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R. H. F. V ARIEL
ATTORNEY AT LAW
LOS ANQCLB8. CAL.
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i THE LIBRARY
OF
THE UNIVERSITY
OF CALIFORNIA
LOS ANGELES
SCHOOL OF LAW
GIFT OF
COMMENTAKIES
ON THE LAW OF
PRIVATE CORPORATIONS
BY
SEYMOUR D. THOMPSON, LL. D.
IN SIX VOLUMES,
Volume I.
SAN KRANCISCO:
BANCROFT-WHITNEY COMPANY.
l.S!)5.
T
T3T/6c
Entered according to Act of Congress in the year 1895, by
SEYMOUR D. THOMPSON,
In the OfiBce of the Librarian of Congress, at Washingtoa.
Zo %. E. Z.
Save for the two years during which the final preparation
of the manuscript of this ivork has withdrawn me from your
society, you have been the companion of this and of my other
literary labors. I can trace on almost every page of my works
on the law, the record of your intelligent, patient, and loving assist-
ance. I obey the first impulse of my heart in reserving this page
for a public acknowledgment to you; knowing that, however
much you may slirink from publicity, it will be gratifying to our
children that your name is linked with mine, as your life and
fortunes have been, on a page of the most important, and, I trust,
the most permanent, of my published works. Let us trust that it
shall be to them like an inscription on a monument, inciting them
to honorable endeavor, long after we shall have " passed to where,
beyond these voices, there is peace."
Ul^^^l
PREFACE.
This is an attempt to state the law relating to corpo-
rations existing in the United States, except those created
for governmental purposes. As will be seen by the analysis
of the whole work which immediately follows this preface,
it is divided into nineteen separate titles. So great is
the extent and variety of the questions under consider-
ation that it has been found necessary to distribute
the matter in these titles into no less than two hundred
and one chapters. Many of these chapters are so large
that it has been necessary to subdivide them into sub-
chapters, called articles. For example, one of these chap-
ters contains fifteen, another twelve, others seven, and still
others lesser numbers of these articles ; so that many of
the so-called chapters are really extensive titles. In many
cases it has been found necessary, for the convenient and
accurate grouping of subjects, to subdivide these articles
into sub-articles, called subdivisions. The whole work is
again divided into about eight thousand separate para-
graphs, called sections. These sections form the units oC
grouping, of reference, and of indexing. The whole work
is comprised in six volumes, of about eleven hundred pages
each.
The author finds his justification for the publication of
so large a work upon a single title of the law, in the vast,
Vi PREFACE.
exuberant, and intertangled growth of uncodified and unas-
sorted statutes and judicial decisions, the work of near
fifty independent sovereignties and jurisdictions, which we
in America call our law. He also finds it in the fact
that upon no subject in that law has this growth been as
rapid and as rank as upon the subject here under consid-
eration. The statement of a single fact, made by Mr.
Justice Field in his oration delivered at the centennial
celebration of the Supreme Court of the United States, in
the city of New York in 1890, that four-fifths of the wealth
of the country is held by corporations, will give emphasis to
what is' here said.^ Since, under our mixed system of State
and Federal government, this law cannot be the work of one
supreme national legislature, nor of one supreme national
tribunal, it necessarily exists in some fifty collections or'
groups of statutory and case-made rules, which form what
is called the law in each particular State of the Union.
These collections or groups of rules differ in many cases
essentially from each other, and the rules established by
the courts of the States diff'er in many instances from those
established by the Federal judicatories; and in some cases,
as has been pointed out,^ the Federal judicatories have even
declined to follow and apply the law as enacted by the
Legislature of the State in which the rights in controversy
arose. Nevertheless, there is on the more important sub-
jects a general uniformity, not only in the adjudged, but
also in the statute law. Such being the state of the law
in the United States, an author who proposes to himself
the ambitious task of collecting anl stating the whole law
upon a given subject must, if his work would have the
semblance of completeness in any particular State, collect
and state the law as it exists in that particular jurisdiction.
This requires him to collect and state the law, however dis-
' 24 Am. Law Rev. 364. ' Post, § 1669, ei seq.
PREFACE. Vll
cordant, as it exists in all the different American jurisdic-
tions, Federal and State.
This work was commenced more than sixteen years ago.
It was designed and announced in 1883 to be in three vol-
umes; it has grown to six, and it has required much conden-
sation to bring the text within the limits of six thousand
pages. Its completion has been interrupted by other labors,
and especially by a tour of twelve years of judicial service in
an overburdened appellate court. Since its commencement
great changes have taken place in the American law of pri-
vate corporations. The American doctrine that the capital
stock of a corporation, including its unpaid share subscrip-
tions, is a trust fund for its creditors, has, during that period,
been greatly modified — so much so, that it may now be
doubted whether the capital of a corporation is a trust fund
for its creditors in any different sense than the sense in which
the property of a private person is a trust fund for his credit-
ors.^ The doctrine formerly held by many of the State courts
and emphasized by a decision of the Supreme Court of the
United States," and still firmly insisted upon in England,*'* that
the shares of a corporation can be sold and distributed only
at their full value, either in money or in property, has been
greatly shaken, if not overthrown, by recent decisions of
the Supreme Court of the United States.* The doctrine,
established some twenty years ago by decisions of the
Supreme Court of the United States,' that it is not uncon-
stitutional for the Legislatures of the States, in the exer-
tion of the police power, to limit the maximum charges of
' Post, § 1569, et seq.; § 2841, et seq.; with which compare § 1665,
et seq.
' Upton V. Tribilcock, 91 U. S. 45; post, § 1568.
' Ooregum Gold Mining Co. v. Roper [1892], A. C 195, H. L.
See also, post, § 1615.
* Post, § 1665, et seq.
' Munn t'. Illinois, 94 U. S. 113, and other cases.
Vlll PREFACE.
corporations, and even of private persons, whose business is
"clothed with a public interest," has been greatly shaken by
a subsequent decision of the same court,^ and may be said
to be now tottering in the balance.^ On the other hand,
tlie protection of corporate rights under those clauses of
the Federal Constitution which prohibit the States from
depriving any person of his property witliout due process
of law, and from denying to any person the equal pro-
tection of the laws,^ has been undergoing a steady, though
a generally conservative progression. Again, during the
period in which this work has been under preparation, cor-
porations engaged in similar industries have, for the purpose
of reducing competition among themselves and of engross-
ing the markets in respect of their products, formed them-
selves, under various schemes, into extensive combinations
or partnerships, called "trusts." These, in turn, have been
the subjects of severe repressive legislation, both Federal and
State, and the public opposition to them has called forth a
totally new group of judicial decisions.* These, and other
topics in respect of which the law has undergone a recent
development, have been, for obvious reasons, treated with
more fullness of detail than those topics in respect of which
the law has become settled.
It should be stated, moreover, that the plan upon which
this work was originally projected, and to which the author
has endeavored to adhere throughout, has been to treat
every topic with such fullness of detail that the state of the
law in respect of it could be learned from the pages of the
^ Chicago etc. R. Co. v. Minnesota, 134 U. S. 418.
' In Brass v. North Dakota, 153 U. S. 391, the doctrine of Munn
V. Ilhnois was reaffirmed by a bare majority of the court. Compare
Reagan v. Farmers' Loan etc. Co., 154 U. S. 362.
' Const. U. S., 14th Amendment. See post, ch. 117, art. II, and
ch. 118.
* Post, ch. 142.
PREFACE. IX
work, and without the necessity of the reader searching the
adjudged cases. To this end the author has endeavored to
state not only what the courts have decided, but also the
reasons which they have given for their decisions, and the
applications which they have made of them to various
states of fact. It may be that he has erred in the direc-
tion of too much detail; but he has continually wrought
under the dread of reaching the opposite extreme, that of
making a work which should be a mere collection of ulti-
mate decided points, huddled together in some sort of
grouping, — in short, a work which would deserve no better
title than that of a mere index to the decisions of the
courts.
The author can only say to his professional brethren, by
way of apology for whatever defects may be found in this
work, that he has tried hard to serve them, and that, in
this effort, he has bestowed greatly more labor upon it than
upon all his previous published works in the aggregate. It is
the first of his works which he has ventured to dignify with
the name of " Commentaries." He has felt justified in this
by the character of treatment originally proposed and in
the main carried out, — that of analyzing and classifying a
great and more or less conflictmo: mass of statute and case
law, of drawing the conflicting decisions into compari-
son, and of making such comments upon their respective
merits as a long study of the subject seemed to justify him
in makinor. If these comments have been at times severe,
he can only say that they were such in each case as seemed
proper to him at the time when the particular topic was
under study; and that, notwithstanding the criticism which
he has felt called upon to bestow upon some judicial
decisions, he parts with his task with an increasing admira-
tion for the general sense of justice which pervades the
work of the English and American Judges. In this expres-
sion of admiration he also includes a Bar, second to none
PREFACE.
in the world, without whose co-operation the Judges never
could have produced a mass of" materials of jurisprudence
such as that possessed by the Anglo-American family, — an
accumulated treasure possessed by no other people that has
lived in the tide of time. Nor can the author suppress the
confession that, during the long and weary years in which
he has been engaged upon his task, the self-accusing doubt
has often forced itself upon him, whether he was indeed
exercising the dignified office of a commentator, or the more
humble office of a mere carpenter-and-joiner of other men's
ideas.
It should be stated that two works previously published
by the author on topics connected with the law of corpora-
tions,^ having done their work, such as it was, and had their
day, have been suppressed in their original form, and their
contents, so far as deemed worth preserving, have been, after
suitable revision, retained in the present work. As these
works are in all the public, and in most of the private,
law libraries in the country, they have been cited a few
times in the present work, where they have contained
details which it has been thought not necessary to include
herein, — the former as " Tliomp. Stockh.," and the latter
as " Thomp. Off. Corp."
It affords the author great pleasure to state that, during
the period in which this work has been under preparation,
he has received, from time to time, some assistance from
others, which, while important in itself, and duly appre-
ciated, has been inconsiderable in comparison with the
whole work. Many years ago Mr. Edwin G. Merriam, of
the St. Louis Bar, who was the author's associate in literary
'■ "A treatise on the Liiw of Stockholders in CorporationB,"
originally published in 1877, and not since revised; and a work
called " The Liability of Directors and Other Officers and Agents
of Corporations, Illustrated by Leading Cases and Notes," originally
published in 1880, and not since revised.
PREFACE. XI
work of this kind, did a considerable amount of work of a
high grade, which has found its way into three titles, that
relating to directors, that relating to ministerial officers, and
that relating to actions by and against corporations. If
that capable lawyer shall have the curiosity to search in the
following pages for these children of his brain, he will, no
doubt, be disappointed at finding them almost buried under
the subsequent accumulations of fifteen years. The author
also acknowledges valuable assistance from the late Judge
William P. Wade, of California, author of several able
legal treatises; from Professor James A. Yantis, of the
University of Missouri; and from Mr. William L. Murfree,
Jr., Mr. Virgil Eule, and Mr. S. S. Merrill, all of the
St. Louis bar. And if he has omitted to mention any
others, it should be charitably ascribed to that forgetfulness
which comes with the lapse of time. With these exceptions,
the work is the personal work of the author, and is founded
upon his personal examination of the cases and statutes
therein cited.
I should deserve the accusation of ingratitude if I were
to omit, in conclusion, to return public thanks to my pub-
lishers, the Bancroft-Whitney Company, who, during a long-
succession of delays and disappointments, have maintained
their faith in my ultimate success, and have supported my
efforts to an extent which deserves to be described as
heroic.
I also take this occasion to return to my professional
brethren mv sincere thanks for the o'enerous indulgence
which they have extended to the faults of my previous
works.
And to that good Being who has given me the strength to per-
severe to the end, through so many years of toil and discourage-
ment, I tender my most grateful arhiowledgments .
SEYMOUR D. THOMPSON.
Saint Louis, January 1, 1895.
AN ANALYSIS OP THE WHOLE AVORK.
TITLE I.
ORGANIZATION AND INTERNAL GOVERNMENT.
Chapter
1. Nature and Kinds of Corporations.
2. Creation by Special Charters.
* 3. Acceptance of Special Charters.
4. Amendment of Charters.
5. Charters Granted by the Courts.
6. Organization Under General Laws.
Article I. Purposes for Which Incorporation Permitted.
Subdivision I. Examples from Various Statutes.
II. Decisions Construing Particular Stat-
utes.
II. Steps Necessary to Perfect Organization.
7. Reorganization.
8. Names of Corporations.
9. Consolidation.
Article I. In General.
II. Effect Upon Shareholders.
III. Transmission of Rights and Liabilities of
Constituent Companies.
IV. Effect on Remedies and Procedure.
10. Promoters.
Article I. Liability on Their Contracts.
XIV ANALYSIS OF THE WHOLE WORK.
Chapter
Article II. Liability to Subscribers.
III. Liability to tbe Company.
IV. Non-liability of the Company for Contracts of
Promoters.
11. Irregular and De Facto Corporations.
Article I. Dc Facto Corporations.
II. Corporations by Estoppel.
12. Constitutional Restraints upon the Creation of Cor-
porations and the Granting of Corporate Privi-
leges.
Article I. Provisions of Various State Constitutions.
II. Restraints Upon tbe Passing of Special Acts,
Conferring Corporate Privileges.
III. Restraints as to tbe Titles of Laws.
IV. Restraints as to tbe Mode of Passing Laws.
V. Various Other Restraints and Provisions.
13. National Corporations.
14. Place of Holding Corporate Meetings and of Doing-
Corporate Acts.
15. Corporate Elections. •
Article I. Assembling the Meeting.
II. The Quorum.
III. Right to Vote.
IV. Conduct of the Election.
V. Right to the Office: Contesting the Election.
16. Amotion of Officers.
17. Expulsion of Members.
Article I. Power to Expel: Grounds of Expulsion.
II. Corporate Proceedings to Expel.
III. Judicial Proceedings to Reinstate.
18. By-Laws.
Article I. Nature and Interpretation.
II. Power to Enact and Mode of Enacting.
Subdivision I. At Common Law.
II. Statutes Vesting Power in Corpora,
tion or Members.
III. Statutes Vesting Power in the Di-
rectors or Other OflBcers.
III. Requisites and Validity.
ANALYSIS OP THE WHOLE WORK XV
TITLE II.
CAPITAL STOCK AND SUBSCRIPTIONS THERETO.
Chapter
19. Nature of Capital Stock and Shares in General.
20. Who May Become Shareholders in Corporations.
Article I. Natural Persons.
II. Private Corporations.
III. Municipal Corporations.
21. The Contract of Subscription.
Article I. Theories as to the Nature and Formation of
the Contract.
11. Theories as to the Consideration.
III. Theories as to the Necessity of Paying the
Statutory Deposit.
IV. Theory that the Full Amount of the Capital
Must be Subscribed.
V. Other Theories and Holdings.
22. Alteration of the Contract.
23. Conditional Stock Subscriptions.
Article I. Validity of Conditional Subscriptions.
II. Effect of Conditions in Subscriptions.
III. Interpretation of Particular Conditions.
24. Effect of Fraud on Stock Subscriptions.
Article I. General Principles.
II. What Frauds Will and What Will Not Avoid
the Contract.
III. Remedies of the Defrauded Shareholder
Against the Company.
IV. Time Within Which a Rescission Must be
Claimed.
V, Remedies Against the persons Guilty of tlie
Fraud.
VI. Fraudulent Issues and Over-Issues.
26. The Surrender of Shares and Release of Share-
holders.
26. Payment of Shares.
Article 1. In CJoneral.
XVI ANALYSIS OV THE WHOLK WORK.
C'haptrr
Article II. ±n Property.
III. In What Kind of Property.
IV. New Doctrine That :i Corporation Can Give
Away its Unissued Shares.
V. Rights of Bona Fide Purchasers of Unpaid
Shares.
VI. Miscellaneous Holdings.
27. Assessments and Calls.
Article T. In General.
n. Conditions Precedent: Full Subscription — Or-
ganization.
III. Sufficiency and Notification of the Assess-
ment.
TITLE III.
REMEDIES AND PROCEDURE TO ENFORCE SHARE SUB-
SCRIPTIONS.
Chapter
28. Forfeiture of Shares for Nonpa^mient of Assess-
ments.
Article I. Power to Forfeit and How Exercised.
II. Effect of Such Forfeitures.
III. Relief Against Such Forfeitures.
29. Actions by the Corporation Against Shareholders
for Assessments.
Article I. Parties.
II. Pleading.
III. Miscellaneous.
30. Evidence in Such Actions.
Article I. Evidence of Corporate Existence.
II. Conduct Showing Membership: Estoppels.
III. P>ooks and Records of Corporation as Evi-
dence.
IV. Other Evidence of Membership.
V. Other Points of Evidence.
31. Defenses to Actions for Assessments.
ANALYSIS OF THE WHOLE WORK XVll
Chapter
32, Limitations of Actions Against Stockholders.
Article I. General Doctrines.
II. When the Statute Begins to Run.
III. Questions Under Special Statutes.
TITLE lY.
SHARES CONSIDERED AS PROPERTY.
Chapter
33. Powers of the Corporation in Relation to its Own
Shares.
34. Increasing and Decreasing Capital Stock.
Article I. Increasing Capital Stock.
II. Reducing Capital Stock.
35. Dividends.
Article I. Generally.
II. Validity and Propriety of Dividends.
III. Stock and Scrip Dividends.
IV. Right to Dividends as Between Successive
Owners of Shares.
V. Right to Dividends as Between Life Tenant
and Remainderman.
VI. Remedies to Compel Payment of Declared
Dividends.
36. Interest-bearing, Preferred, and Guaranteed Stock.
Article I. Interest-bearing Stock.
II. Issuing Preferred Stock.
III. Rights of Preferred Shareholders.
IV, Remedies of Preferred Shareholders.
37. Transfers of Shares.
Article I. Right of Alienation.
11. Lien of Corporation on its Shares.
III. Nature of Share Certificate.
TV. Formalities: Registration.
V. Unregistered Transfers.
VI. Priorities as Between Attaching Creditors and
Unrecorded Transferees.
Xviii ANALYSIS OK THK WllOl.K WORK.
Ohaptek
Article VII. Coinpelling Transfers in Equity.
VIII. Mandamus to Conripel Transfers.
rX. Action at Law for Refusal to Register.
X. Measure of Damages for Refusing.
XI. Fiduciary Relation Between Company and
Stockholder.
X 1 1. Its Liability for Wrongful Transfers.
XIII. Its Duties and Responsibilities where Certifi-
cates have been Lost or Stolen.
XIV. Transfers of Shares Held in Trust.
XV. Liability for Transferring on Forged Powers
of Attorney.
■ Subdivision' I. Liability to the Original Shareholder
II. Liability to Bona Fide Sub-pur-
chasers.
III. Miscellaneous Holdings.
38. Bona Fide Purchasers of Shares.
Article I. In General.
II. Who are Such Purchasers.
39. Pledges and Mortgages of Shares.
Article I. Nature and Incidents of the Contract.
II. Validity as Against Third Parties.
III. Returning the Identical Certificate.
IV. Enforcing the Contract.
V. Actions by the Pledgor for Conversion of the
Shares.
40. Other Deahngs in Shares.
Article I. Dealings With and Through Brokers.
II. " Options," " Futures," " Straddles."
III. Loans.
IV. Sales.
V. Warranties.
VI. Other Dealings.
41. Execution and Attachment Against Shares.
Article I. In General.
II. Procedure.
42. Taxation of Shares and Dividends.
Article I. General Considerations.
II. Double Taxation in Respect of Shares.
III. Exemptions from Taxation.
ANALYSIS OF THK WHOLP: WORK. XIX
Chapter
Article IV. Situs of Shares for the Purpose of Taxation.
V. Taxation of Shares in National Banks.
VI, Taxation of Dividends.
VII. Questions Relating to Assessment and Collec-
tion.
TITLE Y.
LIABILITY OF STOCKHOLDERS TO CREDITORS.
CUAPTEU
43. Nature and Extent of This Liability at Common
Law.
44. Liability in Equity on the Ground that Capital is
a Trust Fund for Creditors.
45. Liability Before Organization Complete and Capital
Paid in.
46. Constitutional Provisions Creating and Abolishing
Individual Liability.
47. Construction of Statutes Making Stockholders Per-
sonally Liable for the Corporate Debts.
48. Constitutional Questions Arising Under Such
Statutes.
49. Extra-territorial Force of Such Statutes.
50. Statutes Creating a Joint and Several Liability as
Partners.
51. Statutes Creating a Several Liability.
52. For Wliat Debts These Statutes Make Stockholders
Liable.
53. Liability for Interest, Fees and Costs.
54. Statutes Making Stockliolders Liable for Debts
Due for Labor, Provisions, etc.
55. To Wliat Class of Shareholders Liability Attaches:
Present iirid Past McinlxTs.
XX ANALYSIS OF THE WHOLE WORK.
Chapi'KR
56. Status and Liability of Legal and Equitable Owners
of Shares.
57. Divestiture of Liability by Transferring Shares.
Article I. In General.
II. Right of Shareholder to Divert His Liability.
III. Fraudulent Transfers to Escape Liability.
IV. Transfers to Persons Incapable of Contracting.
V. Exoneration of the Transferor.
VL Liability of the Transferee.
58. Liability of Executors, Administrators, Heirs, and
Legatees.
59. Conditions Precedent to the Right to Proceed
Against Stockholders.
Article I. Dissolution of the Corporation.
II. Necessity of Creditor Exhausting His Rem-
edy at Law.
III. What Will Excuse This Necessity.
IV. Other Conditions Precedent.
60. Effect of Judgment Against the Corporation.
61. Remedies and Procedure.
Article I. Theories and Statutes Under Which Remedy
is at Law.
II. Theories and Statutes Under Which the Rem-
edy is in Equity.
III. Where the Creditor is Also a Stockholder.
IV. Rules in Particular Jurisdictions.
62. Parties to Proceedings by Creditors Against Stock-
holders.
Article I. Creditors as Parties Plaintiff.
II. Shareliolders as Parties Defendant.
III. The Corporation as a Party Defendant.
63. Proceedings in Equity.
Article I. Nature and Incidents of Creditors' Bills in
Such Cases.
II. Questions of Pleading and Procedure.
III. Relief Granted.
64. Right of Action in Receiver, Assignee, etc.
65. Proceedings by Garnishment.
ANALYSIS OF THE WHOLE WORK. XXI
Chapter
66. Executions Against Stockholders.
Article I. Generally.
II. Under the Missouri Statute.
67. Questions of Procedure.
Article I. Questions of Pleading.
II. Questions of Evidence.
III. Other Questions of Procedure.
68. Defenses to Actions Against Stockholders by or on
Behalf of Creditors.
Article I. In General.
IT. Defenses Affecting the Corporation and its
Management.
III. Defenses Affecting the Status and Liability
of the Defendant as a Stockholder.
IV. Defenses Affecting the Discharge and Release
of the Shareholder.
V. Defenses Afitecting the Plaintifif's Demand.
VI. Defenses Relating to the Conduct of the Cred-
itor Affecting his Demand.
VII. Defenses Relating to the Conduct of the PiO-
ceeding to Charge the Stockholder.
VIII. Other Defenses.
69. Limitation of Actions by or on Behalf of Creditors.
Article I. General Principles.
II. When Such Statute Begins to Run.
70. Set-ofF.
Article I. In General.
II. Under Particular Statutes.
71. Contribution Among Stockholders.
72. Priorities Amono- Creditors.
TITLE VI.
DIRECTORS.
Chapter
73. Right to the Office.
74. Directors and Officers De Facto.
75. Quorum of Directors and Number That Can Act.
Xxil ANALYSIS OF THK WIIOI.K WORK.
Chapter
76. Delegation of Their Power by Directors.
77. Powers of Directors.
78. Obliiratioiis of Directors as Fiduciaries.
Article I. In General.
II. Contracts Between the Directors and the Cor-
poration.
III. Contracts Between Two Corporations Having
the Same Directors.
79. General View of the Liability of Directors.
80. Liability of Directors for Negligence.
81. Peniedies of the Corporation or its Representative
Asfainst its Unfaithful Directors.
82. Liability of Directors to Strangers and Creditors of
the Corporation Outside of Statute.
83. Statutory Liability of Directors and Officers to Cred-
itors.
Article I. In General.
II. What Debts of tlie Corporation are Within
Such Statutes.
III. Liability Attaches to What Directors in Re-
spect of the Date of the Debts being Con-
tracted.
IV. Liability for Debts Contracted Before Organi-
zation.
V. Statutory Liability for Failing to File Certain
Reports.
VI. Liability for Making False Reports.
VII. Liability for Debts Contracted in Excess of a
Prescribed Limit.
VIII. Liability for Certain Prohibited Loans.
IX. Liability for Declaring Unlawful Dividends.
X. Miscellaneous Liabilities and Penalties.
XL Remedies and Procedure Under these Statutes.
XII. Defenses to Such Actions.
84. Contribution and Subrogation.
85. Compensation of Directors and Officers.
ANALYSIS OF THE WHOLE WORK. XXlll
TITLE VII.
RIGHTS AND REMEDIES OF MEMBERS AND SHARE-
HOLDERS.
Chapter
86. Rights of Membership.
87. Right to Inspect Books and Papers.
88. Other Rio-hts and Remedies.
89. Remedies of Shareholders in Equity.
90. Injunctions in Aid of Such Remedies.
91. When Such Remedies Extend to Winding Up and
When Not.
92. Further as to the Form of Relief
93. Parties to Such Actions.
Article I. Parties Plaintiff.
II. Parties Defendant.
94. Pleadinos in Such Actions.
95. Various Matters of Practice in Such Actions.
TITLE VIII.
MINISTERIAL OFFICERS AND AGENTS.
(Jhaptek
96. The President.
Article I. His Powers.
II. His Liabilities.
III. His Compensation.
97. The Vice-President.
98. The Secretary.
99. The Treasurer.
100. The Cashier of a Banking Corporation.
Article T. His Status, Powers, and Duties in General.
II. His Power to Bind the Bank by Declarations
and Statements.
XXIV ANALYSIS OF THE WHOLE WORK.
Chaptkr
Article III. His Powers Toucliing Negotiable Paper.
IV. His Powers Concerning Certificates of Deposit
and the Certification of Checks.
V. His Frauds and Torts.
101. The Teller of a Bank.
102. The Managing Agent Other Than the President and
Cashier.
103. Attorneys and Counselors.
104. Powers and Liabilities of Corporate Agents Gener-
ally.
Article I. General Principles.
II. Their Declarations and Admissions.
III. Liability of Corporations for the Frauds of
Their Agents.
IV. Ratification of Unauthorized Acts of Agents.
V. Powers Touching Particular Acts.
VI. Matters Relating to Particular Agents.
VII. Other Matters.
TITLE IX.
FORMAL EXECUTION OF CORPORATE CONTRACTS.
Chapter
105. General Principles.
106. Sealed Instruments.
Article I. When Corporate Seal Necessary, and When
Not.
II. Manner of Executing Sealed Instruments by
Corporations.
107. Negotiable Instruments.
108. Other Written- Contracts.
109. Parol Contracts.
110. Implied Contracts.
ANALYSIS OF THE WHOLE WORK XXV
TITLE X.
NOTICE, ESTOPPEL, RATIFICATION.
Chapter
111. Notice to Corporations,
112. Estoppels Against Corporations and Their Members.
113. Ratification by Corporations.
TITLE XL
FRANCHISES, PRIVILEGES, AND EXEMPTIONS.
Chapter
114. Nature of Franchises in General.
115. Construction of Grants of Franchises.
116. Vendibility of Franchises.
117. Constitutional Protection of Franchises.
Article I. On the Footing of Charters being Contracts.
II. Under the Fourteenth Amendment.
III. In Other Respects.
118. Exercise of the Police Power Over Corporations.
119. Regulation of Tolls and Charges.
120. Taxation of Franchises.
121. Exemptions From Taxation.
122. The Delegated Power of Eminent Domain.
TITLE XII.
CORPORATE POWERS AND THE DOCTRINE OP ULTRA
VIRES.
Chapter
123. Corporate Powers in General.
124. Interpretation of Charters.
125. Financial Powers.
XXVI ANALYSIS OF THE WHOLK WORK.
Chafper
126. Powers Relating to Negotiable Paper.
127. Powers Relating to the Ownership and Transfer of
Property.
Article I. Power to Take and Hold Land and Transmit
Title Thereto.
II. Power to Take, Hold, and Transfer Personal
Property.
128. Power to Do Various Acts.
129. Powers Ascribed and Denied to Particular Corpo-
rations.
Article I. Insurance Corporations.
II. Railroad Corporations.
III. Turnpike Corporations.
IV. Miscellaneous Corporations.
130. Doctrine of Ultra Vires.
Article I. Nature and Extent of This Doctrine.
II. Theories Under Which its Application lb
Denied.
TITLE XIII.
CORPORATE BONDS AND MORTGAGES.
Chapter
131. Corporate Bonds and Coupons.
Article I. Corporate Bonds.
II. Coupons of Such Bonds.
III. Remedies of Bondholders.
132. Power of Corporations to Mortgage Their Property
and Franchises.
133. Power of Directors and Officers to Execute Such
Mortgages.
134. Various Incidents of Mortgages and Other Liens
Created by Corporations.
135. Foreclosure of Corporate Mortgages.
136. Priorities Among Creditors in Such Foreclosure
Suits.
ANALYSIS OF THE WHOLE WORK. XXYll
TITLE XIV.
TORTS AND CRIMES OF CORPORATIONS.
Chapter
137. Civil Liability of Corporations for Torts.
138. Liability for Trespasses and Malicious Injuries.
139. Liability for Frauds.
140. Liability for Negligence.
Article I. In the Performance of Duties Imposed by Law.
II. In the Performance of Duties Voluntarily
Assumed.
141. Rules of Damage.
Article I. Consequential and Special Damages.
II. Exemplary Damages.
142. Unlawful "Trusts" for the Control of Corporations
and the Prevention of Competition Among Them.
143. Indictment of Corporations.
1 4. Contempts by Corporations.
TITLE XY.
INSOLVENT CORPORATIONS.
Chapter
145. Assignments for Creditors.
146. Preferring Creditors.
147. Fraudulent Conveyances by Corporations.
148. Selling Out to a New Corporation.
149. Creditors' Suits.
TITLE XVI.
DISSOLUTION AND WINDING UP.
Chaptek
150. In What Manner Corporations Dissolved,
151. Doctrine that Forfeitures can only be Effected by
the State.
XXviii ANALYSIS OF THE WIIOl.K WORK.
CiivprFK
152. Grounds of Forfeiting Charters.
153. Ipso Facto Forfeitures of Charters and De Facto
Dissolutions.
154. Surrender of Franchises and Voluntary Dissolutions.
155. Winding up at the Suit of Stockholders.
156. Effect of Dissolution.
157. Quo Warranto.
TITLE XVII.
RECEIVERS OF CORPORATIONS.
Chapter
158. Appointment, Qualification, and Removal.
Article I. Appointment.
II. Jurisdiction to Appoint.
III. Who Appointed.
IV. Proceedings to Appoint.
V. Stcatutory Receivers in New York.
159. Effect of Appointment.
160. Title and Possession of Receiver.
161. Whom the Receiver Represents.
162. Collecting the Assets.
163. Actions by the Receiver,
164. Incidental Powers and Duties in Administering the
Trust.
165. Proving Claims Against the Fund in the Hands of
the Receiver.
166. Distribution of the Fund in the Hands of the Re-
ceiver.
167. Restoration of Trust Funds by the Receiver.
168. Preferred Claims in Railway Receiverships.
169. Actions against the Receiver.
170. Liability and Remedies for Torts of the Receiver.
171. Receivers' Certificates.
ANALYSIS OF THE WHOLE WOKK. XXIX
Chapter
172. Removing and Discharging the Receiver.
173. Receivers of Railroads.
174. Receivers of Insurance Companies.
175. Receivers of National Banks,
176. Foreig^n Receivers.
TITLE XVIII.
ACTIONS BY AND AGAINST CORPORATIONS.
Chapier
177. Power to Sue and be Sued.
Article I. In General.
II. Actions by Corporations.
III. What Actions Lie Against Corporations.
178. Jurisdiction as Depending Upon Residence and Citi-
zenship.
Article I. Of State Courts.
II. Federal Jurisdiction as Dependent Upon
Diverse Citizenship.
III. Removal of Such Actions from the State to
the Federal Courts.
IV. ''Inhabitancy" of Corporations for the Pur-
poses of Federal Jurisdiction.
179. Jurisdiction as Depending Upon Process and Its
Service.
Article I. What Process Used in Actions Against Cor-
porations.
II. Service of Process on Corporations Generally.
180. Jurisdiction as Dependent Upon Voluntary Ap})ear-
ance.
181. Parties to Such Actions.
182. Name in Which Actions Brought by Cor})orations.
183. Pleadings in Such Actions.
184. Questions Relating to Corporate Existence.
AirncLE I. In General.
IT. Questions of Pleading.
XXX ANALYSIS OF THE WHOLE WOKK.
Chapter
Article III. Proof of Corporate Character.
. IV. Eflfect of Dissolution.
185. Evidence in Such Actions.
Article I. Corporate Books and Records.
11. Other jNIatters of Evidence.
186. Various Matters of Practice in Such Actions.
187. Injunctions in Such Actions.
188. Attachments Against Corporations.
189. Garnishment of Corporations.
190. Mandamus Against Corporations.
191. Limitation and Laches.
192. Executions Against Corporations.
Article I. In General.
II. The Writ and Proceedings Thereunder.
TITLE XIX.
FOREIGN CORPORATIONS.
Chapter
193. Status and Powers of in General.
194. Powers of Foreign Corporations Relating to Land.
195. State Laws Imposing Conditions Upon Foreign
Corporations .
196. Actions by Foreign Corporations.
197. Actions Against Foreign Corporations.
198. Service of Process on Foreign Corporations.
199. Proceedings Against Foreign Corporations by At-
tachment.
200. Proceedings Against Foreign Corporations by Gar-
nishment.
201. Taxation of Foreign Corporations.
CONTENTS OF VOLUME I.
CONTENTS OF VOLUME I.
TITLE ONE.
ORGANIZATION AND INTERNAL GOVERNMENT.
CHAPTER I.
NATURE AND KINDS
corpora-
Section
1. Wliat is a corporation?
2. Judicial definitions of
tion.
3. A collection of incidents which make
a corporation.
4. None tlie less a corporation because
members liable for its debts.
5. Nor because it cannot sue or be sued
in its corporate name.
6. Nor because acts of parliament de-
clare that it shall not be a corpo-
ration.
7. A collection of natural persons.
8. Corporations sole.
9. Ordinary powers of a corporation.
10. Immortality — "Perpetual succes-
sion. "
11. In what sense a "person."
]'-. In what sense a "citizen."
13. Distinction between a corporation
and a partnership.
14. DifTerences between corporations and
joint stock coinpanies.
C xxxi
OF CORPORATIONS.
Section
15. Distinction between a corporation
and a guild, fraternity, or society,
16. Composed of what body or constitu-
ency.
17. Further of tliis subject.
IS. Illustrations of this distinction.
19. Sense in which the state may be a
corporation.
20. Quasi-corporations.
21. Official boards of municipal corpora-
tions.
22. Kinds of corporations.
23. Tiie. definition given by Chancellor
Keut.
24. Public and private corporations.
25. Public school corporations.
26. Corporations to promote charities of
a public nature.
27. Corporations formed to promote pul)-
lic objects for private gain.
'JS. ^Vl^en municipal corporations deemed
private.
29. Illustrations of public corporations.
XXXIY
CONTKNTS OF VOLUME ONE.
CHAPTER II.
CREATION BY SPECIAL CHARTERS.
Section Section
35. Corporations are created by legis- 42. Legislative deviations from rules of
l;itive power. the conunon law.
oG. To what extent tliis power maybe 43. Who included in the word "associa-
delegated. ates."
37. Ivxercised by judicial or min- 44. How legislative grant made and cor-
isterial action under general poration organized.
laws. 45. What if the commissioners refuse to
38. To what extent exempt from judi- act.
cial review. 4(3. When charter provisions deemed a
39. Corporation need not be declared substitute for provisions of a gen-
sucii in express words. eral act.
40. Theories as to when charters take 47. Whetlier corporations created by
effect. concurrent action of two states.
41. Creation by reference to another 48. Decisions adhering to the view that
act. this cannot be done.
CHAPTER III.
ACCEPTANCE OF SPECIAL CHARTERS.
Section
52. Necessity of acceptance of charter
53. Cannot be accepted in part.
54. By what body or constituency.
55. At meeting held in another state,
void.
56. Illustrations of the foregoing.
57. Withdrawal or repeal before ac-
ceptance.
Section
58. Illustrations.
59. Effect of acceptance.
GO. Facts from which acceptance pre-
sumed.
61. Further of evidence to show ac-
ceptance.
62. Evidence of non-acceptance.
63. A question for a jury.
CHAPTER IV.
AMENDMENT OF CHARTERS.
Section
G6. Preliminary.
()7. Power of legislature to amend char-
ters.
G8. Amendments in furtherance of the
original design.
G9. Amendments granting or altering
lemedy.
70. Amendments made in the exercise
of the police power.
71. What amendments release non-as-
senting subscribers.
72. View that majority binds minority
except as to fundamental cliaiigcs.
Section
73. View that majority binds minority
unless there is a total deviation
from the original object.
74. What changes are material so as no'.
to bind minorities.
75. Amendments authorizing consolida-
tion or subdivision.
7G. Other changes deemed fundamen-
tal.
77. Further holdings on this subject.
78. Amendments increasing the capital
stock,
79. lUiLstrations.
CONTENTS OF VOLUME ONE.
XXXV
SlCCTlON
80. WliL'ii stockholder bound ou princi-
ple of acquiescence, ratification,
or estoppel.
81. Effect of want of knowledge of the
change on the part of a share-
holder.
82. Other alterations immaterial and
hence permissive.
83. Amendments changing denomina-
tion of shares.
84. View that subscription is made sub-
ject to legislative power to amend
charter.
85. Materiality of amendment question
for court,
86. What body give assent.
87. When the action of the directors
evidence of acceptance.
88. Illustration.
89. EflFect of reservation of power to
alter or repeal.
90. Whether this power is merely a reser-
vation to state for public purposes.
91. Further of this subject.
92. Power to alter or repeal, reserved
in a general law, applies to fu-
ture special charters.
Section
93. Illustration.
94. Subsequent general laws operat-
ing as amendments of special
charters.
95. Amendments authorizing a surren-
der of franchises.
96. When acceptance of amendment
not necessary.
97. Evidence of acceptance of amend-
ment by corporation,
98. Evidence of acceptance by stock-
holders.
99. View that assent of stockholder
is to be presumed, and dissent
proved.
100. Instances under the foregoing
rule.
101. Estoppel to deny acceptance of
amendment.
102. View that objections can only be
raised by quo wmTanlo, etc.
103. Amendment by substitution of new
charter.
104. Objection by third parties: con-
tractors.
105. How minority are protected in
England.
CHAPTER V.
CHARTERS GRANTED BY THE COURTS.
Section
Seci'ion
110. Devolving the power of creating
corporations on the courts.
111. Objects for which the courts may
grant charters in Pennsylvania.
112. Proceedings to obtain such charters
must be public.
113. Requisites of charter submitted
to court under Pennsylvania
statute.
114. Requisites of charter under Penn-
sylvania act of 1874.
115. Reasons for which charters liave
been refused.
116. Charters refused which contain an
indefinite power of expulsion.
117. Further of this subject.
118. Charters refused containing powers
not specified in the statute.
119. Charters refused with power to con-
fer decrees.
120. Charters refused for mutual mar-
riage benefit associations.
121. Charters refused containing by.
laws.
122. Charters refused because not writ-
ten on a single piece of paper.
123. Ciiarters under § 1676 of Georgia
Code.
124. Referring the application to an
amicus cur ice.
125. No appeal from decree refusing.
126. Charters amended by the judicial
courts.
127. What body assent to amendments
by judicial courts.
XXXVl
contp:nts of volume one.
CHAPTER VI.
ORGANIZATION UNDER GENERAL LAWS.
Art. I. Purposes for Which Incorporation Permitted.
SUED! V. I. Examjihs from Various Statutes.
SUBDIV. 11. Decisions Construincj Particidar Statutes.
Art. II. Steps Necessary to Perfect Organization.
Article I. Purposes for Which Incorporation Permitted.
SUBDIVISION I. E.xawples from Various Statutes.
Section
132. Statutes autliorizing the formation
of, corporations.
1.33. Agricultural fairs.
134. Alumni.
135. Avenues.
136. Banks.
137. Bar associations.
138. Breeding domestic animals.
139. Bridges.
140. Building and loan associations.
141. Building towns.
142. Business purposes: mining, manu
facturing, merchandising, etc.
143. Camp meetings.
144. Canals.
145. Cemeteries.
146. Chambers of commerce: merchants'
exchanges: boards of trade.
147. Colleges.
148. Co-operative associations.
149. Cruelty to animals.
150. Cruelty to children.
151. Detective associations.
152. Fencing land.
153. Ferries.
154. Fire companies.
155. Fire department relief.
156. Gaslighting.
157. Guano: fertilizers.
158. Guaranty: suretyship: indemnity:
safe deposit.
159. Gymnastic purposes.
160. Health resorts: sanitariums: medi-
cines, etc.
161. Horticulture.
162. Hydraulic power.
Section
1C3. Insurance.
164. Lawful purposes.
165. Lodges: fraternities: societies.
166. Masonic buildings.
167. Mining: manufacturing, etc.
168. Navigation.
169. Patrons of husbandry.
170. Pipe lines.
171. Police relief.
172. Political clubs.
173. Public libraries.
174. Railroads.
175. Rafting: booming logs.
176. Religion: education: benevolence.
177. Savings banks.
17S. Slack-water navigation.
179. Soldiers' monuments.
180. Sporting.
181. Stage coaches.
182. Street railroads.
183. Telegraphs: telephones.
184. Tobacco warehouses.
185. Toll roads: plank, gravel, macad-
amized, turnpike roads, etc.
186. Training nurses.
187. Tramways, elevated.
188.
189.
190.
191.
192.
Trust companies.
Union depots.
Water works.
Indiana: enumeration of purposes
for which corporations may he
formed.
Texas: enumeration of purposes for
which corporations may be
formed.
CONTENTS OF VOLUME ONE.
XXXVll
SUBDIVISION II. Decisions Construing Particular Statutes.
Section
200. Corporations for internal iuiprove-
meuts.
201. " Lawful sporting purposes."
202. Erection of buildings.
20.3. Industrial pursuits.
204. "For any other purpose intended
for mutual profit," etc.
205. "Other lawful business."
or protective pur-
Section
206. "Beneficial
poses. "
207. " Manufacturing purposes. "
208. " Works of public utility."
209. "Pecuniary profit."
210. " Loan, mortgage, security, guar-
anty, indemnity company. "
Article II. Steps Necessary to Perfect Organization.
Section
215. Corporations may be organized un-
der general laws.
216. Theory of the nature of a charter
where the incorporation is under
a general law.
217. When life of corporation com-
mences.
21S. Distinctions between actions against
the supposed corporation and
actions against the supposed
corporator.
219. Necessity of articles or certificate
of incorporation.
22<). Corporate existence proved by user
under an instrument of incorpo-
ration.
221. Defective certificate not prima facie
evidence of incorporation.
222. Distinctiou between user under
special charter, and compliance
with conditions under general law.
223. Originals evidence where statute
prescribes copy.
224. Literal compliance with statute not
necessary: substantial compliance
sufScient.
225. Substantial compliance necessary.
226. Distinctions between conditions
precedent and conditions direc-
tory.
227. Illustrations.
228. Defects in the articles or certificate
which do not vitiate.
229. Claiming more than the law allows.
230. Provision as to expulsion of mem-
bers.
Section
231. Specifying the objects of the asso-
ciation.
232. Illustrations.
233. Stating the place where the busi-
ness of the corporation is to be
carried on.
2.34. Stating the manner of carrying on
the business.
235. Provision as to manner of payment
of stock.
230. Fatal defects not supplied by parol
evidence.
237. Acknowledgment of articles.
238. Ainendmentof articles or certificate,
239. Filing, publishing, and recording ar-
ticles.
240. Filing copy with secretary of state,
etc.
241. Illustrations.
242. Recording in the wrong book.
243. Fraudulent and surreptitious re-
cording.
244. Noncompliance with provisions di-
recting publication of articles.
245. Provision as to assent and approba-
tion of a judge.
246. Subscription of tlie wiiole amount
of the capital stock.
247. Payment of a certain amount of
the capital stock.
248. Certificate of treasury board, comp-
troller of currency, etc., conclu-
sive.
249. Letters patent of incoi-poratiou
conclusive evidence of corporate
existence.
XXXVUl
CONTKNTS OK VOLUMK ONE.
CHAPTER VII
REORGANIZATION.
Section
255. Effect of renewal of charter.
•256. Distinction between the revival of
an old corporation and the crea-
tion of a new one.
257. Franchise to be a corporation not
the subject of a judicial sale.
258. Statutory provisions under which
the reorganized company suc-
ceed to the franchises of the
old.
259. Further statutory provisions.
260. These ' schemes of reorganisation
favored.
261. Effect of reorganization after mort-
gage foreclosure.
262. Special privdeges of antecedent
companies pass to new.
263. New corporations, when not liable
for debts of old.
264. Illustrations.
265. Assets of old corporation liable for
its debts in hands of new,
266. Illustrations.
267. When new corporations liable for
debts of old.
268. Organization of new company does
not necessarily destroy old.
Skction
'2{Ji). Stockholders bound to take notice
of plan of reorganization, and to
signify their assent within the
prescribed time.
270. Members of stockholders' committee
can not purchase at sale.
271. But creditors may combine to pur-
chase and reorganize.
272. When minority of shareholders not
bound by reorganization by ma-
jority.
273. When minority of bondholders
bound by reorganization by
majority.
274. Reorganization under British and
Canadian arrangement acts.
275. Compromise arrangement must be
substantially complied with.
276. Bondholder may lose his rights by
laches.
277. Rights of holder of income bonds.
278. Effect of transforming a partner-
ship into a corporation.
279. Abortive corporations reincorpo-
rated under a general law
CHAPTER VIII.
NAMES OF CORPORATIONS.
Section
284. Importance of the corporate name.
285. Distinction between the namcb of
natural persons and of corpora-
tions.
286. Acquired by usage and reputation.
287. Petition to change corporate name,
288. Change of name by corporate action.
289. Effect of changing corporate name.
290. The corporate name in suits.
291 . Misnomer of corporation in pleading.
