowa, 697, 29 N. W. 395; Buell v. Buckingham & Co., 16 Iowa, 284;
Gorder v. Canning Co., 36 Neb. 548, 54 N. W. 830; Parker v. Nickerson, 137
Mass. 487; Holt v. Bennett, 146 Mass. 437, 16 N. BE. 5; Saltmarsh v. Spaulding,
147 Mass, 224, 17 N. E. 316.

30291 U. S. 587,
512 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

Such a doctrine, while it would afford little protection to the cor-
poration against actual fraud or oppression, would deprive it of the
aid of those most interested in giving aid judiciously, and best quali-
fied to judge of the necessity of that aid, and of the extent to which
it may safely be given.” Even in such cases as these, however, it is
well settled that the transaction will be jealously scrutinized by the
courts, and set aside at the instance of the corporation, if the slightest
fraud or unfairness appears.°°? And by the better opinion the bur-
den is on the directors or other officers to show the good faith and
fairness of the transaction.*°*

Some of the courts—the New York court among them—have
adopted a more rigid rule, and hold that a contract entered into with
a corporation, acting through its directors, by one or more of the di-
rectors, either alone or jointly with third persons, is voidable at the
option of the corporation, though a majority of the directors who as-
sent to the contract are not personally interested, and without regard
to whether or not the transaction is fair and free from fraud.*°> In
these jurisdictions the law does not inquire whether the transaction
was fair or unfair, but stops the inquiry as soon as the relation is
disclosed, and sets aside the transaction, or refuses to enforce it, at
the instance of the corporation, without asking whether there was
fraud or not. As was said in a New York case,*°* it prevents frauds
by making them, as far as may be, impossible, knowing that real
motives often elude the most searching inquiry; and it:leaves neither
to judge nor jury the right to determine, upon a consideration of its
advantages or disadvantages, whether a contract made under such+
circumstances shall stand or fall. It makes no difference in these
jurisdictions that only one director is a party to the contract, and

808 Thomas v. Railway Co., 109 U. 8S. 522, 3 Sup. Ct. 315; Twin-Lick Oil Co.
vy. Marbury, 91 U. 8S. 587; Hallam v. Hotel Co., 56 Iowa, 178, 9 N. W. 111;
Hubbard v. Investment Co., 14 Fed. 675; Meeker v. Iron Co., 17 Fed. 48.

304 Wilkinson v. Bauerle, 41 N. J. Eq. 635, 7 Atl. 514; Jones v. Morrison, 31
Minn. 140, 16 N. W. 854.

805 Aberdeen Ry. Co. v. Blakie, 1 Macq. 461; Munson v. Railway Co., 108 N.
Y. 58, 8 N. E. 855; Hoyle v. Railroad Co., 54 N. Y. 314; Pearson vy. Railroad
Corp., 62 N. H. 587; Hoffman Steam Coal Co. v. Cumberland Coal & Iron Co., 16
"Md. 456.

306 Munson vy. Railway Co., 108 N. Y. 58, 8 N, B. 355.
§§ 201-202) TRANSACTIONS BETWEEN OFFICERS AND CORPORATION. 513

that there were a number of other directors who voted for the’ con-
tract, and who were not personally interested.

Consent—Acquiescence and Laches of Corporation or Stockholders.

A contract between directors or other officers or agents of a cor-
poration and the corporation, or a transaction with the corporation
in which they are interested directly or indirectly, is not absolutely
void, even where there is fraud, if it is within the powers of the cor-
poration. It is simply voidable at the election of the corporation or
its stockholders.*°? To be binding on the corporation, it does not
need ratification. It is binding until avoided. It follows that if the
stockholders of the corporation, or a majority of them, where the
transaction is one which they could have authorized, but not other-
wise,*°* assent to the contract, expressly or impliedly, by taking the
benefit of it with knowledge of the facts, it becomes binding upon
the corporation, and cannot afterwards be avoided.®°® And such
consent will be implied if the stockholders are guilty of laches in
moving to avoid it. They must take steps to avoid it within a rea-
sonable time after they have knowledge of the circumstances.*?°
The rule that a contract between a director of a corporation and the
vorporation is voidable at the instance of the latter, or of its stock-
holders, clearly does not apply where all who are interested in the
corporation, its officers, directors, and stockholders, not only know
of but consent to it, and where the property acquired by the cor-

307 Barr v. New York, L. E. & W. R. Co., 125 N. Y. 268, 26 N. EB. 145; Twin-
Lick Oil Co. v. Marbury, 91 U. S. 587; Hoyle v. Railroad Co., 54 N. Y. 314.

308 For instance, the holders of a majority of the stock of ‘a corporation could
not, by their votes at a stockholders’ meeting, lawfully authorize its officers to lease
its property to themselves, or to another corporation formed for the purpose, and
whose stock is exclusively owned by them, unless such lease is made in good faith,
and is supported by an adequate consideration; otherwise, a fraud would thereby
be committed on the minority stockholders. See Meeker v. Iron Co., 17 Fed. 48.
As to the powers of the majority, see ante, p. 443.

309 Barr v. Railroad Co., 125 N. Y. 263, 26 N. E. 145; Louisville, N. A. & C.
Ry. Co. v. Carson, 151 Ill. 444, 88 N. E. 140; Welch v. Bank, 122 N. Y¥. 177, 25
N. E. 269; Hotel Co. v. Wade, 97 U. S. 138.

310 Twin-Lick Oil Co. v. Marbury, 91 U. S. 587; United States Rolling-Stock
Co. v. Atlantic & G. W. R. Co., 34 Ohio St. 450. And see Keeney v. Converse,
99 Mich. 316, 58 N. W. 325,

Clk.Pr.Corp.—83
514 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

poration under the contract is kept and used by it without dissent
by any one.?*4
Liability to Extent of Benefit.

Even where the contract is voidable, and is avoided by the cor-
poration, it will be liable for the actual value of the benefits it has
received. Thus, where two of the board of directors of a railroad
company, who took part in making a contract for the construction
of the road, were interested with the other parties in the contract,
and the other contractors entered into an agreement with the other
directors at the time the construction contract was made that, in ef-
fect, relieved them from liability on their unpaid stock, it was held
that the contract was voidable at the election of the corporation or
its stockholders, but that, to the extent of the benefit conferred
upon the corporation in the construction of the road, the bonds
issued in payment thereof were not void, and in a suit to foreglose a
mortgage by which they were secured a decree for that amount
should be allowed.?*?

LIABILITY OF OFFICERS TO THE CORPORATION.

208. The directors and other officers of a corporation are
liable to it for losses sustained

(a) By reason of a willful abuse of their trust, as by ex-

ceeding their authority or the powers of the corpo-

ration,,or by misapplication of the corporate funds.

(b) By reason of gross negligence and inattention to the

duties of their trust, though there may be no ac-

tual bad faith. By the weight of authority, they are

bound to exercise ordinary care and prudence,—

that is, the same degree of care and prudence that

men ordinarily exercise under similar circum-
stances in their own affairs,—and failure to do so is
gross negligence.

811 Battelle v. Pavement Co., 33 Minn. 89, 83 N. W. 327. And see Barr v.
Glass Co., 6 C. C. A. 260, 57 Fed. 86.

312 Thomas v. Railroad Co., 109 U. 8. 522, 3 Sup. Ct. 315. See, also, Wardell y.
Railroad Co., Fed. Cas. No. 17,164.
§ 203) LIABILITY OF OFFICERS TO THE CORPORATION. 515

(c) But they are not liable for accidents, thefts, etc.,
where they have not been negligent, nor for mere
mistakes or errors of judgment, where they have
acted in good faith and with ordinary care and dil-
igence.

(d) Nor are they liable for the acts or omissions of other
directors or agents, where they have not themselves
been guilty of neglect in supervising or appointing
them. It is otherwise, however, if they partici-
pated in such acts, or negligently failed to take
measures to prevent them.

It is well settled that the directors, trustees, or other officers of a
corporation, if they act in good faith within the limits of the powers
conferred upon the corporation by the charter, and within their au-
thority, and use proper prudence and diligence, are not responsible
for losses resulting to the corporation from mere mistakes or errors
of judgment.**® Thus, they are not liable for declaring and paying
a dividend which diminishes the capital, in violation of a statute
or of the common law, where they are not guilty of bad faith or negli-
gence.*** Nor are they liable for losses from accident, theft, etc.,
where they have not been negligent.®?® ‘

On the other hand, all the authorities agree that the directors or
other officers of a corporation who willfully abuse their trust, or
misapply the funds of the corporation, by which a loss is sustained,
are personally liable, as trustees, to make good the loss.*1* They
are bound to observe the limits placed upon their powers in the char-

818 Spering’s Appeal, 71 Pa. St. 11, 10 Am. Rep. 684, 1 Cumming, Cas. Priv.
Corp. 799; Watts’ Appeal, 78 Pa. St. 370; Hun v. Cary, 82 N. Y. 65, 37 Am.
Rep. 546; Hodges v. Screw Co., 1 R. I. 312, 58 Am. Dec. 624.

814 Wxcelsior Petroleum Co. v. Lacey, 63 N. Y. 422; Van Dyck v. McQuade,
86 N. Y. 38; Lexington & O. R. Co. v. Bridges, 7 B. Mon. (IXy.) 556.

815 Mowbray v. Antrim, 123 Ind. 24, 23 N. E. 858.

316 Robinson v. Smith, 3 Paige (N. Y.) 222, 24 Am. Dec. 212; Heath v. Railway
Co., Fed. Cas. No. 6,306; Perry v. Oil-Mill Co., 93 Ala. 364, 9 South. 217; Ellis
v. Ward, 137 Ill. 509, 25 N. BH. 530; Horn Silver Min. Co. v. Ryan, 42 Minn. 196,
44 N. W. 56; Gratz v. Redd, 4 B. Mon. (Ky.) 178, 195; Wilkinson v. Bauerle,
41 N, J. Eq. 635, 7 Atl. 514.
516 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

ter and by-laws, and if they intentionally or negligently. transcend
those powers, and do ultra vires or unauthorized acts, ihey are lia-
ble for the damages.*?7_ But they are not liable for violation uf the
charter through mistake, unless the mistake arose from the want of
due care.**8

And they are equally liable if they suffer the corporate. funds or
property to be lost or wasted by gross negligence, and inattention to
the duties of their trust, though there is no bad faith.**® In a late
Virginia case it appeared that the president of a savings bank mis-
appropriated its funds and overdrew his accounts, and a brother
of the president, and corporations of which the officers and directors
were also officers, largely overdrew their accounts, and were loaned
Jarge sums by the bank, with little or no security, though such bor-
rowers were irresponsible, and another borrower was permitted to
withdraw his security. The directors, though required to meet
weekly, met but once, twice, or three times a year, and never caused
the books to be examined, nor called for statements of accounts with
other banks. The capital of the bank was small, and much of it was
not paid up, and the paid-up portion was treated as a loan. The
bank, on suspension, was able to pay but 10 per cent. on the deposits.
Under these circumstances, it was held that, though the directors
were ignorant of the affairs of the bank, and were not guilty of bad
faith, they were guilty of such negligence as rendered them liable
to the depositors.*?°

317 Hun vy. Cary, 82 N. Y. 65, 37 Am. Rep. 546; Hodges y. Screw Co., 1 R. I.
312, 538 Am. Dec. 624. :

318 Hodges v. Screw Co., supra; Williams v. McDonald, 37 N. J. Eq. 409; and
cases hereafter cited. ;

319 Robinson v. Smith, 3 Paige (N. Y.) 222, 24 Am. Dec. 212; Brinckerhoff y.
Bostwick, 88 N. Y. 52; Marshall v. Bank, 85 Va. 676; 8 S. E. 586, 17 Am. St.
Rep. 84; Delano v. Case, 17 Ill. App. 531, 121 Ill. 247, 12 N. I. 676; United So-
ciety of Shakers vy. Underwood, 9 Bush (Ky.) 609, 15 Am. Rep. 731; President,
ete, of Bank of Mutual Redemption v. Hill, 56 Me. 385; Neall v. Hill, 16 Cal.
145; Horn Silver Min. Co. v. Ryan, 42 Minn. 196, 44 N. W. 56; Gratz v. Redd,
4 B. Mon. (Ky.) 178, 195; and cases in the following notes.

320 Marshall v. Bank, 85 Va. 676, 8 S. EB. 586. Compare Savings Bank of Lou-
isville’s Assignee v. Caperton, 87 Ky. 306, 8 S. W. 885; Briggs v. Spaulding, 141
U. S. 182, 11 Sup. Ct. 924, 2 Cumming, Cas. Priv. Corp. 186, Shep. Cas. Corp.
§ 203) LIABILITY OF OFFICERS TO THE CORPORATION. 517

An officer of a corporation is not liable to it for doing ultra vires
acts, and thereby causing a loss, if the acts were authorized by the
corporation; and such authority is shown if it appears that the di-
rectors and stockholders knowingly acquiesced therein.*** But the
board of directors alone cannot authorize violation of his duty by
an officer. Thus, it has been held by the supreme court of the
United States that no act or vote of the board of directors of a
bank, in violation of their own duties, and in fraud of the interests
and rights of the stockholders, will justify the cashier in acts which
are in violation of the stipulation in his official bond, well and
truly to execute the duties of his oftice, or exempt him and his sure-
ties from liability thereon.*??

Officers of a corporation are not bound to exercise the highest de-
gree of care and diligence ——such as a very vigilant or extremely
careful person would exercise.*** If this were required, it would be
difficult to find responsible persons to assume the duties of directors.
Nor do they perform their duty by exercising the lowest degree, or
slight care, such as inattentive persons would give to their own busi-
ness. They are bound to exercise ordinary care and prudence,—
the same degree of care and prudence that men prompted by self-
interest generally exercise in their own affairs. “When,” said the
New York court, “one voluntarily takes the position of trustee or di-
rector of a corporation, good faith, exact justice, and public policy
unite in requiring of him such a degree of care and prudence, and it
is a gross breach of duty—‘crassa negligentia’—not to bestow them.
It is impossible to give the measure of culpable negligence for all,

200. In the case last cited, it was held (Harlan, Gray, Brewer, and Brown, JJ.,
dissenting) that where the affairs of a bank are managed. by its president, who
has the reputation of being trustworthy and efficient, and owns the greater part of
the stock, and the bank is generally considered to be in a prosperous condition,
directors cannot be held liable for losses through mismanagement on the ground of
negligence, in that they did not, within 90 days after they became directors, compel
the board of directors to make a thorough investigation of the books and condition of
the bank,

321 Holmes, Booth & Haydens vy. Willard, 125 N. Y. 75, 25 N. B. 1083.

822 Minor v. Bank, 1 Pet. 46.

323 Briggs vy. Spaulding, supra.
518 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

cases, as the degree of care required depends upon the subjects to
which it is to be applied. What would be slight neglect in the care
of a quantity of iron might be gross neglect in the care of a jewel.
What would be slight neglect in the care exercised in the affairs of
a turnpike corporation, or even of a manufacturing corporation,
might be gross neglect in the care exercised in the management of a
savings bank.” *?* It is generally said that directors and trustees
are liable only for gross negligence,—“crassa negligentia,’—but, by
the weight of opinion, that phrase means the absence of ordinary
care and diligence under the circumstances of the particular case.***
There are some cases against this view of the law,—cases in which
it seems to be held that directors will not be liable for losses result-
ing from their inattention to the duties confided to them unless their
inattention was willful or fraudulent.2?® The cases agree that di-
rectors cannot be held responsible for the acts or omissions of other
directors or agents, unless they have been guilty of neglect in super-
vising or appointing them.*?*

324 Hun v. Cary, 82.N. Y. 65, 71, 37 Am. Rep. 46.

325 Hun v. Cary, supra; Scott v. Depeyster, 1 Edw. Ch. (N. Y.) 518, 543; Sper-
ing’s Appeal, 71 Pa. St. 11, 10 Am. Rep. 684, 1 Cumming, Cas. Priv. Corp. 799;
Hodges v. Screw Co., 1 R. I. 312, 58 Am. Dec. 624; Marshall v. Bank, 85 Va.
676, 8 S. E. 586; Williams v. McKay, 40 N. J. Eq. 189; North Hudson Mut.
Bldg. & Loan Ass’n v. Childs, 82 Wis. 460, 52 N. W. 600, 605; Horn Silver Min.
Co. v. Ryan, 42 Minn. 196, 44 N. W. 56. In Scott v. Depeyster, supra, it was
said: “I think the question in all such cases should and must necessarily be
whether they [directors] have omitted that care which men of common prudence
take of their own concerns. To require more would be adopting too rigid a rule,
and rendering them liable for slight neglect; while to require less would be relax-
ing too much the obligation which binds them to vigilance and attention in regard
to the interests of those confided their care, and expose them to liability for gross
neglect only, which is very little short of fraud itself.’ In Spering’s Appeal, supra,
Judge Sharswood said: ‘They [directors] can only be regarded as mandataries,—
persons who have gratuitously undertaken to perform certain duties, and who are
therefore bound to apply ordinary skill and diligence, but no more.”

326 See Savings Bank of Louisville’s Assignee v. Caperton, 87 Ky. 306, 8 S. W.
885; Godbold y. Bank, 11 Ala. 191; Neall y. Hill, 16 Cal. 145.

827 Directors ‘‘are not insurers of the fidelity of the agents whom they have ap-
pointed, who are not their agents, but the agents of the corporation; and they can-
not be held responsible for losses resulting from the wrongful acts or omissions of
§§ 204-205) LIABILITY OF OFFICERS TO THE CORPORATION, 519

SAME—REMEDIES AGAINST OFFICERS.

204. Where a loss results to a corporation by reason of the
fraud, wrong, or negligence of its directors or other
agents,

(a) The corporation may maintain
(1) An action on the case at law to recover damages.
(2) A suit in equity to compel them to account.

(b) An individual stockholder in such a case
(1) Cannot maintain an action at law, as the injury

is to the corporation.

(2) But he may sue in equity when, and only when,
the directors cannot or will not institute the
suit, and relief cannot be obtained by apply-
ing to a stockholders’ meeting.

(c) Creditors of the corporation, in case of insolvency,
may enforce the liability to the corporation; and by
statute, in a number of states, officers who are
guilty of fraud or neglect are expressly made lia-
ble to creditors.

205. The statute of limitations does not run against the
claim of a corporation against its officers for mis-
appropriation of corporate funds, since their rela-
tion is a fiduciary one.

An action on the case by the corporation will lie against the di-
rectors or other officers of a corporation for wrongful acts or negli-
gence affecting the interests of the company.*?* And a court of eq-
uity, in so far as the individual rights of the stockholders are con-

other directors or agents, unless the loss is a consequence of their own neglect of
duty, either for failure to supervise the business with attention, or in neglecting to
use proper care in the appointment of agents.” Briggs v. Spaulding, 141 U. S.
132, 11 Sup. Ct. 924, 929, 2 Cumming, Cas. Priv. Corp. 186; Shep. Cas. Corp. 200.

328 Franklin Fire Ins. Co. v. Jenkins, 8 Wend. (N. Y.) 180; Horn Silver Min.
Co. v. Ryan, 42 Minn. 196, 44 N. W. 56.
520 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

cerned, has jurisdiction to call the directors to account for breach
of trust, and to compel them to make satisfaction to the corporation
for any loss sustained by it.*?® Such a suit should ordinarily be
brought by the corporation, for the injury is to it, and not by individ.
ual stockholders. But a stockholder, as we have seen, may maintain
a suit in equity for the benefit of the corporation, where the directors
cannot or will not institute the suit in the name of the corporation,
and relief cannot be obtained by applying to a stockholders’ meet-
ing.2*° An individual stockholder cannot maintain an action at
law against the directors or other officers of the corporation for
fraud or negligence resulting in loss of corporate property. There is,
in the eye of the law, no privity or relation between the stockholders
and directors. The directors are not the agents of the stockholders,
but of the corporation, the legal entity; and therefore, at law, the
corporation alone can sue for injuries to it.*** If a corporation be-
comes insolvent, creditors may enforce in equity a liability of its
officers to the corporation for fraud or neglect resulting in loss to the
corporation.®®? In most states corporate officers are by statute ex-
pressly made liable to creditors of the corporation for certain delin-
quencies in the performance of their duties.***

Statute of Limitations.

The statute of limitations does not run against the claim of a cor-
poration against its officers for misappropriation of corporate funds,
since their relation to such funds is fiduciary.***

329 Robinson v. Smith, 3 Paige (N. Y.) 222, 24 Am. Dec. 212; Brinckerhoff v.
Bostwick, 88 N. Y. 52; Hodges v. Screw Co., 1 R. I. 312, 583 Am. Dec. 624.

380 Robinson v. Smith, 3 Paige (N. Y.) 222, 24 Am. Dec. 212; Horn Silver Min. -
Co. v. Ryan, 42 Minn. 196, 44 N. W. 56; Greaves v. Gouge, 69 N. Y. 154; Brinck-
erhoff v. Bostwick, 88 N. Y. 52; Hodges v. Screw Co., 1 R. I. 312, 53 Am. Dec.
624; Heath v. Railway Co., 8 Blatchf. 347, Fed. Cas. No. 6,306; Hersey v. Vea-
zie, 24 Me. 9; Mussina v. Goldthwaite, 34 Tex. 125: Wayne Pike Co. v. Hanr
mons, 129 Ind. 868, 27 N. HE. 487.

331 Smith v. Hurd, 12 Metc. (Mass.) 371, 46.Am. Dec. 690.

332 Post, p. 605.

338 Post, p. 609.

884 Bilis v. Ward, 187 Ill. 509, 25 N. EB. 530.
§ 206) LIABILITY OF OFFICERS AND AGENTS ON CONTRACTS. 521

LIABILITY OF OFFICERS AND AGENTS ON CONTRACTS.

206. The liability of officers and agents upon contracts
made by them on behalf of the corporation, both
where they have authority, and where they have
no authority at all, or exceed their authority, is the
same as if they were contracting for a natural per-
son.

The liability of officers and agents of a corporation on contracts
entered into by them is the same as in the case of any other person
assuming to act as agent for another. The questions that arise in
this connection are not at all peculiar to the law of corporations, but
depend entirely upon established principles of the law of agency.
An agent of a corporation may enter into a contract without dis-
closing the fact that he is acting for the corporation. His liability
in such a case is precisely the same as if he acted for an undisclosed
natural principal. For the law on this subject, therefore, reference
must be had to works on the law of agency.**°

So where an officer or agent of a corporation enters into a contract .
for the corporation in excess of his authority, or where a person en-
ters into a contract for a corporation without any authority at all,
his liability is the same as if he were acting for a natural person,—
neither greater nor less. It will be found, upon consulting the law
of agency, which is applicable in this connection to corporations,
that if a person contracts as agent on behalf of a principal who does
not, exist, or who cannot contract, or if he enters into a contract in
excess of his authority, he is personally liable, in some form of action,
to the other party. Whether he is liable ex contractu, or whether
he is liable only in tort, is an unsettled question, and there is a con-
flict of opinion. Some of the courts hold that the agent in such a
case is liable in contract if he acted in good faith, and in tort if he
acted in bad faith. If he believed that he had authority which he
did not have, he may be sued as upon an implied warranty of au-

885 See Clark, Cont. 740, 742.
522 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

thority. This rule has often been applied to contracts by persons
contracting for a corporation without authority, or in excess of au-
thority.**® Thus, where the president of a corporation executed a
written guaranty in the name of the company, but without authority,
he was held individually liable on the guaranty, as upon an implied
warranty of authority.*** So where a person, assuming to represent
a foreign corporation doing business in a state without compliance
with the statute prescribing the conditions upon which foreign cor-
porations may do business, engaged the services of a person and pur-
chased goods for the corporation, he was held personally liable there-
for.338

Some courts have refused to recognize this doctrine of implied
warranty of authority, and hold that, the liability of an agent acting
without authority, or in excess of authority, is in tort, whether he
acted in bad faith or not. In these jurisdictions a person who as-
sumes to contract for a corporation without authority, or in excess
of authority, is personally liable, whether he acted in bad faith or
not, but he is liable only in an action of tort.**® “If one falsely rep-
resents that he has an authority, by which another, relying on the
representation, is misled, he is liable; and by acting as agent for
another when he is not, though he thinks he is, he tacitly and im-
pliedly represents himself authorized, without knowing the fact to
be true, it is in the nature of a false warranty, and he is liable. But
in both cases his liability is founded on the ground of deceit, and the
remedy is by action of tort.” °*° On this subject the reader must
refer to works on the law of agency.

886 Farmers’ Co-op. Trust Co. v. Floyd, 47 Ohio St. 525, 26 N. E. 110; Nelli-
gan v. Campbell, 20 N. Y¥. Supp. 234; Lasher vy. Stimson, 145 Pa. St. 30, 23 Atl.
552; Lewis v. Tilton, 64 Iowa, 220, 19 N. W. 911.

337 Nellegan v. Campbell, 65 Hun, 622, 20 N. Y. Supp. 284,

8388 Lasher y. Stimson, 145 Pa. St. 30, 23 Atl. 552.

339 Jefts v. York, 10 Cush. (Mass.) 392; Farmers’ & Mechanics’ Bank vy. Colby,
6+ Cal. 352, 28 Pac. 118.

340 Jefts v. York, supra.
§§ 207-209) LIABILITY FOR TORTS OF OFFICERS AND AGENTS. 523

LIABILITY OF CORPORATION FOR TORTS OF OFFICERS
AND AGENTS.

207. A corporation is generally liable for the torts of its
officers and agents committed in the course of their
employment, to the same extent as a natural per-
son. There are some.exceptions, resulting from the
peculiar nature of a corporation.

‘208. A corporation is liable for acts done by its officer or
agent apparently in the course of his employment,
and within the scope of his general authority,
though, by reason of facts peculiarly within the
knowledge of the officer or agent, the particular
act is unauthorized.

.209. As to whether a corporation is liable for torts com-
mitted by its agents in the performance of ultra
vires acts, the courts do not agree, By the weight
of authority, it is liable in such a case if it author-
ized the ultra vires acts, but not otherwise.

We have seen in a previous chapter that a corporation can be
guilty of a tort, and have shown the exceptions to the rule resulting
from the peculiar nature of the corporation as an artificial being.**
Of course, a corporation, being impersonal, cannot personally commit
atort. It can act only through agents, but, like a natural person, it
is liable for the torts of its agents. The general rule is that a cor-
poration is liable for the wrongful acts of its officers and agents to
the same extent, and only to the same extent, as a natural. person is
liable for the wrongful acts of his agents. Most of the rules and
principles are the same in both cases. If a corporation expressly
authorizes a person to do a particular act, there would seem to be no
‘question as to its liability. Thus, if a majority of the stockholders
‘should, by vote, direct an agent to enter unlawfully upon the land

341 Ante, p. 193.
524 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

of another, the corporation would clearly be liable in trespass. The
difficulties arise in those cases where the authority of the agent is
to be implied.

It is the general rule that a corporation, like a natural person, is.
liable for any act of its agent that is committed in the conduct of its
business, and in the course of his employment. “A principal,” said
Mr. Justice Story, “is to be. held liable to third persons, in a civil
suit, for the frauds, deceits, concealments, misrepresentations, negli-
gences, and other malfeasances or misfeasances and omissions of
duty of his agent in the course of his employment, although the prin-
cipal did not authorize or justify or participate in, or, indeed, know
of, such misconduct, or even if he forbade the acts, or disapproved
of them. In all such cases the rule applies, respondeat superior,
and is founded upon public policy and convenience; for in no other
way could there be any safety to third persons in their dealings,
either directly with the principal, or indirectly with him, through the
instrumentality of agents. In every such case the principal holds.
out his agent as competent and fit to be trusted, and thereby, in ef-
fect, he warrants his fidelity and good conduct in all matters within
the scope of the agency.” **? This statement of the rule applies to
officers and agents of corporations.**%

Some of the cases are very clear. For example, if an agent hav-
ing authority to sell goods for a corporation should be guilty of
false and fraudulent representations as to their quality, the corpora-
tion is clearly liable to an action for deceit. The fraud in such a
case is, for all purposes, the fraud of the corporation, though it may
not have authorized it, since it is committed by the agent in the
course of his employment; that is, in selling goods.°** And s0,.
generally, a corporation is liable for all frauds of its agents com-

842 Story, Ag. § 452.

843 Fifth Ave. Bank of New York v. Forty-Second St. & Grand St. Ferry R.
Co., 187 N. Y. 231, 33 N. E. 378; Philadelphia, W. & B. R. Co. v. Quigley, 21
How. 207, 1 Cumming, Cas. Priv. Corp. 453; Denver & R. G. Ry. v. Harris,
122 U. 8. 597, 7 Sup. Ct. 1286; Salt Lake City v. Hollister, 118 U. 8. 256, 6 Sup.
Ct. 1055, 2 Cumming, Cas. Priv. Corp. 107; State v. Morris & E. R. Co., 23 N. J-
Law, 369.

344 Ante, p. 196. See 8 Am. Law Rev. 631,
&§ 207-209) LIABILITY FOR TORTS OF OFFICERS AND AGENTS. 525

mitted in the course of their employment.**® And, as we have seen
in a former chapter, a corporation is liable for assault and battery,
or other trespasses, for conversion, for libel, for malicious prosecu-
tion, or malicious attachment of goods, or for conspiracy, or for neg-
ligence, by or of its officers or agents, if committed in the course of
their employment.**°

The fact that an officer or agent acts without the scope of his
actual authority, in committing a fraud, does not exempt the cor-
poration from liability, if his act was apparently done in the course
of his employment, and within the scope of the general authority
conferred upon him. If an act is apparently within the scope of the
general authority and employment of the agent, though, by reason
of facts necessarily and peculiarly within his knowledge, it is unau-
thorized, the corporation is liable. Thus, where the secretary and
treasurer of a corporation, who was also its agent for the transfer
of stock and authorized to countersign and issue certificates of stock
when signed by the president, forged the president’s name to a cer-
tificate, and fraudulently issued it, the corporation was held liable
to a bank which accepted the certificate, in good faith,.as security
for a loan; and there are many other cases to substantially the same
effect.347

345 New York & N. H. R. Co. v. Schuyler, 34 N. Y. 30, 2 Cumming, Cas. Priv.
Corp. 119; note 347, infra. It is liable for the fraud of agents in procuring sub-
scriptions to its stock. Ante, p. 288.

346 Ante, pp. 194-196, and cases there cited.

347 Wifth Ave. Bank of New York v. Iorty-Second St. & Grand St. Ferry R.
Co., 187 N. Y. 231, 33 N. E. 378, 2 Cumming, Cas. Priv. Corp. 149. It was said
in this case: “It is true that the secretary and transfer agent had no authority to
issue a certificate of stock except upon the surrender and cancellation of a previ-
ously existing valid certificate, and the signature of the president and treasurer
first obtained to the certificate to be issued; but these were facts necessarily and
peculiarly within the knowledge of the secretary, and the issue of the certificate in
due form was a representation by the secretary and transfer agent that these condi-

. tions had been complied with, ond that the facts existed upon which his right to
act depended. It was a certificate apparently made in the course of his employ-
ment, as the agent of the company, and within the scope of the general authority
conferred upon him; and the defendant is under an implied obligation to make in-
526 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13.

If the transaction in which an officer or agent of a corporation com-
mits a fraud is not even apparently within the scope of his authority,
the corporation is not liable.**® If the agent of a corporation goes.
outside of his employment, he does not act as agent, and the corpo-
ration cannot be held liable. Thus, it has been held that a street-rail-
way company is-not liable for a malicious prosecution and false arrest
of an individual by its president and superintendent on the charge
of having passed counterfeit money by dropping a lead nickel in the
fare box, unless such officers have express authority for such action,
or it is ratified by the company.**® And clearly a corporation cannot
be held liable for the fraud of its president, who, in negotiating for a
loan to himself individually, falsely represents that certificates of
stock in the corporation, which he offers as collateral, are genuine.®>°
So, where a corporation delivers to the manager of its business sur-
rendered certificates of stock containing blank indorsements, with
directions to cancel them, and he transfers them to a purchaser in
good faith, the title of the purchaser cannot be upheld, as against the
corporation, on the ground of any implied agency on the part of the
manager to transfer them. As was saidin sucha case: “If it can be
said that the direction of the president to the manager to cancel the
certificates made him the agent of the company for that purpose, it
was an authority to destroy, and not to use. His act in abstracting

demnity to the plaintiff for the loss sustained by the negligent or wrongful exercise
by its officers of the general powers conferred upon them.” See, also, Griswold v.
Haven, 25 N. Y. 599; New York & N. H. R. Co. v. Schuyler, 34 N. Y. 30, 2 Cum-
ming, Cas. Priv. Corp. 119; Titus v. Turnpike Road, 61 N. Y. 237; Bank of Ba-
tavia v. New York, L. E. & W. R. Co., 106 N. Y. 199, 12 N. E. 433; Manhattan
Beach Co. y. Harned, 27 Fed. 484; Tome v. Railroad Co., 39 Md. 36; Shaw v.
Mining Co., 18 Q. B. Div. 103; Allen v. Railroad Co., 150 Mass. 200, 22 N. B.
917. Cf. Moores v. Bank, 111 U. S. 156, 4 Sup. Ct. 345, 2 Cumming, Cas. Priv.
Corp. 144; ante, p. 4388, note 115; Farrington v. Railroad Co., 150 Mass. 406, 23
N. BH. 109; Hill v. Publishing Co., 154 Mass. 172, 28 N. B. 142.

348 Weckler v. Bank, 42 Md. 581, 2 Cumming, Cas. Priv. Corp. 104; Shep. Cas.
Corp. 150.

349 Central Ry. Co. v. Brewer, 78 Md. 394, 28 Atl. 615.

350 Manhattan Life Ins. Co. v. Forty-Second St. & G. St. Ferry R. Co., 64 Hun,
635, 19 N. Y. Supp. 90, affirmed 189 N. Y. 146, 34 N. E. 776; Moores v. Bank,
111 U. 8. 156, 4 Sup. Ct. 345, 2 Cumming, Cas. Priv. Corp. 144.
§§ 207-209) LIABILITY FOR TORTS OF OFFICERS AND AGENTS. 527

them from the safe, and uttering them as valid certificates, had no
relation to the authority conferred. It was not an act of the same
kind as that which he was authorized to perform. He had no ap-
parent authority to issue them as genuine certificates, for he had no.
authority to issue certificates for any purpose; and what he-did was
a willful and criminal act, perpetrated for private gain, and not con-
nected with any official authority or semblance of authority, which
he possessed as the defendant’s agent.” 3°! If the tort is committed
by the agent in the course of his employment, the corporation cannot
escape liability on the ground that it was not authorized, or even that
it was expressly forbidden, and it can make no difference that the
agent acts willfully and maliciously.*5? This rule is not peculiar to
corporations. It is a well-settled principle of the general law of
agency.*°* Thus, a railroad company has repeatedly been held liable
for the act of its conductor in assaulting a passenger, and the rule
has been applied to other employés.*** A railroad company has been
held liable to a woman passenger for the tortious conduct of the con-
ductor in kissing her.?55

Ratification.

A corporation, like a natural principal, may become liable for torts
of a person assumiag to act for it, by ratifying his act, though the act
was not authorized when it was committed. It will become liable by
ratification if the act was done to its use or for its benefit, but not
otherwise.*°* “He that receiveth a trespasser, and agreeth to a tres-
pass after it be done, is no trespasser, unless the trespass was done to.
his use or for his benefit, and then his subsequent agreement amount-

351 Knox v. American Co., 148 N. Y. 441, 42 N. H. 988.

352 Wheeler & W. Manuf’g Co. v. Boyce, 36 Kan. 350, 13 Pac. 609.

353 See Tiff. Pers. & Dom. Rel. 505-507, and works on Agency, and on Torts.

354 Passenger R. Co. v. Young, 21 Ohio St. 518; Bryant v. Rich, 106 Mass. 180;.
Rounds v. Railroad Co., 64 N. Y. 129; Dwinelle v. Railroad Co., 120 N. Y. 117,
24 N. B. 319; Chicago & E. R. Co. v. Flexman, 103 Ill. 546; North Chicago City
Ry. Co. v. Gastka, 128 Ill. 613, 21 N. EB. 522.

355 Croker v. Railway Co., 36 Wis. 657.

366 Hastern Counties Ry. Co. v. Broom, 6 Exch. 314, 1 Cumming, Cas. Priv..
Corp. 434; Nims y. School, 160 Mass. 177, 35 N. E. 776.
528 MANAGEMENT OF CORPORATIONS—-OFFICERS AND AGENTS. (Ch. 13

eth to a commandment.” #57 If the servant of a railroad company ar-
rests and imprisons a passenger without authority, for nonpayment
of his fare, his act is one which might be for the benefit of the com-
pany; and, if the company subsequently ratifies the act, it is liable
in tort, should the act prove to have been unlawful.*°°

Ultra Vires Transactions.

There is a wide difference of opinion, and much conflict and con-
fusion in the decisions, as to the liability of a corporation for torts
committed by its officers or agents in the performance of ultra vires
acts, or in the course of ultra vires transactions. Some of the au-
thorities hold, or seem to hold, broadly, that a corporation is not
liable for the tortious conduct of its officers or agents in the course
of an ultra vires transaction, as it cannot authorize ultra vires acts.
Thus, where the officers of an agricultural society authorized to hold
agricultural fairs employed certain persons to convey persons to
and from the fair grounds, and one of these persons negligently in-
jured a third person, it was held that the corporation was not liable,
as the employment was not within the powers of the corporation.?®
So where the teller of a national bank, acting for it in selling rail-
road bonds, made false representations to induce a person to buy
the bonds, it was held that the bank was not liable, as the sale
of railroad bonds was not within the corporate powers of national
banks.5°° There are many other cases in which the same principle
is laid down.?* :

Many of these cases can be supported on the ground that the
transaction was not authorized by the corporation, and that the
tort, therefore, was not committed by the officer or agent within the
scope of his employment. Thus, if, in the case above referred to, the
officers of the agricultural society were not authorized by the cor-
poration to employ persons to convey people to and from the fair

3574 Inst. 317.

258 Hastern Counties Ry. Co. v. Broom, supra.

359 Bathe v. Society, 73 Iowa, 11, 84 N. W. 484.

360 Weckler v. Bank, 42 Md. 581, 2 Cumming, Cas. Priv. Corp. 104, Shep. Cas.
Corp. 150.

361 Gunn vy. Railroad Co., 74 Ga. 509, 2 Cumming, Cas. Priv. Corp. 111.
§§ 207-209) LIABILITY FOR TORTS OF OFFICERS AND AGENTS. 529

grounds, they exceeded their authority in doing so, and for this rea-
son, and not because the transaction was ultra vires of the corpora-
tion, the corporation could not be held liable. So, in the national
bank case above referred to, the decision may be based on the
ground that the teller, in selling the railroad bonds, did not act
within the scope-of his employment. By the weight of authority,
the principle does not go beyond this. And most of the courts hold
that if a corporation, as distinguished from the officers and agents
of the corporation, engages in an ultra vires transaction, it will be
liable for the frauds, negligence, or other torts of its agents in the
course of that transaction; that a corporation has the power or
capacity, as distinguished from the authority or right, to do ultra
yires acts and to engage in ultra vires transactions; and that, if
it does so, it cannot escape liability for torts committed in the course
of such transactions merely on the plea of ultra vires. The ques-
tion always narrows itself to this: Did the corporation authorize
the transaction, either expressly or impliedly? If it did, it is lia-
ble. Thus, where an educational corporation maintained a ferry, it
was held liable for injuries to a passenger while being transported
thereon, though the maintenance of the ferry by such a corpora-
tion was clearly ultra vires.?*? So, where railroad companies were
operating their roads jointly under an ultra vires agreement, they
were held liable for injuries to a passenger.*** And a railroad com-
pany was held liable for the negligence of the driver of a stage-
coach which it was running without the right to engage in business
of that kind.*** So, where a bank which was accustomed to take
deposits of United States bonds, with the knowledge and acquiescence
of its directors, took such a deposit, and the bonds were lost through
the gross carelessness of its agents, it was held liable for the loss,

362 Nims v. School, 160 Mass. 177 35 N. E. 776.

863 Bissell v. Railroad Co., 22 N. Y. 258, 1 Cumming, Cas. Priv. Corp. 187.

364 Buffett v. Railroad Co., 40 N. Y. 168. And see, to substantially the same
effect, Central Railroad & Banking Co. v. Smith, 76 Ala..572; New York, L. E.
& W. Ry. Co. v. Haring, 47 N. J. Law, 137, 2 Cumming, Cas. Priv. Corp. 110;
Hutchinson y. Railroad Co., 6 Heisk. (Tenn.) 634. See, contra, cases in notes #59--
361, supra.

Clk.Pr.Corp.—84
530 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

to the same extent as if the taking of the deposit had been author-
ized by its charter. Corporations, it was said, are liable for every
wrong they commit, and in such cases the doctrine of ultra vires
has no application.*®> Many other cases to the same effect may

be found.?*¢

LIABILITY OF OFFICERS AND AGENTS TO THIRD PERSONS
FOR TORTS.

210. If the officers of a corporation, in transacting its busi-

: ness, are guilty of false and fraudulent representa-

tions, or other torts, whereby third persons are in-
jured, they are personally liable.

It is well settled that, if the directors or other officers of a corpora-
tion commit frauds upon third persons in their transactions as offi-
cers of the company, they are personally liable to an action therefor,
though the corporation also may be liable. Their liability does not
depend upon their agency for the corporation. They are liable simply
because they have been guilty of a tort. Thus, the directors of a cor-
poration are personally liable to a third person for fraudulent repie-
sentations whereby he was induced to contract with the corporation
to his injury. There is no privity of contract between them and such
person, but that can make no difference, for the action is not founded
upon the contract at all, nor upon a breach thereof, but upon the per-
sonal tort of the directors.°°* Soa director or other officer of a cor-
poration who knowingly issues or sanctions a false report or prospec-
tus, containing untrue statements of material facts, the natural tend-
ency of which is to mislead and deceive the community, and to in-
duce the public to purchase stock of the corporation, or to deal with it,

365 National Bank vy. Graham, 100 U. S. 699.

366 See Salt Lake City v. Hollister, 118 U. S. 256, 6 Sup. Ct. 1055, 2 Cumming,
Cas. Priv. Corp. 107; Denver & R. G. Ry. Co. v. Harris, 122 U. S. 597, 7 Sup.
Ct. 1286; Id., 2 Pac. 369.

367 Salmon vy. Richardson, 30 Conn. 360; Cowley v. Smyth, 46 N. J. Law, 380;
Clark y. Edgar, 84 Mo. 106; Schley v. Dixon, 24 Ga. 273; Zinn v. Mendel, 9 W.
Va. 580. .
§ 211) COMPENSATION OF OFFICERS. 531

is personally liable, in an action of deceit, to persons who purchase
stock or deal with the corporation in reliance thereon, and are de-
frauded.***

To render the officers of a corporation liable to third persons for
fraud, the case must come within the rules governing other cases of.
false representations. Therefore the representation must have been
false. It must also have been fraudulent; that is, they must have
known it to be false, or must have made it willfully, or in reckless dis-
regard of whether it was true or false.**® The person seeking to hold
them liable must have relied on the representation,?7° and must have
sustained injury in consequence thereof.7*

To render an officer or member of a corporation personally liable for
torts committed in the conduct of its business, he must have person-
ally taken part in the act, or knowingly acquiesced in it, when it was
his duty to object and take steps to prevent it.°7?

COMPENSATION OF OFFICERS.

211. An officer of a corporation, in the absence of express
provision or agreentent, is not entitled to compen-
sation for performing the ordinary duties of his
office; but he can recover, on an implied contract,
the value of extraordinary services rendered at the
request of the corporation. Express provision is
usually made for the compensation of officers. An
officer of a corporation cannot fix his own salary.

368 Morgan vy. Skiddy, 62 N. Y. 319. The publication by savings bank directors
that the directors and stockholders are personally responsible for its debts does not
constitute a contract with depositors, but, if intentionally false, affords the basis
of an action of deceit. Westervelt v. Demarest, 46 N. J. Law, 37.

369 Wakeman v. Dalley, 51 N. Y. 27; Arthur v. Griswold, 55 N. Y. 400;
Cowley v. Smyth, 46 N. J. Law, 380; Cole v. Cassidy, 188 Mass. 487; Zinn v.
Mendel, 9 W. Va. 580.

370 Wakeman y, Dalley, 51 N. Y. 27.

371 Clark, Cont. 324.

372 People v. England, 27 Hun (N. Y.) 189.
532 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 18

When a director or other officer of a corporation performs the
usual and ordinary duties of his office, as defined by the charter or
by-laws, he cannot recover any compensation therefor, unless it has
heen so specially agreed. He cannot, in such a case, recover, on an
implied contract, what the services were reasonably worth.*** But
if an officer, at the request of the corporation, performs extraordinary
services, not within the usual duties of his office, he may recover
therefor without a special agreement. Thus, a director of a railroad
company, who, at its request, rendered services as an attorney, and in
procuring aid notes, right of way, etc., was held to be entitled to re-
cover the reasonable value of such services, on an implied contract,
as they were not embraced in his ordinary duties as director.$**

Unless otherwise provided in the charter or by-laws of the corpora-
tion, the power to fix the salaries of the officers of the corporation
vests in the board of directors. In doing so they must act in good
faith, and for the benetit of the corporation. They have no authority
to pay claims which the corporation is under no obligation to pay.
Thus, they cannot pay an officer anything for past services, which
have been rendered and paid for at a fixed salary previously agreed.*”®
In some jurisdictions, as we have seen, if they fix their own salaries
as officers, where they occupy other positions, such as that of presi-
dent, secretary, etc., the transaction may be repudiated, at the election
of the corporation, and this without regard to whether they acted in
good faith or not.?7° In other jurisdictions, perhaps, in the absence of
any provision in the charter or by-laws, they may fix their salaries as
officers of the company, and the transaction will be sustained, if in
perfect good faith and free from any suspicion of fraud or unfairness;
but, if there is any bad faith or unfairness, their act will be set aside,
at the election of the corporation.®77_ An officer who is also a director

378 Citizens’ Nat. Bank y. Elliott, 55 Iowa, 104, 7 N. W. 470; American Cent.
Ry. Co. v. Miles, 52 Ill. 174; Cheeney v. Railway Co., 68 Ill. 570; Holder v.
Railway Co., 71 Ill. 106; New York & N. H. R. Oo. v. Ketchum, 27 Conn. 170.

874 Ten Eyck v. Railroad Co., 74 Mich. 226, 41 N. W. 905. And see Cheeney
y. Railway Co., 68 Ill. 570; Lafayette, B. & M. Ry. Co. v. Cheeney, 87 Ill. 446.

875 Jones v. Morrison, 31 Minn. 140, 16 N. W. 854.

876 Ante, p. 508,

377 Jones v. Morrison, 31 Minn. 140, 16 N. W. 854.
§ 212) REMOVAL OF OFFICERS AND AGENTS. 533

is not qualified to vote at a meeting of the board on a resolution fixing
his salary.?**

REMOVAL OF OFFICERS AND AGENTS.

212. The principal rules in regard to the removal of offi-
cers and agents of a corporation are these:

(a) A corporation has a right to remove an officer or
agent, where there is a contract for a fixed term,
only where he violates his contract, or is incompe- .
tent. But it can at any time revoke the authority
of an agent, rendering itself liable for breach of
contract. ,

(b) An officer or agent who is appointed by vote of the
stockholders, or whose tenure is fixed by the
charter, cannot be removed, nor his authority re-
voked, by the directors.

(c) In some states, by express provision, the directors
may remove their own appointees at pleasure, and
they may ‘do so without such a provision in the ab-
sence of a contract for a fixed time.

(d) In some jurisdictions a court of equity will remove
a director whose election is void, but, by the better
opinion, the remedy is at law, by quo warranto,
and a court of equity will grant relief only where
it has acquired jurisdiction on some other ground.

Officers and agents of a corporation who do not hold their office,
under contract for a fixed time may be removed at pleasure by the
corporation, or by the superior officer or officers who appointed
them.*"® But, if there is a contract for a fixed term between an
officer and the corporation, he cannot be removed without cause,

878 Jones v. Morrison, 31 Minn. 140, 16 N. W. 854; Miner v. Ice Co., 98 ‘Mich.
97, 53 N. W. 218; ante, p. 493.
879 1 Thomp. Corp. §§ 802, 805.
534 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 18

without rendering the corporation liable for breach of contract. In
such a case, like any other employé, he may be removed for cause, as
for breach. of contract or incompetency. And it seems that a corpo-
ration, like any other principal, may at any time revoke the authority
of its officer or agent, subject to liability for breach of contract.**°
If the tenure of a person to a corporate office is fixed by charter, and
there is no provision for removal, there is no power to remove him
until his term of office expires. If an officer is appointed by vote of
the stockholders the directors have no implied authority to remove
him.#8+

By the weight of authority, a court of equity will not primarily take
jurisdiction to determine the legality of an election of directors, or
te remove a director who is in possession of the office.*** The court
will inquire into the regularity of the election, or the right of the
person to the office, only when the question arises incidentally and
collaterally in a suit of which the court has rightful jurisdiction, and
the grant of the relief depends upon its decision. If the right to the
office only is in question, the remedy is at law, by quo warranto.***

RELATION BETWEEN OFFICERS AND STOCKHOLDERS.

213. The officers of a corporation are not the agents of the
stockholders, but of the corporation; nor do they
occupy a fiduciary relation towards the stockhold-
ers individually.

It is often said that the directors of a corporation are trustees of
the stockholders, and that the relation of trustee and cestui que trust,

380 Id. § 805.

381 Id. § 804.

382 As to the grounds of removal, and the mode of exercising the power, see 1
Thomp. Corp. §§ 806-841.

383 Perry y. Oil-Mill Co., 98 Ala. 364, 9 South. 217; Nathan v. ‘Tompkins, 82
Ala. 487, 2 South. 747; Johnston v. Jones, 23 N. J. Bq. 216; Neall v. Hill, 16
Cal. 145, 76 Am. Dee. 508. But see Wright v. Water Co., 67 Cal. 582, 8 Pac.
70, where it was held that a court of equity has jurisdiction of a bill to set aside
an illegal election, though no other ground of jurisdiction exist.
§ 213) RELATION BETWEEN OFFICERS AND STOCKHOLDERS. 535

with its consequences, exists between them, but they do not occupy
any such relation towards the stockholders individually. They are
simply the agents of the corporation. There is no privity, in law, be-
tween them and the stockholders. They are not the agents of the
stockholders, but of the corporation,—of the legal entity. And, when
it is said that they are trustees for the stockholders, it can only be
meant that they occupy a fiduciary relation to the corporation, and
that they are bound to act for the benefit of all the shareholders alike,
and not for their own advantage, nor for the advantage of particular
shareholders to the exclusion of others. “There is,” said Chief Jus-
tice Shaw, “no legal privity, relation, or immediate connection ‘be-
tween the holders of shares in a bank, in their individual capacity, on
the one side, and the directors of the bank, on the other. The direct-
ors are not the bailees, the factors, agents, or trustees of such in-
dividual stockholders.” *** If they commit a breach of trust, the in-
jury, in the eye of the law, is to the corporation, and primarily the
corporation is the proper party to sue for redress. It is well settled
that an action at law cannot be maintained by a stockholder against
a director or other officer of the corporation for fraud, negligence,
misapplication of funds, or other wrongs resulting in injury to the
corporation. Such an action can only be maintained by the corpo-
ration, the injury being to it; and it can make no difference in such a
case, that the value of the shares is diminished, and that the stock-
holder therefore individually suffers a loss.*** The directors of a
bank, said the Connecticut court, in such a case, “are the agents of
the bank. The bank is the only principal, and there is no such trust
for or relation to a stockholder as has been claimed by the plaintiff.
The entire duty of the directors, growing out of their agency, is owed
to the bank, which, under the charter, is the sole representative of the
stockholders, and the legal protector and defender of their proper-
ty.” 88 As we have seen, if the agents of the corporation will not or
cannot sue for injuries to it, so that such injuries cannot be redressed

384 Smith v. Hurd, 12 Metc. (Mass.) 371, 1 Cumming, Cas. Priv. Corp. 792.

385 Smith v. Hurd, 12 Metc. (Mass.) 371, 1 Cumming, Cas. Priv. Corp. 792;
Allen v. Curtis, 26 Conn. 456.

386 Allen y, Curtis, supra.
‘5386 MANAGEMENT OF CORPORATIONS—OFFICERS AND AGENTS. (Ch. 13

through the corporate body, a court of equity will look behind the cor-
poration, and recognize the stockholders, and will allow them to sue
in their own names.°57

An officer of a corporation occupies no fiduciary relation towards
am individual stockholder, so as to impose upon him, in dealing with
the stockholder as an individual, any duties which he would not owe
to strangers. Thus, where the president of a corporation, who was
also a director, having knowledge through his official position that
the company’s stock was worth more than its nominal market value,
purchased stock from a stockholder for the market price, without dis-
closing to him the facts within his knowledge as to the real value,
it was held that there was, in such transaction, no fiduciary relation
between him and the stockholder, binding him to make such a disclo-
sure, and that, in the absence of actual fraud, the purchase was
valid.3°°

387 Ante, p. 389.
388 Board of Commissioners of Tippecanoe County v. Reynolds, 44 Ind. 509,
§ 214) RIGHTS AND REMEDIES OF CREDITORS. 537
3 awe ee aa
j CHAPTER XIV. .
RIGHTS AND REMEDIES OF CREDITORS.

214, Relation between Creditors and the Corporation—Remedies in General.

215. Property Subject to Execution.
216. Assets of a Corporation as a “Trust Fund’’ for Creditors,
217. Interference in Management of Corporation.
218. Fraudulent Conveyances and Transfers.
219. Suits for Injunction and Receiver.
220. Assignment for Benefit of Creditors—Preferences.
221, Dissolution of Corporation.
222. Consolidation of -Corporations.
223, Extension of Charter—New Corporation.
224, Set-Off by Debtor of Corporation.
225-226. Relation between Creditors and Stockholders.
227-230, Statutory Liability of Stockholders.

231. Who are Liable as Stockholders under the Statutes.
232-233. Who may Enforce Statutory Liability.

234-236. Remedies of Creditors against Stockholders.
237. Necessity for Judgment against Corporation,
288. Effect of Judgment against Corporation.
239. Statute of Limitations.

240. Set-Off by Stockholders.
241. Contribution among Stockholders.

242-243. Relation between Creditors and Officers.

244, Preferences to Officers Who are Creditors.
245. Statutory Liability of Officers.

RELATION BETWEEN CREDITORS AND THE CORPORATION
—REMEDIES IN GENERAL.

214. Generally the creditors of a corporation have the
same rights and remedies against the corporation
and its property as if it were a natural person.
Thus,

(a) They may obtain judgment against it, and enforce
the same
(1) At law, by execution against its property.
588 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

(2) In equity, by bill to subject equitable assets of
the corporation, which cannot be reached by
execution.

(b) They may proceed by attachment where by statute
they may so proceed against a natural person.

As a general rule the rights and remedies of the creditors of a cor-
poration against it are the same, both at law and in equity, as the
rights and remedies of the creditors of a natural person are against
him. They may sue the corporation at common law, and recover a
judgment against it, and may enforce the judgment by execution
against the corporate assets.1. Like creditors of a natural person,
also, they may come into a court of equity and reach and subject
equitable assets of the corporation to the satisfaction of their
claims.” Creditors of a corporation may also attach the property of
a corporation under the statutes, where the property of a natural
person could be attached. A corporation is a “person,” within the
meaning of the attachment laws.®

SAME—PROPERTY SUBJECT TO EXECUTION.

215. The property of a corporation is subject to seizure
and sale on execution against it, with this excep-
tion:

EXCEPTION—At common law neither the franchises of a
corporation, nor property that is necessary to en-
able it. to exercise its franchises, are subject to exe-
cution. This has been very generally changed by
statute.

Ordinarily the property of a corporation may be seized on execution
by its creditors to the same extent, and in the same manner, as the
property of a natural person.* But there are some exceptions. At
common law the franchises of a corporation are not subject to seizure

1 As to what property is subject to execution, see section 215, infra.
2 Post, pp. 549, 559, 568.

3 Mineral Point R. Co. v. Keep, 22 Ill. 9; ante, p. 24,

4 Plyrouth R. Co. v. Colwell, 89 Pa. St. 387.
§ 216) RELATION BETWEEN CREDITORS AND THE CORPORATION. 539

and sale upon execution. Nor can lands, easements, or things essen-
tial to the existence of the corporation and the execution of its cor-
porate duty, and without which its franchise would be of no practical
use, be levied upon and sold on execution at law, so as to detach them
from the franchise, and thus destroy its use.* Accordingly, where,
upon an execution issued on a judgment recovered against a canal
company, the marshal seized and advertised for sale a toll house and
sundry canal locks, and other tangible property, an injunction was
granted to prevent the sale; the court holding that, in the absence
of a statute, neither the franchise of the company, nor any lands or
works essential to the enjoyment of the franchise, and which could
not be separated from it without destroying or impairing its value,
could be sold on execution.* So it has been held as to the right of
way of a railroad company.” In most jurisdictions this rule of the
common law is changed by express statutory provisions.

SAME—ASSETS OF A CORPORATION AS A “TRUST FUND”
FOR CREDITORS.

216. The capital stock and assets of a corporation belong
to it, and may be disposed of by it, if it does not
violate its charter, as fully and as freely as if it
were a natural person, subject only to the right of
creditors to attack transactions as fraudulent. No
direct trust attaches to its property -in favor of its
creditors.

In most of the text-books, and in a great number of the cases, it is
said broadly, and without qualification, that the capital stock and
assets of a corporation constitute a “trust fund” for the payment of
its creditors, and cannot be squandered or given away when necessary
for the satisfaction of their claims.* And it is also said (applying

5 Louisville, N. A. & C. Ry. Co. v. Boney, 117 Ind. 501, 20 N. E. 432; Gue v.
Canal Co., 24 How. 257: East Alabama Ry. Co. v. Doe, 114 U. 8. 340, 5 Sup.
Ct. 869; Overton Bridge Co. v. Means, 33 Neb. 857, 51 N. W. 240.

6 Gue y. Canal Co., supra.

7 East Alabama Ry. Co. v. Doe, supra.

8 Wood v. Dummer,. 3 Mason, 308, Fed. Cas. No. 17,944, 1 Cumming, Cas.
Privy. Corp. 805; Sanger v. Upton, 91 U. S. 56; Camden vy. Stuart, 144 U.S. 104,
540 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

the equitable rule by which trust funds may be followed) ° that, if
this is done, the property may be followed in equity by the creditors
of the corporation into the hands of any person other than a bona
fide purchaser for value.?° Late decisions, however, and a careful
consideration of most of the cases in which this dictum may be found,
will show that in reality both the capital stock of a corporation and
its other assets—so long, at least, as it is doing business—belong to
the corporation itself, both in law and in equity, just as completely
as does the property of a natural person belong to him, and they are
not, in any true sense, held in trust for its creditors.

The doctrine that the capital stock of a corporation is a trust fund
for creditors was first laid down by Mr. Justice Story in Wood v.
Dummer.** In this case a bank had distributed part of its capital
stock among its stockholders, leaving debts unpaid, and nothing with
which to pay them. It was said that the property so distributed
was a trust fund for the payment of the debts of the corporation, and
it was held that the creditors could follow it in equity into the hands
of the stockholders. The doctrine was thus stated: “It appears to
me very clear upon general principles, as well as the legislative in-
tention, that the capital stock of banks is to be deemed a pledge or
trust fund for the payment of the debts contracted by the bank. The
public, as well as the legislature, have always supposed this to be a
fund appropriated for such purpose. The individual stockholders
are not liable for the debts of the bank, in their private capacities.
The charter relieves them from personal responsibility, and substi-

12 Sup. Ct. 585; Hightower v. Thornton, 8 Ga. 486; Briggs vy. Penniman, 8
Cow. (N. Y.) 387; Slee v. Bloom, 19 Johns. (N. Y.) 456; Bartlett v. Drew, 57 N.
Y. 587; Hastings v. Drew, 76 N. Y. 9; Cole v. Iron Co., 183 N. Y¥. 164, 30 N.
KE. 847; Nevitt v. Bank, 6 Smedes & M. (Miss.) 518; Marshall Foundry Oo. v.
Killian, 99 N. C. 501, 6 S. E. 680; Ohio Life Ins. & Trust Co. v. Merchants’ Ins.
& Trust Co. 11 Humph. (Tenn.) 1; State v. Commercial State Bank, 28 Neb.
617, 44 N. W. 998.

9 Fetter, Eq. 207-209.

10 Wood v. Dummer, 3 Mason, 3808, ed. Cas. No. 17,944, 1 Cumming, Cas.
Priv. Corp. 805; Cole v. Iron Co., 183 N. Y. 164, 830 N. E. 847; Hibernia Ins.
Co. v. St. Louis & New Orleans Transp. Co., 13 Fed. 516; Montgomery Web Co.
vy. Dienelt, 183 Pa. St. 585, 19 Atl. 428; Vance v. Coke Co., 92 Tenn. 47, 20 S.
W. 424; Fisk v. Railroad Co., 10 Blatchf. 518, Fed. Cas. No. 4,880.

113 Mason, 308, Fed. Cas. No. 17,944,,1 Cumming, Cas. Priv. Corp. 805.
§ 216) RELATION BETWEEN CREDITORS AND THE CORPORATION, 541

tutes the capital stock in its stead. Credit is universally given to this
fund by the public as the only means of repayment. During the ex-
istence of the corporation it is the sole property of the corporation,
and can be applied only according to its charter; that is, as a fund
for payment of its debts, upon the security of which it may discount
and circulate notes. Why, otherwise, is any capital stock required
by our charters? If the stock may, the next day after it is paid in,
be withdrawn by the stockholders, without payment of the debts of
the corporation, why is its amount so studiously provided for, and its
payment by the stockholder so diligently required? To me this
point appears so plain, upon principles of law as well as common
sense, that I cannot be brought into any doubt that the charters of
our banks make the capital stock a trust fund for the payment of all
the debts of the corporation. The biliholders and other creditors
have the first claims upon it, and the stockholders have no rights un-
til all the other creditors are satisfied. They have the full benefit of
all the profits made by the establishment, and cannot take any por-
tion of the fund until all the other claims on it are extinguished.
Their rights are not to the capital stock, but to the residuum after
all demands on it are paid. Ona dissolution of the corporation the
billholders and the stockholders have each equitable claims, but those
of the billholders possess, as I conceive, a prior, exclusive equity.”
This is the decision and the dictum upon which the so-called trust-
fund doctrine is based. But it requires no argument to show that
the facts of the case did not render it necessary to hold the capital
stock of a corporation a trust fund for creditors, in the strict sense
of the term. All that the case decided was that a corporation can-
not distribute its capital stock among its stockholders, and thereby
leave creditors unpaid,—a transaction which is clearly a fraud upon
existing creditors, just as a voluntary conveyance by a natural person
isa fraud upon his existing creditors, who are thereby prevented from
collecting their claims. So, if a corporation releases subscribers
from liability to contribute to the capital stock, or distributes part of
the capital stock to them, the transaction is a fraud upon subsequent
creditors who are ignorant of the transaction, and deal with it on
the faith of its capital stock being fully paid, and the transaction may
be avoided by them on this ground. Many of the courts base the
right of creditors to hold stockholders liable in these cases upon the
542 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

ground that the capital stock is a trust fund for creditors. And it
is in these cases, chiefly, that we find the trust-fund doctrine de-
clared.1?, No such doctrine, however, is necessary. The stockhold-
ers are liable on the ground of fraud. Persons who deal with a cor-
poration and become its creditors after such a transaction, and with.
knowledge of it, cannot complain, because they are not defrauded.**
If the capital stock were really a trust fund for creditors, they could.
complain.

Other cases in which the doctrine is announced, and seemingly re-
lied upon, are cases in which the corporation has transferred its
property to third persons in fraud of creditors.1* Thus, in Cole v.
Millerton Iron Co.,!* a corporation had transferred all its property
to another corporation, having the same officers and stockholders,
pending an action against it, which afterwards resulted in a judg-
ment. The only consideration for the transfer was the assumption
by the grantee of the grantor’s debts. The court, in holding the
transfer illegal and void as against this judgment creditor, said, “The-
assets of a corporation are a trust fund for the payment of its debts,
upon which the creditors have an equitable lien, both as against the:
stockholders and all transferees except those purchasing in good faith
and for value.” Clearly, it was unnecessary to resort to any trust-
fund theory to sustain this decision.

The trust-fund doctrine has been virtually repudiated by the su-
preme court of Minnesota in the late case of Hospes v. Northwestern
Manuf’g & Car Co.;** Judge Mitchell, one of the ablest jurists on the
bench, delivering the opinion of the court. It was held that the cap-
ital stock of a corporation is its own property, which it may use and
dispose of, if not prohibited by its charter, the same as a natural per-
son; that it is not held in trust for creditors, except in the sense that
there can be no distribution of it among stockholders without pro-

12 Such is the case in Wood v. Dummer, 3 Mason, 808, Fed. Cas. No. 17,944,
1 Cumming, Cas. Priv. Corp. 805; Sanger v. Upton, 91 U. S. 56; Camden ¥..
Stuart, 144 U. S. 104, 12 Sup. Ct. 585; Slee v. Bloom, 19 Johns. (N. Y.) 456;
Bartlett v. Drew, 57 N. Y. 587; Hastings v. Drew, 76 N. Y. 9; and in most of
the other cases in which the doctrine is announced.

13 Hospes v. Car Co., 48 Minn. 174, 50 N. W. 1117.

14 Sutton Manuf’g Co. v. Hutchinson, 11 C. C. A. 320, 63 Fed. 496, Shep. Cas..
Corp. 229.

15 183 N. Y. 164, 30 N. E. 847. 1648 Minn. 174, 50 N. W. 1117.
§ 216) RELATION BETWEEN CREDITORS AND THE CORPORATION. 543.

vision being first made for the payment of corporate debts; and that,
as in the case of a natural person, any disposition of it in fraud of
creditors is void. ‘The phrase,” said Judge Mitchell, “that ‘the capi-
tal of a corporation constitutes a trust fund for the benefit of cred-
itors,’ is misleading. Corporate property is not held in trust, in any
proper sense of the term. A trust implies two estates or interests,—
one equitable and one legal; one person, as trustee, holding the legal
title, while another, as the cestui que trust, has the beneficial interest.
Absolute control and power of disposition are inconsistent with the
idea of a trust. The capital of a corporation is its property. It
has the whole beneficial interest in it, as well as the legal title. It
may use the income and profits of it, and sell and dispose of it, the
same as a natural person. It is a trustee for its creditors in the same
sense and to the same extent as a natural person, but no further.”

In Sanger v. Upton,’7 in the supreme court of the United States, it
was said, in substance, as by Mr. Justice Story in Wood v. Dum-
mer:*® “The capital stock of an.incorporated company is a fund set
apart for the payment of its debts. It is a substitute for the personal
liability which subsists in private co-partnerships. When debts are
incurred, a contract arises with the creditors that it shall not be
withdrawn, or applied otherwise than upon their demands, until such
demands are satisfied. The creditors have a lien upon it in equity. If
diverted, they may follow it as far as it can be traced, and subject it to
the payment of their claims, except as against holders who have
taken it bona fide for a valuable consideration, and without notice.
]t is publicly pledged to those who deal with the corporation for their
security. Unpaid stock is as much a part of this pledge, and as much
a part of the assets of the company, as the cash which has been paid
in upon it. Creditors have the same right to look to it as to anything
else, and the same right to insist upon its payment as upon the pay-
ment of any other debt due to the company. As regards creditors,
there is no distinction between such a demand and any other assets.
which may form a part of the property and effects of the corporation.”
This dictum is broad enough to imply that all the assets of a corpora-
tion constitute a trust fund, in the strict sense, for the payment of its.
debts, but it must be taken in connection with the facts before the

1791 U. S. 56.
18 8 Mason, 308, Fed. Cas. No. 17,944, 1 Cumming, Cas. Priv. Corp. 805.
044 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

court. Except as applied to them, it is mere dictum. In this case the
assignee in bankruptcy of a corporation was seeking to compel stock-
holders to pay a balance due for their stock. It was merely an effort
to reach debts due to the corporation,—equitable assets of the cor-
poration,—and apply them in payment of its debts. There was no
necessity at all to resort to any trust-fund doctrine. And the later
decisions of the supreme court of the United States clearly show that
they do not regard corporate assets as a trust fund for the payment of
debts. Thus, it has been held that persons who become creditors of
a corporation, with knowledge that its stock has not been paid in
full, and that it was issued under an agreement by which the stock-
holders are not bound, as between them and the corporation, to pay
it in full, cannot compel further payments.’® The reason is that no
fraud is committed upon them. If the capital stock were a trust
fund for their benefit, they could compel payment in such a case. So
it has been held that a conveyance of its property by a corporation
cannot be questioned by those who subsequently deal with it.2° Such
rulings as these are inconsistent with the so-called trust-fund doc-
trine.

It may, perhaps, be said that the capital stock of a corporation is a
trust fund for creditors who deal with it on the faith of its being full
paid, and that it is on this ground that they may compel its: payment
notwithstanding any contrary agreement by the corporation. It is
not necessary, however, to rest their right in this respect on any trust-
fund theory, and to do so merely tends to confuse. Their right in
such a case may well be rested on the ground of fraud. As was said
by Judge Mitchell: “By putting it upon the ground of fraud, and
applying the old and familiar rules of law on that subject to the pecul-
iar nature of a corporation, and the relation which its stockholders
bear to it and to the public, we have at once rational and logical
ground on which to stand. The capital of a corporation is the basis
of its credit. It is a substitute for the individual liability of those
who own its stock. People deal with it and give it credit on the
faith of it. They have a right to assume that it has paid-in capital
to the amount which it represents itself as having, and if they give
it credit on the faith of that representation, and if the representation

19 Hospes v. Car Co., 48 Minn. 174, 50 N. W. 1117. 20 Post, p. 550.
§ 216) RELATION BETWEEN CREDITORS AND THE CORPORATION. 545

is false, it is a fraud upon them; and, in case the corporation becomes
insolvent, the law, upon the plainest principles of common justice,
says to the delinquent stockholder, ‘Make that representation good
by paying for your stock.’ It certainly cannot require the invention
of any new doctrine in order to enforce so familiar a rule of equity.” 7?