292. Effect of variances in corporate
name,
293. What misnomers amendable.
294. Effect of misnomer of corporations
in written obligations.
Section
295. Misnomer in devises and bequests.
296. Corporation protected in use of cor-
porate name.
297. Illustrations.
298. Discretion of secretary of state as
to issuing certificates of incorpo-
ration for a corporation having a
similar name to the one already
existing.
299. Illustration: "Kansas City real
estate exchange" — " Kansas City
real estate and stock exchange."
300. Prohibition in Missouri statute
against use of name of person
or iirin.
CONTENTS OF VOLUME ONE.
XXXIX
CHAPTER IX.
CONSOLIDATION.
Art. I. In General.
II. Effect Upon Shareholders.
III. Transmission of Rights and Liabilities of Con,
stituent Companies.
IV. Effect on Remedies and Procedure.
306
307,
.308
Article I.
Secttion
305. Statutes providing for consolida-
tions.
California: railroad companies.
Colorado.
Illinois.
309. Michigan: railroad companies.
310. Missouri: railroad companies.
311. New York: railroad companies.
312. Ohio.
313. Pennsylvania.
314. Texas: prohibition.
315. Necessity of legislative action.
316. Legislature cannot compel consoli-
dation of private corporations.
317. Validation by curative statutes.
318. Validation by legislative recognition .
319. Consolidation with foreign corpo-
ration.
Remains a domestic corporation in
each of the concurring states.
Foreign law not transferred: local
law not displaced.
With what powers and liabilities.
Jurisdiction not parted with or
transferred.
320.
321.
322.
323.
In General.
Section
324. Selling out to a foreign corporation
and taking its shares in payment.
.S25. Illustration.
'6'26. Power to consolidate a contract
right and inviolable.
327. What steps necessary to effect a
consolidation.
328. Distinction between consolidation
and agreement to consolidate.
Agreements which do not amount
to a consolidation.
By one company purchasing the
capital stock of the other com-
pany.
331. Railroad companies combining to
purchase another road.
332. When deemed fraudulent in law.
333. Illustration.
334. Contract of amalgamation an en-
tirety.
Cannot be rescinded without restor-
ing consideration.
Obligation of the committee to
account for profits.
337. Decisions under special statutes.
329.
330.
335.
336.
Article II. Effect Upon Shareholders.
Section
34,3. Effect of consolidation upon the
rights of dissenting shareholders.
.344. Illustration: effect of guaranty that
stock of precedent corporation
shall be at par at a future date
named.
345. View that majority can consent on
giving security to dissenting
sliareholders.
Section
346. Rvile where a statute autlicirizcs
consolidation at date of subsfM i[i-
tion.
347. Where there is a reserved ]h>\\ cr of
amending the charter.
348. Power to amend articles does not
extend to consolidation.
349. When entitled to an injunction
to restrain consolidation.
X
cl
CONTENTS OF VOLUMi; ONE.
Sec'J
350.
351.
352.
353.
354.
355.
Extent of injunctive relief aflforded.
No injunction if interest secured.
Action in cnuity against the consoli-
dated company.
No right of action for damages
against directors.
Eflfect of acquiescence of share-
holders.
Rights of consolidated company
against shareholders of old com-
panies.
Section
356. Action by new company for assess-
ments against shareliolders in the
old.
357. New company must show its
title.
358. Stockholders may plead no consoli-
dation.
359. Illustration.
360. What in case the original subscrip-
tiou was conditional.
ARTICLE III. Transmission of Rights and Liabilities of
Constituent Companies.
366.
367.
368.
369.
Section ■
365. New company succeeds to rights
and obligations of the old ones.
Succeeds to rights of old in respect
of municipal aid.
AVhen consolidation revokes power
to subscribe.
Succeeds to exemption from tax-
ation.
How as to accretions and better-
ments.
370. When exemption lost.
371. Special immunities pass by the con-
solidation,
37*2. Liability of new for debts of old.
373. Statute of consolidation valid, al-
though not providing for pay-
ment of all debts of absorbed
company.
374. Act of merger after mortgage fore-
closure.
375. Liable in equity to extent of assets
received.
376. Observations and illustrations.
377. Rule does not apply to bonajide sale
of assets.
37S. Rights of bona fide purchasers from
cousolidated conipany.
Section
379. Creditor of old corporation not
bound to accept responsibility
of new.
380. Powe. of new company to deal with
credits of old.
381. Guaranty by the officers of one
company of the obligations of
the other.
382. Damages for refusal to carry out
obligation of old corporation.
383. Illustration: damages for refusal to
exchange bonds for stock of con-
solidated company.
384. Right of bondholder to notice of
privilege given him by the con-
solidation.
385. Validity of bonds of old company
put in circulation by new.
386. New company must perform public
obligations of the old.
387. Illustration.
388. Enforcement of stipulations in the
contract of consolidation.
389. Consolidated company subject to
existing general law reserving
right of alteration or repeal.
390. Illustration.
AiiTiCLE IV. Effect on Remedies and Procedure.
Section
395. View that consolidation dissolves
the constituent companies.
39G. Not necessarily a dissolution of
both.
Section
:!97. Further of this subject.
398. New company estoppe<l from deny-
ing its corporate name and cliar-
acter.
CONTENTS OF VOLUME ONEo
xli
Section
399. Legal existence of old companies
continued in the new company.
400. Effect of a consolidation upon pend-
ing suits.
View that action abates as to old
company.
View that new process is necessary.
View that new process not neces-
sary: effect of appearance and
oral evidence of consolidation.
Substitution after referee's report
and before judgment.
401.
402
403.
404.
Sectio.v
405. Action by creditors of old company
against new company.
406. How fact of consolidation aver-
red.
407. How averment replied to.
408. Proof of the consolidation.
409. Effect of dissolving consolidation
upon judgments against consoli-
dated company.
410. Binding effect of admission of one
of the precedent corporations.
CHAPTER X,
PROMOTERS.
Art. I. Liability on Their Contracts.
II. Liability to Subscribers.
III. Liability to the Company.
IV. Non-liability of the Company for Contracts of
Promoters.
Article I. Liability
Section
415. Meaning of the term "promoter."
416. Personal liability of promoters on
contracts made for a projected
company.
417. But promoters personally liable al-
though contract made in name of
corporation.
418. Pk.ule applies in all cases to man-
agers.
419. Illustrations.
420. Theory that rule not applicable
where there is a corporation de
facto.
421. English view tliut promoters not
necessarily liable as partners.
422. This view furtlier explained and il-
lustrated.
423. Character in which liable a ques-
tion of fact.
424. Liable when signing as "agent."
425. Illustration of the English rule.
426. Promoters not, as such, coiitributo-
ries.
ON Their Contracts.
Section
427. Further of the English rule.
428. The English doctrine summed up by
Sir Nathaniel Lindley.
429. No action at law by one promoter
against the others.
430. Unless under exceptional circum-
stances.
431. Liability of committeeman subse-
quently joining.
432. Members of provisional committee
not liable for contracts of man-
aging committee,
433. Judgment and satisfaction against
one may be pleaded in abatement
by another.
4.34. Evidence to charge committeemen.
435. Illustrations.
436. Evidence to charge the associates in
an abortive corporation.
437. Liability of associates for expenses
of agents appointed to procure
charter.
xlii
<.H)NT1<:NTS oI'' VOLl'MIO ONE.
Article II. Liabu
Section
440. Liability to subscribers for their
deposits where the umlertaking
proves abortive.
441. Grounds of recovery at hivv in such
cases.
44'2. Illustration.
443. Grounds of recovery in equity.
444. Remedy in equity lost by laches.
445. Equity repels actions brought for
barratrous purposes.
446. lu returning deposits, breach of trust
to prefer particular shareholders.
ITY TO SUBfeCiaFlOUS.
Section
447. Release by contract of rijilit to re-
cover deposits.
448. Construction of such a contract-
agreement to execute future
agreement.
449. What coninutteemen are liable.
450. Action at law against promoters for
deceit.
451. Measure of damages in such actions.
452. Remedy in equity, of sharetnker
against promoters for fraud.
453. Measure of recovery in equity.
.Article III.
.Section
456. Promoters bound to disclose what
they are to get for their services.
457. Cannot make secret profits out of
the corporation.
458. Purchasing and then selling to cor-
poration at a higher price.
459. Illustrations.
460. No liability when the transaction is
fully disclosed.
461. Company may affirm promoters'
contract and enforce it for its
own benefit.
462. Not necessary to rescind the whole
transaction.
463. Deduction for promoting company.
464. Compromise of suit against vendors.
4G5. Measure of recovery in equity.
466. Liability at law for secret profits.
467. Illustrations.
Liability to the Company.
Section
468. Immaterial that directors of the
corporation knew of the fraud.
469. Liability for fraudulent representa
tions.
470. Illustration.
471. No defense that the corporation
raised the money on an illegal
issue of its stock.
472. Grounds of recovery against aiders
and abettors.
473. Whether liability of managing com-
mitteeman in equity for fraud is
joint or several.
474. Who may bring the action in equity.
475. Great latitude allowed in admission
of evidence.
476. When the fiduciary relation be-
tween the promoter and the com-
pany commences.
Article IV. Non-liability
TRACTS OF
Section
480. Contracts of promoters not binding
on future company.
481. Illustrations.
482. Engagement with promoters is a
proposal to corporation.
483. Illustration.
484. Not liable for services rendered in
promoting it.
485. Illustration.
486. Limitations of rule of corporate lia-
l)ility.
OF THE Company for Con-
Promoters.
Section
487. Services rendered at the request oi
all the corporators.
488. Rule not applicable where third per-
sons join the corporation.
489. Distinction between cases where
the remedy is in equity and at
law.
490. Illustrative cases where the corpo-
ration was held liable on the
theory of estoppel. •
CONTENTS OF VOLUME ONE.
xliii
CHAPTER XI.
IRREGULAR AND DE FACTO CORPORATIONS.
Art. I. De Facto Corporations.
11. Corporations by Estoppel.
Article I. De Facto Corporations.
Section
495. Divergence of views on the subject
of de facto corporations.
496. When rightfulness of corporate ex-
istence presumed.
497. Presumed from user of corporate
powers.
498. Especially where rights have been
acquired thereunder.
499. Corporations by prescription or
user.
500. What necessary to give rise to this
presumption.
501. Validity of corporate existence not
litigated collaterally.
502. Limitations of this doctrine.
503. What is meant by existing de facto_
504. Rule under California Civil Code.
505. Rule applies only where the corpo-
ration might exist.
SECTION
506. Effect of this doctrine upon the
rights of shareholders and cred-
itors.
507. Validates irregularities in organiza-
tion.
508. Except where the thing to be done
is a condition precedent.
509. Further observations and illustra-
tions.
510. State precluded by lapse of time
from questioning regularity of
corporate organization.
511. Corporation suing for rights which
can only inhere in it as a corpo-
ration.
512. Corporations by legislative recogni-
tion.
513. Illustrations.
Article II. Corporations by Estoppel.
Section
526. Party dealing with corporation per-
mitted to show corporate know),
edge.
527. Party claiming under legislation
creating a corporation estopped
to deny its existence.
528. Stockholder estopped to deny cor-
porate existence.
529. Estoppel to set up fraudulent or-
ganization.
530. Exception where the corporation
has expired by lapse of time.
531. Forfeiture for misuser or nonuser
not pleadable collaterally.
532. Corporation estopped to deny cor-
porate existence.
533. Corporations for illegal purposes.
SEcrrioN
518. Obligor in contract with corporation
estopped to deny corporate exist-
ence.
519. Illustrations of the rule.
520. Various statements of this rule.
521. Corporate existence proved by
showing that the objecting party
has dealt with it as such.
522. Rule restrained to cases of de facto
corporations.
523. This estoppel not raised where there
is no law authorizing tlie corpo-
ration.
524. View that incorporation must be
stated in the contract.
525. Except where party is induced by
fraud to recognize corporate ex-
istence.
xliv
CONTENTS OK VOLUMK ONE.
CHAPTER XII.
CONSTITUTIONAL RESTRAINTS UPON THE CREATION OF CORPORA-
TIONS AND THE GRANTING OF CORPORATE PRIVILEGES.
Art. I. Provisions of Various State Constitutions.
II. Restraints Upon the Passing of Special Acts
Conferring Corporate Privileges.
III. Restraints as to the Titles of Laws.
IV. Restraints as to the Mode op Passing Laws.
V. Various Other Restraints and Provisions.
Provisions of Various State Constitutions.
Article I.
Section
538. Scope' of this chapter.
539. Corporations not to be created by
special laws.
540. But only under general laws.
541. And subject to legislative altera-
tion or repeal.
54'2. Legislature not to extend charter
nor remit forfeitures.
54:>. Except on condition of accepting
constitutional provisions.
544. Legislature may alter, revoke, or
annul existing charters.
545. No special law as to more than one
corporation.
54G. Existing charters annulled where
no organization has taken place.
547. State aid not to be granted.
548. Nor debts to state, nor state's lien,
released or commuted.
549. Nor municipal aid granted.
550. Except upon conditions.
551. Neither state nor municipal aid to
Ije granted.
55"2. Provisions of Minnesota constitu-
tion as to state aid: "Minne-
sota railroad bonds."
553. Private corporations not to have
municipal or taxing powers.
Section
554. Laws permitting alienation of cor-
porate franchises prohibited.
555. Corporations not to employ Chinese
labor.
556. Existing rights saved.
557. Retrospective laws for benefit of
corporations prohibited.
558. Two-thirds legislative vote re-
quired.
559. Duration of corporation limited.
560. Power of creating corporations de-
volved on the courts.
561. Saving rights arising during the
civil war.
562. Provisions as to religious corpo-
rations.
563. Police power over corporations not
to be abridged.
564. Bills creating corporations continued
till next session of legislature.
565. Laws to be passed protecting labor-
ers.
566. Bonus to be paid to the state.
567. Meaning of the word "corporation"
as used in A inerican constitution s.
568. Not to authorize investment of
trust funds in private corporate
securities.
Article II. Restraints Upon the Passage of Special
Statutes Conferring Corporate Privileges.
Section Section
573. Restraints upon tlie passage of 574. Object of such constitutional pro-
special acts conferring corporate visions.
powers. 575. Such provisions not retroactive
CONTENTS OF VOLUME ONE.
xlv
Section
57G. Accepting charter after date of
constitutional proliibition.
577. General laws perpetuating privi-
leges granted by previous special
charters.
578. Conferring corporate privileges on
corporations to be thereafter cre-
ated under general laws.
579. Illustration.
580. Rule in the federal courts where
a state constitution has received
conflicting interpretations in the
state courts.
581. Further of prohibitions against
special acts conferring corporate
powers.
582. States in which applicable only to
private corporations.
583. Prohibition against incorporating
includes prohibition against
amending.
584. A contrary view.
585. Restrains amendments enlarging
existing powers and privileges.
586. General enabling acts applicable to
existing corporations.
587. Distinctions as to what are and
what are not corporate powers.
588. Exceptions where general laws can-
not be made applicable.
589. Special act not maile general by leg-
islative declaration to that effect.
Section
590. Acts curing defects in the organ-
ization of particular corporations.
591. What is a "local" law within the
meaning of such a prohibition.
592. Statute is general when uniform
in its operation upon all the
members of a particular class.
593. Provided classification natural and
not arbitrary.
594. Illustration: invalidity of statutes
operative only in cities having a
certain number of inhabitants.
595. Other cases illustrating these dis-
tinctions.
596. Corporations carrying on operations
in specific localities.
597. Creation of a park district outside
of the corporate limits of a
city.
598. What statutes have been held local
or special.
599. Instances of statutes held not local
or special.
GOO. Special statutes granting "exclu-
sive privileges, immunities, or
franchises."
GOl. Conferring certain public police
powers upon existing corpora-
tions.
602. Empowering existing municipal
corporations to subscribe for
stock in private corporations.
Article III. Restraints as to the Titles of Laws
Section
607. Constitutional restraints as to the
titles of statutes.
608. .Such provisions mandatory.
609. Judicial expressions as to the design
of these provisions.
610. Construed liberally in support of
legislation: general expressions
of tliis doctrine.
611. The result of the cases.
612. Illustrations: acts granting special
charters.
613. Act creating a cor[)oration, etc.,
need not enumerate powers con-
ferred.
Section
614. Acts "incorporating" railway com-
panies and providing for munici-
pal aid.
615. Setting out in incorporating act the
entire constitution of the com-
pany.
616. Acts relating to municipal corpora-
tions.
617. Instances of statutes embracing more
than one subject.
618. Instances of statutes not embracing
more than one subject, and hence
valid.
xlvi
CONTENTS OF VOLUME ONE.
Section
019. Instances of statutes containing sub-
jects not expressed in their titles.
G'20. Instances of statutes not subject to
tliis constitutional objection.
C21. General acts of incorporation.
622. Illustrations.
023. Acts purporting to amend former
acts.
Article IV. Restraints as
Section
632. Constitutional provisions requiring
assent of two-tliirds of each
house.
633. Whether provisions as to passing
bills directory or mandatoi'y.
634. Whether courts will go behind the
enrollment.
635. Presumptions in favor of regularity
of passage.
Skction
624. Illustrations of titles of amendatory
acts.
625. Void as to matter not expressed in
title, though valid as to the rest.
626. Distinctions depending upon the
use of the words "subject" and
" ol)ject. "
627. L^ng practical constrnction.
TO THE Mode of Passing Laws.
Section
636. Whether parol evidence admissible
on the question.
637. Signed by the governor or no law.
638. Constitutional provisions requiring
amendments of charters to be sub-
mitted to a vote of the people.
639. Tliat no law shall create, renew, or
extend the charter of more than
one corporation.
Article V. Various Other
Section
643. Objections on the ground of dele-
gations of legislative power.
644. Grounds on which this question to
be determined.
645. Prohibition against the delegation
of municipal powers to special
commissions, private corpora-
tions, etc.
646. Further of this subject.
647. May grant exclusive privileges in
the absence of constitutional re-
straint.
648. Rule under constitutional prohibi-
tions.
649. Further of tliis subject.
650. Holdings under other constitutions.
651. Rights which the legislature cannot
bargain away.
Restraints and Provisions.
Section
652. Prohibition against granting char-
ters of incorporation to churches
or religious denominations.
653. Corporations in aid of rebellion.
654. Estoppel to raise question of consti-
tutionality of act creating cor-
poration.
655. Validity of a statute allowing a
depositor to appoint a person to
whom his deposit shall be paid
after his death.
656. Unconstitutional law may operate
as a legislative license.
657. Cliarters exempting corporations
from general laws.
658. Statutes may be valid in part and
void in part.
659. Illustrations.
Section
665. Definition — division — introduction.
666. Within the states: historical sketch:
national banks.
667. Transcontinental railway compa-
nies.
CHAPTER XIII
NATIONAL CORPORATIONS.
Section
668. Maritime Canal Company of Nica-
ragua.
669. Other corporations chartered by
Congress.
670. Formation of national corporations.
CONTENTS OF VOLUME ONE.
xlvii
Section
671. Power of Congress to confer fran-
chises on them: exemption from
state control and taxation.
672. Power to confer right of eminent
domain within the state.
673. May confer on federal courts exclu-
sive jurisdiction of suits by and
against.
674. Protection under the fourteenth
amendment.
675. Status of national corporations
within the states: jurisdiction
over them.
Section
670. Further of this subject.
677. How dissolved.
078. Power of Congress to revoke their
charters.
679. Effect of reservation of right to
amend.
680. Not dissolved by state action.
681. Corporations of the territories.
682. Corporations of the district of
Columbia.
683. State corporations holding federal
franchises.
CHAPTER XIV.
PLACE OF HOLDING CORPORATE MEETINGS AND OF DOING CORPO-
RATE ACTS.
Section
Section
686. Scope of this chapter.
687. Corporations anciently named as
of some place.
688. A corporation cannot liave two
domiciles.
689. Resides where it exercises its func-
tions.
690. Power to establish agencies at other
places.
691. Wliether loses its corporate charac-
ter by migrating.
692. Distinction between citizenship and
residence of a corporation.
693. Enjoining a corporation from re-
moving its assets out of the
state.
694. Constituent acts must be per-
formed within the state of crea-
tion.
695. Corporation when estopped from
raising the question.
696. Validity of corporate election held
outside the state.
697. Meetings held at what place within
the state.
CHAPTER XV.
CORPORATE ELECTIONS.
Art. I. AssEMULiNG the Meeting.
II. The Quorum.
III. Right to Vote.
IV. Conduct of the Election.
V. Right to the Office: Contesting the Election.
Article 1. Assembling the Meeting.
Section
700. Mandamus to compel the holding of
a corporate election.
701. Time of holding corporate elec-
tions.
Section
702. Statutory provisions as to time of
liolding corporate meetings.
703. Statutory provisions as to place of
holding corporate meetings.
xlviii
CONTENTS OF VOLUME ONE.
Section
704. Who may call the meeting.
705. Statutory provisions as to who may
call.
70o. Necessity of having meeting duly
assembled.
707. Corporate meetings invalid unless
duly notified.
70S. If the meeting is special all must
be summoned.
709. And in the statutory mode.
710. Requisites of the notice.
711. Statutory provisions as to manner of
giving notice, length of time, etc.
712. Waiver of notice by appearance.
713. Illustrations of the foregoing rule.
Section
714. Notice dispensed with by unani-
mous written consent.
715. When personal notice required.
710. Must be given for the statutory
time.
717. When notice must state objects of
meeting.
718. Meeting when confined to subjects
expressed in notice.
719. Illustrations.
720. Adjournment to a subsequent day.
721. Statutes providing for adjourned or
special elections.
722. Statutes under which elections fixed
and regulated by by-laws.
Article II.
Section
725. Quorum where body is composed of
an indefinite number.
720. Where composed of definite num-
ber.
727. Statutory provisions as to the
quorum.
The Quorum
Section
728. Election by a majority of those who
actually vote, though not a ma-
jority of the quorum.
729. Delegating power of selection to a
select body.
Section
730. llight to vote at such elections.
731. Execution, surviving partners, trus-
tees, assignees, etc.
732. Right to vote in respect of shares
pledged or mortgaged.
733. Further of this subject.
Article III. Right to Vote.
Section
737. Validity of by-law which provides
for voting by proxy.
738. Statutes conferring the right to vote
by proxy.
739. Further of the right to vote by
proxy.
734. Right to vote in respect of shares 740. E.iglit to vote how affected by by-
held or owned by the corporation laws.
itself. 741. Injunction to restrain fraudulent or
735. Right of pledgor to proxy from ultra vires voting.
pledgee. 742. Statutory provisions as to who en-
v736. No right to vote by proxy at com- titled to vote.
mnn law. 743. Non-residents and aliens.
Article IV. Conduct of the Election.
•5ECTI0N
745. Appointment of inspectors.
746. Statutory provisions as to the ap-
pointment of inspectors.
747. Instances of an election void because
inspectors illegally appointed.
SECTION
748. Their duties in conducting the elec-
tion.
749. Cannot pass upon the validity of
proxies.
750. Irregular ballots.
CONTENTS OF VOLUME ONE.
xlix
Section
751. The count.
752. Votes for ineligible candidates
thrown away.
753. Cumulative voting.
754. Constitutional provisions as to cu-
mulative voting.
Section
755. Statutory provisions as to cumula-
tive voting.
756. Judicial decisions on the subject of
cumulative voting.
757. Certificate of election.
758. Statutory provisions as to coiiduft
of elections.
Article V. Right to the Office: Contesting the Election.
Section
761. Inadequacy of the remedy by cer-
tiorari.
7G2. Inadequacy of the remedy by vian-
damns.
763. Instances of the use of mandamus,
764. No remedy in equity except when
the question arises collaterally.
765. Statutory provisions to contest cor-
porate elections.
706. Information in the nature of quo
warranto.
767. A civil proceeding.
768. This remedy denied in the case of
officers who are mere servants
or employees and removable at
pleasure.
769. Any person interested may be re-
lator.
770. Information filed by the attorney
general or prosecuting attorney.
771. What the information must allege.
772. The plea.
773. Misjoinder of parties.
774. Leave to file discretionary with
court.
775. When the relator bound to show
title.
776. Distinctions as to the burden of
proof.
777. The rule in New York.
Section
778. Remedy exists only against a party
in possession,
779. Matters of evidence.
780. Remedy does not extend to mere
irregularities, mistakes, etc.
781. Rules of decision in cases where
legal votes have been rejected or
illegal votes received.
782. Where two factions organize two
meetings.
783. Party receiving the next highest
number of votes, where success-
ful candidate disqualified.
784. Validity of election where wliole
number not elected.
785. Judgment where term of ofhce has
expired.
786. Proceeding against an incumbent
who is disqualified.
787. Estoppel to raise objection.
788. Title to corporate office not im-
peached collaterally.
789. Presumptions in favor of regular-
ity.
790. Eligibility for the office of director.
791. Classification of directors.
792. Holding over.
793. Statutory provisions that directors
shall hold over.
794. Resignation of a corporate office.
CHAPTER XAa.
AMOTION OF OFFICERS.
Secttion Section
799. Distinction between amotion and 801. Those observations applicable to cor-
disfranchisement. j)orations other than municipal.
800. Observations of Mr. Willcock on 802. Power of amotion inherent in cor-
thid question. poralious.
1
CONTENTS Ol'^ VOLUME ONE.
Section Sect
803. Power resides iu corporation alone. 824.
804. Power resides iu the body at large, 8J5.
not in the trustees. 826.
805. Removal of officers who hold at will. 827.
80(5. Lord Mansfield's classification of
grounds of amotion.
807. In what case there must be a pre- 828.
vious trial and conviction.
80S. Misappropriating money: false
charges of money. 829.
809. Bribery. 830.
810. Misconduct in respect of duties
toward the corporation. 831.
811. Ofifenses touching the corporate rec- 832.
ord.
812. Neglect of duty.
813. Non-attendance at corporate meet- 833.
ings. 834.
814. Ineligibility: subsequent election to
another office. 835.
815. Other grounds of removal.
81G. Statutory or charter power of re- 836.
moval.
817. What corporate action necessary. 837.
818. Power must be exercised at a cor-
porate meeting. 838.
819. And by a majority vote.
820. Necessity of notice and a judicial 839.
inquiry. 840.
821. Exception iu the case of continued
desertion and non-residence. 841.
822. Conduct of the trial: the evidence.
823. Assembling the meeting for the
trial: notifying the members.
Instances under the foregoing rule.
Review of proceedings by certioraru
Extent of relief in equity.
Illustration: dismissal of school-
master under English public
school act of 1868.
Where the power to remove is dis-
cretionary in the due exercise of
the powers of the trustees.
Mandamus to reinstate.
Several writs where there are sev-
eral officers.
Allegations of the writ.
Wliat if directed to the individuals
by name, and not to the corpora-
tion.
The return to the mandarmis.
Return may show any number of
causes.
When not necessary to aver power
of removal.
Instances of good returns in such
cases.
Sufficient if made by proper officer
until falsified.
Whether the return should be un-
der corporate seal.
Variance between writ and return.
Other points of practice in proceed-
ings by matidamns.
Principles upon which the judicial
courts review sentence of amo-
tion.
CHAPTER XVII.
EXPULSION OF MEMBERS.
Art. I. Power to Expel: Grounds of Expulsion.
II. Corporate Proceedings to Expel.
III. Judicial Proceedings to Reinstate.
Article I
Section
84G. Preliminary observations: distinc
tions.
Power to Expel: Grounds of Expulsion.
Section
848. This power exercised by the corpo-
ration — not by the directors.
847. Power of expulsion incident to cor-
poration.
849. By-laws authorizing the expulsion
of members.
CONTENTS OF VOLUME ONE.
li
Section
S50. Illustrations of good and bad by-
laws providing for the expulsion
of members.
851. Validity of by-laws providing for
expulsion for the nonfulfillment
of commercial contracts.
852. By-law prohibiting members from
gathering in public places to buy
and sell " futures" outside of the
exchange room.
853. By-laws when not enforceable by
forfeiture of membership.
854. Grounds of expulsion at common
law: Bagg's case.
855. Further of Bagg's case: how and
by whom and in what manner
disfranchised.
856. Grounds of disfranchisement under
rule of Lord Mansfield.
857. Cases within these principles.
858. Cases not within these principles.
859. Expulsion for infamous crimes:
whether a previous conviction
necessary.
860. Oflenses against the member's duty
as a corporator.
861. Acts injurious to the society or to
its reputation.
Article II. Corporate
Section
881. Must proceed upon notice, inquiry,
and hearing.
882. What this principle includes.
883. Right to notice exists, altiiough the
evidence against the accused may
be very cogent.
884. Instances showing the right to no-
tice.
885. Analogous principle that a public
officer is not removable without
notice.
886. Denying the privilege of cross-ex-
amination.
SS7. Right to an opi)ortunity to be
heard on an ecclesiastical appeal.
888. Expulsion after an acquittal and
without a second trial.
88'). Expulsion aftor first trial which is
a nullity.
Section
862. Illustrations: "conduct injurious
to the character and interests of
the club."
863. Frauds upon the society.
864. Expulsion from merchants' ex-
change for dishonest conduct.
865. Suspension for bankruptcy or in-
solvency.
866. Contempt against corporate officer.
867. Criticising the management.
868. Ofi'enses against other members.
869. Refusal to submit to arbitration or
to comply with award.
870. Illustration.
871. Appealing to the judicial courts.
872. "Negligence, misconduct in office,
or any other reasonable causes."
873. Expulsion of members of incorpo-
rated medical societies.
874. Members of trades union working
for parties against whom a strike
had been ordered.
875. Enlisting in the volunteer army in
time of war.
876. Trial under an act of the legislature
passed subsequently to the of-
fense.
Proceedings to Expel.
Section
890. When second notice not neces-
sary.
891. Incidents of the notice and its
service.
892. Efl'ect of change of residence in
connection with by-law requir-
ing members to notify their resi-
dence to the society.
893. Of the corporate tribunal and its
constitution.
894. Illustrations: expulsion by a two-
thirds vote.
895. Jurisdiction of standing committee
of brokers' board.
896. Illustration.
807. Of the trial and the evidence.
898. Necessity of a sentence of expul-
sion.
8'.)'.). lliglit of ap[)cal.
lii
CONTENTS OP VOLUMP: ONE.
Article III. Judicial Proceedings to Reinstate.
906.
907.
90S.
9n.
912.
Section
904. Mandamus to restore member.
905. Mandamus to compel corporation to
admit a member.
The return.
Practice under the writ.
Visitorial powers exercised by the
courts.
909. Remedy by injunction.
910. Injunction in case of unincorpo-
rated societies.
Injunction in case of religious so-
cieties.
Member must first exhaust his
remedy within the society.
913. Injunction not granted to restrain
proceedings before corporate ju-
dicatories.
914. Principles on which courts proceed.
915. Further of this subject.
Contract to exercise judgment bona
fide.
Another statement of the principle:
corporation not permitted to ex-
ercise trust corruptly.
918. Courts do not sit as courts of ap-
peal from decisions of committee
or club in such cases.
916.
917.
Section
919. Not sufficient that the decision con-
trary to reason.
920. Regularity of suspension presumed
until contrary appears.
Effect of acquiescence.
Jurisdiction of corporate commit-
tee not ousted by fact of judicial
investigation.
Doctrine that courts will not inter-
fere except where property rights
are involved.
Courts will not enforce decisions of
judicatories of unincorporated
societies.
925. Suspension of a lodge, when void
and when voidable.
Action for damages for the expul-
sion.
Action for damages against religious
corporation.
928. Criminal information for disfran-
chisement of members.
929. Articles of the peace by one part-
ner against another.
930. Action against judge for condemn-
ing without notice
921,
922
923.
924.
926.
927.
Art. I.
II.
CHAPTER XVIII.
BY-LAWS.
Nature and Interpretation.
Power to Enact and Mode op Enacting.
SUBDIV. I. At Common Laio.
SUBDI V. II. Statutes Vesting Power in Corporation or Members.
SUBDIV. III. Statutes Vesting Power in the Directoi-s or Other Officers.
Art. III. Requisites and Validity.
Article I. Nature and Interpretation.
Section
935. What is a by-law.
936. Distinguished from a resolution.
937. Distinguished from a regulation.
938. Municipal ordinances.
Section
939. To what extent a law.
940. May operate as a contract among
the members.
941. Members charged with knowledge
of by-laws.
CONTENTS OP VOLUME ONE.
liii
Sectioii
942. To what extent binding on third
persons.
943. Formalities required in enacting.
944. Not noticed judicially, but must be
proved.
945. Waiver of.
94(5. Not retroactive.
Section
947. Where enacted: no extraterritorial
force.
948. Interpretation of by-laws.
949. Actions upon by-laws.
950. Action on by-law making members
liable for debts of corporation.
Article II. Power to Enact and Mode of Enacting.
SUBDIVISION I. At Common Law.
Section
955. Inherent power to make.
956. Must be made by the corporators,
not by the directors.
957. Charters conferring this power on
the directors.
Section
958. What quorum of a select body may
adopt.
959. Delegation of power to .select body
does not necessarily divest power
of general body.
960. Amendment and repeal of by-laws.
SUBDIVISION II. Statutes Vesting Power in the Corporation or Members.
963.
964.
965.
966.
967.
Section
962. General statutory power to make
by-laws not inconsistent with
law, etc.
For management of property and
regulation of affairs.
For the regulation of its property,
management of its affairs, and
transfer of its stock.
And as to corporate meetings.
Corporate meetings and voting, for-
feiture of shares, penalties, etc.
Concerning officers, meetings, elec-
tions, etc.
908. Management of property, regulation
of affairs, transfer of stock, duties
of officers.
SUBDIVISION III. Statutes Vesting
Section
978. Enacted by the directors, etc.
979. Academies, colleges, seminaries,
universities.
980. Banks of (li.scount.
981. Breeding associations.
982. Bridge companies.
983. Building and construction com-
panies.
984. Canal companies.
Section
969. Same as preceding: also number of
directors, penalties, liens upon
shares, etc.
970. Provisions applicable to benevolent,
religious, educational, literary,
social, and other societies.
971. Provisions applicable to railroad
companies.
972. Provisions applicable to boom and
navigation companies.
973. Various other provisions.
974. As to forfeiting shares.
975. How enacted.
976. How amended, repealed, etc.
Power in the Directors or Other Officers.
Section
985. Gaslight companies.
986. Guano companies.
987. Guaranty companies.
988. Homestead companies.
989. Hotel companies.
990. Industrial, co-operative, and mu-
tual benefit societies.
991. Inland navigation companies.
992. Insurance companies.
liv
CONTENTS OF VOLUMK ONE.
Section
993. Library companies.
994. Maimfacturing companies.
995. Minini; and smelting companies.
99(5. Navigation improvement com-
panies.
997. Plank-road and turnpike com-
panies.
Section
998. Railroad companies.
999. Religious corporations.
1000. Safe deposit companies.
1001. Savings l)anks.
lOO'J. Telegraph companies.
1003. Trust companies.
Article III.
Section
1010. General statements of the requi-
sites of good by-laws.
1011. Must not be contrary to the
charter.
1012. Illustrations.
1013. Must not be contrary to law.
1014. Limitations of the foregoing rule.
1015. Must not be contrary to the arti-
cles of incorporation.
1016. Must not be contrary to common
right.
1017. Illustrations of municipal ordi-
nances contrary to common
right.
1018. Must operate equally.
1019. Must not disturb vested rights.
1020. Must not be unreasonable, oppress-
ive, or extortionate.
1021. Must be reasonable.
1022. Reasonableness of corporate by-
laws a question of law.
1023. Illustrations of by-laws held void
because unreasonable.
1024. Instances of municipal by-laws
held unreasonable and hence
void.
1025. Illustrations of municipal by-laws
held not unreasonable.
1026. By-laws touching the admission of
persons to the freedom of a place.
1027. By-law compelling elected mem-
ber to wear livery, and pay
initiation fee or a forfeiture.
1028. Must not be in restraint of trade.
1029. Tiie ancient law on this subject.
1030. By-laws establi.shing combinations
among workmen to maintain
prices.
1031. Regulating or restraining transfers
of shares.
Requisites and Validity.
Section
1032. Creating a lien upon shares.
1033. Releasing shareholders from their
obligation of payment.
1034. Restricting the right to sue in the
courts.
1035. Compelling members to submit
their disputes to arbitration.
1036. Power to enforce by pecuniary
fines.
1037. Cannot be enforced by a forfeiture
of property.
1038. Nor by a forfeiture of shares.
1039. Otherwise where power expressly
conferred by charter.
1040. The fine or penalty must be certain.
1041. Making the corporation a judge in
its own case.
1042. Views as to the proper measure of
such fines.
1043. Illustrations: by-laws of building
associations imposing excessive
fines.
1044. Imposing fine for non-acceptance
of a corporate office.
1045. Imposing fines for non-attendance
at corporate meetings.
1046. By-laws regulating the conduct of
corporate members.
1047. Disinclination of the courts to
interfere with the by-laws of
societies.
1048. Valid in part and void in part.
1049. Establishing a quorum of the board
of directors.
1050. Regulating corporate elections.
1051. Forbidding secret societies in Cdl-
leges.
1052. Instances of by-laws which have
been held valid.
1053. Conclusion of Title One.
CONTENTS OF VOLUME ONE.
Iv
TITLE TWO.
CAPITAL STOCK AND SUBSCRIPTIONS THERETO.
CHAPTER XIX.
NATURE OF CAPITAL STOCK AND SHARES IN GENERAL.
Section
1059. Scope of this chapter.
Definitions of "capital stock."
Difference between actual stock
and potential stock.
Distinction between capital stock
and tangible property.
What is capital stock viewed as a
trust fund for creditors.
When capital includes profits and
surplus.
1065. Shares sometimes inappropriately
called "stock."
Shares are personal property.
So are shares in unincorporated
joint stock companies.
Not goods, wares, and merchan-
dise.
Not "moneys."
Are choses in action.
Shareholders not co-owners.
Execution against interest in cor-
porate property.
1073. Shareholders cannot convey corpo-
rate property, though all join
in the deed.
1060
1061
1062.
1063.
1064.
1066.
1067.
1068.
1069.
1970.
1071.
1072.
Section
1074. Incorporating a partnership: mode
of succeeding to the partnership
assets.
Cannot act for the corporation, or
bind it by admissions.
Not in a trust relation towards
the corporation.
Cannot sue the directors at
law.
Not responsible for its torts.
Not in privity with each other.
Not necessary parties to suits in
respect of corporate rights.
Not affected with notice, etc.
To what extent in privity with the
corporation.
No distinction in these respects
between incorporated and unin-
corporated companies.
A comparison between shares in
a partnership and shares in a
company.
1085. Capital stock a liability of the
corporation.
1075.
1076.
1077.
1078.
1079.
1080.
1081.
1082.
1083.
1084.
CHAPTER XX.
WHO MAY BECOxME SHAREHOLDERS IN CORPORATIONS.
Art. I. Natural Persons.
II. Private Corporations.
III. Municipal Corporations.
Article I. Natural Persons.
Section Section
1090. Persons capable of contracting. 1092. Alien friends.
1091. By what law the subject gov- 1093. Ambassadors of foreign couQ-
erned. tries.
Ivi
CONTENTS OV VOLUME ONE.
Section
1094. Alien enemies.
1095. Infants.
109G. Married women.
Skction
1097. Where the married woman lia3 an
eqnitable separate estate.
1098. Husband's liability for calls in re-
sDect of wife's shares.
Article II. Private Corporations.
.Section.
110*2. One corporation cannot become a
stockl'-older in another.
1 103. Reason of the rule.
1104. Illustrations: railroad companies.
1105. Further illustrations: banking
companies.
1106. Other illustrations.
1107. Cannot subscribe for its own stock.
Section
1 lOS. Limited view that one corporation
can invest in the shares of an-
other.
1109. Illustrations.
1110. Consequences which flow from this
view.
1111. Undoing such transaction: estop-
pel — laches.
Article III. Municipal Corporations.
iiu;.
Ill-
Section
1115. Validity of municipal subscrip-
tions to private corporations.
Illustrations of the principle: aid
to railroad companies valid — to
manufacturing companies not.
Rule in the absence of direct con-
stitutional restraints.
1118. Validity of statutes authorizing
municipal subscriptions to corpo-
rations.
1119. Power to grant .such aid by way of
subscription settled.
1120. V^'^hether power exists to make
donations to such companies.
1121. Right to municipal aid not created
by general words.
1 122. Right to municipal aid passes to
new company on consolidation.
1123. Statute repealed before right
vested.
1 124. An illustration of this principle.
Section
1125. Another illustration of the same
principle.
1126. Invalidity of state statutes at-
tempting to take away the rem-
edy on such subscriptions.
1127. Validity of statutes transferring
benefit of subscription from the
county to the taxpayers.
1128. Instances of such statutes impair-
ing the obligation of contracts.
1129. Invalidity of statute compelling,'
town to subscribe to a railwa}'.
1130. Injunction to prevent issue of
bonds where terms of subscrip-
tion not complied with.
1131. Release of subscription by aban-
donment of the work.
1132. Petitions "representing a majority
of the taxpayers," etc.
1133. Subscriptions by a sovereign state
CHAPTER XXI.
THE CONTRACT OF SUBSCRIPTION.
Article I. Theories as to Nature and Formation of the
Contract.
II. Theories as to the Consideration.
CONTENTS OF VOLUME ONE.
Ivii
Article III. Theories as to the Necessity of Paying the
Statutory Deposit.
IV. Theory That the Full Amount of the Capi-
tal Must Be Subscribed.
V. Other Theories and Holdings.
Article I. Theories as to
OF the
Section
1136. Relation of stockholders to the
corporation rests in contract.
1137. Governing statute forms part of
the contract.
1138. General views as to what consti-
tutes one a stockholder.
1139. Subscription constitutes one a
member.
1140. Certificate not necessary.
1141. Circumstances under which neces-
sary.
1142. Contract of subscription when not
necessary.
1143. If no certificate issued, written
agreement necessary.
1144. View that a contract of subscrip-
tion necessary in some form.
1145. Such contract not created bj'
' recitals in a bond.
1146. View that a contract of subscrip-
tion must be in writing.
1147. A writing not in strictness neces-
sary.
1 14S. Oral promise to subscribe for shares
and note given therefor.
1149. Subscription not varied by parol
evidence.
1150. When explainable by parol.
1151. Form of the subscription.
11.52. In wiiat kind cf book — on what
kind of papei-.
1153. Signing in blank.
1154. Effect of erasure.
1155. Explanatory memorandum an-
nexed.
1156. Receipt on margin of subscription
book.
1157. Rule which requires a subscription
to thf! articles of association.
THE Nature and Formation
Contract.
Section
1158. Reasons which support this rule.
1159. Consequence of this rule: no con-
tract if subscriber dies before
corporation formed,
1 160. Other consequences of this rule.
1161. Doctrine that subscription not
binding unless regularly made.
1162. View that a subscription to the
shares of a corporation not
formed creates no liability.
1163. Further of this view: reasoning of
Chief Justice Black.
1164. Distinction between a subscription
and an agreement to subscribe.
1165. The infirmity of this distinction.
1166. Unsoundness of the view that the
proposal is bad unless made in
strict compliance with the stat'
ute.
1167. Difficulty avoided by subsecjuent
ratification.
1168. Subscription and payment nf de
posit.
1 169. Another road out of this difficulty.
1170. Rule that subscriptions made be-
fore organization are good.
1171. Reasons in support of this rule.
1172. Nature of such an ofier before
acceptance.
1173. Instance under this rule.
1174. Rights and liabilities of sub-
scribers to a common fund for
a common purpose.
1175. Subscription must be accepted or
acted upon.
1176. Action against one member of
building committee by the other
members.
Iviii
CONTENTS OF VOLUME ONE.
SECflON
1177. Acceptance necessary if corpora-
tion in existence.
1178. Manner in which acceptance mani-
fested.
1179. Distinction between cases where
the proposition conies from the
company and where it is made
to the company.
1180. Revocation of offer before accept-
ance.
IISI. Whether presumable in the case
of a subscription to a future cor-
poration.
1182. A case in illustration.
1183. Locus penitenlice where subscrip-
tion illegal.
1184. Other instances of subscription.
Article II. Theories as
Section
1200. Theories as to the consideration of
the contract.
1201. Rights and interests acquired by
the subscriber.
1202. Obligation of the company to i.ssue
tlie shares.
1203. Franchises granted by the charter.
1204. Failure of the commissioners to
reject the subscription.
1205. Mutuality of promise as among
subscribers.
1206. Labor or money expended on the
faith of the promise.
1207. Illustrations of this principle.
1208. Contrary view that money not
Section
1 185. Subscriptions enforceable by action
witliout an express promise to
pay-
1180. Illustrations of the foregoing.
1187. Doctrine that an express promise
to pay is necessary.
1188. The absurdity and immorality of
this doctrine.
11 89. When contract to take shares com-
plete under the English statute.
1190. What facts amount to a contract
to pay shares
1191. Continued.
1192. Continued.
1193. Continued.
1194. Continued.
TO THE Consideration.
Section
deemed expended on the faith
of the subscription: formation
of corporation not authorized
thereby.
1209. Consideration where the corpora-
tion is in existence.
1210. Efifect of the words "value re-
ceived."
1211. Subscription a good consideration
for other undertakings.
1212. Subsequent failure of considera-
tion.
1213. No consideration where the com-
pany, and not the subscriber,
gets the shares.
Article III. Theories as to the Necessity of Paying
the Statutory Deposit.
Section
1220. A contrary view.
1221. Whether payment by bank cliecU
autlicient.
1222. Simulated payments by giving
checks which are not col-
lected.
1223. Further as to the manner of pay-
ment.
1224. View that the payment of such a
deposit is not necessary.
Section
1216. View that payment of cash deposit
is necessary to tlie validity of
the subscription.
1217. Reasons given in support of this
view.
1218. Rule that payment of deposit must
be made in specie or its equiva-
lent.
1219. Statute not complied with by giv-
ing a note.
CONTENTS OF VOLUME ONE.
lix
Section
1225. A similar view in England.
1226. Subscription valid though payment
at a subsequent time.
1227. Invalidity of secret agreement that
the check shall not be paid.
1238. Subscription void for non-payment
of deposit made good by es-
toppel.
Section
1229. Where subscription made after the
organization.
1230. What if the question arises under
a by-law merely.
Illustration in case of surrender
and reissue of shares.
Effect of statutes requiring a cer-
tain amount to be paid in before
commencing business.
1231.
1232.
Article IV. Theory That the Full Amount of the
Capital Must Be Subscribed.
Section
1235. Shareholder not liable until full
amount subscribed.
1236. Illustration: subscription on con-
dition that "sufficient ia sub-
scribed for the purpose."
1237. Instance of a faulty instruction sub-
mitting this question to the jury.
1238. Subscriptions by insolvents, per-
sons not sui juris, etc.
Section
1239. Subsequent declaration of sub-
scriber inadmissible.
1240. View that the judgment of the
commissioners is conclusive.
1241. Taking subscription in property at
excessive valuation.
1242. Waiver of right to object on this
ground.
Article V. Other Theories and Holdings.
Section
1245. What agents can receive subscrip-
tions.
1246. Nature of the authority of com-
missioners.
1247. Apportionment of stock by the
commissioners.
1248. Proportion allowed to the commis-
sioners themselves.
1249. Remedy of the subscriber for re-
fusal to issue shares.
1250. Apportionment upon incorporating
a mining property.
1251. Subscription void after all stock
taken.
1252. Instances of insuflBcient subscrip-
tions.
1253. Subscriptions delivered as on es-
crow.
Section
1254. Distinction between subscriptions
and purchases of shares.
1255. Promise to take and pay for stock
in unincorporated company ac-
tionable.
1256. Each subscription several, not
joint.
1257. Subscription by a partnershi])
name.
1258. Subscriptions construed by tli.
court.
1259. Construed according to what law.
12G0. Taking shares to qualify as direct-
ors.
1261. Continued.
1262. Limit of option to take shares on
reorganization.
Ix
CONTENTS OF VOLUME ONE.
CHAPTER XXII.
ALTERATION OF THE CONTllACT.
SFfTTTOW
li267. I'reliminary.
1268. Breach by the corporation of its
contract with the subscriber,
1269. Alteration of the subscription pa-
per.
1270. Making radical changes in the pur-
poses of the corporation.
1271. Directors departing from the char-
ter.
1272. Abandonment of the enterprise.
1273. Discharged by legislative alteration
,of the contract.
1274. Change must be material, funda-
mental, or radical.
1275. Increasing capital stock.
J 276. Reducing capital stock.
1277. Increasing the number of shares.
127S. Enlarging powers and privileges,
and adding new responsibilities.
1279. Illustrations: authorizing exten-
sion of road — buildingof branch.
12S0. Illustrations continued: empower-
ing a slack water company to ex-
tend its dams and incur ad-
ditional expense.
1281. Changing the nature of the enter-
prise.
1282. View that change sanctioned by
majority binds minority.
Section
1283. Changing the name,
1284. Changing the termini of a railroad.
1285. Material change of a location or
route will release subscriber.
128G. Reasons of the rule.
1287. What changes of route or location
do not release subscriber.
1288. What change of route by directors
will release the subscriber.
1289. How the defendant must plead the
change.
1290. Consolidation with another corpo-
ration.
1291. Changes authorized by existing
statutes.
1292. Alteration material to the particu-
lar subscriber.
1293. Changes affecting the payment of
stock subscriptions.
1294. Other changes in the internal ar-
rangements of the corporation.
1295. Selling out.
1296. Extending time for completing the
enterprise.
1297. Elements of estoppel.
1298. Burtlen of showing dissent.
1299. When validity of amendment sub-
mitted to jury.
[Title II is continued in Volume II.]
TITLE ONE. ORGANIZATION AND INTERNAL
GOVERNMENT.
Chapter
1. Nature and Kinds of Corporations . . §§1 -29
2. Creation by Special Charters . . . . §§35 -48
3. Acceptance of Special Charters . . . §§52 -63
4. Amendment of Charters §§66 -105
5. Charters Granted by the Courts . . . §§110-127
6. Organization under General Laws . . §§132 -249
Article I. Purposes for wMcb Incorporation
Permitted §§132-210
Subdiv. I. Examples from Various Statutes . §§ 132 - 192
II. Decisions Construing Particular
Statutes §§200-210
Article II. Steps Necessary to Perfect Or-
ganization §§215 -249
7. Keorganization §§255 -279
8. Kames of Corporations §§284 -300
9. Consolidation §§305 -410
Article I. In General §§305-337
II. Effect Upon Shareholders . . §§343 -360
III. Transmission of Rights and Lia-
bilities of Constituent Com-
panies §§365 -390
IV. Effect on Remedies and Procedure §§395 -410
10. Promoters §§415 -490
Article I. Liability on their Contracts . . §§415 -437
11. Liability to Subscribers . . . §§410 -453
III. Liability to the Company . . . §§456 -476
IV. Non-liability of the Company for
Contracts of Promoters . . §§480 -490
11. Irregular and De Facto Corporations . . §§495 -533
Article I. De Facto Corporations . . . §§495 -513
II. Corporations by Estoppel . . §§518 -533
1
1 Thomp. Corp.] title one.
12. Con-stitutional Restraints upon the Crea-
tion of Corporations and the Granting
of Corporate Pririleges §§538 -659
Article I. Provisions of Yarious State Con-
stitutions §§538 -508
II. Restraints upon the Passing of
Special Acts Conferring Corpo-
rate Privileges §§573 -602
III. Eestraints as to the Titles of Laws §§607 -627
lY. Restraints as to the Mode of
Passing Laws §§632 -639
V. Various other Restraints and Pro-
visions §§643 -659
13. ^National Corporations §§665 -683
14. Place of Holding Corporate Meetings and
of Doing Corporate Acts §§686-697
15. Corporate Elections §§700 -794
Article I. Assemhling the Meeting . . . §§700 -722
n. TheQuorum §§725 -729
III. Eight to Vote §§730-743
IV. Conduct of the Election . . . §§745 -758
V. Right to the Office: Contesting
the Election §§761-794
16. Amotion of Officers §§799-841
17. Expulsion of Members §§846-930
Article I. Power to Expel : Grounds of Ex-
pulsion §§846 -876
II. Corporate Proceedings to Expel . §§881 -899
III. .Judicial Proceedings to Reinstate §§904 -930
18. By-Laws §§935-1053
Article I. Nature and Interpretation . . §§935 -950
II. Power to Enact and Mode of En-
acting §§955 - 1003
Subdiv. I. At Common Law §§ 955 - 960
II. Statutes Vesting Power incorpo-
ration or Members . . . . §§ 962 - 976
III. Statutes Vesting Power in the
Directors or Other Oflacers . . §§978 -1003
Article III. Requisites and Vahditj' . . . §§1010-1053
2
CHAPTER I.
NATURE AND KINDS OF CORPORATIONS.
Section
1. What is a corporation?
2. Judicial definitions of a corpora-
tion.
3. A collection of incidents which
make a corporation.
4. None the less a corporation be-
cause members liable for its
debts.
5. Nor because it cannot sue or be
sued in its corporate name.
6. Nor because acts of parliament
declare that it shall not be a
corporation.
7. A collection of natural persons.
8. Corporation sole.
9. Ordinary powers of a corporation.
10. Immortality — *' Perpetual succes-
sion."
11. In what sense a " person."
12. In what sense a " citizen."
13. Distinction between a corporation
and a partnership.
14. Differences between corporations
and joint-stock companies.
Section
15. Distinction between a corporation
and a guild, fraternity or so-
ciety.
16. Composed of what body or con-
stituency.
17. Further of this subject.
18. Illustrations of this distinction.
19. Sense in which the state may be a
corporation.
20. Quasi-corporations.
21. OtQcial boards of municipal cor-
porations.
22. Kinds of corporations.
23. The definition given by Chancellor
Kent.
24. Public and private corporations.
25. Public school corporations.
26. Corporations to promote charities
of a public nature.
27. Corporations formed to promote
public objects for private gain.
When municipal corporations
deemed private.
Illustrations of public corpora-
tions.
28.
29.
§ 1. What is a Corporation ? — The most usual conception of
a corporation is that it is a collection of natural persons, joined
together by their voluntary action or by legal comi)ulsion, by or
under the authority of an act of the legislature, to accomplish some
purpose, pecuniary, ideal, or governmental, authorized by the leg-
islature, under a scheme of organization and by methods thereby
prescribed or permitted : with the faculty of having a continuous
succession during the period prescribed by the legislature for its
existence, of having an individual name by which it may make
3
1 Thomp. Corp. § 3.] nature and kinds of corporations.
and take contracts and sue and be sued, and of acting as a unit
in respect of all matters within the scope of the purposes for
which it was created.
§ 2. Judicial Definitions of a Corporation. — A corporation ag-
gregate has been detiued to be, " au artilieial beiug created by law, and
composed of individuals who subsist as a body politic under a special
denomination, with the capacity of perpetual succession, and of acting,
within the scope of its charter, as a natural person." i The following
is the definition given by Chief Justice Marshall in the Dartmouth Col-
lege case: "A corporation is an artificial being, invisible, intangible,
and existing only in contemplation of law. Being the mere creature of
law, it possesses only those properties which the 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 important are immortality and,
if the expression may be allowed, individuality ; properties by which
a perpetual succession of many persons are considered as the same,
and may act as a single individual. " ^ Jq \;^q early cases in New York,
the question, what is a coi'poration was discussed with exhaustive re-
search. On one of these cases the court, speaking through Nelson, C.
J. , said : ' ' We may, in short, conclude by saying, with the most ap-
proved authorities at this day, that the essence of a corporation consists
in a capacity (1) to have perpetual succession under a special name and
in an artificial form ; (2) to take and grant propertj'^, contract obhga-
tions, sue and be sued by its corporate name as an individual ; and (3)
to receive and enjoy, in common, grants of privileges and immunities," '^
In the same case* Cowen, J., summed up the incidents of a corporation
mentioned by Blackstone, as follows: " These are, in short, the receiv-
ing of peculiar laws, and the making of by-laws for itself ; perpetual
succession both as to its privileges and property; the having one will,
as collected from the power of the majority to make by-laws ; and the
being but one person in law, — a person that dies not, but continues the
same individual though its parts may change." The definition of Kyd
has been frequently quoted : "Though many things be incident to a
corporation, yet, to form the complete idea of a corporation aggregate,
it is sufficient to suppose it vested with the three following capacities :
(1) To have perpetual succession under a special denomination, and
1 Fietsam v. Hay, 122 111. 293; s. ' Thomas v. Dakin, 22 Wend. (N.
c. 3 Am. St. Rep. 4'.)2, 493. Y.) 71.
2 Dartmouth CoHege v. Woodward, * Thomas v. Dakin, 22 "Wend. (N.
4 Wheat. (U. S.) 636. Y.) 91.
4
JUDICIAL DEFINITIONS. [1 TllOmp. Coip. § 2.
under an artificial form; (2) to take and grant property, to contract
obligations, and to sue and be sued by its corporate name in the same
manner as an individual; (3) to receive grants of privileges and im-
munities, and to enjoy them in common. These alone are sufficient to
the essence of a corporation." ^ In the other case above referred to this
definition was given : "A corporation aggregate is a collection of in-
dividuals united in one body under such a grant of privileges as secures
the succession of members Avilhout changing the identity of the body,
and constitutes the members for the time being one artificial person,
or legal being, capable of transacting some kind of business like a
natural person." ^ In the former case, where the subject was thoroughly
considered, it was said by Cowen, J. : ' ' It has been impossible for
me to see the force of the argument that, because the legislatiure have
constantly avoided to caU these associations, or any of their machinery,
a corporation, therefore we cannot adjudge them to be so. If they
have the attributes of corporations, ii they are so in the nature of
things, we can no more refuse to regard them as such than we could
refuse to acknowledge John or George to be natural persons because
the legislature may, in making provisions for their benefit, have been
pleased to designate them as belonging to some other species. Should
the legislature expressly declare each of them to be corporations, with-
out giving them corporate succession or other artificial attributes, the
declaration would not make them so. On the other hand, even an ex-
press legislative declaration that certain associations are not included
in the definition of corporations would not chan ge their character, pro-
vided they should in fact be clothed with all the essential powers of
corporations." ^ It should be added that the fact that the legislature has
designated a given body as a corporation, or refused the application of
such a designation, is not conclusive upon the question whether or not
it is to be deemed a corporation by the com-ts.^ It was held by Mr.
Justice McLean at circuit in a case of great importance that an associa-
tion authorized by a general law providing the mode in which associa-
tions shall be organized, conferring upon them the ordinary powers of
corporations, and expressly providing that such an association, when
formed, shall " constitute a body corporate and politic in fact and in
name," is a corporation ; ^ and such is now the universally accepted rule.
1 I Kyd on Corp. 70. Mass. 531 ; s. c. sub nom. Liverpool
2 Bronson, J., in People v. Asses- Ins. Co. v. Massachusetts, 10 WaU.
sors of Watertown, 1 Hill (N. Y.), (U. S.) 566 po.s«; § 6.
620. s Falconer v. Campbell, 2 McLean
3 Thomas v. Dakin, 22 Wend. (N. (U. S.), 195; s. c. 10 Myer Fed. Dec, §
Y-) lf^3. 8. In a proceeding by mandamus to
^ Oliver v. Liverpool, &c., Co., 100 restore a person to the place of alder-
f)
1 Thonip. Corp. § 5.] nature and kinds of corporations.
§ 3. A Collection of Incidents which make a Corporation. —
An English joint-stock company possessing the following characteristics
was held to create a corporation, in the sense in which the word is nsed
in America, and so as to be a subject of taxation under a statute of one
of the American States, in which it maintained an office and carried on
its business: "1. It has a distinctive fxnd. artificial name ^ by which it
can make contracts. 2. It has a statutory provision, by which it can
sue and be sued in the name of one of its officers as the representative
of the whole body, which is bound by the judgment rendered in such
suit. 3. It has a pro\ision for loerpetual succession by the transfer and
transmission of the shares of its capital stock, whereby new members are
introduced in place of those who shall die or sell out. 4. Its existence
as an entity, apart from the shareholders, is recognized by the act of
Parliament which enables it to sue its shareholders and he sued by them.' ^
" It is beheved," said Mr. Justice Miller, " that, in all the States, the
articles of association of this company would, if adopted with the usual
formalities, constitute it a corporation under the general laws, or it
would become so by such legislative ratification as is given by the acts
of Parliament we have liientioned. ' ' ^
§ 4. None the less a Corporation hecause Members Liable
for its Debts. — "To this view," continued Mr. Justice Miller, "it
is objected that the association is nothing but a partnership, because its
members are liable individually for the debts of the company. But,
however the law on this subject may be held in England, it is quite cer-
tain that the principle of personal liability of the shareholders attache?
to a very large proportion of the corporations of this country, and it is
a principle which has warm advocates for its universal apphcation when
the organization is for pecuniary gain." ^
§ 5. Nor because it cannot Sue nor be Sued in its Corporate
Name. — " So also," continued Mr. Justice Miller, "it is said that
man of the City of London, Serjeant when a quo warranto is brought
Pemberton in argument gave this defl- against a corporation the writ calls it
nition of a corporation: "That a cor- a franchise, which is very properly."
poration is an artificial body composed Sir James Smith's Case, Carth. 217;
of divers constituent members ad in- s. c. Skin. 293, 310; 4 Mod. 52; 1 Show.,
star corporis humani, and that the liga- 263, 274.
ments of this artificial body politic ^ Liverpool Ins. Co. v, Massachu-
or artificial body are the franchises setts, 10 Wall. (U. S.) 5G6, s. c. 10
and liberties thereof, which bind and Myer Fed. Dec, § 17.
unite all its members together, and ^ Liverpool Ins. Co. v. Mass., 10
the whole frame and essence of the Wall. (U. S.) 566; s. c. 10 Myer Fed.
corporation consist therein; and Dec, § 18.
(1
INCIDENTS OF CORPORATIONS. [1 Thomp. Coip. § 6.
the fact that there is no provision, either in the deed of settlement or
the act of ParUament, for the company suing or being sued in its ar-
tificial name, forbids the corporate idea. But we see no real distinc-
tion in this respect between an act of Parhament which authorized suits
in the name of the Liverpool & London Fire and Life Insurance Com-
pany, and that which authorized suit against that company in the name
of its principal officer. If it can contract in the artificial name 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." ^
§ 6. Nor because Acts of Parliament Declare tliat it shall not
be a Corporation. — Nor is an English joint stock company, doing
business in America, to be regarded as an unincorporated association
within the meaning of our laws, from the mere fact that the acts of Par-
liament under which it is organized expressly declare that they shall
not be held to constitute the body a corporation. " Whatever may be
the effect of such a declaration in the courts of that country, it cannot
alter the essential nature of a corporation, or prevent the courts of an-
other jurisdiction from inquiring into its true character, whenever that
may come in issue. It appears to have been the policy of the English
law to attach certain consequences to incorporated bodies, which ren-
dered it desirable that such associations as these should not become
technical corporations. Among these, it would seem from the pro\'is-
ions of these acts, is the exemption from indi\idual liability of the
shareholder for the contracts of the corporation. Such local policy can
have no place here in determining whether an association, whose powers
are ascertained and its pri\41eges conferred by law, is an incorporated
body. The question before us is, whether an association, such as the
one we are considering, in attempting to carry on its business in a man-
ner which requires corporate powers under legislative sanction, can
claim, in a jurisdiction foreign to the one which gave those powers, that
it is only a partnership of individuals. We have no hesitation in hold-
ing that, as the law of corporations is understood in this country, the
association is a corporation, and that the law of Massachusetts, which
only permits it to exercise its corporate function in that State on the
condition of payment of a specific tax, is no violation of the Federal
constitution, or of any treaty protected by said constitution. ' ' ^
1 Liverpool Ins. Co. v. Mass., 10 10 Mycr Fed. Dec, § 19. Mr. Justice
Wall. (U. S.) 566, 575; s. c. 10 Myer UnuUcy agreed with the general re-
Fed. Dec, § 19. suit reached, but held that the com-
2 Liverpool Ins. Co. v. Massachu- pany was a special partnership, and
setts, 10 Wall. (U. S.") 5CC, 576; c. could not maintain an action or be
7
1 Tbomp. Corp. § 7.] nature and kinds of corporations.
§ 7. A CoUcctiou of Natural Persons. — " Corporations,"
said Lumpkin, J., " are but associations of individuals. "^ In
joint-stock companies these individuals are called the stock-
holders;^ in municipal corporations they pass under the various
names of citizens, burgesses, freemen, etc. ; and in private cor-
porations formed for social, religious, benevolent or other ideal
purposes they are commonly called members. It is not, how-
ever, strictly necessary to the legal existence of a stock
corporation that its shares should be held by individuals. As
will be seen hereafter, its shares may be held by partnerships,''
by other corporations,* or even by the State. About fifty years
ago several of the States created banking corporations known as
State hanks, in which the State was a holder of all or a portion
of the shares. The fact that the State was the sole stockholder
in such a bank did not change the relation which the bank, as a
corporation, sustained to its creditors.^ In such a case the
State, by becoming a stockholder in a business corporation,
divests itself, pro hac vice, of its attributes of sovereignty, and
places itself on the same footing which a private person, holding
shares of stock in such a corporation, would occupy in respect of
its creditors, so far as the question of priority is concerned.^
sued as a corporation in this country dend, although the fund from which it
without legislative aid. was declared was earned in great part
1 Hightower v. Thornton, 8 Ga. before they became stockholders.
492. Phelps V. Farmers' &c. Bank, 26 Conn.
- "Who, in law, constitutes the 269.
company, if it be not the stock- ^ State v. Bank of the State, 1 S. C.
holders? " Lowe, J., in Gelpcke v. 63. In this ca^e it was held that
Blake, 19 la. 268. although the capital of a bank is f ur-
3 Post, § lO'JO, et seq. nished by the State under the laws of
^ Post, § 1108. Where the charter which it was incorporated, and the
of a bank provided that charitable profits ther.of inure to the benefi^t of
societies might, from time to time, that State, and the faith of that State
subscribe for stock of the bank in ad- is pledged to its support, yet such
dition to its fixed capital, which stock bank is a distinct corporation, having
was not transferable, and might be the ordinary powers and rights, and
withdrawn at par on certain notice, subject to the ordinary obligations of
and the bank had declared a dividend banking corporations, with liability
from its surplus earnings, — it was to suits by creditors, and holding its
held that the socif'ties subscribing property subject to the claims of these
were shareholders, Avith all the right of in preference to the claims of the
individual shareholders, and entitled State as the only stockholder,
to receive their proportion of the divi- ^ United States v. Planters' Bank,
8
CORPORATIONS SOLE. [1 ThoUip. Coip. § 8.
§ 8. Corporations Sole. — The conception of a corporation com-
posed of a single person seems to be passing out of the American law.
The usual illustration of a corporation sole, such as a bishop of the
church of England, conveys to the mind the idea of an official or trustee
who possesses certain powers which he transmits to his successor in
office or trust. A minister seized of parsonage lands in right of the
parish has been regarded as a corporation sole, for the purpose of hold-
ing such lands, so that his title passes to his successors in the office.^
It has been said that a supervisor of a town is, sub modo, a sole corpora-
tion.2 In England this character has been ascribed to the king, ' ' to
prevent, in general, the possibility of an interregnum, or vacancy of the
throne, and to preserve the possession of the crown entire." ^ On a
similar conception this quality has been ascribed to the governor of
a State. ^ But it is not perceived why the same quaUty might not,
upon equal grounds, be ascribed to any public official. Even where
the corporation is composed of more than one person, the legislature
have power to permit 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
powers, the acts of the corporation.^ It has been held that the grant of
corporate powers to a person named, " and his associates," virtually
confers upon him alone the powers so granted, and does not make it
necessary that he should take any associates. ^ A peculiar quality of
corporation sole at common law was that it had perpetual succession, so
9 Wheat. (U. S.) 907. Compare Cur- name of a successor. McDowell v.
ran v. Arkansas, 15 How. (U. S.) 304. Hemphill, 1 Wiust. (N. C.) 96.
^ Brunswick v. Dunning, 7 Mass. 3 i Black. Com. 470.
447; Weston v. Hunt, 2 Mass. 501. ^ Governor v. Allen, 8 Humph.
A Roman Catholic archbishop has (Tenn.) 176, per Turley, J. See also
been held in respect of land held by Polk v. Plummer, 2 Humph. (Tenn.)
lilm for the church, a corporation sole, 500.
and hence not liable to be proceeded s Penobscot Boom Corp. v. Lam-
aiiainst personally for street improve- sou, 16 Me. 224.
ments. Roman Catholic Archbishop « Day v. Stetson, 8 Me. 365; Pen-
V. Shipman, 79 Cal. 288. obscot Boom Corp. v. Lamson, 16 Me.
2 Jausen v. Ostrander, 1 Cow. (N. 224. The rule is of course the same
Y.) 670, 684. But an officer or agent where the corporate powers are
of a corporation, appointed by its granted to several persons named in
board of directors or trustees, does the grant and " to their associates and
not possess the faculties of a corpora- assigns;" here the persons named
tion sole. The treasurer of the trust- may exercise the corporate powers
ces of Davidson College is not a cor- without taking to themselves associ-
poration sole. Hence, a suit on a ates. Hughes v. Parker. 20 N. H. 58.
bond payable to liiiu as such, and his See post, § 43.
successors, cannot be brought in the
1 Thomp. Corp. § 10.] naturk and kinds of corporations.
to speak, as to real jyroj^ei'ty, but not as to personal inoperly, — that is
to say, real property would descend to the successor in corporate right
of the person who constituted the sole corporation, but personal property
would pass to his next of kin by the ordinary law of distribution. Black-
stone gives the inconclusive reason for this anomaly that, as movable
pi'operty is hable to be lost or embezzled, a rule that would keep it in
the line of corporate succession would raise endless disputes between
the corporate successor and the executor.^
§ 9. Ordinary Powers of a Corporation. — *' The ordinary
powers of a corporation are: 1. Perpetual succession. 2. To
sue and be sued, and to receive and grant, by their corporate
name. 3. To purchase and hold lands and chattels. 4. To
have a common seal. And, 5. To make by-laws. Some of
these powers are incident to a corporation, but they are all, gen-
erally, expressly given by statute in this country." ^
§ lO. Immortality — "Perpetual Succession." — It is fre-
quently said that one of the attributes of a corporation aggregate
is immortality.^ Most of the charters of private corporations
provide in terms that they shall have "perpetual succession,"
and general statutes governing the organization of corporations
frequently contain the same provision. This means, in a general
sense, that the corporation is endowed with the faculty of exist-
ing forever, unless the same, or another statute, or the constitu-
tion has fixed a limit to the term of its existence. In other
words, the term *' perpetual succession" is understood to mean
indefiniteness of duration.* Another court has reasoned that the
1 2 Bla. Com. 432. Where a stat- but who merely subscribed for stock
ute incorporated three persons named, in the same, in sundry books pre-
their associates and successors, by the pared and circulated at the meeting
name of " the president, directors and when the enterprise originated, and
company of the Lechmere Bank," — where the petition to the legislature
it was held that, by the word " asso- was drawn up and signed. Lechmere
ciates," the legislature prma /fzcie in- Bank ■». Boynton, 11 Cush. (Mass.)
tended those who were associated with 309.
the three persons named as petitioners ^ Mr. Justice McLean, in Falconer
for the bank, praying that they might v. Campbell, 2 McLean (U. S.), 195,
be so incorporated, and that upon the IDS; s. c. 10 Myer Fed. Dec, § 8.
evidence in the case, could not have ^ Fu ler v. Academic School, G
intended to include other persons who Conn. 532, 543.
did not sign the petition for the bank, * Fairchild v. Masonic Hall Asso-
10
IN WHAT SENSE A " PERSON." [1 Thomp. Corp. § 11.
words do not refer to length of time, but rather convey the idea
of regularity or unbroken continuity of existence.^
§ 11. In what Sense a " Person." — For many — perhaps
most purposes, a corporation is in law an ideal person. It is
regarded as a unit for most purposes of legal procedure. It
makes and takes contracts by its corporate name, and in that
name it sues and is sued. The word "person" in a statute
may be construed to refer to a corporation, as well as to a
natural person. ^ Accordingly, a corporation has been held to
be embraced within the words of the statute of Anne, re-enacted
in the various American States, which provides that " all notes
in writing made and signed by any person, whereby he shall
promise to pay to another person, or his order," etc., " shall be
negotiable," etc. Here the word " person " includes a corpo-
ration, and accordingly a note made payable to a corporation is,
by force of this statute, negotiable.*
ciation, 71 Mo. 526; State?;. Stormont,
24 Kan. 686.
i Scanlan v. Crawshaw, 5 Mo. App.
337. While this conception of the
meaning of the term perpetual suc-
cession seems to be sound, the decis-
ion was unsound. By a general law
ofthe State of Missouri itwasprovided
that corporations, whose charters did
not otherwise provide, should expire
upon the limitation of twenty years.
Many corporations in that State were
created by special charters, and the
only duration prescribed therein was
found in the words "perpetual suc-
cession." It was held, on the reason-
ing stated in the text, tliat, where a
corporation was created at a time
when this general law was in force,
having no other period of limitation
prescribed than such as was found in
the words "perpetual succession" in
its charter, it expired by limitation in
twenty years. Scanlan v. Crawshaw, 5
Mo. App. 337. This decision, which
had the effect of abolishing many of
the alleged business corporations of
the State, was followed by the same
court in Fairchild v. Hunt, 5 Mo. App.
583, but the point was overruled by
the Supreme Court in same case on
appeal, s?i6 nom. Fairchild v. Mechan-
ics' Hall Association, 71 Mo. 52G. In
Krutz V. Paola Town Company, 20
Kan. 397, the same view was taken as
that taken in the Missouri Court of
Appeals, — that. In the absence of a
special period of limitation in the
charter, the period of the general law
governs. See post, Ch. 153. Under
Texas act of 187-t, relating to corpo-
rations, as under the act of 1871, a
corporation is entitled to succession
by its corporate name for twenty
years where its charter does not limit
the time. Steadman v. Merchants'
and Planters' Bank, 69 Tex. 50.
2 People V. Utica Insurance Co.,
15 Johns. (N. Y.) 338 ; s. c. 8 Am. Dec.
243; Cary v. Marstou, 56 Barb. (N. Y.)
29; U. S. Tel. Co. v. Western Uuiou
Tel. Co., Id. 53. Compare Aheru v.
National Steamship Co., 11 Abb. Pr.
(N. s.) fN. Y.) 356.
* State of Indiana v. Woram, 6
Hill (N. Y.) , 33 ; s. c. 40 Am. Dec. 378.
11
IThomp. Corp. § 13.] nature and kinds of coupokations .
§ 12. In what Sense a " Citizen." — A corporation is a citi-
zen within the meaning of the act of Congress,^ which allows
a citizen of one State to bring an action against a citizen of an-
other State, in a circuit court of the United States. For the
purposes of Federal jurisdiction a foreign corporation is a citizen
of the State by which it is created and within which it doesbusi-
ness.2 When sued in a State court it may, therefore, as a citi-
zen of the State of its creation, remove the cause to the Circuit
Court of the United States, in like manner as a non-resident citi-
zen might.^ But it is a settled principle of constitutional law
that it is not a citizen, within the meaning of that clause of the
constitution of the United States* which declares that " the citi-
zens of each State shall be entitled to all 'privileges and immunities
of citizen in the several States." ^
§ 13. Distinction between a Corporation and a Partner-
ship. A corporation differs from a general partnership in the
following particulars: 1. Its members may, in general, with-
out restraint, by transferring their shares, introduce other per-
sons in their stead ; ^ but the members of a general partnership
contribute to the common enterprise, not only their respective
shares of the partnership capital, but also their personal skill and
individual credit, and cannot, hence, retire from the partnership.
The statute of New York under this Me. 417. In this last case the qualifl-
head, out of abundant caution, con- cation is added, if there is nothinsc in
tains the provision that the word the legislation of the State to prevent
person, as therein used, " shall be it. To the same effect is Morton v.
construed to extend to every corpora- Mutual Life Ins. Co., 105 Mass. 145;
tion capable by law of making con- s. c. 7 Am. Rep. 505; Knorr v. Home
tracts." 1 R. S. N. Y. 768. So a Ins. Co., 25 Wis. 143; s. c. 3 Am.
corporation is a " person " within the Rep. 26. But this qualification is un-
meaning of the mill dam act of Wis- derstood to be not the law. Tost^
consin. Fisher v. Horicorn &c. Co., Ch. 178, Art. III.
10 Wis. 351. ^ Const. U. S., Art. 4, § 2.
1 Judiciary Act of 1789, § 11 ; Rev. « People v. Imlay, 20 Barb. (N. Y.)
Stat. U. S., § 629. 68; Wheedenu. R. Co., 2 Phil. (Pa.)
2 Minot r. Philadelphia &c. R. Co., 23; Ducat v. Chicago, 48 111. 172;
2 Abb. (U. S.) 323; Hatch v. Chi- Tatem u. Wright, 23 N. J. L. 429.
cago &c. R. Co., 6 Blatchf . (U. S.) « Chouteau Spring Co. v. Harris, 20
105; Stevens v. Phrenix Ins. Co., 41 Mo. 382; Moore v. Bank of Com-
jj_ Y. 149. merce, 52 Mo. 377; 'post^ § 2300.
' Hobbs V. Manhattan Ins. Co., 56
12
CORPORATIONS — JOINT-STOCK COMPANIES. [IThomp. Corp. § 14.
and introduce other persons in their stead, without the consent
of their copartners. 2. The members of a general partnership
are, by virtue of their status as such, agents of the partnership
firm, and of each other, in all matters within the scope of the
partnership business.^ Not so the members of a corporation.
They can only act about the business of the corporation in their
ao-gregate capacity, through the agency of a committee, com-
monly called a board of directors or a board of trustees, whom
they have chosen to represent them, and through such other
officers as this committee may appoint. ^ 3. The members of a
general partnership are jointly and severally liable to pay, out
of their private estates, all the debts of the partnership firm."^
But in the United States the members of a corporation are not,
in general, liable to pay any of the corporate debts,^ unless (1)
they have received or withheld some of the assets of the corpora-
tion, or (2) unless they are otherwise made liable by the terms
of the charter of the corporation or by statute.
§ 14, Differences between Corporations and Joint-stock
Companies. — An English joint-stock company resembles a cor-
poration, in respect of the fact that, by reason of the number of
its members, it acts by a board of directors or trustees,^ and sues
1 This, however, is not a necessary viduals carrying on business jointly
incident of a partnership ; I am merely under an ordinary deed of partnership
describing the more common inci- or by a parol agreement among them-
dents. See Gallway v. Matthew, 10 selves of which the world is ignorant,
East, 264. in which case what is said or done by
2 Dayton, etc., R. Co. v. Hatch, 1 any one partner respecting the partner-
Disney (Ohio), 84; Dana v. Bank of ship business affects all the partners,
United States, 5 Watts & S. (Pa.) 247; although in violation of their agree-
Conro t?. Port Henry Iron Co., 12 Barb, ment inter se. But why is this so?
(N. Y.) 27. Because, carrying on business jointly
3 Post, § 2815. under a common firm, they hold out
* Post, § 2816. to the world that each of them has
* Burnes v. Pennell, 2 H. L. 520. authority to manage the partnership
"We are told," said Lord Campbell concerns. Therefore all are bound by
in this case, <« that a joint-stock com- what each does in conducting the
pany (at least if not incorporated, and partnership business. All the mem-
only empowered by a public act of bers of the firm are liable to the bona
Parliament, as this is, to sue and be ytdeholdcrof a bill of exchange, drawn,
sued by its officers), is in the same accepted, or indorsed by any one of
situation as any mercantile partner- them. But supposing that, A., B.,
ship consiating of two or three indi- and C. entering into partnership, it is
13
1 Tlioinp. Corp. § 14.] nature and kinds of corporations.
and is sued as one person, or in the name of an oflScer; ^ but, in
respect of tlie liability of its members for its debts, a corpora-
tion, in general, differs from a joint-stock company as it differs
from a partnership: the members of a joint-stock company are,
in general, liable as partners. ^ A corporation and an English
expressly stipulated that A. shall not
draw, accept, or indorse bills in the
partnership name, and this stipulation
is known to X., he would have no
remedy against B. and C. on a bill of
exchange which he had induced A. to
draw, accept, or indorse. Therefore,
on the principle which regulates the
liability of common parties, a distinc-
tion must be made between a member
of a common mercantile partnership
and a shareholder in a joint-stock
company. No one will contend that a
joint-stock company would be liable
on a bill of exchange, drawn, accepted,
or indorsed by any one shareholder.
Why? Because it is known that the
power of carrying on the business of
the company, and of drawing, accept-
ing, and indorsing bills of exchange, is
vested exclusively in the directors.
This shows that, although a joint-
stock company is a partnership, it is
a partnership of different description,
and attended with different incidents
and liabilities, from a partnership
constituted between a few individuals
who carry on business jointly, with
equal powers and without transfera-
ble shares. All who have dealings
with a joint-stock company know that
the authority to manage the business
is conferred upon the directors, and
that a shareholder, as such, has no
power to contract for the company.
For this purpose, it is wholly imma-
terial whether the company is incorpo-
rated or unincorporated." See also
the observation of Earl, J., in Bray v.
Farwell, 81 N. Y. 000,608.
1 Wordsworth on Joint-stock Co.
66; Oliver v. Liverpool, etc., Co., 100
Mass. 539; Wormwell v. Hailstone, 6
14
Bing. 668; Harrison v. Timmins, 4
Mee. & W. 510; Cape's Executors'
Case, 2 De G. M. & G. 573; Bartlett v.
Pentland, 1 Barn. & Adol. 704; Taft v.
Ward, 100 Mass. 518.
2 Aug. & Ames on Corp., § 591;
Morton, J., in Hoadley v. County Com-
missioners, 105 Mass. 526; Williams
V. Bank of Michigan, 7 Wend. (N.
Y.) 542; Townsend v. Goewey, 19
Wend. (N. Y.) 424; Whitman v.
Porter, 107 Mass. 522; Oliver v. Liver-
pool &c. Co., 100 Mass. 539; Dow
V. Sayward, 12 N. H. 271; Taft v.
Ward, 106 Mass. 518; Tappan v.
Bailey, 4 Mete. (Mass.) 529; Tyrell
V. Washburn, 6 Allen (Mass.), 472;
Bodwell V. Eastman, 106 Mass. 625;
Frost V. Walker, 60 Me. 468. The
contrary was held by Chancellor Kent
in Livingston v. Lynch, 4 Johns. Ch.
(N. Y.) 573, 592. " Joint-stock com-
panies," says Sir Nathaniel Lindley,
in his work on Partnership, " are not
pure partnerships, for their members
are recognized as an aggregate body;
nor are they pure corporations, for
their members are more or less liable
to contribute to the debts of the col-
lective whole. Incorporate compa-
nies are intermediate between cor-
porations known to the common law
and ordinary partnerships, and par-
take of the nature of both." 1 Lindley
on Part. (Ist. ed.) 0. The liability or
non-liability of members constitutes
the most frequent test by which to
determine whether a particular com-
pany is a corporation or a joint-stock
company. Thus, various acts of Par-
liament conferred upon an insurance
company most of the incidents of a
corporation, but declared that such
CORPORATIONS JOINT-STOCK COMPANIES. [1 Thomp. Corp. § 14.
joint-stock company likewise resemble each other in respect of
the transferability of their shares, and the incident of " perpet-
ual succession " of their members. ^ In the United States, how-
ever, an unincorporated joint-stock company, although it may
possess a capital stock, divided into shares and transferable at the
will of the holders, do business under a name indicating that it
is a corporation, act through a common agency, and not by its
individual members ,2 and hold its property in the name of a
company should not be deemed to be
thereby made a corporation. It was
thought by an American court that the
object of this reservation was to pre-
serve the individual liability of mem-
bers. Oliver v. Liverpool &c. Co.,
100 Mass. 539. So, acts of Parliament
which provided, in substance, that a
private company might be sued in the
name of the managing director as a
nominal party, for and on behalf of
the company, that execution so ob-
tained should be levied upon the sur-
plus fund and other property of the
corpoi'ation, ■ and that the managing
directors should not be personally re-
sponsible in respect of contracts made
by them in behalf of the company,
were held to create a gwasi-corpora-
tion, and the court had no power to
order an execution against a director
against whom a judgment had been tlaus
recovered. Harrison v. Timmins, 4
Mee. & W. 510. " It is quite clear,"
said Lord St. Leonards, " that the
law knows no difference between a
common partnership of two people
and a partnership of one hundred.
This company is not an ordinary part-
nership, but one formed under the
act of 7 Geo. IV. c. 46, by virtue of
which, though the public officer only
can be sued, yet all the members at
the time when the judgment is ob-
tained may in the result be made
liable. There is, therefore, a great
difference between a company such as
this taking the benefit of the Winding-
up Act, and the case of a common
partnership so doing. This does not,
however, exclude from consideration
the provisions of the deed of partner-
ship." Cape's Executors' Case, 2 De
G. M. & G. 573. A joint-stock com-
pany is not such a corporation as to
entitle one of its officers to refuse to
produce documents in his custody when
required by subpoena. Woods v. De
Figaniere, 1 Robt. (N. Y.) 659.
1 Burnes v. Pennell, 2 H. L. 520.
2 Tappau V. Bailey, 4 Mete. (Mass.)
529. But see The People v. Assessors
of Watertown, where the free-banking
companies of New York were held to
be corporations. In this case Bronson,
J., declared: " Whether a corporation
or not, does not depend upon the num-
ber or magnitude of its powers nor
the manner in which they were con-
ferred. An association under our
general laws, for a village library or
to tan hides, possesses all the essen-
tial attributes of a corporation in as
great perfection as the Bank of En-
gland or the East ludia Company. Nor
is it important in what mode or by
what particular agency this artificial
being transacts its business. It is
enough that it has a capacity to act in
some form as a legal being." The
People V. Assessors of Watertown, I
Hill (N. Y.), 622. See Hoadley v.
County Commissioners, 105 Mass. 519 ;
Tyrrell v. Washburn, 6 Allen (Mass.),
406; Taft v. Ward, lOG Mass. 518; Bul-
lard V. Kinney, 10 Cal. 60. " Com-
panies and societies which are not
sanctioned expressly by the legisla-
15
1 Thomp. Corp. § 15.] natukk and kinds of corporations.
trustee, — is deemed to be an ordinary partnership with respect of
its relations with the public, such as the manner in which it may
sue and be sued,^ its liability to taxation, and the liability of its
members to its creditors. Non-liability of members to creditors
will not, of itself, however, determine whether an association is
a corporation or not ; since, as we shall see hereafter, the mem-
bers of some American corporations are liable, as partners, to
its creditors. 2 Thus an English joint-stock company, possess-
ing the general incidents of an American corporation except the
non-liability of its members, and organized under acts of Parlia-
ment expressly declaring that it is not a corporation, will never-
theless be deemed a corporation in this country, for the pur-
poses of taxation.^ Indeed, there seems to be no substantial
difference between an American joint-stock corporation and an
English "company," organized under recent statutes.*
§ 15. Distinction between a Corporation and a Guild,
Fraternity or Society. — Distinctions have been taken between
a corporation and a guild, f .-aternity or society. It has been
said that a guild, a fraternity or a society is not a corporation."^
The distinction was that a corporation could only be created by
the crown or by Parliament, but that a guild was nothing more
tare, pursuant to some geueral or spe- ^ Oliver v. Liverpool &c. Co., 100
ciallavr, are nothing more than ordinary Mass. 531; affirmed sub nom. Liver-
partnerships, and the laws respect- pool Ins. Co. v. Massachusetts, 10
ing them are the same." Wells u. Wall. 566; ante, I 3.
Gates, 18 Barb. (N.Y.) 557, per Gierke, ^ Dr. Brice, in his work on Ultra
J. Compare Opdyke v. Marble, 18 Vires, enumerates these statutes
Abb. Pr. (N.Y.) 2G6; s. c. affirmed, Id. under the head of "Corporations by
375; 1 Thomp. Tr., § 747 Act of Parliament," and says: "The
1 "Whatever name," said Wal- above statutes, and especially the
worth, C, " such a company may as- Companies Acts of 1862 and 1867,
sume and use, ia the transaction of enable persons, by a very simple and
its business, it is a partnership aid speedy process, to unite themselves
not a corporate designation, and every into, and thereby create, a corpora-
suit upon a contract with the company tion, for almost any and every purpose
must be brought in the names of the of life, commercial or otherwise."
several per.-^ons composing the firm." Green's Brice's Ultra Vires, 24. In
WilliamsT. Bank of Michigan, 7 Wend, the United States, corporo-tions are
(N. Y.) 542. Local statutes may ex- now, for the most part, organized un-
ist allowing such bodies to sue in the der similar statutes. Post, Ch. VI.
name of an officer. ^ Year Book, 49 Edw. 3, 4b; Res v.
« Post, Ch. 50. Beardwell, 2 Keb. 52.
IG
COMPOSED OF WHAT BODY. [1 Thomp. Coip. § 17.
than a fraternal society, wliich might be created by an ordinance
or a by-law of a municipal corporation. Thus, it was said by
Lord Holt in one case, with reference to a by-law of the city of
London, that " the city might make a guild or fraternity of
dancing masters, though they cannot make a corporation." ^
§ 16. Composed of what Body or Constituency. — The most
usual conception of a corporation aggregate is that it is a collect-
ive body composed of its largest constituency. But this is not
a universal conception. Sometimes only the board of trustees
or other representative body is incorporated. This is frequently
so in the case of religious societies, as will appear hereafter. ^
The trustees in wiiom are vested the temporalities of the church
are frequently incorporated, but the body of communicants are
not. So, in respect of municipal corporations, the legal con-
ception of such a body is believed to be that it consists not of
the aggregate body of inhabitants within the prescribed territory,
or even of the aggi-egate body of inhabitants within such terri-
tory who are entitled to vote at municipal elections ; but rather
that it consists of the governing body, usually the mayor and
common council.^
§ 17. Further of this Subject. — The writer ventures the
opinion that, for the purposes of substantial right, though not
^ Robinson v. Groscot, Comb. 372. rated, especially a donation by the city
Whether the Iims of Court at West- of Louisville sanctioned by the legis-
minster Hall were corporations or lature. City of Louisville v. Unl-
merely voluntary societies, in the versity of Louisville, 15 B. Mon. (Ky.)
nature of guilds, — Cd<n of Clement's 642.
Inn, 1 Keh. 1 35. ^ In an old case this talk is found,
2 Post, § 44. Thi! trustees of a col- where the question concerned the legal-
lege, bein^ iucorporated, may sue ity of the removal of a burgess :" They
by their corporate title, without set- say he was removed in common council,
ting out their individual names, which is but a part of the corpora-
Legrand v. Hampden Sidney College, tion; but that was soon overruled,
6 Munf. (Va.) 324. The trustees of for Holt said, the power is laid in the
the university of Louisville, as origi- mayor and burgesses to remove, and
nally incorporated, constituted in law it cannot be worse for being done
a person capable of receiving any in common council. Northy: But
grants of real or personal property, the common council is a distinct
which miglit be made to it for the body. Holt: It may be not." Rexu.
purposes for which it was incorpo- Chalk, Comb. 39G.
2 17
1 Thomp. Corp. § 19.] nature and kinds of corporations.
for the conveniences of legal i-)rocediire, the aggregate body of
shareholders in a joint-stock company should be deemed the
corporation. This is the view which the English courts appear
to be now taking of the registered joint-stock companies of that
country, formed under recent statutes, which do not differ in
substance from American corporations. Those courts have,
accordingly, held that fraudulent and ultra vires acts of the
directors of a company, assented to by the members in general
meeting, became the acts of the company itself. And, as we
shall see hereafter,^ the individual stockholder is for many pur-
poses of substantial justice deemed to be, not a stranger to the
corporation, but in privity with it. But, by a fiction of law, re-
sorted to chiefly for the convenient administration of justice,
the corporation is deemed to be one person, whilst the stock-
holders — even the whole of them taken collectively — are other
persons.
§ 18. Illustrations of this Distinction. — A private business cor-
poration, at the annual meeting, if there be no restriction in the charter
or by-laws, may transact any business incident to the corporate inter-
ests. ^ But in its dealings with third persons, its acts can only assume
legal form when done by the hand of its appropriate agents. Thus,
a corporation can convey its lands only by deed, executed by its agent,
legally authorized thereunto by vote of the corporation, and reciting the
vote conferring the power to convey; the shareholders, as such,
cannot convey the real estate of the corporation, although they all
join in the deed ; ^ though effect might be given to such a deed in
equity. This distinction is also well illustrated and discussed by Lord
Langdale, M. R., in a case where all the corporators, four in number,
by mutual assent, divided the capital stock of the corporation among
themselves without fully paying for it, and the corporation afterwards
sustained a bill in equity against them to recover the deficiency.^
§ 19. Sense in which the State may be a Corporation. — It
is obvious that a State of the Union may, for some purposes, be
regarded as a corporation. " It is a legal being, capable of
' Post, § 1082. ■* Society of Practical Knowledge
2 Warner v. Mower, 11 Vt. 385. v. Abbott, 2 Beav. 559,
3 Wheelocku. Moultoii, 15 Vt. 519;
post,^^ 1075, 3740.