In Hollins v. Brierfield Coal & Iron Co.,?? the supreme court of the
United States virtually repudiate the so-called trust-fund doctrine.
They say that, when it is said that the assets of a corporation consti-
tute a trust fund for the benefit of creditors, it is not meant to convey
the idea that there is any direct and express trust attached to the
property of a corporation in favor of its creditors; that a corporation,
as against creditors, is entitled to hold its property, if it does not vio-
late its charter, as absolutely, and as free from the claims of or inter-
ference by its creditors, as an individual can hold his property; that
all that is meant by the trust-fund doctrine is that, when a court of
equity takes into its possession the assets of an insolvent corporation,
it will administer them on the theory that they, in equity, belong to
the creditors, if necessary in order to satisfy their claims, rather than
to the corporation itself, or to its stgckholders. “In other words,—
and that is the idea which underlies all:these expressions in reference
to ‘trust’ in connection with the property of a corporation,—the cor-
poration is an entity, distinct from its stockholders as from its cred-
itors. Solvent, it holds its property as an individual holds his, free
from the touch of a creditor who has acquired no lien; free, also,
from the touch of a stockholder, who, though equitably interested in,
has no legal right to, the property. Becoming insolvent, the equi-
table interest of the stockholders in the property, together with their
conditional liability to the creditors, place the property in a condition
of trust, first for the creditors, and then for the stockholders. What-
ever of trust there is arises from the peculiar and diverse equitable
rights of the stockholders, as against the corporation, in its property,
and their conditional liability to its creditors. It is rather a trust in
the administration of the assets after possession by a court ‘of equity,
than a trust attaching to the property, as such, for the direct benefit
of either creditor or stockholder.” It was held in this case that the

21 Hospes v. Car Co., 48 Minn. 174, 50 N. W. 1117.
22 150 U. §. 871, 14 Sup. Ct. 127.
Clk. Pr.Corp.—35
546 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

rule that simple-contract creditors cannot come into equity to obtain
the seizure of their debtor’s property, and its application to their
claims, applies with the same force when the debtor is a corporation;
and the rule is not changed by the insolvency of the corporation, its
failure to collect in full all stock subscriptions, its execution of an
illegal trust deed, or the pendency in the same court of a suit to fore-
close the same, for neither of these things, nor all together, operates
to charge upon the corporation’s property any lien or direct trust in
favor of simple-contract creditors.

SAME—INTERFERENCE IN MANAGEMENT OF CORPORA-
TION.

217. The creditors of a corporation have no right, either
at law or in equity, merely because they are cred-
itors, to interfere in its management, or to come
into a court of equity to restrain it from making
contracts or disposing of its property, unless there
is fraud or breach of trust to give a court of equity
jurisdiction.

This rule seems to be well settled.2* The property of a corporation,
so long at least as it is doing business, belongs to it as fully as the
property of a natural person belongs to him, and, as a rule, it may make
contracts and dispose of its property to the same extent as a natural
person. If it makes conveyances or transfers of property on which
creditors have a lien, or if it makes them, not in good faith, but with
intent to hinder and delay its creditors, they may come into a court of
equity, after obtaining judgment, and obtain relief by subjecting the
property to the satisfaction of the judgment, just as the creditors of
a natural person may do. Or, if the remedy is given by statute, they
may proceed by attachment, and in that way secure their claim. But,
in the absence of fraud or breach of trust, the creditors of a corpora-

283 See Mills v. Buenos Ayres Co., 5 Ch. App. 621, 1 Cumming, Cas. Priv. Corp.
998; Pond v. Railroad Co., 130 Mass. 194, 1 Cumming, Cas. Priv. Corp. 1005;
Hollins vy. Iron Co., 150 U.S. 371, 14 Sup. Ct. 127; Hospes v. Car Co., 48 Minn.
174, 50 N. W. 1117; Tawas & B. C. R. Co. v. Iosco Circuit Judge, 44 Mich. 479,
TN. W. 65.

a”
id

§ 217) RELATION BETWEEN CREDITORS AND THE CORPORATION. 547

tion cannot come into a court of equity and enjoin it from making a
particular contract or conveyance on the ground that the transaction
will prevent them from enforcing their claims. And it can make no
difference that the transaction sought to be enjoined is alleged to ‘be
ultra vires, nor that the corporation is alleged to be insolvent.

In Mills v. Northern Railway of Buenos Ayres Co.,?* it was held
that creditors of a corporation could not come into a court of equity
and enjoin the corporation from issuing debenture stock, and apply-
ing money raised thereon to the payment of dividends to shareholders,
and from doing other acts claimed to be ultra vires. “So far,” said
Lord Hatherley, “as the case rests on the simple fact of the plaintiffs
being creditors of the company, it seems to me hardly capable of argu-
ment. Work is done for a limited company; no engagement is taken
from them by way of security; no debenture or mortgage is granted
by them; but the work is done simply on the credit of the company.
The only remedy for a creditor, in that case, is to obtain his judgment
and to take out execution; or it may be that he may have a power, if
the case warrants it, of applying to wind up the company. But it is
wholly unprecedented for a mere creditor to say, ‘Certain transac-
tions are taking place within the company, and dividends are being
paid to shareholders which they are not entitled to receive, and there-
fore I am entitled to come here and examine the company’s deed, to
see whether or not they are doing what is ultra vires, and to inter-
fere, in order that, as by a bill quia timet, I may keep the assets in a
proper state of security for the payment of my debt whensoever the
time arrives for its payment.’ The case must have occurred, of course,
many years ago, before joint-stock companies were so abundant, but
certainly within the last twenty or thirty years the money due to cred-
itors must have been many millions, and the number of creditors must
have been many thousands; yet I have never before heard—and I
asked in vain for any such precedent—of any attempt on the part of a
creditor to file a bill of this description against a company, claiming
the interference of this court on the ground that he, having no interest
in the company, except the mere fact of being a creditor, is about to be
defrauded by reason of their making away with their assets. It
would be a fearful authority for this court to assume, for it would

245 Ch. App. 621, 1 Cumming, Cas. Priv. Corp. 993.
548 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

be called on to interfere with the concerns of almost every company
in the kingdom against which a creditor might suppose that he had
demands which he had not established in a court of justice, but which
he was about to proceed to establish. If there is this power in any
case, of course, it would apply, not only to the raising of money by
debentures and to paying shareholders, but it would extend to an in-
terference in every possible way with the dealings of the company.”

A similar decision was made by the Massachusetts court in Pond v.
Framingham & Lowell Railroad Co.?® In that case a creditor of
a corporation sought to enjoin it from making leases, on the ground
that they would remove property from his reach in enforcing his
claim. The court said: “The plaintiffs cannot maintain this bill, un-
less upon the ground that any creditor can maintain a bill in equity
against an individual debtor upon like allegations. But there is no alle-
gation of fraud or breach of trust, or any other ground of jurisdiction
which brings the case within the general equity powers of a court of
chancery. The bill is an attempt by a creditor to restrain his debtor
from making what is alleged to be an improvident contract. The
tights of the parties are governed by the rules of the common law.
The plaintiffs, as creditors, might, by an attachment, have obtained
security which would take precedence of the contemplated lease; but,
if they could not, the court has no power to restrain the debtor from
making a disposition of his property which is permitted by the com-
mon law, unless fraud or a breach of trust is alleged and shown. The
allegation that the defendant corporation is insolvent does not aid
the plaintiffs. In the absence of any statute giving the power, this
court has no authority to act as a court of insolvency for the liquida-
tion of the affairs of an insolvent railroad corporation.”

25130 Mass. 194, 1 Cumming, Cas. Priv. Corp. 1005.
§ 218) RELATION BETWEEN CREDITORS AND THE CORPORATION. 549

SAME—FRAUDULENT CONVEYANCES AND TRANSFEBS.

218. Conveyances and transfers of its property by a cor-
poration with intent to hinder, delay, and defraud
its creditors are invalid to the same extent, and on
the same principles, as fraudulent conveyances and
transfers by a natural person. As a rule,

(a) They can be questioned, and the property reached,
only by persons who were creditors at the time
they were made.

(b) Before a creditor can come into equity to set them
aside and subject the property to his claim, he must
have recovered a judgment against the corporation,
and issued execution thereon.

If a corporation conveys or transfers its property fraudulently,
with intent to hinder or delay creditors in the enforcement of their
claims, they may come into a court of equity and set aside the transac-
tion, as against any person other than a bona fide purchaser for value,
and subject the property so disposed of to the satisfaction of their
claims. They have such rights, and such rights only, in this respect,
as the creditors of a natural person would have under the same cir-
cumstances. The principles of law which govern are the same in
both cases.?°

The stockholders of a corporation cannot transfer the corporate
property to themselves, directly or indirectly, and so defeat the rights
of creditors of the corporation. And they cannot do this by forming
a new corporation in which they are the principal stockholders, and
procuring a transfer to it of the property of the old company. Such
a transfer is a fraud upon the creditors of the old company, and may
be treated as void as to them, or the new corporation may be held lia-
ble for the debts of the old, to the extent of the property received by
it?” But where a new corporation is formed, and purchases the as-

26 Graham v. Railroad Co., 102 U. S. 148, 1 Cumming, Cas. Priv. Corp. 1006;
Sutton Manuf’g Co. v. Hutchinson, 11 C. C. A. 320, 63 Fed. 496, Shep. Cas. Corp.
229,

27 Montgomery Web Co. v. Dienelt, 183 Pa. St. 585, 19 Atl. 428; Hibernia
550 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

sets of the old company, the new company cannot be made to satisfy

a judgment recovered against the old company for a cause of action

arising after the transfer.?®

Subsequent Creditors.

A conveyance made with intent to defraud persons to whom the
grantor expects to become immediately or’soon indebted may be at-
tacked and avoided by such person in a proper case. But it is a well-
settled rule of law that if an individual, being solvent at the time,
without any actual intent to defraud creditors, dispose of property for
an inadequate consideration, or even make a voluntary conveyance
of it, subsequent creditors cannot question the transaction, for they
are not injured thereby. They are presumed to give credit to the
debtor in the status which he has after the conveyance. In Graham
vy. La Crosse & M. R. Co.,?* it was held that this principle applies to
conveyances by a corporation; that the disposal by a corporation of
any of its property cannot be questioned by subsequent creditors any
more than a like disposition of property by an individual may be. It
was contended in this case that a corporation debtor does not stand
on the same footing as an individual debtor; that, while the latter
has supreme dominion over his own property, a corporation is a mere
trustee, holding its property for the benefit of the stockholders and
creditors; and that if it fail to pursue its rights against third persons,
whether arising out of fraud or otherwise, it is a breach of trust, and
creditors may come into equity to compel an enforcement of the cor-
porate duty. “We do not concur in this view,” it was said. “It is
at war with the notions which we derive from the English law with
regard to the nature of corporate bodies. A corporation is a dis-
tinct entity. Its affairs are necessarily managed by officers and
agents, itis true; but, in law, it is as distinct a being as an individual
is, and is entitled to hold property (if not contrary to its charter) as

Ins. Co. v. St. Louis & N. O. Transp. Co., 18 Fed. 516; Vance v. Coke Co., 92
Tenn. 47, 20 S. W. 424; Brum v. Insurance Co., 16 Fed. 140. And see, to the
same effect, where the members of an embarrassed firm formed a corporation,
and transferred to it the partnership property. Booth vy. Bunce, 33 N. Y. 139.
And see Reed Bros. Co. v. First Nat. Bank, 46 Neb. 168, 64 N. W. 701. Cf.
Campbell v. Bank (Neb.) 68 N. W. 344.

28 Gray v. Steamship Co., 115 U. 8. 116, 5 Sup. Ct. 1166.

29102 U. S. 148, 1 Cumming, Cas. Priv. Corp. 1006.
§ 218) RELATION BETWEEN CREDITORS AND THE CORPORATION. 551

absolutely as an individual can hold it. Its estate is the same, its
interest is the same, its possession is the same. Its stockholders
may call the officers to account, and may prevent any malversation of
funds or fraudulent disposal of property on their part. But that is
done in the exercise of their corporate rights,—not adverse to the cor-
porate interests, but coincident with them. When a corporation be-
comes insolvent, it is so far civilly dead that its property may be ad-
ministered as a trust fund for the benefit of its stockholders and cred-
itors. A.court of equity, at the instance of the proper parties, will
then make those funds trust funds which, in other circumstances, are
as much the absolute property of the corporation as any man’s prop-
erty is his. We see no reason why the disposal by a corporation of
any of its property should be questioned by subsequent creditors of
the corporation, any more than a like disposal by an individual of his
property should be so. The same principles of law apply to each.”

Necessity for Judgment against the Corporation.

Before a creditor who has no lien on the property of his debtor can
come into a court of equity to reach equitable assets of his debtor and
subject them to the payment of his claim, he must obtain a judgment
and issue execution thereon. He must, as a rule, do this before he
can sue to set aside alleged fraudulent conveyances by his debtor
and subject the property to the payment of his debt. This principle
applies where a creditor of a corporation seeks to set aside convey-
ances or transfers by it on the gronud that they are fraudulent as to
him. It is only in the position of a judgment creditor that he can
question them.*° This rule is well settled in the federal courts, and,
as to them, it is not affected by the fact that statutes may authorize
such proceedings in the state courts by simple-contract creditors.**
It has lately been held by the supreme court of the United States
that this rule is not changed either by the insolvency of the corpora-
tion, its failure to collect in full all stock subscriptions, its execution
of an illegal trust deed or mortgage, or the pendency of a suit to fore-
close the mortgage; for neither of these things, nor all of them to-

30 Scott v. Neely, 140 U. S. 106, 11 Sup. Ct. 718; Hollins v. Iron Co., 150 U.
S. 371, 14 Sup. Ct. 127; Smith v. Railroad Co., 99 U. S. 398; Tawas, etc. R.
Co. v. Iosco Circuit Judge, 44 Mich, 479, 7 N. W. 65.

31 Seott v. Neely, supra; Hollins vy. Iron Co., supra.
552 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

gether, operate to charge any lien or direct trust in favor of simple-
ecntract creditors.*?

SAME-—SUITS FOR INJUNCTION AND RECEIVER.

219. Creditors who have recovered judgment against a
corporation, and exhausted their legal remedy, and,
in very exceptional cases, simple-contract creditors,
may maintain a bill in equity to reach assets of an
insolvent corporation which have been unlawfully
diverted, and, if necessary, a receiver may be ap-
pointed. A court of equity may also restrain a
threatened diversion of property in such a case.

We have just seen that, where the officers of an insolvent corpora-
tion have fraudulently and illegally diverted its property, creditors
who have obtained judgments against the corporation, on which exe-
cution has been returned unsatisfied, may maintain a bill in equity to
reach such property and subject it to the payment of their claims, as
against any person who is not a bona fide purchaser for value. In
such a suit, if necessary, the court may appoint a receiver to take
charge of the corporate assets, collect debts due the corporation, and
make distribution.** Jurisdiction in such a case is very generally
conferred by statute. :

There are a number of cases in which it has been held, upon the
theory that the asests of a corporation are a trust fund for the pay-
ment of its debts, that where the officers of a corporation are about
to commit waste, or divert the assets of the corporation, when it is
insolvent, and thereby cause irreparable loss to creditors, the cred-
itors may come into a court of equity and obtain an injunction to re-
strain the threatened diversion and the appointment of a receiver, if
this is necessary to control and secure the corporate property to the
payment of its debts.** And it has been held that such a suit may

82 Hollins v. Iron Co., supra.

83 Turnbull v. Lumber Co., 55 Mich. 387, 21 N. W. 375.

342 Mor. Priv. Corp. §§ 797-799; Conro v. Gray, 4 How. Prac. (N. Y.) 166;
Covington Drawbridge Co, v. Shepherd, 21 How. 112; Gaylord v. Railroad Co.,
Fed. Cas. No. 5,284; Fisk vy. Railroad Co., Id. 4,830; Irons y. Bank, Id. 7,068.
§ 220) RELATION BETWEEN CREDITORS AND THE CORPORATION. 558

be maintained by simple-contract creditors, where immediate action
is necessary.*® It isnot necessary to base the jurisdiction in such
cases on the ground that the property of a corporation is a trust fund
for creditors. It is enough that creditors are entitled to enforce their
claims against it, and that they can only do so in the particular case
by resort to a court of equity.

A receiver should not be appointed on an ex parte application,
without giving the defendants an opportunity of being heard; ** but
it may be done in an extraordinary case, where there is immediate
danger of the assets being misappropriated or wasted.°7

SAME—ASSIGNMENT FOR BENEFIT OF CREDITORS—PREF-'
ERENCES.

220. A corporation may make an assignment for the bene-
fit of creditors, and by the weight of authority, in
the absence of express statutory prohibition, it may
prefer certain creditors. In many jurisdictions
preferences after insolvency are prohibited by stat-
ute.

A corporation, like a natural person, mav make an assignment of
its property for the benefit of its creditors.2* And this may be done
by the board of directors, who are intrusted with the general manage-
ment of the corporation, without a vote of the stockholders.*®

In a number of states it is held that, when a corporation becomes
insolvent and ceases to carry on business, its property and assets con-
stitute a trust fund for the benefit of all its creditors, and the officers
in possession of the property, being trustees for all the creditors, can-
not lawfully dispose of it otherwise than for the equal benefit of all.
And it is therefore held in these states that the officers of a corpora-

85 See cases above cited.

86 Cook v. Railroad Co., 45 Mich. 453, 8 N. W. 74.

37 Turnbull v. Lumber Co., 55 Mich. 387, 21 N. W. 375.

38 State vy. Commercial Bank of Manchester, 18 Smedes & M. (Miss.) 569;
Chamberlain v. Bromberg, 83 Ala. 576, 3 South. 484; Reichwald v. Hotel Co.,
106 Ill. 489; Wilkinson v. Bauerle, 41 N. J. Eq. 635, 7 Atl. 515; Kendall v.
Bishop, 76 Mich. 634, 43 N. W. 645; and cases hereafter referred to.

39 Ante, p. 486; Chamberlain v. Bromberg, 83 Ala. 576, 3 South. 434.
554 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

tion which has become insolvent and ceased to do business cannot
prefer certain creditors over others, either by mortgage, provision in
an assignment for the benefit of creditors, or otherwise.*® By the
weight of authority, however, the rights and powers of a corporation
in this respect are identical with those of an individual, and it may
lawfully prefer particular creditors, unless prohibited by statute.**
In a number of states the question has been settled by express statu-
tory prohibition against preferences.*? The effect of preferences to
officers who are creditors is elsewhere considered.‘

40 Rouse v. Bank, 46 Ohio St. 498, 22 N. E. 293; Lyons-Thomas Hardware Co.
v Perry Stove Manuf’g Co., 86 Tex. 143, 24 S. W. 16, Shep. Cas. Corp. 235;
Thompson v. Lumber Co., 4 Wash. St. 600, 30 Pac. 741.

41 Bank of Montreal v. J. E. Potts Salt & Lumber Co., 90 Mich. 345, 51 N. W.
512 (collecting cases); Catlin v. Bank, 6 Conn. 283; Wilkinson v. Bauerle, 41 N.
J. Eq. 635, 7 Atl. 515; citing Sargent v. Webster, 13 Metc. (Mass.) 497; Dana
vy. Bank, 5 Watts & S. (Pa.) 223; Arthur v. Bank, 9 Smedes & M. (Miss.) 3%;
Town v. Bank of River Raisin, 2 Doug. (Mich.) 530; Buell v. Buckingham, 16
Iowa, 284. And see Vail v. Jameson, 41 N. J. Eq. 648, 7 Atl. 520; Warfield v.
Canning Co., 72 Iowa, 666, 34 N. W. 467; Rollins v. Carriage Co., 80 Iowa, 380,
45 N. W. 1087; State v. Bank, 6 Gill & J. (Md.) 205; Coats v. Donnell, 94 N.
Y. 168, 178; Sells v. ‘Commission Co., 72 Miss. 590, 17 South. 236; Foster v. Plan-
ing-Mill Co., 92 Mo. 79, 4 8. W. 260; Reichwald v. Hotel Co., 106 Ill. 489; Glo-
ver v. Lee, 140 Ill. 102, 29 N. E. 680. And cf. Hollins v. Iron Co., 150 U. S. 371,
14 Sup. Ct. 127.

42 Throop v. Lithographic Co., 125 N. Y. 580, 26 N. E. 742; Scott v. Armstrong,
146 U. S. 499, 18 Sup. Ct. 148, Shep. Cas. Corp. 50. In New York it is provided
that, whenever a corporation shall have refused payment of a debt, it shall not
be lawful for it, or any of its officers, to assign or transfer any of its property or
choses in action to any of its officers or stockholders, directly or indirectly, for the
payment of any debt; and it shall not be lawful to make any transfer or assign-
ment in contemplation of insolvency to any person or persons whatever. In Var-
num v. Hart, 119 N. Y. 101, 23 N. E. 183, the New York court, construing this
provision, held that it put no restraint upon creditors, but only upon the .affirma-
tive action of the corporation and its officers; and it appearing in this case that
creditors of a corporation, knowing it to be insolvent, arranged with an officer
thereof that he should not disclose service of summons on him, and afterwards ob-
tained judgment by default, and sold property of the corporation on execution, it
was held not to be a violation of the statute. This provision, it has been held, ren-
ders void an attachment against an insolvent corporation by a creditor, who is one
of its directors, though he has no control over its assets, and though the proceed-

 

43 Post, p. 608.
Ԥ 221) RELATION BETWEEN CREDITORS AND THE CORPORATION, 555

SAME—DISSOLUTION OF CORPORATION.

221. At common law, dissolution of a corporation extin-
guishes its debts; but it is otherwise in equity, and
very generally by statute. In equity the assets of
a dissolved corporation may be subjected to the
payment of its debts.

At common law, debts,due to and from a corporation were extin-
‘gnished by its dissolution. This must necessarily be so, for after dis-
solution there is no one, in law, to sue or be sued.*# This rule, how-
ever, does not obtain in equity. A court of equity will recognize and
enforce debts due to the corporation, and will lay hold of and apply its
assets to the payment of its debts.*®

The dissolution of a corporation, as we have seen, in pursuance of
charter or statutury authority, cannot be objected to by creditors as an
impairment of the obligation of their contract with it; for the obliga-

ing is strictly hostile as between him and the corporation. Throop v. Lithographic
Co., 125 N. Y. 580, 26 N. H. 742; Earl, Peckham, and Gray, JJ., dissenting. Un-
der a statute prohibiting conveyances and transfers of property by an insolvent
corporation, or by a corporation in contemplation of insolvency, with the intent to
give a preference to a particular creditor or creditors, the intent to give a prefer-
ence, and either an actual insolvency or a contemplation of insolvency, must be
proved as facts, to avoid a conveyance. So long as a debtor corporation, notwith-
standing the pressure of great embarrassments, entertains an honest expectation, in
the exercise of a reasonable intelligence, of going on with its business, and paying
all of its debts, its conveyances and transfers to particular creditors, to pay or se-
cure their claims, do not come within the operation of the statute. Curtis v. Lea-
vitt, 15 N. ¥. 9, 188. Rev. St. U. S. §§ 5234, 5236, 5242, which require a pro rata

distribution of the assets of an insolvent national bank, and forbid preferences, do , , ,

not invalidate liens, equities, and rights arising prior to and not in contemplation
of insolvency. In Scott v. Armstrong, 146 U. S. 499, 13 Sup. Ct. 148, Shep. Cas.
Corp. 50, a promissory note was executed to a national bank in consideration of
the amount being placed to the credit of the maker on the books of the bank. The
maker thought, and had good reason for thinking, that the bank was solvent; but
the managing officer of the bank knew it to be insolvent. Before the note ma-
tured, the charter was forfeited for insolvency, and a receiver appointed. It was
held that the undrawn balance should be allowed as an equitable set-off to the
note, and that such an allowance was a “preference,’’ within the meaning of the
statute,
44 Ante, p. 248, 45 Hightower v. Thornton, 8 Ga. 486.
556 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

tion of the contract survives, and the creditors may thus enforce their
claims against any property belonging to the corporation which has
not passed into the hands of bona fide purchasers. **

SAME—CONSOLIDATION OF CORPORATIONS.

222. In most jurisdictions, where corporations are con-
solidated, the new corporation, in acquiring the
rights and property of the old corporations, im-
pliedly assumes their debts. It is generally so pro-
vided by statute.

It is an open question in some jurisdictions whether or not, in the
absence of a statute, where corporations are consolidated the debts of
the original companies follow as an incident of the consolidation, and
become by implication the obligations of the new corporation; but,
by the weight of authority, the question should be answered in the
affirmative. The act of consolidation involves an implied assump-
tion by the new company of all the valid debts and liabilities of the
old companies. ‘The rule which the authcrities support seems to be
that where one corporation goes entirely out of existence, by being iu-
corporated into another, if no arrangements are made respecting the
property and liabilities of the corporation that ceases to exist the
corporation into which it is merged will succeed to all its property,
and be answerable for all its liabilities.” 47 .

SAME—EXTENSION OF CHARTER—NEW CORPORATION.

223. If the charter of a corporation is merely extended,.
it remains liable, as before, for its debts. But if,
when a charter is about to expire, a new corpora-
tion is created, though with the same name and

46 Ante, p. 206; Mumma gy. Potomac Co., 8 Pet. 281; 1 Cumming, Cas. Priv.
Corp. 459. And see Smith v. Canal Co., 14 Pet. 45.

47 Louisville, N. A. & C. Ry. Co. v. Boney, 117 Ind. 501, 20 N. EB. 482. See
Indianapolis, C. & L. R. Co. v. Jones, 29 Ind. 465; Jeffersonville, M. & I. R. Co.
y. Hendricks, 41 Ind. 48; Thompson v. Abbott, 61 Mo. 176; Mount Pleasant v.
Beckwith, 100 U. 8. 514; Pullman’s Palace Car Co. v. Missouri Pac. Ry. Co., 115
U. S. 587, 6 Sup. Ct. 194,
§ 224) RELATION BETWEEN CREDITORS AND THE CORPORATION. 557

the same members, it is not liable for the debts of
the old, except to the extent of property received
by it from the old without consideration.

We have seen, in a preceding chapter, that if, when the charter of
a corporation is about to expire, a new corporation is created, though
with the same name and the same members as those of the old cor-
poration, the new corporation is not liable for the debts of the old.**
It is otherwise, of course, if the existence of the old corporation is
merely extended, the identity of the corporation not being changed.*®
And, as we have seen, if the stockholders of a corporation form a new
corporation, and transfer to it the property of the old corporation, the
transfer is fraudulent as to the creditors of the old corporation, and
they may hold the new one liable to the extent of the property so re-
ceived by it.5°

SAME—SET-OFF BY DEBTOR OF CORPORATION.

224. A debtor of a corporation, who is also a creditor,
may set off his claim against his indebtedness, as
against other creditors. But this rule does not ap-
ply to a stockholder who is indebted on account of
his stock.

If a creditor of a corporation is also a stockholder, he cannot, when
sued upon his subscription by or for creditors, set off the debt due him
from the corporation, but must pay his subscription, and then share
ratably with other creditors in the assets.°4. This does not apply to
other cases. If a person who is indebted to a corporation otherwise
than for stock is also a creditor, he may set off his demand when sued
on his indebtedness for the benefit of creditors.°* Thus, though
claims for losses by fire due from an insurance company cannot be
set off by the assured agaitist notes given by hint for the capital stock

48 Bellows v. Hallowell, 2 Mason, 31, Fed. Cas. No. 1,279; ante, p. 81.

49 Bellows v. Hallowell. supra; President, etc., v. Richardson, 1 Greenl. (Me.) 79.

50 Ante, p. 549.

51 Post, p. 602.

52 Scammon v. Kimball, 92 U. S. 862; Scott vy. Armstrong, 146 U. S. 499, 13
Sup. Ct. 148, Shep. Cas. Corp. 50.
558 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

of the company, such claim can be set off by the assured against a
claim by the company for moneys deposited with him as a private
banker.°? A person who holds property in trust for the corporation
cannot, when sued therefor after an assignment for the benefit of
creditors, set off a debt due him from the corporation.**

RELATION BETWEEN CREDITORS AND STOCKHOLDERS..

225. Stockholders are not liable at all to creditors of the:
corporation, at common law,

(a) Unless they are indebted to the corporation on ac-
count of their stock, and payment of the debt is:
necessary for the payment of creditors.

(b) Or unless the capital stock of the corporation, or a
part of it, has been unlawfully distributed or paid
out to them, directly or indirectly, leaving credit-.
ors unpaid.

226. In most states, constitutional provisions have been
adopted, or statutes enacted, making stockholders.
individually liable, to a greater or less extent, for
corporate debts.

One of the characteristics of a corporation, at common law, dis-
tinguishing it from a partnership, is the exemption of the members:
from liability for the debts of the corporation beyond the proportions
of the capital stock owned by them. Partners are individually liable,
as joint contractors, for all the debts of the firm, but it is otherwise:
with members of a corporation. If they have not paid the full amount
of their subscriptions, and the corporation becomes insolvent, their:
liability to the corporation may be enforced by, or for the benefit of,.

53 Scammon v. Kimball, supra.

54 Thus, where money is placed by a corporation in the hands of its general man-
ager, as trustee, for safe-keeping, and to be paid out in the ordinary course of its.
business, he cannot set off a debt due to him by the corporation against the money
in his hands, after an assignment by the corporation for the benefit of creditors.
First Nat. Bank v. E. T. Barnum Wire & Iron Works, 58 Mich. 124, 24 N. W..
543,
§§ 225-226) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 599

creditors. But beyond the balance thus due from them to the cor-
poration, and the amount paid in by them, they are under no liability
to creditors, at common law, however insolvent the corporation may
be. Creditors must look to the assets of the company, and, if the
assets are insufficient to pay the debts in full, they must suffer the
loss.

The only way in which liability can be imposed upon stockholders,
as such, for corporate debts, is by the charter, or by statute.°> When
neither the charter of a corporation nor any general statute imposes on
the individual members any personal liability to pay its debts, such
liability cannot be imposed by a by-law of the corporation.*°® And
the fact that individual members may have represented to the public
that they were so liable will not make them liable as stockholders.
If they have incurred liability as individuals disconnected with their
corporate capacity, they should be proceeded against in their in-
dividual capacity, and not in their capacity as stockholders.**

Liability on Subscriptions.

The liability of a stockholder to pay the amount of his subscription
to the capital stock of the corporation is part of the capital stock,
and therefore it forms a part of the assets to which creditors of the
corporation are entitled to look for the payment of their debts.
Whenever, therefore, a stockholder is indebted to the corporation on
his subscription, the debt may be enforced by, or for the benefit of,
creditors, in an appropriate action. This is well settled.°* A cor-
poration cannot defeat the rights of creditors to hold the stockholders
liable on their unpaid subscriptions by a dissolution.°®

55 Post, p. 564,

56 Reid v. Manufacturing Co., 40 Ga. 98; Trustees v. Flint, 13 Metc. (Mass.)
539.

57 Reid v. Manufacturing Co., supra.

58 Hightower v. Thornton, 8 Ga. 486; Allen vy. Railroad Co., 11 Ala. 487; Hatch
v. Dana, 101 U. S. 205; Ogilvie v. Insurance Co., 22 How. 380; 1 Cumming, Cas.
Priv. Corp. 814; Slee vy. Bloom, 19 Johns. (N. Y.) 456; Briggs v. Penniman, 8
Cow. (N. Y¥.) 387; Bissit v. Navigation Co., 15 Fed. 353; Fehr v. Gasch (Ill.) 44
N. E. 724; Barron v. Paine, 83 Me. 312, 22 Atl. 218; Germantown Pass. Ry. Co.
v. Fitler, 60 Pa. St. 124; Payne v. Bullard, 23 Miss. 88; Nevitt v. Bank, 6 Smedes.
& M. (Miss.) 513.

59 Germantown Pass. Ry. Co. v. Fitler, 60 Pa. St. 124.
960 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

Conditional Subscriptions.

Where a subscription is made upon a valid condition precedent,
the subscriber, as we have seen, does not become a stockholder, nor
incur any liability to the corporation, until the condition is fulfilled.
Nor, until then, assuming that the condition is valid, does he incur
any liability on his subscription to creditors of the corporation.*° If
a conditional subscription is unauthorized and invalid, because made
prior to organization under a statute requiring a certain amount of
stock to be subscribed,*! it is held by some courts that the subscrip-
tion is void, so that it imposes no liability either to the corporation
or to creditors.®* Others hold that the condition only is void, and
that the subscription may be treated as absolute and unconditional,
so that the subscriber would be liable thereon to creditors.**

It must be remembered that performance of a condition precedent
may be waived. It may be waived impliedly as well as expressly,
and the waiver may be relied upon by creditors. A subscriber, there-
fore, who waives performance of a condition by acting as a stock-
holder, with knowledge that it has not been performed, cannot set up
the condition to defeat liability to creditors on his subscription.**

As we have seen, there is an implied condition that the whole
amount of stock specified in the charter, articles of association, or
contract of subscription, or fixed by the corporators or directors when
authorized to settle the same, shall be taken by bona fide, binding,
and unconditional subscriptions, before the subscribers shall be liable
on their subscriptions, unless the implication is rebutted.** This,
like other conditions, may be waived.®® ;

Subscriptions upon Special Terms.

We have considered subscriptions upon special terms in a preceding
chapter. And we have seen that a corporation cannot make special
terms with a subscriber by which it releases him from liability to
pay his subscription, in whole or in part.** An agreement between
a corporation and a subscriber by which the subscription is not to be
payable, or is to be payable in part only, though it may be binding

60 Ante, p. 294. 61 Ante, p. 312. 62° Ante,’ p. 300. 68 Ante, p. 301.

64 Ante, p. 301; Cornell’s Appeal, 114 Pa. St. 153, 6 Atl. 258; Mack’s Appeal
(Pa. Sup.) 7 Atl. 481.

65 Ante, p. 308. 66 Note G4, supra. 67 Ante, p. 302.

1
§§ 225-226) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 561

upon the corporation and upon the other stockholders, by their con-
senting to it, is void as against creditors of the corporation who con-
tracted with it on the faith of its capital stock being fully paid.
And the subscription may be enforced in full for the benefit of cred-
itors.*®

Lelease of Subscriber by Corporation.

A subscriber may be released, in whole or in part, from his contract
by the corporation, with the consent of the other stockholders, pro-
vided no claims of creditors intervene; but he cannot be released if
the amount due from him is required to pay the debts of the corpora-
tion.*® And if a subscriber is sued by a creditor or receiver of the
corporation, on his subscription, and claims in defense that the num-
ber of his shares was reduced with the consent of the corporation and
the other subscribers, it is incumbent upon him to show that it was
at atime when it might lawfully be done.”°

** Watered” and ‘Bonus’? Stock.

Difficult questions arise in regard to the liability to creditors of
the corporation where stock is issued gratuitously, or under an agree-
ment by which the holder pays less than the par value, either in
money or property. We have already considered this subject at
length in a preceding chapter, and it is not necessary to go into it
again. We have seen that ihe following propositions are supported
by the weight of authority, though on most of them there is some
conflict of opinion:

(1) The transaction may be valid and binding as far as the corpora-
tion and the stockholders are concerned, but the fact that it is so does
not necessarily render it binding upon creditors of the corporation.”

(2) If the stock is original stock, issued on subscription, any agree-
ment between the corporation and a subscriber, by which he pays
less,than its par value, is a fraud upon creditors of the corporation,

68 Ante, p. 304, and cases there collected. See, particularly, Burke v. Smith, 16
Wall. 390; Upton v. Tribilcock, 91 U. S. 45, 1 Cumming, Vas. Priv. Corp. 824.

$9 Payne v. Bullard, 23 Miss. 88; Upton v. Tribilcock, 91 U. S. 45, 1 Cumming,
Cas. Privy. Corp. 824; Slee v. Bloom, 19 Johns. (N. Y¥.) 456; Phoenix Warehousing
Co. v. Badger, 67 N. Y, 294; Fehr v. Gasch (Ill.) 44 N. E. 724; ante, p. 329, and
cases there cited.

70 Payne vy. Bullard, 23 Miss. 88. 71 Ante, p. 372.

Clk.Pr.Corp.—36
562 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

who deal with it on the faith of the stock being full paid, and, if the
corporation becomes insolvent, the original holders of such stock, and
purchasers with notice, may be held liable for its full par value for
the payment of creditors.”?

(3) When the corporation is an active and going concern, it may
issue stock at its market value, instead of its par value, either in pay-
ment of a debt, or to raise money or purchase property necessary for
carrying on its business; and if the stock is issued as full paid, and
the transaction is in good faith, the holders of the stock will not be
liable to creditors.7*

(4) If stock is issued as a bonus, and without consideration, the
holders will be liable for the par value of the stock to creditors
who deal with the corporation on the faith of the stock being full
paid. The contrary is held in New York."

(5) In any case, only those creditors who have dealt with the cor-
poration on the faith of the stock being full paid can complain.
Therefore the holders of stock issued as full paid, without being paid
in fact, are not liable (a) to persons who became creditors before the
stock was issued, (b) or who became creditors with knowledge of the
facts.7°

(6) In the absence of constitutional or statutory prohibition, stock
may be paid for in property or services, if they are such as the cor-
poration has the power to purchase or engage; and, by the weight
of authority, the transaction will be valid as against creditors, if it
was free from fraud, though the property may in fact have been
worth less than the stock. If the overvaluation is intentional, the
transaction is fraudulent, as a matter of law, and obvious and gross
overvaluation, if unexplained, is conclusive evidence of intentional
overvaluation.”®

(7) These rules are to some extent inapplicable under peculiar con-
stitutional or statutory provisions in force in some states.”"

Profits and Dividends.

Until dividends have been declared, the surplus profits are part of
the assets of the company, and do not belong to the stockholders,
even though the circumstances are such that a dividend ought to be

72 Ante, p. 3872. 74 Ante, p. 378. 76 Ante, p. 879.
73 Ante, p. 375. 75 Ante, p. 388. 77 Ante, p. 884,
§$ 225-226) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 563

declared;7* and therefore, where a corporation becomes insolvent
before its surplus profits have been set apart for the stockholders by
declaring a dividend, the surplus, as well as the capital stock, must
be applied to satisfy its debts, to the exclusion of any claim by the
stockholders.7® Where, however, while the corporation is solvent, a
dividend is lawfully declared, and money or property equal thereto is
specifically set apart as a fund appropriated to its payment, the share
of each stockholder is thereby severed from the common funds of the
corporation, and becomes his individual property, as against the
claims of creditors.°° Insolvency of the corporation after a dividend
has been declared and set apart does not defeat the right of the stock-
holders to their shares, as against creditors.**

Diversion of Capital— Unauthorized Dividends.

The directors of a corporation cannot lawfully diminish the capital
required to enable the corporation to do business, either by directly
distributing it among the stockholders, or by indirectly doing so, by
distributing funds as dividends when there are no surplus profits.
The whole capital stock of a corporation is bound, in the hand of all
but bona fide purchasers, for the payment of debts of the corporation
contracted on the faith of it; and it cannot be diverted by distrib-
uting it, either directly or indirectly, among the stockholders. If it
is done, the stockholders may be compelled to refund to, or for the
benefit of, creditors. Such a distribution is a fraud upon bona fide
creditors.*?

Dividends cannot lawfully be paid except out of surplus profits
earned by the company. This is expressly declared by statute in
some jurisdictions, but the rule is so even at common law.®? A pay-
ment of dividends, when they cannot lawfully be paid, so as to im-
pair the capital stock, is a fraud upon creditors. It is, in effect, a

78 Ante, p. 340.

79 Scott v. Fire Co., 7 Paige (N. Y.) 198; ante, p. 342,

80In re Le Blanc, 14 Hun, 8, 75 N. Y. 598; Le Roy v. Insurance Co., 2 Edw.
Ch. (N. Y.) 657.

811d.

82 Wood v. Dummer, 3 Mason, 808, Fed. Cas. No. 17,944, 1 Cumming, Cas.
Priv. Corp. 805; Bartlett v. Drew, 57 N. Y. 587; Hastings v. Drew, 76 N. Y. 9;
Gratz v. Redd, 4 B. Mon. (Ky.) 178, 194.

83 Ante, p. 344,
564 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

distribution of the capital among the stockholders, and the stock-
holders who receive the same may be made to account and refund
for the benefit of creditors.°* Besides this, by statute, in many juris-
dictions, officers of a corporation are made liable for its debts if they
pay dividends when there are no funds out of which they may law-
fully be paid, and they may render themselves liable at common law.*®
But, if dividends are paid by a corporation when it may lawfully pay
them, the stockholders cannot be compelled to refund, at the suit of
creditors, upon the corporation’s subsequently becoming insolvent.®®

Preferred Stockholders.

Ordinarily holders of preferred stock in a corporation are not to
be regarded as creditors, though the stock may have been issued by
the corporation for the purpose of raising money; but they are to be
regarded as stockholders, and they cannot claim the right to corpo-
rate assets until the rights of creditors have been satisfied.6” The
issue of preferred stock, however, may take the form of a loan, so as
to give the holders the standing of creditors.*®

i

SAME—STATUTORY LIABILITY OF STOCKHOLDERS.

227. In most of the states, statutes have been enacted
making stockholders individually liable to some ex-
tent for corporate debts. The statutes vary in the
different states. They are generally

(a) Statutes making stockholders jointly and severally
liable, absolutely and unconditionally, for all the
debts of the corporation. £

(b) Statutes making them so liable until the whole cap-

: ital stock is paid in, and a certificate thereof filed
or recorded. =

(c) Statutes making them liable, absolutely and uncon-
ditionally, to an amount equal to the amount of

84 Wood v. Dummer, supra; Bartlett v. Drew, supra; Main v. Mills, 6 Biss.
98, Fed. Cas. No. 8,974; Gratz v. Redd, 4 B. Mon. (Ky.) 178, 189, 191; Reid v.
Manufacturing Co., 40 Ga. 98, 104; ante, p. 353.

85 Post, pp. 605, 609. 87 Ante, p. 365.

86 Reid v. Manufacturing Co., 40 Ga. 98, 88 Ante, p. 367.
§§ 227-280) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 565

stock held by them, in addition to the amount that
may be due on the stock.

(d) Statutes requiring certain acts to be done, as the
filing of annual statements, and making stockhold-
ers individually liable for corporate debts, on fail-
ure to comply.

228. In a number of states there are constitutional pro-
visions imposing individual liability upon stock-
holders. Such provisions are self-executing, if they
fix the liability, so that they do not depend upon
legislation to give. them effect.

229. Some of the statutes impose a contractual liability,
as in (a), (b), and (c), supra, while the liability im-
posed by others is penal, as in (d), supra. The
nature of the contractual liability must depend in
each case upon a construction of the statute. The
liability may be either

(a) In the nature of that of a surety or guarantor,
(b) Or it may be original, as principal debtor.

280. In regard to the statutory liability of stockholders
the following points may be particularly mentioned:
(a) Where a statute makes stockholders individually
liable on dissolution of the corporation, total insol-
vency, and an assignment for creditors, or appoint-
ment of an assignee in bankruptcy or insolvency,
or a receiver, is equivalent to a dissolution.
(b) The words “debts,” “demands,” etc., used in the
statute,
(1) In some states are held to include only debts
arising from contract, express or implied.
(2) In others they are held to include a demand for
unliquidated damages for a tort.
(c) A statute making stockholders liable for debts due
“servants and laborers” for services includes only
servants performing manual labor.
566 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

(d) The legislature may impose individual liability upon
stockholders of existing corporations, if the power
to alter, amend, or repeal the charter is reserved,
but not otherwise.

(e) The legislature may repeal a statute imposing indi-
vidual liability after a debt is contracted, if the
liability is penal, but not if it is contractual.

(f) The statutes have no extraterritorial operation if
they are penal, but it is otherwise if they are con-
tractual.

The statutes imposing individual liability upon stockholders for
corporate debts vary so much in the different states that it is im-
possible to lay down general rules that will apply in all cases. There
are some rules and principles, however, which are of very general ap-
plication, and these may be shown, leaving the student to examine the
statutes and decisions of his own state. On some questions it will be
found that the courts do not agree.

The statutory liability of stockholders to creditors may be excluded
by express agreement between the corporation and creditors at the
time the debt is contracted.®®

Unpaid Installments of Subscriptions.

In almost all of the states, constitutional provisions have been
adopted, or statutes have been enacted, expressly declaring stock-
holders liable for debts of the corporation to the extent of all unpaid
installments on stock owned by them, or, in some states, on stock
transferred by them for the purpose of defrauding creditors. Such
liability exists, however, independently of any statutory provision,
and has already been considered.°° We are concerned in this section
only with the liability of stockholders to creditors of the corporation
which is imposed by statute, and which does not exist independently
of the statute.

Unlimited Statutory Liability.

Sometimes, but not often, stockholders are made jointly and sev-
erally liable, absolutely and unconditionally, for all the debts of the
corporation. Such a statute does away altogether with the common-

89 Brown v. Slate Co., 134 Mass. 590. 90 Ante, p. 559.
§§ 227-230) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 067

law exemption of members from individual liability for corporate
debts, and, in effect, renders them liable as partners.**

Limited Statutory Iiability.

More general statutes are those imposing a limited liability. In
many states each stockholder in certain corporations is made absolute-
ly liable for the debts of the corporation, “to the amount of stock held
or owned by him.” Such a statute creates an absolute, contractual
liability on the part of each stockholder, in a sum equal to the amount
of his stock, in addition to his liability to the corporation for his
stock, and not merely for the amount due on his stock.®? The liability
in such a case is, in most states, held to be original. The stockholders
are liable as principal debtors, substantially as if they were partners,
except that the liability of each is limited to a sum equal to the
amount of his stock.®? The national banking act declares that “the
shareholders of every national banking association shall be held in-
dividually responsible, equally and ratably, and not one for another,
for all contracts, debts, and engagements of such association, to the
extent of the amount oftheir stock therein, at the par value thereof,
in addition to the amount invested in such shares.” °®* Under this
act, it will be noticed, the shareholders are severally liable. “The in-
solvency of one stockholder, or his being beyond the jurisdiction of
the court, does not in any wise affect the liability of another; and if
the bank itself, in such case, holds any of its stock, it is regarded in
all respects as if such stock were in the hands of a natural person, and
the extent of the several liability of the other stockholders is com-
puted accordingly.” °°

A stockholder is not liable at law for corporate debts, under a stat-
ute making him liable to the amount of his stock, where he has already

91 See Corning v. McCullough, 1 N. Y. 47.

92 McDonnell v. Insurance Co., 85 Ala. 401, 5 South. 120; Briggs v. Penni-
man, 8 Cow. (N. Y.) 387; Root v. Sinnock, 120 Ill. 350, 11 N. BE. 339; Coleman
vy. White, 14 Wis. 700; Willis v. Mabon, 48 Minn. 140, 50 N. W. 1110.

83 Coleman vy. White, 14 Wis. 700.

94 Rev. St. U. S. § 5151. The statute excepted shareholders in any banking
association then existing under state laws, having not less than $5,000,000 of
capital actually paid in, and a surplus of 20 per centum on hand, and provides
that they shall be liable only to the amount invested in their shares.

95 U. S. v. Knox, 102: U. 8. 422.
568 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

paid, on account of the debts of the corporation, a sum equal to the
amount of his stock, in addition to paying for his stock, or where he
is himself a creditor of the corporation to that extent.®®

Statutory Liability Until Oapital is Paid in.

In a number of states, stockholders are made jointly and severally
liable for debts of the corporation until the whole, or a specified pro-
portion, of the capital stock is paid in, and a certificate thereof is
made and recorded or filed as prescribed in the statute. In some
states the liability is unlimited, while in others they are made liable
only to the amount of their stock; that is, as we have seen, to ap
amount equal to the amount of their stock in addition to any amount
that may have been paid or that may be due on their stock.®? The fact
that a stockholder has fully paid for his stock does not relieve him
from liability, under such statutes, if the capital stock of the com-
pany, or the required proportion, is not paid in, and the certificate
made and recorded or filed. Two things are necessary, under these
statutes, to end the stockholders’ liability. The whole capital stock,
or the prescribed proportion thereof, must be paid in, and the cer-
tificate must be recorded or filed.°* The certificate is not conclusive
evidence, as against creditors, that the capital stock has been paid.°*
The question of liability under such statutes as these frequently arises.
in cases where stock is paid for in property, and it is claimed that the
property was taken at an overvaluation. We have, in a preceding
chapter, considered the effect of such payments.1°°

If the capital stock is increased after the original stock has all been
paid in, the liability of holders of the original stock, who refuse to take
the new stock, is not revived under a statute making stockholders:
liable for the debts of the corporation until its whole capital stock is.
paid in, and a certificate of the fact recorded or filed. The liability in
such a case rests solely upon the holders of the new stock.?°

96 Garrison v. Howe, 17 N. Y¥. 458; Mathez v. Neidig, 72 N. Y¥. 100; post,
p. 608. ‘

97 Note 92, supra.

98 Veeder vy. Mudgett, 95 N. Y. 295,

99 Id.

100 Ante, p. 379.

101 Sayles v. Brown, 40 Fed. 8, W. D. Smith, Cas. Corp. 107; Veeder v. Mud-
gett, 95 N. Y. 295.
§§ 227-230) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 569

Constitutional Provisions.

In a number of states there are constitutional provisions declaring
stockholders liable, to a greater or less extent, for the debts of the
corporation. Whether these provisions are self-executing, or whether
they require statutory enactment to carry them into effect, depends
upon a construction of the language of the provision. If, said Judge
Mitchell in a Minnesota case, the nature and extent of the liability im-
posed is fixed by the provision itself, so that it can be determined by
an examination and construction of its own terms, and there is no
language used indicating that the subject is referred to the legisla-
ture for action, the provision should be construed as self-executing,.
and its language as addressed to the courts. And it was held that a
constitutional provision that “each stockholder in any corporation
* * * [with certain exceptions] shall be liable to the amount of
stock held or owned by him” was self-executing.1°? If, on the other
hand, the provision leaves anything to be fixed by law before it can be
given effect, or if, on a construction of the entire provision in the
light of other provisions bearing upon the same subject, it appears
that it is addressed to the legislature, and contemplates action by it,
the provision cannot be regarded as self-executing.’°*

Liffect of Dissolution of Corporation.

The dissolution of a corporation by its own voluntary act, or by its.
ceasing to act as a corporation, does not destroy the right of its cred-
itors to enforce the statutory liability of stockholders.1°*

Nature of Stockholders’ Liability—Penal or Contractual.

The liability of stockholders under some statutes is contractual,
while under others it is penal. This distinction is very important.
For instance, penal statutes have no extraterritorial effect, and lia-
bility for a penalty does not survive the death of the person liable.
The effect of the statute, and not the form, determines its character.?°>
A statute which directs or prohibits some act, and imposes some for-

102 Willis v. Mabon, 48 Minn. 140, 50 N. W. 1110. The fact that no remedy
is provided for does not show that the provision is not self-executing, since the lia-
bility being imposed, the law furnishes a remedy. Willis v. Mobon, supra.

103 French vy. Teschemaker, 24 Cal. 518; Morley v. Thayer, 8 Fed. 737.

104 Sleeper v. Goodwin, 67 Wis. 577, 31 N. W. 335, 887; Kincaid v. Dwinelle,
59 N. Y. 548.

105 Diversey v. Smith, 103 Ill. 378.
570 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

feiture for its transgression, is a penal statute. Therefore a statute
providing that a corporation shall not transact business until certain
preliminaries have been complied with, and that, if it does, the mem-
bers shall be personally liable to the creditors, has been held to im-
pose a penalty.*°® So, where the corporation is required to file an-
nually a certificate setting forth certain facts, such as the amount
of assessments voted by the company and actually paid in, and the
amount of all existing debts, and it is provided that, if it shall fail to
do so, all the stockholders shall be jointly and severally liable for all
the debts of the company, the liability thus imposed is penal, and not
contractual.?°7 ;

But the liability under a statute providing that all stockholders
shall be severally or jointly and severally liable individually to the
creditors of the corporation, to an amount equal to the amount of
their stock, for all debts or contracts made by the company, until the
whole amount of the capital stock shall have been paid in, and a cer-
tificate thereof filed, is not in the nature of a penalty, but a liability
arising upon a contract.1°* The same is true of a statute making
stockholders liable, absolutely and unconditionally, for the debts of
the corporation, or liable to the extent of their stock, as in the national
banking act.?°

Same—Nature of Contractual Liability.

The statutory or constitutional liability of stockholders ex con-
tractu for corporate debts to the amount of their ‘stock, though sui
generis, is in some cases, but not in all, in the nature of the liability
of a surety or guarantor.11° Sometimes it is said to be that of a

106 Id,

107 Sayles v. Brown, 40 Fed. 8, W. D. Smith, Cas. Corp. 107; Wing v. Slater
(R. I.) 85 Atl. 302.

108 lash v. Conn, 109 U. 8S. 371, 3 Sup. Ct. 268; Id., 16 Fla. 428, 26 Am.
Rep. 721; Cuykendall v. Miles, 10 Fed. 842.

109 Richmond v. Irons, 121 U. 8. 27, 7 Sup. Ct. 788; Cochran y. Wiechers, 119
N. Y. 399, 23 N. E. 808; Grand Rapids Sav. Bank v. Warren, 52 Mich. 557, 18
N. W. 356; Corning v. McCullough, 1 N. Y. 47; Queenan yv. Palmer, 117 Ill.
619, 7 N. E. 618; Hencke v. Twomey, 58 Minn. 550, 60 N. W. 667, W. D.
Smith, Cas. Corp. 106.

110 Willis v. Mabon, 48 Minn. 140, 50 N. W. 1110. It was therefore held in
this case that the insolvent law, providing that the release of any debtor under
the act should not discharge “‘any other party liable as surety, guarantor, or
§§ 227-230) RELATION BETWEEN CREDITORS AND STOCKHOTDERS. 571

guarantor or surety or partner,*!? but it is clear that this is going too
far. In some respects it is similar, but in many respects it is differ-
ent.142 “The truth is,” says Mr. Taylor, “the liability of shareholders
under statutes imposing individual liability for corporate indebted-
ness is the liability of shareholders under such statutes; and to speak
of it as the liability of guarantors, or the liability of partners, is to
call it what it is not.”14% The nature of the liability must depend
upon the particular statute. It may be in the nature of the liability
of a surety or guarantor, or it may not. Thus, where the charter of
a bank provided that the persons and property of the stockholders
should be “at all times liable, pledged and bound for the redemption
of the bills and notes of the bank, at any time issued, in proportion to
the number of shares that each individual might hold and possess,”
it was held that the stockholders were liable, as principals, to redeem
the bills of the bank at their face, after the bills had been presented
to the bank and payment refused, although the assignee of the bank
had assets in his hands sufficient to pay them.*** And under a stat-
ute making stockholders, upon default of the corporation in the pay-
ment of any debt, individually responsible, without any limitation, or
‘individually liable for an amount equal to the amount of their stock,
it has been held that the liability of the stockholders is primary, and

otherwise for the same debt,” included stockholders who were liable for the
‘debts of the corporation. See, also, National Loan & Building Ass’n v. Lichten-
walner, 100 Pa. St. 100, 45 Am. Rep. 359.

111 Hanson v. Donkersley, 37 Mich. 18+. But see Grand Rapids Sav. Bank v.
Warren, 52 Mich. 557, 18 N. W. 356.

112 In Grand Rapids Sav. Bank v. Warren, supra, it was said by Chief Jus-
tice Cooley: ‘The shareholder, it is true, occupies, as regards the creditor, the
position of surety for the bank [citing Hansen v. Donkersley, supra], but he is
something more than a surety; he is one of the associates of the bank, and, by
the very terms of the association, he is deemed to undertake for the debts which
the bank contracts.”

1138 Tayl. Corp. § 714.

114 Hatch v. Burroughs, 1 Woods, 439, Fed. Cas. No. 6,203. And see Harger
v. McCullough, 2 Denio (N. Y.) 123; Hyman v. Coleman, 82 Cal. 650, 23 Pac.
‘62; Parrott v. Colby, 6 Hun (N. Y.) 57, 71 N. Y¥. 597; Jagger Iron Co. vy.
Walker, 76 N. Y¥. 521. An extension of the debt by the creditor, without the
‘stockholders’ consent, does not release them from liability, though it would re-

lease one who was strictly a surety or guarantor. Grew vy. Breed, 10 Mete.
(Mass.) 569.
572 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

the same as the liability of partners, except that, in the latter case,
they are only liable to the amount of their stock.**®

The liability under a statute making stockholders liable for corpo-
rate debts until the capital stock is paid in, and a certificate thereof
filed, has been held to be unconditional, original, and immediate, and
not collateral to the liability of the corporation, nor in any degree de-
pendent upon the insufiiciency of the corporate assets.**®

What Constitutes ‘‘ Dissolution.’

A statute making stockholders liable for debts of the corporation at
the time of its dissolution does not mean a dissolution by expiration
of the charter, or by action of the state. A dissolution, so as to ren-
der stockholders liable under the statute, is effected by its total insol-
vency, and the appointment of a receiver, or an assignee in bank-
ruptcy or insolvency, to take charge of its property and wind up its
business, or an assignment for the benefit of creditors, and suspension
of business.*17

But a right of action does not accrue against stockholders upon the
corporation becoming insolvent in the sense, simply, that its property
is insufficient for the payment of its debts, nor upon the appoint-
ment of a receiver merely for the purpose of carrying on its business,
and not account of its insolvency, or to wind up its business.1?®

‘* Debts,’ ““Demands,”? etc., within the Statutes.

There is some difference of opinion in the construetion of the word
“debts” or “demands” or “dues,” used in the statutes under considera-
tion. It has been held that the term “debt” does not include un-
liquidated claims for damages for torts of the corporation, for which
no judgment has been recovered, but is intended to include only “those
obligations arising on express and implied contracts, growing out of
dealings between the corporation and other corporations or individ-

115 Schalucky v. Field, 124 Ill. 617, 16 N. HE. 904; Thompson v. Meisser, 108
Ill, 359; Fuller v. Ledden, 87 Ill. 310; Corning v. McCullough, 1 N. Y. 47.

116 Manufacturing Co. v. Bradley, 105 U. S. 175.

117 Slee v. Bloom, 19 Johns. (N. Y.) 456; Briggs v. Penniman, 8 Cow. (N. Y.)
887; McDonnell v. Insurance Co., 85 Ala. 401, 5 South. 120; Barrick v. Gifford,
47 Ohio St. 180, 24 N. E. 259; Bronson v. Schneider, 49 Ohio St. 438, 38 N. B.
233; Younglove v. Lime Co, 49 Ohio St. 663, 83 N. IE. 234.

118 Bronson v. Schneider, supra; Younglove v. Lime Co., supra.
§§ 227-230) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 9573

uals, where the financial condition of such corporation would or might
be the foundation of credit.” 11® Some courts, however, hold that the
statutes cover a demand for unliquidated damages arising from a
tort.12° A judgment for a tort is an “indebtedness,” within the mean-
ing of a statute.*?*

The statutory liability of members of a corporation for its debts ex-
tends to debts contracted in another state. They are liable for such
debts to the same extent as for debts contracted at home.*??

Debts Due Clerks, Laborers, ete.

In some states a liability is imposed by statute upon stockholders
for debts due clerks, servants, and laborers for services performed for
the corporation. Of course, the statutes vary in the different states.
A foreman or superintendent who is not an officer of the corporation,
but an employé, has been held a servant, within the meaning of a
statute making stockholders liable for debts due “clerks, servants, and
laborers for services,” though he does not perform manual labor.***
But a bookkeeper employed at a yearly salary was held not to be
within a statute imposing liability for debts due a “laborer, servant, or
apprentice,” as it was considered that the statute was intended to
include only persons performing menial or manual services,—the serv-
ices of that class of persons who look to the reward of a day’s labor
for present support, from whom the company does not expect credit,
and to whom its future ability to pay is of no consequence.?7* It
has also been held that a traveling salesman is not a laborer, within
the meaning of such statutes.'?°

119 Doolittle v. Marsh, 11 Neb. 243, 9 N. W. 54. It was held that the word
“demands,” in a New York statute, did not include damages sustained by rea-
son of a bridge of the corporation being out of repair. Heacock v. Sherman, 14
Wend. (N. Y.) 58. So in Massachusetts it has been held that the liability for
infringement of letters patent is not, before judgment, a “debt,’’ within a statute
making officers liable. Child v. Iron Works, 137 Mass. 516.

120 Rider y. Fritchey, 49 Ohio St. 285, 830 N. E. G92. Here the statute used the
word ‘‘dues.” Carver v. Manufacturing Co., 2 Story, 482, Fed. Cas. No. 2,485.

121 Powell v. Railway Co., 36 Fed. 726.

122 Hutchins v. Mining Co., 4 Allen (Mass.) 580.

128 Sleeper v. Goodwin, 67 Wis. 577, 31 N. W. 335. Compare State v. Rusk,
55 Wis. 465, 18 N. W. 452.

124 Wakefield v. Fargo, 90 N. Y. 213.

126 Jones y. Avery, 50 Mich. 326, 15 N. W. 494.
O74 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

Excepted Classes of Corporations.

Sometimes the statutes except certain corporations from their oper-
ation. Thus, Minnesota corporations organized for the purpose of
carrying on any kind of manufacturing or mechanical business are
excepted. To come within such an exception a corporation must
have been organized exclusively for carrying on a manufacturing or
mechanical business. If the purpose for which a corporation is form-
ed, as stated in its articles of association, is to carry on a manufactur-
ing or mechanical business, and also some otber and distinct kind of
business, not properly incidental to or connected with the former, it
will not be within the exception.**®

Lelease or Discharge of Corporation.

Where the statute makes stockholders liable for the debts and con-
tracts of the corporation jointly with the corporation, there must be a
debt due from the corporation, to render a stockholder liable. If a
creditor of the corporation, therefore, releases the corporation from
the debt, in insolvency proceedings or otherwise, there is no longer
any debt upon which he may hold the stockholders. The liability of
the stockholders is in the nature of the liability of partners for a debt
of the firm, and whatever releases the corporation releases them
also.7?7

Constitutional Law—Laws Affecting Existing Corporations.

If the legislature has reserved the right to amend, alter, or repeal
the charter of a corporation, it may, by a law passed after incorpora-
tion, impose individual liability upon the stockholders for corporate
debts.1°& And it has been held that it can do so even where the power
of alteration, amendment, or repeal has not been reserved; that such
a law is not unconstitutional as impairing the obligation of the con-
tract between the stockholders and the state as evidenced by the
charter.1?°

126 State v. Minnesota Thresher-Manuf’g Co., 40 Minn. 213, 41 N. W. 1020;
Mohr vy. Elevator Co., 40 Minn. 348, 41 N. W. 1074; Arthur v. Willius, 44
Minn. 409, 46 N. W. 851; Densmore v. Shepard, 46 Minn. 54, 48 N. W. 528.

127 Mohr vy. Elevator Co., 40 Minn. 348, 41 N. W. 1074.

128 Ante, p. 216; Sleeper v. Goodwin, 67 Wis. 577, 31 N. W. 335.

129 Ante, p. 210, note; Gray v. Coffin, 9 Cush. (Mass.) 192.
§§ 227-230) RELATION BETWEEN CREDITURS AND STOCKHOLDERS. 575

‘Same—Repeal or Change of Law.

It has been generally held that, where the liability imposed upon
stockholders for debts and contracts of the corporation is contractual,
the claim of a creditor of the corporation against a stockholder is
within the protection of the clause of the federal constitution prohibit-
ing laws impairing the obligation of contracts; and, therefore, that
where a statute or the charter of a corporation imposes upon the
stockholders liability for the debts of the corporation to the extent of
their stock, an act or constitutional provision repealing the statute or
amending the charter so as to take away this liability is unconstitu-
tional and void as to existing creditors.1®° There is some authority,
however, to the contrary.*** Certainly the legislature may modify
the form of remedy for enforcing the liability.**?

Fatraterritorial Effect of Statutes.

If the statute imposing liability on stockholders for debts of the
corporation is penal, it has no operation beyond the limits of the
state, for penal statutes have no extraterritorial effect. Thus, where
a Rhode Island statute requiring a corporation to file annually a cer-
tificate setting forth the amount of assessments voted by the company
and actually paid in, and the amount of the existing debts, provided
that, if it should fail to do so, all the stockholders should be jointly
and severally liable for all the debts of the company, it was held that
the statute, being penal, imposed no liability which could be en-
forced against stockholders in Maryland.1**

If, on the other hand, the liability is contractual, as where a liabili-
ty for corporate debts is imposed until the capital stock is all paid in,
it may be enforced in another state by any court having jurisdiction of
the subject-matter and the parties.***

180 Hathorne v. Calef, 2 Wall. 10; Grand Rapids Sav. Bank v. Warren, 52
Mich. 557, 18 N. W. 356; McDonnell v. Insurance Co., 85 Ala. 401, 5 South.
120.

131 Coffin v. Rich, 45 Me. 507, 71 Am. Dee. 559.

182 Wourth Nat. Bank v. Francklyn, 120 U. S. 747, 7 Sup. Ct. 757.

133 Sayles v. Brown, 40 Fed. 8, W. D. Smith, Cas. Corp. 107. And see Halsey
v. McLean, 12 Allen (Masgs.) 438.

184 Mash vy. Conn, 109 U. 8S. 371, 3 Sup. Ct. 268; Wiles v. Suydam, 64 N. Y.
173; Cuykendall v. Miles, 10 Fed. 342.
576 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

SAME—WHO ARE LIABLE AS STOCKHOLDERS UNDER THE
STATUTES.

231. Those who appear on the books of the corporation
are prima facie liable under the statutes as stock-
holders. But there are some exceptions:

(a) A person is not liable if stock is registered in his
name, without his knowledge or consent, express
or implied.

(b) As to the effect of a transfer of shares, the authori-

ties are conflicting:

(1) In some states the transferror is relieved from
liability, and the transferee takes his place.

(2) In others, the transferror remains liable for
debts contracted while he was owner of the
shares, and no liability therefor attaches to
the transferee.

(3) In others, both are liable for debts contracted
while the transferror owned the shares.

(4) Generally this question is settled by the express
terms of the statute.

(5) Where the shares are transferable on the books
of the corporation a transferror is not relieved
from liability unless he has his transfer reg-
istered, or takes due steps to have it done.

(6) A transfer to a person who is incapable of hold-
ing the stock and of assuming liability in re-
spect thereto does not relieve the transferror
from liability.

(7) Nor is he relieved by a transfer to an insolvent
person for the purpose of escaping liability,
when he knows the corporation to be insolvent.

(8) Nor is he relieved by a colorable transfer.

(9) Nor is he relieved by a transfer after the corpo-
ration has become insolvent and ceased to do
business.
§ 231) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 577

(10) Where stock transferable on the books of the
corporation is transferred to a pledgee, trustee,
etc., he is personally liable thereon if he ap-
pears on the books as the absolute owner,
but not otherwise.

(11) Creditors must elect whether to hold the real
or the apparent owner. They cannot hold
both.

(ec) Married women, if capable of holding stock, are sub-
ject to the statutory liability, though they may not
have capacity to contract, as the liability is im-
posed by statute.

(d) The statutory liability survives, as against the per-
sonal representative of a deceased stockholder, if
the liability is contractual, but not if it is penal.

(e) Forfeiture of stock for nonpayment of assessments
releases the stockholder from statutory liability, if
he thereby ceases to be a stockholder.

(f) Holders of certificates of unauthorized stock are not
liable unless the circumstances estop them as
against creditors.

Where the statute makes stock transferable on the books of the
corporation, and makes “shareholders” or “stockholders” liable for
the debts of the corporation,**® the general rule is that every person
in whose name, as owner, stock is registered on the books of the cor-
poration, with his knowledge and consent, is liable. He is a “share-
holder” or “stockholder,” within the meaning of the statutes. When
the name of an individual appears on the stock book of a corporatiom
as a stockholder, the presumption is that he is the owner of the stock,.
and, in an action against him as stockholder, he has the burden of:
rebutting the presumption.’** To this rule there are some excep-.
tions. These will be pointed out as we go along.

185 Ante, p. 564, where some of the statytes are given.
186 Turnbull v. Payson, 95 U. S. 418.
Clk.Pr.Corp.—37
578 RIGHTS AND REMEDIES OF’ CREDITORS. (Ch. 41

Shares Registered in Nume of Person without His Knowledge.

It is clear that a person cannot be compelled to become a stock-
holder, and to assume liability as such, without his consent. Mem-
bership in a corporation can only result from contract, express or
implied, and there can be no contract without mutual.consent. It
follows that, if shares in a corporation are registered in the name of
a person without his knowledge or consent, he-cannot be held lia-
ble.*7 He may become liable, however, by acquiescence after knowl-
edge of the facts, for consent in such a case will be implied.*** And
if a person is elected to an office in the corporation for which owner-
ship of stock is a necessary qualification, and shares are transferred
to him on the books, and he acts as such officer, he will be chargea-
ble with knowledge of the fact that shares stand in his name.**®

Liffect of Transfer of Shares.

In President, Directors, etc., of Middletown Bank v. Magill,**® un-
der a charter declaring that members of a corporation should at all
times be liable for all debts due by the corporation, it was contended
by the plaintiffs, and held by two of the judges, that the legislature
intended to subject members to the same liability as if they had not
been incorporated,—that is, to the liability of partners,—and that
members of the corporation at the time a debt was contracted became
subject to a liability therefor, which continued notwithstanding a
valid sale and transfer of their shares, and that transferees became
jiable only for debts contracted after the transfer. A majority of the
«ourt, however, held that no liability attaches under such a statute

137 Stephens vy. Follett, 48 ed. 842. In this case it was held that a person
who had subscribed and paid for a specified number of shares of a ‘proposed in-
crease” of the capital stock of a national bank was not liable as a shareholder,
where the increase was never in fact issued, but the bank officials transferred to
Shim instéad, on the books of the bank, old stock of the bank, without his con-
-sent or knowledge. It was further held that he was not estopped to deny that
ahe was a shareholder by the fact that he received a dividend on the old shares so
.transferred to him, where he received it in the belief that it was paid him by
~virtue of his subscription to the new stock. And see Simmons vy. Hill, 96 Mo.
679, 10 8. W. 61.