18
QUASI-CORPORATIONS. [1 Tliomp. Coi'p. § 20.
transacting some kinds of business like a natural person, and
such a being is a corporation." ^ A State is not, however, in-
cluded in the term " corporation," as used in the internal revenue
acts of Congress. Therefore, the income derived from a rail-
road, owned and managed by the State of Georgia, was not
liable to taxation. ^
§ 20. Quasi-corporations. — Distinctions have been taken
between proper aggregate corporations and the inhabitants of
any district who are by statute invested with particular powers
without their consent. These latter have been called quasi-cor-
porations. They include counties, towns, parishes, school dis-
tricts, etc.^ Thus, it has been held that towns in New York
are corporations, as far as corporate powers are granted, or are
incidental to express grants.^ In like manner school districts,
in some of the New England States, are regarded as quasi-cor-
porations,^ and may be sued as such without any express
statute giving the right of action.^ In a celebrated case in
Pennsylvania, in which the character of the General Assembly
of the Presbyterian church was called in question, some of the
features of a quasi-corporation were pointed out by Chief Jus-
tice Gibson. He said that the Assembly had no feature of
such a corporation. " A quasi-corporation has capacity to
sue and be sued as an artificial person, which the assembly
has not. It is also established by law, which the assembly
is not. Neither is the Assembly a particular order or rank
in the corporation, though the latter was created for its con-
venience, — such, for instance, as the shareholders of a bank
or joint-stock company, who are an integrant part of the
body. It is a segregated association, which, though it is the
• State of Indiana v, Woram, 6 Hill Adams v. Wiscasset Bank, 1 Me. 363;
(N. Y.), 33 (1843) ; s. c. 40 Am. Die. Mower v. Lcicesler, 9 Mass. 250.
378, per Bronson, J. See also People ^ North Hempstead v. Hempstead,
V. Assessors of Watertown, 1 Hill (N. 2 Wend. (N. Y.) 109.
Y.), «20. 5 Gaskill v. Dudley, 6 Met. (Mass.)
2 Georgia v. Atkins, 35 Ga. 315. 546 (1843); s. c. 39 Am. Dec. 750;
" Riddle v. Proprietors of Locks, Andrews v. Estes, 11 Me. 267 (1834);
&.C., 7 Mass. 187; School District iu s. c. 26 Am. Dec. 521.
Rumford v. Wood, 13 Mass. 198; e McLoud ». Selby, 10 Conn. 390
Damon v. Granby, 2 Pick. (Mass.) 352; (1835) ; s. c. 27 Am. Dec. 689.
ID
1 Thomp. Corp. § 32.] nature and kinds of corporations.
productive organ of corporate succession, is not itself a member
of the body, and in that respect it is anomalous. Having no
corporate quality in itself, it is not a subject of our corrective
jurisdiction, or of our scrutiny, further than to ascertain how
far its organic structure may bear on the question of its per-
sonal identity or' individuality." ^
§ 21. OflQcial Boards of Municipal Corporations. — In the
machinery of municipal government, the legislatures of the
States have frequently had occasion to create boards of officers for
the performance of particular duties. These boards are not in
general corporations, but are agencies of the municipal corpora-
tion in the sense which makes the latter liable for their contracts
and torts. Thus, the water commissioners of the city of New
York, who possessed about the same powers and were charged
with about the same duties in relation to the construction of
works for supplying the city of New York with water, as those
possessed by the canal commissioners in that State in the con-
struction of State canals, were held not to be a corporation nor
liable to be proceeded against as such. If they had contracted
as public officers within the scope of their powers, the remedy
on the contract was against the city of New York.^ On the
other hand, such a board may be a corporation, if such is the
will of the legi^^lature, as manifested by the statute creating it.
Such, for instance, is the board of public schools of the city of
St. Louis. ^
§ 22. Kinds of Corporations. — In the English law corpora-
tions are divided into ecclesiastical andZa?/; and lay corporations
are again divided into eleemosynary and civil.'^ It is doubtful
how far clear conceptions of the law are promoted by keeping
in mind these divisions. They seem, for us at least, to have an
historical, rather than a practical value. In a country where the
1 Com. V. Green, 4 Whart. (Pa.) ^ Heller v. Stremmel, 52 Mo. 309,
531, 598. A fire-engine company has where it was held that this board was
been regarded as a gwasi-corporation. not a municipal corporation.
Cole V. East Greenwich Fire Engine * 2 Kent Com. 274; IBla.Cora. 471;
Co., 12 R. I. 202. 1 Kyd Corp. 25, 27.
2 Appleton V. Water Commission-
ers, 2 Hill (N. Y.), 432.
20
Kent's definition. [1 Thomp. Corp. § 23.
church is totally dissociated from the state, there is little room
for a division of corporations into ecclesiastical and lay; and
while charitable corporations have many features which distin-
guish them from other private corporations, as will hereafter
appear, it is very seldom that the word " civil " is used in our
American books of reports in order to distinguish corporations
other than charitable. A more practical conception of the sub-
ject, and one more in consonance with the state of our laws
and institutions, has divided corporations into these three
general classes : public municipal corporations, the object of
which is to promote the public interests; corporations tech-
nically private, but of quasi-public character, having in view
some public enterprise in which the public interests are involved,
such as railroad, turnpike and canal companies; and corpora-
tions strictly private? Each of these divisions is capable of
several subdivisions, having reference chiefly to the purposes
for which corporations may be organized.
§ 23. The Definition given by Chancellor Kent. — "Public
corporations," according to Kent, " are such as are created by the
government for pohtical purposes, as counties, cities, towns, and vil-
lages ; they are invested with subordinate legislative powers, to be exer-
cised for local purposes connected with the public good; and such
powers are subject to the control of the legislature of the State. They
may also be empowered to take or hold private property for public
uses ; and such property is invested with the security of other private
rights. So, corporate franchises attached to public corporations are
legal estates coupled with an interest, and are protected as private
property. If the foundation be private, the corporation is private, how-
ever extensive the uses may be to which it is devoted by the founder,
or by the nature of the institution. A bank, created by the government,
for its own uses, and where the stock is exclusively owned by the gov-
ernment, is a public corporation. So, a hospital created and endowed
by the government, for general purposes, is a public and not a private
charity. But a bank whose stock is owned by private persons, is a pri-
vate corporation, though its object and operations partake of a public
nature, and though the government may have become a partner in the
association by sharing with the corporators in the stock. The same
thing may be said of insurance, canal, bridge, turnpike and railroad
^ Miner's Ditch Co. v. Zellerbacli, 37 Cal. 543.
21
1 Thomp. Corp. § 24.] nature and kinds of corporations.
companies. The uses may, in a certain sense, be called public, but the
corporations are private, equally as if the franchises were vested in a
single person. A hospital founded by a private benefactor is, in point
of law, a private corporation, though dedicated by its charter to general
charity. A college, founded and endowed in the same manner, is a
private charity, though from its general and beneficent objects it may
acquire the character of a public institution. If the uses of an eleemos-
ynary corporation be for general charity, yet such purposes will not of
themselves constitute it a public corporation. Every charity which is
extensive in its object may, in a certain sense, be called a public charity.
Nor will a mere act of incorporation change a charity from a private to
a public one. The charter of the Crown, said Lord Hardwicke, can
not make the charity more or less pubhc, but only more pei'manent.
It is the extensiveness of the object that constitutes it a public charity.
A charity may be public, though administered by a private corporation.
A de\ase to the poor of a parish is a public charity. The charity of
almost every hospital and college is public, while the corporations are
private. To hold a corporation to be public, because the charity was
public, would be to confound the popular with the strictly legal sense of
terms, and to jar with the whole current of decisions since the time of
Lord Coke." 1
§ 24. Public and Private Corporations. — Perhaps the most
general division of corporations is into public and private. In
this work it is proposed to treat only those of the latter class.
A public corporation is said to be one which cannot carry out the
purposes of its organization without chartered rights from the
common wealth. 2 On the other hand, it is said that a mere private
corporation needs no franchise from the State in order to carry
on its business.^ These definitions are not satisfactory. A rail-
way company, as hereafter seen, is regarded for most purposes
as a private corporation, and yet it could not build its road with-
out the aid of the power of eminent domain, which is an incident
of sovereign power and must be conferred by the State.* Pub-
lic corporations have been said to be such as are created tor
1 2 Kent Cora. 276, 276. 3 Pittsburgh's Appeal, 123 Pa. St.
2 Allegheny County v. McKeesport 374; 46 Phila. Leg. Int. 211; 19 Pitts.
Diamond Market, 123 Pa. St. 164; s.c. L. J. (n. s.) 282; 23W. N. C. 91; 16
46 Phila. Leg. Int. 212; 19 Pitts. L. J. Atl. 621.
(N. s.) 280; 23 W. N. C. 89; 16 Atl. ^ Post, Ch. 122.
619.
22
PUBLIC AND PUIVATE CORPORATIONS. [1 Thomp. Coi'p. § 24.
political purposes, with powers to be exercised for the public
good.^ This statement is another illustration of the difficulty of
conveying an exact idea of a complicated subject by a definition
couched in few words. There are many corporations created
for political purposes, which are not public corporations, — such,
for instance, as the Tammany Society in New York. It is easy to
understand that corporations created for governmental purposes,
to which the legislature delegates a limited portion of its govern-
mental powers, are to be regarded as public corporations. The
most usual illustration of this is furnished by the case of munic-
ipal corporations, — those incorporated cities and towns to
which the legislature delegates a portion of the police power of
the State, to be exercised within certain prescribed territorial
limits. Equally unsatisfactory is the statement that a corpora-
tion is private, as distinguished from public, unless the wJtole
interest belongs to the government, or the corporation is created
for the administration of political or municipal power. ^ In
the line of this theory it has been observed; *' A corporation
is public wiien it has for its object the government of a portion
of the State ; and although in such a case it involves some pri-
vate interests, yet as it is endowed with some portion of political
power, the term public has been deemed appropriate. Another
class of public corporations are those which are founded for
public — although not political or municipal — purposes, anc^
the whole interest in which belongs to the government. Thus,
a bank, organized by the government for public purposes, is a
public corporation, if the whole of the stock and all interest in
it reside in the government." ^ But this was inaccurate ; for cor-
porations may exist for purposes public in their nature in which
the whole interest belongs to the State, which will yet be re-
» Tinsman v. Belvidere &c. R. Co., 52 Mo. 309, A private corporation
26 N. J. L. 148. may have charge of an interest of
2 Bundle v. Delaware &c. Canal, so public a concern as to render
Wall. Jr. (U. S.) 275. The Board of its charter a public act, and such an
Public Schools of St. Louis is un- act was the Indiana act of 1838, re-
doubtedly a public corporation; but lating to the Viucennes University.
It has been held that it is not a raunic- State v. Trustees of the Vincennes
ipal corporation because it does not University, 5 Ind. 77.
exercise any political or govern- 3 Cleaveland v. Stewart, 3 Ga. 283,
mental power. Heller v. Stremmel, 291.
23
1 Thomp. Corp. § 25.] nature and kinds of corporations.
garded as private corporations. Thus, it was held that the bank
of the State of South Carolina, though wholly owned by the State,
had only the same powers and privileges as other corporations,
and therefore could claim no priority on the ground that a debt
due to the bank was a debt due to the State. ^ The former State
bank of North Carolina was also regarded as a private corpora-
tion, though the several acts by which such a bank in North Caro-
lina was created and its powers, duties and duration defined, were
declared public acts.^ So, it was held that the former State
bank of Alabama was a private corporation, not invested with
the attributes of sovereignty, and that, where it had a claim
against the estate of a deceased person, it must present it within
the period of limitation prescribed for any private creditor, or be
forever barred. The court said; "It cannot be endured, that
the legislature, which is but the mere machinery of government,
should be allowed to confer upon a moneyed corporation, estab-
lished by itself, any portion of the sovereign power, which was
inherent in the body politic." ^ These cases proceed upon the
view expressed by the Supreme Court of the United States,
speaking with reference to the Planters' Bank of Georgia, —
" that the State does not, by becoming a corporation, identify
itself with the corporation. The Planters' Bank of Georgia is
not the State of Georgia, althouo;h the State holds an interest in
it." * They proceed upon the further principle, stated by the
same court, that " when a government becomes a partner in a
trading company, it divests itself, so far as concerns the transac-
tions of that company, of its sovereign character, and takes that
of a private citizen."^
§ 25. Public School Corporations. — Where the State pur-
sues the policy of maintaining at the public charge a system of
» Bank &c. v. Gibbs, 3 McCord advanced the untenable view that a
(S. C), 377. bank which issues bills for circulation
2 State Bank v. Clark, 1 Hawks as money is a public corporation; but
(N. C), 36. And see ante, § 23. that a bank which, beyond a power to
3 Bank v. Gibson, 6 Ala. 814, 816. contract in its corporate name, has no
* United States v. Planters' Bank, powers beyond those which every
9 Wheat. (U. S.) 907. other person possesses, must be
^ Ibid. See also Bank of Kentucky deemed a private corporation. State
V. Wister, 2 Pet. (U. S.) 318. The v. Simonton, 78 N. C. 57.
Supreme Court of North Carolina has
24
PUBLIC SCHOOL coRPOKATioNS. [1 Thomp. Corp. § 25.
education, consisting of common schools, seminaries, colleges or
universities, the corporations through the agency of which this
is done are generally regarded as public corporations, whether
created by general or special laws. Thus, it has been held that a
board of school commissioners for a particular county, created
by special act of the legislature, authorized to devise a system
of public instruction for such county, to establish public schools
therein, and to raise money for the support of the same, etc., is
a public corporation, created for great public educational pur-
poses, and the charter, being public in its character, may be al-
tered and amended at the will and pleasure of the general
assembly.! go^ it is held in Illinois that the trustees of schools
are public corporations, and, as such, subject to be controlled
and regulated by the legislature. ^ So, the trustees of the Uni-
versity of Alabama compose a public corporation, entirely within
the control of the legislature, so that the latter has the authority,
by the passage of any statute, to alter, amend, or enlarge the
original acts of incorporation.^ Oa grounds equally obvious, a
school district township is a" political or municipal corporation,"
within the meaning of a constitutional provision,^ inhibiting
such corporations from incurring indebtedness exceeding five per
cent, on the taxable property of the corporation.^ On the
other hand, upon grounds not made obvious by the court, an
incorporated academy in Georgia was held to be a private cor-
poration, notwithstanding it derived its support in part from the
State. «
1 School Comraissioaers v. Put- University of Iowa canuot be sued as
nam, 44 Ala. 506. a corporation; persons aggrieved by
2 Bradley v. Case, 3 Scam. (111.) the official acts of its officers can only
585; Bushu. Shipman, 4 Scam. (111.) apply to the legislature: Weary v.
186; Trustees v. Tatman, 13 III. 28; State University, 42 lovra, 335. Corn-
Compare State V. Springfield Town- pare Bracken v. William & Mary Col-
ship, 6Ind. 83. lege, 1 Call (Va), 161; s. c. 3 Call
3 Trustees u. Winston, 5 Stew. & (Va.), 573; Louisville v. Louisville
Port. (Ala.) 17. So of the Agricul- University, 15 B. Monr. (Ky.) 642.
tural College of Florida: State v. ^ jowa Const., art. 2, § 3.
Knowles, 16 Fla. 577. So of the Uni- « Winspear v. Holman, 37 Iowa,
versity of Missouri : Head v. Curators, 542 .
47 Mo. 220. So of the University of « Cleaveland r. Stewart, 3 Ga.
North Carolina: University u. Maults- 283.
by, 8 Ired. Eq. (N. C) 257. But the
25
1 Thomp. Corp. § 26.] nature and kinds of corpokations.
§ 3G. Corporations to Promote Charities of Public Na-
ture. — The fact that a charity which a corporation is chartered
to foster is a charity of a public nature, that is, a charity in-
tended for the benefit of all the members of the public, of a
designated class, who may apply for or be entitled to the bene-
faction, does not make the corporation a public corporation.
Thus, where a-coUege was endowed by private individuals the
fact that its objects were of a public nature did not give the cor-
poration the quality of a public corporation, so as to subject it
to governmental control, — the trustees and professors not being
public oflScers, invested with any portion of the political power
of the State, and the institution not partaking in any degree in
the administration of civil government, or performing any of
the duties which flow from the sovereign authority. ^ In other
words, an eleemosynary corporation upon a private foundation
is a, private and not a public corporation, in the sense that it is
not subject to regulation by the State contrary to its charter. ^
But it has been held that a corporation, the object of which is to
provide a general hospital for sick and insane persons, having
no capital stock nor provision for making dividends or profits,
deriving its funds mainly from public and private charity, and
holding them in trust for the object of sustaining the hospital,
conducting its affairs for the purpose of administering to the
comfort of the sick, without the expectation or right on the part
of those immediately interested in the corporation to receive
compensation for their own benefit, — is a public charitable in-
stitution in the sense that it is not liable for the negligence of a
surgeon selected by its trustees with due care ; and this although
patients are required to pay for their board, according to their
circumstances and the accommodations which they receive.^
1 Dartmouth College ??. Vfoodward, whomsoever the government might
4 Wheat. (U. S.) 518, 034. appoint to administer them? If we
2 Ibid. 671, per Story, J. "Who were to establish such a principle, it
ever thought before," said the learned would extinguish all future eleemosy-
justice, "that the munificent gifts of nary endowments, and we should
private donors for general charity be- find as little of public policy as we
came instantaneously the property of now find of law to sustain it." Ibid.
the government, and that the trustees 672. To the same effect see Allen v.
appointed by the donors, whether cor- McKeen, 1 Sumn. (U. S.) 276; State
porate or unincorporated, might be v. Adams, 44 Mo. 570.
compelled to yield up their rights to ^ McDonald v. Massachusetts Hos-
26
PUBLIC OBJECTS FOR PKIVATE GAIN. [1 Thomp. Corp. § 27.
§ 27. Corporations formed to Promote Public Objects for
Private Gain. — Recurring to the principle^ that corporations
are not public because they are formed to promote objects of a
public character,^ we find that corporations which are formed
primarily for the private emolument of their members, do not
become public corporations from the mere fact that the employ-
ment from which they expect to derive such emolument is public
in its nature; ^ though they may possess some of the powers and
be subject to some of the liabilities of public corporations.
Thus, a canal company is none the less a private corporation,
from the fact that its canal is constructed for the public benefit.*
So, a railway company ^ although equally with a canal company,
it may receive by delegation from the State the power of emi-
nent domain, which is strictly a sovereign power, ^ and may, on
the other hand, be subject to the police regulation of the State
in the conduct of its business within certain constitutional
limits,® — is yet regarded for most purposes as a private corpo-
ration.^ So, although the business of banking is subject to the
police supervision of the State, j'Ct a bank whose stock is owned
by private persons is a private corporation, in the sense that the
legislature cannot control or alter the grant without the consent
of the corporators.^ So, where the objects of the creation of a
corporation were not declared in the statute creating it, other than
to superintend the construction of a levee on a certain river, but
it appeared that its purpose was to advance the private interests
of land-owners within the district incorporated, and that no
pital, 120 Mass. 433; s. c. 21 Am. * Ten Eyck u. Delaware &c. Canal,
Rep. 529. The Board of Education of 18 N. J. L. 200.
the State of Illinois (Act Feb. 18, & Post, Ch. 122.
1857, L. 1857, p. 298), is an eleemosy- « Post, Chs. 118, 119.
nary, and not a public corporation. ^ Tinsman v. Belvidere &c. R. Co.,
Board of Education v. Bakewell, 122 26 N. J. L. 148. They are such within
111. 339. the rule that their charters are pro-
* Ante, § 26. tected by the constitution of the
' Tinsraan v. Belvidere &c. R. Co., United States from legislative altera-
26 N. J. L. 148; Directors u. Houston, tion. Thorpe v. Rutland &c. R. Co.,
71 111. 318. 27 Vt. 140; s. c. 62 Am. Dec. 625, and
3 Tinsman v. Belvidere &c. R. Co., note; Beach on Railways, § 23.
26 N. J. L. 148; Whiting u. Sheboygan * Logwood v. Iluntsville Bank,
fee. R. Co., 25 Wis. 167. Minor (Ala.) , 23 ; State v. Tombeckbee
Bank, 2 Stew. (Ala.) 30.
27
1 Thomp. Corp. § 28,] natuue and kinds of corporations.
other purposes were embraced in its provisions, although it
might accidentally enhance the general prosperity of the whole
community, — yet it was held to be none the less a private cor-
poration, in the sense that the legislature had no constitutional
power to clothe it with the power of taxation.^
§ 28. Wlien Municipal Corporations deemed Private. — A
class of decisions exist, chiefly in New York, which proceed
upon the ground that a municipal corporation may haye a private
character, that is, may own certain kinds of property in a pri-
vate capacity, as to which it is to be deemed a private corpora-
tion and subject to the liabilities of a private proprietor. The
leading case on the subject is Bailey v. Neio York."^ The prin-
ciple there declared was that a municipal corporation is liable to
pay damages for injuries inflicted in the management of property
which it holds in its private or corporate capacity, the profits of
which inure directly to its benefit as a corporation, and indirectly
to the benefit of the public, — in the same manner as an indi-
vidual is so liable. A dam erected by a city for supplying its
inhabitants with water, for which the city received compensa-
tion distributively, from the inhabitants thus supplied, was
deemed private or corporate property within the meaning of this
rule. 2 Under this rule a city has been held liable for an injury
sustained by the plaintiff in falling into a dangerous excavation
on the grounds of a city building, used in part for municipal
purposes and in part rented to private persons ; * for the sinking
of a vessel in consequence of the city negligently permitting an
iron cylinder to remain concealed under water near one of its
wharves ; ^ for the loss of a horse arising from the non-repair of
a wharf for the use of which it receives tolls; ^ and for the neg-
ligence of persons employed by the officers of the corporation in
1 Directors &c. v. Houston, 71 lU. 2 3 Hill (N. Y.), 531, and 2 Denio
318. That the power of taxation can- (N. Y.), 433; s. c. 2 Thomp. Neg. 652.
not, under the constitution of Illinois, ^ Ibid.
be bestowed upon private persons or * Oliver u. Worcester, 102 Mass. 489.
private corporations, see Harward v. ^ Memphis v. Kimbrough, 12 Heisk.
St. Clair &c. Drainage Co., 51 111. 130; (Tenn.) 133.
South Parlj Commissioners v. Salo- <= Macauley v. New York, 67 N. Y.
mon, 51 111. 37. 602.
28
ILLUSTRATIONS OF PUBLIC COKPOKATIOKiS. [1 Thoill[). Coip. § 29.
the repair of its public sewers.^ This rule in its operation
creates a marked exception to the general rule that no action
lies against a municipal corporation for damages sustained in
consequence of its neglect to perform b. public duty?
§ 29. Illustrations of Public and Private Corporations. — Over-
seers of the poor in New York are held to be a,ptiblic corporation for certain
purposes.' _ - - - Trt(5ieeso/i/ie poor in Mississippi have been held
to be a public corporation, and subject to the control of the legislature ;
so that a statute giving a stay of execution on a judgment recovered by-
such corporation was not unconstitutional.* - - - - Overseers of the
poor in Boston were held to be a coi-poration aggregate under a statute giv-
ing them many powers usually incident to a corporation, although they
were chosen annually by the inhabitants of the town.^ - - - , - In
Illinois, the commissioners created under an act of the legislature for lay-
ing out and inaintaining a suburban 2)a?'A; are a public corporation, in the
sense which gives the legislature the right to modify their powers and du-
ties, without submitting the supplemental act to a popular vote, ^ - - _ -
There is judicial authority to the effect that a corporation created for the
purpose of improving the navigation of a river, so as to make it suitable
for driving logs, is a public corporation ; since such a river is a public
highway, and since the power of taking tolls, vested in it by its charter,
is itself a governmental power.'' - - - - A levee district, organized
under the laws of CaUfornia, to construct works for preventing portions
of the territory from overflow, and clothed with powers for this J3urpose,
to issue bonds, levy and collect assessments, construct and repair high-
ways, open canals, etc., is a public corporation. ^ . . - . A bank
in which the stock is owned * by individuals is a private corpora-
tion. ^ - - - - A private banker, though carrying on business under
» Lloyd ». New York, 5 N. Y. 369. ••Governor v. Gridley, 1 (Walk.)
2 Sussex County v. Strader, 18 N. Miss. 328.
J. L. 108; Cooley v. Essex, 27 N. J. L. ^ Overseers of the Poor of Boston
415; Liverraoreu. Camden, 31 N. J. L. u. Sears, 22 Pick. (Mass.) 122.
507; s. c. 29 N. J. L. 245; Pray v. « Andrews v. People, 83 111. 529;
Jersey City, 32 N. J. L. 395; Union v. Andrews v. People, 84 111. 28.
Durkes, 38 N. J. L. 21 ; Richmond v. ' Bennett's Branch Improvement
Long, 17 Gratt. (Va.) 375. For a Company's Appeal, 65 Pa. St. 242.
further discussion of this distinction, ^ Dean v. Davis, 51 Cal. 406. See
with illustrations, see 2 Thomp. also People v. Williams, 56 Cal. 647^
Neg. 734; Darlington v. New York, ^ Miners' Bank v. United States, 1
31 N. Y. 1C4, 198. Greene (Iowa), 553.
3 Rouse V. Moore, 18 Johns. (N.
Y.) 407; s. c. 1 Cow. (N. Y.) 861.
29
1 Thomp. Corp. § 29.] nature and kinds of corporations.
the New York Act of 1838, was not a corporation at all.i - - - -
A corporation constituted for the purpose of improving a special breed
of cattle, and keeping, preparing, publishing and supplying a herd-
book thereof, and for promoting the " interest of the importers, breed-
ers and owners of said cattle, and thereby the public generally," is
neither a public nor a gwasi-public corporation, but a private one ; and
hence mandamus will not lie to compel it to admit an importer of such
cattle to membership, or to register his cattle, even though by not
being: so registered their value is diminished one-half. ^
1 Cayler v. Sanford, 8 Barb. (N. Y.) 2 people v. Holstein-Frtesian Assoc,
225; Hallett v. Harrower, 33 Id. 537; 48 N. Y. Supm. (41 Hun) 439; 3 N. Y.
Codd V. Rathbone, 19 N. Y. 37. St. Rep'r 142.
30
CREATION BY SPECIAL CHARTERS. [1 Thomp. Coip. § 35.
CHAPTER 11.
CREATION BY SPECIAL CHARTERS.
Section
35. Corporations are created by legis-
lative power.
36. To what extent this power may be
delegated.
37. Exercised by judicial or min-
isterial action under general
laws.
38. To what extent exempt from judi-
cial review.
39. Corporation need not be declared
such in express words.
40. Theories as to when charters take
effect.
41. Creation by reference to another
act.
Sectiox
42. Legislative deviations from rules
of the common law.
43. Wlio included in the word *< asso-
ciates."
44. How legislative grant made and
corporation organized.
45. What if the commissioners refuse
to act.
46. When charter provisions deemed
a substitute for provisions of
a general act.
47. Whether corporations created by
concurrent action of two states.
48. Decisions adhering to the view
that this cannot be done.
§ 35. Corporations are Created by Legislative Power. —
Nothing less than sovereign power can create a corporation.
One corporation cannot create another. It was held that the city
of London could not create a corporation, though they mio-ht
create a guild o-c fraternity^ which was something in the nature
of a social cZm6.^ In England corporations were formerly cre-
ated, in most instances, by royal charter. They are now
generally created in that country by, or under the authority
of acts of Parliament. In this country they are created l)y
authority of the legislature, and not otherwise.^ Companies or
societies which are not expressly sanctioned by the legislature in
the form of some general or special hiw, are, in respect of third
1 Robinson v. Groscot, Comb. 372.
" A corporation can only be created
and exist by sanction of the legisla-
ture." Morton, J., In Hoadley v.
County Commissionery, 105 Mass. 526.
A corporation cannot be constituted
by the mere agreement of parties ; it
can only be created by legislative en-
actment. Stowe V. Flagg, 72 111. 397.
2 Franklin Bridge Co. v. Wood, 14
Ga. 80.
31
1 Thomp. Corp. § 36.] creation by special charters.
parties, generally regarded as no more than ordinary ^ar^?ie/--
shijps;^ though, as among their own members, the rights and
obligations created by their private statutes, not opposed to pub-
lic policy or to express law, may be different from those of
partners.^
§ 36. To what Extent tliis Power may be Delegated. — In
the absence of constitutional restraints, no reason is perceived
for holding that the legislature can not delegate to subordinate
ao-encies the power of creating corporations, — prescribing the
manner in which the power shall be exercised. In several of
the States the power of approving the charters of corporations
formed for certain ideal purposes is vested in the judicial courts.^
It has been pointed out that in England the king might grant a
general power to create corporations, and that a similar power
has been delegated by the legislature of Pennsylvania to the
judicial courts.* The chancellor of the university of Oxford
had the power by charter to erect corporations.'"^ But Columbia
College, in the State of New York, although created by royal
charter under the name of King's College, has been adjudged to
have no such power. The court, speaking through Bronson, C.
J., said : " Although it is now settled that the king may delegate
his authority to create corporations, or, in other words, may
exercise the power by another as his instrument, on the principle,
qui facit per alium facit per se, I find no authority for the posi-
tion that a general power to erect corporations has ever been
delegated to either of the English universities. But however
that may be, I think there is no color for saying that such a
power has been conferred upon any of our colleges." *' The power
which is able to prescribe the formalities to be observed in order to
create a corporation, may of course dispense with them.^ In the
1 Wells V. Gates, 18 Barb. (N. Y.) judged was that the so-called " stat-
554 ; post, § 2859. utes of the trustees of Geneva College
2 Post, § 940. for the formation of a medical faculty
^ Post, § 110. et seq. thereof, to be denominated the medi-
* Observations in Franklin Bridge cal institution of Geneva College,"
Co. V. Wood, 14 Ga. 80; post, § . did not create that body a corpora-
s 1 Kyd Corp. 50 ; 1 Bla. Com. 474. tiou.
6 Medical Institution v. Patterson, ' Black River &c. E. Co. u. Barnard,
1 Denio (N. Y.), 61, G8. The point ad- 31 Barb. (N. Y.) 258.
32
UNDER GENERAL LAWS. [1 Thoilip. Coi'p. § 37.
United States the power of creating corporations has been gen-
erally, perhaps universally, exercised by the legislatures of the
States respectively ; by the Congress of the United States with-
in the sphere of its powers; and by the legislatures of the
territories which have been organized under acts of Congress. ^
Before the revolution, charters of incorporation were granted by
the proprietors of Pennsylvania under a derivative authority
from the crown, and those charters have been since recogrnized
as valid. 2
§ 37. Exercised by Judicial or Ministerial Action under
General Laws. — Corporations are now more generally created
by judicial or ministerial action under general laws.^ When the
legislature has, by a general law, prescribed the conditions upon
which a corporation may be created, it is no objection to tke
validity of such law, that ministerial duties, such as the issuing of
a certificate of incorporation, are left to be performed by some
officer, such as the Secretary of State, before the incorporation
takes effect.* In many of the States, subordinate administra-
1 It has been held that an act of
Congress creating a territory, estab-
lishing a legislature for such territory,
and vesting It with power to make all
laws which it might deem conducive
to the good government of the inhab-
itants of sucli territory, the right being
reserved by Congress to disapprove
and thereby revoke any law passed by
such legislature, empowered such leg-
islature to create corporations, sub-
ject to revocation by Congress. It
was so held concerning the territory
of Missouri. Riddick v. Amelin, 1
Mo. 8; Douglas v. Bank of Missouri,
Id. 20. Under the first constitution
of Missouri the General Assembly of
that State had power, not expressly
granted but necessarily Implied, to
incorporate cities and towns, and to
invest thera with authority to legislate
with regard to matters of local police.
State V. Siraonds, 3 Mo. 4U. See
also Ruggles v. County of Washing-
ton, 3 Mo. 348.
2 3 Wils. Lect. 409, as cited in
Franklin Bridge Co. v. Wood, 14 Ga.
84.
3 Post, §§ 110, 132.
4 Granby Mining &c. Co. v. Rich-
ards, 95 Mo. 106, 112. In this case
the following observation of a recent
writer of reputation is quoted with ap-
proval: "A general power to confer
corporate franchises can not be dele-
gated by the legislature to any other
agent. However, where the legisla-
ture has enacted that a corporation
may be formed upon compliance with
certain conditions, it is no objection
that ministerial duties, such as the
issuing of a certificate or charter,
must be performed by some ofiicer
before the incorporation takes effect."
1 Mor. Priv. Corp., § 15. Charters, or
articles of corporate association, are
also, in some States, submitted to the
judicial courts for approval (Post,
§ 110); in others they are submitted
to the court, but the court is deemed
33
1 TllOnip. Coip. § 39.] CUEATION BY SPECIAL CIIAKTERS.
tive boards charged with the management of local municipal
affairs have received, by delegation from the legislature, the
power to grant frayichises such as are usually granted by the leg-
islature to corporations. An instance of this is afforded by the
legislation of California. In that State a franchise to collect
tolls on roads, &c., granted by a subordinate body under au-
thority delegated by law, is a grant emanating from the sovereign
authority of the State. Such a grant by a board of supervisors
has the same standing in respect to its validity, the presumptions
in its favor and the mode in which it may be attacked, as any
other grant made by any department of the government. It
cannot be attacked by a private person, or in a collateral pro-
ceeding, for mere error in the exercise of the authority to make
the grant. ^
§ 38. To what Extent exempt from Judicial Review. — The
power of creating corporations, thus possessed by the legislatures
of the States and Territories, and, within its constitutional sphere
of action, by the Congress of the United States, is obviously a
power which, like any other subject of legislative discretion, is
not subject to judicial review,^ except on constitutional grounds.
The departments of our national and State governments being
independent of each other, it necessarily follows that each de-
partment must give full faith and credit to the acts of the others,
and that it is not competent for a judicial court to investigate tha
question whether an act creating a corporation has, been fraudu-
lently obtained,'^ or obtained in consequence of fraudulent or
improper practices on the part of some of the members of the
legislature concerned in passing it.*
§ 39. Corporation need not be Declared such in Express
Words. — It is not necessary to the conclusion that a body ex-
to exercise the mere ministerial func- ^ Clarlie v. Brooklyn Bank, 1 Edw.
tion of recording them and of giving Ch. (N. Y.) 3G1. The charter of a
publicity to the fact of incorporation. railroad company can not be attacked
Post, § 110. collaterally for bad faith in obtaining
1 Truckee &c. Turnpike Co. v. it. Garrett v. Dillsburgh &c. K. Co.,
Campbell, 44 Cal. 89. 78 Pa. St. 4G5.
2 United States Trust Co. v. Brady, * Ferguson v. Miners' «Sbc. Bank, 3
20 Barb. (N. Y.) 119. Sneed (Tenn.), 609.
34
NOT IN EXPRESS WORDS. [1 Thoilip. Coip. § 39.
ercising corporate powers is in the rightful exercise of them,
that the body should have been declared a corporation by the
legislature, in express words. ^ As hereafter seen, a corporation
may exist by legislative recognition;'^ and, for stronger reasons,
where there is a statute conferring on an existing collective body
powers which are appropriate to a corporation alone, it is a
sound conclusion that this makes it a corporation.^ Thus, there
were no statutes to be found in which the original proprietors of
townships in New Humpshire were expressly declared to be cor-
porations ; but there were several statutes prescribing the method
of calling their meetings, authorizing them to choose officers, to
make assessments upon the proprietors, to appoint collectors,
etc.,* and there were other statutes giving them power to sue and
be sued. These, it was held, made them corporations.^ So, a grajit
of lands to individuals, by the sovereign authority of a State, to be
possessed and enjoyed by them in a corporate character, in itself
confers a capacity to take and hold in that character.^ So, an
act authorizing the sale of State cana?s, and providing that the
grantees " shall hold and enjoy the same, together with all the
rights, privileges, and franchises of their grantors" (who were
an incorporated company) " and under such corporate name as
the said grantees may adopt," has been held to invest an associ-
ation of individuals, purchasing the property, with corporate
powers.' So, an act of the legislature which requires the su-
pervisors of a county, upon the petition of persons in the pos-
session of more than one-half of the acres of any specified
portion of the county, to erect such specified portion into a levee
district, for the purpose of reclaiming the same from overflow,
and then provides the details by which the reclamation shall be
1 Denton v. Jackson, 2 Johns. Cli. 352; Springfield v. Miller, 12 Mass.
(N. Y.) 324. 415. It followed that a copy of such
2 Post, § 318. vote from their records was, prima
3Com. V. West Chester Co., 3 /acie, record of title against thera and
Grant Cas. (Pa.) 200. also against any one who should enter
•* Colburnv. Ellenwood,4N. H. 101. as a mere trespasser, claiming no title.
« Atkinson v. Bemis, 11 N. H. 44. Atliiiisou r. Bemis, swy^ra.
Tliey might, therefore, convey or make •' North Hempstead v. Hempstead,
partition of their undivided lands, by 2 Wend. (N. Y.) 109.
deed or by a vote of the proprietors. ' Delaware & •. Canal Co. v. Corn-
Ibid.; Colburn v. Elleuwood, supra; mouwealth, 50 Pa St. 399.
Adams v. Frothingham, 3 Mass.
35
1 Thoiiip, Corp. § 40.] ckkation by special charters.
effected, makes a leveo district, so organized by the supervisors,
a corporation, and a public corporation, even if the act does not
in terms declare it a corporation.^ So, although an act for the
formation of plank road and turnpike companies denominated
the companies which might be formed untler its provisions as
" joint-stock companies," they were nevertheless held to be cor-
porations; since it appeared that the powers, rights and liabilities
which the legislature had annexed to them were similar to those
possessed by corporations. ^ On the other hand, words establish-
ing or recognizing the existence of an organized body of persons,
but without attributing to them any powers necessary to corpo-
rations, do not make them a corporation. Thus, a resolution of
the Executive Council of the Commonwealth of Massachusetts
which ran thus: "Advised, that a company of artillery be
established by Watertown, agreeable to military law," did not
make the company so established a corporation.^
§ 40. Theories as to when Charters take Effect. — It is not
necessary that a legislative act, granting franchises to a corpora-
tion or corporations, should in form extend the grant to a person
or persons in esse. On the contrary, the grant may be extended
to any members of the public possessing the qualifications pre-
scribed in the grant, who will organize the corporation in com-
' Dean v. Davis, 51 Cal. 406. In other powers similar to tliose con-
seeming opposition to the principle of ferred on bodies corporate, — did not
thetextjthe Supreme Court of Ohio has constitute such board a corporation,
ruled that a statute of that State " reg- because it did not assume to do so.
ulating the Commercial College of Cin- Neil v. Board of Trustees, 31 Ohio St.
cinnati,''^ did not constitute the board 15, 21. The decision seems to be un-
of trustees therein provided for, a cor- sound, and conti'ary to views ex-
poration, nor confer any additional pressed by tlie Supreme Judicial Court
corporate power on the city of Cincin- of Massachusetts and by the Supreme
nati. State v. Davis, 23 Ohio St. 434. Court of the United States, ^nfe, §§ 3-6.
The same court has held that a statute The Ohio court was, however, en-
of that State " to establish and main- deavoring to uphold the validity of
tain an agricultural college in Ohio," the act, in view of the constitutional
which created a board of trustees to inhibition against creating corpora-
be appointed by the governor, com- tions by special laws,
mitted to such board the government ^ Blanchard v. KauU, 44 Cal. 440.
of the institution, and authorized Ante, §§ 3-6.
them to make contracts and maintain ' Sheltonu. Banks, 10 Gray (Mass.),
actions for its benefit, and to exercise 401.
36
WHEN CHARTERS TAKE EFFECT. [1 Thomp. Corp. § 41.
pliance with the terms of the grant. ^ This is illustrated by the
every-day occurrence of the organization of corporations under
general laws. Such statutes are merely permissive to the public
generally, and are not in the nature of a grant to particular in-
dividuals. But when particular individuals avail themselves of
the privilege thereby extended to the public, and organize, them-
selves into an association in conformity with the statute, they
become a corporation, and the statute becomes their charter. ^
Moreover, when a special charter is granted, and the corpora-
tion is to be brought into existence by some future acts of the
corporators, the franchises which the charter grants to the body
remain in abeyance until such acts are done; and when the
corporation is brought into life, the franchises attach.^ But,
for the purpose of saving the rights conferred by special char-
ters and preventing the implication of a repeal by a subsequent
constitutional prohibition of such charters, it has been held that,
where the legislature incorporates a body of adventurers by a
special act, the corporation springs into existence " ipso facto et
eo instanli.'" * Again, although the governing statute may pro-
vide that no act of incorporation hereafter granted, with certain
exceptions, shall take effect until the persons therein incorporated
have paid into the treasury a certain sum of money, the failure
to pay this sura of money will not prevent the associates from
becoming a corporation de facto. Third persons cannot take
advantage of the non-payment of the money; it is a question
which can alone be raised by the State.^
§ 41. Creation by Reference to another Act. — An act
creating a corporation and conferring upon it all the rights and
advantages which, in preceding portions of the same act, were
^ Falconer v. Campbell, 2 McLean declares certain persons named a cor-
(U. S.), 195; s. c. lOMyer Fed. Dec, poration, this makes it such ab initioi
§ 10 (in substance). and a subsequent requirement of the
2 O'Brien v. Cummings, 13 Mo. charter as to the election of directors
App. 197. is merely directory. Stoops v. Greens-
3 Dartmouth College «. Woodward, burgh &c. Plank Boad Co., 10 Ind. 47.
4 Wheat. (U. S.) 791. See also Judah v. American Live Stock
* Little Rock &c. R. Co. v. Little Ins. Co., 4 Ind. 333.
Rock, Mississippi River &c. R. Co., ^ IIujj;hesdale Man. Co. v. Vanner,
36 Ark. 663, 684. Where the charter 12 R. I. 491; post, § 247.
37
1 Thomp. Corp. § 43.] creation by special charters.
conferred upon another corporation named, and further declar-
ing that all of the provisions, sections and clauses in the charter
of the first named company, not inconsistent with the particular
provisions of the charter of the second company, should be fully
extended to the president and directors of the latter corporation,
is a sufficient charter for such company, in the absence of con-
stitutional restraints upon this mode of legislative action. ^ It is
not unusual or objectionable to grant vast corporate powers in a
short act, by referring to and adopting provisions of other in-
corporating acts. 2
§ 42. Legislative Deviations from the Rules of the Com-
mon Law. — Corporations originating according to the rules of
the common law must be governed by it in their mode of or-
ganization, in the manner of exercising their powers, and in the
use of the capacities conferred ; and where one claims its origin
from such source, its rules must be regarded in deciding upon
its legal existence. But the legislature have power to create a
corporation, not only without conforming to such rules, but in
disregard of them; and where a corporation is thus created, its
existence, powers, capacities, and the mode of exercising them,
must depend upon the law creating it.^
§ 43. Who included in the Word " Associates." — It has
been pointed out that, where a charter is granted to certain per-
sons named, and their " associates," the word " associates" may
mean those who are already associated with the persons named,
or those who may come in afterwards. Speaking upon this
question, it was said by Chief Justice Shaw: " If articles of as-
sociation were drawn up and signed, by which they had agreed
to unite in applying for an act of incorporation, and an act
should be passed conferring corporate powers on two or three of
the first named, and their associates, referring to such articles, —
this would make the articles evidence, and make the act apply to
* Post, §§ 539, 573. purposes of an incorporated institu-
2 Biuj^harapton Bridge Case, 3 tion are to be gathered solely from iis
Wall. CU. S.) 78. charter. Nicholson's Succession, 37
' Penobscot Boom Corp. v. Lam- La. An. 346.
son, 16 Me. 224. The character and
38
MEANING OF "ASSOCIATES." [1 Thomp. Corp, § 43.
all the parties there named, conformably to the maxim, cerium
est, quod cei'tum reddi potest. The question in all such cases is,
what the legislature intended; it is a question of the construc-
tion of their words. Even if the parties to the enterprise had
an understanding between themselves, which was not communi-
cated to the legislature, or not acted upon by them, either in
the words of their act, or referred to in it by necessary or rea-
sonable implication, such understanding can not aid in constru-
ing the act." 1 In determining this question it is admissible, if
necessary, to consider any competent evidence outside the charter,
in explanation of the ambiguity. ^ If, upon such evidence, it
appears that a charter, granted in terms to several persons therein
named and their associates, was in fact granted upon the joint
request and application of those named, and others associated
withlhemin applying for it, it may reasonably be supposed that
the legislature inl ended to embrace them all within the grant,
and that the word " associates " is used to designate those who
are not specifically named in the charter. If, however, the evi-
dence discloses the fact that the grantees so named had no actual
associates at the time, or if it discloses that the charter was
given by the legislature of its own motion, and without solicita-
tion or application from any one, the use of such term in the
connection here found may properly be reg^arded as intended to
apply to such persons as may become members of the corpora-
tion, u[)on and after its organization.^ Where the charter of a
bank was granted by the legislature to six persons named, " and
their associates," the court heard evidence outside the charter,
and determined thereon that the charter could not have been in-
tended to include other persons who did not sign the petition for
1 Lechmere Bank v. Boyoton, 11 is made to one by name, and it turns
Gush. (Mass.) 3G9, 380. out that there are two or more per-
2 State V. Sibley, 25 Minn. 387, 399. sons of the same name, it is in the na-
"We are not prepared to say that a tureof a latent ambiguity, and evidence
grant may not be made to certain per- aliunde is admissible." Shaw, C. J.,
sons by a certain and definite de.scrip- in Lechmere Banku. Boynton, 11 Cush.
tion, as well as by name; and when (Mass.) 3C9, 379.
such words of description are used, it » State v. Sibley, 25 Minn. 387, 399.
is always competent to go into parol As to the effect of a grant of land to a
or other evidence aliunde, to ascer- person named and his associates, see
tain the person or thing embraced in Duncan v. Beard, 2Nott & McCord (S.
the description. Even when a grant C), 400.
39
1 Thomp. Corp. § 44.] creation by special charters.
the bank, but who merely subscribed for stock in the same, in
sundry books prepared and circulated at the meeting at which
the enterprise originated and at which the petition to the legis-
lature was drawn up and signed.*
§ 44. How ticgislative Grant made and Corporation Organ-
ized. — It has been reasoned by Mr. Justice McLean: " The creation
of a corporate existence can never take effect until the association be
formed and the organization completed. Commissioners are generally
designated in the act, who are to superintend the opening of the books
and receive subscriptions of stock. And when the amount shall be
subscribed, and the necessary pa3Tnents made, the stoclcholders elect
directors, who appoint a president and cashier. The organization being
eompleted, existence is given to the artificial being, and the agency
commences. It is now in esse, but before this it was not. Vitality is
given to it by the voluntary association and organization of its members.
Had they remained passive, the law could have had no effect. In this
case, then, the grant of the franchise is not made to a person or persons
in esse. The commissioners did not constitute the corporation, nor was
the franchise, in any form or degree, vested in them. This is the gen-
eral mode in which corporations are created, and it has stood the test of
time and of legal scrutiny. No valid objection is perceived to it. In
regard to this objection the act under consideration [a general law au-
thorizing the formation of banldng corporations] rests upon the same
ground as other and more special acts on the same subject. The fran-
chise is not vested in either until the organization be completed, and
this depends upon the voluntary association of individuals. In a special
act commissioners are named to open the books and receive subscrip-
tions of stock ; in the act under consideration the clerk and treasurer of
each county are required to perform this duty. They are commissioners
for this purpose. And, so far as the grant is concerned, if it be vahd
under one law it must be so under the other." 2 If in the organization
of a corporation, all the requirements of the charter are observed, al-
though 7iot in the order prescribed, the organization is sufficient. Thus,
where the charter requires that the directors shall be named in the
articles of association, it is sufficient comphance with the requirement
that the articles are adopted at the time of electing the directors. And
the requirement is only directory.^
1 Lechmere Bank v. Boynton, 11 ^ Eakright v. Logansport &c. R.
Cush. (Mass.) 3G9. Co., 13 Ind. 404; Covington &c. Plank
2 Falconer D.Campbell,2 McLean (U. Road Co. v. Moore, 3 Ind. 510.
S.), 195; s. c. lOMyerFed. Dec, § 10.
40
COMMISSIONERS REFUSING TO ACT. [1 Thomp. Coip. § 46.
§ 45. What if the Commissioners Refuse to Act. — If a
majority of the commissioners corruptly refuse to proceed to
tiie organization of the corporation, in accordance with the law,
it seems that the minority may proceed to execute the power.
Such seems to have been the conclusion of the Supreme Couit
of Pennsylvania in a case where the legislature appointed nine
commissioners, who, or any three of them, were authorized to
organize a bank. A majority of the whole number corruptly
afyreed to transfer the franchise to a citizen of another State.
It was held that, in such case, three other of the commissioners
had valid authority to proceed with the organization, and that
letters-patent, issued in pursuance of such organization, were
valid. ^ If it should appear, that commissioners, appointed by
an act of the legislature to open books for receiving subscrip-
tions to the capital stock of a bank, have refused, after having ac-
cepted their appointment and assumed to act in the premises, to
proceed in the execution of the trust confided to them, without
sufficient cause for such refusal, and that thereby the act of in-
corporation may fail of being carried into effect, a court possess-
ing jurisdiction would, upon proper application, issue a writ of
mandamus to compel the commissioners to perform the services
required of them by law. But where the act of incorporation re-
quires, that the books for receiving subscriptions to the capital
stock shall be opened under the direction of seven commissioners
named, *' or a majority of them," the majority have full power to
discharge the duties required of t he commissioners , withon t the con-
currence of the others ; and if all except one are willing to act, the
court will not grant a peremptory mandamus to compel that one
to act, for the reason that the issuing of such writ is unnecessary.^
§ 46. When Charter Provisions deemed a Substitute for
Provisions of a General Act. — Where the charter of a corporation
contains provisions in terms similar to provisions of a general act, and
provides that the corporation shall be subject to such provisions of the
general act as are applicable, the provisions in the charter will be deemed
a substitute for the provisions of the general act.^
1 Commonwealth v. McKean County " Briggs v. Cape Cod Ship Canal
Bank, 32 Pa. St. 185. Co., 137 Mass. 71.
2 Matter of White River Bank, 23
Vt. 478.
41
1 Thonip. Corp. § 46] creation by special charters.
§ 47. Whether Corporations created by the Concurrent Ac-
tion of Two States. — Whether one corporation can be created
by the concurrent legishition of two States has been a subject of
judicial controversy. The question seems to have been first
raised in the Supreme Court of Errors of Connecticut, and that
court took substantially the view that there is no legal difficulty
in the way of the creation of a single corporation by the concur-
rent action of two or more States ; nor of the creation of a new
corporation out of two or more corporations already existing ;
nor of the creation, by one State, of such a corporation, where
one of the constituent corporations is a foreign one. The court
saw no objection, technical or otherwise, to the parting, by two
or more States unitedly, in the exercise of their sovereign au>
thority, with such of their respective powers as should be neces^
sary in order to confer upon persons, real or artificial, the
franchise or privilege of being a corporation, and with such.powers
and privileges as they should deem it proper to grant them. The
court further observed that tiiis power had been not infrequently
exercised by the States, without question or objection. ^ It can-
not escape attention, however, that this view is contrary to what
mio-ht be regarded as the States' rights view of the question, and
that it cannot be made to rest upon a strictly logical basis. If
we are to accept as still true the doctrine of the leading case in
the Supreme Court of the United States touching the status of
foreio-n corporations, we must still conclude that a corporation
can have but one domicile and must dwell in the place of its
creation. 2 Adhering to this theory, the same court at one time
held that a railroad corporation created by the concurrent legis-
lation of two States, with the same capacities and powers, for
the same objects, referred to in the laws of the States as one
corporate body, composed of the same persons, and represented
by one name, — was nevertheless, as a matter of legal and con-
stitutional necessity, two distinct and separate corporations, upon
the ground that a corporation is the creature of the sovereignty
which brings it into being, and can have no jurisdiction beyond
that sovereign. 2 This theory was suitable to the casuistry of one
iBishopw.Brainerd, 28 Conn. 289,299. 'Ohio & Mississippi R. Co. v.
2 Bank of Augusta v. Earle, 13 Wheeler, 1 Blacii (U. S.), 286.
Pet. (U. S.) 521.
42
CREATION BY TWO STATKS. [I Tliomp. Corp. § 48.
period of our legal development and history, but it was not
suited to the practical needs of a great homogeneous commercial
people. The same court was compelled, in a subsequent decision,
to abandon the doctrine, and to adopt the better view that the
question whether there is a unity in the corporation and in the
proprietorship of the corporate property, is, in such a case, one
of legislative intent, and not of legislative power. Accordingly,
the doctrine of the court now is that several States may, by com-
petent legislation, unite in creating the same corporation, or in
combining several pre-existing corporations into a single one;
that one State may make a corporation of another State, as thus
organized and conducted, a corporation of its own, as to any
property within its territorial jurisdiction; and that a State
tti'»y» by an enabling act, authorize a corporation created in an-
other State to build and use a railway within its own limits, with-
out creating a new corporation.^ Illustrations of this conclusion
are now seen every day, in the passage by States of enactments
making foreign corporations doing business within the domestic
jurisdiction, domestic corporations, and amenable in all respects
to the domestic laws and police regulations, notwithstanding the
provisions of their foreign charters. ^
§ 48. Decisions adhering to the View that this cannot be
done. — The doctriae first announced by the Supreme Court of the United
States 2 is still followed, so far as appears, in some of the courts of the
States. The Supreme Court of Pennsylvania has reiterated the view laid
down by Chief Justice Taney in that case, and has formulated it thus :
" 1. That the artificial person or legal entity known to the common
law as a corporation, can have no legal existence out of the bounds of the
sovereignty by which it was created. It must dwell in the place of its
creation. 2. That the corporation in question was chartered by the two
States of Ohio and Indiana, by the same name and style, clothed with the
* Railroad Co. v. Harris, 12 Wall, but for'purposes of jurisdiction it is a
(U.S.) 65; followed iu Copeland v. separate corporation within the State
Memphis &c. R. Co., 3 Woods (U. S.), of its adoption. In such a case a sep-
C51, G58. In another Federal court it arate organization is not necessary,
was held that where the charter of a Blacl<l)urn v. Selma &,c. R. Co., 2 Flip,
corporation in one State is duplicated (U. S.) 525.
in aiKjther State, and the legislature ^ Po.s<, Ch. 193.
assumes to create a home corporation, 3 In Ohio &c. R. Co. v. Wheeler, 1
tlie effect is to consolidate the two; Black (U. S.), 286.
43
1 Thomp. Corp. § 48] creation by special charters.
same capacities and powers, and intended to accomplish the same ob-
jects, and is spoken of in the laws of both States as one corporate body
exercising the same powers and fulfilling the same duties in both States ;
and yet that it had no legal existence in either of the States, except by
the laws of the State, and neither State could confer on it a corporate
existence in the other, nor add to or diminish the powers there exer-
cised. Therefore, that it was a distinct and separate corporate
body in Indiana, from the corporate body of the same name in Ohio.
3. That, where a corporation is created by the laws of a State, the legal
presumption is that its members are citizens of the State in which alone
the corporate body has a legal existence ; and that a suit by or against
a corporation in its corporate name, must be presumed to be a suit by or
against citizens of the State which created the corporate body, and that
no averment or e\'idence to the contrary is admissible, for the purpose
<jf withdrawing the suit from the jurisdiction of a court of the United
States. 4. It follows from these principles that a suit by a corporation
created by the concurrent legislation of two States was, in legal contem-
plation, the suit of the individuals who compose it, and must, therefore,
be treated as a suit in which citizens of each State are joined as
plaintiffs. If the defendant was a citizen of either of those States, such
a suit could not be maintained in the Federal courts, where jurisdiction
of the case depended altogether on the citizenship of the parties, and
consequently, the plea to the jurisdiction in that case was sustained." ^
The Court of Appeals of Kentucky, in a decision rendered as late as
1880, adheres to the same view. The question concerned the effect of
two acts of incorporation, one passed by the legislature of Ohio and the
other passed by the legislature of Kentucky, both incorporating the
Newport and Cincinnati Bridge Company, a company whose bridge was
built across the Ohio river between the States of Ohio and Kentucky.
The appellant contended that the corporation was one entity created by
two laws emanating from different sovereigns, with no joint govern-
mental powers over the subject of its properties and business. " This,"
said Hargis, J., "seems to be an absurdity, because the law-making
power of neither State can bind the other. Kentucky or Ohio has
plenary power to create a corporation, but neither can create a part of
the elements of a corporation and rely upon the other to complete it,
and by this unauthorized marriage of distinct legislative powers, produce
a being which has not received its full hf e from either. Each legisla-
tive power must complete the corporation, or it never can be done, be-
cause the completing act of one State is not binding upon the State
^ Allegheny County v. Cleveland &c. R. Co., 51 Pa. St. 228, 231, opinion by
Woodward, C. J.
44
CREATION BY TWO STATES. [1 Thomp. Cm'p. § 48.
•which began, but failed or refused to complete and give legal existence
to the corporation. Otherwise, persons who should receive from a
State only a part of the powers, but were denied the rest which were
necessary to create a corporation, could apply to a foreign State for
supplementary legislation, which would authorize the building of rail-
roads and bridges upon our soil, and give to its laws an extra-territorial
force a doctrine that has always been successfully denied among
these States, which hold the relation to each other of foreign States in
close friendship. The creative power of one State can neither be added
to nor subtracted from by another, so as to strengthen or weaken the
power of the former in its own territory. And the proposition that two
States can jointly create, by partial legislation in each, a corporation
which has a complete legal existence in either, must fall to the ground.
These corporations are distinct, controlling the same substance in a
joint business, and appellant's residence is alone in Ohio. A corpora-
tion can not have two domiciles or residences at the same time. It ob-
tains a residence not by its own right, but by legal authority which
fixes the requisites of residence ; and it retains a residence, so long as
its legal existence lasts, in the State whence it received it. The appel-
lant was properly sued as anon-resident of Kentucky." The court,
coming to the merits, which was the right to recover compensation for
legal services, under an employment of the plaintiff by the Kentucky
corporation, held that the legal status of the two corporations was that
of agents for each other, and that, upon this theory, the obhgation was
that of the Ohio corporation, on the principle of respondeat superior.^
1 Newport &c. Bridge Co. v. Woolley, 78 Ky. 523.
45
1 Thomp. Corp. § 52.] acceptance of special charters.
CHAPTEK III.
ACCEPTANCE OF SPECIAL CHARTERS.
Section
52. Necessity of acceptance of charter.
53. Cauuot be accepted iu part.
54. By what body or constituency.
55. At meeting held iu another state,
void.
56. Illustrations of the foregoing.
57. Withdrawal or repeal before ac-
ceptance.
Skction
68. Illustration.
59. Effect of acceptance
60. Facts from which acceptance pre-
sumed.
61. Further of evidence to show ac-
ceptance.
62. Evidence of non-acceptance.
63. A question for a jury.
§ 52. Necessity of Acceptance of Charter. — When the leg-
islature proceeds to create a municipal or other public corpora-
tion, the assent of the inhabitants within the territorial district
intended to be incorporated is not necessary. But a man can
not be forced by the legislature to become a member of a strictly
private corporation without his consent.* The general rule,
therefore, is that a charter of a private corporation isinoi)erative
until it is accepted.^ So is the extension of a charter beyond
1 Ellis V. Marshall, 2 Mass. 2G9; s.
c. 3 Am. Dec. 49; Hampshire v. Frank-
lin, 16 Mass. 76, 87. There is much au-
thority, early and late, for this general
proposition. Thus, in Bagg's case>
Rolle Rep. 224, it seems to have been
agreed by the court that a patent pro-
cured by some persons of a corpora-
tion would not bind the rest, unless
they should assent. And iu Brown-
low's Reports, 100, this passage
occurs: "It was said that the in-
habitants of a town cannot be in-
corporated without the consent of
a major part of them, and an in"
corporation without their consent
is void." In like manner in a case
in Coraberbach, 316, Lord Holt, speak-
ing of a new charter mide to the
city of Norwich by Henry IV and cou-
46
firmed by Charles II., says : " The new
charter had been void if the corpora-
tion had refused it; but when they
accept and put it in execution, then
it is good." In like manner, it is
said by Chancellor Ke't: " It requires
the aceptance of the charter to create
a corporate body; for the government
cannot compel persons to I ecome an
incorporate body without heir consent,
or the consent of at least the major part
of them." 2 Kent Com. 277. S. e,
further, Lexington and West Cam-
bridge R. Co. V. Chandler, 13 Met.
(Mass.) 315; Wright v. Tukey, 3
Cush. (Mass.) 297; Parlmouth Col-
lege V. Woodward, 4 Wheat. (U. S.)
708.
2 Haslettu. Wotherspoou, 1 Strobh.
Kq. (S. C.) 209.
NOT ACCEPTED IN PART. [1 Thomj). Corp. § 53.
its original term.* So, a charter granted by the king in England
to a particular guild of tradesmen does not, it seems, bind all the
members of that trade in England, whicli nothing short of an
act of Parliament could do, but it binds only those who become
members.^
§ 53. Cannot be Accepted in Part. — As a general rule,
when a charter is granted, whether it be one of creation, or of
amendment to a pre-existing charter, it must either be accepted
or rejected as offered, and without condition ; and, in accepting
the privileges conferred, tlie grantees will be required to per-
form the conditions imposed.^ A charter granted by the Crown
in England, cannot be accepted in part and rejected in part, un-
less it should appear to be the intention of the Crown tliat the
grantee should have the option to accept in part and reject in
part.^ But it has been said: " However well settled this may
be in regard to subsequent conditions, to be performed after the
organization of the company, and for a refusal to comply with
which a party injured may have his remedy at law or in equity
for a specific performance, it does not apply to conditions prece-
dent^ upon the strict performance of which the very existence
and exercise of powers on the part of the corporation depend.
And by conditions precedent we mean anything which, by the
express provisions of the statute, is made a condition to be per-
formed on the part of the corporators before and as a founda-
tion of the QX^evaisQ of powers and privileges under the charter.
In such cases the organic life of the corporation depends upon
a strict compliance with the conditions imposed, and until this
is done there can be no such thing as an acceptance of the
charter." ^
1 Lincoln &c. Bank v. Richardson, ^ London Tobacco Pipe Makers Co.
1 Me. 81. It has been ruled that v. Woodroffe, 7 Barn. & Cress. 838.
where a corporation, which is already ^ Lyons v. Orange &c. R. Co., 32
in existence, and acting under a former Md. 18, 30; Kenton County Court v.
charter, or prescription, or usage, Bank Lick Turnpilce Co., 10 Bush
accepts a new charter before the ex- (KyO» "~^'
piration of the old, the corporation ^ Res v. Westwood, 2 Dow & CI.
may still act under the former, or 21, 36.
partly under both. Woodfork v. ^ Lyons v. Orange &c. R. Co., 32
Union Bank, 3 Coldw. (Tenn.) 488. Md. 18, 30. See post, § 501, et seq.
47
1 Thouip. Corp. § 55.] acceptance of special charters.
§ 54. By what Body or Constituency. — Acceptance of a
charter, to bo binding, must obviously be by the cori)orators in
their constituent capacity. Until acceptance, there is ordinarily
no representative body which could, under any circumstances or
on any theory, perform such an act for the corporators at large,
unless in the case of a renewal of a charter. Thus, the election
of a board of directors or trustees under a charter is an act
which itself implies an acceptance of the charter. But, as here-
after seen, when the charter has been accepted and an organ-
ization has taken place under it, and directors have been elected,
an amendment to the charter may be accepted by the directors,
if acquiesced in by the corporators.^
§ 55. At Meeting held in Another State, Void. — It has been
laid down in round terms that " all votes and proceedings of
persons professing to act in the capacity of corporators, when
assembled without the bounds of the sovereignty granting the
charter, are wholly void." ^ This is a branch of the general
rule declared in a leading case,^ that a corporation can have no
legal existence out of the boundaries of the sovereignty by which
it is enacted ; that it exists only by force of law ; that, where
that law ceases to operate, it can have no existence; and that it
must dwell in the place of its creation, and cannot migrate to
another sovereignty. In this respect a distinction must carefully
be borne in mind between acts done by the members in their
capacity of corporators, and by the directors in their capacity of
agents or trustees. Acts of the former class, to be valid, can
only be done within the bounds of the sovereignty creating the
corporation; while acts of the latter class may be done outside
of such boundaries, an<l yet be valid.* The organization of a
corporation is an act which, from its very nature, can only be
done by the corporators in their constituent capacity. If, there-
1 Post, § 86. ' Bank of Augusta v. Earle, 13 Pet.
2 Miller v. Ewer, 27 Me. 509, opin- (U. S.) 619.
ion by Shepley, J.; quoted and re- * This distinction is stated in
aflarmed in Smith v. Silver Valley Smith v. Silver Valley Mining Co.
Mining Co., 64 Md. 85; s. c. 54 Am. supra, and in other cases. But see
Kep. 760, 765. Ohio &c. R. Co. v. McPherson, S6 Mo.
26, and Arms v. Conant, 36 Vt. 750.
48
AT MEETING IN ANOTHER STATE. [1 Tliomp. Corp. § 56.
fore, they meet in a State other than that by which their existence
as a corporation has been authorized and there attempt to organ-
ize, their acts will be void, and the corporation will acquire no
existence, unless by subsequent events, such as a legislative ratifi-
cation by the State granting the charter.*
§ 56. Illustrations of tlie foregoing. — A writ of entry was
brought to recover a tract of land in the State of Maine. The defend-
ants claimed title through a mortgage executed by the president and
secretary of the Blue Hill Granite Company, which had been char-
tered as a corporation by the legislature of Maine in 1836. It
appeared in proof that, shortly after the date of the charter, a meeting
of the corporators for the purpose of organizing the corporation was
called and held in the city of New York ; that the charter was there
accepted ; that the officers of the corporation, consisting of president,
U secretary and directors, were there chosen; that, at a meeting of the
^ directors which was held in the same city in April, 1837, the president
>■ and secretary were, by a vote, authorized to execute the mortgage in
question, which they accordingly did. There was no proof that any
meeting for the organization of the company, or for the choice of its
officers had ever been held in the State of Maine. The court, upon this
proof, held that the mortgage passed no title, because the directors
who ordered its execution had not been lawfully chosen. ^ - - - -
In another case in the same State, a shareholder in a de facto corpora-
tion sued the company for dividends upon his shares, alleged by Mm
to have been illegally forfeited by the company. It appeared that
the act of incorporation had been passed by the legislature of Maine
in 1836, and that, in April following, an attempted organization of
the corporation had been made in the city of Boston, in Massachu-
setts, where the number of shares was determined and the certificates
issued. The court, following the case last cited, held that the stock
certificate which the plaintiff offered in evidence as proof of his right,
having been issued by officers chosen in Boston, was invalid, — rea-
soning that there could be no stock in a non-existent corporation,
and that the plaintiff could not have become a stockholder under
any attempted organization outside the State granting the char-
1 Miller v. Ewer, supra; distin- 54 Am. Rep. 760, distinpjulshing
guishiug Coppp. Lamb, 3Fairf. (Me.) Keene v. Van Reuth, 48 Md. 184.
314, aud McCall v. Byrara Man. Co., 2 Miller v. Ewer, 27 Me. 509; s. c.
6 Conn. 428. See Freeman v. Machias 46 Am. Dec. 619. The decision stands
&c. Co., 38 Me. 343; Smith v. Silver on doubtful grounds ; they would seem
Valley Mining Co., G4 Md. 85; s. c. to have been directors (Ze /ac<o.
t 49
1 Thomp. Corp. § 69.] acceptance of special charters.
ter.^ - - - - In a later case in Maryland, a corporate char-
ter had been granted by the legislature of North CaroUna. The
corporators named by the charter held their first meeting in Balti-
more, in the State of Maryland, and there undertook to accept the
charter and to organize the corporation. Thereafter, one of the share-
holders brought a suit in equity to set aside a forfeiture which the
company had undertaken to make of his shares, for the non-payment of
an assessment, which had Ukewise been made at a meeting of the direct-
ors held in Baltimore. The court affirmed a decree dismissing the
bill, placing its decision on the ground that the corporation had never
acquired a legal existence, that no vahd shares had been issued, and
consequently that the plaintiff had no standing in court. 2 > - _ -
These three decisions seem to involve distinct departures from the
principle that the vahdity of the existence of a corporation, or of the
election of its officers, cannot be inquired into collaterally.
§ 57. Withdrawal or Repeal before Acceptance. — An offer
of a charter to persons who have not applied for it is considered
as beino- in fieri until those persons have accepted it; and, like
any other offer, it may be withdrawn at any time prior to such
acceptance.^
§ 58. Illustration. — An offer of a railroad charter was made to
certain persons who had not appUed therefor, in January, 1849, by the
legislature of Indiana. In June, 1852, these persons first accepted the
charter. In November, 1851, the new constitution of Indiana went into
effect, which provided that corporations other than banldng should not be
created by special laws. It was held that the acceptance after Novem-
ber, 1851, was insufficient, and that the corporation never came into
existence.'*
§ 59. Effect of Acceptance. — Though it is optional with
members of a private corporation whether or not they will take
^ Freeman v. Machias &c. Co., 38 to repeal a previous legislative pro-
Mc. 343. vision tliat all charters should be sub-
2 Smith o. Silver Valley Mining jeet to alteration, suspension, and
Co., 64 Md. 85; s.c. 54 Am. Rep. 760. repeal by the legislature. Little v.
3 State V. Dawson, 16 Ind. 40. A Bowers, 46 N. J. L. 300. See
provision that a charter should not post, § 92.
take effect unless the company filed a * State v. Dawson, 16 Ind. 40.
written assent thereto In six months, —
was held, not to indicate any purpose
50
EFFECT OF ACCEPTANCE. [1 Thomp. Corp. § 60.
the benefit of their charter, yet after they have made their elec-
tion, by executing the powers granted, or otherwise, the duties
and liabilities attach which the charter imposes. ^ By accepting
the charter, they become bound by all its provisions, and cannot
insist that the enactment of any provision therein was fraudu-
lently obtained. 2 Stated more fully, it has been reasoned that
an act of incorporation, which, after naming certain persons,
declares that they " and such others as may hereafter become as-
sociated with them for that purpose, and their successors, are
hereby declared and created a body politic and corporate," con-
stitutes such persons a corporation immediately on the passage
of the act, if there are no conditions that must be complied with
before they can become a body corporate. It is true that the
charter of a corporation must be accepted ; but in cases of
private corporations created for individual benefit, the presump-
tion is, that they are created at the instance and on the request
of the parties to be benefited thereby, and consequently, are
accepted by them. If, therefore, they are found exercising the
privileges granted, it will be almost conclusive evidence of the
fact of acceptance.^
§ 60. Facts from which acceptance presumed. — An ac-
ceptance by the corporators of their charter and franchises may
be presumed from a variety of circumstances, — such as the ex-
istence of the corporate powers conferred;* the fact that a
charter has been applied for ; ^ or user of the franchises or powers
conferred.®
1 Riddle v. Proprietors of Locks facto officers of the corporation, see
&c., 7 Mass. 184; Goslien Turnpike v. Heath v. Silverthorn Lead Min. &c.
Sears, 7 Conn. 86; Commonwealth Co., 39 Wis. 147.
V. Worcester Turnpilie Co., 3 Picli. * Penobscot Boom Corp. u. Lawson,
(Mass.) 327. 16 Me. 224; Ameriscoggin Bridge v.
2 Bushwicls &c. Bridge Co. v. Bragg, 11 N. 11.102. See also Astor
Ebbetts, 3 Edw. Ch. (N. Y.) 353. See v. New York Arcade R. Co., 48 Hun
an«e, §38. (N. Y ), 562.
3 Talladega Ins. Co. v. Landers, 43 '^ Atlanta u. Gate City Gas-Light
Ala. 115, 136. As to what acts on the Co., 71 Ga. 106.
part of corporators will constitute an ^ Illinois River R. Co. v. Zimraer,
acceptance of their charter, so as to 20 111. 654 (case of an amendment) ;
tstop them from denying the validity Newton «. Carbery, 5 Cranch C. C. (U.
of contracts entered into by tlie de S.) 632.
51
1 Thomp. Corp. § 62.] acceptance of special charters.
§ Gl. Further of Evidence to show such Acceptance. — It is
not essential, then, that the acceptance of a charter should appear
in the records of the corporation. ^ It may be inferred from acts
of the corporators, or of the corporation,^ — at least unless the
charter in terms requires some express act of acceptance from the
corporators; ^ or, in case of an amendment to the charter, from
acts of the directors.* Such evidence is afforded by the act of
organizing as a corporation and exercising the franchises con-
ferred ; ^ or by the fact of expenditures and other transactions
in furtherance of the purpose thereof, without proof of any
formal organization, by meeting, election, etc.^ So, a notice for
a meeting to organize, signed by those named in the charter, is
evidence of an acceptance of the charter.^
§ 62. Evidence of Non-acceptance. — On the other hand,
this presumption of acceptance from the fact that the charter has
been applied for is rebutted by evidence that no proceedings were
ever had under it, although seven years have elapsed since its
dute.^ The proprietors of a toll bridge, several years after it
was built, were incorporated by the legislature, but did not ac-
cept the charter. In a quo warranto against them by the attor-
ney-general, they had denied that they had ever assumed to act
as a corporation, and a judgment of preclusion was thereupon
entered. It was held, that this judgment was conclusive evi-
dence that they had not accepted their charter, and could not be
impeached collaterally.'
1 Russell V. McLellan, 14 Pick, contracts, and hold and sell real and
(Mass.) C3. personal property. The division had
2 Taylor v. Newberne, 2 Jones Eq. existed under that name since 1849.
(N. C.) 141. ' These facts, together with the exer-
3 Los^an v. McAllister, 2 Del. Ch. else of corporate powers in conveying^
J7(5 ' real estate as security for a loan,
4 Post § 87. were deemed sufficient to justify a
5 Jl^^l^ referee in finding that the division
6 McKay v. Beard, 20 S. C. 15G. accepted tlie act of incorporation. St.
■» Cleaves v. Turnpike Co., 1 Sneed Paul Division v. Brown, 11 Minn.
(Tenn.), 491. In 1851, the legislature 356.
of Minnesota authorized the organi- * Newton v. Carbery, 5 Cranch C.
zation of the " St. Paul Div. No. 1 Sons C. (U. S.) 632.
* of Temperance "as a corporation, » Thompson v. New York &c. R.
with power to sue and be sued, make Co., 3 Sandf . Ch. (N. Y.) 625.
52
QUESTION FOR JURY. [1 Tliomp. Corp. § 62.
§ 63. A Question for a Jury. — The question of the accept-
ance of an act of incorporation is for the jury^ in an action at
law.^ This is analogous to the rule in the law of contracts, that
whether there has been a verbal acceptance of a written proposal
is a question for a jury ; ^ and to the rule in respect of dedica-
tions of land to public purposes, that, whether there has been an
acceptance of the dedication is a question for a jury.^ If, how-
ever, the only evidence which is tendered to show an acceptance
is a writing, the effect of such writing, as evidence of an accept-
ance, will be a mere question of interpretation, for the judge.*
1 Hammond v. Straus, 53 Md. 1. 3 /jj^^.^ § 1356,
« 1 Thomp. Tr., § 1114. * 1 Thomp. Tr., § 1065 et seq.
53
1 Thomp. Corp.] amendment of ciiauteks.
CHAPTER lY.
AMENDMENT OF CHARTERS.
Section
66. Preliminary.
67. Power of legislature to amend
charters.
68. Amendments in furtherance of the
original design.
69. Amendments granting or altering
remedy.
70. Amendments made in the exercise
of the police power.
71. What amendments release non-
assenting subscribers.
72. View that majority binds mi-
nority except as to fundamental
changes.
78. View that majority binds minority
unless there is a total deviation
from the original object.
74. What changes are material so as
not to bind minorities.
75. Amendments authorizing consoli-
dation or subdivision.
76. Other changes deemed funda-
mental.
77. Further holdings on this sub-
ject.
78. Amendments increasing the capital
stock.
79. Illustrations.
80. When stockholder bound on prin-
ciple of acquiescence, ratifica-
tion or estoppel.
81. Effect of want of knowledge of the
change on the part of a share-
holder.
82. Other alterations immaterial and
hence permissive.
83. Amendments changing denomina-
tion of shares.
54
Section
84. View that subscription is made
subject to legislative power to
amend charter.
85. Materiality of amendment, ques-
tion for court.
86. What body give assent.
87. When the action of the directors
evidence of acceptance.
88. Illustration.
89. Effect of reservation of power to
alter or repeal.
90. Whether this power is merely a
reservation to state for public
purposes.
91. Further of this subject.
92. Power to alter or repeal, re-
served in a general law, ap-
plies to future special char-
ters.
93. Illustration.
94. Subsequent general laws oper-
ating as amendments of special
charters.
95. Amendments authorizing a sur-
render of franchises.
96. When acceptance of amendment
not necessary.
97. Evidence of acceptance of amend-
ment by corporation.
98. Evidence of acceptance by stock-
holders.
99. View that assent of stockholder
is to be presumed, and dissent
proved.
IOC. Instances under the foregoing
rule.
101. Estoppel to deny acceptance of
amendment.
POWER TO AMEND. [1 Thomp. Corp. § 67.
Section Section
102. View that objections can only 104. Objection by third parties: con-
be raised by quo warranto, etc. tractors.
103. Amendment by substitution of 105. How minority are protected in
new charter. England.
§ 66. Preliminary. — The constitution of the United States
provides that *' no State shall * * * pass any * * *
law impairing the obligation of contracts." ^ It was established
by the Supreme Court of the United States, in the celebrated
case of Dartmouth College v. Woodward,'^ that the charter of a
private corporation, when granted by the legislature and accepted
by the grantees, becomes a contract between the State and the
corporation, which can not be impaired by subsequent legisla-
tion, without the consent of the other contracting party. It is
not intended in this chapter to enter upon a general discussion
of the inviolability of corporate charters under this decision;
that subject is reserved for future treatment.^ It will be neces-
sary, however, to consider the subject in this chapter, in so far
as it involves the question of the power of the legislature to
grant amendments to corporate charters on the application of a
majority of the members, or of the governing body, but without
the concurrence of all the members, so as to bind the corporation
or the dissenting members.
§ 67. Power of Ijegislature to amend Charters. — In the
case of municipal or other public corporations, the charter does
not constitute a contract between the State and the corporators
within the meaning of the clause of the constitution of the United
States above quoted. It follows that, in respect of public corpo-
rations, the power of the legislature to alter, modify or abro-
gate any corporate power or franchise conferred by previous
charter is plenary, and no member will be heard to object
thereto.* But, by reason of this constitutional prohibition, it is
regarded by most courts as beyond the power of the legislature
1 Const. U. S., Art. I, § 10. 325; Cole w. East Greenwich Fire En-
2 4 Wheat. (U. S.) 519; reversing s. gine Co., 12 R. I. 202; Louisville u.
c. 1 N. H. 111. Louisville University, 15 B. Monr.
8 Pos«, Ch. 117, Art. I., cfsery. (Kv.) 642; Head i>. University, 19
^ People V. Morris, 13 Wend. (N. Y.) Wall. (U.S.) 526.
55
1 Thomp. Corp. § 67.] amendment of ciiauters.
of a State to make /undame7ital changes in the charter of an ex-
isting private corporation, such as materially alter the nature of
the corporation, or change, or enlarge its powers or purposes,
without the consent of all the stockholders or members,^
unless the legislature has reserved the power to make such
changes in the original charter, or unless such power is reserved
to the legislature in the constitution of the State,^ or in some stat-
ute which is operative notwithstanding the silence of the char-
ter.^ But if the power to alter or repeal is reserved in the
incorporating act, or otherwise as above stated, the legislature
may make such alterations or amendments as it may see fit, and
the judicial courts will have no power to consider their pro-
priety.*
1 Livingston v. Lynch, 4 Jolins. Ch.
573; Natusch v. Irving, 2 Coop. Ch.
(Tenn.) 358.
2 If the power is reserved in the
constitution of the State, it need not
be contained in the charter. Dela-
ware Railroad Co. v, Tharp, 5 Harr.
(Del.) 454.
3 Mowrey v. Indianapolis R. &c.
Co., 4 Biss. (U. S.) 78; City of Cov-
ington w. Covington &c. Bridge Co., 10
Bush (Ky.), 69; Allen v. Buchanan, 9
Phil. (Pa.) 283; Indiana &c. Turnp.
Road V. Phillips, Peur. & W. (Pa.)
184; State v. Heyward, 3 Rich L. (S.
C.) 389; Winter v. Muscogee R. Co.,
11 Ga. 438; New Orleans &c. R. Co. v.
Harris, 27 Miss. 517; Fry v. Lexing-
ton &c. R. Co., 2 Mete. (Ky.) 314;
Hamilton ■». Keith, 5 Bush (Ky.), 458.
The cases cited do not, all of them,
express fully the doctrine of the text.
It has been drawn on a comparison of
many decisions. In some of the cases
general expressions are found to the
effect that an act of the legislature
granting new franchises to an exist-
ing corporation upon specified con-
ditions, is inoperative until it is
acepted. Lyons v. Orange &c. R. Co.,
33 Md. 18. It was said by Lord Holt,
C. J., that although the king might
56
make such a constitution as they
themselves (meaning the corporation)
might have done without him, but the
new charter had been void if the cor-
poration had refused it; but when
they accept and put it in execution
then it is good. Rex v. Larwood,
Comb. 315, 316.
4 Miners' Bank v. United States, 1
Greene (Iowa) , 553 ; s. c. 1 Morr. (Iowa)
482; Hyatt v. McMahon, 25 Barb.
(N. Y.) 457; State v. Granville &c. So-
ciety, 11 Ohio, 1 ; Salay.New Orleans,
2 Woods (U. S.), 188; Lothrop v.
Stedman, 42 Conn. 583; Gardner v.
Hope Ins. Co., 9 R. I. 194; s. c. 11 Am.
Rep. 238; Lothrop v. Stedman, 13
Blatch. (U. S.) 134; Joslyn v. Pacific
Mail Steamship Co., 12 Abb. Pr. (n.
s.) (N. Y.) 329; Com. v. Fayette Co.
R. Co., 55 Pa. St. 452; Robinson v.
Gardiner, 18 Gratt. (Va.) 509; Close
V. Gleuwood Cemetery, 107 U. S. 466
(charter granted by Congress). It is
added in some cases that this rule is
subject to the qualification that the
power is not to be exercised in such a
way as to violate the principles of nat-
ural justice. Sala v. New Orleans, 2
Woods (U. S.), 188; Lothrop v.
Stedman, 13 Blatch. (U. S.) 134.
ALTERING REMEDIES. [1 Thoilip. Coip. § 69.
§ 68. Amendments in Furtherance of tlic Original Design. —
This rule does not extend so far as to prevent the legislature from
enacting amendments to a charter, in furtherance of the original
design, on the application of the corporation or of a majority of
the members.^ The constitutionality of a statute, by which cer-
tain stockholders of a railroad company were required to waive
their interest in a municipal subscription in aid of the railroad,
has been upheld, on the ground that, without the aid of the sub-
scription under the amended charter, the stock of such subscrib-
ers would be worthless, and that they could not lose, but must
o-ain, .by the provision complained of.^ The mere grant of
auxiliary poivers to enable the corporation the better to carry
out the original design, does not constitute such a radical and
fundamental change in the objects and purposes for which the
original company was chartered, as places the amendment within
the category of statutes impairing the obligation of contracts.
Instead of impairing the obligation of the contract expressed in
the charter, it aids and effectuates it.^ The same may be said of
amendments removing restrictions, or releasing or discharging
burdens to which the corporation is subject under an existing
statute,* — such as an amendment empowering a religious cor-
poration to sell for its own benefit its real estate, although its
charter forbids such alienation;^ ov extending the time within
which the corporation may complete its undertaking.^
§ 69. Amendments Oranting or Altering Remedies. — Nor
does this constitutional inhibition extend so far as to disable the
legislature of a State from altering an existing charter of a pri-
vate corporation, so as merely to effect a change of remedies
1 state V. Accommodation Bank of Mahon, 25 Barb. (N. Y.) 457 ; Curry
La., 26 La. Ann. 288; Fry v. Lexing- v. Scott, 54 Pa. St. 270; Zabriskie v.
ton &c. R. Co., 2 Mete. (Ky.) 314; Hackensack &c. R. Co., 3 Green (N.
Winter v. Muscogee R. Co., 11 Ga. J.) 178.
438. ■* People v. Grand &c. Plank Road
2 Shelby County v. Shelby Railroad Co., 10 Mich. 400.
Co., 5 Bush (Ky.), 225. * Burton's Appeal, 57 Pa. St. 213.
3 Sprigg V. Western U. Tel. Co., 46 « Taggart v. Western Maryland R.
Md. 67; Gifford w. New Jersey R. Co., Co., 24 Md. 563; s. c. 89 Am. Dec.
ION. J. Eq. 171; Mayor of Wetumpka 761, 771; Union Hotel Co. v. Hersee,
V. Winter, 29 Ala. G51; Hyatt v. Mc- 79 N. Y. 458.
57
1 Thomp. Corp. § 69,] amendment of charters.
without divesting any existing rights. ^ The power of a State to
reo-ulato the forms of administering justice is an incident of
sovereignty, and its surrender is never presumed. Therefore a
statute which prescribes a mode of serving process upon railroad
companies, different from that provided for in a charter previous-
ly granted to a particuhir company, does not impair the obliga-
tion of the contract between such company and the State, and is
not invalid. 2 So, it has been held that the legislature has the
power to modify at its pleasure a summary remedy against de-
faulting stockholders given to a corporation by its charter.^ So,
although a charter contain no provision for the liquidation of a
corporation in case of its dissolution^ the omission may be sup-
plied by subsequent legislation, without impairing the obligation
of the contract between the State and the corporators, conceding
the charter to be such.* So, a provision in a special charter pre-
scribing the manner in which the corporation must proceed in
condemning land, must yield to a subsequent general law pre-
scribing a different mode.^ There is more difficulty in uphold-
ing amendments which grant to individuals remedies against the
corporation which did not exist before, in such a sense that the
right inheres in the remedy. Thus, it has been reasoned, with
reference to a corporation which found it necessary to damage
land in the prosecution of its works, that the legislature could
not, by a law enacted subsequent to its charter, give to land-
owners a remedy for damages where none existed under the
charter. But where a supplementary charter had been accepted
by the corporation, in which a power was reserved to the legislature
to alter and amend its charter so as to do no injustice to its stock-
holders, — it was held competent for the legislature to enact a law
giving to land-owners a remedy for damages already done.^ But
such remedies may be given in the exercise of the police power,
which the State possesses alike over persons and corporations.^
1 Eeapers' Bank v. Willard, 24 111. •' ex parte North East &c. R. Co.,
433; Gowen v. Penobscot K. Co., 44 37 Ala. 679.
Me. 140', Cummings v. Maxwell, 45 ^ Haynes v. Carter, 9 La. An. 2G5.
Me. 190; Hyatt v. McMahon,23 Barb. « McCrea v. Port Royal R. Co., 3 S.
(N. Y.) 457. C. 381 ; s. c. 16 Am. Rep. 729.
2 Railroad Co. v. Hecht, 95 U. S. ® Monongahela Nav. Co. v. Coon, 6
168; affirming s. c. 29 Ark. 661. Pa. St. 379.
^ See Board of Int. Imp. v. Scarce,
.0 8
NON-ASSENTING SUBSCRIBERS. [1 Thomp. Corp. § 71.
§ 70. Amendments made in the Exercise of the Police
Power. — Nor can the legislature of the State, by the grant of
a particular charter to a private corporation, disable future
legislatures from enacting wholesome and necessary police recru-
lations;^ though in many cases great difficulty will be found in
drawing the line between an inviolable charter right and a police
regulation which it is competent for the legislature to enact. It
has been held that a statute of Massachusetts, relating to the
manufacture and sale of malt and other intoxicating liquors, is in
the nature of a police regulation of a particular kind of property,
and applies to such property when in the hands of corporations
as well as when in the hands of individuals; and that it does
not impair the obligation of the contract contained in the charter
of a corporation, although the corporation was created before
the passage of the statute, under a charter which authorized it
to manufacture such liquors, and although the legislature had re-
served no power to alter, modify or repeal the charter .^ It has
been held in Connecticut that a statute requiring a railroad
company to reopen and maintain a station on its road, which
it has abandqned, is not in the nature of an amendment of the
charter, requiring acceptance by the company before it can take
effect, but is an exercise of the legislative authority to direct the
management of the road, and is obligatory, from the time of its
enactment.^
§ 71. What Amendments Release Non-assenting Subscrib-
ers. — The relation between a corporation and a stockholder is
one of contract, and hence any legislative enactment which,
without the assent of the stockholder, authorizes a material
change in the powers or purposes of the corporation, not in aid
of its original object, is not binding upon him.* The grounds
2 Duv. (Ky.) 576; post, next section, 2 Com. v. Certain Intoxicating Liq-
and Ch. 118. uors, 115 Mass. 153. Compare Beer
1 Pos«, Ch. 118. Rodemacher v. Mil- Co. v. Massachusetts, 97 U. S. 25.
waukee &c. R. Co., 41 Iowa, 297 (im- ^ gtate v. New Haven &c. R. Co.,
posing liability for railway fires); 43 Conn. 351. See, in supposed illus-
Wilder v. Maine Central R. Co., 65 Me. tration of the text, State v. Greer, 9
332 (requiring railway companies to Mo. App. 219 (changing mode of
fence their tracks) ; State v. Noyes, 47 voting at corporative elections).
Me. 189; Indianapolis &c. R. Co. v. * Sparrow v. Evansville &c. R.
Townsend, 10 Ind. 38. Co., 7 Ind. 369; McCray v. Junction
59
1 Thomp. Corp, § 71.] amendiMent of charters.
on which stockholders are entitled to claim a release from the
obligation of their subscription, where there has been a material
change in the charter, are very plain. By his subscription, the
stockholder agrees to furnish money to be applied for a particu-
lar purpose. This, of course, does not bind him to furnish the
money if it is to be applied to a materially different purpose.^
A strictly logical, though extreme view is, that the alteration of
a corporate charter, affecting substantially the character of the
enterprise, can be had only by unanimous consent of the members
of the corporation. There are cases which uphold this rule to
the extent of declining any inquiry into the advantage or disad-
vantao"e which may flow from such a change to a dissenting
stockholder, or into the materiality or immateriality of the
amendment as affecting his contract, or into the private reasons
which he may have for dissenting from the change.^ They con-
cede to him the right to say non hocc in feeder a veni? But, as
corporate ventures, owing to unforeseen difficulties, can seldom
be carried out in strict accordance with the original under-
taking, most courts have found this rule too severe for practical
justice.* Two qualifications have therefore been grafted upon
R. Co., 9 Ind. 358; Booe v. Junction placed in a small majority to clog the
R. Co., 10 Ind. 93; Martin v. Junction wheels of a large corporation, by in-
R. Co., 12 Ind. 605; States. Bailey, 16 terposiug an injunction to its further
Ind. 46. progress, under an amendment which,
1 Union Locks &c. Co. v. Towne, 1 though makiug no material change in
N. H. 44; s. c. 8 Am. Dec. 32. See the charter, might yet contain such
also Middlesex Turnp. Corp. v. Locke, further privileges or indemnities as
8 Mass. 268; Middlesex Turnp. Corp. would be not only highly beneficial to
V. Swan, 10 Mass. 384; s. c. 6 Am. the corporation, but also, perhaps,
Dec. 139; Ang. & A. Corp., § 537. Of absolutely necessary to the profitable
course, and under any rule or theory, prosecution of its business. Or, again,
the consenting shareholders are bound, a corporator might, under this rule,
Chesapeake &c. Canal Co. v. Robert- when his subscription to the capital
son, 4CranchC. C. (U. S.) 291. stock was sought to be collected,
- Central R. Co. v. Collins, 40 Ga. avoid it upon the ground that the char-
617; Zabriskie v. Hackensack R. Co., ter had been changed in some imma-
18 N. J. Eq. 170. terial way, though the alteration had
3 Union Locks &c. Co. v. Towne, 1 never affected his interests. The courts
N. II. 44; s. c. 8 Am. Dec. 32. have, therefore, almost unanimously
* It has been observed: "Such a agreed in restricting their protection
rule has been found too stringent for over the minority to those changes in
the practical administration of jus- the charter which are radical." 53 Am.
tice. Too much power would thus be Dec. 462, note.