138 Keyser v. Hitz, 133 U. S. 188, 10 Sup. Ct. 290; Finn v. Brown, 142 U. 8.
56, 12 Sup. Ct. 136.

139 Hinn y. Brown, supra.

4405 Conn, 28, 1 Cumming, Cas. Priy. Corp. 912.
§ 231) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 579

until the corporate property fails, and it becomes necessary to resort
to the stockholders’ liability; and, therefore, that such persons, and
such persons only, as are then stockholders are subject to the lia-
bility, and that a valid and complete transfer of stock, in the absence
of express charter or statutory provision to the contrary, relieves the
transferror of all liability to creditors of the corporation under such
statutes, and the transferee becomes liable in his place.

On this point the decisions in the other states are conflicting.
Clearly, a valid transfer relieves the transferror of liability for debts
subsequently contracted.‘*1 In most states, but not in all, it is held
that the transferee of shares is liable for debts contracted before he
acquired the shares if he holds them when the liability is sought to
be enforced.**? But he is not liable if he does not own the shares
when the liability is sought to be enforced.*** Some courts hold that
the transferror of shares is relieved of any liability, even for debts
contracted while he was a stockholder, if the transfer was bona fide.***
But others hold, without qualification, that he remains liable on the
stock, while some hold that he is liable if the transferee is insolvent,
or for any other reason the liability cannot be enforced against him,
though the transfer was bona fide.**® In alate Rhode Island case it
was held that the liability under a statute making stockholders liable
for the debts of the corporation until the capital stock is paid in, and

141 Chemical Nat. Bank v. Colwell, 132 N. Y. 250, 30 N. E. 644.

142 Curtis v. Harlow, 12 Metc. (Mass.) 3; Brown v. Hitchcock, 36 Ohio St.
467; Barrick v. Gifford, 47 Ohio St. 180, 24 N. HE. 259; Root v. Sinnock, 120
Ill, 850, 11 N. HB. 339; Sayles v. Bates, 15 R. I. 342, 5 Atl. 497; Dauchy v.
Brown, 24 Vt. 197: National Commercial Bank v. McDonnell, 92 Ala. 387, 9
South. 149. Contra, Chesley v. Pierce, 32 N. H. 388, 1 Cumming, Cas. Priv.
Corp. 936; Moss vy. Oakley, 2 Hill (N. ¥.) 265; McCullough v. Mass, 5 Denio
(N. ¥.) 567. : .

143 Sayles v. Bates, 15 It. I. 342, 5 Atl. 497; Holyoke Bank v. Burnham, 11
‘Cush, (Mass.) 183.

144 Dauchy v. Brown, 24 Vt. 197; Bond v. Appleton, 8 Mass. 472; Presi-
dent, etc., of Middleton Bank v. Magill, 5 Conn. 28, 1 Cumming, Cas. Priv. Corp.
912. But see Curtis v. Harlow, 12 Metc. (Mass.) 3.

145 Moss v. Oakley, 2 Hill (N. Y.) 265; Brown v. Hitchcock, 36 Ohio at G67;
Mason y. Alexander, 44 Ohio St. 318, 7 N. E. 435; Harpold v. Stobart, 46 Ohio
St. 397, 21 N. E. 637; Sayles v. Bates, 15 R. I. 342, 5 Atl. 497; Jackson v.
Meek, 87 Tenn. 69, 9 S. W. 225; Holycke Bank v. Burnham, 11 Cush.- ene
183; Johnson y. Bleaching Co., 15 Gray (Mass.) 216.
580 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

a certificate thereof recorded, includes all persons who were stock-
holders when the debt was contracted, and all persons who are stocke
holders when the liability is sought to be enforced, but does not ex-
tend to persons becoming stockholders after the debt was contracted,
and ceasing to be such before the debt becomes payable and action is
brought.1#® And such seems to be the rule in Massachusetts.**7

Sometimes the statute, as is the case with the national banking act,
expressly declares that transferees of stock shall succeed to the lia-
bilities of the transferror. In such a case there can be no doubt that
a valid and complete transfer relieves the transferror of liability, and
substitutes the transferee in his place.**®

Same—Registration of Transfer.

Where, by the charter, or by statute, shares are transferable on the
books of the corporation, the rule is that the person who appears on
the books as owner is the one to whom the statutory liability at-
taches. In order, therefore, that a shareholder may relieve himself
from liability, even by an actual and bona fide sale of his stock, he
must take all due precautions to have the transfer properly regis-
tered. Thus, where a shareholder in a national bank had sold his
stock several months before the insolvency of the bank, but the trans-
fer was not registered on the books until the date of the bank’s fail-
ure, and it did not appear that any steps were taken by him to have it
registered, he was held subject to the statutory liability.**° But the
vendee of shares, who fails to have the transfer registered, will be
liable to the vendor for anything which the latter may be compelled
to pay by reason of his appearing on the books as the owner of ‘the
shares.*°°

A shareholder who has sold his stock will not be liable merely be-
cause the transfer has not been made on the books, where he is not

146 Sayles v. Bates, supra.

147 Holyoke Bank v. Burnham, supra.

148 Johnson v. Laflin, 5 Dill. 65, Fed. Cas. No. 7,393, 1 Cumming, Cas. Priv.
Corp. 608; Id., 103 U. S. 800; Whitney v. Butler, 118 U. S. 655, 7 Sup. Ct.
61; Cleveland v. Burnham, 55 Wis. 598, 138 N. W. 677.

149 Richmond v. Irons, 121 U. S. 27, 7 Sup. Ct. 788; Price v. Whitney, 28
Fed. 297; Irons v. Bank, 27 Fed. 591; Johnson v. Bleaching Co., 15 °Gray
(Mass.) 216. But see, contra, Harpold v. Stobart, 46 Ohio St. 397, 21 N. B. 637.

150 Johnson v. Underhill, 52 N. Y. 202.
§ 231) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 581

in any way to blame for such omission. If it affirmatively appears
that he has done all that a careful and prudent business man could
reasonably do to effect a transfer on the books he cannot be held
liable.*5*

Same—Transfer to Person Incapable of Assuming Liability.

The transfer, to relieve the transferror from liability, must be made
to some one who is capable in law of taking and holding the stock,
and of assuming the transferror’s liability with respect thereto.®?

Same—Transfer to Infant.

Thus, a transfer to an infant, even in ignorance of his minority, does
not relieve the transferror from liability, unless the transferee has at-
tained his majority, and become himself liable by ratification.*®*

Same—Transfer to Corporation.

As has been shown, it is the general rule that a corporation has no
power to deal in its own stock. The national banking act expressly
declares that national banking associations shall not do so. A sale
or transfer of shares to the corporation itself, therefore, is illegal, or
at least, if not expressly prohibited, ultra vires; and a transfer, either
to the corporation itself, or to a known trustee for it, is ineffectual to
’ change the relation of the parties, and does not release the transferror
from liability as a stockholder for the debts of the corporation.1*+
But it has been held that a corporation which, without authority, pur-
chases and holds shares in another corporation, will be liable as a
stockholder, notwithstanding the ultra vires character of the transac-
tion.*®> Ifa stockholder acts in good faith in selling his shares, even

151 Whitney v. Butler, 118 U. S. 655, 7 Sup. Ct. 61; Young v. McKay, 50 Fed.
394; Hayes v. Shoemaker, 39 Fed. 319; Chemical Nat. Bank v. Colwell, 182 N.
Y. 250, 30 N. E. 644.

152 Nickalls v. Merry, L. R. 7 H. L. 530; Symons’ Case, 5 Ch. App. 298;
Weston’s Case, 5 Ch. App. 614, 620.

153 Mann’s Case, 3 Ch. App. 459, note, 1 Cumming, Cas. Priv. Corp. 942; cases
cited in preceding note.

164 Johnson v. Laflin, 5 Dill. 65, Fed. Cas. No. 7,893, 1 Cumming, Cas. Priv.
Corp. 608; Id., 108 U. S. 800.

155 Citizens’ State Bank v. Hawkins, 18 C. C. A. 78, 71 Fed. 369. The deci-
sion was based on the principle that “the doctrine of ultra vires, when invoked
for or against a corporation, should not be allowed to prevail when it would de-
feat the ends of justice, and work a Jegal wrong.” See ante, p. 179.
582 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

though it may be to the president of the corporation, not knowing
that the purchase is really on behalf of the corporation, the transfer
is valid, and he ceases to be a stockholder for any purpose; but in
such a case the president or other person becomes the real ‘trans-
feree, in his individual capacity, and is substituted for the transferror,
and he becomes liable on the shares as a stockholder.*°®

Same—Transfer to Insolvent.

In this country it is generally held that a stockholder who knows
that the corporation is insolvent cannot transfer his shares to an ir-
responsible or insolvent person, for the purpose of escaping liability
to creditors of the corporation. In such a case the transfer is void as
to the creditors, and the transferror remains liable. And it makes
no difference that the transfer is “out and out,” so as to divest the
transferror of all interest therein.15* In England the rule is differ.
ent. It is there held that a stockholder may sell and transfer his
shares to an insolvent person, or man of straw, and if the transaction
is a bona fide, “out and out” sale and transfer, he cannot be held liable
to creditors, even though his motive was to escape liability.*®*

It has been held that a sale by a pledgee of stock, pursuant to a
power of sale in his contract, is not voidable, as a fraud on creditors
of the corporation, though made to an insolvent person for the pur-
pose of escaping liability.1°*

In the absence of actual fraudulent intent, the fact that the trans-
feree was insolvent will not prevent the transfer from being effectual
so as to release the transferror from further liability as a stockholder,
though knowledge of insolvency would be strong evidence of fraud.?"*

Same—Sham or Colorable Transfers.
Not only in this country, but in England as well, it is settled law
that in case of a transfer to an insolvent or irresponsible person, if

156 Johnson v. Laflin, supra.

157 Marey y. Clark, 17 Mass. 330; Nathan v. Whitlock, 3 Edw. Ch. (N. Y.)
215, 1 Cumming, Cas. Priv. Corp. 953; Bowden vy. Johnson, 107 U. S. 251, 2
Sup. Ct. 246; Dauchy v. Brown, 24 Vt. 197. But see Chouteau Spring Co. ¢.
Harris, 20 Mo. 383.

158 De Pass’ Case, 4 De Gex & J. 544.

159 Holyoke Bank v, Burnham, 11 Cush. (Mass.) 187; Magruder y. Colston, 44
Md. 349.

160 Miller v. Insurance Ue., 50 Mo. 55.
§ 231) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 583.

the transaction is not a bona fide, “out and out” sale and transfer,
but a mere simulation to avoid appearing as a stockholder, the trans
ferror will remain liable. Stockholders have often tried to escape
liability by thus transferring the shares gratuitously to their clerk,
or some other irresponsible party. But it has always been held that
the actual owners of stock cannot shield themselves against liability
by thus putting the title to the stock in the name of an irresponsible
person. “Creditors have the right to call upon the actual stockhold-
ers for contribution, and this right cannot be defeated by a merely col-
orable transfer of the legal title to some third party, who in fact holds
the same for the benefit of the real owner of the stock.” 1%?

The same is true where a man buys or takes stock, and has it en-
tered on the books of the corporation in the name of an irresponsible
person, without its ever having appeared on the books in his own
name. In such a case the creditors of the comporation may hold him
liable.*®? :

Same--Transfer after Suspension of Business.

It has been held that after a national bank has become insolvent,
and has closed its doors and stopped doing business, the liability of
shareholders to creditors is so far fixed that any transfer at all of
their shares will be held fraudulent and inoperative as against the
creditors.1¢* And the same may be said of other corporations.

Pledgees.

It is well settled, where stock is transferable on the books of the
corporation, that, if stock in a corporation is issued or transferred to a
person in such a way that he appears on the books as the legal and ab-
solute owner, the creditors of the corporation cannot be required to go
behind the books and inquire into-equities that may exist between
him and the corporation, or between him and the person from whom
he took the transfer. If he appears on the books as the legal and
real owner, he is, as far as the rights of corporate creditors are con-

161 Welles vy. Larrabee, 36 Fed. 866, 868. See Hyam’s Case, 1 De Gex, F. & J.
75, 1 Cumming, Cas. Priv. Corp. 944; Williams’ Case, L. R. 9 Bq. 225, note;
National Bank v. Case, 99 U. S. 628, 1 Cumming, Cas. Priv. Corp. 948; Davis
v. Stevens, 17 Blatchf. 259, Fed. Cas. No. 3,658; note, 15 C. C. A. 186, 137.

162 Davis v. Stevens. 17 Blatchf. 259, Fed. Cas. No. 3,653.

163 Irons vy. Bank, 17 Fed. 308.
584 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

cerned, a stockholder, and subject to the statutory liability, though he
may in fact hold the stock merely as collateral security.1°* The chief
reason for this rule is that the pledgee, by thus taking the absolute
legal title, and holding himself out as the legal owner of the stock,
estops himself from setting up the fact that he was merely a pledgee.
“The true ground of liability, where it exists, is not because the
pledgee is the owner in fact of the stock, for he is not, but the fact
that the pledgee has received a transfer of the stock in such form that
the legal ownership appears to be in him; and, by thus holding himself
out as apparent owner, he is estopped from showing the contrary.”.*®
The rule ceases when the reason ceases. Therefore, if there is any-
thing on the stock books of the corporation showing that the trans-
feree takes as pledgee, he incurs no liability.1°* As was said by the
supreme court of the United States, “It has never, to our knowledge,
been held that a mere pledgee of stock is chargeable, where he is not
registered as owner.” **’ A pledgee, for instance, is not liable if the
stock stands in his name on the books “as pledgee,” or if it expressly
appears to be held “as collateral.” +6

164 National Bank’ v. Case, 99 U. S. 628, 1 Cumming, Cas. Priv. Corp. 948;
Wheelock v.- Kost, 77 Ill, 296; Aultman’s Appeal, 98 Pa. St. 516; Adderly v.
Storm, 6 Hill (N. Y.) 624; Rosevelt vy. Brown, 11 N. Y. 148; United States
Trust Co. v. United States Fire Ins. Co., 18 N. Y. 199; National Commercial
Bank v. McDonnell, 92 Ala. 387, 9 South. 149; Magruder yv..Colston, 44 Md.
349; Holyoke Bank v. Burnham, 11 Cush. (Mass.) 183; Crease v. Babcock, 10
Metc. (Mass.) 525; First Nat. Bank v. Hingham Manuf’g Co., 127 Mass. 563;
Hale v. Walker, 31 Iowa, 344; Sleeper v. Goodwin, 67 Wis. 577, 31 N. W. 3385;
Hoare’s Case, 2 Johns. & H. 229; Moore v. Jones, 3 Woods, 53, Fed. Cas. No.
9,769; note, 15 C. C. A. 133, 134. “It is now too well settled to be any longer
a question that when stock is transferred to a man as collateral, and stands in his
name, he incurs liability as a stockholder just as if he were the actual bene-
ficial owner. Most especially is this just and right as to creditors who trust to
his name, and have no-notice of the secret trust upon which the stock is held.”
Aultman’s Appeal, supra. /

165 Welles v. Larrabee, 36 Fed. 866.

166 Anderson vy. Warehouse Co., 111 U. S. 479, 4 Sup. Ct. 525; Beal v. Bank,
15 C. C. A. 128, 67 Fed. 816; Pauly v. Trust Co., 56 Fed. 430, affirmed 7 C. C.
A. 422, 58 Fed. 666; Welles v. Larrabee, 36 Fed. 866; Henkle v. Manufacturing
Co., 39 Ohio St. 547; First Nat. Bank v. Hingham Manuf’g Co., 127 Mass. 563;
note, 15 C. C. A. 134. But see Grew v. Breed, 10 Mete (Mass.) 569.

167 Anderson v. Warehouse Co., supra,

168 See cases in note 166, supra.
§ 231) RELATION BETWEEN CREDITURS AND STOCKHOLDERS. 585

Under a statute rendering stockholders liable for corporate debts,
but providing that no person holding stock as collateral security shall
be personally subject to such liability, but the person pledging such
stock shall be considered as holding the same, it has been held that
the pledgee of shares cannot be held liable as a shareholder.**® And
it has also been held that this is true where the shares are issued by
the corporation itself as collateral.*7°

Trustees, Hxecutors, Agents, ete.

The same doctrine applies, in the absence of special statutory pro-
vision, where stock is held in trust. A person who appears on the
books of the corporation as the absolute owner of stock will be per-
sonally liable to the creditors of the corporation, although he may in
fact hold the stock as trustee, personal representative, guardian,
ete.17? But, by the weight of authority, if he appears on the books as
holding, not in his own right, but as “trustee,” “executor,” etc., he
will not be personally liable.17? Of course, he may be liable in his
representative capacity, to the extent of the trust estate.17* It is
sometimes expressly provided by statute that persons holding stock
as executors, trustees, etc., shall not be personally subject to any lia-
bilities as stockholders, but that the estates and funds in their hands
shall be liable.*7*

A broker or other agent who purchases stock for his customer, but
who takes the title in his own name, on the stock book of the com-
pany, is liable as a stockholder.***

169 McMahon v. Macy, 51 N. Y. 155; Union Sav. Ass’n v. Seligman, 92 Mo. 635,
15 S. W. 630; Burgess v. Seligman, 107 U. S. 20, 2 Sup. Ct. 10; Matthews v.
Albert, 24 Md. 527.

170 Union Sav. Ass’n v. Seligman, supra; Burgess v. Seligman, supra; Matthews
v. Albert, supra.

171 See Adderly v. Storm, 6 Hill (N. Y.) 624; Welles v. Larrabee, 36 Fed. 866;
‘Crease vy. Babcock, 10 Metc. (Mass.) 525, 545; Grew v. Breed, Id. 569; United
States Trust Co. v. United States Fire Ins. Co., 18 N. Y. 199.

172 Welles v. Larrabee, 36 Fed. 866; dictum in Adderly v. Storm, 6 Hill (N. Y.)
‘628. Contra, Grew v. Breed, 10 Metc. (Mass.) 569.

173 See Richmond vy. Irons, 121 U. S. 27, 7 Sup. Ct. 788; Sayles v. Bates, 15
Rh. I. 342, 5 Atl. 497.

174 There is such a provision in the national banking act. Rev. St. U.S. § 5152.

175 McKim vy. Glenn, 66 Md. 479, 8 Atl. 130.
586 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

Election between Apparent and Real Owner.

Where the person who appears on the books of the corporation as.
the owner of stock is not the real owner, creditors cannot hold both
him and the real owner to the statutory liability; nor can they hold
cne of them after an unsuccessful attempt, with knowledge of the
facts, to hold the other. They must elect between them. Thus, it
was held that a person who was entered on the books of a national
bank as the owner of stock, but who was admitted to hold the stock in
trust for the real owner, could not be held liable to creditors of the
bank after the real owner had been proceeded against to judgment,
though nothing was realized upon the judgment.*7¢

Assignees in Bankruptcy or Insolvency.

The assignees in bankruptcy or insolvency of a stockholder are not
subject to the statutory liability of the bankrupt or assignor for debts
of the corporation.’ It has been so held even where the. assignee
had attended and voted at meetings of the corporation, and done other
acts of ownership of the stock.*7®

Married Women.

Where a married woman is not only capable of holding stock in a
corporation, but is also, by statute, capable of contracting as a feme
sole, it is clear enough that she may be held liable as a shareholder.
to the creditors of a corporation. The question is not so clear, how-
ever, in those jurisdictions where the common-law disability of mar-
ried women to contract has not been wholly removed. In the federal
courts it is held that, where a married woman is capable of holding
stock in a corporation, she may be held liable, as a shareholder in a
national bank, for the contracts and debts of the bank, even though,
by the law of the particular jurisdiction, she may not have the ca-
pacity to contract. The reason that she may be held is that her lia-
bility is imposed by the statute, and does not rest upon contract.'™
The same rule must apply to other corporations.

176 Yardley v. Wilgus, 56 Fed. 965.

177 American File Co. v. Garrett, 110 U. S. 288, 4 Sup. Ct. 90; Gray v. Coffin,
9 Cush. (Mass.) 192.

178 Gray v. Coffin, 9 Cush. (Mass.) 192.

179 Witters v. Sowles, 32 Fed. 767, 35 Fed. 640; Keyser v. Hitz, 133 U. S. 138,
10 Sup. Ct. 290; Robinson v. Tunentine, 59 Fed. 554; note, 15 C. C. A. 132, 133;
In re Reciprocity Bank, 22 N. Y. 9; Sayles v. Bates, 15 R. I. 342, 5 Atl. 497.
§ 231) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 587

Death of Stockholder—Survinal of Liability.

If the liability imposed by a statute upon a stockholder for debts
of the corporation is contractual, the cause of action does not abate
upon his death, but survives, and may be enforced against his personal
representatives.1®° But if, on the other hand, the liability is penal, it
is within the rule, “Actio personalis moritur cum persona,’ and
abates.1** The estate of a deceased stockholder is liable for debts
contracted after his death, and while it owns the stock.*®?

Forfeiture of Stock.

One whose stock is forfeited for nonpayment of calls is not liable to
creditors either for the unpaid balance of his subscription, or under
statutes imposing additional liability, where the forfeiture is such as
to deprive the stockholder of his character as such; but this is
true only when the forfeiture is in good faith, and not collusive or
fraudulent.1® :

Holders of Unauthorized Stock.

Holders of certificates of unauthorized stock, as of an unauthor-
ized increase of stock, incur no liability by virtue thereof to cred-
itors who did not rely on the validity of the stock, so as to give rise to
an estoppel on, the part of the holders to deny its validity.1°* If there
was no power at all to increase the stock, no estoppel can arise as
against creditors, for they are chargeable with notice of the want of
power.*®®> Where, however, the increase was witbin the power of
the corporation, so that it.could have lawfully been made, but the
corporation merely failed to take the preliminary steps required by
the charter, so that the creditors were misled, the holders will be
estopped to deny the validity of the stock to escape liability.1®*

180 Richmond v. Irons, 121 U. S. 27, 7 Sup. Ct. 788; Cochran y. Wiechers, 119
N. Y. 399, 23 N. E. 803; Grew v. Breed, 10 Metc. (Mass.) 569.

181 Diversey v. Smith, 103 Ill. 378, 9 Ill. App. 437.

182 Bailey v. Hollister, 26 N. Y. 112.

183 Mills v. Stewart, 41 N. Y. 384. See ante, p. 319, as to forfeitures, and their
effect.

184 Sayles v. Brown, 40. fed. 8.

185 Scovill v. Thayer, 105 U. S. 148.

186 Veeder v. Mudgett, 95 N. Y. 295.
588 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

SAME—WHO MAY ENFORCE STATUTORY LIABILITY.

232. Unless otherwise provided, no one but a creditor can
enforce the statutory liability of a stockholder. It
cannot be enforced by the corporation, nor by its
assignee for the benefit of creditors, nor by its
assignee in bankruptcy or insolvency, nora receiver.

233. A stockholder who is also a creditor is entitled to the
benefit of the statute.

The statutory liability of stockholders for the debts of the cor-
poration is created in favor of the creditors of the corporation, and
not in any legal sense for the benefit of the corporation. It is not
like the liability of stockholders for unpaid subscriptions. The lia-
bility is to the creditors, and not to the corporation. It follows that
the liability can be enforced only by the creditors. It cannot be en-
forced by the corporation, nor by its assignee for the benefit of cred-
itors, nor by its receiver or assignee in bankruptcy. Neither the cor-
poration nor its assignee or receiver has any legal or equitable title,
right, or interest therein.1*7 Sometimes the right to enforce this lia-
bility is expressly given by statute to others than the creditors.1*§

Stockholders Who are Creditors or Officers.

Under a statute making stockholders liable for the debts of the
corporation to the extent of their shares, in addition to the amount
that may be due on their shares, stockholders who are themselves
creditors are entitled to come in equally with the other creditors.'**
But the statute is not intended to, and does not, include directors to
whom the corporation is indebted for salaries.1°° When a stockhold-
er who is liable severally and jointly with the other stockholders for
the debts of the corporation is himself a creditor of the corporation, he

187 Dutcher v. Bank, 12 Blatchf. 485, Fed. Cus. No. 4,203; Bristol v. Sanford,
12 Blatchf. 341, Fed. Cas. No. 1,893; Jacobson vy. Allen, 12 Fed. 454; Farnsworth
v. Wood, 91 N. Y. 308.

188 See Story v. Furman, 25 N Y. 214.

189 Briggs v. Penniman, 8 Cow. (N. Y.) 387.

190 McDowall v. Sheehan, 129 N. Y. 200, 29 N. E. 299,
§§ 234-236) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 589

cannot generally maintain an action at law against another stock-
holder, or seize his property on execution, where that remedy is given
creditors; for that would enable him to collect from one stockholder
not only all that such stockholder is ultimately bound to pay, but also
all that the entire body of stockholders, including himself, is bound to
pay, thus, as it was put by Judge Thomas, “collecting with his right
hand what he must pay with his left.” His remedy is by bill in equity
for contribution.***

SAME—REMEDIES OF CREDITORS AGAINST STOCK-
HOLDERS.

234. The liability of stockholders on account of their stock
may be enforced in an action at law by a receiver
or an assignee in bankruptcy or insolvency, or an
assignee under a voluntary assignment for the ben-
efit of creditors; but only creditors can enforce the
statutory liability, unless otherwise provided.

235. To enforce the common-law liability of stockholders
on their subscriptions, creditors

(a) Cannot maintain an action at law, unless allowed to
do so by statute.

(b) But they may maintain a bill in equity.

(c) By the weight of authority, the suit must be in the
nature of a creditors’ bill, on behalf of all creditors
who may come in.

(d) By the weight of authority, all the stockholders need
not be made parties, but the suit may be brought
against a single stockholder, leaving him to seek
contribution from the others.

191 Thayer v. Tool Co., 4 Gray (Mass.) 75, 78. And see Bissit v. Navigation Co.,
15 Fed. 353; Bailey v. Bancker, 3 Hill (N. Y.) 188. It was held in a later Massa-
chusetts case that a creditor, who is also a member of a corporation, cannot main-
tain bill in equity to enforce the personal liability of the stockholders under a
statute making them liable for debts incurred before payment in full of the capital
stock, and that one to whom a stockholder creditor has assigned his claim, for the
sole purpose of enabling him to bring such a suit, is in no better position. Potter v.
Machine Co., 127 Mass. 592.
590 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

(6) The corporation must be made a party, but its non-
joinder may be waived by the stockholder.

(f) Statutory remedies are given in some states, but
they do not exclude the remedy in equity, unless
by their express terms.

236. The remedy of creditors to enforce the statutory lia-
bility will depend upon the nature of the liability,
unless the remedy is prescribed by the statute.
Though there is confusion and conflict in the cases,
by the weight of authority,

(a) If the statute prescribes a remedy it is exclusive.

(b) If the object of the statute is to provide a fund out
of which all the creditors are to be paid pro rata,
and to make the creditors contribute to it in pro-
portion to their stock, the remedy is by general
creditors’ ‘bill, or suit of that nature, and an action
at law by a single creditor will not lie. Nor can
the creditors severally maintain a bill in equity
against the stockholders.

(c) But if each stockholder is made severally liable di-
rectly to creditors, and his liability is fixed, and
does not depend upon the liability of the others,
any creditor who has observed conditions preced-
ent ™ may sue a single stockholder at law.

(d) In such a case each stockholder must be sued pene
rately.

(e) In such a case some courts hold that an action at law
is the only remedy, while others allow an action at
law, or a suit in equity, at the option of the creditor.

Common-Law Liability on Subscriptions, etc.—Action by Assignee
Jor Creditors or in Bankruptcy. , i
Unpaid subscriptions, being a part of the assets of the corporation

for the payment of its debts, pass to the assignee under a general as-

192 As to necessity for judgment and execution unsatisfied against the corporation,
sce post, p. 597,
§$§ 234-236) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 591

signment for the benefit of creditors, and may be enforced by him for
the creditors.°* And they also pass to, and an action may be main-
tained by, an assignee in bankruptcy or receiver of the corporation.***
In these cases the assignee or receiver stands in the place of the cor-
poration, and is the only party to sue for unpaid subscriptions.?°> He
may maintain an action at law. He is not, like a creditor, bound to
sue in equity.

Same—Action at Law by Creditors.

Sometimes, by statute, creditors of a corporation are given a rem-
edy by action at law or garnishment to subject unpaid subscriptions
to stock to the satisfaction of their claims, when they have exhausted
their remedies against the corporation.1°® But at common law a cred-
itor cannot maintain an action at law against stockholders for unpaid
subscriptions, for there is no privity of contract between them, and,
furthermore, unpaid subscriptions cannot thus be appropriated by
one creditor to the exclusion of the others. As was pointed out by
Chief Justice Waite: ‘The liability of stockholders to creditors for
unpaid subscriptions is through the corporation, not direct. * * *
The stockholder is liable to the extent that the subscription repre-
sented by his stock requires him to contribute to the corporate funds,
and, when sued for the money he owes, it must be in a way to put
what he pays directly or indirectly into the treasury of the corporation
for distribution according to law.” He then adds that “no one cred:
itor can assume that he alone is entitled to what any stockholder
owes, and sue at law, so as to appropriate it exclusively to himself.” *°7
Same—General Creditors’ Bill in Equity—Suit Jor Appointment of

Receiver.

All the courts agree that a judgment creditor of a corporation, who
has exhausted his remedy at law, may maintain a suit in equity on

198 Germantown Pass. Ry. Co. v. Fitter, 60 Pa. St. 124; Citizens’ & Miners’
Sav. Bank & Trust Co. v. Gillespie, 115 Pa. St. 564, 9 Atl. 73; Chamberlain’ v.
Bromberg, 83 Ala. 576, 3 South. 434.

194 Scovill v. Thayer, 105 U. S. 143; Sawyer v. Hoag, 17 Wall. 610, 1 Cumming,
Cas. Priv. Corp. 818; Dayton v. Borst, 31 N. ¥. 485.

195 Rankine v. Elliott, 16 N. Y. 377.

196 See Fehr v. Gasch (IIl.) 44 N. BE. 724. :

197 Patterson v. Lynde, 106 U. S. 520, 1 Sup. Ct. 482; Ladd v. Cartwright,
7 Or, 329; Brundage v. Mining Co., 12 Or. 322, 7 Pac. 314.
592 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

his own behalf, and on behalf of such other creditors of the corpora-
tion as may become parties with him, against the corporation and its
delinquent stockholders, and have a decree that an account of the
assets and debts of the corporation be taken, and that the stock-
holders pay in so much as may be due from them, respectively, to the
corporation on account of their capital stock, or on account of prop-
erty unlawfully distributed to them, as may be sufficient to pay the
debts of the complainant and such other creditors as may join.'®*
The bill must be a general creditors’ bill, so as to allow other creditors
to come in; for all the creditors are entitled to share in the assets
of the corporation, and one cannot appropriate the whole, or more
than his proportion.**® A creditor, instead of maintaining such a suit
may sue for the appointment of a receiver to collect and distribute
the assets of an insolvent corporation, including unpaid subscrip-
tions.?°° *

Same— Parties.

By the great weight of authority, a creditor may, by a general cred-
itors’ bill, proceed against a single delinquent stockholder of an in-
solvent corporation, and compel him to pay the whole amount due
from him to the corporation on account of his subscription, or on ac-
count of corporate property unlawfully received by him, if necessary
in order to satisfy his debt, without making other stockholders parties,
and without any account being taken of other indebtedness of the

198 See Burke vy. Smith, 16 Wall. 380; Ogilvie v. Insurance Co., 22 How. 380, «
1 Cumming, Cas. Priv. Corp. 814; Briggs v. Penniman, 8 Cow. (N. Y.) 387; Hatch
v. Dana, 101 U. 8. 205; Holmes v. Sherwood, 16 Fed. 725; Bissit v. Navigation
Co., 15 Fed. 353; Spear v. Grant, 16 Mass. 9; Mann v. Pentz, 3 N. ¥. 415; Hast-
ings v. Drew, 76 N. Y. 9; Wetherbee v. Baker, 35 N. J. Eq. 501; Adler v. Manu-
facturing Co., 18 Wis. 63; Barron v. Paine, 88 Me. 312, 22 Atl. 218; Henry v.
Railroad Co., 17 Ohio, 187; Umsted v. Buskirk, 17 Ohio St. 113; Payne v. Bul-
lard, 23 Miss. 88; Brundage v. Mining Co., 12 Or. 322, 7 Pac, 314.

199 See Patterson v. Lynde, 106 U. 8S. 520, 1 Sup. Ct. 432; Wetherbee v. Baker,
35 N. J. Eq. 501; Cleveland Rolling-Mill Co. v. Texas & St. L. Ry. Co., 27 Fed.
250; First Nat. Bank v. Peavey, 75 Fed. 154.

200 Rankine v. Elliott, 16 N. Y. 377; Mann v. Pentz, 3 N. Y. 415; Dayton v.
Borst, 31 N. Y. 435; Brassey v. Railroad Co., 19 ed. 663. See Fosdick v. Schall,
99 U. 8S. 235; Platt v. Railroad Co., 65 Fed. 872.
$§ 234-236) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 593

corporation, the stockholder proceeded against being left to pursue
his remedy against the other stockholders for contribution.?°*

In Pennsylvania and in other states, it seems, the rule is different.
It is there held that a bill filed by a creditor of an alleged insolvent
corporation against one or several stockholders, to compel payment of
their subscriptions, is a proceeding to enforce the equitable obliga-
tions of the stockholders,.and that, inasmuch as only so much of the
unpaid capital as is necessary for the payment of debts can be called
in, and that can be done only when all the other assets are exhausted,
an account must be taken of the amount of debts, assets, and unpaid
capital, and a decree be made for an assessment of the amount due by
each stockholder.?°? This does not apply where an assignee for the
benefit of creditors sues to recover unpaid subscriptions, and the
whole of them is required to pay the debts of the company.?°*

The en= must be made a party to a suit by its creditor
agains@™lelinguent stockholders, for otherwise it would not be bound
by the judgment therein. But, if a stockholder sees fit to go to trial
and judgment without objecting to the nonjoinder of the corporation,
he cannot afterwards complain.*°*

Same—Necessity for Calis.

Where, by the charter or by-laws, or by the terms of the subscrip-
tion itself, a call is necessary to render a subscriber liable on his sub-
scription,?°> an unpaid subscription cannot be enforced, either by an
assignee for the benefit of creditors, or by a creditor, until a call has
been duly made.?°* But a court of equity will compel the directors to

201 Hatch v. Dana, 101 U. S. 205; Ogilvie v. Insurance Co., 22 How. 380, 1 Cum-
ming, Cas. Priv. Corp. 814; Marsh v. Burroughs, Fed. Cas. No. 9,112; Holmes
¥, Sherwood, 16 Fed. 725; Bartlett v. Drew, 57 N. Y. 587; Pierce v. Construction
Co., 88 Wis. 253; Baines v. Babcock, 95 Cal. 581, 27 Pac. 675, 80 Pac. 176;
Brundage v. Mining Co., 12 Or. 322, 7 Pac. 314.

202 Lane’s Appeal, 105 Pa. St. 49; Bell’s Appeal, 115 Pa. St. 88, 8 Atl. 177;
Wetherbee v. Baker, 35 N. J. Hq. 501.

208 Citizens’ & Miners’ Sav. Bank & Trust Co. v. Gillespie, 115 Pa. St. 564, 9
Atl, 78.

204 Potter v. Dear, 95 Cal. 578, 27 Pac. 676, 30 Pac. 777; Wetherbee v. Baker,
35 N. J. Eq. 501.

205 Ante, p. 322, as to the necessity for calls.

206 Germantown Pass. Ry. Co. v. Fitler, 60 Pa. St. 124.

Clk.Pr.Corp.—38

 
594 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

make the calls necessary to render subscribers liable, 7°" or it will, in
effect, make the call itself, by a decree calling upon the subscribers to
pay. Calls in such a case need not have been made by the company.?*®

Samne— Statutory Remedies.

In some states statutory remedies are given creditors of a corpora-
tion, against delinquent stockholders, which do not exist at common
law, nor in equity without the aid of the statute. Sometimes an
action at law is allowed directly against the delinquent stockholder,
or the process of garnishment is allowed. Sometimes a creditor who
has recovered judgment against the corporation, on which execution
has been returned unsatisfied, is allowed to issue execution directly
against the stockholders. Unless the statutory remedy is expressly
made exclusive, it does not prevent a creditor from pursuing his equi-
table remedy.?°®

Statutory Liability.

It is impossible to reconcile the decisions in the different states as
to what is the proper remedy to enforce the statutory liability of
stockholders for corporate debts.

As we have seen, the statutory liability of stockholders can only be
enforced by the creditors. It cannot be enforced by an assignee in
bankruptcy or insolvency, nor by an assignee under a voluntary as-
signment for the benefit of creditors.??°

Where the Statute Gives a Remedy.

It seems clear that where a liability is imposed by statute upon
stockholders for the debts of the corporation, which did not exist at
common law, nor in equity, independently of the statute, and the stat-
ute provides a remedy by which to enforce the liability, that remedy
is exclusive, and must be strictly followed.?41_ Thus, it has been held

207 Germantown Pass. Ry. Co. v. Fitler, 60 Pa. St. 124.

208 Hatch v. Dana, 101 U. 8. 205; Henry v. Railroad Co., 17 Ohio, 187; Wash-
‘ington Sav. Bank v. Butchers’ & Drovers’ Bank, 107 Mo. 133, 17 S. W. 644:
Dalton & M. R. Co. v. McDaniel, 56 Ga. 191.

209 Potter y. Dear, 95 Cal. 578, 27 Pac. 676, 30 Pac. 777; Holmes v. Sher-
wood, 16 Fed. 725; Payne v. Bullard, 23 Miss. 88.

210 Ante, p. 588.

211 Fourth Nat. Bank v. Francklyn, 120 U. S. 747, 7 Sup. Ct. 757; Morley ¥.
Thayer, 3 Fed. 737; Lowry v. Inman, 46 N. Y..120; Dauchy v. Brown, 24 Vt.
197; Knowlton vy. Ackley, 8 Cush. (Mass.) 93; Cambridge Water-Works vy. Som-
§§ 284-2386) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 595

that, if the statute gives a remedy by action at law against a stock-
holder or stockholders, a bill in equity will not lie.2*? So, where a
charter only authorizes the taking of the individual property of stock-
holders on execution on a judgment against the corporation, and pro-
vides that the same process may be used and enforced by such stock-
holders against the property of the other stockholders, so as to com-
pel a ratable contribution by all, no general individual liability is cre-
ated for which a personal action will lie.?1%

Same— Where No Remedy is Prescribed.

When the statute provides no remedy, there is more difficulty, and
it is here that we meet with confusion and conflict in the decisions.
Whether the remedy is at law or in equity, and whether suit must be
brought on behalf of all the creditors, or may be brought by one cred-
itor against a single stockholder, must depend upon the nature of the
liability created. Special attention, therefore, must be given to the
language of the particular statute. By the weight of authority, if
the object of the statute is to provide a fund out of which all the cred-
itors are to be paid, share and share alike, and to make the stockhold-
ers contribute to it in proportion to their stock, the remedy is by a
general creditors’ bill, or suit of that nature, in which an account
may be taken of the debts and stock, and a pro rata distribution may
be made among the several shareholders, and the fund thus obtained
may be paid pro rata to all the creditors. And, under such a statute,
an action at law by a single creditor against a single stockholder will
not lie.24* Nor can the creditors severally maintain a bill in equity
against the stockholders.?15

But if, on the other hand, each stockholder is made severally liable

erville Dyeing & Bleaching Co., 4 Allen (Mass.) 239. This is true whether the
proceedings are taken in the state creating the corporation or elsewhere, and
whether in the state or federal courts. Fourth Nat. Bank vy. Branekiiy’ eupea-

212 Morley v. Thayer, supra.

213 Lowry v. Inman, supra.

214 Terry v. Little, 101 U. S. 216. In this case the statute declared that the
stockholders should be “liable and held bound * * * for any sum not exceed-
ing twice the amount of their shares,” and it was held that an action at law could
not be maintained by a single creditor against two of a large number of stock-

 

215 Crease vy. Babcock, 10 Mete. (Mass.) 525.
596 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

directly to creditors, and his liability is fixed, and does not depend
upon the liability of the other stockholders, so that there is no neces-
sity to bring in the other stockholders or creditors, any creditor who
has recovered judgment against the corporation, and had execution
returned unsatisfied, where this is necessary, or without this where it
is unnecessary, may maintain an action at law against a single stock-
holder.??° Where the liability of the stockholders is several, and an
action at law is brought, each must be sued separately.??”

Where the statute thus imposes an unconditional, original, and im-
mediate liability on the part of a stockholder to creditors, it is held
by the supreme court of the United States, and other courts, that the
remedy must be sought at law, and not in equity, unless there are
some peculiar circumstances giving rise to a claim for equitable relief,
but that a suit in equity will lie if there are such circumstances. In
other words, “the jurisdiction may be regarded as concurrent, both at
law and in equity, according to the nature of the relief made neces-

holders. See, also, Pollard v. Bailey, 20 Wall. 520; Terry v. Tubman, 92 TD. S.
156; Crease v. Babcock, 10 Metc. (Mass.) 525, 531; Harris v. First Parish, 23
Pick. (Mass.) 112; Coleman vy. White, 14 Wis. 700; Cleveland v. Burnham, 55
Wis. 598, 138 N. W. 677; Jones v. Jarman, 34 Ark. 340; Johnson v. Fischer, 30
Minn. 173, 14 N. W. 799; Queenan v. Palmer, 117 Ill. 619, 7 N. E. 613. See
Barrick v. Gifford, 47 Ohio St. 180, 24 N. E. 259. The decisions in New York
are to the contrary, and allow an action at law. See cases cited in notes 216,
219, infra,

216 Flash v. Conn, 109 U. S. 371, 3 Sup. Ct. 268. In this ease the statute pro-
vided that the stockholders should be “severally individually liable to the cred-
itors of the company * * * to an amount equal to the amount of stock held
by them, respectively,” for all debts and contracts made by the company, until
the whole amount of the capital stock should be paid in, and a certificate thereof
recorded. It was held that the liability was fixed, and that any creditor who
had recovered judgment against the company, and sued out execution thereon,
which was returned unsatisfied, might sue any stockholder in an action at law,
there being no necessity to resort to a court of equity to ascertain the extent of
the liability. And see Hall v. Klinck, 25 S. C. 348, 60 Am. Rep. 505; Fuller
v. Ledden, 87 Ill. 310; Buchanan v. Meisser, 105 Ill. 6838; Thompson v. Meisser,
108 Ill. 359; Schalucky v. Field, 124 Ill. 617, 16 N. ©. 904; Bank of Pough-
keepsie v. Ibbotson, 24 Wend. (N. Y.) 4738; Garrison v. Howe, 17 N. ¥. 458;
Weeks v. Love, 50 N. Y. 568.

217 Abbey v. Dry Goods Co., 44 Kan. 415, 24 Pac. 426; Perry yv. Turner, 55
Mo. 418,
§ 237) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 597

sary by the circumstances upon which the right arises.” ?** In New
York and some other jurisdictions, however, even where an action
at law will lie, it is held that the creditor may, at his election, go into
equity.?1°

A creditors’ bill in equity, or suit in the nature of a creditors’ bill,
will lie where it is sought to enforce, not only the statutory liability
of the stockholders, but also to compel payment of unpaid subscrip-
tions.??°

SAME—NECESSITY FOR JUDGMENT AGAINST CORPORA-
TION.

237. Ordinarily recovery of a judgment against the cor-
poration, and return of execution unsatisfied, is a
condition precedent to a suit by creditors against
stockholders. There is, however, some conflict in
the decisions.

It is well settled that a creditor cannot maintain a suit in equity
against stockholders to compel payment of a balance due on their
subscriptions, or repayment of funds paid out to them, until be has
exhausted his legal remedy against the corporation. As a general
rule, therefore, to maintain such a suit he must show a judgment
against the corporation, and a return of execution thereon unsatis-
fied.??*_ Such a return is sufficient proof that he has exhausted his
legal remedy against the corporation.???

218 Manufacturing Co. v. Bradley, 105 U. S. 175: Wincock v. Turpin, 96 II.
135; Tunesma vy. Schuttler, 114 Ill. 156, 28 N. EB. 605.

219 Bank of Poughkeepsie v. Ibbotson, 24 Wend. (N. Y.) 478; Garrison v.
Howe, 17 N. Y. 458; Mathez v. Neidig, 72 N. Y. 100; Weeks v. Love, 50 N. Y.
568; Pfohl v. Simpson, 74 N. Y. 187; Briggs v. Penniman, 8 Cow. (N. Y.) 387.

_ 220 Barrick v. Gifford, 47 Ohio St. 180, 24 N. BH. 259.

221 National Tube Works Co. v. Ballou, 146 U. S. 517, 18 Sup. Ct. 165; Swan
Land & Cattle Co. v. Frank, 148 U. 8. 603, 13 Sup. Ct. 691; Remington v. Bay
Co., 140 Mass. 494, 5 N. E. 292; Sturges v. Vanderbilt, 73 N. Y. 384.

222 Baines v. Babcock, 95 Cal. 581, 27 Pac. 674, and 30 Pac. 776. It has been
held that he should, if possible, obtain 1 judgment against the corporation in
the jurisdiction in which he proposes to sue in equity, and issue execution thereon.
This is the rule in the federal courts. Therefore, in National Tube-Works Co.
y. Ballou, supra, it was held that a creditors’ bill, founded on a judgment re-
598 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

It is expressly provided in most statutes that the personal-statu-
tory liability of stockholders for debts of the corporation shall arise
only after a recovery by the creditor of a judgment against the cor-
poration, and an exhaustion of his legal remedy by execution, and a
return of no property found, unless the corporation has been dis-
solved, or put in process of winding up, so that no judgment can be
obtained against it. Under such a statute, unless the case comes
within the exception, recovery of judgment against the corporation,
and a return of execution unsatisfied, is a condition precedent to any
liability on the part of the stockholders.??° ‘

Some courts hold that, where there is no such provision, the reme-
dy inures to all creditors, whether they have recovered judgments
against the corporation or not, and that, upon default of the corpora-
tion, any creditor may sue any stockholder.?** Other courts hold
that, even in the absence of such a provision, the creditor must ex-
haust his remedy against the corporation before proceeding against
stockholders, by recovery of judgment and issue of execution, for the
liability of the stockholders is not to be regarded as a primary re-
source of the creditors.??5 It has been held, however, that where the
corporation has become insolvent and made an assignment for the
benefit of its creditors, or has been adjudicated a bankrupt, etc., the
right of the creditors then accrues to commence suit against the
stockholders, without any prior proceedings against the company.??°

covered in Connecticut against a corporation of that state, could not be main-
tained in a United States circuit court in New York, against a citizen of that
state, to enforce his liability on an unpaid subscription to the stock of the cor-
poration, where no judgment had been obtained or execution issued against the
corporation within the latter state, and no allegations were made showing that
it was impossible to obtain such a judgment.

223 Morley v. Thayer, 3 Fed. 787; Rocky Mountain Nat. Bank vy. Bliss, 89 N.
Y. 338. And see Cambridge Waterworks v. Somerville Dyeing & Bleaching
Co., 4 Allen (Mass.) 239.

224 McDonnell v. Insurance Co., 85 Ala. 401, 5 South. 120; Schalucky v. Field,
124 Ill. 617, 16 N. E. 904.

225 Barrick v. Gifford, 47 Ohio St. 180, 24 N. E. 259; Wright v. McCormack,
17 Ohio St. 86. And see Rocky Mountain Nat. Bank vy. Bliss, 89 N. Y. 338;
Bronson v. Schneider, 49 Ohio St. 438, 883 N. BE. 233; Younglove vy. Lime Co.,
49 Ohio St. 663, 33 N. H. 234.

226 Barrick v. Gifford, 47 Ohio St. 180, 24 N. EB. 259; Shellington v. Howland,
53 N. Y. 371; Flash v. Conn, 109 U. S. 371, 3 Sup. Ct. 268; Bronson v. Schnei-
§ 288) RELATION BETWEEN CREDITORS AND STOCKHOIDERS. 599

SAME—EFFECT OF JUDGMENT AGAINST CORPORATION.

238. There is a difference of opinion as to the effect of a
judgment against the corporation as evidence of its
indebtedness as against a stockholder. The deci-
sions are thus:

(a) Where it is sought to enforce a statutory liability, it
is prima facie evidence of indebtedness, except
where the liability is penal.

(b) Some courts hold it conclusive, in the absence of
fraud or want of jurisdiction.

(c) Where it is sought to enforce the common-law liabil-
ity on account of stock, it is conclusive, in the ab-
sence of fraud or want of jurisdiction.

A judgment recovered against a corporation is generally prima
facie, but not conclusive, evidence of indebtedness against the com-
pany, in an action against a stockholder to enforce his individual
statutory liability.227. Some courts have held the judgment against
the corporation to be conclusive evidence of the debt in the absence of
fraud or want of jurisdiction; °** but, by the weight of authority, it
is only prima facie evidence, the stockholders net having been parties
to the action in which it was recovered.??® It is not even prima
facie evidence where the liability which it is sought to impose upon
the stockholder is original and penal in its character.?*°

der, 49 Ohio St. 488, 33 N. E. 233; Younglove v. Lime Co., 49 Ohio St. 663, 33
N. E. 234. Contra, Morley v. Thayer, 3 Fed. 737.

227 Belmont vy. Coleman, 21 N. Y. 96; Moss v. McCullough, 5 Hill (N. Y.) 181;
Terry v. Tubman, 92 U. S. 156; Hastings v. Drew, 76 N. Y. 9; Stephens v.
Fox, 88 N. Y. 313.

228 Slee v. Bloom, 20 Johns. (N. Y.) 669; Miller v. White, 59 Barb. (N. Y.) 434
(reversed in 50 N. Y. 137); Farnum v. Ballard Vale Machine Shop, 12 Cush.
(Mass.) 507. So under the Massachusetts statute by which a summons in the
action against the corporation was required to be served on stociholders, and
they were permitted to defend in such action, etc. Holyoke Bank v. Goodman
Paper Manuf’g Co., 9 Cush. (Mass.) 576.

229 Cases in note 227, supra.

230 Miller v. White, 50 N. Y. 187; McMahon v. Macy, 51 N. Y. 155. See ex-
planation of these cases in Hastings v. Drew, 76 N. Y. 9, and Stephens v. Fox,
83 N. Y. 318.
600 RIGHTS AND REMEDIES OF CREDITORS. (Ch, 14

A judgment regularly obtained against a corporation is conclusive
against a stockholder, in the absence of fraud, where the suit against
him is to compel payment of his subscription to-the stock of the cor-
poration, or to compel him to refund property of the corporation un-
lawfully received by him.?*2_ In such a case, however, it may be at-
tacked for collusion and fraud.?#? ,

SAME—STATUTE OF LIMITATIONS,

239. The statute of limitations runs against an action by
creditors to enforce against stockholders liability
on account of their stock from the time an action
can be maintained, which is generally when a valid
call is made by the corporation or by a court of
equity in a suit by creditors. The statute runs
against an action to enforce the statutory liability
of stockholders from the time when a cause of ac-

‘tion accrues, which is generally from the return of.
execution against the corporation. The rule will
vary, however, according to the terms of the statute.

Liability on Subscription.

Some of the courts have held that the liability of stockholders to
pay their subscriptions is a direct trust, and that the statute of lim-
itations, therefore, does not run against it, at least until a call is made
by the corporation or other proper authority. “If the corporation,” it
has been said, “does not compel payment of the stock, the subscribers
‘must be deemed to hold it for the corporation, subject to its call. It
is a continuing, subsisting trust and confidence, to which the statute
of limitations has no application.” ?4* ‘The true relation, however, be-
tween a stockholder and the corporation, with respect to his unpaid
subscription, is that of debtor and creditor. There is really no trust
at all, either as to the corporation or its creditors.?** There is simply

281 Barron y. Paine, 83 Me. 312, 22 Atl. 218; Bissit v. Navigation Co., 15 Fed.
853; Tatum v. Rosenthal, 95 Cal. 129, 30 Pac. 136.

232 Bissit v. Navigation Co., 15 Fed. 353.

233 Payne vy. Bullard, 23 Miss. 88. And see Hightower v. Thornton, 8 Ga. 486;
Mack’s Appeal (Pa. Sup.) 7 Atl. 481.

234 Ante, p. 539 et seq.
§ 239) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 601

a debt, a contract; and, in reason, the statute of limitations begins to
run when a cause of action thereon accrues.”°* If the subscription is
payable on demand, or on call, the statute begins to run when a call
is duly made, and not before then.?*® If a corporation becomes insol-
vent and suspends business, no call by the corporation is necessary to
render stockholders liable, but there must be some authorized de-
mand or call by a receiver, assignee, or decree of the court, and the
statute does not begin to run until then.?*7 Where, by statute, a cred-
itor who has recovered a judgment against the corporation, and had
execution returned unsatisfied, is allowed to have execution against a
stockholder, the cause of action accrues against stockholders when
an execution on a judgment against the corporation has been returned
unsatisfied, and the statute runs from that time.?°* Some courts
have held that the statute runs against an action against a stockholder
to subject the balance due by him on his shares to the satisfaction of
a judgment obtained against the corporation, from the time when
the cause of action accrued against the corporation.?**®

Statutory Liability.

Sometimes the statute creating the liability of stockholders specifies
the time within which an action must be brought by creditors to en-
force the same. Where this is not the case the limitation depends up-
on the nature of the liability. If it is contractual, the clause of the
statute relating to actions on contract governs, while, if the liability

285 See Lake Ontario, A. & N. Y¥. R. Co. v. Mason, 16 N. Y. 451.

236 Great Western Tel. Co. v. Gray, 122 Ill. 630, 14 N. EH. 214; Williams v.
Taylor, 120 N. Y. 244, 24 N. HE. 288; and cases in the following note.

287 Glenn v. Marbury, 145 U. S. 499, 12 Sup. Ct. 914; Scovill v. Thayer, 105
U. S. 148; Glenn v. Semple, 80 Ala. 159; Lehman, Durr & Co. v. Glenn, 87
Ala. 618, 6 South. 44; Glenn v. Williams, 60,Md. 98; Hawkins y. Glenn, 131
U. S. 319, 9 Sup. Ct. 7389; Washington Sav. Bank v. Butchers’ & Drovers’
Bank, 107 Mo. 133, 17 S. W. 644; Great Western Tel. Co. v. Gray, supra;
Vanderwerken v. Glenn, 85 Va. 9, 6 S. E. 806; Glenn v. ‘Howard, 81 Ga. 383,
8 S. E. 636. In Pennsylvania it is held that where a corporation becomes in-
solvent, and makes an assignment, the statute begins to run from the date of the
assignment. Franklin Sav. Bank v. Bridges (Pa. Sup.) 8 Atl. 611.

288 Washington Sav. Bank vy. Butchers’ & Drovers’ Bank, 107 Mo. 133, 17 S.
W. 644.

239 Kirst Nat. Bank v. Greene, 64 lowa, 445, 17 N. W. 86, and 20 N. W. 754.
602 RIGHTS AND REMEDIES OF CREDITORS. (Ch 14

is penal, the case is governed by the clause relating to actions upon a
statute for a penalty or forfeiture.?*°

The statute of limitations begins to run as soon as creditors acquire
a right to sue the stockholders. Where the statute requires recovery
of judgment against the corporation, and issue of execution, and re-
turn of no property found, it does not begin to run until then; that is,
until the return of the execution.**? Ifa right of action accrues on
the insolvency or dissolution of the corporation, or an assignment for
creditors, and no judgment against the corporation is necessary, the
statute runs from that time.?*? If the statute makes the stockholders
liable as principal: debtors, the liability accrues against the corpora-
tion and the stockholders at the same time, and suspension of the
remedy against the corporation, as by a renewal of the debt, does not
suspend the remedy against, or affect the liability of, the stockhold-
ers.?4 A suit commenced by one creditor on behalf of himself and
all others—that is, a general creditors’ bill—is in the nature of a de-
mand for all, and stops the running of the statute as against all cred-
itors who may come in and assert their claims.?**

SAME—SET-OFF BY STOCKHOLDERS.

240. A stockholder who is also a creditor of the corpora-
tion cannot set off his claim, either against his lia-
bility on his subscription, or his liability for corpo-
rate funds unlawfully received by him, or against

240 Wyles v. Suydam, 64 N. Y. 173; Merchants’ Bank of New Haven v. Bliss;
35 N. Y. 412; Corning v. McCullough, 1 N. Y. 47.

241 Taylor v. Bowker, 111 U. S. 110, 4 Sup. Ct. 397; Handy v. Draper, 89 N. Y.
384; Younglove v. Lime Co., 49 Ohio St. 668, 33 N. E. 234.

242 McDonnell v. Insurance Co., 85 Ala. 401, 5 South. 120; Barrick v. Gifford,
47 Ohio St. 180, 24 N. E. 259; Bronson vy. Schneider, 49 Ohio St. 488, 33 N. H.
233; Younglove v. Lime Co., 49 Ohio St. 663, 33 N. E. 234; Terry v. Tubman,
92 U. S. 156.

243 Hyman v. Coleman, 82 Cal. 650, 23 Pac. 62; Parrott v. Colby, 6 Hun (N. Y.}
57, 71 N. Y. 597; Jagger Iron Co. v. Walker, 76 N. Y. 521; Schalucky v. Field,
124 Ill. 617,.16 N. E. 904; Coleman y. White, 14 Wis. 700.

244 Barrick v. Gifford, 47 Ohio St. 180, 24 N. E. 259; Richmond v. Irons, 121
U. S. 27, 7 Sup. Ct. 788. ‘
§ 240) RELATION BETWEEN CREDITORS AND STOCKHOLDERS. 603

his statutory liability, if it is only sought to make
him contribute a proportionate sum for the pay-
ment of all creditors pro rata. But he can do so
where an action is brought by a single creditor for
his sole benefit.

Where a stockholder of an insolvent corporation, who is also a cred-
itor, is indebted to the corporation on his subscription, or for prop-
erty of the corporation unlawfully paid to him, as by way of unauthor-
ized dividends, or on any other cause, the proper thing for him to do
is to pay what he owes, and then come in and share ratably with the
other creditors in all the assets of the corporation. He cannot, when
sued upon his indebtedness by or for the benefit of all the creditors,
set off the debt due him from the corporation, for to allow this would
be to permit him to appropriate this asset of the company to payment
of his own claim to the exclusion of the other creditors.?*5 If the
action is brought by a single creditor against a stockholder, the latter
may set off a debt due him from the corporation. He can only be
compelled to pay his indebtedness to the company, without set-off, in
an action against all the stockholders for an accounting, so that he
may come in with other creditors for his pro rata share in the as-
sets.?46

The same rule applies where suit is brought against stockholders to

245 Sawyer v. Hoag, 17 Wall. 610; Handley vy. Stutz, 1389 U. S. 417, 11 Sup.
Ct. 530, 1 Cumming, Cas. Priv. Corp. 855; Osgood v. Ogden, *43 N. Y. 70; Law
rence v. Nelson, 21 N. Y. 158; Shickle v. Watts, 94 Mo. 410, 7S. W. 274; Boulton
Carbon Co. v. Mills, 78 Iowa, 460, 43 N. W. 290; Tama Water-Power Co. v. Hop-
kins, 79 Iowa, 653, 44 N. W. 797; Hillier v. Insurance Co., 3 Pa. St. 470; Wil-
liams v. Traphagen, 88 N. J. Eq. 57; Thebus v. Smiley, 110 Ill. 316. Contra, by
statute, Appleton v. Turnbull, 84 Me. 72, 24 Atl. 592. In Lawrence v. Nelson,
supra, the defendants, members of a mutual marine insurance company, sustained
a loss upon an insured vessel, which loss was adjusted before commencement of
proceedings to dissolve the company as insolvent. In an action brought by the
receiver of the company to recover on the premium notes given by the defendants
for the policies issued to them, it was held that they could not set off the com-
pany’s indebtedness for the loss. Hillier v. Insurance Co., supra, was to the same
effect. In most of the other cases cited above, the action was for unpaid subscrip-
tions, or to recover dividends unlawfully paid.

246 Mathez vy. Neidig, 72 N. Y. 100.
604 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

enforce their statutory liability. If it is sought to compel them each
to contribute a proportionate sum to a fund for the payment of all
creditors pro rata, a set-off cannot be allowed.?** It is otherwise,
however, where an action is brought by a single creditor, as may be
done under some statutes, to enforce a several and original liability,
to the amount of his stock, for the sole benefit of the creditor suing.**

SAME—CONTRIBUTION AMONG STOCKHOLDERS.

241. A stockholder is entitled to contribution from the
other stockholders where he has paid more than
his share of corporate debts, either

(a) On account of a liability on his subscription, the
other stockholders being also liable on their sub-
scriptions,

247 U. S. Trust Co. v. U. S. Fire Ins. Co. (In re Empire City Bank), 18 N. Y. 199.

248 U. S. Trust Co. v. U. S. Fire Ins. Co. (In re Empire City Bank), 18 N. Y.
199, 227; Garrison v. Howe, 17 N. Y. 458; Mathez v. Neidig, 72 N. Y. 100; Agate
v. Sands, 73 N. Y. 620; Wheeler v. Millar, 90 N. Y. 353. To entitle him to a
set-off, he must be really a creditor of the corporation. He cannot set off a debt
due him from the corporation if he owes the company, on his subscription, more
than the amount of his claim against it. Wheeler v. Millar, supra. But where
a stockholder had purchased up judgments against the corporation, while he was
a director, and after he knew the company was insolvent, it, was held that the
judgments could avail him as a defense or set-off only to the amount actually paid
for them. Bulkley v. Whitcomb, 121 N. Y. 107, 24 N. EB. 18. And see Abbey v.
Long, 44 Kan. 688, 24 Pac. 1111, where it was held that a stockholder, though
not a director, cannot buy up claims against the corporation, and then set them
off against his liability at their face value. And see Thompson v. Meisser, 108
Til. 359; Manville v. Karst, 16 Fed. 175; Kunkelman y. Rentchler, 15 fl. App.
271; Gauch v. Harrison, 12 Ill. App. 459; Smith v. Mosby, 9 Heisk. (Tenn.) 501;
Balch y. Wilson, 25 Minn. 299. In Manville v. Karst, 16 Fed. 173, the defend-
ant, a stockholder in an insolvent bank, became liable to creditors of the bank
in the sum of $1,200, under a double liability law, and was sued for that amount
by a creditor. Before judgment could be had, he agreed with a friend that, if
the latter would buy up claims against the bank to the amount of his liability,
he would confess judgment in his favor, and the friend bought up claims at a
large discount, from a stockholder in the bank, and the defendant confessed judg-
ment in his favor for the full amount of the claims, and paid the same. It
was held that the judgment and satisfaction could not avail him as a defense.
§§ 242-243) RELATION BETWEEN CREDITORS AND OFFICERS. 605

(b) Or on account of his statutory liability, where it is
contractual, all the stockholders being jointly and
severally liable.

(c) But not where the payment was on account of a pe-
nal statutory liability.

If the liability imposed by the statute for the debts of the company
is penal, and not contractual, stockholders against whom creditors
have enforced the liability cannot maintain a suit against other stock-
holders for contribution.’*° It is otherwise, however, if the statute
imposes a contractual liability upon the stockholders jointly and sev-
erally, and one of them is compelled to pay more than his share. In
such a case he may file a bill in equity to enforce contribution from
the other stockholders who were also liable.*°° So, where stockhold-
ers are liable on their subscriptions, and one of them is compelled to
pay the amount due from him to satisfy a corporate debt, he may sue
for contribution.?*' Ordinarily contribution may be enforced by a suit
in equity, but, if the statute prescribes a remedy, it must be follow-
ed.?52 A suit for contribution may be maintained against nonresident
stockholders.?°* Liability to contribute survives the death of a stock-
holder.?54

RELATION BETWEEN CREDITORS AND OFFICERS.

242. There is no privity between the creditors of a cor-
poration and its officers. And, strictly speaking,
there is no trust relation.

243. The creditors of a corporation cannot maintain an
action at law against its officers for fraud, negli-

249 Sayles v. Brown, 40 Fed. 8.

2501 Cook, Stock, Stockh. & Corp. Law, § 211; Redington v. Cornwell, 90 Cal.
49, 27 Pac. 40; Wincock v. Turpin, 96 Il. 135; Allen v. Fairbanks, 40 Fed.
188, 45 Fed. 445; ‘Koons v. Martin, 66 Hun, 554, 21 N. Y. Supp. 657. And see
Wolters v. Henningsan (Cal.) 40 Pac. 277.

251 Wincock v. Turpin, 96 Il]. 185; 1 Cook, Stock, Stockh. & Corp. Law, § 227.

252 O'Reilly v. Bard, 105 Pa. St. 569.

253 Allen v. Fairbanks, 45 Fed. 445.

254 Allen v. Fairbanks, 40 Fed. 188,
606 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14
A

gence, or other breach of duty to the corporation.
But if the officers are liable to the corporation for
fraud, negligence, or other wrongs, the liability
constitutes an equitable asset of the corporation,
and may be reached by its judgment creditors in
equity.

The creditors of an insolvent corporation, according to all of the au-
thorities, may, in order to procure satisfaction of their claims, enforce
the liability of directors and other officers of the corporation for losses
resulting from their mismanagement of the corporate affairs. Most
of the courts have based the right of action in such cases upon the
ground that the assets of a corporation are a trust fund for the benefit
of creditors, and that the ofiicers are trustees for their benefit.?**
The trust-fund doctrine, however, has been virtually exploded, as we
have seen, by late decisions of courts of the highest authority, and
it is perhaps safe to say that no court would now hold directly that
any trust relation exists between the officers and the creditors of a
corporation.?°* The true basis of the right of creditors to proceed
against the officers of a corporation is in their right to reach equitable
assets of the corporation and apply them to the satisfaction of their
claims. The officers of a corporation, as we have seen, are liable to
the corporation for losses caused by their fraud, gross negligence, or
willful breach of duty, and this liability may be enforced by or for the
benefit of creditors when the corporation becomes insolvent. It is the
enforcement of their claims by creditors against equitable assets of
the corporation.?5" .

Whatever may be the grounds upon which the right of action is
based by the different courts, it is well settled that where the officers
of a corporation willfully misappropriate or misapply its assets, and
the corporation becomes insolvent, the creditors who have recovered
judgments against the corporation may hold them liable to the ex-
tent of the misappropriation.?°* So if the officers of an insolvent

°
2561 Mor. Priv. Corp. § 568.
256 Ante, p. 539 et seq.
267 See 2 Mor. Priv. Corp. §§ 795, 796.
258 Gratz v. Redd, 4 B. Mon. (Ky.) 178, 195; Bllis v. Ward, 137 Tl. 509, 25
§§ 242-243) RELATION BETWEEN CREDITORS AND OFFICERS. 607

corporation have been grossly negligent in the performance of their
duties, and the assets of the company have been thus allowed to be
wasted, they may be held liable to creditors to the extent of the
loss.25® Thus, if the assets of a bank are wasted through the mis-
management or gross negligence of the directors, the depositors may
hold them liable.?®°

It is well settled, however, that the officers of a corporation, if they
act in good faith within the limits of the powers conferred upon the
corporation by its charter, and within their authority, and use a
proper degree of prudence and diligence, are not responsible either
to the corporation or to its creditors for losses resulting from mere
mistakes or errors of judgment.?®? Thus, they are not liable for de-
claring or paying a dividend which diminishes the capital, in violation
of a statute or the common law, where they are not guilty of bad faith
or negligence.?®* Nor are they liable for losses from accident, theft,
etc, where they have not been negligent.?** The directors of a cor-
poration cannot be held liable to creditors of the corporation for the
acts or omissions of other agents, unless they have been guilty of neg-
lect in supervising or appointing them.?** What constitutes such
negligence as will render officers of a corporation liable has been con-
sidered on a former page.?®

A creditor of a corporation cannot sue its officers at law for fraud,

N. E. 531; Wilkinson v. Bauerle, 41 N. J. Eq. 635, 7 Atl. 514; Moses v. Bank.
1 Lea (Tenn.) 398; Bank of St. Mary’s v. St. John, 25 Ala. 566; ante, p. 514 et seq.

259 Hun v. Cary, 82 N. Y. 65, 37 Am. Rep. 546; Brinckerholf v. Bostwick, 88
N. Y. 52; Marshall v. Bank, 85 Va. 676, 8 S. E. 586; Delano v. Case, 17 Bradw.
(Iil.) 531, 121 Ill, 247, 12 N. E. 676; United Society of Shakers y. Underwood,
9 Bush (IKy.) 609; Gratz v. Redd, 4 B. Mon. (Ky.) 178, 195; ante, p. 516.

260 See cases cited in the preceding note.

261 Spering’s Appeal, 71 Pa. St. 11, 10 Am. Rep. 684, 1 Cumining, Cas. Priv.
Corp. 799; Watt’s Appeal, 78 Pa. St. 370; Williams v. McDonald, 37 N. J. Eq.
409; ante, p. 515.

262 Excelsior Petroleum Co, v. Lacey, 63 N. Y. 422; Van Dyck v. McQuade,
86 N. Y. 88; Lexington & O. R. Co. v. Bridges, 7 B. Mon. (Ky.) 556; ante, p. 515.

268 Mowbray v. Antrim, 123 Ind. 24, 23 N. HE. 858.

264 Briggs v. Spaulding, 141 U. S. 132, 11 Sup. Ct. 924, 2 Cumming, Cas. Priv.
Corp. 186, Shep. Cas. Corp. 200. And see Savings Bank of Louisville’s As-
signee v. Caperton, 87 Ky. 306, 8 S. W. 855.

265 Ante, p. 516,
608 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

negligence, or mismanagement in conducting the affairs of the cor-
poration.?°* The remedy is in equity, by creditors’ bill.2*7 AN the
guilty officers need not be joined as parties, for their liability is sev- -
eral, but the corporation must be made a party.?°°

SAME—PREFERENCES TO OFFICERS WHO ARE CREDITORS.

244. When a corporation becomes insolvent and ceases to
do business, the directors or other officers in charge
of its assets cannot, by mortgage or otherwise,
secure to themselves any preference or advantage
over other creditors. :

So long as a corporation is doing business, there is no privity
whatever between the directors or other officers and its creditors.
It has often been said that, when a corporation becomes insolvent and
ceases to do business, a quasi trust relation arises between the off-
cers and its creditors; that they hold the pronerty of the corporation
as a trust fund for the equal benefit of all the creditors; and that, if
they are themselves creditors while the corporation is under their
management, they cannot, by mortgage or otherwise, secure to them-
selves any preference or advantage over other creditors.2®° It is un-
deubtedly the law in this country that officers of a corporation cannot
prefer themselves over other creditors, under such circumstances, but
it is not true that there is any real trust relation between them and
the creditors; and to say that there is, and base the invalidity of the
transaction on that ground, will tend to confuse. As a matter of
fact, such a transaction is invalid as against the other creditors, be-
cause it is fraudulent as to them, and it is not necessary to look for
any other reason.?”° In England it has been expressly held that
the directors of an insolvent corporation are not trustees for cred-

266 Zinn v. Mendel, 9 W. Va. 580; Smith v. Poor, 40 Me. 415; Branch vy.
Roberts, 50 Barb. (N. Y.) 435; Fusz v. Spaunborst, 67 Mo. 256.

267 Schley v. Dixon, 24 Ga. 273.

268 Cunningham v. Pell, 5 Paige (N. Y.) 607.

269 Beach v. Miller, 180 Ill. 162, 22 N. BE. 464; Wilkinson v. Bauerle, 41 N.
J. Eq. 635, 7 Atl. 514; Olney v. Land Co., 16 R. I. 597, 18 Atl. 181; Haywood
vy. Lumber Co., 64 Wis. 639, 26 N. W. 184; and cases hereafter cited.

270 That such preferences are void as againsi vreditors is well settled, what-
§ 245) RELATION BETWEEN CREDITORS AND OFFICERS. 609

itors; and it has further been held, contrary to the rule in this coun-
try, that in paying corporate debts, before proceedings to wind up the
company have been instituted, they may prefer debts upon which
they are themselves liable as guarantors.?"*

SAME—STATUTORY LIABILITY OF OFFICERS.

245. In most states it is provided by statute that the di-
rectors or other officers of a corporation shall be
liable for its debts, where they are guilty of cer-
tain official neglect or misconduct. These statutes,
being penal, are strictly construed.

In most of the states, statutes have been enacted making the di-
rectors or other officers of a corporation liable for its debts where
they are guilty of certain official neglect or misconduct, as of failure —
to make a report of the condition of the corporation required by
law;?7? making false reports; °*"* allowing the debts of the corpo-

ever may be the ground of invalidity. See Beach y. Miller, 130 Ill. 162, 22 N.
¥. 464; Roseboom v. Whittaker, 132 Ill. 81, 23 N. B. 339; Sicardi v. Oil Co.,
149 Pa. St. 148, 24 Atl. 168; Wilkinson v. Bauerle, 41 N. J. Ha. 635, 7 Atl. 514;
Olney v. Land Co., 16 R. I. 597, 18 Atl. 181; Adams v. Milling Co., 35 Fed.
433; Corey v. Wadsworth, 99 Ala, 68, 11 South. 350; Gibson v. Furniture Co.,
96 Ala. 357, 11 South. 365; Hays v. Bank, 51 Kan. 535, 33 Pac. 318; Ingwersen
v. Edgecombe, 42 Neb. 740, 60 N. W. 1032. Thus, where a majority of the
directors of a corporation, knowing it to be insolvent, vote for the execution to
them of the corporation’s judgment note, which is executed by one of their num-
ber as treasurer, and a judgment is immediately entered, the judgment is fraudu-
lent and void as to other creditors, though the note was given in payment of a
bona fide debt., Roseboom v. Whittaker, supra. This rule has been extended to
include preferences given by officers to their relatives. Adams vy. Milling Co.,
supra. And it has been applied to conveyances by officers in payment of a debt
on which they were liable as guarantors or sureties. Goodyear Rubber Co. v.
George D. Scott Co., 96 Ala. 489, 11 South. 870; Richards v. Insurance Co., 43
N. H. 263.

271 Poole, Jackson & Whyte’s Case (In re Wincham Ship-Building, Boiler &
Salt Co.), 9 Ch. Diy. 322.

272 Bruce v. Platt, 80 N. Y. 379; Halsey v. McLean, 12 Allen (Mass.) 438;
Gaus v. Switzer, 9 Mont. 408, 24 Pac. 18. That the New York statute does not

 

273 As to the liability under such a provision, see Pier vy. Hanmore, 86 N. Y.
95; Matthews v. Patterson, 16 Colo. 215, 26 Pac. 812.
Clk.Pr.Corp.—39
610 RIGHTS AND REMEDIES OF CREDITORS. (Ch. 14

ration to exceed the capital or a certain proportion of the capital; *"*
paying a dividend which diminishes the amount of the capital
stock; 27° failure to publish the articles of association; ?"* violating
any of the provisions of the act under which the corporation is formed,
whereby it shall become insolvent, etc.?77 These statutes are highly
penal, and are to be strictly construed. The liability cannot be ex-
tended beyond the strict terms of the statute, and a clear case must
be established to render an officer liable.?7°

One of the directors or trustees, who is also a creditor of the cor-
poration, cannot maintain an action under the statutes against his
co-trustees or co-directors for breach of duty, and his assignee stands
in the same position. To allow such an action would enable him to
profit by his own wrong or negligence.?7° But the liability may be
enforced by a creditor who is a stockholder.?*°

Where an action is brought against a director under a statute mak-
ing directors liable for the debts of the company if they fail to file
a report, the plaintiff must establish the fact that he is a creditor of
the company; and, by the weight of authority, proof of the recov-

require a report after the corporation has ceased to own property or do busi-
ness, and has been practically dissolved, see Bruce v. Platt, 80 N. Y. 379, and
cases there cited. See, also, Kirkland v. Kille, 99 N. Y. 395, 2 N. E. 36. But
the mere fact that the company has ceased to do business, and is winding up its
affairs, is no excuse for failure to file a report. Sanborn v. Lefferts, 58 N. Y.
179. And see Gaus vy. Switzer, 9 Mont. 408, 24 Pac. 18. As to sufficiency of
report, see Bonnell v. Griswold, 80 N. Y. 128; Whitney Arms Co. v. Barlow, 63
N. Y. 62; Whitaker v. Masterton, 106 N. Y. 277, 12 N. B. 604. Under a statuie
making directors liable for failure to file a report, the liability does not attach
if a report is filed, though it may be false. Bonnell v. Griswold, 80 N. Y. 128;
Pier vy. Hanmore, 86 N. Y. 95; Matthews v. Patterson, 16 Colo. 215, 26 Pac.
812.

274 Thacher vy. King, 156 Mass. 490, 31 N. E. 648. An indebtedness of a cor-
poration to one of its directors constitutes a debt due within the statute. Id.
275 See Rorke v. Thomas, 56 N. Y. 559.

276 See Cady v. Sanford, 53 Vt. 632,

277 Patterson v. Manuf’g Co., 41 Minn. 84, 42 N. W. 926.

278 Garrison v. Howe, 17 N. ¥. 458; Rorke v. Thomas, 56 N. Y. 559; Bruce
. Platt, 80 N. Y. 381; Cameron v. Seaman, 69 N. Y. 396.

279 Knox v. Baldwin, 80 N. Y. 610.

280 Sanborn vy. Lefferts, 58 N. Y. 179.
§ 245) RELATION BETWEEN CREDITORS AND OFFICERS. 611

ery of a judgment against the company, though prima facie evidence
of the debt, is not conclusive.?1 , ?

An action against a director by a creditor of the corporation under
these statutes is within the statute of limitations relating to actions
to recover a penalty. It is an action “upon a statute for a penalty or
forfeiture.” 78? The statute begins to run from the time the cause of
action accrues in favor of the creditor, and not from the time of de-
fault on the part of the directors, as the failure to file a report.?*5 ,

By the weight of authority, such statutes, being penal, have no ex-
traterritorial effect, and the liability thereby imposed cannot be en-
forced in another state.?**

It also follows, from the penal character of such statutes, that there
is no vested right in a cause of action arising under them until it has
been reduced to judgment, and not only may the statutes be repealed
before action has been commenced, but they may be repealed at any
time before judgment, and an action previously commenced cannot be
further prosecuted.?*>

281 Miller v. White, 50 N. Y. 187. But see Cady v. Sanford, 53 Vt. 632.

282 Merchants’ Bank vy. Bliss, 35 N. Y. 412; Wiles v. Suydam, 64 N. Y. 178;
Knox y. Baldwin, 80 N. Y. 610.

288 Jones v. Barlow, 62 N. Y. 202. Where a trustee of a corporation has
become liable for a debt of the company because of failure to file an annual re-
port, the right of action is barred after lapse of the statutory period (in New
York, three years), though the default is continued during successive years.
Losee v. Bullard, 79 N. Y. 404.

284 Halsey v. McLean, 12 Allen (Mass.) 488; Derrickson v. Smith, 27 N. J.
Law, 166; First Nat. Bank v. Price, 33 Md. 487; Bird v. Hayden, 2 Abb.
Prac. (N. S.) 61; Price v. Wilson, 67 Barb. (N. Y.) 9. Contra, Cady v. Sanford,
53 Vt. 632,

285 Union Iron Co. v. Pierce, 4 Biss. 327, Fed. Cas. No. 14,367; Breitung v.
Lindauer, 37 Mich. 217; Knox v. Baldwin, 80 N. Y. 610; Gregory v. Bank, 3
Colo, 382.
612 FOREIGN CORPORATIONS. (Ch. 15

CHAPTER XV.
FURWIGN CORPORATIONS,

246. Foreign Corporations Defined.
247-249. Status of a Foreign Corporation.
250-254. Actions by and against.

255. Visitorial Power over Foreign Corporations,

FOREIGN CORPORATIONS DEFINED.

246. A foreign corporation is a corporation created by or
under the laws of another state or country.

Foreign corporations have been defined in a former chapter, in
treating of the creation and citizenship of corporations.*

STATUS OF A FOREIGN CORPORATION.

247. A corporation has the capacity to act and contract, by
its agents, in a state or country other than that by
which it was created, with the express or implied
consent of that country or state.

248. And by rules of comity, binding upon the courts of
a state, foreign corporations have a right to do
business therein, the consent of the state being pre-
sumed, except

(a) Where it is prohibited by express statutory or con-
stitutional enactment.

(b) Where to allow it to do so would be contrary to the
public policy of the state.

249. A state, if it sees fit, may, by legislation, exclude a
foreign corporation altogether, or it may, subject
to particular constitutional limitations, prescribe
any conditions it may deem fit as a prerequisite to its

1 Ante, p. 74 et seq.
§§ 247-249) STATUS OF A FOREIGN CORPORATION. 613

right to do business within its limits. It cannot
impose conditions in violation of the federal con-
stitution.

Power to Act in Another Jurisdiction.

In Bank of Augusta v. Earle,” it was contended that, notwithstand-
ing the powers conferred by the terms of its charter, “a corporation,
from the very nature of its being, can have no authority to contract
out of the limits of the state; that the laws of a state can have no
extraterritorial operation, and that, as a corporation is the mere crea-
ture of a law of the state, it can have no existence beyond the limits
in which that law operates; and that it must necessarily be incapable
of making a contract in another place.” The court, however, over-
ruled this contention, and held that it could act out of the state,
through its agents, with the consent of the foreign state. “It is very
true,” it was said, “that a corporation can have no legal existence out
of the boundaries of the sovereignty by which it is created. It exists
only in contemplation of law, and by force of the law; and where that
law ceases to operate, and is no longer obligatory, the corporation can
have no existence. It must dwell in the place of its creation, and can-
not migrate to another sovereignty. But, although it must live and
have its being in that state only, yet it does not by any means follow
that its existence there will not be recognized in other places, and its
residence in one state creates no insuperable objection to its power of
contracting in another. It is, indeed, a mere artificial being, invisible
and intangible; yet it is a person, for certain purposes, in contempla-
tion of law, and has been recognized as such by the decisions of this
court. * * * Now, natural persons, through the intervention of
agents, are continually making contracts in countries in which they
do not reside, and where they are not personally present when the
contract is made, and nobody has ever doubted the validity of these
agreements. And what greater objection can there be to the capacity
of an artificial person, by its agents, to make a contract within the
scope of its limited powers in a sovereignty in which it does not re-
side, provided such contracts are permitted to be made by them by
the laws of the place?”

2.13 Pet. 519, 585.
614 FOREIGN CORPORATIONS. (Ch. 15

The question has been raised whether it is proper, as a matter of
public policy, under any circumstances, for a state to recognize a cor-
poration created by another state or a foreign government. The pros-
ecution of a claim to property by an Alabama corporation in Louis-
jana was resisted in the latter state, in Williamson v. Smoot,’ on the
ground that it was a violation of the sovereignty of a state, and prej-
udicial to the rights of its citizens, to recognize a corporation created
by the legislature of another state. It was held, however, that though
attempts directly opposed to the sovereign power of a state, or the
rights of its citizens, made by a corporation deriving its existence
from another state, ought to be repelled, yet where a corporation
comes into the courts of a state other than that by which it was cre-
ated, and there seeks to assert its rights, it ought to be recognized,
and its rights ought to be enforced, where to do so would not preju-
dice the state or its citizens.*

It is well settled, according to the principle of these cases, that.a
corporation can, by its agents, go into another state than that by
which it was created, and make any contract, or take any convey-
ance, that is within the powers conferred upon it by its charter, pro-
vided the state in which the contract or conveyance is made has not
prohibited such a transaction, and the transaction is not contrary to
the policy of its laws.° And it is equally well settled, subject to the
same limitations, that a corporation may maintain actions and enforce
its rights in another state or country, if it does not seek to enforce
claims contrary to its laws.®

37 Mart. (La.) 34, 1 Cumming, Cas. Priv. Corp. 32.

4 And see Blackstone Manuf’g Co. v. Inhabitants of Blackstone, 18 Gray (Mass.)
488.

3 Kennebec Co. v. Augusta Ins. & Banking Co., 6 Gray (Mass.) 204; Hutchins v.
Mining Co., 4 Allen (Mass.) 580; Wright v. Lee, 2 8. D. 596, 51 N. W. 706; Reich-
wald v. Hotel Co., 106 Ill. 439; Santa Clara Female Academy v. Sullivan, 116 Ill.
375, 6 N. E. 183 (where it was held that a Wisconsin corporation could take
lands by devise in Illinois); Bard v. Poole, 12 N. Y. 495 (where it was held that
a Maryland corporation could make loans secured by mortgage on real estate in New
York); Merrick v. Van Santvoord, 34 N. Y¥. 208; Lancaster v. Improvement Co., 140
N. Y. 576, 35 N. BH. 964 (where it was held that there was nothing in the laws of
New York, or their general policy, to prohibit foreign corporations from acquiring
land in the state).

6 Post, p. 634.
§§ 247-249) STATUS OF A FOREIGN CORPORATION. 615

Though the rules of comity by which foreign corporations are recog-
nized and their rights enforced are subject to local modification by
the lawmaking power, until so modified they have the force of legal
obligation. It is the duty of the courts to respect them until the leg-
islature sees fit to modify them.” This principle of comity is a part
of our common. law.®
Right to Exclude or to Impose Conditions.

A corporation created by one state or by:a foreign government can
exercise none of the functions or privileges conferred by its charter
in any other state or country, except by the comity and consent of the
latter. Any other state or country than that of its creation may ex-
clude it altogether, if it sees fit, or it may impose such terms as it
chooses as a condition of allowing it to do business.® A corporation,
as it has been expressed, “cannot migrate, but may exercise its author-
ity in a foreign territory upon such conditions as may be prescribed by
the law of the place.” 7° As was said in Paul v. Commonwealth of
Virginia,** a “corporation, being the mere creature of a local law, can
have no legal existence beyond the limits of the sovereignty where
created. * * * The recognition of its existence, even by other
states, and the enforcement of its contracts made therein, depend
purely upon the comity of those states,—a comity which is never ex-
tended where the existence of the corporation or the exercise of its
powers is prejudicial to their interests or repugnant to their policy.
Having no absolute right of recognition in other states, but depending
for such recognition and the enforcement of its contracts upon their
assent, it follows, as a matter of course, that such assent may be
granted upon such terms and conditions as those states may think
proper to impose. They may exclude the foreign corporation entirely,

7 Merrick v. Van Santvoord, 34 N. Y. 208, 217.

8 Elston v. Piggott, 94 Ind. 17.

9 Paul v. Virginia, 8 Wall. 168; Liverpool Ins. Co. v. Massachusetts, 10 Wall. 566,
1 Cumming, Cas. Priv. Corp. 26; Bank of Augusta vy. Earle, ‘13 Pet. 519, 585; New
York, L. E. & W. R. Co. v. Com., 129 Pa. St. 463, 18 Atl. 412; Phenix Ins. Co. v.
Burdett, 112 Ind. 204, 13 N. E. 705; Goldsmith v. Insurance Co., 62 Ga. 379; People
vy. Fire Ass’n of Philadelphia, 92 N. Y. 811; Phoenix Ins. Co. v. Welch, 29 Kan.
672; State v. Phoenix Fire Ins. Co., 92 Tenn. 420, 21S. W. 893; Hartford Fire Ins.
Co. v. Raymond, 70 Mich. 485, 38 N. W. 474,

10 Railroad Co. v. Harris, 12 Wall. 65.

118 Wall. 168,
616 FOREIGN CORPORATIONS. (Ch. 15

they may restrict its business to particular localities, or they may ex-
act such security for the performance of its contracts with their citi-
zens as in their judgment will best promote the public interest. The
whole matter rests in their discretion.”

The provision of the federal constitution that the citizens of each
state of the Union shall be entitled to all the privileges and immuni-
ties of citizens in the several states does not require one state to
recognize corporations created by another; for, though a corpora-
tion is to be regarded as a citizen for some purposes,'? it is not a
citizen within the meaning of that provision. “The privileges and
immunities secured to citizens of each state in the several states by
the provision in question are those privileges and immunities which
are common to the citizens in the latter states, under their constitu-
tion and laws, by virtue of their being citizens. Special privileges en-
joyed by citizens in their own states are not secured in other states
by this provision. It was not intended by the provision to give to
the laws of one state any operation in other states. They can have
no such operation except by the permission, express or implied, of
those states. The special privileges which they confer must there-
fore be enjoyed at home, unless the assent of other states to their en-
joyment therein be given.”*? Nor is a foreign corporation within
the constitutional provision that “no state shall deny to any person
within its jurisdiction the equal protection of its laws,” so as to pre-
vent a state from imposing conditions upon allowing it to do busi-
ness.14

According to this principle, it is.well settled that a state may im-
pose a tax or license fee upon a foreign corporation, as a condition
of allowing it to do business within its limits; and it can make no
difference that a less tax, or no tax at all, is imposed upon domestic
corporations engaged in the same business.1® Foreign corporations

12 Ante, p. 24

13 Paul v. Virginia, 8 Wall. 168. And see Bank of Augusta v. Earle, 13 Pet. 519,
585; Pembina Con. Silver Mining & Milling Co. v. Pennsylvania, 125 U. 8. 181, 8
Sup. Ct. 737; Norfolk & W. R. Co. v. Pennsylvania, 136 U. S. 114, 10 Sup. Ct. 955;
Ducat v. City of Chicago, 48 Ill. 172; Tatem v. Wright, 23 N. J. Law, 429.

14 Pembina Con. Silver Mining & Milling Co. v. Pennsylvania, supra; Norfolk &
W. R. Co. v. Pennsylvania, supra; ante, p. 24.

15 Liverpool Ins. Co. v. Massachusetts, 10 Wall. 566, 1 Cumming, Cas. Priv. Corp.
26; Pembina Con. Silver Mining & Milling Co. v. Pennsylvania, 125 U. 8. 181, 8
o

§§ 247-249) STATUS OF A FOREIGN CORPORATION. 617

are thus put at a disadvantage in competing with domestic corpora-
tions, but of this they cannot complain.

A foreign corporation may also be required to make a deposit with
an officer of the state for the purpose of securing persons who con-
tract with it* This is often required of foreign insurance com-
panies. So, a state may require the agent of a foreign insurance
company to retain money of the company until a loss of which he has
notice is paid.+"

A state may, and most of them do, impose the condition that for-
eign corporations, in order to do business within the state, shall con-
sent to be sued in its courts, and shall have a known place of busi-
ness and appoint a resident agent within the state, upon whom pro-
cess may be served in actions that may be brought against them.**
Indeed, as we shall see, if a corporation of one state does business.
in another, no express consent on its part to be sued in the latter
need be shown, for its consent will be presumed.*®

If a corporation created by one state is engaged in interstate com-

Sup. Ct. 737; Blackstone Manuf’g Co. v. Inhabitants of Blackstone, 18 Gray (Mass.)
488; Attorney General v. Bay State Mining Co., 99 Mass. 148; Paul v. Virginia, 8
Wall. 168; Ducat v. Chicago, 10 Wall. 410; Slaughter v. Com., 13 Grat. (Va.) 767;
Com. v. Milton, 12 B. Mon. (Ky.) 212; Tatem v. Wright, 23 N. J. Law, 429; People
y. Equitable Trust Co. of New London, 96 N. Y. 387; People v. Wemple, 131 N. Y.
64, 29 N. E. 1002.

16 Paul v. Virginia, 8 Wall. 168.

17 Phenix Ins. Co. v. Burdett, 112 Ind. 204, 13 N. E. 705.

18 The agent need not be invested with any of the contractual powers which the
corporation is permitted to exercise by its charter, but it is sufficient if he has
authority to accept and receive service of process. Nelms v. Mortgage Co., 92 Ala.
157, 9 South. 141; McCall v. Mortgage Co., 99 Ala. 427, 12 South. 806. Where a
foreign corporation has a duly-appointed agent in the state, who has a place of
business, on the inside walls of which is displayed a sign bearing the name of the
corporation, and his own name as agent, and on the outside a sign bearing his name
and business, and who is authorized to receive service of process for the corporation,
there is a sufficient compliance with a statute requiring it to have a “known” place
of business and an authorized agent in the state. New England Mortg. Security Co.
y. Ingram, 91 Ala. 387, 9 South. 140. Where the statute requires filing of a certifi-
cate designating a known “place of business” in the state, and an agent residing
thereat, the certificate need not designate the store or office of the agent, but is
sufficient if it designates the city where he resides. McLeod v. Mortgage Co., 100
Ala. 496, 14 South. 409.

19 Post, p. 633.
618 FOREIGN CORPORATIONS. (Ch. 15

‘merce into or through another state, the latter cannot exclude it;
for this would be an interference with interstate commerce, in viola-
tion of the constitutional grant to congress of the exclusive power
to regulate commerce, and of the acts of congress on the subject.?°
For instance, a state statute requiring a foreign corporation to file
.a certificate, or observe any other condition, before bringing an ac-
tion for goods sold and delivered in the state, but made at its place
of business in another state, or before otherwise making contracts
in the state for carrying on commerce between the states, would be
void as an interference with interstate commerce.2!. The same is
true of a statute imposing a tax upon foreign corporations as a con-
‘dition of their being allowed to transport goods into or through
the state.?* This provision of the constitution includes telegraph
corporations engaged in transmitting messages from a point in one
state to a point in another.”

x» A state has the absolute right to entirely exclude a foreign corpo-
ration from its territory, or, having given it a license to do business
within the state, to revoke it, in its discretion, for good cause, or

20 Paul v. Virginia, 8 Wall. 168.

21 Ante, p. 225; Cooper Manuf’g Co. v. Ferguson, 113 U. 8. 727, 5 Sup. Ct. 789;
Kindel v. Lithographing Co., 19 Colo. 310, 35 Pac. 538; Ware v. Shoe Co., 92 Ala.
145, 9 South. 186; Cook v. Brick Co., 98 Ala. 409, 12 South. 918; Robbins v. Tax-
ing Dist., 120 U. S. 489, 7 Sup. Ct. 592; Bateman y. Milling Co., 1 Tex. Civ. App.
90, 20 S. W. 931; Pickard v. Car Co., 117 U. 8S. 34, 6 Sup. Ct. 635. A state law
imposing a tax on foreign corporations doing business in the state, based on the
amount of capital used by the corporation in such state, is not an interference with
‘commerce. People v. Wemple, 131 N. Y. 64, 29 N. BE. 1002.

22 See Indiana v. American Exp. Co., 7 Biss. 227, Fed. Cas. No. 7,021. In
Crutcher v. Kentucky, 141 U. 8. 47, 11 Sup. Ct. 851, a Kentucky statute requiring
the agent of a foreign express company doing business in the state to pay a license
fee of five dollars, and deposit with the auditor a statement of the company’s assets
and liabilities, showing that it has an actual capital of at least $150,000, was held
unconstitutional, as an interference with interstate commerce, in so far as it applied
to companies transporting goods between points in the state and points in other
-states, although they also transported between points in the state. And see Norfolk
& W. R. Co. v. Pennsylvania, 136 U. S. 114, 10 Sup. Ct. 958; McCall v. California,
136 U.S. 104, 10 Sup. Ct. 881.

28 Pensacola Tel. Co. v. Western Union Tel. Co., 96 U. 8. 1; Telegraph Co. v.
Texas, 105 U. 8. 460; Ratterman v. Telegraph Co., 127 U. 8. 411, 8 Sup. Ct. 1127;
Leloup v. Port of Mobile, 127 U. S. 640, 8 Sup. Ct. 1380.
§§ 247-249) STATUS OF A FOREIGN CORPORATION. 619

without any cause at all. And its motive in so doing is not open to
inquiry. The corporation has no constitutional right to transact its
business in any other state than that of its creation, and hence its
exclusion therefrom violates no constitutional right. In Doyle v.
Continental Ins. Co.?* the legislature of Wisconsin had enacted that,
if any foreign insurance company. should transfer a suit brought
against it from the state courts to the federal courts, it should there-
upon become the duty of the secretary of state to cancel its license
to do business within the state. It was held that an injunction could
not be granted to restrain the revocation of a license for violation
of the provision, though a state has no power to prohibit resort to
the federal courts where they have jurisdiction, since the right to ex-
clude foreign corporations belongs to the state, and its motive, or the
means by which it accomplishes that result, are not the subject of
judicial inquiry.

Such a statute, however, cannot prevent the corporation from re-
moving a suit into the federal courts.?® And, if a statute requiring
a permit as a condition precedent to a foreign corporation doing
business in the state requires such a stipulation before the permit
shall be granted, the statute is void, and the agent of a foreign cor-
poration could not be prosecuted for violating it.?®

A state, of course, has a perfect right to admit foreign corpora-
tions of a particular class, and exclude other classes, or it may, if it
Sees fit, discriminate between corporations of the same class.

It seems to have been held, in effect, that, if a statute provides for
the admission of corporations organized for a particular kind of
business, it impliedly excludes corporations organized for any other
business; and it has been held that a statute authorizing foreign
corporations organized for a particular purpose to do business in
the state does not admit a foreign corporation organized for the
purpose specified, and also for other purposes.”

With the question of the expediency or policy of the statutes im-
posing conditions upon foreign corporations the courts have nothing
to do. It is purely a legislative question. The statute must stand,

2494 U. S. 585.

25 Insurance Co. v. Morse, 20 Wall. 445.

26 Barron v. Burnside, 121 U. 8. 186, 7 Sup. Ct. 931.

27 Isle Royale Land Corp. vy. Secretary of State, 76 Mich. 162, 43 N. W. 14.
620 FOREIGN COKPORATIONS. (Ch. 15

unless it is plainly in conflict with some constitutional provision;
and, if there is doubt as to its constitutionality, the doubt must be
resolved in favor of the legislature.2* “It has repeatedly been held
—and there seems to be no conflict of authority—that corporations
of one state have no right to exercise their franchises in another
state, except upon the assent of such other state, and upon such
terms as may be imposed by the state where their business is to be
done. The conditions imposed may be reasonable or unreasonable.
They are absolutely within the discretion of the legislature.” 7°

Foreign Corporations in Fraud of the Laws of a State, or Con-
trary to tits Policy.

The courts of a state will not recognize as valid a corporation or-
ganized in fraud of its laws in another state, or a corporation of an-
other state which is contrary to the policy of its laws.*° In some
states the laws for the formation of corporations are more favorable
than in others, and, for this reason, residents of a state sometimes
go into another state and form a corporation under its laws for the
purpose of doing business in the state of their residence. Whether
such corporations will be recognized as valid in the state of the cor-
porators’ residence depends upon whether the incorporation is to be
regarded as an evasion of and fraud upon its laws. Some courts.
seem to have held that the mere fact that residents of a state go into
another state and form a corporation for the purpose of doing busi-
ness in the state of their residence is an evasion of the laws of the
state in which they are incorporated, and a fraud upon such laws.*?
But, by the better opinion, there must be something more than this
to make out a case of frand upon the laws of either state. There must
be some express prohibition against such an incorporation, or else
the general policy of the laws must be against it. The question arose
in New York in Demarest v. Flack.?? In this case the defendants,

28 Phenix Ins. Co. v. Burdett, 112 Ind. 204, 138 N. . 705; State v. Carey, 2 N. D-
36, 49 N. W. 164; State v. Phoenix Ins. Co., 92 Tenn. 420, 21 8. W. 893.

29 Hartford Fire Ins. Co. v. Raymond, 70 Mich. 485, 88 N. W. 474, 482.

30 Hill v. Beach, 12 N. J. Hq. 31; Land Grant Railway & Trust Co. v. Board Co.
Com’rs Coffey Co., 6 Kan, 245; Carroll v. City of East St. Louis, 67 Il. 568;
Demarest vy. Flack, 128 N. Y. 205, 28 N. E. 645.

31-Hill v. Beach, 12 N. J. Eq. 31.

82128 N. Y, 205, 28 N. E. 645. And sce, to the same effect, Lancaster v. Im-
§§ 247-249) STATUS OF A FOREIGN CORPORATION. 621

residents of New York, had formed a corporation under the laws of
West Virginia for the purpose of doing business in New York, and
were doing business there as a foreign corporation. The plaintiff, a
resident of New York, seeking to hold them liable as if unincorpo-
rated, contended (1) that these facts conclusively proved that the
incorporation was invalid, so far, at least, as the state of New York
and its citizens were concerned; or, (2) if this was not so, that the
facts rendered it a question for the determination of the jury whether
the incorporation was attempted to be made in good faith, or as a
mere evasion and in fraud of the laws of West Virginia or of New
York, and that, if the jury should find the latter to be the case, the
incorporation would be void. The court, after pointing out that the
laws of both states permitted incorporation for the purposes for which
this corporation had been formed; that the freedom of the members
from personal liability would be as great and as easily attained, and
the security of creditors would not be substantially greater, in case
of incorporation under the laws of New York; that the policy of.-
West Virginia plainly favored the formation under its laws of corpo-
rations composed of nonresidents, the principal business of which was
to be done outside the state; and that the policy of New York was to
recognize foreign corporations formed for the purpose of doing busi-
ness there,—held that the incorporation was valid, both in West Vir-
ginia and in New York. The court also held that whether there was
an attempted evasion of the laws of New York was a question of law,
for the court, and should not be submitted to a jury as a matter of
fact.3?

provement Co., 140 N. Y. 576, 35 N. E. 964, where a corporation was formed under
the laws of New Jersey to do business in New York. .

33 In regard to the latter point, it was said that, if the question were submitted to
the jury, “we might find different juries coming to different conclusions upon the
same facts, and we should have a corporation or no corporation, according to the
view a jury might take of such facts. One plaintiff might prove the evasion to the
satisfaction of one jury, and another plaintiff fail on precisely the same facts: and
thus we should have a corporation as to A., and no corporation as to B., and the
same question constantly arising as often as the corporation or its members were
sued. This would be intolerable. It must be a corporation as to all persons with
whom it has business dealings, or as to none. In other words, it must be a question
of law, instead of fact.”
622 FOREIGN CORPORATIONS. (Ch. 15

A foreign corporation will not be recognized in a state if it is con-
trary to the policy of its laws, as where the laws expressly or im-
pliedly prohibit corporations of its character, or a corporation for
such purposes.** It was held by the Illinois court that a corporation
created by the laws of Connecticut for the sole purpose of buying and
selling lands had no power to purchase and hold lands in Mlinois, as
it was against the general policy of the laws of that state on the
subject of domestic corporations, and would tend to create perpetui-
ties.25
Retaliatory Statutes.

In some of the states what are known as “retaliatory statutes” have
been enacted, the object being to prevent other states from imposing
greater burdens and restrictions upon corporations of the state by
which the statute is enacted than are imposed by that state upon cor-
porations of such other states. Thus, in Illinois it is provided that
whenever the existing or future laws of any state shall require of
insurance companies incorporated under the laws of Illinois, and hav-
ing agencies in such other state, any deposit, or the payment of any
tax, license fee, etc., greater than the amount required for such pur-
poses for similar companies by the then existing laws of Illinois, then
all companies of such state establishing or having an established
agency in Illinois shall be required to pay to the auditor, for taxes,
license fees, etc., an amount equal to the amount required by the laws
of such other state.*® And in many states there are statutes in effect
providing generally that foreign corporations shall not exercise any
privileges in the state which are not accorded by the state by which
they are created to similar foreign corporations.?? Such statutes

34 Land Grant Railway & Trust Co. v. Board Co. Com’rs Coffey Co., 6 Kan.
245; Carroll v. City of East St. Louis, 67 TJ. 568.

35 Carroll y. City of East St. Louis, supra.

36 This law becomes operative upon the enactment by the other state of the law
with the additional requirements, and it is immaterial that there are no Illinois cor-
porations doing business in such state. Germania Ins. Co. v. Swigert, 128 Ill. 237,
21 N. E. 580; State v. Fidelity & Casualty Co., 77 Iowa, 648, 42 N. W. 509. But
see State v. Insurance Co., 49 Ohio St. 440, 31 N. EH. 658. .

37 See State v. Western Union Mut. Life Ins. Co., 47 Ohio St. 167, 24 N. E. 392,
and other cases cited in the preceding and following notes.
§§ 247-249) STATUS OF A FOREIGN CORPORATION. 623.

as these are valid, unless they violate some particular provision of the
state constitution.*®

A foreign corporation which has complied with the local laws
should not, as a measure of retaliation, under a retaliatory statute,
be excluded from doing business in the state upon the ground that the
laws of the state by which it was created would exclude foreign cor-
porations from doing business there under like conditions, unless it
is clear that such is the effect of the law. Rules of comity require
that doubt in such a case should be resolved in favor of the corpora-
tion.**

What Constitutes ‘‘Doing Business’? in the State.

Questions have frequently arisen as to what constitutes “doing busi-
ness” in the state, within the meaning of the statutes relating to for-
eign corporations, and the answer is not always clear. If a foreign
corporation continuously does any substantial part of its business in
the state, however little, it is within the statute. Clearly, it does busi-
ness in the state if it has an office and sells some of its goods there.*®
And by the better opinion a single act of its ordinary business brings
it within the statute. Thus, a corporation organized for the purpose
of lending money on real-estate mortgage security does business by
making a single loan and taking a mortgage to secure it.*+ In like
manner an insurance company would do business in the state by is-
suing a single policy of insurance.*? Such acts constitute the ordi-
nary business of the company.

The supreme court of the United States has held that a statute
or constitutional provision prohibiting a foreign corporation from
doing “any business” in the state until it has complied with the con-
ditions imposed contemplates carrying on or continuing business in

38 People v. Fire Ass’n of Philadelphia, 92 N. Y. 311; Home Ins. Co. v. Swigert,
104 Ill. 666; State v. Insurance Co. of North America, 115 Ind. 257, 17 N. E. 574;.
Talbott v. Casualty Co., 74 Md. 536, 22 Atl. 395.

39 State v. Fidelity & C. Ins. Co., 39 Minn. 538, 41 N. W. 108; State v. Insurance
Co., 49 Ohio St. 440, 31 N. BH. 658.

40 People v. Wemple, 131 N. Y. 64, 29 N. E. 1002; People v. Horn Silver Min.
Co., 105 N. Y. 76, 11 N. B. 155.

41 Farrior v. Security Co., 88 Ala. 275, 7 South. 200; Ginn v. Security Co., 92
Ala. 135, 8 South. 388.

42 Lamb v. Lamb, 6 Biss. 420, Fed. Cas. No. 8,018.
624 FOREIGN CORPORATIONS. (Ch. 15

the state, and does not apply to a single act of business, though it
may be done as a part of the ordinary business of the company, and
that a foreign manufacturing company, for instance, may come into
the state and make a single sale without bringing itself within the
statute.*® This ruling was not necessary to dispose of the case, for
the transaction was within the protection of the provision of the
federal constitution prohibiting the states from interfering with in-
terstate commerce, and two of the justices based their concurrence
in the judgment on this ground alone. The decision does not seem
to be sound, particularly as the statute expressly prohibited “any”
business. It is, in effect, adding to the statute. If it is followed,
the logical result will be to allow a foreign investment or insurance
company to come into a state and make a loan, or issue a policy of
insurance. If they can do so once, when they do not intend to do
so again, they may come back a second time, and a third. To bring
a foreign corporation within the statute, must it be shown that it
intended to do business regularly for a week or a month or a year?
And, if a foreign corporation comes into a state with the intention
of engaging regularly in business there, does it come within the stat-
ute if it does only a single act of business, and then determines not
to do more? If the decision referred to is to be followed, where can
the line be drawn? The only way to carry out the intention of the
legislature in enacting these statutes—and that is the extent of the
court’s duty—is to give effect to the terms used according to their
ordinary meaning. And when the legislature says that a foreign
corporation shall not “do any business,” it should be taken to mean
what the language plainly imports,—that it shall not “do any” busi-
ness. Such is the construction placed upon a similar statute by the
Alabama court, which held that a foreign loan company brought
itself within the statute by making a single loan in the state.**

Such statutes as these are evidently intended only to prohibit a
foreign corporation from doing any part of its ordinary business in
the state. It does not prohibit an act not in the way of its ordinary
business. Thus, they could not be construed as preventing an ac-
tion by a foreign corporation on an insurance policy issued by a do-

48 Cooper Manuf’g Co. v. Ferguson, 118 U. 8. 727, 5 Sup. Ct. 739.
44 Note 41, supra,
§§ 247-249) STATUS OF A FOREIGN CORPORATION, 625

mestic corporation, where the only business done by the plaintiff in
the state related to the policy; *® nor as preventing a foreign corpo-
tation from making a purchase of machinery in the state, to be trans-
ported to and set up in the state of its domicile;** nor as pre-
venting a foreign trust company from purchasing securities of a
railroad company in the state, and taking a mortgage on its property
to secure them; *’ nor as prohibiting a foreign corporation from ac-
cepting notes in the state for the price of goods sold and delivered
in another state.*®

The prosecution or defense of an action is not doing business in
the state, within the meaning of such acts.*® Nor does a foreign
corporation do business in the state by the mere consignment of
goods to factors in the state, for sale by them.®® And the soliciting
of subscriptions to the capital stock of a foreign corporation is not
within the statutes.° Nor does the statute apply to a loan made by
a foreign corporation, where the agreement therefor was made in an-
other state, and the securities were delivered and the money paid
there.°? Many similar decisions might be mentioned.**

45 Tabor v. Manufacturing Co., 11 Colo. 419, 18 Pac. 537.

46 Colorado Iron Works vy. Sierra Grande Min. Co., 15 Colo. 499, 25 Pac. 325.

47 Gilchrist v. Railroad Co., 47 Fed. 598. See Com. v. Standard Oil Co., 101 Pa.
St. 119.

48 Fuller & J. Manuf’g Co. v. Foster, 4 Dak. 329, 30 N. W. 166.

49 Utley v. Mining Co., 4 Colo. 369; Powder River Cattle Co. v. Commissioners, 9
Mont. 145, 22 Pac. 383; Christian v. Mortgage Co., 89 Ala. 198, 7 South. 427; Mc-
Call v. Mortgage Co., 99 Ala. 427, 12 South. 806; Reed v. Walker, 2 Tex. Civ.
App. 92, 21 S. W. 687; St. Louis, A. & T. Ry. Co. v. Fire Ass’n, 55 Ark. 163,
18 8. W. 48; Fuller & J. Manuf’g Co. v. Foster, 4 Dak. 329, 30 N. W. 166.

50 Bertha Zinc & Mineral Co. v. Clute (Com. Pl.) 27 N. Y. Supp. 342.

51 Payson v. Withers, 5 Biss. 269, Fed. Cas. No. 10,864.

52 Scruggs v. Mortgage Co., 54 Ark. 566, 16 S. W. 563; Reeves y. Harper, 43 La.
Ann. 516, 9 South. 104.

58 A contract made by a citizen of Indiana with an Illinois insurance company,
through an agent of the company in Indiana, who had not complied with its laws,
Was sustained because made, not with the agent, but with the company in Illinois.
Lamb v. Bowser, 7 Biss. 315, Fed. Cas. No. 8,008; Id., 7 Biss. 372, Fed. Cas. No.
8,009. And see, to the same effect, Hyde v. Goodnow, 3 N. Y. 266. Compare
Northwestern Mut. Life Ins. Co. v. Elliott, 5 Fed. 225; Wall v. Society, 32 Fed. 2738.

Clk.Pr.Corp.—40
626 FOREIGN CORPORATIONS. (Ch. 15

Lifect of Noncompliance with Conditions.

The statutes imposing conditions upon foreign corporations vary
in the different states, and even where they are similar the courts
do not agree in construing them, and as to the effect of contracts and
transactions in violation of their terms. In all cases the object is
to ascertain the intention of the legislature, and when the intention
is ascertained it must be given effect.

Some statutes merely prohibit foreign corporations from doing

' business in the state, or from acquiring, holding, and disposing of
property in the state, until they have filed a copy of their charter
or articles of incorporation, or performed the other conditions that
may be imposed, but do not attach any penalty, or say what shall
be the consequences of noncompliance. Some of the courts hold that
such a statute does not render contracts or transactions by foreign .
corporations before compliance with its terms void, but that the
corporation merely renders itself subject to exclusion at the instance
_of the public authorities.°* This view does not commend itself. It
makes the statute virtually a dead letter. The weight of authority
is to the effect that all contracts entered into in violation of the
statute are absolutely void. No other penalty being attached, this
is the only effective way of enforcing the prohibition.®®

54 Washburn Mill Co. v. Bartlett, 3 N. D. 188, 54 N. W. 544; Wright v. Lee, 4
S. D. 237, 55 N. W. 931. And see Slauson v. Schwabacher, 4 Wash. 783, 31 Pac.
329,

55In re Comstock, 3 Sawy. 218, Fed. Cas. No. 3,078; Cincinnati Mut. Health
Assur. Co. v. Rosenthal, 55 Ill. 85; Lycoming Fire Ins. Co. v. Wright, 55 Vt. 526;
Rising Sun Ins. Co. v. Slaughter, 20 Ind. 520; Hoffman y. Banks, 41 Ind. 1;
Farmers’ & Merchants’ Ins. Co. v. Harrah, 47 Ind. 2836; Union Cent. Life Ins. Co.
v. Thomas, 46 Ind. 44; Bank of British Columbia v. Page, 6 Or. 485; Aetna Ins. Co.
vy. Harvey, 11 Wis. 395; Reliance Mut. Ins. Co. v. Sawyer, 160 Mass. 413, 36
N. E. 59; National Mut. Fire Ins. Co. v. Pursell, 10 Allen (Mass.) 282; Jones
v. Smith, 3 Gray (Mass.) 500; Neuchatel Asphalt Co. v. Mayor, ete. (Com.
Pl.) 30 N. ¥. Supp. 252; Barbor v. Boehm, 21 Neb. 450, 32 N. W. 221; North-
western Mut. Life Ins. Co. vy. Elliott, 5 Fed. 225. ‘When the legislature pro-
hibits an act,” said the Illinois court, “or declares that it shall be unlawful to.
perform it, every rule of interpretation must say that the legislature intended to
interpose its power to prevent the act, and, as one of the means of prevention, that
the courts shall hold it void. This is as manifest as if the statute had declared that
it should be void. To hold otherwise would be to give to the person or corporation
or individual the same rights in enforcing prohibited contracts as the good citizen who
8§ 247-249) STATUS OF A FOREIGN CORPORATION. 627

Some of the statutes not only prohibit doing business before com-
pliance with their terms, but also impose a penalty for their viola-
tion, and others impose a penalty without express prohibition. Some
courts hold that the legislature, by annexing a specific penalty, mani-
fests an intention that the penalty shall be exclusive, and that con-
tracts made before compliance with the statute are valid.°® Most
of the courts, however, hold that the annexation of a penalty ren-
ders all acts which subject the party to the penalty unlawful, and
therefore unenforceable, under the generally accepted rules °7 that,
where a statute prohibits an act and attaches a penalty, it renders
the act unlawful, and that attaching a penalty without express pro-
hibition is an implied prohibition.°* If the statute is not in terms
prohibitory, and the penalty is imposed as a tax, and for purposes of
revenue, and not by way of punishment, it does not prohibit con-
tracts before compliance with its terms.>®

Where a statute, as is sometimes the case, merely requires for-
eign corporations to file a copy of their charter, or observe other re-
quirements, within a certain time after commencing business in the
state, and imposes a penalty upon their officers or agents if they fail
to do so, it has been held that it is not to be construed as prohib-
iting continuance of business after such failure, so as to avoid their

contracts, the only penalty incurred being the penalty imposed by
the statute.®°

respects and conforms to the law. To permit such contracts to be enforced, if not
offering a premium to violate a law, it certainly withdraws a large portion of the
fear that deters men from defying the law. To do so places the person who violates
the law on an equal footing with those who strictly observe its requirements.”
Cincinnati Mut. Health Assur. Co. v. Rosenthal, supra.

58 Toledo Tie & Lumber Co. v. Thomas, 83 W. Va. 566, 11 S. E. 37; Columbus
Ins. Co. v. Walsh, 18 Mo. 229; Union Mut. Life Ins. Co. v. McMillen, 24 Ohio St.
67; Harris v. Runnels, 12 How. 79; Edison General Blectric Co. v. Canadian Pac.
Nav. Co., 8 Wash. 370, 86 Pac. 260; La France Fire Engine Co. v. Town of Mt.
Vernon, 9 Wash. 142, 37 Pac. 287, and 38 Pac. 80.

57 Clark, Cont. 386. «

58 Dudley v. Collier, 87 Ala. 431, 6 South. 8304; Buxton v. Hamblen, 32 Me. 448;
Thorne v. Insurance Co., 80 Pa. St. 15; Cary-Lombard Lumber Co. v. Thomas, 92
Tenn. 587, 22 S. W. 748.

59 See Larned v. Andrews, 106 Mass. 435.

60 Northwestern Mut. Life Ins. Co. v. Overholt, 4 Dill. 287, Fed. Cas. No. 10,338;
Kindel y. Lithographic Co., 19 Colo. 310, 35 Pac. 538; Slauson v. Schwabacher, 4
628 FOREIGN CORPORATIONS. (Ch. 15

It is held that a statute forbidding any foreign corporation to do
business in the state until it has complied with the conditions pre-
scribed, and imposing a penalty for its violation, but which imposes
no duty or prohibition upon persons dealing with a corporation which
has not complied with the law, does not render its contracts void
as to such persons, so as to prevent them from maintaining an ac-
tion thereon. For instance, it is held that a policy of insurance is-
sued by a foreign insurance company, which has not complied with
the law so as to be entitled to do business in the state, may never-
theless be enforced by the assured. Some courts base this rule on
the ground that the corporation is estopped to set up its noncom-
pliance with the law to escape liability on its contracts.** Others
base it upon the ground that the statute is intended for the protec-
tion of persons dealing with the corporation, and that the legisla-
ture did not intend to avoid its contracts to their prejudice.®?
Estoppet.

If a corporation does business in another state without complying
with the conditions precedent imposed by the state, it cannot escape
liability on contracts made by it on the ground that it was not quali-
fied to do business in the state. It is estopped to set up such a de-
fense. It was so held by Judge Caldwell where a life insurance com-
pany set up such a defense to defeat an action on a policy issued by
it. “By the fact of doing business in the state,” he said, “it asserted
a compliance with the laws of the state, and after enjoying all the ben-
efits of that business, and receiving the money of the assured, it will
not be heard to say that it never submitted ‘to the jurisdiction of the
state.’ It can reap no advantage from its own wrong.” °? And the
estoppel extends to agents and members of the corporation who par-
ticipate in the unauthorized transactions.®*

Wash. 783, 31 Pac. 329; Whitman Agricultural Co. v. Strand, 8 Wash. 647, 36
Pac. 682.

61 See following paragraph.

62 Pennypacker v. Insurance Co., 80 Iowa, 56, 45 N. W. 408; Union Mut. Life
Ins. Co. McMillen, 24 Ohio St. 67; The Manistee, 5 Biss. 382, Fed. Cas. No. 9,027;
Ehrman vy. Insurance Co., 1 Fed. 471,

63 Berry v. Indemnity Co., 46 Fed. 439. And see Ehrman y. Insurance Co., 1
Fed. 471.

64 Kilgore vy. Smith, 122 Pa. St. 48, 15 Atl. 698,

a
§§ 247-249) STATUS OF A FOREIGN CORPORATION. 629

Some of the courts hold that, if a foreign corporation makes a con-
tract which is within the powers conferred upon it by its charter, the
other party cannot escape the obligations imposed upon him by the
contract, nor dispute the rights of the corporation under it, on the
ground that it had not complied with the law imposing conditions
upon its right to do business in the state; the corporation being re-
garded as in the position of a de facto corporation, whose contracts
are valid, the state only having the right to object, or else the other
party being held to be estopped to dispute the validity of the con-
tract.*® Other courts take the position that the statute is based upon
grounds of public policy, and the contract, being prohibited, is illegal
and void, and that the doctrine of estoppel does not extend so far as
to enable a person or corporation to do in effect what is forbidden by
law. And they therefore hold that in such a case the other party to
the contract is not estopped to show the illegality of the contract for
the purpose of preventing a recovery upon it.**

In Fitts v. Palmer,®’ a statute of Colorado expressly declared that
no foreign corporation should purchase or hold real estate in the’
state, except as provided in the statute. The supreme court held
that the failure of a foreign corporation to comply with the statute
did not render a conveyance to it void, so that it might be attacked
collaterally by a private person. This decision is against the weight

85 See ante, p. 86, as to de facto corporations. Sherwood v. Alvis, 83 Ala. 115, 3
South. 307. In this case the defendant had obtained a loan from a foreign corpora-
tion engaged in lending money in Alabama, and had given a mortgage to secure the
same. In an action by the purchaser at a sale under the mortgage for possession, the
defendant contended that the mortgage was void because the corporation had no
known place of business, or authorized agent, within the state, as required by law.
It was held that he was estopped to set up such a defense. For other decisions in
support of the test, see Wright v. Lee, 2 8. D. 596, 51 N. W. 706; Washburn Mill
Co. v. Bartlett, 3 N. D. 188, 54 NW. W. 544. And see American Loan & Trust Co..
v. East & West R. Co., 87 Fed. 242; La France Fire Engine Co. v. Town of Mt.
Vernon, 9 Wash. 142, 87 Pac. 287; Rathbone, Sard & Co. v. Frost, 9 Wash. 162,.
37 Pac. 298.

66 In re Comstock, Fed. Cas. No. 3,078; Williams v. Cheney, 3 Gray (Mass.) 222;
National Mut. Fire Ins. Co. v. Pursell, 10 Allen (Mass.) 282; Rising Sun Ins. Co..
v. Slaughter, 20 Ind. 520; Cincinnati Mut. Health Assur. Co. vy. Rosenthal, 55 Ill.
90; Aetna Ins. Co. v. Harvey, 11 Wis. 395.

87 182 U. S. 282, 10 Sup. Ct. 93
630 FOREIGN CORPORATIONS. (Ch. 15

of decisions in the state courts.** And Mr. Justice Miller “earnestly”
dissented.,
Powers of Foreign Corporation—Limitation of Charter.

The rule of comity by which a corporation is permitted to do busi-
ness in another state than that by which it was created does not
change its nature as a foreign corporation, or give it any powers which
are not given by its charter. Nor does it exempt persons who deal
with it from the effect of legislation by the state or country of its
creation under power reserved under its law. “Though permitted to
come into the local jurisdiction, and there exercise its powers, for the
accomplishment of the purposes of its creation, it remains essentially
a foreign corporation. It derives its vitality, its corporate capacity,
its very life, from the law of its origin. Comity adds to it no new
function, or greater powers than are bestowed upon it by its charter.
That, being the instrument of the company’s creation, and prescribing
the limits of its legal existence, must exert the most obvious influ-
ence upon all its transactions; and, whether abroad or at home, it
can do nothing which does not fairly fall within the scope and purpose
of that instrument.’*® And persons dealing with a foreign corpora-
tion must take notice of the limitations in its charter, and also of the
power over it reserved to the state or country to which it owes its
being, and they are bound accordingly.7° “Wherever a corporation
goes for business, it carries its charter, as that is the law of its ex-
istence, and the charter is the same abroad that it is at home. What-
ever disabilities are placed upon the corporation at home it retains
abroad, and whatever legislative control it is subjected to at home
must be recognized and submitted to by those who deal with it else-
where.” 7?

68 See cases in note 66, supra.

69 Wm. L. Murfree, Esq., in note to Republican Silver Mines v. Brown, 7 C.
Cc. A. 419.

70 Canada S. Ry. Co. v. Gebhard, 109 U. S. 527, 537, 8 Sup. Ct. 363, 369;
Hoyt v. Thompson’s Ex’r, 19 N. Y. 207; Metropolitan Bank v. Godfrey, 23 Ill.
579, 609; Manhattan Life Ins. Co. v. Fields (Tex. Civ. App.) 26 S. W. 280.
If the charter of a corporation, or the general laws of the state of its creation,
prohibit certain contracts, as contracts between it and its officers or employés,
the prohibition applies to contracts in another state. Rue v. Railway Co., 74

Tex: 474, 8 S. W. 533.
71 Canada S. Ry. Co. v. Gebhard, supra.
§§ 247-249) STATUS OF A FOREIGN CORPORATION. 631

If a foreign corporation whose existence and legal organization are
not disputed has made a contract in a state through agents employed
by it, and a suit is brought against it thereon in such state, in such a
manner that it is made amenable to the jurisdiction of the court, it
is not necessary for the plaintiff, at the outset, to prove that it had
the power under its charter to make the contract."?

The rules recognized in some states, that one who contracts with a
corporation cannot plead ultra vires to defeat an action on the con-
tract, and that the corporation is estopped to set up such a defense in
an action brought against it, apply to foreign corporations. Thus, a
borrower from a foreign corporation, under this doctrine, cannot de-
feat an action by the corporation on a note or mortgage given by him,
on the ground that the corporation had no authority under its charter
to make the loan.” As we have seen, there is much conflict as to the
effect of ultra vires contracts."

Same—Limitations of the Local Laws.

It does not follow, even when a corporation is recognized in another
state, that it can exercise all the powers that are conferred upon it
by its charter. Its powers also depend upon the law of the state in
which they are exercised. In other words, its powers are limited, not
only by its charter and the laws of the state of its creation, but also
by the laws of the state in which it exercises them. Thus, the laws
of a state prohibiting corporations from holding real estate, or limit-
ing their power in this respect, apply to foreign as well as to domestic
corporations. And generally, in the absence of legislation changing
the rule, a foreign corporation cannot exercise greater powers than
the local laws allow to similar domestic corporations."®

If the charter of a corporation prohibits it from taking by devise,
it cannot take in another state, though there may be no prohibitory
statute in the latter state, for a prohibitory clause in the charter of
a corporation cleaves to it everywhere.*® It has been held, however,

72 McCluer vy. Railroad, 18 Gray (Mass.) 124.

73 Pancoast v. Insurance Co., 79 Ind. 172; Steam Nav. Co. v. Weed, 17 Barb.
(N. Y.) 378,

74 Ante, p, 170.

75 Runyan y. Coster’s Lessee, 14 Pet. 122; Carroll v. City of East St. Touis,
67 Ill. 568; White v. Howard, 46 N. Y. 144; ante, p. 620.

76 White v. Howard, 88 Conn. 842, 1 Cumming, Cas. Priv. Corp. 81.
6382 FOREIGN CORPORATIONS. (Ch. 15

that a statute of wills of one state, since it has no extraterritorial
effect, cannot prevent a corporation of that state from taking by de-
vise in another state, where there is no such prohibition.** This de-
cision would seem to be a sound one, but the contrary has been held
in Illinois.78 Where the laws of a state prohibit a corporation from
taking land by devise, a devise in that state to a foreign corporation
is void, though by its charter, and by the laws of the state of its crea-
tion, it is authorized to take by devise."®

Corporations de Facto.

A foreign corporation will be accorded the status of a corporation
de facto, if it is a corporation de facto in the state by which it was
created, and if it has complied with the law relating to foreign corpo-
rations. In such a case, persons who deal with it cannot attack its
corporate existence on the ground of irregularity in organization.
Any question affecting its right to transact business because of such
irregularity is a matter of inquiry only for the state of its creation.*°

Rights and Immunities of Members.

The rights and immunities of members of foreign corporations are
within the rule of comity, and must be respected. They cannot be
held individually liable, for instance, for the debts or torts of the cor-
poration, unless they are made so by its charter, or by some statute.**

Quo Warranto and Mandamus.

Quo warranto is a proper remedy, unless excluded by statute, to
try the right of a foreign corporation to carry on business in the state,
and to oust it if it is without right.** The executive officers of the
state, in issuing certificates to foreign corporations under the statutes,

771d.

78 Starkweather v. Society, 72 Ill. 50.

79 White v. Howard, 46 N. Y. 144.

80 Lancaster v. Improvement Co., 140 N. Y. 576, 35 N. EB. 964; Bank of
Toledo vy. International Bank, 21 N. Y. 542.

81 Merrick v. Van Santvoord, 34 N. Y. 208.

82 State v. Fidelity & Casualty Ins. Co., 39 Minn. 538, 41 N. W. 108; State
vy. Fidelity & Casualty Ins. Co. (Ohio Sup.) 31 N. E. 658; State v. Western
Union Mut. Life Ins. Co., 47 Ohio St. 167, 24 N. E, 392; State vy. Fidelity &
Casualty Ins. Co., 77 Iowa, 648, 42 N. W. 509.
§§ 250-254) ACTIONS BY AND AGAINST. 633

act ina ministerial capacity, and their determination is not judicial
and final, but may be reviewed by the courts.®*

Where the executive officer of the state charged with the duty of
granting and revoking permits for foreign insurance companies to
do business in the state is required to grant permits when certain
conditions exist, and is not vested with discretionary power, man-
damus will lie to compel him to grant a permit in a proper case.**
But if he is invested with discretionary power, as where he is re-
quired to grant a permit when he “is satisfied with the capital, se-
curities, investments,” etc., of the corporation applying for it, or
where he is given the power to revoke or refuse a permit, where,
after an examination, he “has reason to believe” that a statement
made by a foreign corporation is false, his action cannot be controlled
by mandamus.°®°

ACTIONS BY AND AGAINST.

250. By the comity of states, a corporation created under
the laws of one state or country may sue in the
courts of another state or country.

251. A foreign corporation cannot be ‘sued in the courts.
of a state, unless jurisdiction can be obtained by
service within the state upon an authorized agent.
Provision is very generally made by statute for serv-
ice upon particular officers of foreign corporations
doing business in the state, and a corporation
which does business within a state having such a
statute impliedly submits to its jurisdiction.

263. A judgment recovered against a foreign corporation
after due service of process on an authorized agent
in the state is entitled, under the constitution and

88 State v. Fidelity & Casualty Ins. Co., 89 Minn. 538, 41 N. W. 108; State
v. Fidelity & Casualty Ins. Co. (Ohio Sup.) 31 N. H. 658.

84 Kansas Home Ins. Co. v. Wilder, 43 Kan. 731, 23 Pac. 1061.

85 State v. Carey, 2 N. D. 36, 49 N. W. 164; Dwelling-House Ins. Co. v.
Wilder, 40 Kan. 561, 20 Pac. 265.
634 FOREIGN CORPORATIONS. (Ch. 15

laws of the United States, to the same faith and
credit in all other states as in the state in which it
was rendered.

254. For the purposes of jurisdiction of actions in the
federal courts, a corporation is a ‘“‘citizen” or ‘‘in-
habitant” of the state of its creation, and of that
state only.

Actions by Foreign Corporations.

It is well settled that, by the law of comity among nations, a
corporation created by one sovereignty may assert its rights by suit
in the courts of another sovereignty, and the same rule of comity pre-
vails among the states of this Union.®®

Actions against Foreign Corporations.

Formerly it was held that a foreign corporation could not be sued
for the recovery of a personal demand outside of the state by which
it was chartered. The principle that a corporation must dwell in
the place of its creation, and cannot migrate to another sovereignty,
coupled with the doctrine that an officer of the corporation does not
carry his functions with him when he leaves the state, so as to render
service of process upon him service upon the corporation, prevented
personal actions against it. There was no mode of compelling its
appearance in the foreign jurisdiction.*” With the growth of corpo-
rations, the doctrine of the exemption of foreign corporations from
suit caused much inconvenience and injustice, and to obviate this
the legislatures of the several states interposed, and provided for
service of process upon officers and agents of foreign corporations

86 Bank of Augusta v. Harle, 138 Pet. 519; British American Land Co. vy.
Ames, 6 Mete. (Mass.) 391; Portsmouth Livery Co. v. Watson, 10 Mass. 91;
‘one Export & Commission Co. v. Poole, 41 8. C. 70, 19 S. EB. 208; Diamond
Match Co. v. Roeber, 106 N. Y. 473, 138 N. E. 419; St. Louis, A. & TT. Ry. Co.
v. Fire Ass’n, 55 Ark. 163, 18 S. W. 43; Emerson v. Machine Co., 51 Mich. 5,
16 N. W. 182; Portsmouth Livery Co. v. Watson, 10 Mass. 91; Henriques v.
Dutch West India Co., 2 Ld. Raym. 1532; Silver Lake Bank v. North, 4 Johns.
Ch. (N. Y.) 370.

87 Per Mr. Justice Field, in St. Clair v. Cox, 106 U S. 350, 1 Sup. Ct. 354,
357. See McQueen v. Manufacturing Co., 16 Johns. (N. ¥.)85- Peckham vy.
Inhabitants, 16 Pick. (Mass.) 274, 2&6.
§§ 250-254) ACTIONS BY AND AGAINST. 635

doing business therein. These statutes, as we have seen, are valid,
for a state has a right to impose conditions upon allowing a foreign
corporation to do business. If a foreign corporation comes into a
state in which there is such a law, and transacts business there, it
impliedly submits to the jurisdiction of the state, and will be bound
accordingly. “The state may,” said Mr. Justice Field in St. Clair v.
Cox,®* “impose as a condition upon which a foreign corporation shall
be permitted to do business within her limits, that it shall stipulate
that, in any litigation arising out of its transactions in the state, it
will accept as sufficient the service of process on its agents or per-
sons specially designated, and the condition would be eminently
fit and just. And such condition and stipulation may be implied as
well as expressed. If a state permits a foreign corporation to do
business within her limits, and at the same time provides that, in
suits against it for business there done, process shall be served upon
its agents, the provision is to be deemed a condition of the permis-
sion; and corporations that subsequently do business in the state are
to be deemed to assent to such condition as fully as though they
had specially authorized their agents to receive service of process.” °°

By the weight of authority, statutes to the contrary notwithstand-
ing, service upon a person as the agent of a foreign corporation will
be binding upon the corporation only when such person represents
the corporation. The mere fact that the person upon whom service
is made is an officer of the corporation does not render the service
equivalent to service upon the corporation, so as to give the court
jurisdiction over it. He must be in the state as the representative
of the corporation. If a corporation should send an agent into an-
other state to make contracts there on its behalf, service on him in
an action on a contract so made, in accordance with the laws of the
state, would bind the corporation.®® But if an officer of the cor-

88106 U. S. 350, 1 Sup. Ct. 354, 360.

89 And see Lafayette Ins. Co. v. French, 18 How. 404; Colorado Iron Works
v. Sierra Grande Min. Co., 15 Colo. 499, 25 Pac. 325; Baltimore & O. R. Co.
y. Gallahue’s Adm’r, 12 Grat. (Va.) 655; Railroad Co. v. Harris, 12 Wall. 65;
Moulin vy. Insurance Co., 24 N. J. Law, 222, 25 N. J. Law, 57; Wilson v. Fire-
Alarm Co., 149 Mass. 24, 20 N. EB. 318; Day v. Bank, 13 Vt. 97, 101; Gibbs v.
Tusurance Co., 63 N. Y. 114; Emerson v. Machine Co., 51 Mich. 5, 16 N. W. 182.

90 See cases above cited.
636 FOREIGN CORPORATIONS. (Ch. 15

poration should go into the state, not as the representative of the
corporation, but on, business of his own, service on him would not
bind the corporation, either in the state or in the federal courts.”*

This is the well-settled rule of the federal courts, and of most of
the state courts, but it is not fully recognized by all of the state
courts. In New York it is provided that personal service of the sum-
mons upon a foreign corporation in an action for a cause arising in
the state may be made by delivering a copy thereof, within the state,
to the president, secretary, or treasurer, or a director thereof; and
it is held that it is not necessary that the officer served shall be in
the state in his official capacity, or engaged in the business of the cor-
poration, nor that the corporation shall have property, or do busi-
ness, or have a place of business, in the state.°?

If a foreign corporation has property so situated within the limits
of a state, and under its jurisdiction, that it may be attached by the
ordinary process of law, a suit may be there maintained against the
corporation by an attachment of the property, as it might against a
foreign individual having property so situated, though a personal
judgment could not be rendered against the corporation.®*

Liffect of Judgment against Foreign Corporation.

A judgment recovered against a foreign corporation after due serv-
ice of process on an authorized agent in the state is entitled, under
the constitution and laws of the United States, to the same faith and
credit in all other states as in the state in which it was rendered.**
A judgment against a corporation in one state can always be attacked
in another state by showing that the court acquired no jurisdiction
to render a personal judgment against it. And, to sustain a personal
judgment against a foreign corporation, there must have been personal
service upon an authorized agent within the state, or a voluntary ap-

91 Newell v. Railway Co., 19 Mich. 386; St. Clair v. Cox, 106 U. S. 350, 1
vy. Railway Barb Fencing Co., 22 Fed. 635; Bentlif v. Finance Corp., 44 Fed.
667; Golden v. Morning News, 42 Fed. 112; State v. District Court of Ramsey
Co., 26 Minn. 233, 2 N. W. 698.

92 Hiller v. Railroad Co., 70 N. Y. 228; Pope v. Manufacturing Co., 87 N.
Y. 187. .

93 Blackstone Manuf’g Co. v. Inhabitants of Blackstone, 13 Gray (Mass.) 488.

94 Lafayctte Ins. Co. v. French, 18 How. 404,
$§ 250-254) ACTIONS BY AND AGAINST. 637

pearance by the corporation.®® In St. Clair v. Cox,°* it was held:
(1) That, when service is made within a state upon an agent of a for-
eign corporation, it is essential, in order to support the jurisdiction
of the state court to render a personal judgment which will be recog-
nized by the federal courts as binding upon the corporation, that it
shall appear somewhere in the record—either in the application for
the writ, or accompanying its service, or in the pleadings or finding
of the court—that the corporation was engaged in business in the
state. (2) That if the transaction of business by the corporation in
the state, general or special, appears, a certificate of service by the
proper ofticer on a person who was its agent there is prima facie evi-
dence that the agent represented the company in the business, but it
may be shown, when the record is offered as evidence in another juris-
diction, that the agent did not represent the corporation; that his
duties were limited to those of a subordinate employé, or to a particu-
lar transaction; or that his agency had ceased when the matter in
suit arose. (8) That where there is nothing in the record offered in
evidence to show that the corporation was engaged in business in the
state where service was made on its agent, and the return of the offi-
cer gives no information on the subject, so that it does not appear,
even prima facie, that the alleged agent stood in any such represen-
tative character to the company as could justify service upon him,
the record is properly excluded.

Jurisdiction of Federal Courts in Actions against Foreign Corpo-
rations.

Since the laws of a state creating corporations have no extraterri-
torial effect, a corporation cannot be a citizen or an inhabitant of any
state other than that in which it was incorporated. It is well set-
tled, therefore, that, for the purpose of jurisdiction of actions by and
against corporations in the federal courts, a corporation is a “citi-
zen” or “inhabitant” of that state only.*7 This principle has fre-

95 St. Clair v. Cox, 106 U. S. 350, 1 Sup. Ct. 854.

96106 U. S. 350, 1 Sup. Ct. 354.

®7 Ante, p. 74, and cases there cited. See, as to the state of which a corpora-
tion is to be deemed an “inhabitant,” In re Keasbey & Mattison Co., 160 U.
8. 221, 16 Sup. Ct. 278; Day v. India-Rubber Co., Fed. Cas. No. 3,685; Don-
nelly v. Cordage Co., 66 Fed. 618; Gorham Manuf’g Co. v. Watson, 74 Fed.
418; Miller v. Manufacturing Co., 46 Fed. 882.
638 FOREIGN CORPORATIONS. (Ch. 15

quently been applied, though not always uniformly, in determining
the jurisdiction of the federal courts of suits against corporations.
Formerly the judiciary act required suits, with certain exceptions, to.
be brought in the district whereof the defendant might be an inhab-
itant, or in which he might be “found.” Under this provision it was.
held that a corporation could be sued in a state other than that of
its creation, if it carried on business there, and had an agent there,
in compliance with a state statute, upon whom process could be
served. Under such circumstances it was “found” there, though not
an inhabitant.°* In 1887 the judiciary act was changed by omitting
the last clause. And the present act provides that a civil suit before
a circuit or district court must be brought in the district of which the
defendant is an inhabitant, except when the jurisdiction is founded
only on the fact that the action is between citizens of different states,
in which case suit may be brought in the district of the residence of
either the plaintiff or the defendant. Under this statute a suit in the
federal courts against a corporation, where the ground of federal ju-
risdiction is the diverse citizenship of the parties, may be brought
either in the district of which the corporation is an inhabitant, or in
the district wherein the plaintiff resides. In all other cases the suit
must be brought in the district of which the corporation is an inhabit-
ant; and a corporation is not a citizen, inhabitant, or-resident of any
state, within the meaning of this provision, other than that by which
it was created, though it may do business and have an agent in other
states, and may have submitted in other states to the jurisdiction of
the state courts.®® :
This provision, in terms, applies only to so much of the jurisdiction
of the circuit courts of the United States as is “concurrent with the
courts of the several states,” and as concerns cases in which the mat-
ter in dispute exceeds $2,000 in value. It applies to trade-mark cases,

98 Ex parte Schollenberger, 96 U. S. 369; Knott v. Insurance Co., Fed. Cas.
No. 7,894; Fonda v. Assurance Co., Id. 4,904.