60
NON-ASSENTING SUESCKIBERS. [1 TllOmp. Coi'p. § 72.
it: 1. That it does not apply where the change produced by the
amendatory act is trifling or immaterial.^ 2. That it does not
apply, at least in its full force, where the act of incorporation is
by its terms subject to amendment ^ alteration or repeal at the
pleasure of the legislature.^ But, unless this power is reserved,
it must follow that the legislature cannot, in an amendatory act,
authorize the majority to accept the amendment so as to bind
the minority ; because this would have the effect of impairing
the obligation of the contract entered into among the corpora-
tion, the majority and the minority in the original subscrip-
tion ; ^ though an act of the English or Canadian parliament,
which is not under such a constitutional restraint, could easily
go to this extent.*
§ 72. View that Majority binds Minority except as to Fun-
damental Changes. — Most of the cases unite upon the practi-
cal and just rule that, when a person subscribes to the capital
stock of a corporation, he does it with the implied under-
standing that changes may be made in the charter by the action
of the majority, which do not radically deflect the enterprise
from its original purposes. Accordingly, the rule is said to be,
that in the absence of a power reserved by or to the legisla-
ture to amend the charter, or of a provision in the charter that
the majority may accept an amendment thereto, — an acceptance
by the majority of a material, radical or fundamental change in
the charter binds only the accepting majority, and discharges a
dissenting shareholder from his contract of subscription.^ On
1 Milford &c. Turnp. Co. v. Bxnish, acts not contemplated by the common
10 Oh. HI; s. c. 36 Am. Dec. 79. contract (Burmesteru. Norris, G Exch.
2 Such has been the case with all 790), by holding that it does not apply
the Massachusetts acts of incorpora- to corporate companies organized uu-
tion granted since March, 1831. Agri- der sanction of Parliament for an un-
caltural Branch Railroad v. Winches- dertaking involving public interests VLixd
ter, 13 Allen (Mass.), 32, per Chapman, duties. Ffooks v. London &c. R. Co ,
J, 17 Jur. 365; Stevens v. South Devon
3 New Orleans &c. R. Co. v. Harris, R. Co., 13 Beav. 48.
27 Miss. 517. ^ Mowrey v. Ind. & Cin. R. Co., 4
* The English court have gone Biss. (U. S.) 86; Clearwater y. Mere-
further, and have qualified the rule dith, 1 Wall. (U. S.) 25, 40; Railway
that a majority cannot bind the mi- Co. v. Allerton, IS Id. 233, 235; Ash-
nority in a joint-stock company as to ton u. Burbank, 2 Dill. (U. S.) 435;
61
1 Thomp. Corp. § 73.] amendment of charters.
the other hand, those changes in the charter which in no way
materially affect the compact subsisting among the share-
holders, but which merely have the effect of clothing the cor-
poration with additional immunities and privileges, in further-
ance of the original design of its incorporation, will, when ac-
cepted by a majority in amount or number of the shareholders,
according to the method of voting prescribed by the charter or
governing statute,^ bind the whole corporation, and a dissent-
ing: member will remain liable on his shares.^
Printing House v. Trustees, 104 U.
S. 711; Kenosha &c. R. Co. v. Marsh,
17 Wis. 13; Indiana &c. Turnp. Co. v.
Phillips, 2 Penr. & W. (Pa.) 184;
Brown v. Fairmouut Min. Co., 10
Phila. (Pa.) 32; Turup. Co. v. Arndt,
31 Pa. St. 317; Lauman v. Lebanon
Valley &c. R. Co., 30 Id. 42; McCray
V. Junction R. Co., 9 Ind. 358; Booe
V. Junction R. Co., 10 Id. 93; Shelby-
ville Turnp. Co. v. Barnes, 42 Id. 498;
Supervisors of Fulton Co. v. Miss. &c.
R. Co., 21 111. 338; Troy &c. R. Co, v.
Kerr, 17 Barb. (N. Y.) 581, 607; Buf-
falo &c. R. Co. V. Pottle, 2S Id. 21;
Hartford &c. R. Co. v. Croswell, 5
Hill (N. Y.), 383, 386; New Orleans
&c. R. Co. v. Harris, 27 Miss. 517, 537,
539; Hester v. Memphis &c. R. Co.,
32 Id. 380; Champion v. Memphis &c.
R. Co., 35 Id. 692; States. Accommo-
dation Bank of La., 26 La. Ann. 288;
Hoey V. Henderson, 32 Id. 1069;
Stevens v. Rutland &c. R. Co., 29 Vt.
54G; Waring v. Mayor &c. of Mobile,
24 Ala. 701 ; Winter v. Muscogee R. Co.,
11 Ga. 438; Fry v. Lexington R. Co.,
2 Met. (Ky.) 314; Thompson v. Guion,
5 Jones Eq. (N. C.) 113; Charlotte
Bank w. Charlotte, 85 N. C. 433; Mid-
dlesex Turnp. Corp. v. Locke, 8 Mass.
268; Bliddlesex Turnp. Corp. v.
Swan, 10 Id. 385; Old Town &c. R.
Co. V. Veazie, 39 Me. 571; Kean v.
Johnson, 9 N. J, Eq. 407; Black v.
Delaware &c. Canal Co., 24 Id. 455,
466; Tuttle v. Mich. Air Line, 35
62
Mich. 247; Marietta &c. R. Co. v.
Elliott, 10 Oh. St. 57; Union Locks
&c. V. Towne, 1 N. H. 44 ; Witter t>.
Miss. R. Co., 20 Ark. 488; Mississippi
&c. R. Co. V. Cross, Id. 443. See
Clinch V, Financial Co., L. R. 4 Ch.
Ap. 117; Dougan's Case, L. R. 8 Ch.
Ap. 540; Simpson v. Denison, 10
Hare, 54, 56.
1 Generally a majority in value, and
not a majority in number; otherwise
a majority in number having but a
relatively small interest in the cor-
poration, could, by their acceptance
of an amendmint to its charter, con-
trol the majority in amount and change
the nature of their investment. Wit-
ter V. Mississippi &c. R. Co., 20 Ark.
463.
2 Fry's Executors v. Lexington &c.
R. Co., 2 Met. (Ky.) 322; Waring v.
Mayor &c. of Mobile, 24 Ala. 201;
Everhart v. Westchester &c. R. Co..
28 Pa. St. 339; Irvine v. Turnp. Co.,
2 Penr. & W. (Pa.) 474 ; Clark v. Mo-
nongahela Nav. Co., 10 Watts (Pa.),
364; Poughkeepsie&c. Plank R. Co. v.
Griffin, 24 N. Y. 150; Taggart v. West-
ern Md. R. Co., 24 Md. 564; Bank v.
Richardson, 1 Me. 79; Bucksport R.
Co. V. Buck, 68 Id. 81; Woodfork t>.
Union Bank, 3 Coldw. (Tenn ) 488;
Greeneville &c. R. Co. v. Johnson, 8
Baxt. (Tenn.) 332; State v. Accommo-
dation Bank of La., 26 La. Ann. 288;
Joy V. Jackson &c. R. Co., 11 Mich.
155; Wilson v. Wills Valley R. Co., 33
NON-ASSENTING SUBSCRIBERS. [1 Thomp. Corp. § 74.
§ 73. View that Majority binds Minority unless there is a
Total Deviation from the Original Object. — There is another
and more limited view, that a change in the charter, procured
and accepted by a majority of the shareholders, will bind the
minority, unless the change is so radical as to have the effect to
wrench the enterprise, so to speak, entirely from its original
purpose, — as to change a canal company into a railway com-
pany, an insurance company into a banking company, or the
like. The view of these cases is that the dissenting minority
remain bound upon their contracts of subscription, provided the
general character and scope of the corporation remains the
same under the amendment as before, although the amendment
has worked a grave alteration in its organization, or in respect
of the extent of the undertaking which it was originally planned
to perform.^ In the view of these courts, the will of the major-
ity should govern, unless there is fraud, or an entire change in
the original purpose.^
§ 74. What Changes are Material so as not to Bind Minor-
ities. — Amendments to the charters oirailway companies which
essentially vary the route of the road,^ so as to cause it to run
through a different section of country, or otherwise essentially
alter its plan, or change its terminus,^ or extend the road be-
9
Ga. 470; Fall River Ironworks v. 8 Fla. 381; Dayton &c. R. Co. r. Hatch,
Old Colony R. Co., 5 Allen (Mass.), 1 Disney (Oh.), 84; Carrie v. Mut.
221 ; Agricultural R. Co. v. Winches- Ass. Soc, 4 Hen. & M. (Va.) 315.
ter, 13 Id. 29; Peoria v. Preston, 35 ^ Sprague v. Illinois &c R. Co., 19
Iowa, 115. 111. 174; Illinois &c.R. Co. v. Zimmer,
1 Banett u. Alton &c. R. Co., 13 111. 20 111. 654; Ross v. Chicago &c. R.
5C4; Peoria &c. R. Co. v. Elting, 17 Co., 77 111. 127. Compare Fulton
Id. 429; Sprague u. Illinois Riv. R. County v. Marsh, 10 Wall. (U. S.) 677.
Co., 19 Id. 174; Illinois Riv. R. Co, v. ^ Hester v. Memphis &c, R. Co., 32
Zimmer, 20 Id. 654; Rice v. Rock Miss. 380; Champion u. Memphis &c.
Island R. Co., 21 Id. 93; Illinois Grand R. Co., 35 Id. 692; Winter v. Muscogee
Trunk R. Co. v. Cook, 29 Id. 243; Ross R. Co., 11 Ga. 45; Buffalo &c. R. Co.
V. Chicago &c. R. Co., 77 Id. 134; Pa- v. Pottle, 23 Barb. (N. Y.) 21.
cific R. Co. V. Renshaw, 18 Mo. 21C; * Marietta &c. R. Co. v. Elliott, 10
Pacific R. Co. V. Hughes, 22 Id. 297. Oh. St. 57; Middlesex Turnp. Corp. u.
See also Gray v. Monon2:ahela Nav. Locke, 8 Mass. 267; Middlesex Turnp.
Co., 2 Watts & S. (Pa.) I.'jG; Cross v. Corp. w. Swan, 7d. 385; Plank Road
Peach Bottom R. Co , 90 Pa. St. 392; &c. Co. Arndt, 31 Pa. St. 317; Thomp-
Delawaro 11. Co. v. Tharp, 1 Iloust. son u. Guiou, 5 Jones Eq. (N. C.) 113.
(Del.) 174; Martin u. PensacolaR. Co.,
63
1 Thomp. Corp. § 75.] amendment of charters.
yond its charter limits,^ — will release a dissenting stockholder.
It is not enough that there may have been such a change as will
prejudice the personal interests of the dissenting stockholder. If
the general course of the roadway remains the same and no
change has taken place such as sacrifices to a material extent the
interests of the corporation, it will not be regarded as funda-
mental, in such a sense as to release dissenting stockholders.^ Nor
will an amendment conferring the power to construct a hrancli
road have this effect, the termini of the main line remaining the
same.^ But one who has subscribed to the stock of a '* life and
accident" insurance company is not bound to pay his subscrip-
tion after the company has been authorized, by a change in its
charter, to transact the business of " fire, marine, and inland in-
surance." *
§ 75. Amendments Authorizing Consolidation or Subdivis-
ion. Many decisions hold that an amendment providing for a
consolidation of the corporation with another is of such a funda-
mental character as releases dissenting shareholders in either
company; ^ and it has been held that equity will restrain a con-
solidation, at the suit of a dissenting stockholder, until security
is given him for the value of his interests.^ So, an amendment
1 Stephens?). Rutland &c. R. Co., 29 McCray r. Junction R. Co., 9 Ind.
Yt, 545. 358; Booe v. Junction R. Co., 10 Ind.
2 Fry V. Lexington &c. R. Co., 2 93; Shelbyville Turnp. Co. v. Barnes,
Mete. (Ky.) 322, 323; Wilson v. Wills 42 Ind. 498; Lauman v. Lebanon Val-
Valley R. Co., 33 Ga. 466; Irvine v. ley R. Co., 30 Pa. St. 42. Compare
Turnpike Co., 2 Penr. & W. (Pa.) Clinch v. Financial Co., L. R. 4 Ch.
474; Banet v. Alton &c. R. Co., 13 lU. 117; Dougan's Case, L. R. 8 Ch. 540;
504; Fall River Iron Works v. Old Thomas t?. Railroad Co., 101 U. S. 71;
Colony R. Co., 5 Allen (Mass.) 221. East Anglian R. Co. v. Eastern Coun-
3 Peoria &c. R. Co. v. Preston, 35 ties R. Co., 11 C. B. 775; Eastern
Xa. 115. Counties R. Co. v. Hav^kes, 5 H. L.
4 Ashton V. Burbank, 2 Dill. (U. S.) Cas. 331 ; Abbott v. Johnstown &c. R.
435. Co., 8 N. Y. 27; McGregors. Deal &c.
5 Pearce v. Madison R. Co., 21 R. Co., 18 Ad. & El. (n. s.) 618; s. c.
How. (U. S.) 441; Mowrey v. Cincin- 22 L. J. (Q. B.) G9; Kean v. Johnson,
nati R. Co., 4 Biss. (U. S.) 83; Clear- 9 N. J. Eq. 401; Troy &c. R. Co. v.
water V. Meredith, 1 Wall. (U. S.) 25
Tuttle V. Michigan Air Line, 35 Mich
247; New Jersey &c. R. Co. v
Strait, 35 N. J. L. 322; Carlisle v
Terre Haute &c. R. Co., C Ind. 316;
64
Boston &c. R. Co., 86 N. Y. 117; Mid-
dletown v. Boston &c. R. Co., 53
Conn. 351.
6 Lauraan v. Lebanon Valley R.
Co., 30 Pa. St. 42.
NON-ASSENTING SUBSCRIBERS. [1 Thomp. Coip. § 77.
providing for a subdivision of the corporation is fundamental
and will release dissenting subscribers.^ But where there is, at
the time of the incorporation, a general statute authorizing the
consolidation, the rule is different ; for here the implication of
the law is that the shareholder consents to hold his shares sub-
ject to the governing statute, which enters into and forms a part
of the contract.2 Laws have been enacted in some of the States
providing that, on the consolidation of two or more corpora-
tions, a dissenting stockholder may have his stock appraised and
purchased by the consolidated company.^
§ 76. Other Changes deemed Fundamental. — An amend-
ment authorizing a lease of the corporate property to another
corporation for 999 years rests on the same footing as an
amendment authorizing a consolidation, and is obviously funda-
mental in such a sense that it will be restrained in equity at the
option of a dissenting stockholder.* So is an amendment con-
ferring the privilege of selling the road owned by the corpora-
tion.5 So is an alteration reducing the minimum number of sub-
scribed shares, thus rendering a stockholder liable who otherwise
would not be.^
§ 77. Further Holdings on this Subject The view which
disregards the personal interests of the stockholder, althouo-h he
may have been induced to subscribe for his shares with the chief
view of promoting those interests,^ leads easily to such conclu-
sions as that his contract is not materially impaired when the
majority, contrary to his wishes, accept an amendment extending
the road beyond its charter terminus,^ or even changing its ter-
1 Supervisors v. Mississippi &c. R. ^ Black v. Delaware &c. Canal Co.,
Co., 21 111. 338; Indiana &c. Turnp. 24 N. J. Eq. 455.
Co. V. Phillips, 2 Penr. & W. (Pa.) s Kean v. Johnson, 9 N. J. Eq. 407.
^84- 6 Old Town &c. R. Co, v. Veazie,
2 Sparrow v. Evansville &c. R. Co., 39 Me. 571.
7 Ind. 3C9; Rjiilroad Co. v. Black, 79 ^ This is the view of several of the
111. 264. Compare Simpson v. Den- courts. Sprague v. Illinois &c. R. Co.,
ison, 10 Hare, 51. 19 111. 174; Illinois River R. Co, v.
3 N. J, Laws 1878, p. 58, § 2; Id. Zimmer, 20 111. 654. See also Irvine
1881, p. 222, §8; Id. 1883, p. 242, § 2; v. Turnpike Co., 2 Pear. & W. (Pa.)
N. Y. Laws 1884, Ch, 3G7. So in En- 46G.
gland: 25 & 26 Vict., Ch. 89, § 161, 175. » Peoria &c. R. Co. v. Elting, 17 lU.
5 65
1 Thump. Corp. § 78.] amendment of charters.
mini; ^ or reducing its length; ^ or directing material alterations
in its terminus, including the abandonment of one depot and
the erection of another ; ^ and one court has gone so far as to
hold that the subscriber's contract is not impaired unless he is
obliged to pay more money on his subscription.*
§ 78. Amendmeuts Increasing the Capital Stock. — As here-
after seen,^ a corporation cannot increase its potential capital
stock, without authority from the legislature, expressed in its
charter or governing statute. An increase of its capital stock is
a change of such a fundamental character that, where the govern-
ing statute empowers the corporation to do it, but does not pro-
vide by whom the power shall be exercised, it can not be exer-
cised by the directors, but must be exercised by the sharehold-
ers, or by the directors by the authority of the shareholders.*
But it does not follow from this that an increase of the capital
by a majority of the stockholders, under an amendment to a
charter, or under a general law, will operate to discharge a dis-
senting shareholder. One view is that the shareholder takes
his shares subject to the implication that the legislature may au-
thorize the board of directors to make such an increase.^ Another
is that whether the cai)ital stock has been properly increased is a
question which the State alone can raise,^ — at least that it cannot
be raised by a shareholder, under a plea of non-assumpsit y when
sued on his contract of subscription.^ But a shareholder who,
after the capital stock of the company has been increased, re-
tains his shares and participates in the profits, is estopped by his
429; Rice v. Rock Island R. Co., 21 s post, § 2079.
Id. 93; Cross v. Peach Blossom R. ^ Eidman v. Bowman, 58 111. 444;
Co., 90 Pa. St. 392. s. c. 11 Am. Rep. 90; Railway Co. v.
1 Sprague v. Illinois River R. Co., Allerton, 18 Wall. (U. S.) 233. Com-
19 111. 174. See also Illinois River R. pare Nashua &c. R. Co. v. Boston &c.
Co. V. Zimmer, 20 111. C54; Ross v. R. Co., 27 Fed. Rep. 826; Venner ?>.
Chicaio &c. R. Co., 77 111. 134. Atchison &c. R. Co., 28 Fed. Rep, 589.
2 Troy &c. R. Co. v. Kerr, 17 Barb. ' Payson v. Withers, 5 Biss. (U.
(N. Y.) 607; coiitra, Kenosha &c. R. S.) 276. See also PaciQc R. Co. v.
Co. V. Marsh, 17 AVis. 13. Hughes, 22 Mo. 291; s.c. 64 Am. Dec.
3 Worcester v. Norwich &c. R. Co., 295.
109 Mass. 103. « puUman v. Upton, 96 U. S. 329,
^ De'aware R. Co. v. Tharp, 1 per Mr. Justice Strong.
Houst. (Del.) 149. » Judgra., Ibid.
fir,
NON-ASSENTING SUBSCRIBERS. [1 Thomp. Coi'p. § 79.
cond^ict * from claiming exemption from the responsibilities of
his contract after the company has become insolvent.'-^ But the
rule may be different where the increase is wholly unauthorized,
and the question arises between the subscriber and the company
in an action for calls. ^
§ 79. Illustrations. — It has been held that an increase of the capi-
tal of a plank-road company and an appUcation of the funds so raised
to the construction of a branch road, in pursuance of an act of the
legislature passed since the date of a stock subscription, will not release
a stockholder.'* _ _ . _ Nor did a subsequent legislative amend-
ment of the charter of a railway company, changing its name, and
authorizing an increase of its capital and an extension of its road ; and
this, whether the alteration was beneficial to the stockholders or not, it
having been duly made, and without any fraud on the part of the com-
pany. ^ - - - - Upon like grounds, where the charter of an in-
surance company recited, "the capital stock shall be Si, 000, 000, and
may be increased to not exceeding So, 000, 000, at the discretion of the
stockholders," and, after a person had subscribed for a given number
of shares, the legislature amended the charter by declaring " the board
of directors shall have power to increase the capital stock of said com-
pany from time to time, in their discretion," — a subsequent increase
made by the directors, under the power thus conferred, was not such a
change in the contract of subscription as the legislature was prohibited
from authorizing, and did not discharge the shareholder.^
1 Post, § 2083. company to extend the road, and re-
2 Chubb V. Upton, 95 U. S. 665. tained his stock after the extension
3 Thus, where the directors of a has been made, and then sold the same
plank-road company, after the forma- for a valuable consideration to a third
lion of the company, extended the person, estop him from denying his
main line of the road beyond the liability to pay his subscription,
point originally specified, and in- Macedon &c. Plank-road Co. v. Lap-
creased its capital stock, without the ham, 18 Barb. (N. Y.) 312; Middlesex
written consent of the persons owning Turnp. Corp. v. Lock, 8 Mass. 268;
two-thirds of the capital stock, or a Middlesex Turnp. Corp. v. Swan, 10
majority of the inspectors, etc., as Mass. 384; Stevens v. Rutland &c. R.
provided by the first section of the Co., 1 Am. L. Reg. 154; s. c. 29 Vt.
New York Plank-Road Act, Laws N. 545.
Y. 1849, ch. 250, such acts being un- ■* Schenectady &c. R. Co. v.
authorized and illegal, exonerated the Thatcher, 11 N. Y. 102.
original stockholders from all liabil- ^ Buffalo &c. R. Co. v. Dudley, 14
ity to pay their subscriptions. Nor N. Y. 336.
would the fact that the stockholder * Payson v. Withers, 5 Biss. (U.
participated ita the proceedings of the S.) 269.
67
1 Tliomp. Corp. § SI.] amendment of charters.
§ SO. When Stockholder bound ou Principle of Acqui-
escence, Katiflcatiou or Estoppel. — Although the stockholder
does not affirmatively assent to the amendment of the charter,
and although the amendment may be of such a nature, or the
rule in the particular jurisdiction such that, if he had seasonably
dissented, the effect would have been to discharge him from his
liability as a stockholder, — yet if he lie by, expressing no dis-
sent, but allowing the corporation to go on under the amended
charter, incurring additional liabilities on the faith of his respon-
sibility as a subscriber to its capital stock, he will, on obvious
principles, preclude himself from setting up the defense of this
change in the charter, when proceeded against by the corpora-
tion or by its creditors to collect his unpaid subscription, or
otherwise to enforce his liability as a shareholder; and it is quite
immaterial whether his liability is placed on the ground of the
loss of his rights by laches, or his validation of an act of the
majority, not otherwise binding upon him, by his acquiescence,
or on the principle of an equitable estoppel, — though the better
reason seems to place it on the last named ground.^
§ 81. Effect of Want of Knowledge of the Change on the
Part of a Shareholder. — It should seem, on principle, that a
shareholder ought to be required to take sufficient interest in the
affairs of the corporation to know of an act of such importance
and publicity as a legislative amendment of the charter of the
corporation. It has accordingly been held that one who has
subscribed for shares in a corporation after it has accepted an
amendment of its charter, cannot avoid liability on his subscrip-
tion on the ground that he was ignorant of the change. ^ And
this is so for stronger reasons, where the shareholder, subse-
» Chubb V. Upton, 95 U. S. 665; Co., 10 N. J. Eq. 176; Zabrislde y.
ante, § 61; post, §3571; Martin v. Hackensiick &c. R. Co., 18 /d. 178; Ex
jl'ensacola R. Co., 8 Fla. 370; Mem- parte Booker, 18 Ark. 338; Mowrey r.
phis Branch R. Co. ■;;. Sullivan, 57 Ga. Ind. & Cin. R. Co., 4 Biss. (U. S.) 79;
240; Bedford R. Co. v. Bowser, 48 Pa. Upton v. Jackson, 1 Flip. C C. (U.
St. 29; Houston v. Jefferson College, S.) 413; Owen v. Purdy, 12 Ohio St.
63 /d. 428; Daubury &c. R. Co. v 79; Goodin v. Evans, 18 /d. 150.
Wilson, 22 Conn. 435; Vermont &c. 2 Sparrow u. Evansville &c. R. Co.,
R. Co. V. Vermont Cent. R. Co., 34 7 Ind. 369; Eppes v. Mississippi &c.
Vt. 2; Hayworth v. Junction R. Co., R. Co., 35 Ala. 54.
13 Ind. 318; Gifford v. New Jersey R.
IMMATERIAL AMENDMENTS. [1 TllOmp. Corp. § 82.
quently to the amendment, has voted at corporate meetings and
other \vise acted in a manner consistent only with the view of his
beino; a shareholder.^
§ 82. Other Alterations Iinmatepial and hence Permissive. —
Amono- the amendments of the charter which are deemed im-
material, or in furtherance of its design, and hence permissive,
are amendments changing the name of the corporation. ^ Where
a railroad charter has been granted by the legislature subject to
alteration or repeal, an amendment extending the time for the
completion of the road, is no alteration of the contract with a
subscriber to its stock. ^ Such an amendment, being for the
benefit of the corporation, will be jwesumed to have been passed
with the consent of the stockholders.* So, an alteration in the
charter of a private corporation, increasing the number of direct-
ors from five to nine, is not a fundamental alteration, and may
be accepted by a majority of the stockholders.^ So, of an
iimendment changing the location of a turnpike road; the gov-
erning principle here declared being that the benefit which re-
sults to individual property by the incorporation of a company
and the location of a road does not, in contemplation of law,
enter into the consideration of the contract of subscription, and
that such subscriptions are necessarily subject to the power of
the lecfislature to chancre the location of the road, where the con-
trary is not expressly stipulated.^ Nor did a subsequent altera-
tion of the charter of a navigation company, extending its
privileges, although its liabilities might thereby be extended.^
Nor did a subsequent act of Parliament, authorizing a railway
company to buy and work a canal from M. to A., and to make a
railway from D. to M. only, when the contract of subscription
1 Bedford R. Co. v. Bowser, 48 Pa. ■« San Antonio v. Jones, 28 Tex. 19.
St. 29. But see, contra, Old Town &c. » Mower v. Staples, 32 Minn. 284.
R. Co. V. Veazie, 39 Me. 571. * Irvin v. Turnpike Co., 2 Penr. &
2 Buffalo &c. R. Co. v. Dudley, 14 W. (Pa.) 466, opinion by Gibson, C.
N. Y. 330; Reading v. Wedder, 66 111. J. Compare Central Plank Road Co.
80; Bucksport &c. R. Co. v. Buck, 68 v. Clemens, IG Mo. 359,366.
Me. 81; Milwaukee &c. E. Co. v. ' Gray u. Monongahela Nav. Co., 2
Field, 12 Wis. 340; post, § 287. Watts & S. (Pa.) 156.
' Agricultural Branch R. Co. v.
Winchester, 13 Allen (Mass.), 29.
69
1 Thomp. Corp. § S-i.] amendment of ciiarteus.
provided for forming a company to make a railway " from D. to
M., and thence to A." ^
§ 83. Ameudments Changing Denomination of Shares. —
Where the original charter provided that the capital stock should be
divided into shares of $200 each, and the subscriber took four shares
of this denomination, and afterwards the charter was changed, dividing
the capital stock into shares of $100 each, which act was accepted by
the corporation, and four shares were assigned to the subscriber,
for which he paid in part, he was deemed to have assented to the
change. 2
§ 84. View that Subscription is made Subject to Legislative
Power to amend Charter. — Early decisions of the Supreme Court
of Pennsylvania denied the foregoing principles, and overrode the rights
of subscribers to the capital stock of turnpike companies, by holding
that such subscriptions to a corporation, providing for the location of a
turnpike road, were subject to the power of the legislature to change the
location of the road at an intermediate point, unless the contrary was
expressed.^ These cases proceed on an assumption which in many
cases is contrary to the fact, and therefore unsound as the basis of a
legal conclusion, that the benefit which results to individual property,
from the incorporation of such a company and the location of its road,
does not, in contemplation of law, enter into the consideration of
the contract of subscription ; wherefore it is reasoned that such sub-
scriptions are necessarily subject to the power of the legislature to
change the location of the intended road, where the contrary is not ex-
pressly stipulated.
1 Midland &c. R. Go. v. Gordon, 16 their holder should not, in the event
Mee. & W. 803. Many other cases are of a windiug-up, be placed on the list
found tending to establish the same of contributories. Sewall's Case, L.
doctrine: Middlesex T. Co. v. Loclje, R. 3 Ch. 131; Feiling's Case, L. R. 2
8 Mass. 268; Hartford &c. R. Co. v. Ch. 714. Compare Ind's Case, L. R.
Croswell, 5 Hill, 383; Indiana &c. T. 7 Ch. 485.
Co. V. Phillips, 2 Penn. 184; New 3 iryin v. Turnp. Co., 2 Penr. & W.
Orleans &c. R. Co. v. Harris, 27 Miss. (Pa.) 4G6; followed in Gray v. Mo-
517. nongahela Nav. Co., 2 Watts & S.
2 Kennebec &c. R. Co. v. Waters, 34 (Pa.) 161, and in Union Canal Co. v.
Me. 369. But the mere fact that tlie cZe- Young, 1 Wheat. (U. S.; 428. Com-
nomination of shares has heen changed, pare Mercer County v. Coovert, 6
if the shares are capable of being Watts & S. (Pa.) 71, where the first
traced and identified, is no objection of the above cases is commented upon.
to their validity, and no reason why
70
ASSENT BY DIRECTORS. [1 Thoilip. Coip. § 86.
§ 85. Materiality of Amendment Question for Court. —
Whether the alteration of a written instrument is material or not,
within the meaning of the rule by which an unauthorized altera-
tion discharges an obligor thereon, is a question of law for the
court, and is not to be submitted to a jury.^ By analogy to this
rule, the question whether the amendment of a charter by a
corporation is material or not, within the meaning of the rule
previously stated,^ is a question of law for the court, and is
not to be submitted to the jury.^ But it is a principle of pro-
cedure that, although the judge errs in submitting a question of
law to the jury, yet if the jury decide it rightly, a new trial will
not be granted.* Agreeably to this principle, where a judge
erroneously submitted to a jury the question of the materiality
of an amendment to the charter of a corporation, and they de-
cided the question in favor of the party asserting its materiality,
and it appeared to the reviewing court that it was the evident
purpose of the act to legalize previous illegal proceedings, and
that its effect was to reduce the capital stock at the option of
the corporation, — the court refused to set aside the verdict.^
§ 86. What Body may give Assent. — Fundamental altera-
tions of the charter, of the character above spoken of, can only
be assented to by the body who compose the corporation ; and
where that body is the stockholders, the directors or trustees
have no power to accept or reject such alterations.^ But while
1 Belfast Nat. Bank v. Harriman, 68 tion whether a change in the charter
Me. 522 ; Wood v. Steel, 6 Wall. (U. S.) was radical, with the direction to find
80; Overton v. Matthews, 35 Ark. 147. that the subscriber could not be held
3 Ante, § 71. to his subscription, if such was the
3 Memphis Branch R. Co. v. Sulli- case — a ruliug distinctly opposed to
van, 57 Ga. 240; Witter U.Mississippi the statement of the text and unsound
&c. R. Co., 20 Ark. 463. in principle. Southern Penn. &c. Co.
« Bernstein v. Humes, 78 Ala. 141; v. Stephen, 87 Pa. St. 190. There is
.Jones V. Pullen, 66 Ala. 306; Glenn v. also a holding to the effect that the
Charlotte &c. R. Co., 63 N. C. 10; materiality of the departure must rest
State u. Craton, 6Ired. L. (N. C.) 164; purely upon the circumstances of
Thornburg v. Maston, 93 N. C. 258, each case, though it is held to be a
264; Woodbury v. Taylor, 3 Jones L. question of law, to be decided by the
(N. C.) 504. court, on facts found or admitted.
6 Memphis Branch R. Co. v. Sulli- Witter v. Mississippi &c. R. Co., 20
van, 57 Ga. 240. But it has been held Ark. 463.
not error to submit to a jury the quos- « Com. u. Cullen, 13 Pa. St. 133;
71
1 Thomp. C()i'[). § S6.] amendment of charters.
they have no authority in the first instance to apply to the legis-
lature for, or to accept for the corporation, an amendment of its
charter ; yet, if they do accept such an amendment and act under
it for the corporation, the effect may follow of binding the individ-
ual members, on the principle oi ratification ov acquiescence .^ It is
scarcely necessary to add that, where a fundamental alteration of
a corporate charter is procured by the unauthorized action of
certain individual members or ofiicers, without any corporate ac-
tion, a non-assenting stockholder, who has not put himself in the
position of ratifying the legislation, will not be bound by it.^
An exceptional rule exists in Illinois, whereby the assent of the
directors to an amendment of the charter is held sufiicient to
bind dissenting stockholders and prevent them from being dis-
charged, by reason of the change of contract produced by the
amendment, from their contract of subscription. That court
started out by holding that amendments to the charter, of an
essential character, might be accepted by a majority of the
stockholders.^ It was an easy transition from this doctrine to
the conclusion that the will of this majority might fairly be sup-
posed to be evidenced by the action of the board of directors,
their representative. It has accordingly been held in that State
that an acceptance may be made by the board of directors so as
to bind dissenting stockholders. The court say: "There are
various modes by which amendments to charters may be ac-
cepted by corporations, or rather by which such acceptance may
be established, either for or against the corporation. The first,
and perhaps the most satisfactory, is where an amendment is
asked for in a general meeting of the stockholders, or where an
amendment, after it is passed, is accepted by a majority in inter-
est at such meeting. But this is not the only, nor indeed the
s. c. 53 Am. Dec. 450; Brown v. Fair- Fire Ins. Co. v. Stokes, 9 Phila. (Pa.)
mount Mining Co., 10 Phila. (Pa.) 80. Compare Blatcliford v. Ross, 5
32. That the directors cannot change Abb. Pr. (n. s.) (N. Y.) 434; s. c. 37
essentially the business of the cor- How. Pr. (N. Y.) 110; 54 Barb. (N. Y.)
poration, see Abbott v. Railway Co., 42; Banks v. Judah, 8 Conn, 160.
33 Barb. (N. Y.) 583; Cherokee Iron « Mississippi &c. Boom Co. v.
Co. V. .Tones, 52 Ga. 276. Prince, 34 Minn. 71 ; s. c. 24 N. W. Rep.
1 Marlborough Man. Co. v. Smith, 344.
2 Conn. 579; Brown v. Fairmount ^ Ante, ^ 73.
Min. Co., 10 Phila. (Pa.) 32; Mutual
72
ACCEPTANCE BY DIRECTORS. [1 Thomp. Corp. § 87.
most usual mode, in this country, of accepting amendments to
corporate charters. This is generally done by the board of di-
rectors, who are for the most part vested with all the corporate
powers of the company. We know of no case where it has been
questioned that the board of directors have power to accept an
amended charter, while that power has been expressly asserted
in at least two different cases by this court." ^
§ 87. When the Action of the Directors Evidence of Ac-
ceptance. — Where a new power is conferred upon a corpora-
tion, to be exercised within the general powers of the directors,
conferred upon them by the governing statutes and by the by-
laws of the company, the new power thus conferred is impliedly
to be exercised in like manner as similar powers conferred by
the original charter ; and when there is nothing in the grant
which, expressly or by inference, demands action by the stock-
holders, and the privilege granted contemplates an act within
the scope of the authority of the directors of an existing organ-
ization, the action of the directors alone will be sufficient evi-
dence of acceptance.^
1 Illinois liiver R. Co. v. Zimmer,
20 111. 654, 661; citing Banet f . Alton
&c. R. Co., 13 111. 508, and Sprague v.
Illinois River R. Co., 19 111. 174, The
language above quoted was re-afBrmed
in Illinois River R. Co. v. Beers, 27
111. 185, 189. In Illinois River R. Co.
V. Zimmer, supra, Mr. Chief Justice
Caton, who delivered the opiuiou of
the court, further said: "Indeed,
upon examination, it would probably
be found that not one in twenty of the
amended, or even original charters,
under which corporations in this State
are now exercising their franchises,
has ever been accepted by a formal
vote of the stockholders at large, and
probably a majority have never been
adopted by a formal vote even of the
board of directors, but have been ac-
cepted by user alone, which is another
and a common mode of accepting an
original charter by the corporators,
and even amendments thereto, both of
which stand upon precisely the same
footing in point of law. In neither
case does the act of incorporation be-
come the law of the corporators, pre-
scribing the extent of their rights and
the measure of their liabilities, till
they have accepted Its benefits and
consented to be bound by their liabil-
ities. If they claim the one they must
submit to the other." As to what
body may give assent to amendments
on application to a judicial court, see
post, § 127.
2 Eastern Railroad Co. v. Boston
and Maine Railroad, 111 Mass. 125,
130; citing Charles River Bridge Co.
V. Warren Bridge, 7 Pick. (Mass.)
344; Middlesex Husbandmen •». Davis,
3 Mete. ("Mass.) 133; Bangor &c. R.
Co. V. Smith, 47 Me. 34.
73
1 Thomp. Corp. § 89.] amendment of charters.
§ 88. Illustration. — A statute authorized a railroad company to
take for a passenger station land occupied by another railroad. The
by-laws of the company provided that the directors might purchase all
real estate they deemed needful for the railroad, and exercise all pow-
ers granted to the company by their charter, for the purpose of locating,
constructing and completing the railroad, and all other powers neces-
sary and proper to carry out the object of the company and the pur-
poses of their charter. It was held that an acceptance of the statutes by
the stockholders was not necessary to authorize the directors to take
the land.^
§ 89. Effect of Reservation of Power to Alter or Repeal. —
The reservation of the right of alteration and repeal in the char-
ter of a corporation has none of the characteristics of a mere
power, which, when once exercised, is exJiausted. Its operation is
on the legislative grant itself, to prevent its becoming, what it
otherwise might become, a contract with the State. An act
containing such a provision confers a mere privilege, subject at
any time to be withdrawn or modified at the will of the legisla-
ture.^ A different statement of the same principle is that, on
the acceptance by the corporation, the reservation by the legisla-
ture, of the power to alter and amend its charter at pleasure,
becomes part of the contract between the State and the corpora-
tors, and the exercise of it in no manner impairs the obligation
of the contract, within the meaning of the constitution of the
United States.^
1 Eastern Railroad Co. v. Boston legislatiire. Sagei?. Dillard,15B.Monr.
and Maine Railroad, 111 Mass. 125. (Ky) 340. The absurdity of such a
2 State V. Commissioners, 37 N. J. conclusion suggests itself without a
L. 228. moment's thought. The reasoning by
' Sprigg V. "Western Tel. Co., 46 which it is attempted to enforce this
Md. 67. See also Hyatt v. Whipple, conclusion is a strange abuse of rea-
37 Barb. (N. Y.) 595; Hyatt t?. Esmond, soning upon the impropriety of an act
37 Barb. (N. Y.) 601. Perrin v. Oliver, of the legislature, by which that body
1 Minn. 202. In a case in Kentucky undertook, by adding sixteen new
this salutary principle is entirely frit- trustees to an educational corporation,
tered away, by annexing to the legis- to change entirely the control and di-
lative reservation of the power to alter, rection of the corporation. The court
amend or repeal an act of incorpora- seemed to lean partly on the view that
tion, the implication that the power is the reserved power to amend the con-
to be exercised subject to the right of tract of incorporation which subsisted
the corporation to accept or reject any between the corporation and the State,
amendment or alteration made by the was a power to amend it between the
74
RESERVATION OF POWER TO AMEND, [1 Thomp. Coip. § 90.
§ 90. Whether this Power merely a Reservation to State
for Public Purposes. — There is a conflict of judicial opinion as
to the extent of the power which is reserved to the legislature
by a provision in a charter, in a constitution, or in a general
statute relating to corporations, reserving to it the power to al-
ter or repeal corporate charters. One view is that the power is
plenary, that the reservation lifts the legislature of the State
above the operation of the rule in the Dartmouth College case, by
a mere contract between it and any corporation which it creates,
arising by implication from an acceptance of the charter, so
that it becomes, in respect of its power over the charter, as pow-
erful as is the British Parliament. Under this view, the re-
served power of the legislature extends not only to altering the
charter, for any purpose connected with the public interests, but
also to altering it for the mere purpose of changing the rights of
the corporators as among themselves. This view has been taken
in New York,^ in Massachusetts,^ in Illinois,^ in Missouri,* and in
other States. A necessary result of this doctrine is that the legis-
lature may authorize any change in the organization, purposes or
powers of the corporation which the majority may desire, con-
trary to the will of the minority. Some of the cases above
quoted qualify the rule so as to state that this may be done pro-
vided the change is not a great departure from the original pro-
same persons, and not a power so to 2 Durfee v. Old Colony R. Co., 5
change it as to divest the persons in Allen (Mass.), 230.
possession of their franchise and sub- ^ Banet v. Alton &c. R. Co., 13 111.
stantially vest such franchise in other 504.
persons. But it is apparent that no * Pacific R. Co. v. Renshaw, 18 Mo.
extended course of reasoning can be 210; Pacific R. Co. v. Hughes, 22 Mo.
made on either of these propositions, 291; s. c. 64 Am. Dec. 265. See also
which will not result in the absurd Meadow Dam Co. v. Gray, 30 Maine,
conclusion that the creature which the 548. It is conceded, however, in Mis-
legislature has invested with the mere souri, that the rule would not apply in
privilege of existence, subject to its case the power reserved by the legis-
plenary power and absolute will, is by lature were so exercised as to cause an
the judicial courts erected into a being entire revolution in the character and
above the legislature which created it. objects of the corporation, such as
^ New York R. Co. v. Miller, 10 changing a railroad company into a
Barb. CN. Y.) 260; White u. Syracuse manufacturing company, or the like.
&c. R. Co., 14 Barb. (N. Y.) 560; The application of the rule has been
Schenectady &c. R. Co. v. Thacher, held unquestionable where all the
11 N. Y. 102; Buffalo &c. R. Co. v. changes which were effected by the
Dudley, 14 N. Y. 336. amendments were such as an enlight-
75
1 Thornp. Corp. § 01.] amendment of cpiauters.
ject; but the principle remains the same. The other view is
that this reservation is intended to prevent the evils which flow
from inconsiderate legislation under the rule in the Dartmouth
College case; that it is intended merely as a reservation, on the
part of the State, of the power to alter or repeal charters, when
necessary to protect the interests of the State or of the public ;
and that the legislature of a State cannot, with the inhibition of
the Federal constitution resting upon it, by such a reservation,
create for itself the power to impair the obligation of contracts
subsisting between private parties. This latter view was very
clearly expressed by Chancellor Green in the following lan-
SUiiffe: *' It was a reservation to the State for the benefit of the
public, to be exercised by the State only. The State was mak-
ino- what had been decided to be a contract, and it reserved the
power of change by altering, modifying, or repealing the con-
tract. Neither the words nor the circumstances nor apparent
objects for which this provision was made can, by any fair con-
struction, extend it to giving a power to one part of the corpora-
tors, as against the other, which they did not have before." ^
§ 91. Further of this Subject. — Clearly there must be some
limitation on the power of the legislature under such a reserva-
tion. Taking the largest possible view of the scope of such a
reservation and conceding that it leaves the legislature of a
State substantially where the Parliament of Great Britain stands,
with plenary power over the subject, yet, as elsewhere seen,
there is authority in the judgments of the English courts for the
proposition that the Parliament cannot force a man to become
a member of a corporation against his will.^ This conclusion
flows from the consideration that, in the nature of things, there
are implied reservations upon the power of the legislature in
every free government, which do not depend for their sanction
ened policy might well have suggested Ware v. Grand Junction &c. Co., 2
as beneficial to the State as well as to Russ. & M. 470.
the company, and such as to preserve ^ Zabriskie v. Hackensack &c. R.
the company its identity, and to pre- Co., 3 Green (N. J.), 78; s. c. 90 Am.
serve the character which it had when Dec. 617, 622. Compare the opposing
first created. Pacific Railroad r. Ren- opinions in the Sinking Fund Cases, 99
shaw, 18 Mo. 210, 216. Compare U. S. 700, and in Munn v. Illinois, 94
U, S. 113. 2 Ante, § §2.
76
BY GENERAL LAWS. [1 Tliomp. Corp. § 92.
upon the prohibitions of written constitutions.^ It is therefore
supposed to be, under all theories which obtain in American
courts, a necessary limitation upon the power of State legisla-
tures that such a legislature caunot force upon a body of co-
adventurers powers and privileges which even the majority of
them are not willing to accept, — in other words, that it cannot
force men to engage in a business of a private character in which
they do not see fit to engage. On the other hand, it can, of
course, incorporate any community or territorial subdivision of
the State for miuiicipal or public purposes, against the will of
the inhabitants, in the absence of any constitutional restraint.
But here the resemblance between public and private corpora-
tions, in respect of this question, ends. The distinction taken by
the Missouri court, in two cases already cited, ^ between puh-
lic and private corporations, in respect of this question, is no
distinction whatever in principle. It can make no difference
whatever in respect of the rights of the subscriber, whether the
corporation be merely a private venture, or whether the public
interest be involved therein; since (outside of the power of
taxation) the public is no more entitled, thun a man's co-adven-
turers in a strictly private enterprise would be, to demand his
money for a purpose for which he had never agreed to give it.
If the public want a different enterprise from the one to which
the subscriber has agreed to contribute, the public ought to pay
for it. A new limitation of the power of the State legislatures
has arisen under the Fourteenth Amendment to the constitution
of the United States,^ which provides : " Nor shall any State de-
prive any person of life, liberty or property without due process
of law." This limitation will ])robably prove more effective for
the protection of the rights of minority stockholders than that
relating to the oblicration of contracts.*
§ 92. Power to Alter or Repeal, reserved in a General
Law, applies to Future Special Charters. — The power re-
1 Loan Association v. Topeka, 20 * Const. U. S., 14th Amend., § L
Wall. (U. S.) (;05. * See People v. O'Brien, 111 N, Y.
2 racific R. Co. V. Renshaw, 18 Mo. 36; Chicago &c. R. Co. v. Minnesota,
210; Pacific R. Co. v. Hughes, 22 Mo. 134 U. S. 418.
291 ; s. c. 04 Am. Dec. 265.