99 In re Keasbey & Mattison Co., 160 U. S. 221, 16 Sup. Ct. 278; Southern.
Pac. Co. v. Denton, 146 U. S. 202, 13 Sup. Ct. 44; Shaw v. Mining Co., 145.
U. S. 444, 12 Sup. Ct. 935, 2 Cumming, Cas. Priv. Corp. 5, Shep. Cas. Corp.
55, W. D. Smith, Cas. Corp. 15; Filli v. Railroad Co., 37 Fed. 65. Contra.
Miller v. Mining Co., 45 Fed. 345; U. S. v. Southern Pac. R. Co., 49 Fed. 2973.
Shainwald v. Davids, 69 Fed. 704.
§ 255) VISITORIAL POWER OVER FOREIGN CORPORATIONS. 639

for here there is concurrent jurisdiction.1°° In patent and copyright
cases, however, in which exclusive jurisdiction is given to the federal
courts, and without regard to the amount in controversy, it has been
held that the provision does not apply, and that in such cases a corpo-
ration may be sued in any district in which service can be had upon
it.1°? The statute does not apply to suits against aliens or corpora-
tions created by a foreign government, for they are not inhabitants:
of any state, and they may be sued in any district where they may be
served with process./°?

VISITORIAL POWER OVER FOREIGN CORPORATIONS.

255. The courts of a state have no visitorial power over
foreign corporations, nor jurisdiction to regulate
their internal affairs.

A
This, as a general proposition, is well settled. Such power and ju-
risdiction belong solely to the courts of the state in which the corpo-
ration was created. And no such jurisdiction is conferred upon the
courts of a state by a statute subjecting foreign corporations doing

business in the state to actions in its courts. Thus, the courts of a

state cannot enforce a forfeiture of the charter of a foreign corpora-

tion for violation of law, or removal of officers for misconduct; nor
can they exercise authority over the corporate functions, the by-laws,
or the relations between the corporation and its members, arising
out of, and depending upon, the law of its creation.*°* Therefore,

100 In re Keasbey & Mattison Co., 160 U. S. 221, 16 Sup. Ct. 273.

101 This point seems not to have been finally decided by the supreme court,
but there is dictum in support of the text, and the lower courts have so held,
regarding the decisions of the supreme court, as being to this effect. See In re
Hohorst, 150 U. S. 658, 14 Sup. Ct. 221; In re Keasbey & Mattison Co., 160 U.
S. 221, 16 Sup. Ct. 273; Smith v. Manufacturing Co., 67 Fed. 801; National
Button Works v. Wade, 72 Fed. 298. Contra, Donnelly v. Cordage Co., 6b
Fed. 618; Gorham Manuf’g Co. v. Watson, 74 Fed. 418; Union Switch &
Signal Co. v. Hall Signal Co., 65 Fed. 625.

102 In re Hohorst, 150 U. S, 653, 14 Sup. Ct. 221.

108 North State Copper & Gold Min. Co. v. Field, 64 Md. 151, 20 Atl. 1039;
Wilkins v. Thorne, 60 Md. 258.
640 FOREIGN CORPORATIONS. (Ch. 15

it has been held that they cannot entertain an application of a stock-
holder of a foreign corporation, even though he be a resident of the
state, for a writ of mandamus to compel the corporation to annul a
forfeiture of his stock, and reinstate him as a stockholder; ** nora
suit to enjoin a foreign corporation from paying a stock dividend,
upon the ground that it has no authority to declare such a divi-
dend;7°* nor a suit to appoint a receiver generally, and not merely
of the assets within the state; +°* nora suit by a stockholder to com-
pel a distribution of assets;+°’ nor a suit by a former member of a
foreign mutual insurance company to compel it to restore him to his
rights under a policy issued to him in the state where the corpo-
ration was created.?%

But it has been held that this doctrine does not prevent the courts
of a state from issuing a writ of mandamus, upon application of a
stockholder, to compel the resident president of a foreign corpora-
tion doing business in the state to allow an inspection of books of the
corporation in his possession; *°® nor from entertaining an action by
a stockholder to compel a foreign corporation doing business in the
state to issue to him a new or duplicate stock certificate in place of
one which has been lost or destroyed.*?°

The dissolution of a corporation, whether by the expiration of its
charter, the forfeiture of its privileges, or as the result of its in-
solvency, is governed and controlled by its charter and the law of the
sovereignty by which it was created. A court of one state or coun-
try, therefore, has no jurisdiction of a suit to dissolve a corporation
created by the laws of another state or country.'*? Local courts of

104 North State Copper & Gold Min. Co. v. Field, 64 Md. 151, 20 Atl. 1039.
But see Guilford v. Telegraph Co., 59 Minn. 332, 61 N. W. 324.

105 Howell v. Railway Co., 51 Barb. (N. Y.) 378.

106 Stafford v. Mills Co., 18 R. I. 310.

107 Redmond v. Manufacturing Co., 13 Abb. Prac. N. S. (IN. Y¥.) 382.

108 Smith y. Insurance Co., 14 Allen {Mass.) 336.

109 State v. Swift (Del. Super.) 30 Atl. 781. And see State v. McCullough,
3 Ney. 202. But see People v. Parker Vein Coal Co., 10 How. Prac. (N. Y.)
543.

110 Guilford v. Telegraph Co., 59 Minn, 332, 61 N. W. 824.

111 Note by Wm. L. Murfree, 7 C. C. A. 421; Republican Mountain Silver
Mines v. Brown, 7 C. C, A. 412, 58 Fed. Git.
§ 255) VISITORIAL POWER OVER FOREIGN CORPORATIONS. 641

equity, however, will take jurisdiction of the assets of a foreign cor-
poration which may be within the state, in case of the dissolution or

insolvency of the corporation, and see to their equitable distribu-
tion.???

112 Note, 7 C. C. A. 421; Smith v. Insurance Co., 3 Tenn. Ch. 502, 6 Lea
(Lenn.) 564; Leipold v. Marony, 7 Lea (Tenn.) 128; Patterson v. Lynde, 112
Il, 196; Barclay v. Talman, 4 Edw. Ch. (N. Y.) 123; Day vy. Telegraph Co.,
66 Md. 354, 7 Atl. 608.

Cik.Pr.Corp.—_41
APPENDIX.

THE LOGICAL CONCEPTION OF A CORPORATION.!

One of the most notable features of corporation law, considered
as a concrete branch of human knowledge, is the irreconcilable di-
versity between the definitions, proposed by standard writers, of
the term “corporation.” Perhaps the most obvious inference from
this diversity is that the complex elements characteristic of a corpo-
ration are not capable of being compressed into a brief definition,—
a definition, that is, which satisfies the logical requirement of stating
all the qualities that are essential to the existence of a corporation,
and that distinguish it from other institutions of the same class.

To fulfill this requirement, by presenting the abstract conception
of a corporation with greater elaboration and more rigid method
than are found in standard text-books, is well worth while in the
interest of clear thought, even if it be not susceptible of immediate
practical application. The foundation should be a statement of the
visible and tangible elements of all corporations,—those, in other
words, which are patent to every observer, whether learned in the
law or not, and which characterize the genus of legal institutions
composed of more than one individual. To this statement should be.
added, in logical order, the several essential properties which serve to
distinguish corporations as a species of this genus. The differences
between municipal and commercial enterprises are so radical, though
both are called “corporations,” that both cannot be included in an
analysis that pretends to unity and minuteness of detail. The sub-

1A paper read before the West Virginia State Bar Association at its annual
meeting in Huntington, W. Va., Nov. 11, 1896, by Benjamin Trapnell, Hsq..
of the Charleston, West Virginia, bar, and published here by permission of the
author.

Clk. Pr. Corp. eo)
644 APPENDIX.

ject of the following essay, therefore, is confined to the modern busi-
ness .corporation, or incorporated joint-stock company.

A corporation is an association of individuals—formed under the
sanction of the state—for the accomplishment of a distinct and defi-
nite purpose. These three phrases represent the essential elements
of a corporation; elements, that is, which exist in every conceivable
corporation, and which, when existing in corporations, differ mate-
rially from the same elements as they exist in a number of other in-
stitutions recognized by the law. To acquire an adequate and dis-
tinct notion, therefore, of the meaning of the term “corporation,” re-
quires an analysis of each of these elements.

I. A complete conception of “an association of individuals” as
such involves the consideration of (a) its origin, (b) the mode of its
existence, and (c) its dissolution; and also of the relations of the
several individuals composing it to the body itself and to each other.
In these particulars the association which constitutes a corporation
differs from other associations known to the law.

(a) While the corporation has its origin in an agreement between
individuals, and to this extent resembles a partnership, incorpora-
tion becomes effective only through the operation of a special charter
or a general enabling act, whose provisions, respectively, are accept-
ed by the execution of the agreement.

(b) The only material element in the mode of existence of an asso-
ciation, considered as merely existing, is the period of time for which
it endures. Herein is found the most striking diversity between
corporations and all other associations, to wit, a perpetual and un-
ending existence, either actual or potential. This capacity is laid
down as the very raison d’étre of corporations by the older common-
law writers. And, though modern statutes very generally prescribe
a limit to the life of corporations organized under them, the princi-
ples upon which their perpetuity was based, and the means whereby
it was effected, are in no wise altered.

Obviously, the fatal obstacle to the continuity of the association in
and of itself is the mortality of its individual members, for, both in
nature and in law, the death of a single member of an unincorporated
association works a dissolution of that particular association. To
overcome this obstacle requires the capacity to supply new men-
bers, who shall fill the precise positions of those who die or resign
APPENDIX. 645

or otherwise sever the connection. This capacity to constitute new
members, upon whom are cast, by mere operation of law, all the
rights and liabilities of those to whom they succeed in respect of the
corporate enterprise, is what is meant by the legal term “perpetual
succession,”—a quality ascribed to corporations by the common law
as their essential and distinguishing characteristic. The resulting
corporate “identity,” in spite of changes in component parts, means
simply the persistence unchanged, in point of proportion or remedy,
of all rights and liabilities existing between the several members of
the association, and between them and third persons. While the
conception of this identity seems so simple and natural in the light
of this analysis, it seems to have involved no little difficulty in the
minds of the old common lawyers, and to have given birth to the
“artificial person,” who lived and moved and had his being in that
’ nebulous region, the “contemplation of law,” and to whom were
ascribed such a bewildering array of “invisible,” “intangible,” and
“4mmortal” qualities.

(c) The dissolution of the association in question may be voluntary
or involuntary. In so far as it may be effected by the consent of
its members, or may be enforced in invitum at the instance of credit-
ors or a portion of its members, the principle on which it is based and
the mode of its operation differ little from those obtaining in respect
of unincorporated associations. The distinguishing feature in this
element is found in the power of the state, inherent in some instances,
expressly reserved in others, to enforce a dissolution, by way of pen-

alty, for a variety of unlawful acts.

In addition to these essential elements of the association as a body,
the matter of organization naturally suggests itself; but, as these
elements may exist independent of any organization, the latter is
more logically considered in connection with the purpose for which
the corporation is formed. An adequate and distinct conception of
a corporation as “an association of individuals,” therefore, may be
completed by briefly considering these individuals as members of
one association. The particulars which distinguish them from mem-
bers of unincorporated associations involve the consideration of (a)
the mode of becoming members, (b) the mode of severing their con-
nection with the association, and (c) the rights and liabilities incident
to such membership.
646 APPENDIX.

(a, b) The method and effect of constituting individual members
of the association by execution of the articles of incorporation, or
by original subscriptions to the capital stock, vary little from those
incident to the formation of a partnership. The distinctive feature
of the corporation in this respect, and one of the most important of
all its qualities, is found in the effect of assignment of outstanding
shares of its capital stock. Upon such an assignment, the assignee
is, by operation of law, invested with all the rights and subjected to
all the liabilities of the original stockholder; and that without re-
gard to the dissent of the other associates, and in defiance of the com-
mon-law maxim, where it still obtains, that choses in action are not
assignable. Furthermore, when the stock assigned is fully paid, the
assignor, in the absence of fraud or collusion, is at once relieved of
all liabilities, either to his former associates or to third persons, in
respect of the corporate enterprise. The requirement that the trans-
fer shall be in good faith is material only when statutes impose on
stockholders an individual liability for corporate debts, in excess
of the amount of unpaid stock held by them.

(c) The preceding paragraph exhibits the distinctive mode of ter-
minating the individual’s membership in the association. As his
death has no other effect, as to him or his estate, than in the case of
all other associations, it remains briefly to analyze the rights and lia-
bilities incident to a continuing membership. This involves their gen-
eral nature and limitations, and the several parties concerned
therein. :

The rights and liabilities of members of an incorporated associa-
tion are such only as grow out of the proper object and purpose of
the corporation, and their subject-matter is confined strictly to their
respective shares of the corporate property or funds. This latter
principle, which is peculiar to corporations as. distinguished from
unincorporated associations, imposes a strict limitation on. the lia-
bility of members to creditors of the corporation, and constitutes
at the present day one of the most important qualities of such asso-
ciations. While these broad propositions may be subject to certain
exceptions under the law as to ultra vires acts and official misconduct,
they are involved in the essential nature of corporations; and this
analysis does not aim to include exceptions declared by positive rules
of law in matters of detail.
APPENDIX. 647

The other parties to the rights and liabilities of the individual
member include: First. The association itself, considered as an
organized body; he having a right, on the one hand, to insist that it
shall proceed to carry out the objects for which it was incorporated,
and shall not divert the corporate funds to any other object; and, on
the other, being liable to it for unpaid stock subscriptions, and upon
any special duties imposed on him by the charter. Second. Other
members. And, third, creditors and third persons. The enumera-
tion of these two classes is of minor importance, inasmuch as the
relations ‘between them are usually merged in those to which the
association, as a body, is a party; and the rights and liabilities inci-
dent to them are usually enforceable by or against the body corpo-
rate. In general, each individual is liable for his share of the corpo-
rate burdens so far as they are imposed upon him by law; and, as to:
third. persons, individual members may bring an action to enforce
rights which the corporate management fails or refuses to bring;
while, by statute, individual liability to creditors to a well-defined
extent is imposed in specific instances. As stated above, the essen-
tial feature of all the relations into which individuals are brought by
the fact of incorporation is that they arise only in respect to the
corporate enterprise and the corporate funds.

II. The second element, which is of the essence of a corporation,
is that the association of the individuals who compose it is expressly
sanctioned by the state, which sanction it is material to consider as.
toe its form and operation.

The sanction which arises from general laws declaring rights and
liabilities, and providing means for their enforcement, corporations
share with unincorporated associations. But they are distinguished
frem the latter by an express act of creation, or at least of recogni-
tion, emanating from the lawmaking power. This act sometimes
assumes the form of a special charter; but more frequently it ap-
pears as a general enabling act, conferring corporate powers on all
who bring themselves within its provisions. Whether in one form
or the other, this express legislative sanction is necessary to erect
into a corporation the association of individuals which is constituted
by mutual agreement on their part.

As just indicated, the operation of this sanction receives its in-
648 APPENDIX.

itiative from the execution of the articles of incorporation. Its sub-
sequent operation and effect involve all the powers and duties which
devolve upon the corporation and its component parts. The con-
tinuance of its operation depends upon its twofold nature: First, ag
a grant of corporate power, from whose exercise peculiar rights
arise; and, second, as a law, which prescribes the form and mode in
which those powers are to be exercised and the resulting rights en-
forced. As to the latter, it is, in general, subject to repeal and
amendment like any other law. As to the former, it, for many pur-
poses, constitutes a contract, which the state cannot alter except
by virtue of certain powers inherent in it upon grounds of public
# policy, or by the force of special reservations to which the associates
have assented, expressly or by implication. It is this contract fea-
ture, and the rights thence arising under the federal constitution,
that distinguish the legal sanction given to a corporation from the
. recognition accorded unincorporated associations.

Il. The last element in the suggested analysis of a corporation
is the distinct and definite purpose for whose accomplishment the
association is formed by its members, and sanctioned by the state.
It is foreign to the purpose of such analysis to discuss the several
objects for which a corporation may be formed, and the kinds of
business it may carry on. For this involves the economic, rather
than the legal, aspect of the institution; and, moreover, it is not a
matter which will serve to separate corporations from other associa-
tions. It is expressly enacted in many of the states, indeed, that
a corporation may carry on any business for which a partnership
may be formed, though they are generally prohibited from dealing
in real estate.

The material thing to be noted in this connection is that the
peculiar corporate powers exist only for the purpose of carrying out
the object expressed in the charter, and, when they are pushed
beyond that limit, they, in theory, suffer paralysis. While it is true
that in some instances liabilities, enforceable by third persons, may
be incurred by acts beyond the range of the corporate enterprise,
this result betokens no extension of corporate powers, but it inures
only by way of estoppel, operating on the individuals who compose
the association. The same acts, done or threatened, entitle any or
APPENDIX. 649

all the members to sue to prevent their continuance, and in many
eases render the corporation liable to forfeiture of its charter at
the instance of the state.

So much being premised as to the nature of the corporate enter-
prise, it remains to consider how it is to be carried out, and the
analysis of this third element is complete. Having regard still to
what is peculiar to and distinctive of corporations, it may be said
that the forces set in motion to this end are (a) the corporate pow-
ers, while the instruments with which they work are (b) the corpo-
rate funds.

(a) Subject to the limitations heretofore noted as growing out of
the object of the corporation, and those hereafter stated in connec-
tion with their mode of exercise, the legal powers of a corpora-
tion are those of a natural person. It can properly, of course, have
no rights save those of property, as distinguished from those of the
person; nor can it be subject to any liability except in respect to
its property. But, within these limits, rights and remedies, both for
and against it, exist, as in the case of the natural man. The form
and mode of exercising these powers, and the management of the
corporate funds, exhibit the greatest diversity between corpora-
tions and other institutions knqwn to the law; for they are the
logical consequences of the very nature and objects of the associa-
tion. The exercise of these corporate powers may be considered (1)
as to its substance, and (2) as to its form.

(1) The separate existence and concurrent operation of the mental
intent and the physical act which must combine to give rise to legal
rights and liabilities are admirably illustrated in the valid acts of
a corporation. The corporation is composed of al] the stockholders,
and the intent to engage in a given transaction must proceed from
them. In the event that unanimous consent cannot be secured for
a given course, it is the rule of natural equity as well as positive
law that the will of the majority shall have effect as the will of the
whole. But the contract must be executed, or other thing done, by
an individual agent or agents; and, in deference to this necessity,
the general corporation law provides for, and recognizes, directors
and other officers, who are empowered to carry on the general busi-
ness of the corporation, and whose acts in that regard bind all the
stockholders,
650 APPENDIX.

(2) In respect of form in the exercise of the corporate powers in
accordance with the principles above indicated, the first requisite is.
to determine and register the will of the majority. This is required
to be done by appropriate means, at a meeting of stockholders,
called with prescribed formalities, and attended by such a number
of them as the charter declares to be a quorum. The majority may
express their consent that a specific act shall be done, or, after it is
done, be held valid; or that consent may be implied from the ap-
pointment of general officers or agents, within the scope of whose
powers and duties that act lies.

The forms under which the mandates of the corporation are carried
out by its officers and agents must, of course, be appropriate to the
subject-matter. But the law has been particular to prescribe the
evidence which must be adduced to show that the act was done as
the act of the corporation, to wit, the corporate name and seal.
While the corporate name and the corporate seal were formerly
universally included among the elements that are of the essence of
the corporation, and while Blackstone says that the name “is the
very being of its constitution,” it would seem that their sole func-
tion is the same as that of the name of an individual; i. e. to identify
the corporation in respect to its rights and liabilities. Though nec-
essary forms, they are none the less mere forms, and the use of the
seal is nowadays necessary, in general, only when its use would be
required in the case of a natural person.

A brief consideration of the origin and disposition of the cor-
porate funds will give an adequate conception of this last, but most
important, element of a modern business corporation. The nucleus
of the property of the corporation is found in the capital stock sub-
scribed by the original stockholders. <A specified proportion of this
is generally required to be paid in before the incorporation takes
effect; and the subscriber is liable to the corporation, and also to
its creditors under certain conditions, for so much of his subscrip-
tion as remains unpaid. It is to this capital stock, paid and un-
paid, that the peculiar rules of corporation law apply; for profits
actually accruing thereon may be applied, in general, as a majority
of the stockholders see fit, subject always to limitations growing out
of the nature of the corporate business.

The rights of management and disposition of property which ac-
APPENDIX. 651

crue to a natural person by reason of his ownership are limited, so
far as they concern corporate funds, by two principles, the effect
of both of which is to dedicate them unalterably to certain purposes.
The first is that, inasmuch as the capital stock was subscribed and
paid for the accomplishment of a definite object, any person .who
owns a share therein is entitled to object to its diversion from that
object, and to insist that it shall be applied to its accomplishment,
unless that is impossible. The state has a similar right when the
object is one which concerns the public, and the corporate powers
were conferred for the purpose of effecting it. The second is that
inasmuch as creditors contract upon the credit of the capital stock,
and have, in general, no recourse when that is exhausted, they have
the right to resist any diversion of the fund from the proper objects
of the corporation, to the prejudice of their right to be paid their
just claims.

The foregoing is submitted as a logical statement of all the ele-
ments essential to a modern business corporation, with such analysis
of each as is necessary to differentiate a corporation from all other
associations known to law, as regards that particular. It aims to
include all that is necessary, and nothing that is unnecessary, to
that end.

While no mention is made herein of the nature and effect of ultra
vires acts and official misconduct, it may be explained that the
object sought is to exhibit the anatomy of a healthy corporation,
without regard to diseases and mishaps to which it may be exposed.

It seems worth while to attempt to embody a clear conception of a
corporation—“immortality,” “corporate identity,” “perpetual succes-
sion,” and all—without any aid from the “artificial person” whom
Coke and, Blackstone regarded so lovingly, and who is such a bug-
bear to, at least, one modern text writer. Whether this attempt
has been worth while, it must be left for the reader to judge.

In conclusion, the whole matter may be presented in the form
of a chart, by means of which the logical division of the subject and
the connection of its several parts may be seen at a glance. (See
following page.)
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—STIVOCIAIGNI 40 AGOd V
TABLE OF CASES CITED.

[THE FIGURES REFER TO PAGES. |

A

Abbey v. Dry Goods Co., 596.
y. Long, 604.
Abbott v. Hapgood, 113.
vy. Packet Co., 172.
v. Refining Co., 92, 104, 110.
y. Smelting, etc., Co., 57.
Aberdeen Ry. Co. v. Blakie, 511, 512.
Adams y. Milling Co., 609. i
og & Westlake Co. v. Deyette, 188,
Adderly v. Storm, 584, 585.
Addlestone Linoleum Co., In re, 372. \
Adler y. Manufacturing Co., 592. |
Aetna Ins. Co. v. Harvey, 626, 629.
Aetna Nat. Bank v. Charter Oak Life
Ins. Co., 148. AS ocd
Agate v. Sands, 604. 4
Agricultural Branch R. Co. v. Winches-
ter, 831, 450.
Albany N. R. Co. v. Brownell, 217.
Albert v. Bank, 172, 429, 430.

Alexander v. Searcy, 400.
Allen vy. Curtis, 891, 393, 401, 505, 535. '
vy. Fairbanks, 605. |
y. Railroad Go., 821, 411, 438, 439, |
526, 559.
v. Wilson, 394, 395, 399.
v. Woonsocket Co., 150.
Allibone v. Hager, 276, 292.
Alling v. Wenzel, 373.
v. Wenzell, 510.
Allis v. Jones, 161.
American Asylum v. President, Direct-
ors, ete., of Phoenix Bank, 29
American Building & Loan Ass’n v.
Rainbolt, 290, 308, 331.
merican Cent. Ry. Co. v. Miles, 532.
American Exp. Co. v. Patterson. 139.
American File Oo. v. Garrett, 5&6.
American Homestead Co. v. Linigan,
American Live-Stock Commission Co. vy.
Chicago Live-Stoeck Exch., 255
American Loan & Trust Co. v. East &
West R. Co., 629.
v. Minnesota & N. W. R. Co., 92.
American Mortg. Co., of Scotland v.
Tennille, 168,
merican Nat. Bank vy.
Wood-Paper Co., 146.

American

 

vy. Oriental Mills, 421.
Clk.Pr.Corp.

ApS EBN Railway-Frog Co. v. Haven,

American Tube Works v. Boston Mach.

0., ,

American Union Tel. Co. v. Union Pac.
Ry. Co., 136, 144, 178, 189.

Amesbury v. Insurance Co., 456, 460.

Amen eed Co., 100, 288, 309,

v. Warehouse Co., 584.

Anderson’s Case, 372.

Andover & Medford Turnpike Corp. v.
Gould, 318.

Andres v. Fry, 161.

Andrews v: Hstes, 32.

Annapolis & Elk Ridge R. Co. v. Com-
missioners, 228

Anon., 78, 198.

Answer of the Justices to Inquiry of the
Senate, 208, 210.

Anthony v. Machine Co., 177.

ane Min. Co. v. Sherman, 309, 311.

Appleton v. Turnbull, 603.
Appleton Mut. Fire Ins. Co. v. Jesser,

Arapahoe Cattle & Land Co. v. Stevens,

Argus Co., In re, 491.
Ae Cotton Mills v. Trimble,

Arkansas River Land, Town & Canal
Co. v. Farmers’ Loan & Trust Co., 11,
371, 385. ;

eueerees Val. Agr. Soc. v. Eichholtz,

Armour v. Town Co., 350.

Armour Bros. Banking Co. v. St. Louis
Nat. Bank, 260.

Arms v. Conant, 491.

Armstrong v. Karshner, 287, 296-299.
3

Arvold v. Ruggles, 258.
Arnot v. Railway Co., 149.
Artcher v. Zeh, 259.
Arthur v. Bank, 1438, 554.
v. Griswold, 531.
vy. Willius, 574.
Ashbury Railway Carriage & Iron Co.
y. Riche, 121, 127.
Ashby v. Blackwell, 438.
Ashley’s Case, 290. ;
Ashtabula & N. L. R. Co. v. Smith, 296.

(653)
654

CASES CITED.

(Che figures refer to pages.]

Ashton v. Burbank, 448. :
Ashuelot Boot & Shoe Co. v. Hoit, 265.
Ashuelot R. Co. v. Elliot, 214, 218.
Ashurst’s ‘Appeal, 400.

Asiatic Banking Corp., In re, 151.
Aspinwall ¥. Daviess County Com’rs,

Astor vy. New York Arcade Ry. Co., 37,

45.

Astoria & S. C. R. Co. v. Hill, 310.

Athol Music Hall Co. v. Carey, 265-—
268, 270.

Atkins v. Albree, 356.

Atkinson v. Railroad Co., 46, 89.

Atlantic City Waterworks Co. v. Con-
sumers’ Water Co., 47.

Atlantic aoe Mills v. Abbott, 301,

vy. Indian Orchard Mills, 5038.
Atlantic De Laine Co. v. Mason, 465.
apante Mut. Fire Ins. Co. v. Sanders,

Atlantic & O. R. Co. v. Sullivant, 89.
Atlantic & P. R. Co. v. City of St.

Louis, 48. ;
Atiomey_ General v. Bay State Mining
0
Y. Chicago & N. W. R. Co., 46, 219.
vy. Garrison, fs
y. Great Northern Ry. Co., 248.
vy. Hanchett, 56, 63.
v.

Jamaica Pond mur ane Corp.,
248,

Joy, 44, 48.

Lorman, 57, 69.

McArthur, 46, 47.

Mercantile Marine Ins. Co., 22.

North America Life Ins. Co., 44,
45, 210

Simonton, 29.

. Stevens, 91, Si

. Tudor Ice Co.,

Utica Ins. Co., OAT.

Atwood vy. Merryweather, 393.

agbuen Bolt & Nut Works yv. Shultz,

ao Sit

adda

Auburn Opera-House & P. Ass’n v.
Hill, 311.

Auerbach v. Mill Co., 176.

Aultman v. Waddle, 100.

Aultman’s Repeal, 584.

Aurora A. & H. Soc. v. Paddock, 142,
487, 500.

Australian Royal Mail Steam Nav. Co.
vy. Marzetti, 158.

Ayers v. Banking Co., 168.

B

Bacon v. Insurance Co., 146, 147, 172
vy. Irvine, 395.
vy. Railroad Co., 196.
v. Repent ons 250, 392,
Bagg’s Case, 52.
Bagnall v. Carlton, 117.
Bailey v. Bancker, 589:
vy. Gaslight Co., 393.

 

Bailey v. Hollister, 217, 587.
vy. Mayor, 31.
y. Trustees of Lincoln Academy, 84.
Baines v. Babcock, 593,
Baker v. Backus’ Adm’r, 62, 237, 243.
v. Fales,
Bakersfield Town Hall Ass'n v. Chester,

88.
Bakewell v. Board, 29.
Balch v. Hallet, 356.
v. Wilson, 604.
Baldwin v. Canfield, 7, 8, 420, 489.
Baltimore City Pass. Ry. Co. vy. Humn-
bleton, 359.
Bost & D. P. R. Co. v. Pumphrey,

Baltimore & O. R. Co. y. Gallahue's
Adm’rs, 25, 78, 635.
y. Harris, 75, 80

v. Koontz, 76.
Baltimore & P. R. Co. v. Fifth Baptist
Church, 195.

er cE Railroad Co., 324, 325, 327,
Banigan v. Bard, 368, 364.

Bank vy. Lanier, 407, 418, 459.

oe of Alabama v. Gibson's Adm’'rs,

0.
Bank of Attica v. Mate een cere &
Traders’ Bank, 407, 421,
Bank of Augusta v. Earle, e 490, 613,
615, 616, 634.
Bank of Batayia v. New York, L. E. &
W. R. Co., 526.
Rank of British Columbia v. Page, 626.
Bank of Chillicothe v. Swayne, 175.
Bank of Circleville v. Renick,
Bank of pone v. Patterson’ 3 Adm’ Y
157, 158,
Bank of Conse v. McGowan, 227.
Bank of Commerce’s Appeal, 251, 421.
Bank of Ft. Madison y. Alden, 380
Bank of Genesee v. Patchin Bank, 150.
Bank of Holly Springs v. Pinson, 458.
Bank of Louisville v. Gray, 352.
Bank of Manchester v. Allen, 34.
Bank of Michigan vy. Niles, 140, “187.
ae of Middlebury y. Rutland & W.

Bank of Montreal vy. J. E. Potts Salt &
Lumber Co., 554.

Bank of Niagara v. Johnson, 236.

a of Poughkeepsie v. Ibbotson, 596.

Bank of St. Mary’s v. St. John, 607.
Bank of Shasta v. Boyd, 101.
Bank of South Carolina v. Gibbs, 30.
Bank of inleda v. City of Toledo, 202.
7.

v. International Bank, 88, 632.
Bank of U. 8S. v. Dandridge, 53.

v. Davis, 502."

v. Deveaux, 75. 76.

v. Dunn, 495, 497.

v. Lyman, 85.

v. Planters’ Bank, 29, 30.
Bank of Utica v. Meagher, 84.
Bank of Vincennes vy. State, 240.
CASES CITED.

655

{The figures refer to pages.]

Banks vy. Poitiaux, 168.
Barbor v. Boehm, 626.

Barclay v. Talman, 236, 641.

Bard vy. Poole, 614.

Bardstown & L. R. Co. v. Metcalfe, 142,

144.
Barker, In re, 475, 479.
y. insurance Co., 156.
Barned’s Banking Co., In re, 151.
Barnes vy. Hall, i
v. Suddard, 168.
Barr y. Glass Co., 514.
vy. New York, L. BE. & W. R. Co.,
878, 511, 513.
y. Plate-Glass Co., 511.
Bamick y. Gifford, 572, 579, 596-598,

‘Barron v. Burnside, 619.
v. Paine, 559, 592, 600.
Barrow v. Turnpike Co., 1 168.
Eas vy. Exchange Co., 142, 145, 146,

Barstow v. Mining Co., 428, 429.
Benger vy. Drew, 540, 542, 3, 564,

Barton v. Association, 236, 445.
‘Barwick v. Bank, 196.

Bash v. Mining Co., 93, 95. ;
Bashford-Burmister Co. v. Agua Fria
Copper Co., 68, 107.
‘Basshor v. Dressel, 48.

Bateman v. Milling Co., 618..
v. Railway Co., 147.
Bates v. Coronado Beach Co., 150.
v. Insurance Co., 351.
v. Lewis, 305.
v. Railroad Co., 160.
v. Wilson, 58, 96, 107.
Bathe v. Society, 528.
Battelle v. Pavement Co., 113-115, 514.
Bavington v. Railroad Co., 300, 319.
Bayless v. Oure, z
Beach v. Bank, 194,
y. First Methodist Episcopal
Church, 269.
v. Miller, 511, 608, 609.
v. Smith, 315, 316
Beal v. Bank, 584.
Bean v. Trust Co., pi 440, 442.
Becher v. Mill Co., a
Beckett v. Medan 317.
Beebe v. Power Co., 143.
Beer Co. v. Massachusetts, 208, 209,
211, 213
Beers v. Spring Co.,
Beggs v. Illuminating Co., 6
Belfast & M. Co. v. City of Bel-
fast, 347, B48 302, 365.
Bell v. Bank of Nashville, 36.
Belleville & I. R. Co. v. Gregory, 38,

‘Bellows v. Bank, 81, 82.
v. Hallowell, 557.
v. Todd, 467, 491.
Bell’s Appeal, 593.
Bell’s Gap R. Co. v. Christy, 115.
Belmont v. Coleman, 599.
vy. Railway Co., 245,

') Bliss v. Irrigation Co.

343, a 352, 353. |

 

Belo v. ro onene 223.

Belton, In re, 234—

Beman v. Rufford, grr

Benbow v. Cook, 88, i 161,

Bend v. Bank Co., 4 1.

Bentlif v. Finance faa 636.

Bergman v. Association, a 459.
Berry v. Indemnity Co., 628.

Bertha Zinc & Mineral oe. v. Clute, 625.
Base vy. Railroad Co., 342, 3:

Bickley v. Schlag, 380.
Bigelow v. Gregory, 58, 62, an 104, 110.
Bill v. Telegraph Co., $96,”
Binghamton Bridge, The, 3 206.
Bird v. Hayden, 611.
Bird Coal & Iron Co. vy. Humes,
Bish v. Bradford, 288.
Bishop v. Brainerd, 78.

v. Globe Co., 414.
Bissell ¥; pfiallzond C Cos. ian 172, 174,

506.

v. Spring Valley

T
oar v. Navigation Co, 559, 589, 592,

Bjorngaard v. Bank, 477.
Black v. Canal Co., 126, 186, 144,
204, 212.

v. Huggins, 393, 394, 401.
v. Zacharie 417, 420, 424.
Bivekbuzn Building Soc. vy. Cunliffe,

v. Holway, 102.

189,

Black River Imp. Co.
Black River & N. R. Co. v. Clarke, 315.
Black ‘River & ‘

U. RB. Co. v. Clarke,
100, 315, 316.

Blackstone Manuf’g Co. v. Inhabitants
of Blackstone, 614, 617, 636.

Black & White Smiths’ Society v. Van-
dyke, 405.

Blair v. Compton, 259, 260.

Blake v. Brown, 298.

v. People, 38.

Blanchard vy. Kaull, 13, 109.

Blanchards’ Gun-Stock Turning Fac-
tory v. Warner, 129.

Bligh v. Brent, 258.

161, 488.

Blodgett v. Morrill, 289, 805, 312.

Blouin v. Hart, 420.

Blunt v. Walker, 132.

Boardman vy. Cutter, 259.

v. Railway Co., 348, 349, 358, 366.

Board of Com’rs of City of St. Louis v.
Shields, 107 :

Board of Com’rs of Hamilton Co. v.
Mighels, 32.

Board of Com’rs of Tippecanoe Co. v.
Reynolds, 536.

Board of Directors v. Houston, 30.

Board of Education v. Bakewell,

30.
vy. Greenebaum, 29, 30, 158.

29,

-| Board of Revenue of "Montgomery Co.

y. Montgomery Gaslight Co., 223
Board of Sup’rs v. People, 39.
Board of ‘Trustees for Vincennes Uni-
versity v. State, 30.
656

CASES CITED.

(The figures refer to pages.}

Board of Trustees of acta & M.
Canal y. Chicago & R. I. R. Co., 212.
Bocock’s Ex’r v. Iron aaa 498.
Bogardus v. Trinity Church, mE
Bommer v. Manufacturing Go., 1 14.
Bonaparte v. Railroad Co., 30, 53.
Bon a a ap. ie vy. Standard Fire
Ins.
Bond v. etn 579.
Bone v. Canal Co. .
Bonnell v. Griswold, 610.
Booske v. Ice Co. ‘
Booth v. Bunce, 550.
vy. Robinson, 142, 145, 393, 394.
v. Wonderly, 96.
Bosshardt & Wilson Co. v. Crescent Oil
Co., 140, 141, 185.
Boston Acid Manuf’ Co. v. Moring, 61.
R. Co. v. Welling-

Boston, Barre & G.
ton, 310.

Boston Beer Co. v. Massachusetts, 208,
209, 211

Boston Glass Manufactory v. Langdon,

Boston Music-Hall Ass’n v. Cory, 417,

Boston Water-Power Co. v. Boston &
Corp., 212.
Boston & A. RB. Co. v
vy. Richardson, 429,
Boston & Sandwich Cia ‘Co. v. City
of Boston, 223.
Bostwick v. Chapman, 480.
Boulton Carbon Co. v. Mills, 381, 603.
Bouton v. Dement, 330.
Bow v. Allenstown, 36, 50.
Bowden v. Johnson, 582,
Boyce v. Coal Co., 174, 399.
v. Trustees, 166.
Boyd v. Railway Co., 300, 315, 316.
v. Worsted Mills. 350.
Boyer v. Boyer, 297,
Boykin v. State, 48.
Boynton v. Andrews, 381.
v. Hatch,
Bradbury v. ‘Canoe Club, et ae
Bradford vy. Railroad Co.,
Bradley v. Ballard, 181, 189, 2: 86,
v. Bauder, 203° 24.
v. Case, 30.
v. Poole, 284.
v. Reppell, 89, 232.
Bradt v. Benedict, 236, 237.
Brady v. Moulton, 46.
Braintree wale Supply Co. v. Town of
Braintree,
Branch vy. Teh, 365.
v. Roberts, 608.
Brand v. Railroad Co., 297, 309, 312.
Brandenstein v. Hoke, 92; 106.
Branin v. Railroad Co., 211
Brant v. Ehlen, 379, 380, 388, 389.
Brassey v. Railroad Co. .» O92.
Bray v. Farwell, 22, 24, 309.
Breitung v. Lindauer, 611.
Brent v. Bank, 414.
Brewer v. Boston Theatre, 3938, 394.
Brewster vy. Hartley, 455, 458.

Pearson: 23.

 

Brickerhoff v. Bostwick, 393, 401, 520.
Brickley v. Edwards, 101 1.
Brick Presbyterian Church v. Mayor,

etc., of New York,
Briggs v. Penniman. 236, 540, 559, 567,
572, 588, 592, 597.
v. Spaulding, 505. 516, 517, 519, 607.
Brigham vy. Mead, 317.
Bright v. Lord, 349.
Bul SeRnOr v. Bostwick, 401, 516, 520,

Brisbane v. Railroad Co., 349.
Bristol v. ‘Bantard, 588.
Bee American Land Co. v. Ames,

Broadway Bank v. McElrath, 425.

Broadwell v. Merritt, 101, 107.

Broderip v. Salomon, 56, 66.

Bronson v. Schneider, 572, 598, 602.

Brooklyn Steam Transit Co. v. City of
Brooklyn, 238.

Brooklyn, W. & N. Ry. Co., In re, 238.

Brown, In re, 356.

‘Adams, 420.

. City of Atchison, 177.

Corbin, 70.

. Hiteheock, 579.

. Slate Co., 566.

, Steamship Co., 480.
Winnisimmet Co., 142.

Bhuse v. Platt, 609, 610.

Brum vy. Insurance Co., 550.

Brundage v. Mining Co., 591-593.

pee y. Rich, 527.

Green Co. v. ‘Blodgett, 187, 158.

Buchanan v. Meisser, 596

Bucher v. Railroad Co., 282

Buckeye Marble & Freestone Co. v.
Harvey, 151, 152.

Budd v. Multnomah St. Ry. Co., 319,
320, 325, 326, 456, 458.

Buell v. Roe 492, 511, 554. :

Buffalo Lubricating Oil Co. v. Standard

Oil Co., 198.
Buftalo, N. Y. & E. R. ls oe re, 152.
A. = Co. v.

Buffalo & , 88.
Buffalo & J. R. Co. v. Gifford, 265, 280,
281, 333, 334.
Buffalo & N. Y. C. Co. Dudley,
265, 267, a 318, 315, 821 332, 453.
Buffalo & P. R Co. v. Hatch, 59.
Buffett v. Railroad Co., .
Buffington v. Bardon, ‘4g, 114.
Building & Loan Ass’n of Dakota v.
Chamberlain, 100, 101, 105, 107.
Bulkley v. Fishing Co., "159.
v. Whitcomb, 604.
Bullard v. Bank, 414, 459.
Bullock v. Railroad Co., 274,
v. Turnpike Co., 265, 278.
Buarove Turnpike Co. v. McCarson,

Bundy v. Iron Co., 8.
Burbank v. Dennis, 117.
Burden v. Burden, 114, 455.

aAsaa455

| Burgess v. Seligman, 585.

Burke v. Badlam, 2
vy. Smith, 299, 305, 561, 592.
CASES CITED.

[The figures refer to pages.]

Burnes v. Pennell, 22, Sa

Burr v. Wilcox, 361, 2:

Burrall v. Railroad Gon 558,

Burrill v. President, Directors, ete., of
the Nahant Bank, 486, a 500.

Burroughs v. Railroad Co. 349, 355.

Burrows v. Smith, 282, 313.

Burt v. Lodge 4 404.

Burton v. Schildbach, 92.

Burton’s Appeal, 431.

Busenback v. Road Co.

Bushnell v. Machine Co., "8, 89, 91, 94,
101, 105, 233.

Butchers’ & D. Bank v. McDonald, 88,
97, 101, 1

Butterfield v. "Beardsley, 22, 238.

Butternuts & Oxford Turnpike Co. v.

North, 297.
Button v. Hoffman, 7, 8, 235, 391.
Buttrick v. Railroad Co., 424, 490, 502.
Buxton v. Hamblen, 627.
Byrne v. Manufacturing Co., 121, 138,

151, 164,
Cc

Cady v. Sanford, 610, Ore

*Cahall v. Association, 101, 1

Cahill v. Insurance Co., 45 3 Obs.

Cairo & F. R. Co. v. Hecht, 207.
Caley v. Railroad Co., 296, 299, 300.
Oabtornin y. Central Pac. R. Co., 40,

California Southern Hotel Co. v. Callen-

der, 311
v. Rassell: 311, 312.
eae State Tel. Co. v. Alta Tel.

Calkins v. State, 83, 84.

Callanan v. Windsor, 371.

Callender v. Railroad Co., 100.

Calumet Paper Co. v. Stotts Inv. Co.,

Cambridge Water Works v. Sommer-
pe Dyeing & Bleaching Co., 595,

Camden vy. Stuart, 378, 374, 382, 5389,

Camden & A. R. Co. v. May’s Landing,
ete, R. Co., 181.
Camden & A. Railroad & Transp. Co.
y. Commissioners of Mansfield, 229.
Cameron v. Seaman, 610.
Cameron’s Coalbrock, ete., Ry. Co., In
re,
Cammeyer v. United Churches, 490.
Campbell v. Bank, 550.
% Pouliney, 476.
v. Zylonite Co., 363,
Canada S. Ry. Go. v. Gebhard, 680.
Comal Street Gravel: ‘Road Co. v. Paas.

Canfield v. Gregory, 100.
Capps v. Prospectin Co., 58, 103.
Carey y. Giles, 207, 518.
v. Mining Co., 113
one vy. Railroad Gs, 262, 268, 278,

Clk.Pr.Corp.—42

 

Carmondy v. Powers, 113.
Carpenter v. Mining Co., 143.
v. People, 47.

Carr v. Te Yevre, 146, 379, 380, 283.

Carroll v. City of East St. Louis, 168,
620, 622, 681.

Carson v. "Mining Co., 319, 322.

Carson City Sav. Bank y. Carson City
El. Co., 181, 498.

Cartwright v. Dickinson, 330.

Carver y. Manufacturing Co., 578.

Carver Mercantile Co. v. Hulme, 68.

Cary Library v. Bliss, 202, 203.

fay Lombard Lumber Co. v.

Casco Nat. a v. Clark, 504.
nse v. Bank, 441.
Kelly, 128, 129, 140, ay 168.
Goes of Philadelphia & TR. Co ., 36.
Case of State Tax on Foreign-Held
Bonds, 222.

Case of Sutton’s Hospital, 41.

Casey v. Galli, 108, 327.

Cass v. Railway Co., 298, 307, 324.

Catlin v. Bank, 554.

Catskill Bank y. Gray, 150.

Central Agr. & Mech. Ass'n v. Insur-
ance Co. "46, 49, 105.

Corel Bridge Corp. v. City of Lowell.

Central City Sav. Bank v. Walker, 109.
Vana Land Co. v. Obenchain, | 117,

eau Nebraska Nat. Bank v. Wilder.

Central Plank-Road Co. v. Clemens, 331.
Central Ry. Co. v. Brewer, Bate
v. Pennsylvania R. Co.,
Central R. & B. Co. v. Crone 139.
v. Smith, 136, 150, 529.
Central Transp. Co. v. Pullman’s Pa}
ace-Car Co., 136, 144, 172.
Oqnral ie Turnpike Corp. y. Valentine,
Chaffee v. rier Co.,
Chaffin v. Cummings, 36° 78, 317.
Chamberlain v. Bromberg, 486, 553, 591.
vy. Chamberlain, a
v. Railroad Co.,
Chambers v. City of ao ‘Louis, 133.
Chandler y. Bacon, 117,
ee River Bridge v. Wteren Bridge,
6.

1
Chase v. Railroad Co., 296.
v. Tuttle, 486, 491.
Chautauqua County Bank v. Risley,
15)

Thomas,

6.
Cheeney v. Railway Co.,
Chemical Pe Bank v. Gatwell,

Vv. Wagner, 496, 501.
Cheraw & C. R. Co. v. White, 61.
Cherry v. Frost, 431.
Chesapeake & Ohio Canal Co. v. Balti-

more & O. R. ae 219. .

Chesapeake & O. R. Co. v. Paine, 260.
Chesley v. Pierce, 579.
Chester Glass Co. v. Dewey, 100, 317.

421,
658

CASES CITED.

(The figures refer <o vages.] .

Chestnut Hill & S. H. Turnpike Co. v.
Rutter, 193, 195.

Chew v. Bank, 435, 436.

Chewacla Lime Works v. Dismukes,
135, 141, 172.

Chicago, B. & Q. R. Co. v. Iowa, 211.

Ohicne City Ry. Co. v. Allerton, 54,

Chicago Fair Grounds Ass’n v. People,
Chicago Gaslight & Coke oe v. People’s

Gaslight & Coke Co.,
Chicago, K. & W. R. ae "y. Stafford
adie of Pub-

Co. Com’rs, 88.
Chicago Life ‘Ins. Co. v.
lie Accounts, 307, 211
vy. Needles, 208, 210.
Chicago, P. & S. W. R. Co. v. Town of
Marseilles, 154.
Chis e: R. I. & P. R. Co. v. Howard,

Chicago & A. Ry. Co. v. Derkes, 181.

v. People, pe
Chicago & E. Co. v. People, 199.
Chicago & E. 3 Vv. Wiese 527.
Chicago & NAW R. Co. vy. Auditor, 78.

Child v. Coffin, 210.
vy. Hudson’s Bay Co., 458.
y. Iron Works, 573.
Childs v. Bank, 195.
v. Hurd, 58, 89.
Chouteau Ins. Co. v. Floyd, 289, 330.
Chouteau ere Co. Be Harris, 407, 408,
412, 422, 427, 457, 582.

Christensen v. Eno, 256, 370. 371, 378.

Christian v. Mortgage Co., 625.

Christian Church of Wolcott v. John-
son, 158.

Chubb v. Upton, 100, 101.

Church v. Coke Co.

Cicotte v. Catholic Church, 158.

Cincinnati Mut. Health Assur. Co. v.
Rosenthal, 626, 627, 629.

Citizens’ Mut. Fire Ins. Co. v. Sortwell,
471, 472.

Citizens’ Nat. Bank v. Elliott, 532.

Citizens’ State Bank v. Hawkins, 581.

Citizens’ & Miners’ Sav. Bank & Trust
Co. v. Gillespie, 591, 593.

City Bank v. Bruce, 154.

‘City Bank of Macon v. Bartlett, 289,

290.
City of Atlanta v. Gate City Gaslight

Co., 51.
‘City of Chicago v. Cameron, 393, ‘395,
vy. Turner, 31.
‘City of Corpus Ons fe Central Wharf
& Warehouse Co.,
(City of Covington v. "Covington & Cin-
cinnati Bridge Co., F
‘City of Davenport v. ae 393.
City of Detroit v. a: 395.
v. Detroit & H. R. Co., 216.
City of Fall River v. Fae om’rs of
Bristol, 223.
City of Lexington v. Butler, 146.
City of Memphis v. Ensley, 223.
y. Kimbrough, 31.

 

City of Ottawa v. People, 38.
City of Parkersburg v. Brown, ah
Pay er Roxbury v. Boston & PR

City of Selma v. Mullen, 158.

City Water Co. y. State, 148.

City & County of San Francisco v.
Spring Valley Waterworks, 45, 46, 47.

Clapp v. Peterson, 155.

Clark v. Bever, 376.

v. Edgar, 530.

v. Improvement Co., 263.

v. Insurance Co., 46

v. Jones, 102.

v. Navigation Co., 450, 451.
Clarke y. Lumber Co., 386.
Clarkson v. Clarkson, 357.
Clayton v. Knob Co., 380.
Clearwater v. Meredith, 186, 449.
Clezg v. Grange Co., 57,

v. Hamilton & Wright

Grange Co., 110.
Clem v. Railroad Co., 287.
Cleveland v. Burnham, 580, 596.
Cleveland Rolling-Mill Co. v. Texas &
St. L. Ry. Co., 388, 592.
Cleveland & M. R. Co. v. Robbins, 350.
ae vy. Glenwood Cemetery, 101, 107,

Clow v. Brown, 380.

Clowe v. Product Co., 160.

Coates v. Mayor, etce., of New York, 209.
Coats v. Donnell, m4,

Cobb v. Fant, 355.

Cochran aco 88, 91, 102, 104, 105,

v. Wiechers, 570, 587.
Cockburn v. Bank. 336.
Coe v. Railroad Co., 144, 378,
ong vy. Collins, sa 85.
. Ransdell, 379, 380.
ve Rich, 575.
Cogswell v. Bull, 3938, 394.
v. Cogswell, 355.
Coit v. Amalgamating Co., 380, 383. ,
v. North Carolina Gold Amalgamat-
ing Co.,
Colchester v. Seaber, 237.
Cole v. Cassidy, 531.
y. Millerton Iron Co., 540, 5-42.
Coleman v. Coleman, 110.
v. Railway Co., 185, 136.
v. White, 567, 596, 602.
Coles v. Kennedy, 286.
Colfax Hotel Co. v. Lyon, 278.
Colman v. Railway Co. 121.
Colonial Bank v. Cady, 431, 482.
Colorado Iron Works v. Sierra Grande
Min. Co., 625, 635.
Colt v. Les, 430, 426, 427.
Colony Electric Co. v. Dixon, 100,
101, . 287. 317.
Gonnhibue “Ins. Co. v. Walsh, 627.
Commercial Bank v. French, 74.
v. Newport Manuf’g Co., 147.
v. Pfeiffer, 101.
Commercial Bank of Nee Orleans v.
Newport Manuf’g Co., 145.

. Co,

County
CASES CITED.

659

[The figures refer to pages.]

Commercial Nat. Bank v. Farmers’ &
Traders’ Nat. Bank, 260.
Commissioners on Inland Hisheries v.
Holyoke Water-Power Co., 210, 215,
217

Com. v. Bringhurst, 479.
. Chesapeake & 0. R. Co., 222.
. Cullen, 58, 54, 487.
. Dalzell, 474, 475.
: Detwiller, 455.
Eastern R. Co., 209, 212, 213,

. Erie & N. EB. R. Co., 126.

Essex Co., 210, 215.

: Hemingway, 275, 478.

. Iron Co., 3387.

. Milton, 617.

. Northern Hlectric Light & Pow-
er Co., 68.

. Pike Beneficial Soc., 404.

vy. President, ete. of Swift Run
Gap Turnpike Co., 198.

v. Proprietors of New Bedford
Bridge, 199, 200.

aaatdds sraxd

<

v. Pulaski Co. Agricultural & Me-
chanical Ass’n, ls

v. St. pees Society, 403.

v. Smith, 143, 146.

v. Society, 402, 10.

y. Standard Oil Co., 222, 625.

v. Union Fire & Marine Ins. Co.,
248-245.

v. Wickersham, 470.
v. Woelper, 455.
v. Worcester, 456.
Comstock, In re, 626, 629.
Cone Export & Commission Co. v.
Poole, 634.
Congress & Empire Spriug Co. v.
Knowlton, 385.
Conklin v. Bank. ee
Connecticut & B. RB. . Co. Bailey,
88, 304, Bont ” 309, S13, 318,
, sal.
v. Baxter, 297.
Conner, Ex parte, 39.
Conro v. Gray, 552.
v. Iron Co., 447.
Conservators of the River Tone v. Ash,
18, 14, 17, 49, 72.
Cook v. Brick Co., 618.
v. Ruilroad Co., 553.
v. Sherman, 506.
Cooper Manuf’s Co. v. Ferguson, 618,

Goyeland v. Manufacturing Co., 493,

Copley v. Machine Co., 196.

Coppage vy. Hutton, 272, 279.

Coppin v. Railroad Co., 153, 154.

Corey v. Morrill, 57, 100, 107, 296.
v. Wadsworth, 609.

Cork & B. Ry. Co.’y. Cazenove, 275.
Cork & Y. Ry. Co., In ie 145, meets 178.
Cornell’s Apnea 301, 311, 560.

Coming v. McCullough, 567, 570, 572,
Cotheal vy. Brouwer, 339.

 

Cotting v. Railroad Co., 366.

Cotton v. Boom Co., 44.
County Com’rs of Frederick Co. v.
& Mechanics’ Nat. Bark,

pre

County of Richland y. County of Law-
rence, 31.

Courtright vy. Deeds, 317.

Capes Drawbridge Cv. v. Shepherd,

Cowley v. Smyth, 530, 531.

Coxe v. State, 92.

Craft v. Railroad te 496.

Cragie v. Hadley, 1

Crandall v. Neo gdae 325,

Cravens vy. Mills Co. , ool,
Crease vy. Babcock, bis 584, 585, 595,

Creasep v. Babcock, 233.
se Co. v. Howe Mach. Co., 499,

Crocker v. Crane, 294, 313, 316.
Croker v. Railway Co., 527.
Cromie’s Heirs vy. Society, 168.
Cross v. Mill Co.,
v. Railway a 1 "478.
Crown Bank, In re, 57, 60.
Crump v. Mining Co., 237, 248, 284-286.
Crutcher v. Kentucky,
Culbertson y. Navigation Co.
Culver v. Real-Hstate Co., Cas
Cunningham y. Pell, 608.
v. Trust Co., 458.
Currie’s Case, 372.
Curry v. Venere 343.
Curtis v. Harlow, 5'
y. Leavitt, 12. sar, 192, 555.
v. Mining Co. ie
v. Steever, 260.
Cuykendall v. Miles, 570, 575.

D

Daland v. Williams, 357.
Dalton & M. R. Co. v. McDaniel, 594.
Dana vy. Bank, 554.
WY, Bre ‘418.
Danbury & N
265, 267, 319, 350.
Dane v. Young, 423.
Danforth v. fae ete., 158.
Daniels v. Hart, 1.
Danurrebroge Min. Co. v. Allment, 88.
Dannemeyer v. Coleman, 395
Danville Banking & Trust Co. v
Parks, 223.
Danville Seminary e we 160.
D’ Arey v. Railway Co
Dartmouth College v. Woolard, 4, 202,
203, 453.
Dauchy v. Brown, 579, 582, 594.
Davenport v. Dows, ‘
Davenport Nat. Bank v. Board of
Equalization, 227.
Davidson v. Gaslight Co., 143.
Davis v. Chemical Cos 383.
vy. Creamery Co., 7, 117.

Co. v. Wilson, 100,
660

CASES CITED.

(The figures refer to pages.]

Davis v. Mining Co., 344.
v. Proprietors of the Second Univ.
Meetinghouse, 362.
v. Railroad Co., 135, 137, 172, 173,
177, 510.
vy. Stevens, 583.
Davison v. Gillies, 346.
Day y. Bank, 6385,
v. ae Co., 140, 141, 177, 181,

vy. India Rubber Co., 77, 637.
v. Stetson, 67.
v. Telegraph Co.
Dayton v. Borst, 319, Soi, 592.
Dean v. Davis, 49, 50, 88.
De Gendre v. Kent, 3849, 355.
Delano v. Case, 516, ae
Delaware Bay & C. M. R. Co. v. Mark-
Jey, 46.
Delaware Division Canal Co. v. Com.,

Delaware Railroad Tax, 221, 228.

Demarest v. Flack, 53, ee 620.

Denike v. Cement Co., 245.

Denny Hotel Co. of Seattle v. Schram,
25, 65, 66, 151, 309-312.

Densmore Vi Shepard, 574,

Densmore Oil Co. vy. Densmore, 119.

Dent v. Tramways Co., 346, 366.

Denton vy. Livingston, 259.

Denver Fire Ins. Co. v. McClelland, 181,
183, , 186.

Denver & R. G. Ry. Co. y. Harris, 195,
197, 524, 530.

De Pass’ Case, 582.

De Peyster vy. Insurance Co., 345.

Derrickson v. Smith. 611.

De Ruvigne’s Case, 372.

Desdoity, Ex parte, 482.

Despatch Line of Packets v. apa lanty
Manuf’g Co., 485, 492, 493

Detroit vy. Mutual Gaslight cae C42.

Detwiler v. Corn., 479, 484.

De Voss v. City of Riclonond, 81.

Dewey v. Railway Co., 181, 182,

De Witt v. Hastings, "402.

Dexter & Mason Plank-Road Co. v. Mil-
lerd, 319.

Diamond Match Co. v. Roeber, 634.

Dickenson y. Chamber of Commerce,

Dillingham vy. Snow, 36.
Dimpfell v. Railway Co., 398, 399.

Directors, ete., of Ashbury Railway
Carriage & Iron Co. v. Riche, 127,
135, 167, 172. .

Directors, ete., of Central Ry. Co.
Venezuela v. Kisch, 284-286, 288, 290,

Distilling & Cattle Feeding Co. v. Peo-
ple, 71, 188, 240, 241.

Diversey v. Smith, 569, 587.

Dobson vy. Simonton, 89 232, 249,

Dodge v. Woolsey, aot 392, 393.

Dodgson’s Case, 285.

Donnelly v..Cordage Co., 77, 637, 639.

Donohoe v. Mining Co., "486.

Dooley v. Cheshire Glass Co., 100,

Doolittle v. Marsh, 573.

 

Dorris v. Sweeney, 103, 281.
Doud v. Railway Co., 394, 895.
Douglass v. Insurance Co., 461.

v. Ireland, 380-382
Douglass County Com’rs v. Bolles, 101.
Downing v. Board, 30, 202, 2038.

v. Marshall, 131, 132.

v. Road Co., 121, 127, 135, 137, 140,

155, 172, 17 3, 502.
Dows v. Naper, 107.
Doyle v. Continental Ins. Co., 619.

v. Mizner, 57, 102
Driscoll v. Manufacturing Co., 407, 413,

420, 458, 461.
Dublin & W. Ry. Co. v. Black, 275.
Ducat v. City of Chicago, 25,616, G17.
Wadler Collier, 627.
v. High-School, 396.

v. Kentucky High ay 445,
Duggan v. Investment Co., 88, 92, 95.
Duke v. Markham, 464.

v. Navigation Co., 420.

v. Taylor, 92, 103, 110.

Dummer v. Smedley, 377.

Duncomb v. Railroad Co., 142.

Dunn v. University, 50.

Dyepny Vv. Association, 894, 94, 395, 398-

Baunston v. Coke Co., 157.
4 uEee y. Water-Power Co., 139. 142,
Du Pont v. Tilden, 38S.
Durfee v. Railroad Co., 396, 397, 445,
449, 452.

Dutcher v. Bank, 588.
Ducehess Cotton ‘Manufactory v. Davis,

00.
ptehess & ©. C. R. Co. v. Mabbett,
279, 282, 283.

Dutch West India Co. v. Van Moses, 73.
Dwelling-House Ins. Co. v. Wilder, 633.
Dwinelle v. Railroad Co., 527.

E

Eagle Ins. Co. v. Ohio, 208, 210.

Eakright v. Railroad Co., 59, 61.

Earp’s fps 355, ee

Hast Alabama Ry. Co. v. Doe, 539.

East Anglian, Rys. Co. v. Eastern Coun-
ties Ry. Co., 135, 136, 167, 172.

Hast Birmingham "Land Co. v. Dennis,

ae Posten Freight R. Co. v. Eastern
R. Co., 143, 145.

Eastern Counties Ry. Co. v. Broom, 194,
527, 528.

Bastern Plank-Road Co. v. Vaughan,

Eastern R. Co, v. Boston & M. R. Co.,
54, 212, 486.
Bast London Waterworks Co. v. Bailey,

Eastman v. Meredith, 31.
East Norway Lake Church vy. Froislie,
88, 91, 97, 107.
CASES CITED.

661

[The figures refer to pages.]

ast Tennessee & V. R. Co. v. Gam-
mon, 267, 319.
Eaton v. Aspinwall, 88, 100, 105.
z Bank, 309.
" Walker, 38, 91-93, 95, 108, 106,

110.
Ebbett’s Case, 275.
Edelhoff v. State, 85.
Edgerly v. Emerson, 490, 491, 493.
Edgerton Tobacco Manuf’ g Co. v. Croft,

402. ’

Edinboro Academy v. Robinson, 265.

Edinburgh L. & N. Ry. Co. v. Hebble-
white. 321.

Edison General ileoisie Co. v. Cana-
dian Pac. Nav. Co.

Edwards v. Fairbanks, 169.

Ehie v. Bank, 350

Bhrman v. Insurance Co.,

Kidman v. Bowman, 54, 350, 5360. 487.

Hisfeld v. Kenworth, 62.

Election a Directors of cneragee Coun-
ty Mut. Ins. Co., In re, 469, 481, 482.
lection of Directors of Long Island R.

Co., In re, 455, 456, 458. 482.
Election of Directors of Mohawk & H.
R. Co., In re, 469.
Higin Butter Co. v. Elgin Creamery Co.,

%
Elias, In re, 484.
Eliot v. Himrod, 110.
Hho peemneatn Gas Light Co. v. Green,

Ellerman v. Stockyards Co., 149, 156.
lls y. Marshall, 52, 213.

Ward, 515, 520. 606.
Ellison vy. Railroad “Co.,
Elston v. Piggott, 615.
Elyton Land Co. v. Birmingham Ware-

house & Elevator Co., 381. 387.

Emerson v. Machine Co. 634, 685. «
Emery y. Parrott, 117, 118.
Emma Silver Min. Oo. v. Grant, 117.
Empire City Bank, In re. 604.
eerie eae Alston Grocery Co., 96,

Empire Pass. Ry. Co., ppbenl of, 337.
Empress Engineering. Co., In re, 113.
Erie & N. E. Railroad v. Casey, ‘219.
Erlanger v. Phosphate we 118.

Essex Turnpike Corp. Collins, 203.
Estabrook, Ex parte. 47, 148, 176.
Estey Manuf’ g Co. v. Runnels, 103, 106.

Enreka Iron & Steel Works v. Bresna-
han, 142,
Evans v. Heating Co.,. 142, 465.
vy. Job, 47.

v. Philadelphia Club, 402.
Evenson y. Ellingson, 92. *
Everhart v. Railroad Co., 411, 450.
Excelsior Petroleum Co. v. Lacey, 358,
echt 607.
xcelsior Water & Mining Co. v. Pierce,
44, 346. .

Ex-Mission Land & Flash,
118, 119. Water Co. v. Flas

Exposition Ry. & Imp. Co. y. Canal St.
Ry. Co., 309. 2

 

F

Fairbank yv. Bank, 350.
sae County Turnpike Co. v. Thorp,

Falconer v. Campbell, 37, 52.
Fanning v. Insurance Co., 268, 277.
Fargo v. Michigan, 2:
Wenmers’ Citizens’ Bank v. Payne, 502,
5
Farmers’ Co-op. Trust Co. vy. Floyd, 522.
Farmers’ Loan & Trust Co. v. Toledo,
A. A. & N. M. Ry. Co., 100.
Farmers’ & Mechanics’ Bank vy. Bald-
win, Be 141, 170.
v. Colby, 5: 2,
Farmers’ & Mechanics’ Nat. Bank v.
Dearing, 226.
Farmers’ & Merchants’ Bank v. Dow-
ney, 506.
v. Wesson, 407, 409, 413.
Farmers’ & Merchants’ Bank of Line-
ville v. Wasson, 457.
Farmers’ & Merchants’ Ins. Co. v. Har-
rah, 626.
Farnsworth v. Wood, 588.
ao y. Ballard Vale Machine Shop,

Farrar v. Walker, 289, 290.
Farrell Foundry v. Dart, 502, 503.
Parsineton vy. Railroad Co., 488, 439,

v. Tennessee, 223, 227.

Farrior v. Security C>., 623.

Fawcett v. Charles, 402.

Fay v. Noble, 109, 110, 496.

Fayette Land Co. y. Louisville & N. R.
Co., 130, 168.

Fear v. Bartlett, 284, 289.

Fehr v. Gasch, ey 561, 591.

Felgate’s Case. 2

Ferguson v. Wilson, 505.

Fertilizing Co. v. Hyde Park, 209.

Field v. Field, 470.

Fifth Ave. Bank of New York v. For-
ty-Second St. & Grand St. Ferry R.
Co., 196, 488, 524, 525.

Fitth Ward Sav. Bank v. First Nat.
Bank, 145, 147, 496. 498.

Filli vy. Railroad Co., 638.

Filon v. Brewing Co., 148, 490.

Finn v. Brown, 578.

Finnegan v. Noerenberg, 88, 91-95.

rae “Departed of New York v. Kip,

oienta Benevolent Ass’n v. Louns-
bury, 38.
Haret Nat. Bank v. Almy, 109.
vy. Christopher, 490.

vy. Council Bluffs City Waterworks
Co., 496.

v. Davies, 58.

vy. E. T. Barnum Wire & Iron
Works, 558.

v. Greene, 601.

vy. Gustin Minerva Con. Min. Co.,

870, 378, 381, 383, 384.
v. Hingham ‘Manuf’g Co., B84.
662

CASES

CITED.

{The figures refer to pages.]

First Nat. Bank v. Lanier, 440.
vy. National Exch. Bank, 152, 154.
v. Peavey, 592.
v. Pierson, 141.
v. Price, 611.
v. Stewart, 154.
First Parish in Sudbury v. oe 470.
Fisher v. Bank, aS 420,
vy. Bush, 409, 4
v. Manufacturing Co., 25.
Fisk v. Railroad Co., 371, 540, 552,
Fister v. La Rue, 158, 159.
Fitchburg R. Co. v. Grand Junction R.
& D. Co., 217.
Fitts v. Palmer, 629.
Fitzgerald v. Missouri Pac. ey ae 78.
Fitzpatrick v. Publishing Co., 387.
v. Rutter, 100, 103
Flash v. Conn., 570, 575, 596, 598.
Fleckner v. Bank, 158.
Fleener vy. State, 4.
Flinn y. Bagley, 375.
Flint v. Pierce, 454, 460.
Flint & Fentonville Plank-Road Co. v.
Woodhull, 218.
att & P.M. Ry. Co. v. Dewey, 506,
Fogg v. Blair, 376.
Holger v. Insurance Co., 232, 245, 246,

Fonda v. Assurance Co., 638.
Foote v. Mining Co., 39:
Ford v. Hill, 158.
v. Thread Co., 848.
Foreman v. Bigelow, 411.
Vorreek vy. Manchester S. & L. Ry. Co.,

Ft. Edward & F. M. Plank-Road Co.
v. Payne, 297.
It. FP as City Co. v. Smith Bridge Co.,

Fosdick v. Schall, 145, 592.
Foss. Harbottie, 119, 392, 394, 396,
Foster v. Bank, 251.
vy. Commissioners of Inland Reve-
nue, 8.
vy. Essex Bank, 81.
vy. Moulton, 96.
v. Planing-Mill Co.,
v. Potter, 259, 260
v. White, 337, 339.
Fougeray v. Cord, 347, 353.
Fourth Nat. Bank v. Francklyn, 575,
594, 595.
Fowler v. Bell, 158.
Fox v. Horah, 250, 252.
Franco-Texan Land Co. v. Laigle, 467.
Frankfort & S. T. Co. v. ‘Ghurchall 114.
Pre Bank yv. Commercial Bank,
Franklin Bridge Co. v. Wood, 41.
Franklin Co. v. La Inst. for Sav-

ings, 185, 141, 151
Franklin Fire Ins. ae Vv. “Hart, 58, 113.
v. Jenkins, 519.
Franklin Glass Co. v. Alexander, 318.
Franklin Sav. Bank vy. Bridges, 601.

554.

 

Franks Oil Co. v. McCleary, 411.

Fredenburg v. Lyon Lake M.
Church, 102.

Freeland v. Lepore ns 100, 107.

Freeman vy. Mill Co., 55.

French v. cate 569.

Frenkel v. Hudson, 504.

‘ Canal & Irr. Co. v. Warner, 101,

Frost v. kes 23.
Frostburg Min. Go. v. Cumberland & P.
R. Co., 81, 82.

Frye v. Partridge, 47.
Fulgam v. Railroad Co., 317.

Fuller v. Ledden, 572, 506.

Fuller & J. Manuf’g Co. v. Foster, 625.
Fusz v. Spaunhorst, 608.

E.

G
Gable v. Miller, 28.

Gaff v. Flesher, 2
co & C. U. R. Co. v. Loomis, 208,

Gallagher v. Brewing Co., 9.
Gallery v. National Hxch. Bank, 510.
Galveston, H.

.& HR
145, 146.
Gamble v. Water Co., 380, 382, 387, 447,

Gardner vy. Insurance Co., 217, 254.
Garnett v. Richardson, 58,
Garrett v. Mining Co., 381, 385.
v. Plow Co., 511.
Cason v. Howe, 568, 596, 597, 604,

Gartside Coal Co. vy. Maxwell, 109.

Gashwiler v. Willis, 447, 490.

Gaskill v. Dudley, 32.

Gauch v. Harrison, 604,

Gaus v. Switzer, 609, 610.

Gaylord v. Railroad Co., 552,

Geer v. School District, 8,

Gemmell yv. Davis, 3497351.

Gent v. Insurance Co., 113.

Gentile v. State, 47. >

Georg v. Railroad Co., 138.

German-American Inv. Co. v. City of
Youngstown, 46.

Germania Ins. Co. v. Swigert, 622.

Germania Safety-Vault & Trust Co. v.
Boynton, 148, 167..

Germantown Farmers’ Mut. Ins. Co. y.
Dhein, 175.

Germantown Pass. Ry. Co. vy. Fitler,
320, 321, 559, 591, ae Hees

Getty v. Devlin, 117,

Gibbons v. Ellis, 3u.

v. Mahon, 356.
Gibbs v. Insurance Co., 635.
Gibson _v. Furniture Co., 609.
v. Moore, 284, 236.

Gifford v. Livingston, 14, 37.

Gilbert v. Hole, 168.

Gilbert’s Case, 407, 408.

Gilchrist vy. Railroad Co., 625.

Giles v. Hutt, 321.

. Co. v. Cowdrey,
CASES CITED.

663

[The figures refer to pages.

Gilkey v. Paine, 357.
Gill v. Balis, 330.
Gillespie v. Hoaioad Co.,
oinaa, Cc. & S. R. Co. pe Kelly,
Ginn v. Security Co., 623.
Girard v. Philadelphia, 7 74,
Glass v. Turnpike
Gleaves v. Turnpike Co., "53. 265, 267.
Glen Iron Works, In re, 373.
Glenn v. Howard, 324, 601
vy. Marbury, 601.
y. Orr, 84.
vy. Semple, 601.
vy. Williams, 601.
Globe Mut. Ben. Ass’n, In re, 65.
Gloninger vy. Railroad Co., 145, 175.
Glover v. Lee, 554,
open Imp. & Exc. Co. v. Toler, 53,

Godbold v. Bank, 518.
a Inv. Co. v. Iron Chief Min. Co.,

Golden y. Morning News, 636.

Golden Gate Consolidated Berenice
Min. Co. v. Superior Court,

Goldsmith y. Insurance Co., "615. :

Good Hope Co. v. Railway Barb Fen-
cing Co., 6

Goodin v. Canal Co.,

Geadnich v. Reynolds, a8, 141, 147, 288,

Goodspeed y. Bank, 193, 195, 196.
Goodwin v. Hardy, 348.

v. Screw Co., “G57, 158, 483.
Goodyear Rubber Co. v. George D.

Scott Co., 609.

Gorder v. Canning Co., 161, 511.
Gordon v. ‘Association, 37.

v. Preston, 8, 142, 504.
Gordon’ 8 Ex’rs v. Railroad Co., 362, 365,

Gorham Manuf’g Co. v. Watson, 77,
637, 639.

510,

Gormully & Jeffrey Manuf’g Co. v.
Pope Manuf’g Co., 25.

Gorrell v. Insurance Co., 182.

Goshen & M. T. Co. v. Hurtin, 321.

eee & P. Manuf’g Co. v. People, 259,

Gould v. Town of nent 327,

Governor v. Suey 4 iT, 32.

Gover’s Case, 118.

Graff y. Railroad Co., 411

aan v. Railroad Co., "394 468, 549,

Granby Mining £ Smelting Co. v. Rich-
ards, 41, 5:

Grand ule eek y. Archer, 25.

i ca Bridge Co. v. Prange, 89,

Grand Heide. Sav. Bank v. Warren
570, 571, ;
Grand Hive Bridge Co. v. Rollins, 115.
Grangers’ Business Ass’n v. Clark, 101.
Grant v. Railroad Co., 380.
y. Ross, 354, .

 

Grape Sugar & Vinegar Manuf’g Co. v.
Small, 114, 115, 500.
Gratz v. Redd, Et. 353, 354, 515, 516,
563, 564, 606, 6
Gray v. Bank, 380, 361.
v. Coffia, 210, 574, 586.
v. Navigation Co. 451.
y. Steamship Co., 550.
Grays v. Turnpike Co., 321.
Great Northern Ry. Co. v. Kennedy,

Great Western Tel.
326.

v. Gray, 601.
Greaves v. Gouge, 393, 394, 401, 520.
Green vy. Brookins, 259,

v. Graves, 37, 92.

v. Knife Falls Boom Gores 45, 46.

v. Omnibus Co., 194-19

v. emu 49.

Co. v. Burnham,

Green Bay ex . R. Co. v. Union Steam-
boat Co.,

Greenbrier’ _tndustra Exposition v.
Rodes, 2'

Grecorer re cautee Co. v. Ward, 237,

Green Co. v. Blodgett, 137, 158.

Greene v. Dennis, 36.
v. Smith, 356.
are Mount & 8. L. T. Co. v. Bulla,

ee & C. R. Co. v. Woodsides,

Greenwood v. Freight Co., 212, 213, 249.
v. Law, 259.
Greer v. Railway Co., 262,
Gregory v. Bank, 611.
vy. Patchett, 400.
Grew v. Breed, 571, 584, 585, 587.
Griffith v. Jewett, 481.
v. Watson, 223
Griswold v. Haven. 526.
v. Trustees, 287, oe,
Guadalupe & S. A.
West, 69.
Guarantee Co. of Ne America v. Hast
Rome Town Co.,
Guckert v. Hacke, 508, 110.
Gue v. Canal Co.
Guilford v. Telegraph Co., 640.
Gunn v. Insurance Co., 113.
v. Railroad Co., 194, 528.

. Stock Ass’n v.

H

Haas y. Bank, 91.
ae 7 Freedman’s Savings & Trust
Cc
Hagar v. Bank, 351, 352.
Hager’s Town Turnpike Road Co. v.
Creeger, 74.
Hahn’s Appeal, 298, 311.
Hale v. eae Mut. Fire Ins. Co.,
v. Sanborn, 309.
vy. Walker, 584.
664

CASES CITED.

[The figures refer to pages.]

Haley vy. Reid, 259, 260.
Hall v. Insurance Co., 411, 462.
y. Klinck, 596.
y. Railroad Co., 111.
y. Road Co., 428, 488, 440.
y. Turnpike Co., 148. -
Hallam v. Hotel Co., 511, 512.
Halsey v. McLean, 575, 609, 611.
vy. Railway Co., 140.
Hambleton v. Glenn, 327, 411.
Hamilton y. Glenn, 411

y. Is<eith, .
vy. Railroad Co., 96, 100, 311. S
Hainilton Mut. Ins. Co. v. Hobart, 254.
Hammock v. Trust Co., 145.
Hammond v. Jethro, 52
y. Straus, 58, 62.
Hamsher v. Hamsher, 168.
. Hand vy. Coal Co., 158.
.Handley v. Stutz, 375, 376, 378, 380,
384, 468, 471, 603.
Handy y. Draper, 602.
Hiporer Junction & S. R. Co. v. Grubb,

Hanson v. Donkersley, 571.

y. Little Sisters of the Poor, 168.

Hardon y. Newton, 245, 246, 392.
Hardy v. Merriweather, 147.
Harger v. McCullough, 571.
Harpold v. Stobart, 579, 580.
Harriman y. Baptist Church, 1388.

y. Southam, 106.

Harris v. First Parish, 596.

vy. McGregor, 57

v. Runnels, 627.

Harrison v. Railway Co., 370.
Harrod v. Hamer, 62.
Hartford Fire Ins. Co. v. Raymond, 615,

620.
Hartford & N. H. R. Co. v. Boorman,
411

y. Croswell, 331, 392, 449, 451.
v. Kennedy, 262, 319, 321.

Harvard College v. Amory, 356.

Haskell v. Worthington, 309.

Haslett’s Ex’rs v. Wotherspoon, 52.

Hasselman y. Mortgage Co., 87,

Hassinger v. Ammon, 101.

eee y. Drew, 540, 542, 563, 592,

Hatch v. Borroughs, 571.
v. Dana, 559, 592-504.
Hathorne v. Calef, 575.
Haven v. Asylum, 455.
Hawes v. City of Oakland, 393-395, 398.
Hawkins vy. Glenn, 601. “~~ —~ ~
v. Mining Co., 113.
Hawley vy. Upton, 373.
Haves v. Shoemaker, 581.
Hays vy. Bank, 84, 609.
v. Coal Co., 142, 145.
vy. Com., 204, 217.
Hayward y. Davidson, 168.
Haywood v. Lumber Co., 509, 608.
Hazard v. Durant, 393, 304,
Hazelett v. Butler University, 44, 46.
Hazeltine v. Railroad Co., 366.
Hazen y. Bank. 202.

 

Hazlehurst v. Railroad Co., 151, 363.
Heacock v. Sherman, 573.
Head vy. Insurance Co., 159.
v. University of Missouri, 30.
Heard v. Eldredge, 346.
v. Talbot, 287, 248.
Heart v. Bank, 413.
Heaston y. Railroad Co., 88, 106, 327.
Heath vy. Railway Co., 515, 520.
v. Smelting Co., 468.
Heck v, McEwen, 41.
Hecla Consolidated Gold Min. Co. y,
O’Neill, 273.
Hedge & Horn’s Appeal, 22, 265.
Hegeman y. Railroad Corp., 209.
Heims Brewing Co. v. Flannery, 181.
Heining v. Manufacturing Co., 58.
Heiutzelman y. Association, 498.
Heironimus v. Sweeney, 145.
Hemingway v. Hemingway, 338.
Hencke yv. Twomey, 570.
Hendee vy. Pinkerton, 142, 144.
Hace & N.R. Co. v. Leavell, 296,

Henke v. Manufacturing Co., 584.
eters v. Dutch West India Co.,

Henry _v. Railroad Co., 305, 315, 366,
592, 594.
Hersey v. Tully, 113.
_Y. Veazie, 394, 401, 520. :
Hibernia Ins. Co. v. St. Louis & New
Orleans Transp. Co., 540, 550.
Hichens v. Congreve, 117.

Hickling v. Wilson, 100, 305, 373.
Hightower yv. Thornton, 250, 251, 321,
540, 555, 559, 600.

Hildyard v. South-Sea Co., 428, 438.
Hill v. Beach, 96, 110, 620.

v. City of Boston, 31.

v. ae Co., 342, 348, 850, 852,

3
v. Newichawanick Co., 348, 349.
v. Publishing Co., 439, 526,

Hiller v. Railroad Co., 636.

Hillier _v. Insurance Co., 603.

Hill Manuf’g Co. v. Boston & L. R.
Corp., 189.

Hillyer v. Mining Co., 490.

Hinchman v. Lincoln, 259.

Hite’s Devisees v. Hite’s Ex’r, 357.

Hoadley y. County Com’rs, 2b.

Hoare’s Case, 584.

Hod es v. Screw Co., 245, 515, 516, 518,

Hodgson y. Railroad Co., 468.

Hoffman vy. Banks, 626.

Hoffman Steam Coal Co. y. Cumber-
land Coal & Iron Co., 512.

Hohorst, In re, 639.

Holbrook v. Zine Co., 438, 434, 440,

Holder v. Railway Co., 532.

Holladay v. Elliott, 276.

Hollins v. Brierfield Coal & Iron Co.,
545, 546, 551, 552, 554.

Holloway v. Railroad Co., 103.

liviman y. State, 58, 241.
CASES

CITED.

[The figures refer to pages.]

Holmes, Ex parte, 154, 475.
v. ‘Gilliland, 2.

y. Sherwood, 592-594.

Holmes, Booth & Haydens v. Holmes,

Booth & Atwood Manuf’g Co.,

73.
y. Willard, 187, 517.

Holmes & Griggs Manuf’g Co. v.
Holmes & Wessell Metal Co., 153,
169, 181.

Holt v. Bennett, 511.

Holt’s Case, 285.

Holvoke Bank v. Burnham, 579, 580,

doz, 584.
v. Gesdinant Paper Manuf’g Co.,

599.
Home Ins. Co, v. Swigert, 623.
Home of the Friendless v. Rouse, 227.
Home Stock Ins. Co. v. Sherwood, 100.
Hooker v. New Haven & N. Co., 195.
Hopper v. Sage, 349.
Hoppin v. Buffum, 474, 475.
Horn v. Ivy, 157.
vy. Railway Co., 209.

Horn Silver Min. Co. v. Ryan, 515, 516,

518-520 :

Horton v. Wilder, 478, 484. .
Hospes vy. Northwestern Manuf’g & Car
Co., 874, 883, 542, 544-546.
Hotchkiss v. Quarry Co., 356.
Hotel Co. vy. Wade, 513.
Hough v. Land Co., 168.
Howe v. Deuel, 245.
v. Starkweather, 260.
Howell v. Railway Co., 640.
Hoyle v. Railroad Co., 507, 512, 513.
Hoyt v. Thompson’s Ex’r, 6380.
Hubbard v. Investment Co., 512.
v. Weare, 344.
Huddersfield Canal Co. v. Buckley, 411.
Hudson v. Carman, 85.
y. Green Hill Seminary Corp, 88, 91,

v. Weir, 259.
Hagaeon Real-Estate Co. v. Tower, 267-
7

Hughes v. Manufacturing Co., 265, 287,
309, 319, 321, 330, 449.

Hughesdale Manuf’g Co. vy. Vanner, 62.

Humble v. Mitchell, 258, 259.

Humboldt Driving Park Ass'n vy. Ste-
vens, ?

Humboldt Min. Co. v. American Manu-
facturing, Mining & Milling Co., 148.

Humphrey v. Association, The

Humphreys v. McKissock,

y. Mooney, 61, 91, 109.

Hun v. Cary, 515, 516, 318. GOT.

Hunt v. Gaslight Co., 144.

Hunter vy. Roberts, 347.

Huilbut v. Marshall, 483,

Huron Printing & Binding Co. v. Kit-
tleson, 508.

Hurt y. Salisbury, 58, 62, 94.

Hutchins v. Mining Co., 573, 614.

\. Smith, 301.

Hutchinson vy. Railroad Co., 193, 195,

529

se

 

Huylar v. Cattle Co., 336, 338.
Hyam’s Case, 583.
Hyatt v. Allen, 342, 412.
Hyde v. Doe, 62.

v. Goodnow, 625.
Hyman y. Coleman, 571, 602.

I

llinois Cent. R. Co. v. Irvin, 229.
_ ¥. People, 202, 211.

Illinois G. T. R. Co. v. Cook, 48.

Illinois River R. Co. v. Zimmer, 54, 315,

32, 451.
Illinois Watch Case Co. v. Pearson, 72.
Independent Order of Mutual Aid v.
Paine, 100
Indiana vy. American Exp. Co., 618.
v. United States, 40.
as epalte, Cc. & L. R. Co. v. Jones,

56.
Tadanapous I. & M. Co. v. Herkimer,
Indianapolis & St. L. R. Co. v. Vance,

Ingwersen v. Edgecombe, 609.

Inhabitants of Virst Parish in Bruns-
wick v. Dunning, 27.

Inhabitants of First Parish in Sudbury
y. Stearns, 482.

Inhabitants of Fourth School Dist. v.
Wood, 32.

Instone v. Frankfort Bridge Co., 265,
267, 319, 321, 322.

Insurance Co. v. Morse, 619.

International Fair & Exp. Ass’n vy.
Walker, 267, 309, 311.

Inverarity v. Bank, 504.

Iowa Lumber Co. vy. Foster, 151.

Ireland v. Reduction Co., 459.

Irons vy. Bank, 552, 580, 583.

Irvin v. Turnpike Co., 450.

Isham vy. Buckingham, 411. 420, 421.

Isle Royale Land Corp. v. Secretary of
State, 619.

J

Jackson v. Brown, 142,
vy. Meek, 579.
yv. Phillips, 248.
v. Traer, 376.
vy. Walsh, 53, 54, 218, 218.
Tagkeon Adm’rs vy. Plank-Road Co.,
7,
Jacksonville, M. P. Ry. & Nav. Co. v.
Hooper, 161.
Jacobson y. Allen, 588.
Jacobs Pharmacy Co. v.
Banking & Trust Co., 176.
Jagger Iron Co. vy. Walker, 571, 602.
James y. Woodruff, 416.
Jameson y. People, 36, 48.
Jansen v. Ostrander, 27.
Jarvis v. Rogers, 481.
Jefferson Branch Bank v. Skelly, 227.

Southern
666 CASES

CITED.

{The figures refer to pages.]

Jeffersonville, M. & I. R. Co. v. Beck-
with, 556.
Jefferys v. Gurr, 158.
Jefts v. York, 522.
Jemison v. Bank, 210.
Jenkins v. President, ete., 315
Jermain v. Railway Co., 349, 366, 412...
Jessup v. Bridge, 142.
v. Carnegie, 109.
John v. Bank, 101, 237, 243.
Johnson v. Bleaching Co., 579, 580.
. Corser, 95, 110.
. Fischer, 596.
. Kessler, 5
, Tene: “oF 408, 420, 457, 580—-

. People, 38.
. Railroad Co.. 47, 303, 304.
. Underhill, 580.
| Wabash & Mt. Vernon Plank-
Road Co., 272.
Johnston v. Gumbel, 102.
v. Jones, 534.
v. Shortridge, 504.
Jones vy. Avery, 573.
. Barlow, 611.
Davis, 224,
. Foundry Co., 101, 103.
Habersham, 8.
Hardware Co., 91, 106.
Herald Co., 237. :
Indemnity Co. -» 142.
Jarman, 596.
Morrison, 361, 510, 512, es 533.
Railroad Co., 348, 352, 412.
. Sisson, 327.
. Smith” 626,
Turnpike Co., 466,
Joslyn v. Distilling Co., Fi 440, 442.
Junction R. Co. v. Reeve, 490.

4444

dads

AdAsA44444482

K

Kadish v. Association, 180.

Kaiser v. Bank, 57, 94, 110.

Kanawha Coal Co. v. Coal Co., 49.
Kansas Home Ins. Co. v. Wilder, 633.
a Looe Ry. Co, v. Atchison, T. &

Katama Tend Co."v. Jernegan, ee 318.
Kaufman v. Weolen Mills Co.,
a ia & Mattison Co., In re, 7 “687-

Keating v. Stock Co., 260.

Keeney v. Converse, ee pies

Keller v. Johnson, 288, 3

Kelner v. Baxter, 113.

Kelsey v. Fermentation Co., 339.

Kendall v. Bishop. 553.

Kennebec Co. v. Augusta Ins. & Bank-
ing Co., 614.

ie eet R. & BR. L. R. Co. v. Marsh,

rit v. Mining Co., 362-364, 456, 459,

Kenton Furnace Railroad & Manuf’g
Co. v. McAlpin, 370, 371.

 

Kernochan, In re, 349, 355-357.
Keyser v. Hitz, 276, 578, 586,
Kidwelly Canal Co. v. Raby, 270.
Kilgore v. Smith, 628.
Kincaid v. Dwinelle, 569.
Kindel v. Lithographing Co., oe 627.
King v. Amery, 237.
v. Follett, 355.
v. Governor, etce., of Bank of Eng-
land,
v. Pasmore, 2:
v. Railroad Go 48, 351.
Kirkland v. Kille, 610
Kirkpatrick v. United Presbyterian
Church of Keota, 102.
Klaus, Petition of, In re, 441, 457.
Knight v. Barber, 259.
Knott v. Insurance Co., 6388.
Knowles v. Board of Education, 47.
v. Sandercock; 151.
Knowlton v. Ackley, 594.
v. Spring Co., 885.
Knox v. American er oe
. Baldwin, 610, 6
Eden Musee heen Co., 429.
Kacnice v. Iron Co., 161, 505, 506.
oe vy. St. Paul Fuel ‘Exchange, 458,

Koons v. Martin, 605.

Kortright v. Bank, 441.

Krulevitz v. Railroad Co., 195, 196.
Krutz v. Town Co., 89, 232) 249.
Kunkelman vy. Rentchler, 604.

L

Lackawanna Iron & Coal Co. v. Lu-
zerne Co.,

Ladd v. Cartwri ‘ht, 591.

Ladywell Min. Co. e Brookes, 119.

Hee B. & M. Ry. Co. v. Cheeney.

Lafayette Ins. Co. v. French, 76, 635,
636.

La France Fire-Engine Co. v. Town of
Mt. Vernon, 627, 629.

La Grange & M. R. Co. v. Rainey, 232.

Lagrove v. Timmerman,

Laing v. Burley, ae

Lake patenO; A. Co.
Mason, 58, 272, S81. Ngo. “337, Gol.

ae Ontario Shore BR. Co. v. Curtiss,

Lake. Shore & M.S. Ry. Co. v. Prentice,
195, 197.

ee Superior Iron Co. v. Drexel, 380,

Lamb v. Bowser, 625.
v. Lamb, 6238.

Lamming vy. Galusha. 88.

Lamphere v, Lodge, 441.

Lancaster % Improvément Co., 66, 88,
614, 620,

Land Gene Railway & Trust Co. v.
Board Co. Com’rs Goffey Co., 620, 622.

Lane vy. Brainerd, 304.

Lane’s Appeal, 593.
CASES CITED.

667

{The figures refer to pages.]

Larned v. Andrews, 627.
Lasher yv. Stimson, 522.
Late Corporation of Church of Jesus

Christ v. U. S., 252.
Lathrop v. Bank, 129, 130, 158.
Lauman v. Railroad Co., 64, 204
Lawrence v. Nelson, 603.
Leavitt v. Aone Co., 488, 491, 492.

vy. Palmer, 189.

Leazure v. Hillegas, 168.
Le Blane, In re, 348, 563.
Lee & Co.’s Bank, In re, 216.
Legendre v. Association, 336.
Heeeeus ar Banking Co., 142, 161, 496,

497, 500.
Tahigh Bridge Co. v. Lehigh Coal &

av. Co., 234.
Lebigh Coal & Nav. Co. v. Northamp-
ton Co., 229.
Lehman v. Warner, 101.
Lehman, Durr & Co. v. Glenn, 601.
y. Warner, 107.
Leipold v. Marony, 641.
Leitch v. Wells, 433.
Leland v. Hayden, 357.
Leloup v. Port of Mobile, 618.
Leo v. Railway Co., 142.
Le Roy v. Insurance Co., 348, 352, 563.
Lesher v. Karshner, 297.
Lester v. Bank, 190
v. Webb, 499.
Levy Court v. Coroner, 32.
Lewey’s Island R. Co. v. Boltan, 312.
Lewis v. Brainerd, 337.
y. Mill Co., 268.
y. Tilton, 522.
Lexington Life, Fire & Marine Ins. Co.
v. Page, 8, 345, 504.
Lexington & O. R. Co. v. Bridges, 353,

, 607.
Tenneton & W. C. R. Co. v. Chandler,

Libby v. Tobey, 381, 388.

Liebke v. Knapp, 379.

Life & Fire Ins. Co. v. Mechanic Fire
Ins. Co., 128, 165. 166.

Lineoln Building & Sav. Ass’n v. Gra-
ham, 105.

Tangola Shoe Manuf’g Co. v. Sheldon,

Liquidators of The Imperial Mercantile
Credit Ass’n v. Coleman, 505

Little v. O’Brien, 331.

Littledale, Ex parte. 408.

Little Rock & Ft. S. Ry. . Ve
if ie y. Co. v. Perry,

Littlewort v. Davis, 175.

Liverpool Ins. Co. v. Massachusetts, 14,
17-19, 21, 615, 616.

Lloyd v. Preston, 382.

Loan Association vy. Topeka, 221.

Lockhart v. City of Troy, 38.

+ We Ven Sistas: 342, 348, 352, 365,

Lockwood v. Bank, 458.
Logan v. Association, 182,
v. Railroad Co., 44.

| Louisville & N,

 

es County Nat. Bank v. Townsend,

London Celluloid Co., In re, 372.
London oe W. Ry. Co. v. M’Michael,

v. Price, 138.
Long v. Railway Co., 168, 178.
Long Island R. Co., In re, 319, 474.
ae Supply Ditch Co. v. Coffman,

Lord v. Association, 62.
v. Gas Co., 143
Lord Bruce’s Case, 402.
Loring v. Salisbury Mills, 436.
Losee v. Bullard, 611.
Lothrop v. Stedman, 213, 214, 218.
Louisiana v. Wood, 177.
Tameville Banking Co. v. Hisenman, 67,

Louisville C. & C. R. Co. v. Letson, 75.—~
Tae Gas Co. vy. Citizens’ Gaslight

‘o., 36.
Louisville, N. A. & C. Ry. Co. v. Boney,

39, 556,

v. Carson, 509, 511, 5138.

v. Flannagan, 184,
Louisville Trust Co. vy. Louisville, N. A.

. R. Co., 78, 81.

R. Co. v. State, 199.
Loverin v. McLaughlin, 58.
Low v. Railroad Co., 111, 149, 265.

‘| Lowry v. Bank, 480, 436.

v. Inman, 594, 595.
Lucas v. Transfer Co., 148, 174.
Lumsden’s Case, 275.
Lungren y. Pennell, 119.
Luxton v. North River Bride Co., 40.
Lycoming Fire Ins. Co. v. Wright, 626.
Lyndenborough Glass Co. v. Massacau-
setts Glass Co., 139, 140.
Lyon v. Screw Co., 336-338.
Lyons v. Railroad Co., 52.
Lyons-Thomas Hardware Co. v. Perry
Stove Manuf’g Co., 554.

or

McAllister v. Plant, 145.
McArthur v. Printing Co., 114, 115.
Macauley v. Mayor, etc., 31.

v. Railway Co., 46, 49, 89.
McCall v. California, 618.

vy. Manufacturing Co., 491.

v. Mortgage Co., 617, 625.
McCartee v. Society, 181, 132.
McCarthy vy. Lavasche, 100. 107.
McClaren v. Franciscus, 423.
McClelland v. Whiteley, 283, 292.
McClinch v. Sturgis, 100.

McCloskey v. Doherty, 27.

McCluer v. Railroad, 6381.

McClure v. Railway Co., 262, 265.
M’Cready v. Guardians of the Poor, 194.
McCulloch vy. State of Maryland, 39, 40,

226.
McCullough v. Mass, 579.
vy. Moss, 447.
668

CASES CITED.

(The figures refer to pages.]

McCutcheon v. Merz Capsule Co., 153.

McDaniels v. Manufacturing Co., 162,
472, 475.

McDonnell v. tosarenee Co., 100, 567,
572, 575, 598, 602

McDougala v. Bellamy, 48.

Macdougall v. Gardiner, 396, 398.

McDowall v. Sheehan, 588.

M’Dowell v. Bank, 458.

McElbenny’s Appeal, 11%,

McFadden vy. Board, 460.

McGary v. People, 74,

McGraw’s Estate, In re, 168.

Machias Hotel Co. v. Coyle, 281.

a aeiets! Nat. Bank v. Vield, 429,
437

McIntire v. Preston we: ot 176.

Mack v. Iron Co., 395,

Mack’s Appeal, 301, 560, 00.

McKay v. Beard, 53.

Aeetsan v. Glenn; 411, 585.

Odom, 35.
MeLaughlia vy. Railroad Co., 345, 446,

McLennan vy. Hopkins, 94.
McLeod v. Mortgage Co., 617.
McLoud v. Selby, 32.
McMahon v. Macy, 585, 599.
MeMillan vy. Railroad Co., 296, 333.
McNaughton v. McLean, 360
MeNeil v. Boston Chamber of Com-
merce, 498.
v. Tet Nat. Bank, 417, 420, 431,

McQueen v. Manufacturing Co., 634.
McTighe v. Macon Const. Co., 88, 92.
Madison, Watertown & Milwaukee
Plank-Road Co. v. Watertown & Port-
land Plank-Road Co., .
Magee vy. Improvement ee 181, 182.
Magruder v. Colston, 582 584.
Mahomet y. Quackenbush, 39.
Mahony v. Bank of State, 49.
Main vy. Mills, 344, 345, 354, 564.
“Mallett v. Simpson, 168.
Mallory v. Oil Works, 150, 151.
Manchester & L. R. R. v. Concord R.
R., 177, 181.
Mandlebaum v. Mining Co., 420, 437.
Manhattan Beach Co. v. Harned, 438,
5
Manhattan Life Ins. Co. v. Fields, 630.
yv. Forty-Second St. & G. St. Ferry
R. Co., 526.
Manistee, The, 628.
Mann y. Pentz, 592.
Mann’s Case, 581.
Pee rerelS: Ins. Co. v. Loud, 223,

Manufacturing Co. vy. Bradley, 572, 597.
Manville v. Karst, 604.

v. Mining Co., 177.
Marbury v. Land Co., 149.
March v. Railroad Co., 348, 349, 412.
Marchand vy. Association, 112.
Marcy v. Clark, 582.
Marine Bank v. paden. he 151.
Mariot v. Mascal, 17, 72

 

Market St. Ry. Co. v. Hellman, 129, 152.
Marlborough Manutf’g Co. v. Smith, 41,
Marlow vy. Pitfeild, 178.
Marseilles Extension R. Co., In re, 490.
Marsh v. Burroughs, 373, 593.
Marshall v. Bank, ob 516, 518, 607.

v. Express Co., ae

v. Railroad Co.,
Marshall Foundry ae y. Killian, 540.
Marshall Nat. Bank v. O’Neal, 176.
Marson v. Deither ‘3 ae 3.
Martin v. Deetz, 58, 8 5.

v. Fewell, 110.

Martino v. Insurance Co., 461.
Marysville Hien, Light ,& Power Co.
v. Johnson, 265, 2!

Mason v. Alexander, G70.
vy. Harris, 114, 393.
v. Mining Co., 251.
Masonic Temple "Ass'n o Minneapolis
v. Channell, 301, 309, 3
Massachusetts Coe ‘Hospital v.
State Mut. Life Assur. Co., 217.
Massachusetts Iron Co. v. Hooper, 413.
Mathez v. Neidig, 568, 597, 608, 604.
Mathis v. Pridham, 386.
Matson v. Alley, 494, 501.
Matthews vy. Albert, "585.
v. Associated Fess. 456, 459, 460.
v. Patterson, 609, 610.
Maund v. Canal Co., 193, 194.
Mayer v. Child, 259:
Mayor, ete., of 1 of Norwich v. Nor-
folk Ry. Co., 2.
Mayor, ete., of ey York v. cea York
& Staten "Island Ferry Co.
Mayor, etce., 5 OE cee v. nr eieh &
. Co., :
Mead v. City of New Haven, 31.
ee v. Merchants’ Bank,
Seton, 441.
Mechanics’ Foundry & Machine Co. v.
Hall, 318.
Mechanics’ & Farmers’ Bank v. Smith,

Mechanics’ & Traders’ Branch of State
Bank vy. Debolt, 202, 227.

Mechanics’ & Workingmen’s Mut. Sav.
Bank v. Meriden Ag. Co.,

Medical Inst. v. Patterson, 35.

Medill v. Collier, 109, 110.

er Collar Manufactory y. Adams,

Meeker vy. Iron Co., 446, 512, 513.
Melhado v. Railway Co., 112, 113.
Melvin v. Insurance Co., "305,880.
Memphis Grain & El evator Co. v. Mem-
phis & C. R. ag 4 Jae

Memphis & os v. Gaines, 228.
Menai & i pes vy. Dow, 142,
Menier v. Telegraph Works, 393.
a Bank v. City of New York,

Merchants’ Bank vy. Bliss, 611.
y. Central Bank, 497
v. Cook, 8.
CASES CITED.

669

(The figures refer to pages.]

Merchants’ Bank v. State Bank, 104,

Merchants’ Bank of Canada vy. Liv-
ston, 432.

Merchants’ Bank of New Haven v.
Bliss, 602.

Merchants Fund Ass’n, Appeal of, 355,
351

Merchants’ Nat. Bank y. Lovitt, 504.

Merchants’ Nat. Bank of Gardiner v.
Citizens’ Gaslight Co., 496, 501

Merchants’ & Manufacturers’ Bank v.
Stone, 105.

Merrick v. Governor Co., 61.

y. Van Santvoord, 614, 615, ae
Merrills v. Manufacturing ‘Co., 5, 197.
Merrimac Min. Co. v. Bagley. ae
Merriman y. Magiveny, 91, 105.

Mersey Docks & Harbour Board Trus-
tees vy. Gibbs, 194, 195.

Messersmith y. Bank, 411,

Methodist Church v. Pickett, 91, 101.

v. Remington, 130.

Metropolitan Bank v. Godfrey, 630.
Meyer y. Blair, 305.

Miami Powder Co. v. Hotchkiss, 91, 95.
ba aa Turnpike Corp. v. Locke, 331,

Milbank v. Railroad Co., 151.
Milford & Chillicothe Turnpike Co. vy.
Brush, 277, 331, 450.
Miller v. Bradish, 344,
. Coal Co., 233.
. Ewer, 55, 466.
. Insurance Co., 54, 172, 582.
A Manufacturing Co., 77, 637.
Mining Co., 688.
- Newburg Orrel Coal Co., 89.
. Railroad Co., 144, a 297, 801.
. Ratterman, 365-36 8, 474.
Road Co., 57, 317, 319.
. State, 213.
v. White, 599, 611.
Mills v. Buenos Ayres Co., 546.
vy. County of St. Clair, 126.
v. Northern Railway of Buenos
Ayres Co., 547.
eRe Se ot 322, 587.
illwar i racker Co., E
496, 500. state of.,

Mine I
aie yee Co., 246, 393, 446, 493, 509,

Mineral Point R.C K 2
Miners’ Bank y. vu. Ss. 29.7" Pee

Miners’ Bank of Dubuque v. U. S., 218.
aa Co. vy. Zellerbach, 142,

Mining Co. vy. Angl

48749 se glo-Californian Bank,

Minneapolis Threshing-Mach. Co. v. Da-
vis, 271, 307, 308.

Minneapolis Times Ons Nimocks, 492.

By. Co. v. Bas-

inneapolis & St.
Minnehaha Driving Park Ass’n y. Legg,

AAAS AA AAS AA

sett,

Minnesota aie eae Economizer Co. v.
Denslow, 101, 1

 

aie & Trust Co. v. Beebe,

Minor vy. Bank, 58, 517.

Minot v. Curtis, 73.

Minot v. Paine, 356.

Mississippi, O. & Red River R. Co. vy.
Cross, 381.

Mississupl & Bi, R. Boom Co. v. Prince,

Missouri Pac. Ry. Co. v. Meeh, 78.
Mitchell v. Beckman, 317.
v. Deeds, 48.
v. Mining Co., 320.
Mitchell’s Case, 275.
Mobile School Com’rs vy. Putnam, 30.
Mobile & R. Co. v. Moseley, 997.
v. Nicholas, 481.
Mohr v. Elevator Co., 574.
Mokelumne Hill Canal & Mining Co. v.
Woodbury, 58, ae
Moncerey & S. V. R. Co. v. Hildreth,

Montgomery y. Forbes, 56, 57, 66, 94+.
104, 109.

Montgomery Mut, Bldg. & Loan Ass’n
v. Robinson, 38.
vee Web Co. v. Dienelt, 540,

Montpelier & W. R
100, 299, 315.
Monument Nat. Bank v. Globe Works,

176
Moore v. Bank, 407, 414, 457.
vy. Jones, 584.
v. Opera-House Co., 260.
v. Railroad Corp. 195.
v. Tanning Co., 177.
Moore & Handley pone Co. v.
Towers Hardware Co., 115.
Moores v. Bank, 437-489, Abe.
Moore’s Heirs v. Moore’s Devisees, 130,
81.

Morgan v. Bank, 441, 458.
- -y, Railroad Co., 81
v. Skiddy, 531.
Morley v. Thayer, 232, 237, 569, 594,
595, 598, 599.
Morris v. Glenn, 411. fe
Morris & E. R. Co. v. Commissioners of
Railroad aren, ee ig
Morrison v. Mining Co.
Morrow v. Steel Co., 303, 304, 370, 378.
Morton v. Grafilin, 360.
Morville v. Society, 188, 177.
Moses v. Bank, 607.
vy. Scott, 481.
v. Tompkins, 825.
Moshannon Land &
Sloan, 495.
Mons v. Averell, 140, 147.
McCul lough, 599.
she Oakley, 579.
Moss’ Appeal, 357.
Mott v. icks, 147, oe
v. Railroad Co., 2 27,
Moulin v. Insurance Co., 635, 636.
Moulton v. Inhabitants. 31.
Mount v. Trust Co., 394, 401.

R. Co. v. Langdon,

Lumber Co. v.
670 CASES

CITED.

(The figures refer to pages.]

Mt. Holly Lumberton & Medford Turn-
pike Co. v. Fenee, 431 ;
Mount Palatine Academy v. Klein-

schnitz, 74.
Mount Pleasant v. Beckwith, 556.
Mt. Sterling Coal-Road Co. v. Little, 274.
Mowbray v. Antrim, 515, 607.
Mower v. Staples, 450.
Mowrey v. Railroad Co., 449.
Mozley v. Alston, 394.
Mullanphy Sav. Bank v. Schott, 511.
Muller v. Dows, 75, 76, 7 ae
Mulrey v. Insurance Co. 9
Mumma v. Potomac Co., B06, 236, 249,
556.
Muncy Traction Engine Co. v. De La
reen,
Munn y. Commission Co., 138, 147.
v. Illinois, 211
Munson v. Railway Co., 113, 510, 512.
Murphy, Ex parte, 482.
Muscatine Water Co. v. Muscatine Lum-
ber Co., 158.
Muskingum Valley Turnpike Co.
ard, 330.
Mussina v. Goldthwaite, 520.
Myers v. Manhattan Bank, 35, 36.
Mylrea v. Railway Co., 235, 237, 241.

Vv.

N

Naglee v. Wharf Co., 423.
Narragansett Bank v. Atlantic Silk Co.,
99. 496

’ +

Nashua & os RB, Jone: v. Boston & L.
R. Corp, #8

hae ank’ 4 Tee 151, 172, 185,

N asso Gaslight Co. v. City of Brooklyn,

Nathan _v. Tompkins, 398, 472, 534.
v. Whitlock, 582

National Bank v. Case, 5838, 584.
. City of Boston, 226, 297,
Com., 230.
Graham, 530.
. John G. Mattingly & Sons, 148. .
. Matthews, 190.
. Texas Inv. Co., 58, 70.
. Watsontown Bank, 414.
. Whitney, 190.

v. Young, 148, 176.
National Building Society, In re, 145,

National Button Works v. Wade, 639.

National Commercial Bank v. McDon-
nell, 276, 292, 579, 584.

National Loan & Building Ass'n v. Lich-
tenwalner, 571.

National Mut. Fire Ins. Co. v. Pursell
626, 629.

National Park Bank v, German-Amer-
ican M. W. & S. Co., 147-149, 176.

National Pemberton Bank vy. Porter,
141, 170.

National Permanent Benefit Building
Soc., In re, 178, 179.

44ddd4dee

National Tube-Works Co. v. Ballou, 597.
vy. Gilfillan, 381.
N ae Waiter & Mining Co. v. Clarkin,

Natusch vy. Irving, 448, 453.
Neall v. Hill, 245, 516, 518, 534.
Nelligan vy. Campbell, 522.
Nelms v. Mortgage Co., 617.
Nelson _v. Eaton, 145, 156,
v. Hubbard, 386.
v. Railroad Co., 209.
Nenny v. Waddill, "385.
Me ueevel ‘Asphalt Co. v. Mayor, ete.,

Neustadt v. Railroad Co., 227.
Nevada Bank of San Francisco v. Port-
land Nat. Bank, 196.
Nevitt v. Bank, 540, 559.
New Albany & S. BR. Co. v. Fields, 287.
v. McCormick, 296, 317.
v. Pickens, 323.
et v. ‘Manufacturing Co., 423,

Newby v. Railway Co., 73.

New Castle Northern R. Co. v. Simpson,
177, 385, 386..

Newell v. "Railway Co., 636.

New England Mortg. Security Co.
Ingram, 617.

New Hamyshire Central Railroad v.
Johnson, A

New Haven, M. & W. R. Co. v. Town
of Chatham, 502.

New Haven & D. RB. Co. v. Chapman.
204, 21

7.

New Jersey Railroad & Transp. Co. rv.
Hancock, 229.

New Orleans v. Houston, 227, 230.

New noe epee Co. v. Louisiana
Light & H. P. & Manuf’g Co., 36, 37,
205, 206.

New Orleans, J. & G. N. R. Co.
Harris, 143, 204.

New Orleans Waterworks Co. v. Rivers,
87, 206. :
Newport & C. Bridge Co. v. Woolley, 78.

Newton Manuf’g Co. v. White, 235.
New York El. R. Co., In re, 41, 45.
Aer vor Exchange Co. v. De Wolff,

New ToS Firemen Ins. Co. v. Ely, 188.

New York, H. & N. R. Co. v. Hunt, 312.

New York Institution for the Blind v.
How’s Ex’rs, 74.

New fork. B H. & W. R. Co. v. Com.,

v. Haring, 193, 194, 529.
v. Nickals, 347, 366, 367.
ae oe Protective Ass'n v. McGrath,

Ve

v.

» New York & G. L. R. Co. v. State, 198.

ee York & M. L. R. CG
New eve & N. H. R. Co. v. Ketchum,
112, 532.

3.
vy. Schuyler, 359, eo 423, 437, 438,
440, 0, 499, 525, 526.

o. v. Winans,

 
CASES

Pm

a 2
CITED. 671

[The figures refer to pages.]

New York & O. M. R. Co. v. Van Horn,
315,

New York & S. Canal Co. v. Fulton
Bank, 131, 151.

Niagara County Bank v. Baker, 141.

Nichols v. New Haven & Northampton
Co., 227, 228.

Nickalls v. Merry, 581.

Nicoll v. Railroad Co., 129, 180, 140.

Nims vy. Lh Hermon Boys’ School, 194,

y. School, 527, 529.
Nockels v. Crosby, 112. 2
Norfolk & W. R. Co. v. Pennsylvania,

616, 618. :
Norris y. Staps, 454.
North v. Forest, 259.

vy. State, 87, 91.

piste Chicago City Ry. Co. v. Gastka,

Northern Cent. Michigan R. Co. v. Es-
low, 294.
Northern Cent. R. Co. v. Com., 199.
North Hudson Mut. Bldg. & Loan Ass’n
y. Childs, 505, 518.
North River Boom Co. v. Smith, 46.
Northrop v. Bushnell, 305, 373.
¥. atarapike 0., 424. :
North State eopeet & Gold Min. Co. v.
Field, 689, 640.

Northumberland Hotel Co., In re, 114.
Northwestern Fertilizing Co. v. Village

of Hyde Park, 126.
Northwestern Mut. Life Ins. Co. v. Cot-
pin Rachanee Real-Estate Co.,

v. Elliott, 625, 626.
v. Overholt, 627.
Northwestern Packet Co. v. Shaw, 140,
141, 172.
Northwestern Union Packet Co.
Shaw, 172, 177, 178.
Mop oyemtern University v. People, 227,

v.

Northwest Transp. Co. v. Beatty, 477.

North & S. St. R. Co. v. Spullock, 324.

Norton v. Shelby Co., 98. :

Norwich Gaslight Co. v. Norwich City
Gas Co., 36, 37.

Norwood & B. Co. v. Andrews, 139.

Nugent y. Supervisors, 382.

Nulton v. Clayton, 277.

Nute v. Insurance Co., 456.
Nutter v. Railroad Co.. 309, 310.

O

O’Donald v. Railroad Co., 301.
Ogden y. City of St. Joseph, 223, 224.
gee Insurance Co., 290, 373, 559,

Ohio’ Lite Insurance & Trust Co. v.
Earn Insurance & Trust Co.,

Vhio & LR. Co. v. Ridge, 84.
Ohio & M. Ry. Co. v. McCarthy, 189.
y. McClelland, 209.

Ohio & M. ea Co. v. McPherson, 55,

00, i.

v. Wheeler, 75, 78, 79.
Olcott v. Railroad Co., 147.
Old Colony R. Corp. v. Evans, 140.
Oldtown & L. R. Co. v. Veazie, 204, 453.
Q’Leary v. County of Cook, 38.
Oler v. Railroad Co., 315.
Oliver v. City of Worcester, 31.

v. Insurance Co., 24.
Olney v. Land Co., 608, 609.
O’Neal vy. King, 298.
Oneida Bank v. Ontario Bank, 192.
Ooregum Gold-Min. Co. of India

Roper, 370. 373.

Opeans of Hamilton Avenue, In re,

v.

Oregonian Ry. Co. v. Oregon Ry. &
Nay. Co., 101, 105,
Oregon Ry. & Nav. Co. v. Oregonian Ry.
Co., 136, 178. .
O’Reiley v. Draining Co., 57.
O’Reilly v. Bard, 605.
Ormsby v. Mining Co., 467, 468.
Oroville & V. R. Co. v. Supervisors of
Plumas County, 46, 59.
Orr v. Bank, 200.
v. Bracken Co., 217.
v. Insurance Co., 145, 147.
Osborn v. Bank of U. S., 40.
v. Railroad Co., 223.
Osgood v. Ogden, 603.
Opkgloosa Agr. Works y. Parkhurst,

Otis v, Gardner, 422, 431.

Otto v. Union, 402, 404.

Overend & Gurney Co. v. Gibb, 505.

Overseers of Poor of City of Boston v.
Sears, 27, 28, 32.

Overton Bridge Co. v. Means, 539.
Owen vy. Purdy, 54.

v. Shepard, 84.
Oxford Turnpike Co. v. Bunnel, 424.

P

Pacific Bank v. De Ro, 44.
Pacific R. Co. v. Seely, 141.
Pacific R. R. v. Hughes, 451.

v. Renshaw, 451.

Paducah & M. R. Co. v. Parks, 297,
303-305.
Page v. Heineberg, 130.

v. Railroad Co., 499, 501.
Painesville & H. R. Co. v. King, 345.
Palatka & I. R. R. Co. v. State, {
Palmer v. Lawrence, 37.

v. Mining Co., 411.

Palmetto Lodge No. 5 v. Hubbell, 456,
460.

 

Pancoast v. Insurance Co., 182, 631.
Pape vy. Bank, 88, 91, 97, 107.
Parish v. Wheeler, 181
Park v. Locomotive Works, 344, 485.
Parkey v. Hotel Co., 7, 8, 236, 237.
v. May, 248.
y. Nickerson, 506, 510, 511.
CASES CITED.

[The figures refer tc pages.]

Parker vy. Railroad Co., 100, 2138, 218,
294.

vy. Railway Co., 126.
y. Thomas, 287, 288, 296, 301.
Parrot v. Lawrence, 126.
Parrott v. Colby, 571, 602.
Parson v. Joseph, 371.
Passenger R. Co. v. Young, 527,
Patent File Co., In re, 142, 145.
Patterson v. ‘Lynde, ot, 592, G41.
v. Manuf’g Co., 610.
v. Robinson, feee
Patty v. Mill vo., 269.
Paul yv. City of Kenosha, 177.
y. Commonwealth of Virginia, 76,
615-6

Pauly y. Trust Co., 5: 584.

Paxton Cattle Co. v. First Nat. Bank,
115, 116.

Payne vy. Bullard, 330, 3738, 559, 561,
592, 594, 600.

Payson v. Withers, 625.

Peabody v. Flint, 3938, 400, 402.

v. Speyers, 259.

Peake vy. Railroad Co., 8

Pearce. vy. Railroad Co., 135, 136, 140,

Pearson vy. Concord R. Corp., 151, 511,

Peck v. City of San Antonio, 39.
Peckham y. Inhabitants, 634.
v. Van Wagenen, 352.
Peirce v. Building Co., 464.
Pembina Con. Silver Mining & Milling
Co. v. Pennsylvania, 616.
Pender v. Lushington, 474, 476.
Peninsular Ry. Co. v. Duncan, 279.
Penn Match Co. v. Hapgood, 1138.
Pennsylvania R. Co. v. St. Louis, A. &
T. H. R. Co,, 80, 186.
Pennypacker y. Insurance Co. ., 628.
Penobscot Boom Corp. v. Lamson, 67.
Penobscot R. Co. vy. Dummer, 265, 309,

318, 484.

v. White, 204, 309, 312, 326.
Penobscot & K. R. Co. v. Bartlett, 310.
Pensacola. Tel. Co. v. Western Union

Tel. Co., 618.
People v. "Albany & V. R. Co., 200.
vy. Assessors of Village of Water-
town, 5, 6, 14.
Batchelor, 465.
. Board, 88.
Boston & A. R. Co., 210.
Bowen, 47.
Campbell, 139.
Central Car & Manuf’g Co., 353.
Chambers, 58. 63.
Cheeseman, 57, 59.
Chicago Gas Trust Co., 71, 240.
Coleman, 22, 23
> Gommissioners of Taxes, etc., for
the City & County of New

York, 2 256

. Crockett, 441, Bs.
: Crossley, 455, 4
. Cummings, 464.
. England, 531.

Ax Acasa a se5 4

Aantiad

 

People v. Equitable Trust Co. of New
London, 617.
vy. Farnham, 48.
v. Hibs Ass’n of Philadelphia, 615,

3.
. Goss & Phillips Manuf’g Co., 260.
. Hamill
Horn Silver Min. Co., 623.
. Hurlbut, 31.
Kingston & M. Turnpike Road
Co., 9, 48.
Knickerbocker Ice Co., 69.
Lake Shore & M.S. R. Co., 337.
La Rue, 88, 129.
Mahaney, 37.
. Marshall, 36.
. Mauran, "180.
Maynard, 36.
Montecito Water Co., 57, 63.
Nelson, 69.
North River Sugar-Refining Co.,
9, 71, 239, 240.
O’Brien, 215.
Ottawa "Hydraulic Co., 39.
Parker Vein Coal Co., 640.
Peck, 465, 469.
Perrin, 48,
Phillips, 482.
Phoenix Bank, 242.
River Raisin & L: E. R. Co., 138.
Robinson, 421.
San Francisco a Union, 344.
Selfridge, 57,
Bteamenip J Co., 339,
. Stockton
Toon. 336. 337,
Peraenp Board of Overyssel,

Troy House Co., 69.

Twaddell, 479.

Utica Ins. Co., 25.

Water Co., 59.

. Weaver, 227,

. Wemple, 68, 617, 618, 623.

Agune Men’s Father Matthew
A. B. Soc., 456, 457.

People’s Bank v. Gridley, foo, 424.

Paes Ferry Co. v. Balch, 297, 299,

3
roe Mut. Ins. Co. v. Westcott, 325,

Peoria & S. R. Co. v. Thompson, 386.
Perine v. Grand Lodge, 99.
Perkins v. Sanders, 51, 58.

vy. Savage, 292.
Perrin v. Granger, se Et
Perry v. Railway Co., 1 . 117.

v. Turner, 596.

v. Tuscaloosa Cotton Seed Oil Mill

Co., 371, 472, 506, 515, 534.

Peterson v. City of New York, "158.
Pettis v. Atkins, 110.
Pfohl v. Simpson, 597.
Phelan v. Hazard, 380.
Phelps v. Bank, 342, 348, 349.
Plane Ins. Co. v. ‘Burdett, 615, 617,

aAaada

oe

AsAndAdASAAS AAAS

asadasa
CASES CITED.

673

{The figures refer to‘ pages.]

Philadelphia Trust, Safe-Deposit & Ins.
Co., Appeal of, 357.
Philadelphia, W. & B. R. Co. v. Cowell,

vy. Maryland, 228.
¥, Quigley, 193, 195, 524,
y. Woelpper, 145. aoe
Philadelphia & R. R. Co. v. Fidelity In-
surance, Trust & Safe-Deposit
Co., 147.
y. Smith, 146.
Philadelphia & Southern S. S. Co. v.
Pennsylvania, 226. is
Philadelphia & S. R. Co. v. Lewis, 175.
Philadelphia & W. C. R. Co. v. Hick-
man, 296, 297, 309, 316.
Phillips v. Bridge Co., 39, 311, 312.
v. Town of Albany, 39.
y. Wickham, 234, 479.
Phinizy v. Murray, 349.
y. Railroad Co., 102.
Phipps v. Jones, 269.
Phoenix Ins. Co. v. Welch, 615.
Phen Iron Go. v. Com., 337, 338.
Phenix Warehousing Co. v. Badger,
100, 328, 330, 333, 561.
Pickard y. Car Co., 618.
Pier v. Hanmore, 609, 610.
Pierce v. Construction Co., 593.
Pike v. Railroad Co., 326.
Pinkerton v. Railroad Co., 426, 441.
Pitcher v. Board of Trade, 403,
Piggborg, F. W. & C. R. Co. v. Com.,

Pittsburg Min. Co. v. Spooner, 117, 118.

Pittsburg & C. R. Co. v. Southwest P.
Ry. Co., 210.

Peat, & T. Copper Co. v. Quintrell,

Pittsburgh, C. & St. L. Ry. Co. v. Keo-
kuk & H. Bridge Co., 173, 175.

Pitsburgh & Allegheny Bridge Co. v.
Com., 199. e

Fiebares & C. R. Co. v. Clarke, 411,

Pittsburgh & S. R. Co. v. Biggar, 300.

Pixley y. Railroad Co.. 157-159.

Plank’s Tavern Co. v. Burkhard, 269.

Planters’ Bank v. Sharp, 211.

Planters’ & Merchants’ Bank vy. An-
drews, 25.

Planters’ & Merchants’ Mut. Ins. Co. v.
Selma Sav. Bank, 458.

eee & Miners’ Bank v. Padgett,

Plaquemines Tropical Fruit Co. v. Buck,

Platt vy. Railroad Co., 592.

Plimpton v. Bigelow, 260.

Plymouth R. Co. v. Colwell, 538.
Polk v, Plummer, 27, 32.

Pollard vy. Bailey, 596.

Polleys v. Insurance Co., 7.

Pollock v, Bank. 428, 429.

Pond v. Railroad Co., 546. 548.

Poock vy. Association, 182.

Poole, Jackson & Whyte’s Case, 609.

Clk.Pr.Corp.—43

 

Pope v. Brandon, 8.
y. Manufacturing Co., 636.

Port Edwards, C. & N. hy. Co. v. Ar-
pin, 310.
Porter v. Bank of Rutland, 276.

v. State, 5
Port Gibson v. Moore, 234, 236, 250.
Portland, L. & M. Co. v. City of East
Portland, 180.
Portland, S. & P. R. Co. v. Graham,

320.

Portland & F. R. Co. v. Spillman, 309,
311, 312.

Rees & G. Turnpike Co. v. Bobb,

Portsmouth Livery Co. v. Watson, 634.
Potter v. Dear, 593, 594.
v. Machine Co., 589.
Potts v. Wallace, 330, 488, 495.
Byue eeepee & S. P. R. Co. v. Griffin,

Powder River Cattle Co. v. Commission-
ers, 625. :
Powell v. Railway Co., 573.
Prall v. Tilt, 481.
Pratt v. Manufacturing Co., 429.
v. Bee Read & Co., 347, 348, 353.

y. Short, 191.
v. Trustees, 269.
Pray v. Mitchell, 259.

404. Ere teen Mut. Assur. Fund v. Allen,

President, ete., of Bank of Michigan v.
Niles, 141.

President, ete., of Bank of Mutual Re-
demption v. Hill, 516.

President, ete., of Berks & Dauphin
Turnpike Road v. Myers, 74.

President, ete., of Centre & K. Turn-
pike R. Co. v. M’Conaby, 335.

President, ete., of Hibernia Turnpike
Road v. Henderson, 314, 315.

President, ete., of Highland Turnpike vy.
McKean, 85, 315.

President, etc., of Lincoln & Kennebec
Bank v. Richardson, 52, 53, 81, 557.

President, etc.; of Mechanics’ Bank v.
New York & N. H. R. Co., 428.

President, etc., of Merchants’ Bank v.
Cook, 475.

President, etc., of Middletown Bank y.
Magill, 578, 579

President, etc., of Northampton Bank v.
Pepoon, 486, 488.

President, etc., of Port Gibson v. Moore,

President, etc., of State Bank v. Brown,

President, etc., of Union Turnpike Road
v. Jenkins, 315.
Price vy. Coal Co., 153, 176.
v. Whitney, 580.
vy. Wilson, 611.
Pritz, Ex parte, 45, 47. :
Proprietors of Cabot & West Spring~
field Bridge v. Chapin, 309.
CASES

CITED.

[The figures refer to pages.]

Eapctere of Canal Bridge v. Gordon,

Proprietors of Charles River Bridge v.
Proprietors of Warren Bridge, 204.

Peat of City Hotel v. Dickinson,

Proprietors of Jeffries Neck Pasture v.
Inhabitants of Ipswich, 25.

Proprietors of Union Locks & Canals v.
Towne, 3381, 449.

Protection Life Ins. Co. v. Foote, 483.

Providence Bank vy. Billings, 127, 210,

221.
Pugh and Sharman’s Case, 276.
Pulford v. Fire Department, 402.
Pullman v. Upton, 411, 413.
Pullman’s Palace Car Co. v. Missouri

Pac. Ry. Co., 556.
Pumphrey vy. Threadgill, 145.
Q
Queen, The, v. Arnaud, 6, 7.

Queenan v. Palmer, 570, 596.

Quick v. Lemon, 274.

cary Railroad Bridge Co. v. Adams
10 ay

Quiglan ¥. Railway Co., 538.

R

Racine & M. R. Co. v. Farmers? Loan
& Trust Co., 78.
Railroad y. Berks Co., 229.
Railroad Co. v. Harris, 615, 635.
v. Howard, 142.
vy. Peniston, 226.
= Richmond, 210.
Smith, 367.
nileond Tax Cases, 225.
Te Co. vy. Allerton, 487.
Whitton’s Adm’ r, 78.
Bivaney v. Manufacturing Co.,
Rand v. Hubbell, 357.
Ranger v. Railway Co.,
Rankine v. Elliott, 591, io
‘Rathbone vy. Gas Co..
Rathbone, Sard. & Co, ag ‘Frost, 629.
“Rathbun v. Snow, 461, 495, 498-500.
“Ratterman v. Telegraph Co..
“Read y. Frankfort Bank, Sie
vy. Gas Co., 309, 325, 326, a
“Rece v. Newport News & M. V. Co., 78.
“Receivers of Bank of Circleville vy. Ren-
ick, 237.
“Reciprocity Bank, In re, 586.
*Rector, ete., of Christ Church vy. County
of Philadelphia, 228.
‘Redington vy. Cornwell, 605.
Redmond v. Manufacturing Co., 640.
ated Wing Hotel Co. v. Friedrich, 265,

Reed y. Bank, 196.
vy. Copeland, 420,
y. Head, 355.
y. Railway Co., 57.

284.

ny

 

Reed v. Walker, 625.
Reed Bros. Co. v. First Nat. Bank, 550.

Reeves v. Harper, 625.

Reg. v. Great North of England Ry.
Co., 198, 199.
v. Registrar, "72, 73.

Regents v. ‘Williams, 30.

Regents of University of Maryland v.
Williams, 30, 65, 219.

Regents of University of Michigan an
Detroit Young Men’s Soe., 129,

156, 158, 160.

Reichwald v. Hotel Co., eae 142, 145,
236, 487, $00, 553, 554,

Reid v. Manufacturing a 345, 354,
459, 559,

Reisner v. gtronit 89.

Reliance Mut. Ins. Co. est, 626.

Remington v. Bay Co., 597

Rensselaer & Washington ” Plank-Road
Co. v. Barton, 319.

Republican Mountain Silver Mines vy.
Brown, 630,

Rex v. Amery, 52, 53.

v. Gardner, 25.
vy. Governor, ete. ., of Bank of Eng-
land, 3538.
= Richardson, 402.
Westwood, 52.

Reynolds’ Widow v. cee ea 142.

Rhey v. Plank-Road Co., 274.

Rice v. Rockefeller, 408, in ‘

Richards v. Insurance Co., 609.

v. Railroad Co., 142.

Richardson vy. Buhl, 71.

v. Railroad Co., 466, 471,
vy. Sibley, 143, 144.

Richelieu Hotel Ge v. International
Military Encampment Co., 1
270. 287.

Hi ord v. Irons, 570, 580, 585, 587,

RTL Oe, Factory Ass’n v. Clarke, 103,
Richmond, F.& P. R. ee v. Snead, 147.
Richmond St. R. Go. v Reed, 282.
Rickart vy. People, 52.
Rickerson Roller-Mill Co. v.
Foundry & Machine Co., 375,
Ricord v. Railroad Co., 189.
Riddle v. Proprietors, 32, 195.
Rider v. Fritchey, 573.
Ridgefield & N. Y. R. Co. v. Brush, 312.
Ridgway v. Bank, 176.
Rikoff v. Machine Co., 103.
Bee Sun Ins. Co. ¥. Slaughter, 626,

Rivanna Nav. Co. v. Dawsons, 129-130,

Rives v. Dudley, 130.
Robbins v. Butler, 23.

vy. Taxing Dist., 618.
Roberts v. Woodworking Co., 160.
Roberts Manut’g Co. v. Schlick, 113.
Robertson v. Bullions, 28.
Robinson v. Bank, 350.

vy. Lodge, 404.

y. Railroad Co., 305.

f

’ very,

Farrell
CASES CITED.

675

[The figures refer to pages.]

RoPmEOD oy Smith, 392, 505, 515, 516,

v. Turrentine, 206, ne
Hockton I. & St.

vy. Shunick, 284, 291.
Rockland, Mt. D. & S. Steamboat Co. v.
Sewall, 309.
Rock River Bank v. Sherwood, 175.

. Co. v. Sage,

god Mountain Nat. Bank vy. Bliss,

Rogers v. Land Co., 115. .
v. Society, 8, 59.
Rogers, L. & M. Works y. Southern
Railroad Ass’n, 149.
Rollins v. Carriage Co., 554.
Roman Catholic Orphan Asylum vy.
Abrams, 59.
Roosevelt Hospital v. Mayor, ete., of
City of New York, 228.
Root v. Sinnock, 567, 579.
Rorke v. Thomas, 358, 610.
Roseboom y. Whittaker, £ 511, 609.
Rose Hill & HE. R. Co. v. People. 85.
Rosenthal v. Madison & I. P. Co., 44.
Rosevelt v. Brown, 584. .
Ross-Meehan, B. 8S. F. Co. v. South-
ern M. Iron Co., 126.
Rothchild v. Hoge, 316.
Rounds vy. Railroad Co., 527.
Rouse vy. Bank, 554.
Royal Bank of ‘Liverpool vy. Grand Junc-
tion Railroad & Depot Co., 161, 162.
Rue v. Railway Co.
Ruggles v. People, Son On.
Rundle v. Delaware & R. Canal, 30.
Runyan v. Coster’s Lessee, 130, 631.
Ruse v. Bromberg, 323, 324
Russell vy. McLellan, 53.
v. M’Lellan, 234° 235, 237.
of Temple, 8,
v. Waterworks Co., 393, 394, 401.
Rutherford v. Hill, 109.
Baeend Electric Light Co. y. Bates,

Rutland & B. R. Co. v. Lincoln, 292.

-v. Proctor, 169.

y. Thrall, "812, 320. Cea 324, 325,
Rutledge, Ex parte, 358.
Rutter vy. Chapman, 52.

v. Kilpatrick, 317.
R. W. Bosers Co. v. Wm. Rogers Man-

uf’g Co.

Ryan v. aha: 497.

Ryder v. Railroad Co.,
oo vy. South a ee Banking Co.,

Ss

Sabin vy. Bank, 420.
eee Deposit Life Ins. Co. v. Smith,

sattria vy. Barnes, 287.
Sage, In re, 337.
v. Dillard, 214.
Saint y. Manufacturing Co., 503.

 

St. Clair vy. Cox, 634-637.
St. John vy. Railway Co., 365.
Be Pea & I. R. Co: v. Shambaugh,

st Tee Steamboat Co., In re, 481.
St. Louis, A. & T. Ry. Co. v. Fire Ass'n,
625, 634,
State, 199.
st. Louis, It, 8. & W. R. Co. v. Che-
nault, Bor
¥. Hernan, 119.
St. Loan . & S. Ry. Co. v. New-
com,
St. Louis ‘Perpetual Ins. Co. v. Goodfel-
low, 458.
St. Louis R. Co. v. Northwestern St.

L. Ry. Co., 48.
St. Louis, V. & T. H. R. Co. v. Terre
Haute & I. R. Co., 144

ee Paul Fire & Marine Ins. Co. v. Allis,

4,

St. Paul, S. va T,. F. R. Co. v.. Robbins,
263, 359, 3

Salem Iron Peeing Co. v. Inhabitants
of Danvers, 223.

Salem Milldam Corp. v. Ropes, 288, 291,
292, 309, 311, 312, 326.

Salmon v. Richardson 530.

Salomons v. Laing, 402.

Salt Lake City v. ’ Hallister, 165, 230,
524, 530.

Saltmarsh y. Spaulding, 486, 491, 507,

Sanborn v. Lefferts, 610.

San Buenaventura Commercial Min. &
Manuf’g Co. v. Vassault, 465.

Sanger v. Upton, 155, 539, 542, 543.

San Joaquin Land "& Water Co. v.
West, 273.

Santa Clara, poms Academy v. Sulli-
van, 69, 6

Sargent v. Gp uae: Co., 351, 413, 441,

456, 457.

v. Railway Co.
v. Webster, 47, BS, 486, 491, 492,

Savage v. Bartlett, 284, 290.
Savannah Cotton Exchange v. State,

404.
ean FF. & W. Ry. Co. v. State,

Savings Bank of Hannibal v. Hunt, 455.
Savings Bank of Louisville’s Assignee
vy. Caperton, ye 518, te
Sawyer v. Hoag, 373, 591, 6
y. Society, ‘8.
Sayles v. Bates, 419, 579, 580, 585-587.
vy. Brown, a 464, "468, 568, 570,
575, 587, 6
Sayre v. oe 456.
yv. Turnpike Road,
Scammon y. Kimball, SOT, 558.
Schaeffer v. Insurance Co., 265, 317.
Schalucky v. Field, 572, 596, 598, 602.
Schenck v. Andrews, 380.
Schenectady & S. Plank Road Co.
Thatcher, 61, i00, 310, 327, 332, 411,
449, 453.
676

CASES CITED.

(The figures refer to pages.]

Scheufler v. Grand Lodge, 99.

Schickle v. Watts, 381.

Schley v. Dixon, 530, 608.

Schloss v. Trade Co., 97, 100, 102, 103,
106, 310.

Schoff v. Town of Bloomfield, 472.

Schollenberger, Ex parte, 638.

School Directors v. Carlisle Boa 25.

School Dist. v. Insurance Co., 46.

School Dist. No. 61 _v. Alderson, 101.

Schreyer y. Mills Co., 114, 115.

Schumm y. Seymour, *490.

Scott v. Armstrong, 554, 555, 557, 558.

. Bank, 417, 420, 425.

. Banking Co., 350.

. Depeyster, 518.

ee 342, 348, 345, 348, 353,

6
Neely, 551.
““Seovill vy. Thayer, 360, 370, 371, 373,
587, 591, 601.

Scripture v. Soapstone Co., 424, 441.
Scruggs v. Mortgage Co., 625.
Seagraves v. City of Alton, 158.
Searsburgh Turnpike Co. v. Cutler, 9,

Sedalia, W. & S. Ry. Co. v. Wilkerson,

Seeley v. Bank, 346.

Sells v. Commission Co., 554.

Selma, M. ae R. Co. v. Anderson, 286,

Selma & T. R. Co. vy. Tipton, 88, 267,
321, 329, 335.

Semple v. Glenn, $4.

Sewall v. Power Co., 428,

Seymour v. Society, 181.

v. Sturgess, 324.

Seymour Opera-House Co. y. Woold-
ridge, 68.
Shainwald v. Davids, 688.
Shakopee Manuf’g Co., In re, 62.
Shaw v. Mining Co., @, 76, 77, 196,
438, 439, 526, 638
v. Spencer, 428, 429, 436.
Shea v. Mabry, 505.
Shellington v. Howland, 423, 598.
Shelton v. Banks, 50.
Shepaug Voting Trust Cases, 395, 480.
Sherman v. Smith,
Sherman Center Town Co. v. Swigart,
483, 498.
Sherwood v. Alvis, 629.

v. Mining Co., 429.
Shick y. Enterprise Co.
Shickle v. Watts, 381, boa"

Shields v. Land Co., 102

v. Ohio, 215, 218.