77
1 Thomp. Corp. § 93.] amendment of charters.
served to the legislature by the terms of a general statute, pros-
pective in its language, to amend or repeal, at the will of the
le^^lslature, all grants to corporations or amendments thereof,
operates on all future charters, although such charters are silent
on the subject of such legislative right, and becomes a part of the
contract created by them, as much so as if expressed in the
charter itself. The principle generalia specialibus non derogant,
does not apply in such a case, for to make it apply would be to
defeat the plain legislative intent. The principle rather applies
that grants by the State to corporations are to be strictly con-
strued in favor of the State and against the corporation, and
that privileges or immunities not expressly conferred are not to
be regarded as passing by the grant, where the instrument itself
is silent, and another statute, intended to be applicable to all
future grants of such a character, prescribes that the privilege
or immunity shall not pass.^
§ 93. Illustration. — The legislature of Kentucky passed a general
law providing that " all charters and grants of {sic) or to corpora-
tions, or amendments thereof, and all other statutes, shall be subject to
amendment or repeal at the will of the legislature, unless a contrary in-
tent be therein plainly expressed, —provided that, whilst privileges and
franchises so granted may be changed by repeal, no amendment or re-
peal shall impair other rights previously vested. ' ' It has been held that
the proviso to this statute was intended to secure the rights of benefi-
ciaries and others, vested under the charter before its amendment or re-
peal, and does not affect the mere power to repeal the franchise. Subse-
quently to the passage of this statute the legislature of Kentucky created
an insurance company, without expressly reserving in the charter the
power to repeal it. Three years later the legislature passed an act re-
1 Suydam v. Moore, 8 Barb, (,N. S.) 500; Miller v. State, 15 Wall. (U.
Y.) 3.58; Read v. Fraukfort Bank, 23 S.) 488; State v. Commissioner, 37 N.
Me. 318; Fry u. Lexington &c. K. Co., J. L. 228, 237; Story v. Jersey City &c.
2 Mete. (Ky.) 314; Griffin v. Kentucky R. Co., 16 N. J. Eq. 13; State v. Per-
Ins. Co., 3 Bush (Ky.), 592; State v. son,32N.J. L. 134; s. c. affirmed, Id.
Maine Central R. Co., 66 Me. 488; 566; West Wisconsin R. Co. u. Super-
Tomlinsonu. Jessup, 15 Wall. (U. S.) visors, 35 Wis. 257; General Hospital
454, 458; Tomlinson v. Branch, 15 u. InsuranceCo., 14 Gray (Mass.), 227;
Wall. (U. S.) 460; Bangor &c. Rail- Pennsylvania College Cases, 13 Wall,
road V. Smith, 49 Me. 9; Roxbury v. (U. S.) 190, 213; Sala u. New Orleans,
Boston &c. Railroad, 6 Cush. (Mass.) 2 Woods (U. S.), 188; Lothrop r.
424; Holyoke f. Lyman, 15 Wall. (U. Stedraan, 42 Conn, 453.
78
BY GENERAL LAWS. [1 Thomp. Corp. § 96.
pealing the charter of such company. It was held that the repealing
act was constitutional and valid. ^
§ 94. Subsequent General Laws operating as Amendments
of special Charters. — Where the power to alter or repeal is re-
served in a special charter, a subsequent general statute, appli-
cable to all corporations of the kind, will operate as an amendment
of the special charter of the particular corporation. Thus, if the
charter of a railroad company is granted subject to the power
of the legislature to amend it, a subsequent statute requiring all
railroad companies to maintain fences on their roads where run-
ning within the limits of any highway, will operate as an amend-
ment of the special charter, and the corporation will be bound to
perform the duty thereby enjoined, or answer in damages to the
traveler injured through its non-performance.^
§ 95. Amendments authorizing a Surrender of Fran-
chises. — As private corporations have the general power of sur-
rendering their franchises and thereby ceasing to exist,^ it
necessarily follows tht^t a statute authorizing a strictly private
corporation to do this, does not impair the obligation of the con-
tract subsisting between the State and the corporation, because
it merely operates as giving the consent of the State to what the
corporation has power to do without such consent.* It is, there-
fore, a general principle that a corporation may at any time sur-
render its charter^ and accept a new one with other and different
provisions.^ An exception to this rule exists in the case of
corporations which have assumed duties toward the public which
they may not rightfully cast off by their voluntary action.®
§ 96. Wlien Acceptance of Amendment not Necessary. — As
elsewhere seen,''^ cases may arise where an additional power, con-
ferred upon a corporation by an act of the legislature supple-
mentary to its charter, will be merely in furtherance of power
1 Griffin v. Kentucky Ins. Co., ;3 •• Houston v. Jefferson College, 63
Bush (Ky.), 592. Pa. St. 428, 437.
' Durand v. New Haven &c. Co., 42 '^ Attorney-General v. Clergy So-
Conn. 211. ciety, 10 Kich. Eq. (S. C.) 604.
s Post, Ch. 154. « Post, Ch. 154.
' Ante, I (58, 87,
79
1 Thomp. Coi'i). § 07.] amendment op charters.
conferred upon the directors by a by-law of the company, so that
it will not be necessary to the exercise of the power by the directors
that the stockholders should expressly authorize them to act in con-
formity with it.*
§ 97. Evidence of Acceptance of Amendment by Corpora-
tion. — It has been well said that it is an acceptance in fact of
the amendment to the charter, and not the filing of any
formal certificate of acceptance, that binds a corporation to
the amendment.^ It is also a reasonable conclusion that the
assent of a corporation to an alteration of its charter may be
inferred from such facts or omissions as would raise such a pre-
sumption in the case of a natural person.^ There is ?i presump-
tion of an acceptance where the amendment consists of a grant
beneficial to the corporation.* Such an acceptance may be shown
by.the exercise by the corporation of the powers conferred by
the amendment ; ^ by showing that the corporation has done
particular corporate acts authorized by the amendment, but with-
out which such acts would not have been authorized ; ^ by the
fact that the officers of the corporation have exercised the
powers conferred by it; ^ or, in general, by showing acts or
omissions on the part of the corporation inconsistent with any
other hypothesis.^ Where such an assent is sought to be proved
1 Eastern R. Co. v. Boston &c. R. St. 150; Penobscot Boom Co. v. Lam-
Co., Ill Mass. 125; s. c. 15 Am. Rep. son, 16 Me. 224; s. c. 33 Am. Dec. 65(3.
13. A general act, amounting to an amend-
2 Cincinnati &c. R. Co. v. Cole, 29 meat of all railroad charters, was
Ohio St. 126; Zabrisliie ??. Cleveland deemed to have beenacceptedVjy action
&c. R. Co., 23 How. (U. S.) 331. under it by the officers, who had power
3 Sumrallu. SuaMutual Ins. Co., 40 to request amendments, no stocli-
Mo. 27, 32; Commonwealth v. CuUen, holders ever objecting to it. Sraead
13 Pa. St. 133; s. c. 53 Am. Dec. 450. v. Indianapolis &c. R. Co., 11 Ind. 104.
* "Where the new grant is bene- And this rule applies when the powers
flcial in its aspect, it is thought very are conferred by a general laio, which
little is required to found a presump- is declared applicable to any one of a
lion of acceptance." Bell, J., in Com. class of corporations that may accept
w. CuUen, 13 Pa. St. 133; s. c. 53 Am. its provisions. Goodiu v. Evans, 18
Dec. 450, 454. See also Bangor &c. Oh. St. 150.
R. Co. V. Smith, 47 Me. 34. ^ Kent County Court v. Bank Lick
5 Wetumpka &c. R. Co. v. Bingham, Turnpike Co., 10 Bush (Ky.), 5-'!).
5 Ala. 658; Palfrey v. Paulding, 7 La. ' Story, J., in U. S. v. Dandridge,
An. 363; Bangor &c. R. Co. v. Smith, 12 Wheat. (U. S.) 64.
47 Me. 34; Goodin v. Evans, 18 Ohio * Hope &c. Ins. Co. v. Beckmann,
SO
EVIDENCE OF ACCEPTANCE. [1 Thomp. Corp. § 98.
by a vote of acceptance on the part of the corporation, it should
appear that the vote was passed at a general meeting, duly con-
vened, after notice to all the members : the election of corporate
ojQScers, in pursuance of a new charter or the alteration of an
old charter, is but presumptive evidence of an acceptance of the
amendment creating the alteration.^ So, if the taking effect of
the act depends upon the performance by the corporation of con-
ditions precedent prescribed by the act, an acceptance in strict
conformity with the provisions is necessary to render the act oper-
ative, either as a grant to or an obligation upon the corporation.^
§ 98. Evidence of Acceptance by Stockholders. — The
rule of the preceding section does not, on principle, hold
as against dissenting stockholders and their privies.^ When
the quet^tion arises between a dissenting stockholder, or his
privies, on the one hand, and the corporation or the majority
shareholders on the other, and he has not lost his rights by laches or
estoppel, — then it is a fair view that he is not bound, because it
is one of his rights as a member to have his dissent heard and
discussed in a corporate meeting.* But circumstances may of
course exist from which the assent of the objecting subscriber to
the alterations in the charter, which were made subsequently to
his subscription, may be inferred, without direct evidence of such
assent.^ And where it does not appear by whom an amendment
to the corporate charter was accepted, or whether it was ac-
cepted at all, it is sufficient, 2)ri7na facie, if it appear that the
corporation is organized and acting under it ; and in an action by
such a corporation, the plaintiff is not under the burden of show-
ing such an acceptance. It is said that, while an issue might be
made that would involve the question, yet in the prosecution of
47 Mo. 93 ; Hope &c. Ins. Co. v. Koeller, ^ Vermont & Canada R. Co. v. Ver-
47 Mo. 129; Wetumpka &c. R. Co. v. mont &c. R. Co., 34 Vt. 50; Owen r.
Bingham, 5 Ala. G57; State v. Sibley, Piirdy, 12 Oh. St. 73; Lyons v. Orange
25 Minn. 387; Palfrey v. Paulding, 7 &c. R. Co., 18 Md. 32; New Orleans
La. An. 3(13; Covington v. Covington &c. R. Co. v. Harris, 27 Miss. 517.
&c. R. Co., 10 Bush (Ky.), 69; Bangor * Com. v. Cullen, 13 Pa. St. 133;
&c. R. Co. V. Smith, 47 Me. .34. s. c. 53 Am. Dec. 450.
1 Com. V. Cullen, 13 Pa. St. 133; s. * See in illustration of this, Con-
c. 53 Am. Dec. 450. necticut &c. R. Co. v. Bailey, 24 Vt.
2 Lyons v. Orange &c. R. Co., 32 465; s.c 58 Am. Dec. 181, 190.
Md. 18.
6 81
1 Thomp. Corp. § UO.] amendment of charters.
its ordinary business, the assent to tlie new charter will be in-
ferred from anj"^ acts or omissions which are inconsistent with any
other hypothesis.^ In like manner it is said by the Supreme
Court of Ohio : ** The law protects any stockholder who, his as-
sent being requisite to the amendment of a charter, has not as-
sented. If a personal charge is sought to be fixed upon him by
virtue of such amended charter, he may deny that he assented ;
he is not concluded by any presumption, arising from the acts of
the other corporators or corporate body. If his interest in the
corporation or rights as a stockholder will be affected by acting
under the amended charter before it is accepted in the prescribed
mode, he may invoke the aid of the State in aquo warranto; or,
in an action by himself, the power of a court to restrain. But
it cannot be permitted that a corporator, though his assent be in
the first instance required, shall stand by, consenting to the
progress of a corporation, under a charter, and then, when his
interest shall so require, set up, either as a claim or defense, that,
for want of his direct assent, the grant of a charter was not effect-
ive, and the acts done were illegal," ^
§ 99. View that Assent of Stockholder is to be Presumed,
and Dissent Proved. — It is said in an authoritative work that " no
point is more clearly and firmly settled than that if a corporation pro-
cm'e an alteration to be made in its charter, by which a new and differ-
ent business is superadded to that already contemplated, such stock-
holders as do not assent to the alteration will be absolved from liability
on their subscription to the capital stock. ' ' ^ This language has been
criticised as maintaining the proposition that affirmative assent is in
such a case required.* The following proposition in the work of
Mr. Kyd has been judicially approved: "It seems to be the first
suggestion of reason that an act done by a simple majority of a
collective body of men, which concerns the common interest, should
be binding on the whole ; and that is the principle of the rule adopted
by the common law of England with respect to aggregate corpora-
1 Hope Mut. Fire Ins. Co. v. Beck- Connecticut in 1830: Banlis v. Judah,
mann, 47 Mo. 93, 97. 8 Conn. 160.
2 Owen V. Purely, 12 Oh. St. 79, ^ Ang. & A. Corp., § 537.
The principle that a minority stock- •• Martin v. Pensacola &c. R. Co.,
holder may, by his laches, lose his 8 Fla, 370; s. c. 73 Am. Dec. 713,
right to object to a reorganization, 717.
seems to have been first decided in
82
ASSENT PKESUxMED, [1 ThoiJip. Coip. § 99.
tions. ' ' 1 Reasoning from these propositions, the Supreme Court of Flor-
ida, speaking through Dupont, J., have said: " It would seem that,
where the company undertakes to depart from or add to the original ob-
ject or design, as set forth in the articles of association, or charter of incor-
poration there is this manifest difference between a simple partnership and
an incorporated association : in the former, the assent of the individual
member is not to be assumed — ■ it is to be affirmatively established by
positive proof ; in the latter his assent will be presumed, unless he affirm
atively proves his dissent. The ground of difference will be obvious to
any reflecting mind. In the former case, the association being usually
Umited to a few members, they are generally competent to act in mass ;
whereas, the latter being composed of numerous individuals residing in
remote locaUties, they are constrained, by the very necessity of the
case, to speak through a conventional medium, viz. , an organized ma-
jority. If this were not so, then would great inconvenience arise when-
ever it should become necessary for the interest of the association to
vary from or add to the objects of the original enterprise. How would
it ever be possible to obtain the express assent of each corporator ? In
many cases their particular localities would be unknown, and, if orig-
inally known, may have been changed from place to place. If this were
not so, then, in every case of the decease of a stockholder, the corpo-
ration could accept no alteration of its charter, however such alterations
might promote its interest and the consequent interest of each individ-
ual corporator, without reducing the original capital by the amount of
stock standing in the name of the deceased ; for it would not be pre-
tended that the executor or administrator would have the authority, in
such case, to assent, however clear it is that he would have the right to
dissent, from the attempt to involve the estate in the new enterprise.
Again, if this were not so, the rights and interests of the creditors
would be at the mercy of the corporation ; for, upon discovering that
the prosecution of the original design of the charter had involved it in
debt, and that its further pursuit was likely to prove unprofitable and
disastrous, in order to absolve its members from liability for any further
calls, it would only be necessary to obtain from the legislature an alter-
ation of the charter, accepted by a meeting of stockholders composed
of a bare quorum, under the provisions of the charter ; and, as each
individual might be sued upon his subscription, he would plead a want
of express assent, and, unless it could be affirmatively proved that he
was present at the meeting, he would be released, and the creditors de-
frauded of their just rights. But how is the fact of his presence to be
1 1 Kyd Corp. 422; Martin v. Pensarola &c. R. Co., 8 Fla. 370; s. c. 73 Am.
Dec. 718.
83
1 Thomp. Corp. § 100.] amendmen^t of charters.
proved ? Who is the witness who will })vove that he was at the meeting
and consented to the alteration ? The case before us fully illustrates
these \iews; for, of all the witnesses interrogated, none could remem-
ber whether or not the defendant was present at the meeting which ac-
cepted the provisions of the internal improvement act, which, it is
alleged, made a material alteration of the object contemplated in the
original charter. And yet he may have been present, consenting to the
act of acceptance, and, for the lack of this proof, he is to be absolved
from his liabihty on his subscription, and the creditors, contractors,
and laborers, who have given credit in part upon the faith of his sub-
scription, to be deprived of their just rights ; and this, too, without the
slightest pretense that any injury or loss has or was likely to accrue to
him from the alleged alteration. . . , The individual subscribes
to the contract, with the distinct knowledge and understanding that its
terms may be varied at any time by a concurrence between a majority
of his associates and the legislature, -ind that, too, without his assent
and in defiance of his dissent. Nay, he subscribes with the distinct
knowledge that, with such concurrence, the terms of the charter may
be totally altered, so that the corporation may be authorized to embark
in new enterprises wholly and essentially different from those originally
contemplated, and that his only remedy is to dissent and withdraw from
the association. With these distinguishing features, can it be seriously
contended that the mere subscription to the stock of a corporation stands
upon the same footing and is to be governed in all respects by the general
law of contracts as applicable to private or individual agreements ?' ' The
court therefore held that no error was committed in gi\ing the following
instruction, in an action by a corporation against its shareholder for an
assessment on his stock: "That the defendant must show that he
made timely objection to the acceptance of the internal improvement
act ; and the presumption is, in the absence of proof to the contrary, that
he assented to the action of the stockholders who unanimously accepted
the act ; and especiallj^ is the presumption proper where the company
has contracted debts to large amounts before any objection is made." ^
§ lOO. Instances under tlie Foregoing Rules. — An act of the
legislature, in addition to a former act, creating a corporation for the
1 Martin v. Pensacola &c. R. Co., 8 by the constitution of the United
Fla. 370; s. c. 73 Am. Dec. 713. States, yet, in the absence of cora-
'' While it is true that each corporator plaint, acquiescence in the change
may object to the repeal or to any may be inferred, and ultimately its
material modification of the provis- acceptance by the corporators."
ions of the charter granted for ot!;er Western &c. R. Co. v. Rollins, 82 N.
than municipal purposes, and consti- C. 523. Compare Mills v. Williams,
tuting a legislative contract protected 11 Ired. L. (N. C.) 558.
84
ASSENT PRESUMED. [1 Thoilip. Coi'p. § 100.
management of a trust fund, was passed without the knowledge or re-
quest of the corporation, and was never adopted by any direct vote ;
but the corporation, ha\dug elected certain officers, provided for by the
act in addition, and such officers having exercised the powers thereby
conferred on them for nearly ten years, — it was held that these pro-
ceedings were equivalent to, or sufficient e\idence of, a formal assent or
adoption by the corporation.^ _ _ _ . Previous to the passage of
the Ohio general railroad act of February 11, 1848, a railroad company
was chartered by a special act of the legislature, which empowered the
directors to transact all the business of the company, but did not ex-
pressly authorize subscriptions to the capital stock in real estate. This
pri\dlege was conferred by § 14 of the act of 1848, upon all railroad
corporations then existing that might accept tlie power so conferred.
After the passage of that act, the directors entered on the records of
the company a resolution that subscriptions to the capital stock might be
made in real estate. The company then received real estate subscriptions
to its stock, and sold and conveyed the same to bona fide purchasers
with the knowledge of such subscribers, and without objection on their
part, until many j^ears after, when the stock had become worthless, and
the enterprise for which the company was organized had been abandoned.
It was held, that, in a suit b}-- a subscriber against a purchaser from the
company, to recover back the land conveyed by him to the company on
such subscription, proof of the exercise of the privileges conferred by
the act of 1848, upon the company, under a resolution of the parties to
the suit, was sufficient evidence, as between them, that the company
had accepted the powers conferred in that section, and was thereby au-
thorized to take and convey land received on subscription to its capital
stock. 2 - - - - Where a corporation was organized under an act
of the legislature passed in 1859 ; and an amendatory act, the acceptance
of which was drawn in question, was shown to have been drawn up by the
attorney of the corporation, and its passage procured upon the applica-
tion of at least a portion of the directors ; and it also appeared that the
board of directors authorized the opening of books of subscription to
the guarantee fund, provided for by the amendment, at different times
after the subscription which was drawn in question ; and, also, that, at
various times, the by-laws of the company recognized this subscription
by regulating the rate of interest to be paid on the same, and the date
at which computation commenced ; — these acts were held to operate as
an estoppel against the corporation, and to furnish evidence from which
an acceptance of the amendment might be presumed. ^ And this, althouo-h
1 Third School District in Blaud- 2 Goodiu v. Evans, 18 Ohio St. 150.
ford 1;. Gibbs, 2 Cush. (Mass.) 39. " Siimrall w.Mut. Ins. Co..40Mo. 27.
85
1 Xlionip. Corp. § 101.] amendment of charters.
as already seeu ^ the directors of a corporation have no power, in the
absence of statute, to do or consent to anything which changes the
constituent character of the corporation, because their office is merely
that of business managers. - - - - On a somewhat similar principle,
where the charter of a railroad company contains a provision for obtain-
ing title in case any person shall own any private right or interest in any
of the streets or avenues over or upon which the railroad is authorized to
be laid, by accepting such a charter, the grantees must be deemed to have
conceded that the nature of the improvement calls for a new assessment
of damages, or must have stipulated to make such an assessment in
consequence of the benefits acquired by them under their act.^
§ 101. Estoppel to Deny Acceptance of Amendment. — As
hereafter seen, the person who contracts with a corporation or
with persons claiming to be a corporation, by its corporate name,
becomes estopped to deny the corporate existence, when sued
upon the contract.^ Upon a similar theory one who contracts
with a corporation, acting under an amended charter antl by its
amended name, will not be heard to complain that the amend-
ment has not been properly accepted by the corporation.* This
estoppel works against the corporation, as well as in its favor.
If, therefore, a statute is passed creating new powers, and pro-
viding that any existing corporation may accept it, and that, on
filing their acceptance, that part of their charter which is incon-
sistent with the act shall be repealed, and a corporation assumes to
act under the statute and exercise the powers, though without fil-
ing the required acceptance, they cannot exonerate themselves
from responsibility upon contracts made in the exercise of such
powers, by objecting that they had not filed the evidence required
by the statute to evince their decision to accept it. Although a
corporation cannot vary from the object of its creation, and per-
sons dealing with it must take notice of whatever is contained in
the law of its organization, nevertheless, in cases in which a cor-
poration acts within the range of its general authority, it may be
bound, though failing to comply with some formality or regula-
tion which should not have been neglected, but has been.^
1 Anle, § 86, » Post, 8 518, and Ch. 184.
2 People V. Law, 3-t Barb. (N. Y.) < Eppes v. Mississippi R. Co., 35
494. See also Beats v. Benjamin, 29 Ala. 33.
How. Pr. (NY.) 109. « Zabriskie v. Cleveland &c. R.
8G
ESTOPPEL TO DENY ACCEPTANCE. [1 Thomp. Corp. § 103.
Where an amendment to a charter of a private corporation is en-
acted by the legislature, upon conditions which are to be accepted
in full of all demands which the corporation has against the
State, if the conditions are so accepted by the governing body,
pursuant to the terms of the grant, by a formal instrument of
acce^)^ance, such acceptance will create a binding contract between
the State and the corporation, which the corporation can not
thereafter avoid or set aside, on the ground that it was executed
by its governing body in ignorance of the real nature and extent
of their rights against the State. ^
§ 102. View that Objection can only be raised by Quo War-
ranto, etc. — Where the amendment is such that it does not sub-
stantially change the character or objects of the corporation, a
member of the corporation, when sued upon his stock subscrip-
tion, or, in case of a mutual fire insurance company, upon his
premium note, cannot set up the amendment as a defense to the
action; he cannot object to the legality of the amendment in this
collateral way ; he must do it, if at all, in a direct proceeding.
2
§ 103. Amendment by Substitution of JVew Charter. — The
alteration of the charter may be as lawfully made by the substi-
tution of a new charter as by an amendment of the old, provided
such substituted charter be germane, and necessary to the objects
and purposes for which the company was organized.^ It has
been held that a statute which in form is a new charter of
an existing corporation, which does not purport to be an
amendment of the old charter, but which contains precisely the
same title, and which embodies most of the provisions of the
old charter witii the addition of certain new provisions, is to be
treated merely as an amendment of the old charter, — the court,
upon an examination of the terms of the new act, being of opin-
ion that such was the lejjislativo intent.*
Co., 23 IIow. (U. S.) 381. Compare pression, see Chubb u. Uptou, 05 U. S.
Conf^rcgalioiial Society v. Curtis, 22 065; anfe, §80.
Pick. (Mass.) 320. 3 Sprigg v. Westeru Tel. Co., 46
^ St. John's College v. Purnell, 23 Md. 07.
Md. 029. * Hope Mut. Fire Ins. Co. v. Beck-
- Hope Mut. Fire Ins. Co. t>. Beck- uianii, 47 Mo. 93.
mann, 47 Mo. 93. For a similar ex-
87
1 Thomp. Corp. § 105.] amendment of charters.
§ 104. Objections by Third Parties : Contractors. — If the iegis-
laturc aud the corporatioa concur iu changing, repeahug or surrender-
iiio- the charter of the corporation, contractors with the corporation
have no standing to object, provided their contracts are left intact and
their legal remedies preserved. ^
§ 105. How Minority are protected in England. — In England,
where in theory of law the Parliament is supreme, and not subject to
any judicial checks whatever, the Court of Chancery has, by indirection,
found a means to protect the minority of the shareholders of a com-
pany against changes in the contract afforded by the constating instru-
ments, effected by Parhament on the petition of the majority, — b}'
restraining the majority, on a bill in equity filed by the minority, from
applying the fitncls of the corporation in procuring from Parliament the
passage of an act cliangiug its objects aud purposes. ^
1 Houston V. Jefferson College, 63 Co., 7 Hare, 114; Lancashire &c. R.
Pa. St. 428. Co. v. Northwestern R. Co., 2 Kay &
2 Bagshawe v. Eastern Counties R. J. 293.
88
CaAETERS GRANTED BY THE COURTS. [1 Thomp. Corp. § 110.
CHAPTEE y.
CHARTERS GRANTED BY THE COURTS.
Section
110. Devolving the power of creating
corporations on tlie courts.
111. Objects for 'whlcli the courts may
grant charters in Pennsylvania.
112. Proceedings to obtain such char-
ters must be public.
113. Requisites of charter submitted
to court under Pennsylvania
statute.
114. Requisites of charter under Penn-
sylvania act of 1874.
115. Reasons for whicli charters have
been refused.
116. Charters refused which contain an
indefinite power of expulsion.
117. Further of this subject.
118. Charters refusedcoutaining pow-
ers not specified in the statute.
Section
119. Charters refused with power to
confer decrees.
120. Charters refused for mutual mar-
riage benefit associations.
121. Charters refused containing by-
laws.
122. Charters refused because not
written on a single piece of
paper.
123. Charters under § 1676 of Georgia
Code.
124. Referring the application to an
amicus curiae.
125. No appeal from decree refusinsr.
126. Charters amended by the judi-
cial courts.
127. What body assent to amend-
ments by judicial courts.
§ 110. Devolving the power of creating Corporations on
the Courts. — In the absence of a provision in the constitution
to that effect, the legislature of a State has no power to author-
ize the judicial courts to grant special charters of incorporation.
The reason is that, where the constitution of the State vests the
legislative power in the general assembly, it is not competent
for that body to delegate it to another department of the gov-
ernment.^ The legislature may, however, even in the absence
of a direct constitutional authorization, prescribe by general
laws the conditions under which, and the purposes for which
corporations may be organized, and may devolve upon the judi-
cial department of the government the execution of those laws,
by examining the charters and determining whether they are in
compliance with law, and if so, passing a decree of incorporation.
1 state V. Armstrong. 3 Sneed (Tenn.), 634; Ex parte Chadwell, 50 Teun. 98.
89
1 Thomp. Corp. § 111.] chakteus quanted by the courts.
In all these cases the distinction lies between creating Jiucl organiz-
ing corporations. In the absence of an explicit constitutional
authorization to the contrary, only the legislature can create
corporations; without the aid of such an authorization it may,
however, empower the judicial courts to organize them under a
general law, provided there is no prohibition in the constitution
which disables the leojislature from devolving ministerial duties
on the judicial courts.^ The theory is that, in such a case, the
legislature merely uses the courts for the purpose of giving Ze^/a?
form to the corporation, and that the act required by the statute
to be done by the courts is not an act involving even judicial dis-
cretion, but is a purely ministerial act, in such a seu'^e that it&
performance could be compelled by mandamus? Accordingly,
it has been held that the legislature may, in the absence of a
direct constitutional authorization, provide by law for the cre-
ation of village, town or city corporations, by presenting a pe-
tition therefor to the county court, that body having no discretion
to refuse the petition when it conforms to the statute, but being
required merely to spread it upon its minutes, which done, the
corporation becomes, ipso facto, legally organized.^ Under the
Tennessee act of 1871 authorizing the chancery courts to grant
letters of incorporation, it was held that such courts had na
power to organize a corporation for any purpose not authorized
by general law ; since this would be to create corporations, which
was an attribute of legislative power, and not merely to organ-
ize them.* In other words, the action of the court extends na
further than to furnish evidence of organization.^
§ 111. Objects for which the Courts may Grant Charters in
Pennsylvania. — In a case where a charter was applied for before Mm
in 1871,6 jvjr. Justice Paxson, of the Philadelphia Court of Common
Pleas, afterwards a justice of the Supreme Court of Pemisylvania, col-
lected from the statute laws of that State and catalogued the several
J See the reasoning in Ex parte ^ Morristown v. Sheltoii, 1 Head
Chadwell, 59 Tenu. 98; also Ex parte (Tenn.), 24.
Burns, 1 Tenn. Ch. 83; Railroad Co. v. * Ex parte Chadwell, 59 Tenn. 98.
Johnson, 72 Tenn. 333; Greenville &c. ^ Greenville &c. R. Co. v. Johnson,.
R. Co. V. Johnson, G4 Tenu. 332. G4 Tenn. 332.
2 Franklin Bridge Co. v. Wood, 14 « Re Charter of Philadelphia Ar-
Ga. 80. tisaus' Institute, 8 Phila. (Pa.) 229.
90
PENNSYLVANIA STATUTE. [1 TllOmp. Coip. § 113.
objects for which the Court of Common Pleas was authorized by law to
grant charters of incorporation. These were: "1. Associations for
literary, charitable or religious purposes, benevolent societies or asso-
ciations, fire-engine or hose companies. ^ 2. Associations for the promo-
tion of science or agriculture, cemetery or burial associations, societies
for the detection of thieves and the recovery of stolen property. ^ 3.
Musical societies and associations. ^ 4. Mutual savings fund, loan or
building associations.'* 5. Associations for the purpose of insuring
horses, cattle and other Uve stock against loss by death, from disease or
accident, or from being stolen; water, hook and ladder companies,
building associations, musical clubs or associations, teachers' institutes
or associations, hotel companies, skating parks ; associations and clubs
for the advancement of athletic sports, including base ball clubs ; and
fire insurance companies.^ 6. Saving fund associations, or societies
for the accumulation of funds and the distribution of the same among
other members, without banking or discounting privileges." ^
§ 112. Proceedings to Obtain sucli Charters must be Pub-
lic. — In one case the Pliiladelphia Common Pleas refused a charter to
a rehgious society, on the ground that the charter had not been exposed
to inspection by the public, but that affirmative means had been taken
to prevent such inspection, — the court reasoning that, although this is
not specially directed by the act, yet the provision requiring an adver-
tisement of the proposed application indicates that pubhcity was the in-
tention of the legislature.'
§ 113. Requisites of Charter submitted to Court under
Pennsylvania Statute . — In the case before Mr. Justice Paxsou, re-
ferred to in a preceding section,^ the learned judge, in view of the
very crude manner in which charters were drawn which were submitted
to the court for approval, restated at length the essential features which
every charter should contain, citing local decisions in support of the
different features which he catalogued. They were as follows : 1. The
1 CithigPcnn. Actof Oct. 3rd, 1840; « Citing renn. Act of March 2Gth,
Purd. Dig. Penn. Stat. 19G, pi. 11; P. 18G7; Purd. Dig. 145G, pi. 3; P. L. 44.
L. Penn. 5. e pgnn. Act of Apr. 12(,h,18G7; Purd.
2 Penn. Actof Feb, 20th,1834; Purd. Dig. 1450, pi. 4; P. L. 70.
Dig. 197, pi. 15; P. L. 90. ' Re Charter of Church of Holy
* Penn. Act of Apr. Gth, 1859; Purd. Communion, 14 Phila. (Pa.) 121.
Dig. 197, pi. IC; P. L. 377. 8 r^ Charter of the Philadelphia
* Penn. Actof Apr. 12th, 1859; Purd. Artisans' Institute, 8 Phil. (Pa.) 229.
Dig. 129, pi. 1;P. L. 544.
91
1 Tliomp. Corp. § 113.] charters granted by the courts.
membership must be restricted to citizens of this commonwealth. ^ 2.
The name of the proposed corporation must be stated, and said name
should be entirely distinctive from that of any other incorporation in
the same locality. ^ 3. The objects of the association must be clearly de-
fined, so as to satisfy the court that they are within the meaning of the law.=^
4. The articles should clearly define the rights and duties of the members.''
5. The conditions under which the parties propose to associate.
6. The location where said corporation is intended to be situated, or its
principal business transacted. 7. That all by-laws to be adopted by
said proposed corporation for its government shall be consistent with
the constitution and laws of the United States, the constitution and laws
of this commonwealth, and with the proposed charter. 8. Any clause
providing for an amendment to the charter must set forth that said
amendment shall be made in conformity with law. 9. If the power of
expulsion is introduced, the charter must clearly define the causes for
which a member may be expelled. An indefinite or vague statement of
the offense is not sufficient. The court will not approve a charter which
gives a majority of the association power to expel any member " guilty
of any offense against the law." Any such or kindred expression is
too geueral.5 iq. In charters of building associations, the number and
value of the shares proposed to be issued must be stated. 11. In char-
ters of benevolent societies, there must be a clause restricting the
application of their funds to the object declared to be the purpose of
their association. 12. In all charters where a cash capital is provided
for, the amount of such capital must be stated, as also the number and
value of the shares. 13. Every charter must contain a limitation of the
amount of real and personal estate to be held by such corporation. The
limitation of real estate must not exceed the maximum prescribed by the
act of Assembly; and the limitation as to the personal estate must
be reasonable, taking into view the objects of the association, the court
reserving the right to approve the latter in its discretion. 14. Every
charter should be written upon oae sheet of paper or parchment.
Interlineations in a charter are not proper, and if the same occur in a
material part, the charter will be rejected. ^
1 Citing Butchers' Beneficial Asso- cial Association of Brotherly Unity,
ciation, 35 Pa. St. 151. Id. 299; Butchers' Beneficial Associa-
2 Citing GPittsb. Leg. J. 161. tion, 35 Pa. St. 151; Commonwealth
3 Citing National Literary Associ- v. St. Patrick's Benevolent Society,
ation, 30 Pa. St. 150. 2 Binn. (Pa.) 448; Commonwealth v.
4 Citing German Genl. Beneficial Guardians of the Poor, 6 Serg. & R.
Association, 30 Pa. St. 155, (Pa.) 469.
* Citing Butchers' Beneficial As- ^ Re Charter of Philadelphia Arti-
sociation, 38 Pa, St. 298; Benefl- sans' Institute, 8 Phila., (Pa.) 229.
92
PENNSYLVANIA STATUTE. [1 Thomp. Coip. § 115.
§ 114. Requisites of Charter under Pennsylvania Act of
1874. — These are: " 1, The name of the corporation. 2. The purpose
for which it is formed. 3. The place or places where its business is
to be transacted. 4. The term for which it is to exist. 5. The names
and residences of the subscribers and the number of shares subscribed
by each. 6. The number of its directors and the names and resi-
dences of those who are chosen directors for the first year. 7. The
amount of capital stock, if any, and the number and par value of
shares into which it is divided."! This statute has been held man-
datory. ^
§ 115. Reasons for which Charters have heen Refused. —
Charters have been refused in that State where the object of the asso-
ciation was not sufficiently stated, — where the charter, for instance,
after enumerating four distinct purposes for which the association was
formed, went on to say, " for such other purposes as may be agreed
upon by the association in future." 2. Where the membership was
not confined to citizens of the commonwealth. 3. Where there was no
limitation of the amount of real and personal estate to be held by the
proposed corporation. 4. Where amendments to the charter were not
required to be made with the approval of the court. In another case
the approval of a charter was denied where the membership was not re-
stricted to citizens of Pennsylvania, and where there was a provision
that membership should be forfeited upon enlistment in the army or
navy, the latter clause being against public pohcy. Paxson, J., said:
"A corporation which is a creature of the law ought not to proscribe
its members for aiding the government which creates and protects it." ^
So, where the charter of a society called the Butchers' Benevolent
Association was presented to the Supreme Court of Pennsylvania for
approval, several defects were found in it which prevented the court
from approving it. Said Lowrie, C. J. : "It allows of any by-laws that
are not inconsistent with itself; while we cannot allow any, except
under the restriction that they shall be consistent with the constitution
and laws of the State and of the Union. Again, it allows of member-
ship to citizens of the United States, when it ought to be confined to
citizens of this State." *
Citing Alexander Presbyterian Church, ficial Association, 14 Phila. (Pa.)
hO Pa. St. 154; United Daughters of 130.
Cornish, 35 Pa. St. 80. 3 Re Charter of Rev. David Mul-
> Pennsylvania Act of April 29th, holland Benevolent Society, 10 Pliila.
1874. (Pa.) 19.
* Re Charter of Stevedores' Bene- * Butchers' Beneficial Association,
35 Pa. St. 151.
93
1 Thomp. Corp. § 117.] cijauteus granted by thk courts.
§ IIG. Charters Refused which contain an Indefinite Power
of Expulsion. — Charters have beeu refused which contained an in-
definite power of expelling members.^ Thus, the charter of the
Butchers' Beneficial Association, when first presented to the Supreme
Court of Pennsylvania, was rejected, on the ground, among others, that
it allowed the association to expel members Avho should be guilty of ac-
tions which might injure the association. This the court could not ap-
prove, because it gave to the association an indefinite power over its
members. The court reasoned that it is incompatible with the spirit of
our institutions to clothe any body with such indefinite power over its
members, arguing that it was equivalent to socialism and was a rejec-
tion of all individual rights within the association. The court held that
it was proper to found the right of expulsion on the fact of a member hav-
ing been convicted of crime on a trial in court.^ So, where there was an
article which provided, — ^ " Should any member of this association be
guilty of unprofessional indecorum or ungentlemanhj conduct^ he may be
reprimanded, suspended, or expelled at the discretion of two-thirds of
the members present at any stated meeting: Provided^ however, that
charges and specifications in writing shall have been read by the Secre-
tary and referred to the Board of Directors, who shall investigate or
try the same, as provided for in the by-laws, and report to the associa-
tion," etc. , — this article was held objectionable on account of the vague
description of the offenses for which members might be expelled, and
because it contained no proper provision for the trial of the offending
party. ^
§ 117. Further of this Subject. — The Supreme Court of Penn-
sylvania has refused to approve a charter for the incorporation of an
association, where the articles contained the statement that any member
mio-ht be expelled who should commit any misdemeanor^ or any other
act that might prove injurious to his character or standing as a member
of the association. The court did not object to the word misdemeanor,
although that was criticised as authorizing expulsions for pett}'^ offenses ;
but the court said : " ' Acts injurious to character or standing as a mem-
ber ' is no definition of any offense. We might as well sum up all crimi-
nal law by the expression, ' acts contrary to the general welfare.' Such
expressions state well enough the principle of law ; but they state no
law ; for every law is grounded on some principle, and is itself a definite
1 Butchers' Beneficial Asso., 38 Pa. 2 Rg Charter of Butchers' Beneficial
St. 298; Beneficial Asso. of Brotherly Asso., 35 Pa. St. 151.
Unity, 38 Pa. St. 299. » Re Charter of Journalists' Fund,
8 Phila. (Pa.) 272.
94
PENNSYLVANIA STATUTE. [1 Thomp. Corp. § 118.
statement of some act or special class of acts, which are declared to be
approved or condemned by the principle. Under the principle here
objected to, the majority may expel a member for almost any act, and
thus members are left without any rights that the majority may choose
to withhold. Too earnest a claim of rights, or too earnest a perform-
ance of social duty, may thus become a ground of expulsion, if the
majority pleases." ^ On like ground that court has refused to approve
a charter of incorporation for a beneficial society which gave a majority
of the society power to expel any member who should be " guilty of any
offense against the law." The court regarded it as " the loose expi'es-
sion of their scrivener." Lowrie, C. J., said: " Do they really mean
that, if a member should happen to swear a little, or enjoy some Fourth
of July too freely, or leave his horse and wagon in the street without an
attendant, or not clean off his pavement as the law requires, — he shall
be liable to expulsion ? We are sure they do not mean all the little of-
fenses of omission and commission which the law proAddes against ; for
many of them are totally irrelevant to the purposes of their association.
But they have taken this way of defining offenses that may lead to ex-
pulsion, and the definition is so very general that it puts the rights of
all, not under the protection of a constitution, but under the mere wWl
of a majority. If they had provided that only those who are without
sin among them, should be allowed to vote for the expulsion of a mem-
ber, this might have been an important limitation of the expulsive power.
A constitution that puts all power over rights into the hands of the
majority, is really no constitution at all. It is leaving to force the free
exercise of its power, unrestrained by rules of reason. Many members
whose sickness may become expensive might easily be disposed of un-
der this rule." ^
§ 118. Charters Refused containing Powers not Specified in
the Statute. — The Supreme Court of Pennsjdvania have ruled that
charters submitted to the courts for approval should be denied where
they contain powers not specified in the statute,^ — reasoning that the
court cannot confer coiporate powers, which would be an act of legisla-
tion.* Accordingly, where the constitution of a medical college, sub-
mitted to the Supreme Court, contained a clause authorizing the college
to confer degrees in medicine upon students and others, the court de-
cUned to certify it.^ So, the Philadelphia Common Pleas refused to in-
^ Butchers' Boneflcial Association, ' Re Medical College, 3 Whart.
38 Pa. St. 298. (Pa.) 455.
2 Beneficial Association of Broth- •• To the same effect see Com. v.
erly Unity, 38 Pa. St. 299. Conover, 10 Pliila. (Pa.) 55.
* Re Medical College, supra.
95
1 Thomp. Corp. § 122] charters granted by the courts.
corporate a club with the i)rovision in its charter that each share should
be entitled to one vote, because the governing statutes only authorized
the court in such a case to confer such immunities as by the common
law were necessary to constitute a corporation.^
§ 119. Charters Refused with Power to confer Degrees. — As
already stated, the Supreme Court of Pennsylvania, in the absence of a
direct statutory authorization, refused to approve the charter of a med-
ical college, which charter conferred upon the corporation the power to
confer degrees on students and others.'^ In a later case, and having
reference to the terras of a later statute prescribing the standard of
quahfication for practitionex'S of medicine,^ the court refused a charter
to an institution for instruction in electricity as a curative agent, with
power to confer degrees in medicine or electricity, — proceeding upon
the view that such a qualification for the practice of medicine did not
meet the standard required by the statute.*
§ 130. Chai'ters Refused for Mutual Marriage Benefit Asso-
ciations. — Charters have been refused in Pennsylvania for the forma-
tion of mutual marriage benefit associations, the objects of such
associations being against public policy.^
§ 121. Cliarters Refused containing By-laws. — A charter
offered for approval has been rejected on the ground that it contained
provisions for the internal management of the corporation, which were
properly the subject of by-laws.^
§ 122. Charters Refused because not Written on a Single
Piece of Paper. — A critical nicety in objecting to the charters handed
up by certain classes of people has led to the conclusion that a charter
ought to be refused on the ground that it was not written upon a single
piece of paper or parchment, — the court not explaining what should be
done in case the charter should contain too many words to be written
oa a single sheet. The court said: "This charter is written upon a
number of sheets of paper fastened together by ordinary paper
fasteners. All charters should be written upon a single piece of paper
1 Com. V. Conover, 10 Phila. (Pa.) ^ Ke Charter of American Electro-
55; Compare St. Mary's Church, 7 pathic Institute, 14 Phila. (Pa.) 128.
Serg. &R. 538. s Re Mutual Aid Asso., 15 Phila.
2 Re Medical College, 3 Whart. (Pa.) G25; Re Helping-Hand Marriage
(Pa.) 455. Asso., Id. 644.
" Penn. Act of March 24th, 1877; ^ Re Charter of Stevedores' Bene-
Purd. Dig. 2151. ticial Association, 14 Phila. (Pa.) 130.
96
PROCEDUUE, [1 Thomp. Corp. § 126.
or parchment, and the courts have frequently refused to approve them
unless presented in this form. The observance of this has not been
uniformly required, but we think it much the better practice, and shall
hereafter require it." ^
§ 123. Charter Under §1676 of Georgia Code. — Persons desir-
ous of being incorporated, under § 1G76 of the Georgia code, must spec-
ify the object of their association, the particular business they propose
to carry on, the place at which they propose to carry it on, and the
amount of capital to be employed by them in such business, actually
paid in ; and unless these particulars are disclosed in the application,
the charter will not be granted. The court will not countenance a pe-
tition which is so framed as to mask the objects of the applicants. ^
§ 124. Referring- tlie Application to an Amicus Curiae. — In
Missouri, some of the courts are in the habit, upon their own motion
and without any statutory direction, of referring such an application to
a member of the bar as amicus curice ; and it has been held in that State
that it is competent for the court to allow the amicus curice a reasonable
compensation for his services, to be taxed as costs against the proposed
incorporators.^
§ 125. N^o Appeal from Decree refusing. — Under the Tennessee
act of 1871, authorizing the chancery courts to grant letters of incorpo-
ration, no appeal lay to the Supreme Court from the refusal of a chan-
cery court to grant such letters.*
§ 126. Charters Amended by the Judicial Courts. — Statutes
have existed in Pennsylvania empowering the judicial courts to grant
amendments to charters enacted by the legislature. An instance of this
occurs in a case decided in 1822.5 ^g early as 1791 the legislature of
Pennsylvania passed a statute of this kind. Corporations which were
created under special statutes prior to that time could not have their
charters amended in this way without a special enabling act. Such an
act was granted by the legislature in the case of a corporation called the
Roman Catholic Societ}'' Worshiping at St. Mary's Church in Phila-
delphia. In the interpretation of this statute the court held that
amendments proposed by a corporation are not to be considered as the
1 Re Charter of Stevedores' Bene- ^ Ex parte Chadwell, 59 Teun. 98.
ficial Association, 14 Phila. (Pa.") 130. " Case of St. Mary's Church, 7Serg.