Shober’s Adm’rs vy. Lancaster Co. Park
Ass’n, 265.

Short v. Stevenson, 117.

Shortz v. Unangst, 52.

abun v. Schoolcraft & Three Rivers

0.5

Sibley v. Bank. 424, ie

Sicardi v. Oil 1 Go., 6 bi

Silsby v. Barlow, sg”

Silver Hook Road vy. Greene, 325.

Silver Lake Bank v. North, 190, 634.

ads

id

 

Simm vy. Telegraph Co., 487, 438.
Simmons v. Hill, 578.
Simons v. Mining Pee 117, 118.
Simpson v. Hotel Co., "138, "142, 393.
Sims v. Railroad Co., 77,

Singer Manuf’g Co. v. Peck, 58.
Sinking-Fund Cases, 214,

Skelly v. Bank, 202, 227.

Skinner v. Wilhelm, 39.

Skowhegan Bank y. Cutler, 424.
Skrainka v. Allen, 378.

me Woolen Co. v. Lamb, 172, 181,
Slattery v. Transportation Co., 393, 401.
Slaughter v. Com.,

Slauson v. Schwabacher, 626, 627.
Slaymaker v. Bank, 258.

Sl re a" SEL oa, 236, 322, 330, 540,

Sie v. Goodwin, 569, 573, 574, 584.
Slipher v. Harhart, 301.

Slocum y. Gas-Pipe Co., 100.

v. Warren, 100.
Small v. Hydraulic Co., 321, 322.
Smith v. Association. 498, 510.

y. Canal Co., 556.

Hurd, 6, 301. 520, 535.

Insurance Co., 640, 641

Law, 472.

e AMenuteotaring Co., 317, 639.

Mining Co., 55.

Mosby, 604.

Nelson, 461.

. Plank-Road Co., 73.

. Poor, 608.

. Railroad Co., 551.

. Silver Val. Min. Co., 52.
Warden, 110.

smith’ 8 Appeal 355.

Smith’s Case, 337,

Smith’s Estate, 357, 358.

Snell v. City of Chicago, 48.

Snider’s Sons’ Co. v. Troy, 97, 102, 1H,
105, 108, 109. .

Snyder v. Bank, 107.

v. Studebaker, 44, 106.

Society for Propagating the Gospel v.
Young, 73, 74.

Society for Propagation of Gospel in
Foreign Parts v. Town of Pawlet, 48.

Society for the Propagation of the Gos-
pel v. Town of New Haven,

Society of Middlesex Husbandmen &
Manufacturers v. Davis, 51, 53.

Sey Perun vy. Cleveland, 91, 97, 98,

South Bay Meadow Dam Co. v. Gray,
100, 101, 217, 453.

Southern ciotel Co. v. Newman, 282.

Beceem fac Ins. & Trust Co. v. Cole,

v. Lanier, 159, 316.
Southern Loan Oo. v. Morris, 176.
Southern Pac. a vy. Denton, 6388.
Re srern Pac. R. Co. v. Orton, 20, 44,

South Nashville St. R. Co. v. Morrow,
222-224,

AddAanAsASAAS
CASES CITED.

[The figures refer to pages.]

South School Dist. v. Blakeslee, 73.
South Yorkshire Ry. & River Dun Co.

y. Great Northern Ry. Co., 121.
Spangler v. Railway Co., 324, 327.
Spargo’s Case, 379.
Sparks y. Steel Co., 62.
meee vy. Bach, 259.

. Grawford, 140, 262, 317, 319.
: Grant, 592.

Spering’s Appeal, 505, 515, al 607.
Spiller v. Skating Rink Co. es 114,
Spooner v. Phillips, 356.
Spzague v. Manufacturing Co., 433, 442.
Spring Valley Waterworks v. *Schottler,

218.
Stafford v. Mills Co., 640.
Stafford Nat. Bank v. Palmer, 109.
Standard Oil Co. v. Scofield, 150.
Stanley v. Stanley, 210.
Stanton v. Railway Co., cer
Starbuck v. Trust Co., "395
Starkweather v. Bible Society, 181, 168,

632.
State v. Association, 59.
. Atchison & N. R. Co., 240.
. Bailey, 241.
. Baltimore, O. & C. R. Co., 198.
5 Benet & O. R. Co., 347, 352,

. Bank, 554.
Bank of Maryland, 236.
Beck, 57.
Bergenthal. 337, 339.
Bonnell, 465.
. Bull, 58.
: Cape Girardeau & S. L. R. Co.,

. Carey, 620, 633.
. Central Ohio Mut. Relief Ass’n,
57, 63.

. Central R. Co., 199.
; Paaber of Commerce, 402, 403,

+ Chiraee, M. & St. P. Ry. Co.,

. Chute, 470, 481.

H Commercial Bank of Manchester,

. Commercial State Bank, 540.

. Commissioner of Railroad Taxa-
tion, 213

. Corkins, 70.

. County Court, 47.

. Critcbett, 56, 66, a

. Cumberland & P. R

. Curtis, 40.

Dawson, 44, 52.

Dingice Court of Ramsey Co.,

. Einstein, 337.

. Fidelity & Casualty Co., 622.

. Fidelity & Casualty Ins. Co., 623,
632, 633.

. Fourth New Pana Turn-
pike, 237, 238, 241, 242.
, Great Works Milling & Manufac-
turing Co., 1
Greer, 202, 202” 211, 479.

aa a AaadasAaAA adda

<

a

a

. Co., 224.

a44 4444454

a

s

 

State v. Habib, 83 84.

v. Vianna & St. J. R. Co., 223.

v. Hitchcock, 47.

v. Hunton, 476.

vy. INinois Cent. R. Co., 37, 48.

v. Insurance Co., 622, 623.

v. International ay, Co., 67, 69.

v. Louisville & N. R. Co., 199

v. Lute, 484.

v. McCullough. 640.

v. McGrath, 72.

v. McIver, 441.

y. Mayor, ete., of Newark, 47.

vy. Merchants’ Insurarice & Trust
Co., 245.

vy. Milwaukee Chamber of Com-
merce, 404.

v. Milwaukee Gaslight Co., 36.

y. Minnesota Thresher Manuf’g Co.,
69, 239, 240, 574.

v. Monongahela R. R. Co., 199.

v. Montgomery Light Co., 53.

v. Morristown ae Ass’n, 256, 257.

v. Morris & BE. R. Co., 524.

v. Murphy, 8.

+ y. Nebraska Distilling Co., 71, 240.

v. Neff, 215.

v. Noyes, 218.

v. Oberlin Building & Loan Ass'n,
146, 153, me

v. Ohio & MR. Co., 198.

v. Oil Works, 339.

vy. Overton, 456.

We hepeee Co. Agricultural Soc., 199.

v. Payne, 126.

v. Per ent & Ohio Canal Co.,

v. Phoenix Ins. Co., 615, 620.

vy. President & Directors of Bank of

Maryland, 25.
v. Real-Hstate Bank, 237, 240, 241.
v. Boanoke Railroad & Lumber Co.,

vy. Roosa, 44.

vy. Rusk, 578.

v. Simons, 41.

vy. Smith, get 155, 292, 312, 361,
475, 4 491.

vy. Standara Oil Co. 4, 10, 71, 240.

y. Sterling, 224.

v. Stockley, 478.

v. Swift, 640.

v. Tate of Vincennes Univer-

84,
4 radon, 455, 479.
” Warren R. Co., 199.
5 48, 243.
. Western Irr. Canal Co., 142.
. Western Union Mut. Lite Ins.
Co., 622, 632.
v. Wood, 59.
v. Woram, 27.
State Bank v. State, 250.
State Bank of Virginia v. City of Rich-
mond, 223.
State Board of peo y. Citizens’
St. Ry. Co., 181, 1

4<444
iy
o
>
»
Pr
678

CASES CITED.

[The figures refer to pages.]

State Freight Tax Case, 225.
State Ins. Co. 7% Gennett, 424.
v. Sax, 259, 4
State of Tennessee v. Whitworth, 223.
State Railroad Tax Cases, 221.
ie Tax on Railway Gross Receipts,

State Treasurer v. Pee eee 228.
Steacy v. Railroad Co., 411.
Steam Nav. Co. v. Wee $9, 631.
Steamship Co. v. Murphy, 265.
ia cep Dock Co. v. Heron’s Adm’ x,

Stebbins v. Jennings, 50.

v. Merritt, 464, 465, _ 469, 471.
Steger v. Davis, 181,

Stein v. Howard, 376. ao, 386.
Bterneoe v. Follett, 578.

v. Fox
Steuart v. Bark, 9.

Stevens v. Corbitt, 298.

v. Davison, 455, 462.

-v. Iron Co., 496.

vy. Railroad’ Co., 392, 449.

Stewart v. Jones, {43

vy. Transportation Co., 400.

Stewart Paper Manuf’g Ps z= Rau, 100.
Stilling v. Town of hor, 51

Stockton Say. Bank v taples, 129.
Stoddard v. Foundry Co.,

Stofflet v. Strome, 101, 06

Stone v. Kellogg, 337.

v. Trust Co., 211.

v. Wisconsin, 219.
fone rue Eran R. Co. v. Gould, 309,
Story v. Furman, 588.

y. Plank-Road Co., 213.
Stourbridge Canal Co. v. Wheeley, 126.
Stout v. Railroad Co., 76, 78, 80.

v. Zulick, 88, 91, 108.

Stoutimore v. Clark, "101.

Stow v. Wyse. 465.

Stowe v. Flagg, 35, 274.

Stoystown & G. Turnpike R. Co. v.
Craver, 490.

Strasburg R. Co. v. Vetere ah, 265.

Straus v. Insurance Co., 172.

Stribbling v. Bank, 84.

Strong v. McCa g: 245.

vy. Railroad 6, 347.

Stuart v. Bairoad Co., 280, 315.

Sturges v. Carter, 903) 994.

-  y, Vanderbilt, 89, 2382, 249, 597.

Stutz v. Handley, 378.

Summers v. Sleeth, 317.

Sumner v. Marcy, 451.

Supreme Council v. Perry, 458.

Susquehanna Canal Co. v. Bonham, 143.

Susquehanna Mut. Fire Ins. Co. v. El-
kins, 462.

Sutton Manutf’g Co. v. Hutchinson, 542,

Sutton’s Hospital Case, 13, 14, 35, 454.

Swan Land & Cattle Co. v. Frank, 597.

Swartwout v. Railroad Co., 97, 101, 105.

Sweney v. Talcott, 58.

 

Swift v. Smith, 67. 235.
v. State, 337.
v. Steamship Co., 139.
Sykes v. People, 73.
Symonds v. Board, 31.
Symons’ Case, 581.
Syracuse City Bank vy. Davis, 46.

T

Tabor v. Monutyeturing Co., 625.
Tafft v. Railroad Co., 429, 435.
Taft v. Railroad Co., 365, 366.
v. Ward, 23. ~
eons Railroad Co., 265, 296, 315,

Talbot v. Scripps, 391.
Talbott v. Casualty Co.. 623.
Talmage v. Pell, 128, 141, 151, 152.

cue Water-Power Co. v. Hopkins,
Tenby v. Bailey, 23.
v. Bank, 224, 496.
Tarbell v. Page, 101.
Tar River Nay. Co. v. Neal, 321.

Tatem v. Wright, 25, 616, 617

Tatum v. Howent pal, 600.

Tawas & B. C. R. Co. v. Iosco Circuit
Judge, 546, Ga

Taylor v. Bowker, 602.

v. Earle, 445.

vy. Exporting Co.,

v. Griswold, 455, it, “479.

v. Railroad Co., 372
Telegraph Co. v. Davenport, 435.

v. Texas, 226, 618.
Telfair v. Howe, 181.
Temple v. Dodge, 459.
Temple Street Cable Ry. Co.

man, 137.
Templin v. Railway 6o., ae
Ten Eyck v. Canal Co.

vy. Railroad Co., 498, wit. 532,
Tenney v. Protective Union, 28.
Terrett v. Taylor, 27.

Terry v. Little, 595.

v. Tubman. ey 599, 602.

Thacher v. King, 610.

Thayer v. Tool Co., 589.

Thebus v. Smiley, 603.

Thomas v. Board of Com'rs, 47.

vy. City of Richmond, 192.

v. Dakin, 13, 14, 17, 19, 20, 37, 49.

vy. Railroad Go., 121, 135, 136, '144,

156, 167, 172, 189, 5 pd.

v. Railway Co., 47, 511, 5
Thompson v. ‘Abbott, 556.

v. Candor, 88, 91, 94.

v. Lambert, 142.

vy. Lumber Co.

y. Meisser, 572, "296, 604.

v. Waters, 129.
Thomson v. Pacific R. R., 40.
Thorne v. Insurance Co., 627.
Thornton v. Baleom, 59,

y. Railway Co., 49, 206, 238, 249.

vy. Hell-
CASES CITED.

679

{The figures refer to pages.]

Thorpe v. Railroad Co., 207-210.
TBeaeher i Pike County R. Co., 273,

74,
y. Railroad Co., 263.

Throop v. Lithographic Co., 554, 555.
Ticonic Water Power & Manuf’g Co. v.
Lang, 281,
Tift v. Bank,

Tinsman v. Railroad Co., 30.
Tisdale v. Harris, 259.
Titcomb y. Insurance Co., 252, 260.
Titus v. President, etc., 438
y. Railroad Co., 495.
y. Turnpike Road, 526.
Todd v. Birdsall, 32.
Toledo Tie & Lumber Co. v. Thomas,
Toledo & Ann Arbor R. Co. v. Johnson,
61, 243.

Tolford v. Church, 38.

Tome v. Railroad Co., 196, 438, 526.
Tomkinson v. Railway Co., 135, 137.
Tomlinson v. Bricklayers’ Union No. 1,

v. Jessup, ‘228,
ee & P. R. Co. v. McNeely, 265,

Topping v. Bickford, 157, 159.

Torrey v. Association, 496.

Totten v. Tison, 362, 363, 367.

Towers Excelsior & Ginnery Co. v. In-
map, 182.

Town v. Bank of River Raisin, 554.

Town of Lake View v. Rose Hill Ceme-
tery Co., 208, 209.

Town of McGregor v. Baylies, 45.

Town of New Athens v. Thomas, 158.

Town of North Hempstead v. Town of
Hempstead, 82, 50.

Town of St. Albans v. National Car
Co., 222, 224.

Townsend v. Turnpike Road, 195.

Tracy v. Talmage, 192.

Tea well v. Manufacturing Co., 153,

292, 298.
118, 115.

Trevor v. Whitworth, 153, 154.

Tripp v. Bank, 486.

Eee wbriage: qeomiee, 108. Se hoe
Toy . R. Co. v. Tibbits, is

Troy & G. R. Co. v. Newton, 297, 309,

Trustees v. Flint, 459, 559.
Taraecs of, Cincinnati Tp. v. Ogden,

Trustees of Dartmouth College v. Wood-
ward, 29, 30, 35, 202, 203.
Tee of Phillips Academy v. King,

Trustees ‘of School Dist. No. 3 v. Gibbs,

Trustees of Schools v. Tatman, 30.

Trustees of Soldiers’ Orphans’ Home v.
Shaffer, 461.

Trustees of the First Society of the
Methodist Episcopal Church of New-
ark v. Clark, 102.

Trustees of University v. Winston, 30.

 

Tamas of Vernon Soc. v. Hills, 237,

Tuckahoe Canal Co. v. Tuckahoe & J.
River R. Co., 205, 212
Tucker vy. Ferguson, 228.
Tunesma v. Schuttler, 597.
Tunis v. Railroad Co., 472, 476, 479.
Turnbull v. Lumber Co., 552, 5538.
v. Payson, 577.
Turner v. Insurance Co., 196, 284.
Turnpike Co. v. Wallace, 29.
Tee Oil Co. v. Marbury, 511, 512,

13.
Tyrell y. Washburn, 23.

U

Umsted v. Buskirk, 592.
Underhill v. Improvement Co., 461, 462:
Union Bank v. Jacobs, 138, 147.
v. Laird, 414, 420, 421.
Union Cent. Life Ins. Co. v. Thomas,

626.

Union Gold Min. Co. v. Rocky Mountain
Nat. Bank, 145.

Union Hardware Co. v. Plume & At-
wood Manuf’g Co., 181.

Tee Hotel Co. v. Hersee, 297, 309,

Union Iron Co. v. Pierce, 611.
Union Loan & Trust Co. v. Southern
California Motor-Road Co., 376.
Union Mut. Life Ins. Co. v. Frear Stone
Manuf’g Co., 305, 370, 373.
v. McMillen, 627, 628.
Union Nat. Bank v. Byram, 260.
v. Hunt, 287.
Union Pac. R. Co. v. Lincoln Co., 40.
v. U. S.,
Union Passenger Ry. Co. v. Philadel-
phia, 229. :
Union Sav. Ass’n_y. Seligman, 585.
Union Switch -& Signal Co. v. Hall Sig-
nal Co., 639. :
United Society of Shakers v. Under-
wood, 516, 607.
U.S. v. City Bank, 497.
vy. BE. C. Knight Co., 240.
v. Knox, 567.
v. Memphis & L. R. R. Co., 200.
y. Southern Pac. R. Co., 638.
U.S. v. Vaughan, 426.
United States Bank v. Stearns, 84.
United States Mercantile Reporting &
Collecting Agency, In_re, 73.

United States Rolling-Stock Co, v. At-
lantic & G. W. R. Co., 510, 511, 513.
United States Trust Co. v. United States

Fire Ins. Co., 584, 585, 604.
United States Vinegar Co. v. Schlegel,

83.
Unity Ins. Co. vy. Cram, 56.
Upton y. Englehart, 289, 290.

vy. Hansbrough, 88, 100. :
y. Tribileock, 287, 290, 305, 319, 330,

3 .
680

CASES CITED.

{The figures refer to pages.]

Utley v. Mining Co., 625.
v. Tool Co., 56, 60, 94,

Vv

Vail v. Hamilton, 475.
y. Jameson, 554,
vale Ry. Co. v. Lake Erie Iron Co.,

Van Aernam v. Bleistein, 24.

Van Allen v. Assessors, 230.

Vance v. Coke Co., 540, 550.

Van Cott v. Van Brunt, 376, 387.

Vanderpoel v. Gorman, 486.

Vanderwerken v. Glenn, 6u1.

Van Dyck v. McQuade, 353, 515, GOT.

Van Houten v. McKelway, 28

Van Kirk vy. Clark, 32.

Vanneman v. Young, 58.

Van Norman y. Jackson Circuit Judge.
259, 260. ,

Vansands y. Bank, 458

Varnum vy. Hart, 554.

Vater v. Lewis, 101.

Vawter v. Griffin, 259.

Veeder v. Mudgett, 860, 568, 587

Vent v. Spice Co. ., 153.

Vermont Cent. R. Co. v. Claves, 315.

Verplanck v. Insurance Co., 245.

Vestry of St. Luke’s Church v. Ma-
thews, 456, 458.

Vidal v. Mayor, etc., 133.

‘Wineennes University vy. State of In-
diana, 4' .

Visalia Gas & Electric Light Co. y.
Sims, 189.

Von Phue v. Hammer, 47.

Voorhis vy. Terhune, 260.

Vowell vy. Thompson, 475.

Vreeland y. Stone Co., 277, 278, 284.

W
Meee Cotton Mills Co. v. Burns,

Wahlig v. Manufacturing Co., 496, 501.
Wakefield v. Fargo, 578.
Wakeman y. Dalley, 5381.
Walburn y. Chenault, 380.
Walker vy. Detroit Transit Ry. Co., 441.
. Devereaux,
. Railroad Co., 284, 285, 287, 288,
429, 481.
Wall v. Society. 625.
Wallace vy. Loomis, 44, 45.
vy. Townsend, 268, 269,
Walstab v. Spottiswoode, 112.
Walter A. Wood Harvester Co. v. Rob-
bins, 262, 267, 317.
Walton v. Riley, 58.
Walworth v. Brackett, 61.
Walworth County Bank vy. Farmers’
Loan & Trust Co., 495.
Ward y. Brigham 109.
v. Farwell, 208 211, 240,
Y. Johnson, 147
vy. Railroad Co., 89.

 

Wardell vy. Railroad Co., 506, 509, 511,

Wardens of Christ Church v. Pope, 482.

Wardle vy. Townsend, 39.

Ware y. Shoe Co., 618.

Warfield v. Ganning Co., 554.

Waring v. Catawba Co. ,3.

Warner vy. Beers, 2, 15, "18, 19, 21, 23.
v. Mower, 465, "472.

Warren v. Insurance Co., 6.
vy. King, 365.

Washburn y. Green, 378.

a Mill. Co. vy. Bartlett, 626,

Woszington Ins. Co. v. Price, 9.

Washington Savy. Bank vy. Butchers’ &
Drovers’ Bask 594, 601.

Washington & B . Turn ike Co. v. Bal-
timore & O. 305.

Waterbury v. ee Co., 245, 400.

Watson y. Jones, 28.

Watt’s Appeal, 400, 507, 515, 607.

Wayne Pike Co. v. Hammons, 393, 505,

520.

Weatherford, W. & N. W. Ry. Co.
v. Granger, 1s-Li6.
Webb v., Railroad Co, 259, 278, 296-

= Rides 476.
Webber v. College, 496.
Webster y. Upton, 330, 411.
Wechselberg v. Bank, 110.
Weysler v. Bank, 135, 137, 502, 526,

Weeks v. Love, 596, 597.
Weinman vy. Railway Co., 47, 100, 107.
Weiss v. Iron Co., 263.
Welch v. Bank, 513.
Welland Canal Co. v. Hathaway, 103.
Welles v. pees 583-585.
Wellington & P. R. Co. v. Cashie & C
R. & L. Co. 80.
Wells v. Gates, 22, 23,
v. Rodgers, 328,
Wells, Fargo & Co. v. Northern Pac.
R. Co., 68, 70.

Wemple v. Railroad Co., 278, 317.

Wenlock v. River Dee Go. 145, 179.
Wert v. Turnpike Co., 287.
West v. Crawford, 272, 310.
v. Ditching Co., 57.
West Chester & P. R. Co. v. Jackson,
351, 363.
Wegeern Bank of Scotland vy. Addie,

Western News Co. Wilmarth, 196.
Western Screw & Manut'g Co. v. Cous-
ley, 118.
Meee Union Tel. Co. v. Davenport,
sWeutarriit v. Demarest, 531.
Westman v. Krumweide, 307.
Weston v. Hunt, 27
v. Mining Co., 424.
Weston’s Casé, 407: 581.
West River Bridge Co. yv. Dix, 212.
West Wine hy. Co. v. Board of
Sup’rs., 227, 2
CASES CITED.

68!

[The figures refer to pages.]

Wetherbee v. Baker, 381, 592, 593.
Weyer v. Bank, 480.
Wheeler v. Millar, 604.
y. Sleigh Co., 348, 349, 355.
Wheeler, Osgood & Co. v. Everett Land
Co., 149.
Wheeler & W. Manuf’g Co. v. Boyce,
194, 197, 527.
Wheelock v. Kost, 100, 584.
y. Moulton, 7, 8.
Whipple v. Parker, 110.
Whitaker v. Canal Co., 127.
y. Masterton, 610.
Whitbeck v. Bank, 227.
White v. Bank, 177, 189, 192.
vy. Howard, 131, 631, 682.
v. Railroad Co., 146, a
Whitehill v. Jacobs, 380, 3
White Sanomene . Co. - “Eastman,

305, f
White River ees Co. v. Vermont
Cent. Co., 205, 212.

White Water Seite Canal Co. v. Boden,
v. Vallette, 146.

ee Agricultural Co. v. Strand,
6

Whitney v. Butler, 580, 581.
y. City of Madison, 224.
v. Robinson, 88, 101.
v. Wyman, 104, 114.
Whitney “Arms Co. v. Barlow, 187, 180.
181, 188, 610.
Whittemore vy. Gibbs, 259.
Whittenton Mills v. Upton, 150.
Wickersham yv. Zine Co., 504.
Wiggin v. Elder, 465.
Wight v. Railroad Co., 287, 288, 301,
307, 315, 484.
Wildy. Bank of Passamaquoddy, 497.
Wilde v. Jenkins, 235.
Wiles v. Suydam, 575, 611.
Wilkins v. Thorne, 639.
Wilkinson vy. Bauerle, 486, 512, 515,
558, 554, 607-609.
Willamette Freighting Co. v. Stannus.

Willeocks, Ex parte, 470, 475.
ans v. Bank, 23, 48, 84, 419, 424.
v. Cheney, 629.
vy. Evans, 385, 387.
v. Hewitt, 104, 110.
¥. McDonald, 516, 607.
v. McKay, 518.
vy. Manufacturing oe 154,
vy. Taylor, 324,
vy. top oe 256, 347, 350,

Traphagen, 603.
Williams Case, 583.
Williamson y. ‘Association, 88, 91, 97.
vy. Smoot, 7, 614.
Willis v. Chapman, 23, 52.
¥. Mabon, 567, 569, 570.
Williston vy. Railroad Co., 353, 365, 366.
Wilmington R. R. v. Reid, 227
Winiiegten & W. R. Co. v. Alsbrook,

 

Wilson vy. Fire-Alarm Co., 635.
vy. Proprietors Central Bridge, 475.
Winch v. Railway Co.,
Wincham Ship-Building, Boiler & Salt
Co., In re, 609.
597, 605.

Wincock v. Turpin

Wane sen aulectris Light Co. v. Tandy,

Wing v. Slater, 570.

Winget v. Association, 92, 101, 107.

Winston v. Brooks, 305.

Winter v. Baldwin, 339.

Winter v. Montgomery Gaslight Co.,
422, 430.

Winters v. Armstrong, 309.

Wisconsin Tel. Co. v. City of Oshkosh,

Wire v. Fishing Co.. 159.
Witters v. Sowles, 586.
Wolfe v. Underwood, ale
Wolters y. Henningsan, 6 05.
Wood v. Dummer, 345, 373, 539, 540,
542, 548, 563, 564.
Hammond, 168.
Woodbary y. Railroad Co., 147.
Woodbury Heights Land Co. v. Loud-
enslager, 117, 119.
Woodruff ‘vy. McDonald, 281.
v. Railroad Co., 4 480.
Woodruft’s Estate, In re, 357.
ors Medical Inst. v. Harding,

v. Willard,
67, 321.
Wright v. Hughes, 139, 142, 145, 165,
181, 184.

v. Lee, 88, oh 05, 447, 468, 486, 491,
614, 626, 629.

Mec oinieL 598.

. Pipe Line Go. ., 181, 182.

. Railroad Co., 228.

Water Co., 472, 478, 534.

Wyles y. Suydam, 602.

¥
Yakima Nat. Bank v. Knipe, 84.
Yale Gas-Stove Co. v. Wilcox, 117.
Yanish v. Fuel Co., 161.
Yarborough v. Bank, 1938, 194.
Yardley v. Wilgus, 586. ce
Yeaton v. Bank of Old Dominion, 52,

58, 218, 214.
Yellowjacket Silver Min. Co. v. Steven-

Re cuiae Turnpike Corp.

Saada

490.
York’ Park Bldg. Ass’n v. Barnes. 70,

305.
one & M. L. R. Co. v. Winans, 189.
mows v. it Go,, 260, 380, 388.
McKay,
‘Peuneiove y. Lime Co., 572, 598, 599,
602.

Z
Zabriskie v. Railroad Co., 204, 216, 393,
397 453.

‘, 2 »

“Zimmer v. State, 202,

203.
Zinn y. Mendel, 530, 581, 608.
INDEX.

[THE FIGURES REFER TO PAGES.]

A
ABANDONMENT,

of charter, 235.
of business and franchises, 236,
of articles of association, 282.

ABATEMENT AND REVIVAL,
see “Actions.”

ABUSE OF POWER,
see “Forfeiture of Charter”; “Officers and Agents’; “Powers and Liabilities
of Corporation.”

ACCEPTANCE,
of charter, 50-54.
of amendment of charter, 53, 54, 213.
presumption from conduct, 51, 53.
power of majority to accept amendment of charter, 444, 447.
of subscription to stock, 261, 264.
by state of surrender of charter, 235.

ACCOMMODATION PAPER,
power of corporation to execute, 134, 148.
negotiable paper, bona fide purchasers, 175.

ACCOUNTING,
by officers, see ‘Officers and Agents.”

ACTIONS,
power of corporation to sue, 122.
between the corporation and its members, 8.
by stockholder against corporation for dividend, 341, 351.
against corporation for refusal to recognize transfer of shares, 440.
ly corporation on subscriptions, 318-321.
by and against corporation after dissolution, 249.
by corporation against officers and agents, 514, 519.
by stockholders against officers and agents, 534.
by stockholders for injuries to corporation, and interfer¢nce in management,
7, 11, 389-401.
at law, 7, 389, 391.
Clk. Pr.Corp. (683)
684 INDEX.

[The figures refer to pages.]

ACTIONS—Continued,
in equity, 11, 389, 392.
acts within power of majority, and discretionary powers, 395.
the rule as stated by the United States supreme court, 398.
laches and estoppel, 399.
motive of stockholder suing, 400.
parties to suits, 400.
abatement and revival, dissolution of corporation, 249.
action to enforce liability of stockholder to creditors, 587.
by and against foreign corporations, 633 et seq.
by creditors of corporation, see ‘Creditors of Corporations.”

AGENCY,
subscriptions by agent, 291.
effect of want of authority, 291.
agents of corporation, see “Officers and Agents.”

AGGREGATE CORPORATIONS,
in general, 1, 26.
see ‘‘Corporations.”

AGREEMENTS, z
between corporators, 64.
between corporators and the corporation, 64,
between corporation and the state, acceptance of charter, 50-54.
see “Contracts”; ‘Stockholders and Members.”

ALIENS,
as corporators, 66.
as subscribers to stock, 275,

ALLOTMENT,
of shares, 313.

ALTERATION,
of subscription, 282.
of charter, see “Amendment”; “Majority”; ‘State Control.”

AMENDMENT,

of charter, power of state, see “State Control.”
acceptance, 53, 54, 213.
general and special laws, 44, 45.
as a release of subscribers, 331.
to authorize preferred stock, 364,
power of majority, 444, 447,

of by-laws, 461,
INDEX 685
[The figures refer to pages.]

AMOTION,

of officers, 583.

by-laws, 455.

expulsion of members, 401-405.
APPOINTMENT,

of agents, see ‘‘Ofticers and Agents.”
ARTICLES OF ASSOCIATION,

necessity for, and sufficiency, 56 et seq.

filing or recording, 57.

publishing, 57.

see “Charters”; “Creation of Corporations’; “De Facto Corporations’;
“Hstoppel.”
ASSAULT AND BATTHRY,
see “Torts.”

ASSESSMENTS AND CALLS,

in general, 322-827.

necessity, 323.

validity, 325.

notice and demand, 327.

interest, 327.

action by corporation, 318-321.

liability after transfer of shares, 410.
ASSETS,

as a trust fund, see “Creditors of Corporations.”
ASSIGNMENT,

of unpaid subscription to stock, 328.

by corporation for benefit of creditors, 553.

of shares, see ‘“Transfer of Shares.”
ASSUMPSIT,

see “Actions.”
ATTACHMENT,

of shares of stock, 257, 259.

of corporate property, 538.

of property of foreign corporation, 636,
ATTRIBUTES,

of corporation, 12 et seq.
686 INDEX.

{The figures refer tc pages.]

B
BANKING CORPORATIONS,

powers, lending money, 128.
buying notes, etc., 128.
purchase of real or personal property, 140, 141.
see heading relating to particular point.
BEQUEST,
income and profits of shares, 354,
BILLS AND NOTES,
see “Contracts.”
BOARD OF DIRECTORS,
see “Officers and Agents.”
BONDS,
see “Contracts.”
BONUS STOCK,
see “Watered and Bonus Stock.”
BOOKS, -
inspection by stockholders or members, 336-339.
as evidence, see “Evidence.”
BORROWING,
see “Contracts.”
BY-LAWS,
in full, 454462.
by whom enacted, 454.
must be proved, not judicially noticed, 455.
_ validity, 455 et seq.
providing for election, appointment, and removal of officers, 455.

limiting powers and prescribing duties of officers and agents, 455, 497.

provision for corporate meetings, 455.
regulating right to vote, 455.

regulating transfer of shares, 407, 455, 457.
providing for expulsion of members, 456.
must be consistent with law, 456.

restraint of trade, 456.

giving lien on shares, 413, +457.

providing for forfeiture of shares, 456, 458,
must be reasonable, 455, 456.

must be general, 456.

must be consistent with charter, 458.
cannot deprive stockholder of contract rights, 459,
INDEX. 687
(The figures refer to pages]

BY-LA WS—Continued,
partial invalidity, 459.
effect as to stockholders, 460.
effect as to third persons, 460.
repea] and amendment, 461.
waiver of by-laws, 462.
violation by officers, liability to cdrporation, 515.

Cc
CALLS AND ASSESSMENTS,
in general, 322-327.
necessity, 323.
validity, 325.
notice and demand, 327. we

interest, 327.
action by corporation, 318-321.
liability after transfer of shares, 410.

CAPACITY,
of corporators, 64,

CAPITAL STOCK,
defined, 256.
increase of, 358.
subscriptions and payment thereof, 359.
unauthorized increase, 360.
shareholder’s right to preference, 360.
preferred stock, 361-368.
defined, 361, 362.
power to create, 361, 362.
amendment of charter authorizing, 364.
laches and estoppel of stockholders, 364.
rights and liabilities of holders of, 365.
dividends, 865.
liability to creditors, 367.
status as creditors and not stockholders, 365, 367.
watered and bonus stock, 368-389.
defined, 368.
effect as to corporation, 368, 369.
effect as to stockholders, 368, 371.
effect as to creditors, 368, 372.
payment of original subscriptions, 368, 372.
increase of capital stock, 368, 374.
688 INDEX.
{The figures refer to pages.)

CAPITAL STOCK—Continued,
issue of stock at market value by active corporation to pay debts,
etc., 868, 375.
gratuitous issue of stock, 369, 378.
payment for stock in property or services, 369, 379.
value of property or services, 369, 379.
creditors who cannot complain, 369, 383.
effect of constitutional and statutory provisions, 369, 3&4.
liability of transferees, 388.
power of corporation to acquire and hold stock, 184, 151-155.
certificates of stock, see ‘‘Certificates.”
subscriptions, see “Subscriptions to Stock.”
transfer, see ‘Transfer of Shares.”
as a trust fund, see “Creditors of Corporations.”

CASHIER,
see “Officers and Agents.’

CERTIFICATES,
of incorporation, necessity for and sufficiency, 56 et seq.
filing or recording, 57.
publishing, 57.
see ‘“‘De Facto Corporations”; ‘Estoppel.”
of stock, nature of, 260, 316.
not necessary to membership in corporation, 260. 316.
new certificate on transfer of shares, 427.
compelling issuance, 441.
forged and unauthorized certificates, 427, 434, 437.
liability of indorser, 434.
liability of-corporation, 437.
CHARITABLE CORPORATIONS,
nature, 26, 28.
CHARTER,
authority from the state essential to corporate existence, 33.
power to grant charter, 33.
power of state legislatures, 34.
grant of exclusive privileges, 36.
enactment of acts, two-thirds vote, 87.
restriction as to subject and title of acts, 37.
restrictions in federal constitution, 37, 38.
power of congress, 34, 39.
corporations in District of Columbia, 40.
power of territorial legislatures, 34, 40.
presumption of charter, prescription, 34, 35.
INDEX. 689
[The figures refer to pages.]

CHARTER—Continued,
delegation of power to create corporations, 34, 40.
performance of ministerial acts, 34, 41.
general and special laws, 42-48.
limitation on power of territorial legislature, 40.
distinction between general and special law, 42.
conferring additional privileges or powers, 42, 44,
amendment of charter, 44, 45.
“special” law defined, 46.
ratification of claim to corporate existence, 48.
intention to create a body corporate, 49.
acceptance of charter, 50-54.
withdrawal or repeal of offered charter or enabling act, 50, 52. -
presumption of acceptance, 51, 53.
who may accept, 52.
acceptance of amendment, 53.
who may accept, 54.
see “Amendment.”
place of organization, outside the state, 54.
compliance with conditions precedent, 55-63.
substantial compliance sufficient, 55, 59.
directory provisions, 55, 60.
conditions subsequent, distinguished, 56, 61.
who may object, de facto corporations, 56, 62.
estoppel, 56, 62.
particular conditions, 56-62.
surrender, 235.
extension of, 81.
distinguished from creation of new corporation, 81.
effect, 81.
expiration, 89, 232.
construction of, in general, 124.
in favor of the public in cases of doubt, 125.
general terms following special terms, 125, 127.
express mention and implied exclusion, 125, 128, 129.
intention to create a body corporate, 49.
purpose of incorporation, 67, 69.
see “Powers and Liabilities.”
forfeiture, see ‘‘Dissolution”; ‘Forfeiture of Charter.”
as a contract not to be impaired, see “State Control.”
amendment, see “Amendment.”
CITIZEN,
corporation as a, 24,
Clk. Pr.Corp.—44
690 INDEX.
(The figures refer to pages.]

CITIZENSHIP,
of corporation, 74-80.
for purpose of jurisdiction of federal courts, 75-80.
where there are charters from several states, 75, 77.
charter distinguished from license, 75, 80.
see “Foreign Corporations.”

CIVIL CORPORATION,
defined, 26, 28,

COMPANIES,
see “Corporations”; “Joint-Stock Company.”

COMPENSATION,
of officers, 531.

CONDITIONS PRECEDENT,

to formation of corporation, 55-63.
substantial compliance sufficient, 55, 59.
directory provisions, 55, 60.
conditions subsequent, distinguished, 56, 61.
who may object, de facto corporations, 56, 62.

estoppel, 56, 62.

particular conditions, 56-62.

in contract of subscription, 294-302.
after incorporation, 296.
prior to incorporation, 299.
must be expressed in the writing, 301.
waiver, 301.
distinguished from special terms, 295, 302.

CONDITIONS SUBSEQUENT,
distinguished from conditions precedent to incorporation, 61.
in subscriptions to stock, 302.
distinguished from conditions precedent, 295, 302.
validity, 304.
who may receive, 306.

CONFLICT OF LAWS,

power to take and hold property, 131.

transfer of shares, 417.
CONGRESS,

power to create corporations, 34, 39.

in District of Columbia, 34, 40.

CONSIDERATION,

for subscription to stock, 267, 271.
INDEX, 691
{The figures refer to pages.]

CONSOLIDATION,
power of corporations to consolidate, 136,
effect as to creditors, 556.

CONSPIRACY,
liability of corporations, 198, 196.
see “Torts.”

CONSTITUTIONAL LIMITATIONS,
on power of state legislatures to create corporations, 34, 37.
requirement of two-thirds vote, 37.
restrictions as to subject and title of acts, 37.
grant of exclusive privileges, 36.
general and special laws, 42-48.
distinction, 42.
conferring additional privileges or powers, 42, 44.
“special” law defined, 46.
restrictions of federal constitution, 37, 38.
power of congress to create, 34, 39.
in District of Columbia, 34, 40.
federal corporation not controllable by states, 40.
territorial corporations, 34, 40.
delegation of power to create corporations, 34, 40.
performance of ministerial acts, 34, 41.
the charter as a contract not to be impaired, see “State’s Control.”
impairing rights of creditors, 574, 575.

CONSTRUCTION,
of charters, see “Charters.”

CONTINUOUS SUCCESSION,
the attribute of, 12, 15.

CONTRACTS,

power to contract, in general, 120 et seq., 133.

purchase of real and personal property, 128, 135-142.

sale, conveyance, lease, mortgage, or pledge, 134, 136, 188, 142.
railroad and other quasi public corporations, 134, 136, 188, 148.
sale or mortgage of franchise, 134, 143.

borrowing money, 184, 145.

executing bonds, 134, 146.

negotiable instruments, 184, 147.

suretyship and guaranty, 134, 136, 148.

accommodation paper, 184, 148.

contracts of partnership, 134, 150,

joint contracts, 184, 151.
692 INDEX.
(The figures refer to pages.]

CONTRACTS—Continued,
subscription for or purchase of stock in another corporation, 184, 151.
taking and holding stock to secure, or in payment of debt, 134, 152.
purchase of its own stock, 135, 153-155.
taking and holding stock to secure, or in payment of debt, 135, 154.
presumption of power to contract, 135, 155.
lending money, 128.
subscription to expenses of festival, etc., 137.
offer of reward for apprehension of criminals, 139.
form and mode of corporate contracts, 156-162.
seal, 19, 156, 157, 160.
effect of seal, 162.
appointment of agent, 157.
implied contracts, 158.
quasi contract, 158.
requirement of writing, 159.
effect of ultra vires contract, see “Ultra Vires.”
illegal contracts, see ‘‘Ultra Vires.” ‘
of members, not binding on corporation, 7.
between corporators, 64.
between corporators and the corporation, 64.
between the corporation and the state, acceptance of charter, 50-54.
the charter as a contract not to be impaired, see “State Control.”
by promoters, 111, 112, 117.
subscriptions, see “Subscriptions to Stock.”
for sale of shares, statute of frauds, 258, 259.
between stockholder or member and corporation, 8, 504.
between officers and corporation, 508 et seq.
liability of officers and agents to third persons, 521,
of foreign corporations, 632.

CONTRIBUTION,
between stockholders, 604.

CONVEYANCES,
of corporate property by members, 6, 7.
between members and the corporation, 8.
power to take, 128, 135-142.
power to make, 184, 136, 138, 142.
railroad and other quasi public corporations, 184, 136, 138, 143.
conveyance of franchisé, 134, 143.

CORPORATE ENTITY,
explained, 5 et seq.
INDEX. 693

[The figures refer to pages.]

CORPORATE NAME,
in general, 17, 122.

CORPORATION,
defined, 1.
as a legal entity, 5, 16.
as a collection of individuals, 9.
attributes and incidents, 12.
distinguished from partnership, 12 et seq.
from unincorporated joint stock company, 21.
as a person, citizen, inhabitant, etc., 24.
kinds of corporations, 26.
sole and aggregate, 26, 27.
religious or ecclesiastical, 26, 28.
eleemosynary, 26, 28.
civil, 26, 28.
public and private, 26, 29.
stock and nonstock, 26, 31.
quasi corporations, 26, 31.
by prescription, 34, 36.
de facto, see “De Facto Corporations.”
foreign corporations de facto, 632.
distinction between corporation and its members, 1-11.

CORPORATORS,
agreement between, 64.
agreement between corporators and corporation, G4.
who may become, 64.
number of, 56, 64.
see “Stockholders or Members.”
COVERTURE,
see “Married Women.”

CREATION OF CORPORATIONS,

in general, 33 et seq.

power to create, 33.
state legislatures, 34, 36.
congress of the United States, 34, 39.
in District of Columbia, 34, 40.
territorial legislatures, 34, 40.
corporations by prescription, 34, 35.
delegation of power, 34, 40.

general and special laws, 42.
constitutional restriction, 43.

ratification of claim to corporate existence, 48.
694 INDEX
[The figures refer tu pages.]

CREATION OF CORPORATIONS—Continued,
intention to create, 49. :
agreement between corporation and the state, acceptance of charter, 50.
place of organization, 54.
compliance with conditions precedent, 55.
articles of association or certificate, necessity and sufficiency, 56 et seq.
filing or recording, 57.
publishing, 57.
see “De Facto Corporations”; ‘‘Hstoppel.
agreement between corporation and corporators, 64.
who may become corporators, 64.
number of corporators, 64, 66.
purpose of incorporation, 67.
corporations in restraint of trade, 67, 71.
corporate name, 71.
residence and citizenship of corporations, 74.
corresponding charters in several states, 74, 77.
recognition of foreign corporation distinguished, 74, 80.
extension of charter or creation of new corporation, 81.
proof of corporate existence, 82.
for particular questions, see specific heads.
CREDITORS OF CORPORATIONS,
- relation between creditors and the corporation, 587-557.
remedies in general, 537.
property subject to execution, 588.
assets of a corporation as a trust fund for creditors, 539-546.
interference in management of corporation, 546.
fraudulent conveyances and transfers, 549.
subsequent creditors, 550.
necessity for judgment before attacking, 551,
suits for injunction and receiver, 552.
assignment for benefit of creditors, 553.
right to prefer creditors, 553. Y
-dissolution of corporation, effect, 555.
_ effect of consolidation of corporations, 556.
extension of charter, new corporation, 556. ¥
set-off by debtor of corporation, 557.
relation between creditors and stockholders, 558~-G05.
liability of stockholders to creditors at common law, 18, 558-564.
liability on subscriptions, 559-562.
conditional subscriptions, 560.
subscriptions on special terms, 560.
release of subscriber by corporation, 561.
INDEX. 695
[The figures refer to pages.]

CREDITORS OF CORPORATIONS—Continued,
liability of holders of watered or bonus stock, 368, 372-389, 561.
original subscriptions, 368, 372.
increase of capital stock, 368, 374.
issue of stock at market value by going corporation to pay debts,
etc., 368, 375.
gratuitous issue of stock, 369, 378.
payment for stock in property or services, 369, 379.
value of property or services, 369, 379.
creditors who cannot complain, 369, 383.
effect of constitutional and statutory provisions, 369, 384.
liability of transferees, 388.
rights as to profits and dividends, 562.
diversion of capital, unauthorized dividends, 563.
preferred stockholders, 367, 564.
statutory liability of stockholders to creditors, 564-589.
may be excluded by express agreement, 566.
unpaid installment of subscriptions, 566.
unlimited statutory liability, 566.
limited liability, 567.
liability until capital is paid in, 568.
constitutional provisions, 569.
effect of dissolution of corporation, 569.
nature of liability, whether penal or contractual, 569.
nature of contractual liability, 570.
what constitutes dissolution for purpose of statute, OTe:
“debts,” “demands,” etc., within the statutes, 572.
debts due clerks, laborers, ete., 573.
excepted classes of corporation, 574.
release or discharge of corporation, 574.
constitutional law, laws affecting existing corporations, 574.
repeal or change of law, 575.
extraterritorial effect of statutes, 575.
who liable as stockholders under the statutes, 576.
general rule, 577.
shares registered in name of person without his knowledge, 578.
effect of transfer of shares, 578.
registration of transfer, 580.
transfer to person incapable of assuming liability, 581.
to infant, 581.
to corporation, 58L.
to insolvent, 582.
sham or colorable transfers, 582.
696 INDEX.
(The figures refer to pages.]

CREDITORS OF CORPORATIONS—Continued,
transfers after suspension of business, 583.
pledgees, 583.
trustees, executors, agents, etc., 585.
election between apparent and real owner, 586.
assignees in bankruptcy or insolvency, 586.
married women, 586.
death of stockholder, survival of liability, 587.
forfeiture of stock, 587.
holders of unauthorized stock, 587.
status of preferred stockholders, whether creditors, 365, 367.
who may enforce statutory liability, 588.
stockholders or officers who are creditors, 588.
remedies of creditors against stockholders, 589.
common-law liability on subscriptions, etc., 590.
action by assignee for creditors or in bankruptcy, 590.
action at law by creditors, 591.
general ereditors’ bill in equity, 591.
suit for appointment of receiver, 591.
parties to suit, 592.
necessity for calls, 593.
statutory remedies, 594,
statutory liability, 594.
where the statute gives a remedy, 594.
where no remedy is prescribed, 595.
necessity for judgment against corporation, 597.
effect of judgment against corporation, 599.
statute of limitations, 600.
liability on subscription, 600.
statutory liability, G01.
set-off by stockholders, 602.
contribution among stockholders, 604.
relation between creditors and officers, 605-611.
liability of officers to creditors at common law, 605.
preferences to officers who are creditors, 608.
statutory liability, 609.

CRIMES,

responsibility of corporation, 197.
CUMULATIVE VOTING,

at stockholders’ meetings, 478,

CURATIVE ACTS,
ratifying claim to corporate existence, 48.
INDEX, 697

[The figures refer to pages.]

D
DEBTS,

see “Powers and Liabilities.”

DECEIT,
see “Torts.”

DEEDS,
see “Contracts”; ‘‘Conveyances.”

DE FACTO CORPORATIONS,

defined, 86.

status and powers, 86, 87.

foreign de facto corporations, 88, 632.

de facto existence after expiration of charter, 89.

what necessary to constitute, 90-98.
valid law authorizing incorporation, 92,
bona fide attempt to organize, 62, 93.
sufficiency of compliance with law, 94.
user of corporate powers, 95.
fraudulent attempt to organize, 96.

doctrine is distinct from doctrine of estoppel, 96.
see “Estoppel.”

DB FACTO DIRECTORS,
see “Officers and Agents.”

DEFINITIONS,
corporation, 1.
unincorporated joint-stock company, 21,
sole corporation, 26, 27.
aggregate corporation, 1, 26, 27.
religious corporation, 26, 28.
ecclesiastical corporation, 26, 28.
eleemosynary corporation, 26, 28,
lay corporation, 28.
civil corporation, 26, 28.
public corporation, 26, 29.
private corporation, 26, 29.
stock corporation, 26, 31.
nonstock corporation, 26, 31.
quasi corporations, 26, 31.
foreign corporations, 74-80, 612.
corporations by prescription, 34, 36.
capital, 256.
capital stock, 256.
698 INDEX
[The figures refer to pages.]

DEFINITION—Continued,
shares, 257.
certificates of stock, 260.
common stock, 362.
preferred stock, 362.
guarantied stock, 362.
dividend, 342.
stock dividend, 350.

DELEGATION,
of power to create corporation, 34, 40.
performance of ministerial acts, 34, 41.

DEPOSIT,
payment of, by subscriber, 313.

DEVISH,
to corporation, 129, 131.

DIRECTORS,
see “Officers and Agents.”

DISCHARGE,
of subscriber, see “Subscriptions to Stock.”

DISSOLUTION OF CORPORATION,
how effected, 231-248.
expiration of charter, 232.
by act of the legislature, 201, 218, 233.
loss of integral part, death or loss of members, 234,
surrender of charter, 235.
loss or surrender of property, 236.
abandonment of franchises or business, 236,
forfeiture of charter, 237.
who may declare, 287, 242.
necessity for judicial proceeding, 287, 238.
when forfeiture will be decreed, 288, 239,
waiver of forfeiture, 241.
modes of proceeding to enforce, 244,
equity jurisdiction, 245,
effect of dissolution, 248.
exercise of corporate powers, 249.
actions and proceedings after dissolution, 249.
judgment rendered after dissolution, 249.
extinguishment of debts, 250.
reversion and escheat of property, 250-252,
equity jurisdiction over assets, 250.
INDEX. 699
[The figures reter to pages.]

DISSOLUTION OF CORPORATION—Continued,
effect as to creditors, 555.

acts of members as acts of corporation, fur purpose of forfeiture, 9.

extension of charter, 81.
DISTRIBUTION,

of shares in case of excessive subscriptions, 308, 313.
DIVIDENDS,

rights as to profits and dividends, 340-358.

“dividend” defined, and distinguished from profits, “42.

no right to profits until dividend declared, 342.

right to dividend vests when it is declared, 342, 343.

when dividends may be declared, 344.

discretion of directors as to declaring, 3-7.

who entitled to dividends, 348.

effect of transfer of shares, 348, 349, 412,

how payable, 350.

stock dividends, 350.

set off against debt due to corporation, 351.

remedies of stockholders, 351.

interest, 352.

statute of limitations, 352.

remedies where dividends are improperly paid, 353.

on preferred stock, 365.

grants and bequests of income and profits of stock, 354-358.

rights as between life tenant and remainder-man, 354-358.
DOMICILE,

see “Citizenship”; ‘Foreign Corporations.”
DRUNKEN PERSONS,

as subscribers to stock, 275.

E

ECCLESIASTICAL CORPORATION, .
defined, 28.

ELECTIONS,
see “Meeting of Stockholders”; ‘Officers and Agents.”

ELEEMOSYNARY CORPORATION,
defined, 26, 28.

EMINENT DOMAIN,
power of state, 211.
ENTITY,
corporate entity explained, 5 et seq.
700 INDEX.
(The figures refer to pages.]

EQUITY,

suits by stockholders, interference in management, 389-401.
acts within power of majority, and discretionary powers, 395.
rule stated by the United States supreme court, 398.
laches and estoppel, 399.
motive of stockholder suing, 400.
parties to suit, 400.
to compel declaration of dividend, 347, 351.

jurisdiction to dissolve corporation, 245.

jurisdiction over assets of dissolved corporation, 250.

suits by creditors, see “Creditors of Corporations.”

ESCHEAT,
of property on dissolution of corporation, 250-252,

ESCROW,
conditional delivery of subscription, 306.

ESTOPPEL,
by contract or otherwise, to deny organization and existence of corporation,
62, 99-108.

necessity for recognition of corporate existence 102.
the doctrine based upon equitable grounds, 103.
unlawful assumption of corporate powers, 104.
the doctrine not limited to de facto corporations, 99.

of subscriber to stock, to deny corporate existence, 100.
to dispute validity of subscription, 335.

EVIDENCE,
proof of corporate existence, 82-85.
of acceptance of charter, presumption, 51, 53.
of amendment, 53.
presumption of charter, corporations by prescription, 34, 36.
presumptions of corporate power, 129, 135, 155.
parol evidence of condition in subscription, 301,
oral subscriptions to stock, 277, 278.
EXCLUSIVE PRIVILEGES,
power to grant, 36.
power of state, 205.
EXECUTION,
property of corporation subject to, 538.
levy upon shares of stock, 257, 259.

EXECUTOR OR ADMINISTRATOR,
power of corporation to act as, 132,
INDEX. 701
[The figures refer to pages.]

BXEMPLARY DAMAGES,
see “Torts.”

EXEMPTION,
from taxation, see “Taxation.”

EXPIRATION OF CHARTER,
extension, 81.
effect, 89.

EXPULSION,
of members, 401-405.
by-laws, 456.

EXTENSION OF CHARTHSR,
in general, 81.
distinguished from creation of new corporation, 81,
effect, 81.

F
FEDERAL CORPORATIONS,
power of congress to create, 34, 39.
in District of Columbia, 34, 40.
not controllable by the states, 40.

FOREIGN CORPORATIONS,
defined, 74-80, 612.
status, in general, 612.
power to act.in another jurisdiction, 613.
comity, 613, 615.
right to exclude or impose conditions, 615.
taxation, 616.
requiring deposit, 617.
requiring appointment of agent, and submission to jurisdiction of courts,
617.
interstate commerce, 617, 618.
absolute exclusion, sufficiency of grounds, 618, 619.
foreign corporation in fraud of the laws of a state, or contrary to its policy,
620.
retaliatory statutes, 622.
what constitutes “doing business” in the state, 623.
effect of noncompliance with statute, contracts, etc., 626.
estoppel, 628.
powers of foreign corporation, limitation of its charter, 630.
limitation of the local law, 631.
foreign corporations de facto, 88, 632.
rights and immunities of members, 632.
702 INDEX.
[The figures refer to pages.]

FOREIGN CORPORATIONS—Continued,

quo warranto and mandamus, 632,

actions by, 633, 634.

actions against, 633, 634.
service of process, 634, 635.
attachment of property, 636.
effect of judgment against, 636.
jurisdiction of federal courts, 637.

visitorial power of state over foreign corporation, 639.
cannot enforce forfeiture of charter, 639.
other illustrations, 689, 640.
dissolution, 640.

FORFEITURE OF CHARTER,
in general, 237-244,
vacation by legislature, 218, 233.
who may enforce, 237, 242.
necessity for judicial proceedings, 237, 238.
when forfeiture will be decreed, 238, 239.
waiver of forfeiture, 241.
modes of proceedings to enforce, 244,
equity jurisdiction, 245.
‘see ‘‘Dissolution.”

FORFEITURE OF SHARES,
for nonpayment of assessments, 318, 319.
action and forfeiture as cumulative remedies, 318, 321.
etfect, 821, 3384.
by-laws, 456, 458.

FORGED TRANSFER,
see “Transfer of Shares.”

FORMATION,
see ‘Creation of Corporations.”

FRANCHISE,
see “Creation of Corporations’; “Powere and Liabilities.”

FRAUD,
liability of corporation, 198, 195.
see “Officers and Agents”; ‘Torts.’
in procuring subscriptions to stock, 283.
authority of agents, 284.
what constitutes fraud, 285.
effect, ratification, and laches, 289,
of promoters, 117.
INDEX. 703
[The figures refer to pages.]

FRAUD—Continued,
in organization of corporation, 96.
see ““Watered and Bonus Stock.”

FRAUDS, STATUTE OF,
whether applicable to contracts for sale of shares, 258, 259.
not applicable to subscriptions to stock, 277.

FRAUDULENT CONVEYANCES,
by corporations, 549.

G

GENERAL AND SPECIAL LAWS,
see “Creation of Corporations.”

GRATUITOUS STOCK,
see “Watered and Bonus Stock.”

GUARANTIED STOCK,
defined, 362.
see “Preferred Stock.”

GUARANTY,
see “Contracts.”

GUARDIAN,
power of corporation to act as, 182.

H
HUSBAND AND WIFE,

see “Married Women.”

ILLEGAL CONTRACTS,
see “Contracts”; “Ultra Vires.”

INCOME AND PROFITS OF SHARES,
see “Dividends.”

INCORPORATION,

see “Création of Corporations.”
INCREASE,

of stock, see ‘Capital Stock.”
INFANTS,

as subscribers to stock, 275.
INHABITANT,

corporation as a, 24,
704 INDEX.
(The figures refer to pages.]

INJUNCTION,
see “Equity.”
suit by stockholders, see “Stockholders and Members.”
suit by creditors, 552.
see “Creditors of Corporations.”
INSANE PERSONS,
as subscribers to stock, 275.

INSOLVENCY,
does not dissolve, 236, 237.

INSPECTION OF BOOKS AND PAPERS,
right of stockholders or members, 336-8339.

INSURANCE COMPANIES,
powers, generally, see ‘‘Powers and Liabilities.”
lending money on discount of notes, 188, note.
borrowing money, 145.

INTEREST,
on subscription to stock, 327.
on dividends, 352.

INTERPRETATION,
of charters, see “Charters.”

IRREGULAR INCORPORATION,
see ‘De Facto Corporations”; ‘“Estoppel’; “Partnership.”

JOINT-STOCK COMPANY,
in general, 21.

JOINT TENANCY,
power to hold in joint tenancy, 1381.

JUDGMENT,
against foreign corporation, 636.
against corporation after dissolution, 249,

JURISDICTION,
see “Actions”; “Equity.”

K
KNOWLEDGE,

notice to officer or agent as notice to corporation, 502.
INDEX. 705

[The figures refer to pages.]

L
LAY CORPORATIONS,

defined, 28.

LEASES,
by corporation, power, 1384, 136, 1388, 142.
railroad or other quasi public corporation, 134, 136, 138, 142.
LEGISLATIVE CONTROL,
see “State Control.”

LEGISLATURE,

see “Congress”; “State Legislature’; ‘Territorial Corporations.”
LIBEL,

liability of corporation for, 193, 195.

see “Torts.”

LICENSE,

see “Foreign Corporations.”
LIEN,

of corporation -on shares, 413, 457.
LIMITATION OF ACTIONS,

to recover dividend, 352.

action by corporation against officers and agents, 520.
LOANS,

see “Contracts.”

M
MAJORITY,

powers of the majority, in full, 443-403.
in general, 443, 445.
where the power of management is vested in the directors, 443, 447.
power to accept amendment of charter, 444, 447.
must act at a meeting duly held, 462, 464.
power to make by-laws, 454.
see “By-Laws.”
increase of capital stock, 358.

MALICIOUS PROSECUTION,
liability of corporation, 193, 196.
see “Torts.”

MANAGEMENT OF CORPORATIONS,
powers of the. majority of stockholders, 443-453.
in general, 443, 445.
where the power of management is vested in the directors, 448, 447,
power to accept amendment or alteration of charter, 444, 447.
Clk.Pr.Corp.—45
706 INDEX.

(The figures refer to pages.]

MANAGEMENT OF CORPORATIONS—Contiuued,
must act at a meeting duly held, 462, 464.
power to accept amendment or alteration of charter, 444, 447,
by-laws, 454-462.
by whom enacted, 454.
must be proved, not judicially noticed, 455.
validity, 455 et seq.
providing for election, appointment, and removal of officers and
agents, 455.
limiting powers and prescribing duties of officers and agents, 455, 497.
provision for corporate meetings, 455.
regulating right to vote, 455.
regulating transfers of shares, 455, 457.
expulsion of members, 456.
restraint of trade, 456.
giving lien on shares, 457.
providing for forfeiture of shares, 456, 458.
must be reasonable, 455, 456.
must be general, 456.
must be consistent with charter, 458.
cannot deprive stockholder of vested rights, 459.
partial invalidity, 459.
effect as to stockholders, 460.
effect as to third persons, 460.
repeal and amendment, 461.
waiver of by-law, 462.
stockholders’ meetings, 462.
necessity, 464.
ealling meetings, 464.
notice of meeting, 464.
time and place of meeting, 466.
conduct of meeting. 468.
quorum and majority, 469.
disability of individual stockholders, 470.
record and proof of action, 471.
eure of irregularity by ratification, 471.
presumption of regularity, 471.
adjourned meetings, 472.
equity jurisdiction, 472.
voting, 473-482.
who entitled to vote, in general, 474.
pledgor and pledgee, 475,
trustees, 475.
INDEX. 707
(The figures refer to pages.]

MANAGEMENT OF CORPORATIONS—Continued,
shares held by the corporation, 475.
shares owned jointly, 476.
restrictions in charter or statute, 476.
evasion of charter or statutory provision, 476.
personal interest of stockholder, 477. ,
number of votes, 477.
cumulative voting, 478.
votes by proxy, 479.
effect of illegal reception or rejection of votes, 481.
election and appointment of officers and agents, 482.
qualifications of directors and other officers, 484.
powers of directors, 485.
directors de facto, 487.
appointment of agents, and ratification, 487. .
must act as a board, 488, 489.
directors’ meetings and resolutions, 488.
special meetings, 490.
place of meeting, 490.
notice of mecting, 411.
quorum and majority. 492.
record of proceedings, 493.
authority of other officers and agents, in general, 493.
president, 495.
treasurer, 496.
cashier of. bank. 497.
effect of charter and by-laws, 497.
holding out, agency by estoppel, 498.
agency by ratification, 500.
negotiable instruments, 501.
ultra vires contracts by agents, 501.
notice to officer or agent as notice to corporation, 502,
contracts between stockholder and corporation, 504.
relation between officers and corporation, 504.
a fiduciary relation, 504.
fraud and breach of trust, 504.
contracts and other transactions between officers and corporation, 508.
contract or transaction by officer with himself, 508.
personal interest of officer in contract or transaction, 509.
extent of personal interest, 510.
where corporation is represented by other agents, 511.
consent, acquiescence, and laches of corporation or stockholders, 513.
liability of corporation to extent of benefit, 514.
708 INDEX.
{The figures refer to pages.]

MANAGEMENT OF CORPORATIONS—Continued,
liability of officers to corporation, 514.
mistakes or errors of judgment, 515.
breach of trust, 515.
violation of charter or by-laws, 515.
negligence, 516.
remedies against officers, 519.
statute of limitations, 520.
liability of officers and agents to third persons, on contracts, 521.
liability of corporation for torts of officers and agents, 523.
ratification, 527.
ultra vires, 528.
liability of officers and agents to third persons for torts. 530,
compensation of officers, 531.
removal of officers and agents, 533.
relation between officers and stockholders, 534.
interference and suits by individual stockholders, 389-401.
laches and estoppel, 399.
interference by creditors, 546,

MANAGERS,
see “Officers and Agents.”

MANDAMUS,
to compel court or officer to issue certificate of incorporation, etc., 41.
to recover or compel declaration of dividend, 353.
by stockholder, to enforce right to inspect books, 336.
by foreign corporation, 6382.

MANUFACTURING COMPANIES,
powers of, see “Powers and Liabilities.”

MARRIED WOMEN,
as subscribers to stock, 275.

MEETING OF DIRECTORS,
in general, 488.
special meetings, 490.
place of meeting, 490.
notice of meeting, 491.
quorum and majority, 492.
record of proceedings, 493.
MEETINGS OF STOCKHOLDHRS,
in general, 462.
necessity, 464.
ealling meetings, 464.

$
INDEX, 709
(The figures refer to pages.]

MEETINGS OF STOCKHOLDERS—Continued,
notice of meeting, 464.
time and place of meeting, 466,
conduct of meeting, 468.
quorum and majority, 469.
disability of individual stockholders, 470.
record and proof of action, 471.
eure of irregularity by ratification, 471.
presumption of regularity, 471.
adjourned meetings, 472.
equity jurisdiction, 472,
by-laws regulating, 455.
voting, 473-482.
who entitled to vote, in general, 474.
by-laws regulating, 455.
pledgor and pledgee, 475.
trustees, 475.
shares held by corporation, 475.
shares owned jointly, 476.
restrictions in charter or statute, 476.
evasion of charter or statute, 476.
personal interest of stockholder, 477.
number of votes, 477.
cumulative voting, 478.
voting by proxy, 479.
effect of illegal reception or rejection of votes, 481.

MEMBERS,

see “Stockholders or Members.” |
MERGER,

of members in corporation, 5 et seq.
MISNOMER.,

of corporation, effect, 74.
MISTAKE,

subscriptions to stock, 290.
MONOPOLY,

power to grant exclusive privileges, 36.
MORTGAGES,

power of corporation to mortgage property, 134, 136, 138, 142.
railroad or other quasi public corporation, 134, 186, 138, 143.
power of corporation to take, 132.
MORTMAIN,
statutes of, 129,
710 INDEX.
[The figures refer to pages.]

MUNICIPAL CORPORATIONS,
as subscribers to stock, 276.
distinguished from private corporations, 29.

NAME OF CORPORATION,
in general, necessity, 17, 71, 122.
choice of name, 71, 72.
taking name of another corporation, 71, 72.
acquisition by user or reputation, 73.
change of name, 73.
special act authorizing change, 44.
effect, 73, 74.
effect of misnomer, 74.
NEGLIGENCE,
liability of corporation, 198, 195.
see “Torts.”
' of officers and agents, see “Officers and Agents”; ‘Torts.”
NEGOTIABLE INSTRUMENTS,
see ‘“‘Contracts.”
want of authority in officer or agent executing, 501,

NONRESIDENCE,
of corporators, 66.
nonresidents, as subscribers to stock, 275.

NONSTOCK CORPORATIONS,
defined, 26, 31.
NOTES,
see “Contracts.”
NOTICE,
to officer as notice to corporation, 502,
NUMBER,
of corporators, 56, 64.

OBJECT OF INCORPORATION,
see ‘‘Purpose of Incorporation.”

OBLIGATION OF CONTRACTS,
see ‘State Control.”

OFFICERS AND AGENTS,
election and appointment, 157, 482,
by-laws, 455.
INDEX. 711
{The figures refer to pages.]

OFFICERS AND AGENTS—Continued,
‘qualification of directors and other officers, 484.
powers of directors, 485.
directors de facto, 487.
appointment of agents and ratification, 487.
must act as u board, 488, 489.
directors’ meetings, 488.
special meetings, 490.
place of meeting, 490.
notice of meeting, 41.
quorum and majority, 492.
record of proceedings, 493.
authority of other officers and agents, in general, 493.
president, 495.
treasurer, 496.
cashier of bank, 497.
effect of charter and by-laws, 455, 497.
holding out, agency by estoppel, 498.
agency by ratification, 500.
negotiable instruments, 501.
ultra vires contracts by agents, 501.
notice to officer as notice to corporation, 502.
contracts between stockholder and corporation, 50-4.
relation between officers and corporation, 504 et seq.
a fiduciary one, 504.
fraud and breach of trust, secret profits and personal benefit, 504.
contracts and other transactions between officers and corporation, 308,
contract or transaction by officer with himself, 508.
personal interest in contract or transaction, 509.
extent of personal interest, 510.
where corporation is represented by other agents, 511.
consent, acquiescence, and laches of corporation or stockholders, 513.
liability of corporation to extent of benefit, 514.
liability of officers to corporation, 514.
mistake or error of judgment, 515, 353.
breach of trust, 515.
violation of charter or by-laws, 515.
negligence, 516, 353.
remedies against officers, 519.
statute of limitations, 520.
discretion as to declaring dividends, 347.
who authorized to increase capital stock, 358.
liability of officers and agents to third persons on contracts, 521.
712 INDEX.
[The Agures refer to pages.]

OFFICERS AND AGENTS—Continued,
liability of corporation for torts of officers and agcnis, 284, 523.
ratification, 527.
ultra vires, 528.

‘

agents to receive subscriptions, 293.

as subscribers to stock, 277.

liability of officers and agents to third persons for torts, 530.

compensation, 531.

removal, 533.
by-laws, 455.

relation between officers and stockholders, 534.

liability to creditors, 605-611.

preferences to officers who are creditors, 608.

statutory liability, 609.

promoters, see “Promoters.”

ORGANIZATION,
see “Creation of Corporations.”

PAROL EVIDENCH,
see ‘‘EHividence.”’

PARTNERSHIP,
distinguished from corporation, 12 et seq.
liability of associates of pretended corporation as partners, 108.

».PAYMENT,
in whole or in part for stock, as condition precedent to incorporation, 58.
of deposit by subscriber, 313.
of subscriptions, in part only. 368 et seq.
of subscriptions, in property, 369 et seq.
of dividends. see ‘Dividends.”
see ‘Watered and Bonus Stock.”

PERPETUAL SUCCESSION,
the faculty of, 12, 15.

PERSON,
corporation as a, 24.

PERSONAL PROPERTY,
power to take and hold, 128.
by gift or bequest, 129.
power to sell, convey, mortgage, or pledge, 184, 186. 188. 142.
power to purchase, 135-142.
INDEX. 713
[The figures refer to pages.]

PLACH,
of organization, outside the state, 54.

PLEDGE,
power of corporation to pledge property, 134,

POLICE POWER,
‘of state over corporations, 207-211.

POWBRS AND LIABILITIES OF CORPORATION,
in general, 120.
express powers, 122,
powers incidental to corporate existence, 122.
perpetual succession, 122.
corporate name, 122.
power to sue, in general, 122,
to contract, see “Contracts.”
to use common seal, 123, 134, 136, 156.
to make by-laws, see ‘‘By-Laws.”
amotion or removal of members, see ‘Expulsion of Members.”
powers implied from those expressly granted, 124, 138.
eonstruction of charters, in general, 124.
in favor of the public in case of doubt, 125.
general terms following special terms, 125, 127.
express mention and implied exclusion, 125, 128, 129,
power to take and hold real and personal property, 128.
by gift or bequest, 129.
by devise, 129, 131.
enumeration of purposes as an exclusion of others, 129,
limitation as to amount or value of property, 129.
presumption of power, 129.
statutes of mortmain, 129.
power to take fee, 130.
reversion, 130.
joint tenancy, 130.
tenancy in common, 181.
conflict of laws, 131.
devise for use of corporation, 131.
power to take mortgage, 132.
power to act as trustee, executor, guardian, etc., 132.
power as to contracts and conveyances, see ‘Contracts’; ‘Conveyances”;
“Leases”; ‘‘Mortgages”; “Pledge.”
liability for torts, see ‘“lorts.”
liability for acts of officers or agents, see ‘‘Officers and Agents.”
criminal responsibility, see ‘‘Crimes.”
714 INDEX.
[The figures refer to pages.]

POWERS AND LIABILITIES OF CORPORATION—Continued,
power to increase capital stock, 358.
issuing preferred stock, 361-868.
see “Preferred Stock.”
issue of watered or bonus stock, 368-389.
see “Watered and Bonus Stock.”

POWERS OF MAJORITY,
see “Majority.”
PREFERRED STOCK,
in full, 361-868.
defined, 361, 362.
power to create, 361, 362,
amendment of charter authorizing, 364.
laches and estoppel of stockholders to object, 364.
rights and liabilities of holders, 365.
dividends, 365.
liability to creditors, 367.
status as ereditors, and not as stockholders, 365, 367.
PREFERRING CREDITORS,
validity of preferences, 553.

PRESCRIPTION,
eorporations by, 34, 36.
PRESIDENT,
see “Officers and Agents.”
PRESUMPTION,

of charter, corporations by prescription, 34, 36.
of acceptance of charter, 51, 53.
of corporate power, 129, 135, 155.
PRINCIPAL AND AGENT,
see “Agency”; “Officers and Agents.”
PRINCIPAL AND SURETY,
see “Contracts.”
PRIVATE CORPORATIONS,
distinguished from public, 26, 29.
PROFITS,
see “Dividends.”
PROMOTERS,
relation between corporation and its promoters, 111-119.
liability of corporation for expenses and services of promoters, 111.
liability on contracts by promoters, 112.
liability of promoters, secret profits, ete., 117.
INDEX. 715
(The figures refer to pages.]

PROOF,
see “Evidence.”

PROPERTY OF CORPORATION, \
is not owned by the members individually, 5 et seq.
members cannot convey individually, 6, 7.
nor sue at law for injury to, 7.

otherwise under some circumstances in equity, 11.
not attachable for debts of members, 7.
insurable interest of members, 6, note.

PROXY,
voting by proxy at stockholders’ meeting, 479.

PUBLIC CORPORATIONS,
defined, and distinguished from private, 26, 29.

PURPOSE OF INCORPORATION,
for what purposes corporation may be formed, 67.
construction of general clause of enabling act, 69.
restrictions of federal constitution on power of states, 37, 38.
power of congress, 34, 39.
grant of exclusive privileges, 36.

QUASI CORPORATIONS,
defined, 27, 31.

QUORUM,
see “Meetings of Directors’; ‘Meetings of Stockholders.”

QUO WARRANTO,
against foreign corporation, 682.
see “State Control.”

R
RAILROAD COMPANIES,

powers, to take and hold land, 129.
to aid in maintenance of steamboat line by another, 136.
to purchase and operate a steamboat, 186.
lease and operation of another road, 136.
lease or transfer of its own road, 136.
consolidation agreemeut, 136.
lease of telegraph line to another, 136.
contract to carry over connecting line, 139.
restriction as to motive power, 140.
purchase of real or personal property, 140, 141.
dealing in bills and notes, 141.
716 INDEX.
{The figures refer to pages.]

RAILROAD COMPANIES—Continued,
sale, lease, mortgage, or pledge of property, 142, 143.
contracts of guaranty or suretyship, 148.
RATIFICATION,
of claim to corporate existence, 48.
by corporation of contracts of officer or agent, 500.
of torts, 527.
REAL PROPERTY,
power to take and hold, 128.
by devise, 129, 131.
enumeration of purposes as an exclusion of others, 129,
limitation as to amount or value, 129.
presumption of power, 129.
statutes of mortmain, 129.
.power to take in fee, 180.
reversion, 140.
joint tenancy, 130.
tenancy in common, 181.
conflict of laws, 131.
devise for use of corporation, 131.
power to take mortgage, 182.
power to sell and convey or mortgage, 134, 136, 138, 142.
power to purchase, 135-142.
RECEIVERS,
suits by creditors, 552.
suits by stockholders, 389. ,
suits by creditors for appointment, 59.
REGISTRATION,
of transfer, see ‘“lransfer of Shares.”
RELEASH,
of subscriber, see ‘Subscriptions to Stock.’
RELIGIOUS CORPORATIONS,
defined, 26, 28.
powers, generally, see ‘‘Powers and Liabilities.”
contracts in raising money for church purposes. 138.
REMEDIES,
see “Actions”; “Equity”; ‘Injunction’; “Mandamus”; “Quo Warranto.”

REMOVAL,
of members, 401-405.
of officers, 533.
by-laws, 455.
INDEX. 717

{The figures refer to pages.]

REPUTATION,
acquisition of corporate name by, 72
RESIDENCH,
of corporation, 74-80.
for purpose of jurisdiction of federal courts, 75-80.
where there are charters from several states, 75, 77.
charter distinguished from license, 75, 80.
of corporators, 66. ,

REVERSION,
of property on dissolution of corporation, 180, 250-252.

REVOCATION,
of subscription to stock, 267, 271.

Ss
SALES,

power of corporation to purchase property, 128, 185-142.
power to sell, 184, 186, 138, 142.
railroad and other quasi public corporations, 184, 136, 138, 143.
sale of franchise, 134, 143.
of shares, see “Transfer of Shares.”
distinguished from subscription, 262.
statute of frauds, 258, 259.
see “Contracts.”
SEAL,
corporate seal, 19.
see “Contracts.”

SET-OFF AND COUNTERCLAIM,
against dividend, 351.
by debtor of corporation, 557.
by stockholder as against creditors, 602.
SHARES,
defined, 257, 258.
not a chattel interest, but in the nature of chose in action, 258,
not real estate, 258.
execution and attachment of shares, 259.
transferrability, 18.
transfer of, see ‘“Transfer of Shares.”
forfeiture, see “Forfeiture of Shares.”

SLANDER,
liability of corpordtion, 193.
see “Torts.”
718 INDEX.
{The figures refer to pages.]

SOLE CORPORATION,
in general, 26, 27. P

SPECIAL LAWS,
see “Creation of Corporations.”

STATE CONTROL,
power of the state over corporations, 201-280.
the charter as a contract not to be impaired, 201, 202,
contract between corporation and members, 204.
creating similar corporation, 204, 205.
where exclusive privilege has been granted, 205.
contracts between corporation and third persons, 206.
change of remedies, 206.
police power of state, 207-211.
power of eminent domain, 211.
reservation of power to alter or repeal charter, 212-219,
in constitution or general law, 213.
acceptance of amendment, 213.
changes authorized by reservation, 214-219.
vacation of charter for misuser, 218.
offer of amendment, power of majority, 219.
taxation of corporations, 219-230.
the power in general, 221.
object of taxation, 221.
jurisdiction, 222.
property taxable, 222.
double taxation, 223.
place of taxation, 224.
restrictions in federal constitution, 224,
equality and uniformity, 224.
United States bonds, 225.
regulation of commerce, 225,
federal corporations, 226.
exemption from taxation, 227,
doctrine of ultra vires, 240.
foreign corporations, 230.
forfeiture and dissolution, 231.
STATE LEGISLATURE,
power to incorporate, 34.
grant of exclusive privileges, 36.
enactment of laws, two-thirds vote, 87.
restriction as to subject and title of laws, 37.
restrictions in federal constitution, 37, 38.
INDEX. 719
(The figures refer to pages.]

STATE LEGISLATURE—Continued,
delegation of power to create corporation, 34, 40:
performance of ministerial acts, 34, 41.
ratification of claim to corporate existence, 4%.
power over corporations, see ‘State Control.”

STATUTES,
of mortmain, 129.
of wills, 131.
of frauds, whether applicable to contracts for sale of shares, 258, 259. °
not applicable to subscriptions to stock, 277.
general and special Jaws, see ‘Creation of Corporations.”

STOCK,
see “Capital Stock.”

STOCK CORPORATIONS, .
defined and distinguished from nonstock, 26, 31.

STOCK DIVIDENDS,
defined, right to declare, 350.

STOCKHOLDERS’ MEETINGS,
sec “Meeting of Stockholders.”

STOCKHOLDERS OR MEMBERS,
distinct from the corporation, 5.
merger in corporate entity, 5.
do not own the corporate property, 6, 7.
cannot convey corporate property, 6, 7.
cannot sue at law for injury to corporate property, 7.
otherwise, under some circumstances in equity, 11.
cannot bind corporation by contracts, 7.
their declarations or admissions not binding on corporation, T.
insurable interest in corporate property, 6, note.
may contract with corporation, or convey to or take from it, 8.
may sue corporation, and be sued by it, 8.
action by or against corporation, not by or against members, 8.
demands of, as set-off to demand against corporation, 9.
when acts of, considered acts of corporation, 9.
change or death of, does not affect corporate existence or identity, LS.
how membership is acquired, in general, 203.
nonstock corporations, 253, 254.
stock corporations, 253, 255.
subscriptions to stock, .261 et seq.
after incorporation, 261.
distinguished from a sale of shares, 262.
720 INDEX.
(The figures refer to pages.]

STOCKHOLDERS OR MEMBERS—Continued,
prior to incorporation, 263-274.
common-law subscriptions, 264.
nature as a contract, 264, 265.
formation of the contract, 264.
consideration, 267.
revocation or lapse, 268.
subscription under statutes, 271.
consideration and revocation, 271.
agreements to pay subscription to trustees for corporation when formed, 272.
distinction between present subscription and agreement to subscribe, 273.
who may become subscribers, 275.
aliens and nonresidents, 275.
infants, 275.
insane and drunken persons, 275.
married women, 275.
corporations, 276.
municipal corporations, 276,
directors or officers, 277.
form of subscription, 277-281.
at common law, 277.
necessity for writing, 277.
formalities required by statute, 278.
directory provisions, 280.
substantial compliance with statute, 280.
mutual consent, 281.
subscriptions induced by fraud, 288.
authority of agents, 284.
what constitutes fraud, 285.
effect of fraud, ratification and laches, 289.
subscriptions under mistake, 290.
subscription by agent, 291.
effect of want of authority, 292.
agents to receive subscriptions, 293.
conditional subscriptions, 294-302.
after organization of corporation, 296.
prior to incorporation, 299.
conditions must be expressed in the writing, 301.
waiver of conditions, 301.
subscriptions upon special terms, 302.
distinguished from conditional subscriptions, 295, 302.
validity, 304.
who may receive, 306.
INDEX. 721
[The figures refer to pages.]

STOCKHOLDERS OR MEMBERS—Continued,
conditional delivery ‘of subscription, escrow, 306.
subscription of entire capital, 297, 308.
excessive subscription and distribution, 308, 313.
payment of deposit, 313.
delivery of certificate not essential to liability or rights. 316.
remedy of corporation on subscriptions, 318-321.
action to recover assessments, 318.
forfeiture of shares, 318, 319.
action and forfeiture as cumulative remedies, 318, 321.
calls and assessments, 322-327.
necessity, 323.
validity, 325.
notice and demand, 327.
interest, 327.
assignment of unpaid subscription, 328.
release and discharge of subscriber, 328-334.
withdrawal and release, 329.
reduction of shares, 329.
violation of charter by corporation, mismanagement. 331.
alteration or amendment of charter, 331.
loss or abandonment of business, property, or franchises, 333.
forfeiture of shares, 334.
transfer of shares, 334.
estoppel of subscriber, 100, 335.
increase of stock, 358.
shareholders’ right to preference, 360.
right to inspect books and papers of corporation, 336-339.
rights as to profits and dividends, 340-358.
“dividend” defined, 342.
distinguished from “profits,” 342.
no right to profits until dividend declared, 342.
_ Tight to dividend vests when it is declared, 342, 343,
when dividend may be declared, 344.-
discretion of directors as to declaring, 347."
who entitled to dividends, 348.
effect of transfer of shares, 348, 349.
how payable, 350.
stock dividends, 350.
set-off against debt due to corporation, 351,
remedies of stockholders, 351.
interest, 352.
statute of limitations, 352.
Clk.Pr.Corp.—46
722 INDEA
{The figures refer to pages.]

STOCKHOLDERS OR MEMBERS—Continued,
remedies where dividends are improperly paid, 353.
grants and bequests of income and profits of stock, 354-358.
rights as between life tenant and remainder-man, 354-358.
preferred stock, 861-368,
defined, 361, 362.
power to create, 361, 362.
amendment of charter authorizing, 364.
laches and estoppel of stockholders to object, 364.
rights and liabilities of holders of, 365.
dividends, 365.
liability to creditors, 367.
status as creditors, and not stockholders, 365, 367.
watered and bonus stock, 868-389.
defined, 368.
effect as to corporation, 368, 369.
effect as to stockholders, 368, 371.
effect as to creditors, 368, 372.
payment of original subscriptions, 368, 372.
increase of capital stock, 368, 374.
issue of stock at market value by active corporation to pay debts, ete.,
368, 375. ;
gratuitous issue of stock, 369, 378.
payment for stock in property or services, 369, 379.
value of property or services, 369, 379.
creditors who cannot complain, 369, 383.
effect of constitutional and statutory provisions, 369, 384.
liability of transferees, 388.
actious by, for injuries to corporations, and interference in management, 389- -
401.
at law, 389, 391.
in equity, 389, 392
acts within power of majority, and discretionary powers, 395.
the rule as stated by the United States supreme court, 398.
laches and estoppel, 399.
motive of stockholder suing, 400.
parties to suits, 400.
stransfers of shares, 18, 406-442.
vight to transfer, 406.
by-laws, 407.
agreement not to transfer, 409.
effect of transfer, 409-413.
liability for calls, 410.
INDEX. 723

[The figures refer to pages.)

STOCKHOLDERS OR MEMBERS—Continued,
right to dividends, 412.
statutory liability to creditors, 412.
pledgees, trustees, etc., 413.
lien of corporation on shares, 413.
by-laws, 414.
waiver, 414.
validity of transfers, 415.
transfer after dissolution, 416.
mode of transfer, 416.
what law governs, 417.
revistration of transfer, 417.
the rules stated, 417-419.
necessity, as against corporation, 420.
as against estoppel of owner in case of unauthorized transfer, 422.
as against prior equities of third persons, 422.
as against creditors of the corporation, 422.
as against bona fide purchasers or pledgees, 423. :
as against creditors of registered owner, 423,
failure to register as evidence of secret trust, 425.
issue of new certificate, 427.
forged and unauthorized transfers, 427.
transfers by trustees, 429.
estoppel of owner in case of unauthorized transfer, 431.
effect of judicial proceedings, 433.
liability of indorser of forged certificate, 434.
liability of corporation arising from unauthorized or invalid transfer, 435.
liability of corporation on certificates issued fraudulently, without authority,
ete., 437.
remedy against corporation for refusal to recognize trausfer, 440.
compelling corporation to issue new certificates, 441.
acceptance of amendment of charter, 53, 54.
powers of the majority, see “Majority.”
relation between officers and stockholders or members, 5384.
expulsion of members, 401-405.
liability to creditors, see ‘‘Creditors of Corporations,”
see ‘“‘Corporators.”
SUBSCRIPTIONS TO STOCK,
after incorporation, 261.
distinguished from a sale of shares, 262.
prior to incorporation, 263-274.
common-law subscriptions, 264.
nature as a contract, 264, 265.

nN
724 INDEX.

[The figures refer to pages.]

.

SUBSCRIPTIONS TO STOCK—Cuntinued,
formation of the contract, 264.
consideration, 267.
revocation or lapse, 268.

subscriptions under statutes, 271.
consideration and revocation, 271.
agreements to pay subscriptions to trustees for corporation when formed, 272.
distinction between present subscription and agreement to subscribe, 273.
who may become subscribers, 275.
aliens and nonresidents, 275.
infants. 275.
insane and drunken persons, 275.
married women, 275.
corporations, 184, 151, 276.
municipal corporations, 276,
directors or officers, 277.
form of subscription, 277-281.
at common law, 277.
necessity for writing, 277.
formalities required by statute, 278.
directory provisions, 280.
substantial compliance with statute, 280.
mutual consent, 281.
subscriptions induced by fraud, 283.
authority of agents, 284.
what constitutes fraud, 285.
effect of fraud, ratification and laches, 289.
subscriptions under mistake, 290.
subscription by agent, 291.
effect of want of authority. 292.
agents to receive subscriptions, 293.
conditional subscriptions, 294-302.
after incorporation, 296.
prior to incorporation, 299.
conditions must be expressed in the writing, 301.
waiver of conditions, 301.
subscriptions upon special terms, 302.
distinguished from conditional subscriptions, 295, 302,
validity, 304.
who may receive, 306.
conditional delivery of subscription, escrow, 306.
subscription of entire capital, 297, 308.
excessive subscription and distribution, 308, 313.
INDEX. 725

{The figures refer to pages.]

SUBSCRIPTIONS TO STOCK—Continued,
payment of deposit, 313.
delivery of certificate, 316.
remedy of corporation on subscriptions, 318-321,
action to recover assessments, 318.
forfeiture of shares, 318, 319.
action and forfeiture as cumulative remedies, 318, 321.
ealls and assessments, 322-827.
necessity, 323.
validity, 325.
notice and demand, $27.
interest, $27.
assignment of unpaid subscription, 328.
release and discharge of subscriber, 328-334,
withdrawal and release, 329.
reduction of shares, 329.
violation of charter by corporation, mismanagement, 331.
alteration or amendment of charter, 331.
loss or abandonment of business, property, or franchises, 333.
forfeiture of shares, $21, 334.
transfer of shares, 334.
estoppel of subscriber, 100, 335.
subscriptions as a condition precedent to incorporation, 58.
payment in whole or in part as a condition precedent, 58.
increase of stock, 358.
shareholders’ right to preference, 360,

SUBJECT OF ACTS,
constitutional limitation, 37.

SUCCESSION,

the faculty of, 12, 15, 122,
SUITS,

see “Actions”; ‘“Iuquity.”
SURETYSHIP,

see “Contracts.”

T

TAXATION,

of domestie corporation, see “State Control.”

of foreign corporation, see “Foreign Corporations.”
TENANCY IN COMMON,

power to hold as tenant in common, 131,
“1
we
oe

INDEX.
{The figures refer to pages.]

TERRITORIAL CORPORATIONS,
power of territorial legislatures to create, 34, 40.
effect of admission to statehood, 40.

TITLE OF ACTS,
constitutional limitation, 37.

TORTS,
responsibility of corporation for torts, 193.
liability of corporation for torts of officers and agents, 523.
ratification, 527.
ultra vires, 528.
fraud in procuring subscriptions, 284.
liability arising from unauthorized or invalid transfer of shares, 435.
liability on certificates of stock issued fraudulently, without authority, ete.,
437,
liability of officers and agents to third persons, 530,

TRANSFER OF SHARES,

in full, 18, 406-442.

right to transfer, 18, +406.

by-laws, 407, 455, 457.

agreement not to transfer, 409.

effect of transfer, 409-413.
liability for calls, 410.
right to dividends, 348, 34Y, 354, 412,
statutory liability to creditors, 412,
pledgees, trustees, etc., 413.

lien of corporation on shares, 413.
by-laws, 414, 457.
waiver, 414.

validity of transfers, 415.

transfer after dissolution, 416,

mode of transfer, 416.

what law governs, 417.

registration of transfer, 417.
the rules stated, 417-419.
as against corporation, 420.
as against estoppel of owner in case of unauthorized transfer, 422,
as against prior equities of third persons, 422.
as against creditors of the corporation, 422,
as against bona fide purchasers and pledgees, 423,
as against creditors of registered owner, 423.

failure to‘register as evidence of secret trust, 425,

issue of new certificate, 427.
 

INDEX. 727
\
{The figures refer to pages.]

TRANSFER OF SHA RES—Continued,
forged and unauthorized transfers, 427 et seq.
transfers by trustees, 429.
estoppel of true owner, 431.
effect of judicial proceedings, 433.
liability of indorser of forged certificate, 434.
liability of corporation arising from unauthorized or invalid transfer, 435.
liability of corporation on certificates issued fraudulently, without authority,
ete., 437.
remedy against corporation for refusal to recognize transfer, 440.
compelling corporation to issue new certificate, 441.
liability of transferees of watered or bonus stock, 388.

TREASURER,
see “Officers and Agents.”

TRESPASS,
liability of corporation, 193.
see “Torts.”

TRUST COMPANIES,
power to act as trustee, 132,

TRUST-FUND DOCTRINE,
in general, 539-546.
TRUSTS,
power of corporation to act as trustee, 132.
devise in trust for use of corporation, 131.
relation between corporation and its promoters, 111, 117.
see “Officers and Agents.”

TURNPIKE COMPANIES,
power to engage as carriers, 136.

U
ULTRA VIRES,

effect of ultra vires act, in general, 163.

objection by state, forfeiture of charter, 163, 164.

injunction at suit of stockholder, 163, 164.

_ a corporation may exceed its powers, 164.

assent of shareholders, 166.

conveyances of land, or transfers of personalty, 167.

contracts, 170.

the doctrine that an ultra vires contract is illegal and void. 171.

ignorance of ultra vires character of transaction, 178.
unauthorized exercise of authorized powers, 174.

'
728 INDEX.
[The figures refer to pages.]

ULTRA VIRES—Continued,
severable transaction, 175.
negotiable bills and notes, 175.
bonds, 175.
actions quasi ex contractu, 177.
suit in equity for accounting, 177.
relief in equity against ultra vires contract,. 178.
borrowing money, subrogation of lender, 178.
the doctrine allowing recovery on ultra vires contract, 179.
action maintainable by corporation, 183.
the ground of this doctrine, 183.
necessity for performance by the plaintiff, 18+.
answers to arguments against this doctrine, 185.
specific performance, 187.
illegal contracts in the strict sense, 187.
contracts disabling quasi-public corporation from performing duties, 188.
express prohibition in charter, 189.
effect of illegality, 190.
liability for torts, see “Torts.”
respousibility for crime, see “Crimes.’”’
as a defense against taxation, 230.
ultra vires acts as releasing subscription to stock, 331.

UNITED STATHS,
see ‘‘Congress.”

USER,
acquisition of corporate name by user or reputation, 73.

Vv
VISITORIAL POWER,
see “State Control.”
VOTING,
see ‘Meetings of Stockholders.”
W

WATERED AND BONUS STOCK,
in full, 368-389.
defined, 368.
effect as to corporation, 368, 369.
effect as to stockholders, 368, 371.
effect as to creditors, 368, 372.
payment of original subscriptions, 368, 372.
INDEX. 729

[The figures refer tc pages.]

WATERED AND BONUS STOCK—Continued,
increase of capital stock, 368, 374.
issue of stock at market value by active corporation to pay debts, etc.,
868, 375.

gratuitous issue of stock, 369, 378.
payment for stock in property or services, 369, 379.
value of property or services, 369, 379.
creditors who cannot complain, 369, 383.

effect of constitutional nd statutory provisions, 369, 384.

liability of transfers, 388.

WILLS,
power of corporation to take by devise or bequest, 129, 131.
conflict of laws, 131.
bequest of income and profits, dividends, 354-358.

 

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WEST PUBLISHING Co., St. Paul, Minn.
(The Hornfook Series.)

GA Handbook of
She Law of GWifls and Mores,

Bp (Prof. Cbarfes —. Morton,

SECOND

TABLE OF

Chapter I.

OF NEGOTIABILITY SO FAR AS IT RE-
LATES TO BILLS AND NOTES: Covering
the origin, purpose and indicia of negotiabil-
ity, distinction between negotiability and as-
signability, and payment by negotiable instru-

ment.
Chapter II.

OF NEGOTIABLE BILLS AND NOTES, AND
THEIR FORMAL AND ESSENTIAL REQ-
UISITES: Covering definition, form, and es-
sentials, the order, the promise, specification
of parties, capacity of parties, delivery, date,
value received, and days of grace.

Chapter III.
ACCEPTANCE OF BILLS OF EXCHANGE:
Covering the various kinds of acceptance, and
the rules relating thereto.

Chapter IV.

INDORSEMENT: Defining and explaining the
various kinds of indorsements, and showing
their requisites and effect.

Chapter V.

OF THE NATURE OF THE LIABILITIES OF
THE PARTIES: Covering liability of mak-
er, acceptor, drawer, indorser, rights and lia-
bilities of accommodation and accommodated
parties, estoppel and warranties, and damages
-for breach,

EDITION.
CONTENTS.
Chapter VI.
TRANSFER: Covering definition, validity, and

various methods of transfer, and status of
overdue paper.

Chapter VII.

DEFENSES AS AGAINST PURCHASER FOR
VALUE WITHOUT NOTICE: Covering the
subject generally and fully.

Chapter VIII.

THE PURCHASER FOR VALUE WITHOUT
NOTICE: Explaining who are, and discuss-
ing consideration, good faith, notice, overdue
paper, presumption, and burden of proof, etc.

. | Chapter IX.

OF PRESENTMENT AND NOTICE OF DIS
HONOR: Covering presentment for accept-
ance and for payment, dishonor, protest, no-
tice of dishonor, waiver, etc.

Chapter X.
CHECKS: Covering generally the law relating

 

to checks,

 

1VOL. 468 PAGES.

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WEST PUBLISHING C

(2)

O., St. Paul, Minn.

q
(Ge Bornfook Series.)

weds.
Handbook of Criminal Zar,

Bp Wm. 2. Cfark, Zr.,

Author of a ‘‘Handbook of the Law of Contracts.’’

 

TABLE OF CONTENTS.

CHAPTER I.

DEFINITION OF CRIME: The nature of crime
and ground of punishment.

CHAPTER Ii.
/ CRIMINAL LAW: How the criminal law is pre-

scribed; the common law: statutes, and the
powers of state and federal legislatures.

CHAPTER III.

CLASSIFICATION OF CRIMES: Astreason, fel-
onies, misdemeanors, etc. ; merger of offenses.

} CHAPTER IV.
THE MENTAL ELEMENT IN CRIME: Con-
sidering the will, intention, motive, and crim-
‘ inal intention or malice.

CHAPTER V.
PERSONS CAPABLE OF COMMITTING CRIME:
Covering also exemption from responsibility,
.and discussing infancy, insanity, drunkenness,
ignorance or mistake of law or of fact, provo-
cation, necessity and compulsion, married wo-
men and corporations.

CHAPTER VI.

PARTIES CONCERNED: Covering effect of
joining in criminal purpose, principles in first
and second degrees, accessories before and
after the fact, terms “aider and abettor” and
“accomplice. ”

CHAPTER VII.

THE OVERT ACT: Covering also attempts, so-

licitation and conspiracy.

CHAPTER VIII.

OFFENSES AGAINST THE PERSON: Cover-
ing homicide, murder, and manslaughter, with
consideration of the different degrees, acci-
dent, self-defense, etc.

CHAPTER IX.

OFFENSES AGAINST THE PERSON (Contin-
ued): Covering abortion, mayhem, rape, sod-
omy, seduction, assaults, false imprisonment,
kidnapping, abduction.

 

CHAPTER xX.

OFFENSES AGAINST THE HABITATION:
Covering arson and burglary.

CHAPTER XI..

OFFENSES AGAINST PROPERTY: Covering
larceny; embezzletnent,: cheating at common
law and.by false pretenses, robbery, receiving
stolen goods, malicious mischief, forgery, etc.

CHAPTER Xt.

OFFENSES AGAINST THE PUBLIC HEALTH,
MORALS, ETC.: Covering nuisances in gen-
eral, bigamy, polygamy, adultery, fornication,
lewdness, etc.

CHAPTER XIII.

OFFENSES AGAINST PUBLIC JUSTICE AND
AUTHORITY: Covering barretry, obstruct-
ing justice, embracery, prison breach, mispri-
sion of felony, compounding crime, perjury,
bribery, misconduct in office, etc.

CHAPTER XIv.

OFFENSES AGAINST THE PUBLIC PEACE:
(Covering dueling, unlawful assembly, riot,
affray, forcible entry and detainer, libels on
private persons, etc.

CHAPTER XV.
OFFENSES AGAINST THE GOVERNMENT:
Covering treason and misprision of treason.
CHAPTER XVI.
OFFENSES AGAINST THE LAW OF NA-
TIONS: As piracy.
CHAPTER XVII.

JURISDICTION: Covering territorial limits of
states and United States, jurisdiction as deter-
mined by localitv, federal courts and the com-
mon law, jurisdiction conferred by congress,
persons subject to our laws, etc.

CHAPTER XVIII.
FORMER JEOPARDY: In general.

 

1 VOL. 450 PAGES.

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@)
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Author of a Handbook of Criminal Law.”*

 

dae SE YT I
CHAPTERI

CONTRACT IN GENERAL: Covering its defi-
nition, nature, and requisites, and discussing
agreement, obligation, prom!sé, véid,Voidable,
and unenforceable agreements, and the essen-
tials of contract, etc. ©

CHAPTER It.

OFFER AND ACCEPTANCE: Covering im-
plied contracts, necessity for communication
and acceptance, character, mode, place, time,
and effect of acceptance, revocation, and lapse
of offer, etc,

CHAPTER Il.

CLASSIFICATION OF CONTRACTS: Cover-
ing contracts of record and contracts under
seal, and thei characteristics.

CHAPTER Iv.

REQUIREMENT OF WRITING: Covering also
statute of frauds, and discussing promise by
executor, promise to answer for another,
agreements in consideration of marriage and
in relation to land, and agreements not to be
performed within a year, sutticiency of memo-
randum, etc.

CHAPTER V.

CONSIDERATION: Covering the necessity for
consideration, its adequacy, reality, and legal-
ity, failure of consideration, ete.

OCOHAPTER V1.

CAPACITY OF PARTIES: Covering political
and professional status, infants, insane and
drunken persons, married women, and corpo-
ry.lions,

 

CHAPTER ‘VII.

REALITY OF CONSENT: Covering mistake.
' misrepresentation, fraud, duress, and undue
influence.
CHAPTER VIII.

LEGALITY OF. OBJECT: Covering unlawful
agreements in general, agreements in viola-
tion of positive law ard those contrary to pub-
lic policy, effect of illegality, conflict of laws,
ete.

CHAPTER IX.

OPERATION OF CONTRACT: Covering the
limits of the contractual relation, assignment
of contracts, whether by act of parties or by
operation of law, joint and several contracts,
ete.

CHAPTER X.

INTERPRETATION OF CONTRACT: Cover-
ing the rules relating to evidence, proof of
document, rules of construction, penalties and
liquidated damages, etc.

®

CHAPTER XI.

DISCHARGE OF CONTRACT: Covering dis-
charge by agreement, by performance, by
breach, by impossibility of performance, by
operation of law, etc., and remedies on breach
of contract,

CHAPTER XIl.

AGENCY: Covering the creation of the relation,
its effect and determination, the capacity,
rights, and liabilities of the parties, ete.

CHAPTER XII,

QUASI CONTRACT: Covering obligations cre-
ated by law upon which an action ex contractu
will lie without proof of contract in fact, in-
cluding judgments, obligations imposed by
statute, acts of parties, etc. —

1 VOL., 932 PAGES, $3.75 DELIVERED.

WEST PUBLISHING Ge

 
(Che Bornfook Series.)

A Handbook of
Common-Baw (Pleading.

By Benjamin J. Shipman,

 

SECOND EDITION. ‘ E

TABLE OF CONTENTS.

Chapter I.

FORMS OF ACTION: Covering the nature and
classification of actions, real, personal, and
mixed actions, assumpsit, special and geueral,
debt, covenant, account or account rendered.

Chapter II.

FORMS OF ACTION (Continued): Covering
trespass, trover, case, detinue, replevin, eject-
ment, writ of entry, forcible entry aud detain-

er, etc.
Chapter III.

THE PARTIES TO ACIYIONS: Cogering actions
in form ex contractu and ex delicto, and the
consequences of misjoinder or nonjoinder of
parties plaintiff or defendant,

Chapter IV.

THE PROCEEDINGS IN AN ACTION: Cover-
ing process, the summons, writ of attachment,
appearance, the declaration, demurrer, and va-
rious pleas, amendments, ete., the verdict, and
proceedings after the verdict, the judgm: nt,
and proceedings thereafter to the writ of exe-

cution,
: Chapter V.

THE DECLARATION: Statement of cause of
action in general; form of declaration; es-
sential averments of declaration in special as-

.  sumpsit or on common counts, in debt, cove-

%. nant, account, case, detinue, trover, trespass,
replevin, ejectment, and trespass for mesne
profits after ejectment.

Chapter VI.

THE PRODUCTION OF THE ISSUE: Discuss-
ing the rules, and covering the demurrer, the
pleadings, the tiaverse, forms of the general
issue and of the special] traverse, protesta-
tions, exceptions, issues in fact and law, etc.

 

Chapter VII.

MATERIALITY IN PLEADING: Covering the
general rule, variance, limitation of traverse,
etc.

Chapter VIII.

SINGLENESS OR UNITY IN PLEADING: Cov-
ering the rules in general, duplicity, immate-
rial matter, inducement, protestation, conse-
quences of duplicity and of misjoinder, plea
aud demurrer, etc. 7

Chapter IX.

CERTAINTY IN. PLEADING: Covering the
venue, time, quantity, quality, and value,
names of persons, showing title and author-
ity, with subordinate rules, and special re-
quirements in different stages.

Chapter X.

CONSISTENCY AND SIMPLICITY IN PLEAD-
ING: Covering insensibility, repugnancy, am-
biguity, argumentative pleadings, pleadings
in alternative, positive statements, legal effec
conformance to precedent, commencement an
conclusion.

Chapter XI.

DIRECTNESS AND BREVITY IN PLEADING:
Covering the rules generally, departure, pleas
amounting to general issue, surplusage, etc.

Chapter XII,

MISCELLANEOUS RULES: Covering con-
formance to process, alleging damages and
production of suit, .rder of pleading, defense,
plea in abatement, diiatory pleas, etc.

APPENDIX: Forms.

This book embodies such of the rules and principles of Common-Law Pleading as are still
recognized and applied in this country. A knowledge of the common-law system is of advantage, if
indeed, it is not essential, to a thorough understanding of both code and equity pleading.

ONE VOLUME, 6I5 PAGES, $3.75, DELIVERED,

 

WEST PUBLISHING COo., St. Paul, Minn.
(Be BHornBook Series.)

QW BHandvook of

Bp H. CampBet? aBrack,

 

Constitutional Bar

Author of Black’s Law Dictionary, Treatises

on Judgments, Tax Titles, etc.

 

TABLE OF CONTENTS.

Chapter I.

DEFINITIONS AND GENERAL PRINCIPLES:
Considering the meaning of “Constitutional”
and “Unconstitutional; ” written and unwrit-
ten constitutions, bills of rights, right of revo-
lution, political and personal responsibilities,
etc.

Chapter II.

THE UNITED STATES AND THE STATES:
Considering the nature of the American
Union, sovereignty and rights of the states
and of the people, form of government, the
Federal Constitution, etc.

Chapter III.

ESTABLISHMENT AND AMENDMENT OF
CONSTITUTIONS: Containing an historical
introduction, and considering the establish-
ment and amendment of the Federal Constitu-
tion and of State Constitutions,

‘Chapter IV.
CONSTRUCTION AND INTERPRETATION OF

CONSTITUTIONS: Considering the office
and duty of the judiciary in this direction.

Chapter V.

THE THREE DEPARTMENTS OF GOVERN.
MENT: Considering the division, limitations
on the departments, political and judicial
questions, etc.

Chapter VI.

THE FEDERAL EXECUTIVE: Considering
the election, qualifications, impeachment,
compensation and independence of the Presi-
dent, his oath of office, veto power, pardoning
and military power, and treaty-makipg power;
vacancy in office, the cabinet, appointments
to office, presidential messages, diplomatic re-
lations, authority to convene and adjourn con-
gress, execute the laws, etc.

Chapter VII.

FEDERAL JURISDICTION: Considering the
jurisdiction, powers and procedure of Federal
courts, removal of causes, the United States
and the states as parties, etc.

Chapter VIII.

THE POWERS OF CONGRESS: Considering
the constitution, organization and government
of congress, its powers, and the limitations
thereon.

Chapter IX.

INTERSTATE LAW, as determined by the Con-
stitution: Considering its general principles,
the privileges of citizens, interstate extradi-
tion, public acts and judivia: proceedings, e..

Chapter X.
REPUBLICAN GOVERNMENT GUARANTIED.

1 VOL., 646 PAGES,

 

Chapter XI,
EXECUTIVE POWER IN THE STATES,

Chapter XII.
JUDICIAL POWERS IN THE STATES: Con-

sidering the system of courts, judges, juris-
diction, process and procedure,

Chapter XIII,

LEGISLATIVE POWERIN THESTATES: Con-
sidering the organization and government of
legislature, limitation and delegation of legis-
lative powers, enactment of laws, eta

Chapter XIV.

THE POLICE POWER: Considering the police
power as vested in congress and in the states,
and its scope and limitations.

Chapter XV. ,

THE POWER OF TAXATION: Considering
the purposes of taxation. independence of
Federal and State governments, limitations on
power, taxation and representation, etc,

“ Chapter XVI.

THE RIGHT OF EMINENT DOMAIN: Defini-
tion and nature of the power, constitutional
provisions, authority to exercise, public pur-
pose, appropriation to new uses, etc,

Chapter XVIL

MUNICIPAL CORPORATIONS: The nature,
control, powers, officers and by-laws of mu-

nicipal corporations, etc.

Chapter XVIII.

CIVIL RIGHTS, AND THEIR PROTECTION
BY THE CONSTITUTION: Considering
rights in general, liberty, due process of law,*
vested rights, trial by jury, etc.

Chapter XIX.

POLITICAL AND PUBLIC RIGHTS: Consider.
ing citizenship, right of suffrag>, freedom of
speech, right of assembly and petition, etc.

Chapter XX.

CONSTITUTIONAL GUARANTIES IN CRIM-
INAL CASES: Considering trial by jury,
rights of accused, jeopardy, bail, ex post facto
laws, habeas corpus, etc.

Chapter XXI,

LAWS IMPAIRING THE OBLIGATION OF
CONTRACTS: Considering the obligation
and the impairmeat ot the contract, power of
legislature to contract, remedies on contracts,
ete. ;

* Chapter XXII.

RETROACTIVE LAWS: Considering the validity
of retroactive statutes, curative statutes, eto.

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A BHandvook of

Equity Furisprudence.

Bp Norman Getter.

 

TABLE OF CONTENTS.

Chapter I.
NATURE AND DEFINITION OF EQUITY.

Chapter II,

PRINCIPLES DEFINING AND LIMITING JU-
RISDICTION: Considering jurisdiction over
crimes, adequate legal remedy, complete re-
lief, and multiplicity of suits.

Chapter III.

THE MAXIMS OF EQUITY: Definition and
classification of maxims; the enabling and re-
f strictive maxims.

Chapter IV.

THE DOCTRINES OF EQUITY: Considering
estoppel, election, satisfaction, performance,
and conversion,

Chapter V.

THE DOCTRINES OF EQUITY (Continvep):
Considering conflicting rights of purchasers,
assignees, notice, bona fide purchasers, priori-
ties, etc.

Chapter VI.

THE DOCTRINES OF EQUITY (CONTINUED) :
; Considering penalties and forfeitures, liqui-
. dated damages.

Chapter VII.

GROUNDS FOR EQUITABLE RELIEF: Con-
sidering accident, mistake, fraud, etc.

1 VOL., 474-PAGES,

 

Chapter VIII.

PROPERTY IN EQUITY—TRUSTS: Covering
definition, history, and classification of trusts,
charitable trusts, duties and liabilities of trus-
tees, remedies of cestut que trust, ete.

Chapter IX.

PROPERTY IN EQUITY — MORTGAGES,

LIENS, AND ASSIGNMENTS.
Chapter X.

EQUITABLE REMEDIES: Coveringaccounting,
contribution, exoneration, subrogation, and
marshaling.

Chapter XI.

EQUITABLE REMEDIES (Conrmnvep): Cov-
ering partition and settlement of boundaries,

Chapter XII.

EQUITABLE REMEDIES (Conrinvep): Cov-
ering specific performance, and considering
enforceable contracts, grounds for refusingsre-
lief, etc.

Chapter XIII.

EQUITABLE REMEDIES (Continued): Cov-
ering injunctions, and considering their juris-
‘dictional principles, classes of cases where
remedy may be used, etc.

; Chapter XIV.
REFORMATION, CANCELLATION, AND
QUIETING TITLE.
Chapter XV.

ANCILLARY REMEDIES: Covering discovery,
bills to perpetuate testimony, interpleader,
receivers, etc.

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G DHandBook of

Criminal Drocedure,

By Wm. B. Clark, |r.,

Gutbor of a “BandrBoot of Criminal Baw,” and a
“Bandhook of Contracts.”

 

TABLE OF CONTENTS.

Chapter I.

JURISDICTION: Covering courts of criminal ju-
risdiction and venue.

Chapter II.
APPREHENSION OF PERSONS AND PROP-
ERTY: Covering arrest in general, warrants,
extradition, searches and seizures of property,
and taking property fr.m prisoner.

Chapter III.
PRELIMINARY EXAMINATION, BAIL, AND
COMMITMENT: Covering right to release on
bail, hab as corpus, the recognizance, release
of sureties, etc.

Chapter IV. ‘
MODE OF ACCUSATION: Covering the indict-
ment and presentment, information, coroner’s
inquisition, time of prosecutiun, and nolle
prosequi, etc.
Chapter V.

PLEADING —THE ACCUSATION: Covering
jJorm o! indictment in general, the commence-
ment, and the statement of offense and descrip-
tion of defendant. :

Chapter VI.

PLFADING—THE ACCUSATION (Continued):
Ccvering alle-ation of intent, knowledge, ete. ;
technical terms; second or third offense; set-
ting forth writings; description of property
and persons; ownership.

Chapter VII.

PLEADING—THE ACCUSATION (Continued):
Coveriug statement of time and place.

1VOL. 658 PACES.

 

Chapter VIII.
PLEADING—THE ACCUSATION (Continued):
Covering indictments on statutes,
Chapter IX.

PLEADING—THE ACCUSATION (Continued):
Covering duplicity, joinder of counts and par-
ties, election, conclusion of indictment, amend-
ment, aider by verdict, eto.

Chapter X.
PLEADING AND PROOF: Covering variance
and conviction of minor and higher offense.
Chapter XI,
MOTION TC QUASH: Covering also arraign-
ment, demurrer, and pleas of defendant. -
Chapter XII,

TRIAL AND VERDICT: Covering time and place
of trial, custody and presence of defendant,
billof particulars, the counsel, judge and jury,
arguments and instructions, etc.

Chapter XIII.
PROCEEDINGS AFTER VERDICT: Covering
motion in arrest of judgment, sentence, new
trial, writ of error, etc.
Chapter XIV.

EVIDENCE: Covering facts in issue, motive,
res ges.ae, other crimes, declarations, confes-
sions, character, burden of proof, witnesses,
etc.

Chapter XV.
HABEAS CORPUS,

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hh

 

 

 

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TABLE OF CONTENTS.

Chapter I.

FORMATION OF THE CONTRACT: Covering
@ the capacity of parties, who may sell, the thing
sola, mutual assent, form, and price.

Chapter ITI.

FORMATION OF THE CONTRACT (Continued) :
Covering the statute of frauds.

Chapter III,

EFFECT OF THE CONTRACT IN PASSING

‘THE PROPERTY: Covering sales of specific
chattels,—unconditional sales, conditional sales,
sale on trial or approval, and sale or return.

Chapter IV.

EFFECT OF THE CONTRACT IN PASSING

{HE PROPERTY (Continued): Covering sales

: of chattels not specific, appropriation of property

} to the contract, reservation of right of disposal,
ete,

Chapter V.

MISTAKE, FAILURE OF CONSIDERATION,
AND FRAUD: Showing the effect of mistake,
failure of consideration, and fraud generally,
frauds on creditors, the delivery necessary as

£ against creditors and purchasers, etc.

J Volume.

 

356 Pages.

Chapter VI.
ILLEGALITY: Covering sales prohibited by the

common law, by public policy, and by statute;
the effect of illegality, and the conflict of laws.

Chapter VII.

CONDITIONS AND WARRANTIES:

IT Covering
conditions and war ranties generally.

Chapter VIII.
PERFORMANCE: Covering fully delivery, the

buyer’s right of examination, acceptance, and
payment. ;

Chapter IX.

RIGHTS OF UNPAID SELLER AGAINST THE
GOODS: Covering the seller’s lien, stoppage
in transitu, and the right of resale.

Chapter X.
ACTION FOR BREACH OF THE CONTRACT:

Covering the various remedies of the seller and
of the buyer.

$3.75, Delivered.

WEST PUBLISHING CO., St. Paul, Minn.
( Bornbook Series.)

A Handbook of “International Law,

By Capt. Zowin F.

Acting Judge Advocate,
United States Army,

Beenn,

TABLE OF CONTENTS.

INTRODUCTION.

Covering the definition, source, and nature of In-
ternational Law.

Chapter I.

PERSONS IN INTERNATIONAL LAW: Cov-
ering states, their loss of identity, various unions
of states, de facto states, belligerency and recog-
nition thereof, and equality of states.

Chapter II.

THE COMMENCEMENT OF STATES—FUNDA-
MENTAL RIGHTS AND DUTIES: Covering
the commencement and recognition of new
states, effect of chunge of sovereignty, the fun-
damental rights and duties of states, vtec.

Chapter ITI. ;

TERRITORIAL PROPERTY OF A STATE:
Covering modes of acquiring property, boun-
daries, territorial waters, etc.

Chapter IV.

TERRITORIAL JURISDICTION: Covering ex-
territoriality, sovereigns and diplomatic agents
and their immunities, vessels, right of asylum,
alienage, responsibility for mob violence, extra-
dition, jurisdiction beyond state limits, etc.

Chapter V.

JURISDICTION ON THE HIGH SEAS AND
UNOCCUPIED PLACES: Covering nature of
jurisdiction, jurisdiction over merchant ships,
piracy, privateers, letters of marque, slave
trade, ete.

Chapter VI.

THE AGENTS OF A STATE IN INTERNA-
TIONAL RELATIONS: Covering public diplo-
matic agents and consuls, and matters relating
to them.

Chapter VII.
INTERVENTION: Covering the subject gener-

ally.
Chapter VIII.
NATIONALITY: Covering citizenship, allegi-
ance, expatriation, naturalization, etc.
Chapter IX,
TREATIES: Covering the subject generally.

Chapter X. :
AMICABLE SETTLEMENT OF DISPUTES:
Covering mediation, arbitration, retorsion, re-
prisals, embargo, pacific blockade, etc.
Chapter XI,

INTERNATIONAL RELATIONS IN WAR:
Covering the subject of war geuerally, includ-
ing the kinds, causes, and objects of war.

Chapter XII.

EFFECTS OF WAR-—AS TO PERSONS: Cov-
ering the relations of enemies, noncombatants,
privateers, prisoners of war, and the subjects of
ransom, parole, ete.

1 VOLUME.

 

500 PAGES.

Chapter XIII.

EFFECTS OF WAR—AS TO PROPERTY:
Covering contributions, requisitions, foraging,
booty, ransom, and other questions in regard
to property.

Chapter XIV.

POSTLIMINIUM: The right and its limitations
defined and explained.

Chapter XV.

MILITARY OCCUPATION: Covering the defi-
nition, extent, and effect of occupation, and the
duties of an occupant.

Chapter XVI.

MEANS OF CARRYING ON HOSTILITIES:!
Covering the instruments and means of war, }
spies, etc. }

Chapter XVII. ‘

ENEMY CHARACTER: Covering enemies gen-'
erally, domicile, houses of trade, property and'
transfer thereof, etc.

Chapter XVIII.

NON-HOSTILE RELATIONS: Covering com- |
mercia belli. flags of truce, passports, safe-con- |
ducts, truccs or armistices, cartels, etc. |

Chapter XIX,

TERMINATION OF WAR: Covering the meth. |
-ods of termination, uti possidetis, treaties of |
peace, conquest, ete.

Chapter XX.

OF NEUTRALITY IN GENERAL: Neutrality
defined and explained.

Chapter XXI.
THE LAW OF NEUTRALITY BETWEEN BEL-
LIGERENT AND NEUTRAL STATES: Cov.
ering the rights, duties, and liabilities of neutral :

states.
Chapter XXII.
CONTRABAND: Covering the subject generally. '

Chapter XXIII.
BLOCKADE: Covering the subject generally..

Chapter XXIV.

VISIT AND SEARCH, AND RIGHT OF AN-:
GARY: Covering those subjects generally.

APPENDIX.

Giving in full, as in no other single work, the In-:
structions for the Government of Armies of the,
United States in the Field (Lieber) ; Papers Car- ,
ried, or that Ought to be Carried, by Vessels in
Evidence of their Nationality; The Declaration
of Paris; The Decluration of St. Petersburg;
The Geneva Convention for the Amelioration of
the Condition of the Sick and Wounded of Ar-
mies in the Field; The laws of War on Land
(Recommended for Adoption by the Instivute of
International Law at Oxford, Sept. 9, 1880); and,
The Brussels Conference,

$3.75, DELIVERED.

i

‘

WEST PUBLISHING CO., St. Pau, MINN,
(Che BornBook Series.)

A Handbook of

tse

She Baw

of Corts,

e

Edwin GW. Faqgard, @. UW., BL. B.,

Professor of the Law of Torts in the Minnesota University Law School,

 

TABLE OF CONTENTS.

PART I.—IN GENERAL.

Chapter I.

GENERAL NATURE OF TORTS: Covering the
law adjective and law substantive, distinctions
between torts and crimes, common-law obliga-
tions and remedies, how and why liability at-
taches for torts, the menta) element, connec-
tion as cause, damnum and injuria, common-
law, contract and statutory duties, etc.

Chapter II.
VARIATIONS IN THE NORMAL RIGHT TO
TO SUE: Covering exemptions based on
rivilege of actor, as public acts of states, of
judicial and executive officers, etc., and private
acts authorized by statute or common law,
| variations based on status or conduct of plain-
tiff, etc.
Chapter III.

LIABILITY FOR TORTS COMMITTED BY OR
WITH OTHERS: Covering liability by con-
cert in action or joint torts, and liability by
relationship, as husband and wife, landlord
and tenant, master and servant, partuers, etc.

Chapter IV.

DISCHARGE AND LIMITATION OF LIABILI-
ITY FOR TORTS: Covering discharge or
limitation by voluntary act of party and by
operation of law.

Chapter V.

REMEDIES: Covering statutory and common-
law remedies, judicial and extrajudicial reme-
dies, damages, etc.

PART IL.—SPECIFIC WRONGS.

Chapter VI.

WRONGS AFFECTING SAFETY AND FREE-
DOM OF PERSONS: Covering false impris-
onment, assault and battery, an the defenses,
as justification and mitigation.

 

 

Chapter VII.

INJURIES IN FAMILY RELATIONS: Cover-
ing the family at common law, master and
servant, parent and child, husband and wife.

Chapter VITI.

WRONGS AFFECTING REPUTATION: Cover-
ing libel, slander, and slander of title, together
with the defenses.

Chapter IX.
MALICIOUS WRONGS: Covering deceit, mali-:
cious prosecution, abuse of process, interfer-
ence with contract, conspiracy, etc.

Chapter X.
WRONGS TO POSSESSION AND PROPERTY:
Covering the nature of possession and its ob-
jects, trespass, waste, conversion, etc.

, Chapter XI.

NUISANCE: Covering kinds of nuisance, as pub--
lic, private, and mixed, continuing and legal-
ized, parties to proceedings against, remedies,.
ete. ;

Chapter XII.

NEGLIGENCE: Covering the duty to exercise
care, what is commensurate care, common-law,
contract and statutory duties, damages, con-
tributory negligence, etc.

Chapter XIII.

MASTER AND SERVANT: Covering master’s
liability to servant for negligence, master’s
duty to servant, assumption of risk by serv-
ant, various -kinds of risks, fellow servants,
vice principals, etc.

Chapter XIV.

COMMON CARRIERS: Covering the subject.
generally.

 

2VOLS. 1,328 PAGES. $7.50, DELIVERED.

 

WEST PUBLISHING CO., St. Paul, Minn.
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@ BHanrBook of . . . .
She Construction and
4nterprefation of Lats,,

 

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°

a

AUTHOR OF BLACK’S LAW DICTIONARY, AND TREA-
By H. CAMPBELLL BLACK, iiss on constituTIONAL LAW, JUDGMENTS, ETC.

 

TABLE OF CONTENTS.

Chapter I.

NATURE AND OFFICE OF INTERPRE-
TATION: Covering definition of terms, ob-
ject of interpretation, rules of construction,
and oflice of judiciary.

Chapter IT.

CONSTRUCTION OF CONSTITUTIONS:
Covering method and rules of construction,
construction as a whole, coumon law and pre-
vious legislation, retrospective operation, man-
datory and directory provisions, preamble and
titles, extraneous aids, schedule, stare decisis,

ete.
‘ : Chapter III.

GENERAL PRINCIPLES OF STATUTORY
CONSTRUCTION: Covering literal and eq-
uitable construction, scope and purpose of the
act, casus omissus, implications in statutes,
meaningless statutes, errors, misprints, sur-
plusage, interpolation of words, ete.

Chapter IV.

STATUTORY CONSTRUCTION; PRE-
SUMPTIONS: Covering presumptions against
exceeding limitations of legislative power, un-
constitutionality, injustice, irrepealable laws,
implied repeal of laws, etc., presumptions as
to public policy, as to jurisdiction of courts,

ete.
Chapter V.

STATUTORY CONSTRUCTION; WORDS
AND PHRASES. Covering technical and
popular meaning of words, commercial and
trade, general and special, relative and qual-
ifying, and permissive and mandatory terms:

conjunctive and disjunctive particles, adopted |

and re-enacted statutes, computation of time,

ete.
Chapter VI.
INTRINSIC AIDS IN STATUTORY CON-
STRUCTION: Covering construction as a
whole, context, title, preamble, interpretation

elause, etc.
; Chapter VII:

EXTRINSIC AIDS IN STATUTORY CON-
STRUCTION: Covering admissibility of ex-
trinsic aids, statutes in pari materia, con-
temporary history, construction and_ usage,
journals of legislature, opinions of legis]:.tors,

ete.
Chapter VIII,
INTERPRETATION WITH REFERENCE
TO COMMON LAW: Covering statutes af-
firming, supplementing, superseding or in
derogation of, common law.

 

Chapter IX.

RETROSPECTIVE INTERPRETATION:
Covering definition, constitutional considera-
tions, vested rights, remedial statutes, and

statutes regulating procedure.

; Chapter X.

CONSTRUCTION OF PROVISOS, EXCEP-
TIONS, AND SAVING CLAUSES: Cov-
ering the subject generally.

Chapter XI.

STRICT AND LIBERAL CONSTRUCTION:
Covering penal and remedial statutes, stat-
utes against common right, against frauds,
and of limitation, legislative grunts, revenue
and tax laws, etc.

Chapter XII.
MANDATORY AND DIRECTORY PROVI-

SIONS: Definitions and rules covering the
subject generally.

Chapter XIII.

AMENDATORY AND AMENDED ACTS:
Covering construction of amendments and of
statute as amended, identification of act tobe
amended, amendment by way of revision, etc.

Chapter XIV.

CONSTRUCTION OF CODES AND RE-
VISED STATUTES: Covering construction
as a whole, reference to original statutes,
change of language, previous judicial construc-
tion, ete.

\

4

Chapter XV.

DECLARATORY STATUTES: Covering defi-
nition and construction in general.

Chapter XVI.

THE RULE OF STARE DECISIS AS AP-
PLIED TO STATUTORY CONSTRUC-
TION: Covering the general principle, re-
versal of construction, federal courts follow-
ing state decisions, construction of statutes of
other states, ete.

Chapter XVII.

INTERPRETATION OF JUDICIAL DECI-
SIONS AND THE DOCTRINE OF PREC-
EDENTS: Covering the nature of prece-
dents; dicta; stare decisis; the force of prece-
dents as between different courts; the law of
the case, etc.

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Gl Handhook of
Daifments and Carriers,

Gp Wm.

&. Dale.

 

TABLE OF CONTENTS.

Chapter I.

IN GENERAT: Covering definition and gen-
eral principles common ‘to all bailments;
| classification of bailments.

Chapter ITI,

FOR SOLE BENEFIT OF
Covering depositum and man-
datum, creation, rights and liabilities of
parties, termination, ete.

BAILMENTS
i BAILO

Chapter: ITI.

BAILMENTS FOR BAILEL’S SOLE BEN-
_ EFIT: Commodatum, creation, rights and
[ liabilities of parties, termination, ete.

Chapter IV.

BAILMENTS FOR MUTUAL BENEFIT—
ities of parties before and after default, ter-
mination, etc.

PLEDGES: Covering definition of pledge,
‘ « Chapter V.

creation, title of pledgor, rights and liabil-
BAILMENTS FOR MUTUAL BENEFIT—

HIRING: Locatio or hiring defined; estab-.

lishment of relation; rights and liabilities
of parties; hiring of things for use; hire of
Idbor and services; warehousemen: whart-
ingers; safe-deposit companies; fuctors, ete.;
* termination of relation, ete

  
 
 

 

Chapter VI.

INNKEEPERS: Innkeeper defined: who are
guests; commencement of relation; duty
to receive guest; liability for guests’ goods;
lien; termination of relation; liability as
ordinary bailee, ete.

Chapter VII.

CARRIERS OF GOODS: Common earriers,
essential characteristics; when liability at-
taches; discrimination; compensation: lien;
liability as insurers and as ordinary bailees;
earriers of live stock; carriers of baggage;
contracts and notices limiting liability; ter-
mination of liabilityy , connecting carriers,
ete.; post-office department; private car-
riers.

Chapter VIII.

CARRIERS OF PASSENGERS: Who are
passengers; when liability attaches; duty
to accept passengers; furnishing equal ac-
commodations: ticket as evidence of pas-
senger’s rights; right to make regulations;
injuries to passengers; contracts limiting
liability; termination of liability; ejection
from vehicle: connecting carriers, and cov-
ering the subject generally.

Chapter IX.

ACTIONS AGAINST CARRIERS: Actions
against carriers of goods and carriers of
passengers; parties: form of action; plead-
ing; evidence; damages,

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o¢

Handbook f Elementary Lar,

Bp Wafter Menfon Smith,

Instructor in the Law Department of the University ot Michigan.

TABLE OF CONTENTS.

Part I—ELEMENTARY JURISPRUDENCE.

CHAPTER I.

NATURE OF LAW AND THE VARIOUS SYSTEMS:
Moral, divine, municipal, international, mari-
time and martial law.

CHAPTER. II.

GOVERNMENT AND ITS FUNCTIONS: Covering
sovereignty, the state, the constitution, and the
forms and functions of government generally.

. CHAPTER III.
GOVERNMENT IN ‘THE UNITED STATES: Its
general character, sovereignty, distribution of
powers, citizenship, ete,
CHAPTER Iv.
THE UNWRITTEN LAW: The Roman, the Canon
and the Common law.
CHAPTER V.
EQUITY: Nature and jurisdiction of equity;

ims.
CHAPTER VI.

THE WRITTEN LAW: Relation to unwritten law;
statutory law in general,

CHAPTER VII.

‘THE AUTHORITIES AND THEIR INTERPRETA-
TION: The rank of authorities, rules of inter-
pretation, statutory construction, etc.

CHAPTER VIII. _.

‘PERSONS AND PERSONAL RIGHTS:, Legal
rights, wrongs and remedies, rights in rem and
in personam, status, personal security, liberty,
property, constitutional guaranties, ete

CHAPTER IX.

‘PROPERTY: Covering, ownership and possession;
the Feudal system; corporeal and incorporeal,
real and personal, property; fixtures, etc.

CHAPTER X.

‘CLASSIFICATION OF THE LAW: Substantive
and adjective, public and private law, etc.

Part II—THE SUBSTANTIVE LAW,

CHAPTER XI.
‘CONSTITUTIONAL AND ADMINISTRATIVE LAW:
Written and unwritten constitutions, essentials
and construction of constitutions; administra-
tive law, etc.
CHAPTER XII.
-CRIMINAL LAW: Covering its general nature,
criminal capacity, classification of crimes, pun-
ishment, etc.

CHAPTER XIII.

THE LAW OF DOMESTIC. RELATIONS: Cover-
ing marriage and its incidents, parent and child,
guardian and ward, master and servant, etc.

max-

 

CHAPTER XIV.

CORPOREAL AND INGORPOREAL HEREDITA-
MENTS: Covering the subject generally.

CHAPTER XV.

ESTATES IN REAL PROPERTY: Classification,
estates in possession and. in expectancy; free-
holds and estates less than freehold; estates in
severalty, in joint tenancy and in common; ab-
solute and conditional, legal and equitable es-

tates;
CHAPTER XvI.

TITLES TO REAL PROPERTY: Covering title by
descent and by _ purchase, classification and
forms of deeds, etc.

CHAPTER XVII. .
PERSONAL PROPERTY: Real and personal chat-
tels, ownership of personal property, acquisition
of title, etc.
CHAPTER XVIII.

SUCCESSION AFTER DEATH: Testate and intes-
tate succession, escheat, executors and adminis-
-trators, etc.

CHAPTER XIX.

CONTRACTS: Definition, validity and classification
of contracts, quasi contracts, etc.

CHAPTER XX.

SPECIAL CONTRACTS: Covering contracts of
sale, bailments, negotiable contracts, suretyship,
insurance, ete.

CHAPTER XXI.

Covering the subject generally.

CHAPTER XXII.

COMMERCIAL ‘ASSOCIATIONS: Covering part-
nerships, joint stock companies, voluntary asso-
ciations, corporations, etc.

CHAPTER XXIII.

TORTS: Covering the nature and elements of torts,
proximate and remote cause and specific torts.

Part IHI—THE ADJECTIVE LAW.

CHAPTER XXIV.
REMEDIES: Extralegal and legal, penal and civil,
common law and equitable, ordinary and extraor-
dinary remedies,
CHAPTER XXV.
COURTS AND THEIR JURISDICTION:
the subject generally.
CHAPTER XXVI.

PROCEDURE: In general; outlines of common
law, equity, code, and criminal procedure,

CHAPTER XXVII.
TRIALS: Early forms, trial procedure, evidence,

etc

AGENCY:

Covering

 

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CHAPTER I.

DEFINITIONS AND GHNERAL PRINCIPLES:
Definition, nature and’ theory of damages;
wrong and damage; analysis of legal wrongs;
classification of damages.

CHAPTER II.
‘NOMINAL DAMAGES: Definition and general na-

ture.
CHAPTER III.

a

{COMPENSATORY DAMAGES: Definition; proxi-
*  ™ate and remote consequences; direct and con-
sequential losses; avoidable consequences; cer-
tainty of damages; profits; entirety of demand;
past and ftttire ‘losses; elements of compensa-
tion; aggravation and mitigation of damages;
reduction of loss; injuries to limited interests,

etc.

CHAPTER Iv.
BONDS, LIQUIDATED DAMAGES AND ALTERNA-
ae CONTRACTS: Covcring the subject gen-
erally.

CHAPTER V.

INTEREST: Definition: as a debt and as damages;
interest on liquidated and unliquidated de-
mands; on overdue paper,—contract and stat-
ute rate; compound interest; etc.

CHAPTER VI.

VALUE: Definition; how estimated; market value;
pretium affectionis: value peculiar to owner;
time and place of assessment; highest interme-
diate value; etc.

CHAPTER VII.

EXEMPLARY DAMAGES: In general; when re-
coverables ability of principal for act of agent;
ete,

CHAPTER VIII.

PLEADING AND PRACTICE: Allegation of dam-
age, the ad damnum, form of statement, prov-
ince of court and jury, etc.

     
  

tg

 

C1111

fi

 

Tbe Law of Damages,

By Wm. G. Hate,

Author of ‘«Bailments and Carriers.”

TABLE OF CONTENTS.

CHAPTER IX.

BREACH OF CONTRACTS ‘FOR SALE OF GOODS:
Damages in action by seller for non-acceptance
and non-payment; damages in action by buyer
for non-delivery, breach of warranty, and as for
conversion.

CHAPTER X.

DAMAGES IN ACTIONS AGAINST CARRIER:
Carriers of goods,—refusal to transport, non-
delivery, injury in transit, delay, consequential
damages; carriers of passengers,—injuries to
passenger exemplary damages, mental suffering,
‘delay, wrongful ejection, etc.

CHAPTER XI. .

DAMAGES IN ACTIONS AGAINST TELEGRAPH
COMPANIES: Actions by sender and by receiv-
er; proximate and certain, remote and specula-
tive damages; notice of purpose and importance
of message; cipher messages; avoidable conse-
quences; exemplary damages; .etc.

CHAPTER XII.

DAMAGES FOR DEATH BY WRONGFUL ACT:
Pecuniary losses; mental suffering: exemplary
damages: injury to deceased; medical and fu-
neral expenses; meaning of pecuniary,—care and
support, prospective giits and inheritances; in-
terest as damages; discretion of jury; nominal
damages, etc.

CHAPTER XIII.

WRONGS AFFECTING REAL PROPERTY: Dam-
ages for detention of real property; trespass;

nuisance; waste; contract to sell real property,
—bredch by vendor or vendee; breach of cove-
nants, etc.

CHAPTER XIV.

BREACH OF MARRIAGE PROMISE: In general,

compensatory damages, exemplary damages, etc.

 

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TABLE OF CONTENTS.

Chapter I.
WHAT IS REAL PROPERTY: Real and
personal property, fixtures, equitable conver-
sion, personal interests in laud.

Chapter II.
TENURE AND SEISIN.

Chapter III.

ESTATES AS [TO QUANTITY—FEE SIM-
VLE: Classitication of estates, freehold,
fee-simple, creation, right of userand aliena-
tion.

Chapter IV.

ESTATES AS TO QUANTITY (Continued)—
ESTATES TAIL: Classes, origin, crea-
tion, incidents, duration, tenant in tail aft-
er possibility of issue extinct, estates tail in
the Luited States, quasi entail.

Chapter V.

ESTATES AS TO QUANTITY (Continned\—
CONVENTIONAL LIFE ESTATES:
Life estates, creation, conventional life es-
tates, incidents, estates per autre vie.

Chapter VI. :
ESTATES AS TO QUANTITY (Continned)—
LEGAL LIFE ESTATES: Ustate during
coverture, curtesy, dower, homestead, fed-
eral homestead act. i

Chapter VII.

STATES AS TO QUANTITY (Continned)—
LESS THAN FREEHOLD: Estates for
years, letting land on shares, tenancies at
will, tenancies from year to year, letting of
lodgings, tenancies at sufferance, licenses.

Chapter VIII.
ESTATES AS TO QUALITY ON CONDI-
“TION—ON LIMITATION: Estates on
‘condition, estates on limitation, base fees.

Chapter IX,

ESTATES AS TO QUALITY (Continued)—
MORTGAGES: Parties, nature, form,
rights and liabilities of mortgagor and norte
gagee, assignment of the equity of redemp-
tion, assignment of the mortgage. priority
of mortgages and other conveyances, regis-
tration, discharge of a mortgage.

1 VOL.

 

589 PAGES.

Chapter X.

EQUITABLE ESTATES: Statute of ures.
classification of trusts,—express, implied,
resulting, constructive,—incidents of equita-
ble estates, charitable trusts.

Chapter Xi.

ESTATES AS TO TIME OF ENJOYMENT
—FUTURE ESTATES: Reversions, possi-
bilities of reverter, remainders, rule in Shel-
ley’s Case, future uses, springing uses,
shifting uses, executory devises, incidents
of future estates.

Chapter XII.

ESTATES AS TO NUMBER OF OWNERS
—JOINT ESTATES: Joint tenancies, ten-
ancies in common, estates in coparcenary,
estates in entirety, estates in partnership,
incidents of joint estates, partition,

Chapter XIII.
INCORPORBAL HEREDITAMENTS:
Easements, creation, classification, inci-
dents, destruction, rights of way, highways,
light and air, lateral and subjacent sup-
ort, party walls, easements in water, prof-
its a prendre, rents» franchises,

Chapter XIV.

LEGAL CAPACITY TO HOLD AND CON-
VY REALTY: Infants, persons ‘of un-
sound mind, married women, aliens, corpo-
rations,

Bara

Chapter XV.
RESTRAINTS ON ALIENATION: _ Re-
straints imposed by law, restraints in favor
of creditors, restraints imposed in creation
of estate.

Chapter XVI.

TITLE: Acquisition of title by state and pri-
vate persons. grant from state, conveyan-
ces, common-law conveyances, conveyances
under statute of uses, modern statutory con-
veyances, registered titles, requisites of
deeds; covenants for title, seisin, against
incumbrances, warranty, further assurance;
estoppel, adverse possession, accretion. de-
vise, descent, judicial process; conveyances
under licenses, under duress; tax titles, em-

inent domain. 8

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