2 Re Deveaux, 54 Ga. G7li. & R. (Pa.) 517.
3 Re St. Louis Institute, 27 Mo. App.
07
1 Thomp. Corp. § Iti?.] ciiarteus granted by tiik courts.
act of the corporation, merely because they are offered to the inspection
of the attorney-general and the Supreme Court under the seal of the cor-
poration, but that the court may inquire into the authority by which the
seal was affixed. The court declared, as the principle to govern such an
inquiry, that, in corporations where there are different classes of mem-
bers, the majority of these classes must consent before the charter
can be altered, in the absence of a provision in the charter itself
otherwise providing. The court also held that, where the trustees of a
corporation consist of three clerical and eight lay members, and one of
the clerical members has been excluded from the board by a resolution
of the lay members without authority, — it is not competent for the re-
maining members to submit resolutions for the alteration of the charter. i
§ 127. What Body Assent to Amendments by Judicial
Courts. — This decision established the doctrine that, under stat-
utes of Pennsylvania authorizing the courts to grant amendments to
the charters of certain corporations, it is essential to the granting of
the amendment that it should appear to the court that the application
is the result of corporate action, and not the action of the indi^idual
members. 2 It has also been ruled in that State that, where it is denied
that a proposed amendment has been adopted by a corporation, the
court before approving it will direct a stock vote to be taken. ^
1 Case of St. Mary's Church, supra. ^ St. Mary's Church, 6 Serg. & R.
From this last point Gibson, J., dis- (Pa.) 408.
sented. As to the amending of char- ^ Matter of Mercantile Library Co.,
ters so as to bind dissenting members 2 Brews. (Pa.) 447.
see ante, § Gfi, et seq.
98
EXAMPLES FROM STATUTES. [1 Thomp. Corp.
CHAPTEK VI.
ORGANIZATION UNDER GENERAL LAWS.
Art. I. PcRPosEs for which Incorporation Permitted, §§ 132-210.
ISUBDIV. I. Examples from Various Statutes, §§ 132-192.
SUBUIV. II. Decisions Construing Particular Statutes, §§ 200-210.
Art. II. Steps Necessary to Perfect Organization, §§ 215-249.
ARTICLE I.
Purposes for which Incorporation Permitted.
SUBDIVISION I. Examples from Various S atutes.
Section
Section
132. Statutes authorizing the forma-
tioQ of corporations.
133. Agricultural fairs.
l'6i. Alumni.
185. Aveuues.
136. B:inks.
IJar associations.
Bre d ng domestic animals.
Bridges.
Buildiug and loan associations.
Building towns.
BuHiue s purposes: raining, man-
ufacturing, merchandising, etc.
Camp meetings.
Canals.
Ceraett-ries.
Chambers of commerce: mer-
chants' exchanges: boards of
trade.
Colleges.
Co-opt-rative associations.
Cruelty to animals.
Cruelty to children.
Detective associations.
Fencing land.
Ferries.
Fire companies.
137
138
ia9
140
141,
142
143
144
145
140,
147
148
149
150
151
152
153
154
155. Fire department relief.
156. Gaslightiug.
157. Gnano: fertilizers.
158. Guaranty: suretyship: indem-
nity: safe deposit.
159. Gymnastic purposes.
160. Health resorts: sanitariums:
medicines, etc.
161. Horticulture.
162. Hydraulic power.
163. Insurance.
164. Lawful purposes.
165. Lodges: fraternities: societies,
166. Masonic buildings.
167. Mining: manufacturing, etc.
168. Navigation.
169. Patrons of husbandry.
170. Pipe lines.
171. Police relief.
172. Political clubs.
173. Public libraries.
174. Railroads.
175. R'lfting: booming logs.
176. Religion : education : benevolence.
177. Savings banks.
178. Slack-water navigation.
170. Soldiers' monuments.
99
1 Thomp. Corp. § 13'i.] purposes for which permitted.
Section
180. Sporting.
181. Stage coaches.
182. Street railroads.
183. Telegraphs: telephones.
184. Tobacco warehouses.
185. Toll roads: plank, gravel, mac-
adamized, turnpike roads, etc.
186. Traininu nurses.
187. Tramways, elevated.
Skction
188. Trust companies.
189. Union depots.
190. Water works.
191. Indiana: enumeration of pur-
poses for which corporations
may be formed.
192. Texas: enumeration of purposes
for which corporations may be
formed.
§ 132. Statutes authorizing the Formation of Corpora-
tions. — Statutes are multiplying in many of the States extend-
ing the objects for which corporations may be formed. These,
in some instances, take the form of amending statutes already in
existence; in others they furnish within themselves an entire
scheme of incorporation.^ In this subdivision an attempt is
made to exhibit the purposes for which corporations may be
formed under general laws by extracts from the legislation of
several of the States: Alabama, California, Colorado, Illinois,
Indiana, Missouri, Ohio, and New York. A more striking il-
lustration could not be given of the fantastic patchwork of which
American legislation consists. It suggests the reflection whether
it would not be better in all cases to enact a consolidated statute,
enumerating all the purpose for which corporations have hitherto
been allowed in the particular State, either under general or
special laws, and to enact that corporations may be formed for
such purposes and for any other purposes for which individuals
may lawfully associate,^ — leaving it to be ascertained in every
1 In California a recent statute au-
thorizes the formation of corporations
to act as executor, administrator,
guardian of estates, assignee, receiver,
depositary, or trustee; Act March 5,
1887; L. 1887, c. 26, p. 21. In Col-
orado, to warrant or insure the title
to real property, authorized. Act
April 7, 1887 ; L. 1887, p. 234. In Min-
nesota the provisions of the General
Statutes of 1878 (Gen. Stats. Minn.
ch. 34, § 31), for the incorporation of
railway and other companies " which
require the takin'^ of private property
or any easement therein," have been
100
amended by including therein com-
panies for building, etc., ''pneumatic
tube lines, subway conduits for the
passage, operation and repair of elec-
tric and other lines or pipes." Act
March 7, 1887; Gen. L. 1887, c. 161, p.
269. In Dakota Territory the pro-
visions of the civil code relating to
the formation of private corporations
were amended in 1887, by specifying
what business such corporations might
pursue. Dakota Act of Feb. 7th,
1887; Dak. Laws 1887, chap. 35, p. 84.
2 As in § 164, post.
EXAMPLES FROM STATUTES. [1 Thomp. Corp. § 136.
case where the lawfulness of the purpose is not fixed by an ex-
press statute, to be determined, on petition to a court of general
jurisdiction, subject to an appeal to a court of last resort, either
by the applicants or by the State, whether the incorporation
shall be allowed. In such case the State's attorney should
have notice of the application, and it should not be allowed to
take the form of a mere ex parte proceeding, in which no one
save the petitioners is interested. In the following sections the
necessity of condensation has induced a departure from the exact
language of the statutes, but the substance has been given.
§ 133. Agricultural Fairs. — All county societies which have been
or may hereafter be organized are declared bodies corporate and politic,
and as such shall be capable of suing and being sued, and of holding
in fee simple such real estate as they have heretofore purchased or may
hereafter purchase as sites whereon to hold their fairs. ^
§ 134. Alumni. — The alumni of any college or university, or of
one or more colleges of any university, located in this State, may be
incorporated. 2
§ 135. Avenues. — Companies may be incorporated in any county
ha\dng not less than one hundred thousand inhabitants, for the purpose
of constructing avenues in such county. •"'
§ 136. Banks. — Corporations may be formed to carry on the busi-
ness of banking without the issue of bills or notes for chcula-
tion."* - - - - Any number of persons, not less than three, may be
incorporated as a bank of discount and deposit.^ - - - - On a
ratification of this act by a vote of the people in accordance with the
constitution of this state, it shall be lawful to form banks and banldng
associations for the purpose of discount and deposit, and to buy and
sell exchange, and do a general banldng business, excepting only issuing
bills to circulate as money, and shall have power to loan money on
personal and real security and accept and execute trusts.*^ - - - _
Any number of persons, not less than five, may form themselves into
1 1 Rev. Stat. Ohio [Giauque], 1890, * 1 Code of Ala. 188G, p. 3C9, § 1521.
§ 3700. s Gen, State Colo. 1883, p. 189,
2 3 Rev. Stat. New York [Banks & § 271.
Bros. 8th ed.], p. 2029. 6 Laws of 111. 1887, p. 89,
3 1 Rev. Stat. Ohio [Giauque], 1890,
§ 3822.
101
1 Thomp, Corp. § 139.] purposes for which permitted.
a corporation, as a bauk of discoiiut and deposit. ^ - - - - Any
five or more persons may be incorporated as a bank of deposit or
discount, or of both deposit and discount, under any name or title
desii2:natiug sucli business. ^ - - - - Any number of persons may
associate to establish ofBces of discount and deposit, they must execute
a certain certificate.^ _ . _ -
§ 137. Bar As.sociations. — Any nine or more attorneys or coun-
selors of the Sui)reuie Court of this State, who wish to cultivate the
science of jurisprudence, to promote reform in the law, to facilitate the
administration of justice, elevate the standard of integrity, honor and
courtesy in the legal profession, etc., may be incorporated.*
§ 138. Breeding Domestic Animals. — Any number of persons,
not less than twenty-five, residing in any county of this State, who col-
lectively shall own property of not less than $50,000 in value, $20,000
of which shall consist of insurable live stock which they desire to have
insured, may form a corporation for the purpose of mutual live stock
insurance against loss by death from any cause. ^ _ _ _ _ Any num-
ber of persons not less than five may form a corporation to raise, im-
prove and breed horses.^ _ _ - _ Any number of persons, not less
than thirteen, may associate and form a corporation for the purpose of
importing, raising and improving and breeding poultry, small birds, do-
mestic and pet animals, and fish culture, and collecting and disseminating
useful knowledge, concerning them.' - - - - Any number of per-
sons, not less than five, may form a corporation to import, raise, improve
and breed domestic animals.^
§ 139. Bridges. — Any number of persons may form themselves
into a corporation to construct and own a bridge across any river,
creek, or other water-course. ^ - - _ - Any number of persons
may be incorporated to construct and own a bridge across any of the
rivers and streams forming the boundary of the State of Indi-
ana.** - _ - - Any number of persons, not less than five, may
1 Rev. Stat. Ind. 1888 [Myers & ' 3 Rev. Stat, of New York [ Banks
Co.], § 2684. &, Bros. 8th ed.], p. 2074.
2 Rev. Stat. Mo. 1889, p. 699, § 2743. « 3 Rev. Stat, of New York [Banks
3 2 Rev. Stat, of New York [Banks & Bros. 8th ed.], p. 2073.
& Brothers' 8th ed], p. 1522. => 2 Rev. Stat. Ind. 1888 [Myers &
* 3 Rev. Stat, of New York [Banks Co.], § 3528.
& Bro-i. 8th ed.], p. 2031. J" 2 Rev. Stat. Ind. 1888 [Myers &
5 Laws of 111. 1887, p. 197. Co.], § 8547.
6 3 Rev. Stat, of New York [Banks
&Bros. 8th ed.], p. 20G7.
102
EXAMPLES FROM STATUTES. [1 Thomp. Coip, § 142.
incorporate themselves into a corporation to construct and own a
bridge or causeway across any stream or channel of water, or adjoining
bay, swamp, marsh or water, which it maj^ be necessary to cross to form
a continuous roadway. ^
§ 140. Building and Loan Associations. — Three or more
persons may be incorporated as a building and loan associa-
tion. ^ - - - - Any number of persons not fewer than ten, after at
least one hundred shares of stock have been subscribed for, may in-
corporate themselves for the purpose of organizing a building, loan
fund and sa\ings association. ^ - _ _ . Any number of persons,
not less than five, may become incorporated as a mutual building,
loan and homestead association for the purpose of building and im-
proving homesteads and loaning money to the members there-
of.* - - - - Any ten or more persons in any city or county in
this State, who shall have associated themselves by articles of agree-
ment in writing, as pro\4ded by law, for the purpose of forming a
mutual saving fund, loan or building association, may be incorporated
under any name or title designating such business. ^ _ _ _ .
Any number of persons, not less than nine, may associate and form an
incorporated company to accumulate money to purchase real estate,
erect buildings, make improvements on lands or pay off incumbrances
thereon, or to aid its members in acquiring real estate, maldug improve-
ments thereon, and remo\'ing incumbrances therefrom, and to accumu-
late a fund to be its members who do not obtain advances.^
§ 141. Building Towns. — Where any persons may have hereto-
fore associated themselves together for the purpose of building a town
within any county in this State, they may be incorporated.'''
§ 142. Business Purposes : Mining-, Manufacturing, Mer-
chandising, etc. — Two or more persons, associating for the purpose of
mining, quarrying or manufacturing, may be incorporated.^ _ _ _ _
Corporations may be formed in the manner provided by this act for any
lawful purpose except banking, insurance, real estate brokerage, the
operation of railroads and the business of loaning money : Provided.
1 2 Rev. Stat, of New York [Banks ^ 1 Rev. Stat. Mo. 1889, p. 715,
& Brothers' 8th ed.], p. 1509. § 2808.
2 Code of Ala. 188G, vol. 1, p. 378, c 2 Rev. Stat, of New York [Banks
§ 1553. & Bros. 8th cd.], p. 1587.
8 2 Rev. Stat. Ind. 1888 [Myers & ^ 2 Rev. Stat. Ind. 1888 [Myers &
Co], §.^,t07. Co.], § 3493.
4 1 111. Annot. Stat. [Starr & Curtis] ^ 1 code Ala. 1886, p. 380, § 1557.
1885, p. 029.
103
1 Thomp. Corp. § 142 ] purposes fou which permitted.
that horse aud dummy raih'oads, and organizations for the purchase and
sale of real estate for burial purposes only, may be organized and con-
ducted under the pro\isions of this act : And provided further, that
corporations formed for the purpose of constructing railroad bridges
shall not be held to be railroad corporations. ^ - - - - Any three
or more persons may be incorporated under any name or title designat-
ing such business for the following purposes : First, to carry on any
kind of mining, mechanical, chemical, manufacturing, smelting, printing,
coal oil or petroleum business ; second, to encourage and promote agri-
culture and the improvement of stock, and for these purposes may es-
tablish fair grounds ; third, to construct toll bridges ; fourth, to erect
hotels, halls, market houses, warehouses, exchange aud other buildings,
and for the purpose of purchasing, owning and renting buildings already
erected ; fifth, to build whai'ves, docks, grain elevators, levees, and to
construct canals and embankments for the reclaiming of lands ; sixth,
to convey and transport persons and freights on land or water by any
mode of conveyance whatever ; seventh, to construct and operate horse
railroads ; eighth, to purchase and use fire engines, hose, hooks and
ladders, and all other apparatus necessarj'^ or useful to prevent and ex-
tinguish fires; ninth, to supply any town, city, district, neighborhood,
or village with gas or water ; tenth, to establish steam or other ferries ;
eleventh, for any other purpose intended for pecuniary profit or gain not
otherwise specially provided for, and not inconsistent with the constitu-
tion and laws of this State. ^ - - - - Three or more persons may
form a corporation to carry on any kind of manufacturing, mining, me-
chanical or chemical business, or to furnish motive power to carry on
such business ; or to supply any city or village with water, or to form
union stock yards and transit companies, and operating, maintaining
and transacting the business incident to such companies ; or to form
grain elevator companies, and constructing, maintaining and operating
elevators, and transacting the business incident thereto ; or to form
companies for the purpose of buying and selling dry goods, carpets,
boots and shoes, millinery goods, fancy goods, or jewelry, in connec-
tion with the manufacture of such goods, and articles, into any articles
for which they are suitable, and for the sale of such articles, when they
are so manufactured. ^ _ _ _ _ Corporations may be formed for
manufacturing, mining, mechanical, chemical, agricultui-al, horticultural,
medical, curative, mercantile or commercial purposes.*
1 nil. Annot. Stat. [Starr & Curtis] 3 2 Rev. Stat. Ind. 1888 [Myers &
1885, p. 609. Co.], § 3851.
2 1 Rev. Stat. Mo. 1889, pp. 705, * 3 Rev. Stat, of New York [Banks
706, §§ 2768, 2771. & Bros. 8th ed.], p. 1953.
104
EXAMPLES FROM STATUTES. [1 Thomp. Coi'p. § 146.
§ 143. Camp Meetings. — Any number of persons, not less than
fifteen, may incorporate themselves for the purpose of holding camp
meetings for religious services.^ _ _ _ _ Corporations may be
formed to acquii-e residences for presiding elders of the Methodist
Episcopal church and camp grounds for camp meeting purposes.^
§ 14:4r. Canals. — Any number of persons may form themselves
into a corporation to construct and own anj' canal hereafter built in this
State, or to operate, repair and rebuild any canal or part thereof al-
ready constructed by agreement with the parties owning the same.^
§ 145. Cemeteries. — Any number of persons, not less than three,
may be incorporated for the pui'pose of procuring and establishing a
cemetery or place of sepulture* _ _ - _ A majority of the persons
resident in any county, owning burial lots in any cemetery (public or
private), wherein a portion of the lots are occupied for the burial of
the dead, may have the saine incorporated. ^ _ _ _ _ Any indi-
viduals, who may unite themselves together for the purpose of receiv-
ing donations of lands, or purchasing the same, for cemeteries, may be
incorporated.^ _ _ _ _ Any number of persons, not less than
seven, may form a corporation for the purpose of procuring and hold-
ing lands to be used exclusively for a cemetery.''' - - - - Private
or family cemeteries may be incorporated.^
§ 146. Chambers of Commerce: Merchants' Exchanges:
Boards of Trade. — Corporations may be formed for the formation
and organization of chambers of commerce, boards of trade, mechanic
institutes, and other associations for the extension and promotion of
trade and commerce, or the advancement, protection and improvement
of the mechanic arts and sciences.^ _ _ _ _ Any nuiuber of per-
sons, not less than ten, may incorporate themselves for the purpose of
maintaining boards of trade, commercial or real estate exchanges,
chambers of commerce, or other commercial organizations. I'' _ _ _ _
1 2 Rev. Stat. Ind. 1888 [Myers & « 2 Rev. Stat. Ind. 1888 [Myers &
Co.], § 3421. Co.], § 3832.
2 3 Rev. Stat, of New York [Banks ' 3 Rev. Stat, of New York [Banks
& Bros. 8th ed.], p. 1919. &Bros. 8th ed.], p. 1935.
3 2 Rev. Stat. Ind. 1888 [Myers & « 3 Rgy. Stat, of New York [Banks
Co.], §3505. & Bros. 8th ed.], p. 1945.
* Gen. Stat. Colo. 1883, p. 218, » 2 Deeriug's Aunot. Code & Stat.
§ 379. of Cal., § 286.
* 2 Rev. Stat. lud. 1888 [Myers &. '" 2 Rev. Stat. Ind. 1888 [Myers &
Co.], § 3589. Co.], §§ 3518, 3519.
105
1 Thump. Cor[). § 151.] puuposes for which permitted.
Any twelve or more persons may form a corporation commonly called
board of trade or exchange, or a builder's exchange or association, for
the purpose of fostering trade and commerce, etc.^
§ 147. Colleges. — Any number of persons, who may desire to
establish a college or seminary of learning, may incorporate them-
selves. ^ - - - - Any citizens, not less than ten, who desire to
found and endow a mm>ml college, school or academy, within this
State may be incorporated.^
§ 148. Co-operative Associations. — Any number of persons, not
less than three nor more than seven, may be incorporated as a co-oper-
ative association for the purpose of prosecuting any branch of indus-
try.4 - _ - - Any number of persons, not less than three, may
associate and form an incorporation for the purpose of uniting their
labor, capital and patronage, in any business or occupation on the co-
operative plan. 5
§ 149. Cruelty to Animals. — Any five or more persons of full
age, a majority of whom shall be citizens of this State, may form a cor-
poration for the purpose of preventing cruelty to animals.^
§ 150. Cruelty to Children. — Any five or more persons of full
age, a majority of whom shall be citizens of this State, may form a
corporation for the purpose of preventing cruelty to children.''
§ 151. Detective Associations. — Any number of citizens, not less
than ten, may form themselves into a corporation for the purpose of de-
tecting and apprehending horse thieves, incendiaries and all other crim-
inals against the laws of the State of Illinois. » - - - - Any number
of persons, citizens of Indiana, not less than ten, may form a corporation
to detect and apprehend horse thieves and other felons, and for mutual
protection and indemnity against the acts of such horse thieves and
felons.^ - - - - Any number of persons, not less. than fifteen, a
1 3 Rev. Stat, of New York [Banks ^ 3 Rev. Stat, of New York [Banks
& Bros. 8tti ed], p 2057. & Bros. 8th ed.J, p. 19:12.
2 2 Deering's Annot. Code & Stat. ^ 3 Rev. Stat, of New York [Banks
of Cal., p. 159, § 649, «& Bros. 8th ed.], p. 1931.
3 3 Rev. Stat, of New York [Banks » Laws of 111. 1887, p. UO.
& Bros. 8lh ed.], p. 2044. ^ 2 Rev. Stat. Ind. 1888 [Myers &
* 111. Laws of 1887, p. 134. Co.], § 3428.
5 3 Rev. Stat, of New York [Banks
& Bros. 8th ed.], p. 2045.
106
EXAMPLES FROM STATUTKS. [1 Thomp. Corp. § 157.
majority of whom shall be residents of the State of Ohio, are hereby
authorized to become incorporated for the purpose of apprehending and
convicting horse thieves and other felons.^ _ - _ - An}'- ten or more
persons may form a corporation for the prevention of the stealing of
horses, wagons, sleighs, harness, or robes. ^
§ 152. Fencing Land. — Any number of persons, not less than
five, who are interested in closing under one general fence improved
lands, used for cultivation, which are near a water-course and subject to
overflow, or in doing any other work necessary to protect such lands
and to secure the crops raised thereon, may be incorporated. ^
§ 153. Ferries. — Any three or more persons may form a company
to conduct and manage a ferry.'*
§ 154. Fire Companies. — Any ten or more persons, residents of
the State, may associate themselves together in a coi-porate capacity as
a fire, hose, or hook and ladder company.^
§ 155. Fire Department Relief. — Any fire department existing
by authority of law in any city or county in this State having a popu-
lation of fifty thousand inhabitants or over, can form a pension fund
and rehef association under the incorporation laws for benevolent asso-
ciations to create a fund to pension retired firemen and to afford relief
to members when sick, or who may become disabled, and to provide a
fund for the rehef of their famiUes in case of their deaths.*^
§ 156. Gaslighting. — Any three or more persons may incorpo-
rate to manufacture and supply gas for fighting the streets and pubhc
and private buildings of any city, village or town, or two or more col-
lages or towns, not over five miles distant from each other.'
§ 157. Guano : Fertilizers. — Any five or more persons may form
a corporation to mine, import and export guano and other fertilizers,
1 1 Rev. Stat. Ohio [Giauque], 1890, ^ 3 Rev. Stat, of New York [Banks
§ 3709. & Bros. 8th ed.], p. 2055.
2 3 Rev. Stat, of New York [Banks « 1 Rev. Stat. Mo. 1889, p. 739,
& Bros. 8th ed.], p. 2072. § 2887.
3 2 Rev. Stat. Ind. 1888 [Myers & ^ 3 Rev. Stat, of New York [Banks
Co.], § 3465. & Bros. 8th ed.], p. 2075.
* 5 Rev. Stat, of New York [Banks
&Bros. 8th ed], p. 1847.
107
1 Thomp. Corp. § 163.] purposes for which permitted.
aud to purchase or charter steam or sailing vessels, and to buy real or
personal property to transact such business.^
§ 158. Guaranty : Suretyship : Indemnity : Safe Deposit. —
Any number of persons, not less than thi-ee, may incorporate to carry
on the business of suretyship, with authority to make loans on real
estate and personal security ; to receive cash deposits and pay interest
thereon ; to insure the fidehty of persons in places of trust ; to receive
valuables for safe-keeping ; to act as agents for issuing certificates for
shai-es of stock, and for the management of sinldng funds ; and to be
sole and sufficient security.^ - - - - Any five or more persons may
form a company for the purpose of keeping safe valuable personal
property and guarantying its safety. ^ Any number of persons, not
less than eleven, may form an incorporated company to guaranty and
indemnify those engaged in business and giving credit from loss and
damage by reason of gi\'ing credit to those deahug with them.* _ - -
Any number of persons, not less than three, may form a corporation
to insure owners of real estate, mortgages and others interested in real
estate from loss by reason of defective titles, liens and incumbrances,
and to iusui-e loans of every and all kind.^
§ 159. Gymnastic Purposes. — Any number of persons not less
than ten may form an incorporated society for gymnastic purposes.^
§ 160. Health Resorts : Sanitariums : Medicines, etc. —
Three or more persons may form a corporation to carry on or conduct a
health resort, hospital or sanitarium, to manufacture and sell chem-
icals and medicines, and to sell mineral waters.'^
§ 161. Horticulture. — Associations of persons for horticultural
purposes, whether State, District or County Associations, maybe incor-
porated.^
§ 162. Hydraulic Power. — Any number of persons, not less than
ten, being subscribers of the stock of any contemplated hydrauhc com-
1 3 Rev. Stat, of New York [Banks * Sess. Laws. Colo. 1887, p 234.
& Bros. 8th ed.], P- 2084. « 2 Rev. Stat. Ind. 1888 [Myers &
2 Sess. Laws Colo. 1889, p. 447. Co.], 3464«.
3 2 Rev. Stat, of New York [Banks ^ Indiana Acts 1889, p. 95.
&Bros. Sthed.], p. 1604. s 2 Rev. Stat. Ind. 1888 [Myers &
* 3 Rev. Stat, of New York [Banks Co.], § 3490.
& Bros. 8th ed.], p. 1719.
108
EXAMPLES FROM STATUTES. [1 Thomp. Corp. § 163.
pany, may be fonned into a corporation for the purpose of constructing,
maintaining and owning such hydraulic power. ^
§ 163. Insurance. — Corporations maybe formed to insure lives,
or persons or property against accident, or to insure against fire or
against the perils and risks of the sea or of navigable streams. ^ - - - -
Any number of persons, not less than thirteen, majdncorporate to make
insurance on dwelKng houses, stores and all kinds of buildings, and
upon household furniture and other property, against loss or damage by
fire, lightning and tornadoes, or either or any of said causes, and the
risks of inland navigation and transportation. ^ - _ - - Any num-
ber of persons, not less than twenty-five, residing in any county in this
State, who shall collectively own property of not less than $50,000 in
value, which they desire to have insured, may form an incorporated
company for the purpose of mutual insurance against loss or damage by
wind storms.'* - - - - Any number of persons, not less than nine,
may form a corporation to make contracts and issue pohcies and certifi-
cates insuring and protecting persons against loss of hfe or personal
injury resulting from accident.^ - - - - Any number of persons, not
less than twenty-five, residing in any county in this State, who col-
lectively shall own property of not less than $50,000 in value, which
they desire to have insured, may form an incorporated company for the
purpose of mutual insurance against loss or damage by fire or light-
mno-,6 _ _ _ _ Any number of persons, not less than twenty-five, re-
siding in any congressional or poUtical township, or in one or more
adjoining congressional or political townships in this State, not ex-
ceedino- six in number, who collectively shall own property of not less
than $50,000 in value, which they desire to have insured, may form an
incorporated company for the purpose of mutual insurance against loss
or damap-e by fire or lightning.' - - - - Corporations may be or-
ganized to furnish life indemnity or pecuniary benefit to the widows or
representatives of members, or accident or permanent disability indem-
nity to members, and where the funds for the payment of such benefits,
shall be secured, in whole or in part, by assessment upon the surviv-
inty members.^ _ _ - - Any number of persons, not less than nine,
1 2 Rev. Stat. Ind. 1888 [Myers & « Laws of 111. 1889, p. 160.
Co.], § 3G96. ^ 1 111" Aiuiot Stat. [Starr & Cur-
2 Code of Ala. 1886, vol 1, p. 373, tis] 1885, p. 1335.
§1531. '' 1 111. Anuot. Stat. [Starr & Cur-
3 1 111. Annot. Slat. [Starr & Cur- tis] 1885, p. 1338.
tis] 188G, p. 1310. " 1 111. Aniiot. Stat. [Starr & Cur-
* Laws of 111. 1889, p. 191. tis] 1885, p. 1348.
109
1 Thomp. Coil). § 164.] purposes for which permitted.
may be incorporated as a live stock insurance company. ^ - . - _
Mutual fire insurance companies may be incorporated. 2 - - - -
An y number of persons, not less than five nor more than thirteen, may
or<''anize a corporation to transact the business of life insurance on the
assessment plan.^ - - - - Mutual insurance companies may be
organized for the insurance of the lives or health of persons, or against
accident to persons.* - - - - Any number of persons, not less
than ten, may form an incorporated company, for the purpose of
mutual insui-ance of the property of its members against loss by fire or
damage by lightning.^ - - - - Any number of persons, not less
than thirteen in number, may form an incorporated company for either
of the following purposes, to wit: To make marine insurance, to make
fire insurance, or to make insurance on the health or lives of indi-
viduals.*^ . - - - Any number of persons, not less than twenty,
may form a corporation for mutual insurance against loss or damage, by
having had stolen any horse or horses, cattle or sheep, or any loss or
expense incurred in recovering such animals as may have been stolen,
or in the apprehension of the thief or thieves. "^^ _ - . . Any num-
ber of persons, not less than thirteen, may form a company to make
insurance upon the lives of individuals, and every insurance appertain-
ing thereto or connected therewith, on the mutual or stock plan, and
grant, purchase or dispose of annuities. ^ - - - - Any number of
persons may adopt and sign articles of incorporation for the purpose of
transacting insurance business. ^
§ 164. Lawful Purposes. —Two or more persons, associating
themselves for the carrying on of any industrial business, or for any
lawful enterprise, if not otherwise provided by law, may form them-
selves into a private corporation. 1° - - - - Private corporations
may be formed for any purpose for which individuals may lawfully as-
sociate themselves.il - - - - Any three or more persons, citizens
of the United States, who shall desire to associate themselves for
1 2 Rev. Stat. Ind. 1888 [Myers & « 3 Rev. Stat, of New York [Banks
Co.], § 3708- &Bros. 8tli ed.], p. 16-'7.
2 2 Rev. Stat. Ind. 1888 [Myers & ' 3 Rev. Stat, of New York [Banks
Co.], §3745. &Bros. 8th ed.], p. 2070.
3 2 Rev. Stat. Ind. 1888 [Myers & » 1 Rev. Stat. Ohio [Giauque],
Co.], § 37G2a. 1890, § 3587.
* 2 Rev. Stat. Ind. 1888 [Myers & ® 2 Sayles Tex. Civil Stat. 1888, p.
Co.], § 3763. 29, § 2910.
'-> 2 Rev. Stat. Ind. 1888 [Myers & i" 1 Code Ala. 1886, p. 404, § 1659.
Co 1 § 3774. 1' 2 Deering's Auuot. Code & Stat.
of Cal. 65, § 286.
110
EXAMPLES FROM STATUTES. [1 Tliomp. Corp. § 168.
anj^ lawful purpose (other than pecuniary profit) may be incorpo-
rated, i - - - - Corporations may be formed to carry on any law-
ful business. 2 - . - - Societies, corporations and associations
(not for pecuniary profit) may be formed as hereinafter pro-
vided.3 - . - _ " Corporations may be formed in the manner
provided in this chapter for any purpose for which individuals may
lawfully associate themselves, except for dealing in real estate, or car-
rying on professional business ; and if the organization is for profit, it
must have a capital stock." *
§ 165. Lodges: Fraternities: Societies. — Any persons, con-
gregation, society, chui-ch, or any lodge of Freemasons or Odd-Fellows
(whether chapter, encampment or subordinate) and any temple or
division of the Sons or Daughters of Temperance, and any other volun-
tary association for religious, educational, scientific or benevolent pur-
poses, may be incorporated. ^ - - . . Whenever ten or more per-
sons desire to form a society for the social and literary advancement of
its members, they may become incorporated.^
§ 166. Masonic Buildings. — Whenever three or more persons
may desire to form a company to build and maintain buildings, to be
used or occupied, in whole or in part, for Masonic meetings or purposes,
or in any way for the use, accommodation, or convenience of Masonic
bodies or lodges, they may be incorporated.''
§167. Mining: Manufacturing, etc. — Two or more persons
may form a corporation for mining, quarrying, or manufacturing. ^
§ 168. Navigation. — Any two or more persons may be incorpo-
rated to operate a line of steamships or other water-craft navigating the
sea to and from the port of Mobile to any other port of the United
States or of any foreign country. ^ _ _ _ _ ^^y seven or more
persons may form a company to build for their own use, equip, furnish,
fit, purchase, charter, navigate and own vessels, to be propelled by
steam or other expansive fluid, to be used in all lawful commerce and
1 Gen. Stat. Colo. 1883, p. 215, « 2 Rev. Stat. Ind. 1888 [Myers &.
§ 367. Co.], § 3816.
2 Gen. Stat. Colo. 1883, p. 180, « 1 Code Ala. 1886, p. 412, § 1702.
§ 238. 7 2 Rev. Stat. Ind. 1888 [Myers &
3 1 111, Annot. Stat. [Starr & Cur- Co.], § 3838.
tis] 1885, p. 020. 8 Code of Ala. 1886, vol. 1, p. 380,
< 1 Rev. Stat. Ohio [Giauque], 1890, § 1557.
§ 3235. 9 1 Code Ala. 1886, p. 402, § 1655.
Ill
1 Thomp. Corp. § 171.] purposes for which permitted.
navigation upon the ocean, seas, sounds and rivei'S, and for the trans-
portation of passengers, freight and mails. ^ - - - _ Any five or
more persons may incorporate a company to navigate the lakes and riv-
ers by steam, sail or other boats, ships or vessels. ^ _ _ _ _ Any
seven or more persons may form a company to navigate the waters of
Lake George by steamboats.^ _ _ _ _ Any number of persons may
form themselves into a corporation for the purpose of establishing,
maintaining and operating steam-packet comjDanies for the transportation
of freights and passengers on the navigable streams of the State of In-
diana, the rivers bordering thereon, and other navigable waters. ^
§ 169. Patrons of Husbandry. — Associations of the order of the
Patrons of Husbandry, organised in accordance with the rules and
regulations of said order, may become incorporated.^
§ 170. Pipe Lines. — Any number of persons, not less than twelve,
may incorporate a company to construct and operate, for the public use,
lines of pipe for conveying or transporting therein petroleum, gas,
liquids, or any products or property, or to operate for the like pubhc
use any line of pipe akeady constructed.^
§ 171. Police Relief. — Any pohce force existing by authority of
law in any city having over one hundred thousand inhabitants may in-
corporate a relief association and create a fund to afford relief to mem-
bers, who become sick or disabled in the discharge of their duties, or
become incapacitated, or to aid the famihes of those who die in the serv-
ice, and for other similar purposes.'' - - - - Any police force organ-
ized and existing by authority of the laws of this State in any city having
a population of over one hundred thousand inhabitants can f oi'm a relief
association under the general incorporation laws of this State, and
create a fund to relieve members, who have become sick or disabled
or incapacitated, and to aid the families of those who die in the service,
and for such other similar purposes as may be set forth in their articles
of incorporation.^
1 3 Rev. Stat, of New York [ Banks ^ 2 Rev. Stat. Ind. 1888 [Myers &
& Bros. 8th ed.], p. 1850. Co.], § 3880.
2 3 Rev. Stat, of New York [Banks « 3 Rev. Stat, of New York [Banks
& Bros. 8th ed.], p. 1854. &Bros. 8th ed.], p. 18G2.
3 3 Rev. Stat, of New York [Banks ' 1 Rev. Stat. Mo. 1889, p. 738,
& Bros. 8th ed.], p. 1853. § 2885.
* 2 Rev. Stat, lud. 1888 [Myers & « 1 Rev. Stat. Mo. 1889, p. 738,
Co.], § 4130. § 2885.
112
EXA51PLES FROM STATUTES. [1 Tliomp. Corp. § 171.
§ 173. Political Clubs. — Any five or more persons of full age,
citizens of the United States, a majority of whom are also citizens of
this State, who desire to form themselves into a political club, may be
incorporated.*
§173. Public Libraries. — The inhabitants of any city, town,
village or neighborhood may subscribe to a pubhc library and form a
corporation therefor,^ - - - - Any number of persons, not less
than seven, may be incorporated for the pui-pose of establishing and
maintaining a pubhc library in any city or county in this State for the
general benefit and advantage of all the inhabitants of such city or
county.^ - - _ _ Twenty persons or more in any county, town, vil-
lage or neighborhood, may incorporate themselves for the purpose of
procuring and erecting a public library.'*
§ 174. Railroads. — Any number of persons, not less than seven,
desiring to form a corporation to construct a railroad, may file vrith
the Secretary of State a written declaration signed by themselves, set-
ting forth, etc., etc.^ _ - _ _ Purchasers of a railroad, by judicial
sale or otherwise, foreclosing a mortgage, may constitute themselves into
a body politic with all the powers and franchises of the corporation
originally owning the raikoad, if such mortgage embraced the fran-
chises thereof.^ _ - - _ Anynumber of persons, not less than five,
may be incorporated to construct and operate a railroad.'^ _ _ _ _
Any number of persons, not less than five, may become an incorporated
company for the purpose of constructing and operating any railroad in
this State. 8 _ _ _ _ Corporations may be incorporated under the
laws of this State to construct, maintain and operate any elevated way
or conveyor. 9 - _ > _ Any number of persons, not less than fifteen,
being subscribei-s to the stock of any contemplated railroad, may be
formed into a corporation for the purpose of constructing, owning and
maintaining such railroad. ^'^ - - - - It shall be lawful for two or
more railroad companies, running railroads to the same town or city, to
locate, construct, keep up, repau- and use a common or union railroad
» 3 Rev. Stat, of New York [Banks e i ^.la. Code of 188G, p. 392,
& Bros. 8th ed], p. 2027. § 1598.
2 2 Rev. Stat. Ind. 1888 [Myers & " Gen. Stat. Colo. 1883, p. 205, §333.
Co.], § 3791. « 2 111. Annot. Stat. [Starr & Cur-
3 2 Rev. Stat. Ind. 1888 [Myers & tis] 1885, p. 1907.
Co.], § 380G. » 2 111. Annot. Stat. [Starr & Cur-
* 3 Rev. Stat, of New York [Banks tis] 1885, p. 1977.
&Bros. 8th,ed.], p. 2033. ^» 2 Rev. Stat. Ind. 1888 [Myers &
'^ i Ala. Code of 188G, p. 384, § 1573. Co.], § 3885.
3 113
1 Thorap. Corp. § 174.] purposes for which permitted.
of oue or more tracks, connecting the railroads of such companies, for
business purposes, and to incorporate the same. ^ _ _ _ - Any owner
or owners, or their lessees, of lands, mills, blast furnaces, quarries,
irou ore, coal mines or other minerals, or other real estate, or for any
compau}^ of persons, who shall desire to construct a lateral railroad, not
exceeding ten miles in length, to locate and construct the same to any
other railroad, canal or slack-water navigation, on, over, through or
under any intervening lands, and such persons may be incorpo-
rated.2 - - - - Any number of persons, not less than five, may
form a company for the purpose of constructing, maintaining and oper-
ating a railroad for public use in the conveyance of persons and prop-
ert}^^ _ - - _ Any number of persons, not less than twenty-five,
may form a company to construct, maintain and operate a railroad for
public use, or to maintain and operate any incorporated railroad al-
ready constructed for the hke pubhc use.^ - - - - Any individual,
joint-stock association or corporation, engaged in the manufacture of
raih-oad cars, may lay down and maintain such railroad tracks, not ex-
ceeding one mile in length, as may be necessary to connect such estab-
hshment with the tracks of any railroad, provided they have the con-
sent of the local authorities coutrolUng the street or highway proposed
to be occupied and the consent of the owners of one-half in value of the
property bounded on such street ; or if the consent of the latter cannot
be obtained the court may appoint commissioners to determine whether
such railroad ought to be constructed.^ _ _ - - Any number of
persons, not less than ten, being subscribers to the stock of any
contemplated railroad, may be formed into a corporation for the pur-
pose of constructing, owning, maintaining and operating such rail-
road.^ _ _ - - Any number of persons, not less than ten, a majority
of whom shall be inhabitants of this State, may form a company to
construct, maintain and operate in any foreign country a railroad or
raih'oads for public use in the conveyance of persons and property, or
a railroad or railroads aheady constructed in whole or in part for the
like pubhc use, with power to construct, maintain, and operate telegraph
hues and hues of steamboats or saiUng vessels, as may be proper or
convenient for use in connection therewith.' - - - - Any number
of persons, not less than ten, may form themselves into a company to
1 2 Kev. Stat. Ind. 1888 [Myers & ^ 3 Rev. Stat, of New York [Banks
Co.], §§ 3954, 3964a. & Bros. 8th ed,], pp. 1839, 1840.
2 2 Rev. Stat. Ind. 1888 [Myers & « 2 Sayles' Tex. Civ. Stat., p. 410,
Co.], § 3987. § 4099.
3 1 Rev. Stat. Mo. 1889, § 2542. ' 3 Kev. Stat, of New York [Banks
* 3 Rev. Stat, of New York [Banks & Bros. 8th ed.], p. 1767.
& Bros. 8th ed.], p. 1738.
114
EXAMPLES FROM STATUTES. [1 TllOmp. Coi'p. § 176.
construct, maintain and operate a railway for public use, in the con-
veyance of persons and property, by means of a propelling rope or
cable attached to stationary power. ^
§175 Rafting: Booming Logs. — Any five or more persons may
be incorporated, under any name or title designating such business, to
carry on the business of running, driving, booming and rafting logs,
timber, lumber or other floatables on any of the streams or waters in
this State, or for the construction of booms across or in any such waters
or streams. 2
§ 176. Religion : Education : Benevolence. — The members
of any church or rehgioms society, of an educational society, benevolent
society, or the owners of a graveyard, may be incorporated.-* - - - -
Whenever the regulations, rules or disciphne of any church or religious
society require for the administration of the temporalities thereof, or
for the management of the property or estate thereof, any diocese,
synod or district organization of such church or religious society may
elect directors and become incorporated.'* - - - - Any church,
congregation or society formed for religious worship, educational or
benevolent purposes, may be incorporated.^ _ _ _ _ Any joint
stock company or organization, which may have been heretofore organ-
ized in this State for religious, educational or benevolent purposes, may
be incorporated. 6 _ _ - > Any church, congregation, or society
formed for the purpose of rehgious worship, may become incorporated
in the manner following."^ _ _ _ _ Any number of persons may incor-
porate themselves to establish a high school, academy, college, university,
theological institute, or missionary board. ^ _ _ _ _ When the
members of two or more churches desire to form a union and assume
a new name, they are authorized to do so and may be incorpo-
rated.^ _ - _ - The wardens and vestrymen of any parish or
congregation of any church in this State, duly chosen in accordance
with the usages of said church, after a record of such election
shall have been made as herein provided, shall be deemed a body
corporate.^® - . - _ Any church or religious society, after ten
1 3 Rev. Stat, of New York [Banks ? 1 111. Annot. Stat. [Starr & Cur-
& Bros. 8th ed.], p. 1763. tis] 1885, p. (ilJl.
2 1 Rev. Stat. Mo. 1889, p. 741, § » 2 Rev. Stat. Ind. 1888 [Meyers &
2892. Co.], § 3433.
3 1 Code Ala. 1886, p. 411, § 1694. ? 2 Rev. Stat. lud. 1888 [Meyers &
* 2 Decring's Anuot. Code & Stat. Co.], § 3597.
of Cal. 153, § 603. w 2 Rev. Stat. lud. 1888 [Meyers &
5 Gen. Stat. Colo. 1883, p. 216, § 372. Co.], § 3604.
« Gen. Stat. Colo. 1883, p. 219, §384.
115
1 Thoinp. Corp. § 176.] purposi^s for which permitted.
days' public notice, may at au}^ regular or special meeting elect or ap-
point, according to the usages of such society, not less than three nor
more than nine trustees, who shall be a bod}'- corporate, by such name
as the society may designate, for any educational, benevolent or charit-
able purpose.^ - - - - Any number of persons, not less than three,
who shall have associated themselves by articles of agreement in writing,
as a society, company, association or oi-ganization, formed for benevo-
lent, rehgious, scientific, fraternal, beneficial, or educational purposes,
may be consolidated and united into a corporation, ^ - - - - Six
male persons or more, belonging to any congregation in communion
with the Protestant Episcopal church, may incorporate such congrega-
tion. This act also applies to citizens of this State, belonging to any
congregation in communion with the Protestant Episcopal church in
this State, whose place of worship is situated outside of this State and
in a country, whose laws do not in terms provide for the incorporation
of such congregation. "^ _ _ _ _ The persons of full age, belonging
to any church, congregation or religious society, may incorporate the
same.^ _ _ - - Where one priest, clergyman or minister serves two
or more incorporated religious societies, a corporation may be formed
to take and hold title to ground purchased for parsonage purposes for
such societies.^ - - - - A corporation may be formed to hold
property given, devised or purchased by any diocesan convention, pres-
bytery, classis, synod, annual conference, or other religious body
having jurisdiction over a number of churches, congregations or relig-
ious societies.^ > _ _ _ An act created a corporation to hold the
title to real estate owned in foreign lands by parishes organized there,
and in communion with the Protestant Episcopal church of the United
States.*^ _ _ _ _ Any five or more persons of full age, a majority
of whom shall be citizens of this State, may organize themselves.into a
corporation for benevolent, charitable, literary, historical, scientific,
missionary or mission or Sunday-school purposes.^ _ _ _ - Any
twenty or more persons, being citizens of this State, may form them-
selves into a Young Men's Chi-istian Association corporation. ^
1 2 Rev. Stat. Ind. 1888 [Meyers & ^ 3 Rev. Stat, of New York [Banks
Co.], § 3614. & Bros. 8th ed.], p. 1908.
2 1 Rev. Stat. Mo. 1889, p. 719, § ' 3 Rev. Stat, of New York [Banks
2821. & Bros. 8tli ed.], p. 1913.
3 3 Rev. Stat, of New York [Banks « 3 Rev. Stat, of New York [Banks
& Bros. 8th ed.], pp. 1881, 1883. & Bros. 8th ed.], p. 1922.
3 Rev. Stat, of New York [Banks » 3 Rev. Stat, of New York [Banks
& Bros. 8th ed.], p. 1884. & Bros. 8th ed.], p 1933.
6 3 Rev. Stat, of New York [Banks
& Bros. 8th ed.], p. 1900.
116
EXAMPLES FROM STATUTES. [1 TllOmp. Corp. § 178.
§ 177. Savings Banks. — Any number of persons, not less than
three, may be incorporated as a savings bauk.^ - - - - Any num-
ber of persons, being voters of this State, not less than seven nor more
than twenty-one, who shall have been citizens of the county where they
then reside for at least five years then next preceding, and who shall
severally own unincumbered real estate therein worth at least five thou-
sand dollars, exclusive of perishable improvements, may associate them-
selves together for the purpose of organizing and managing a savings
bank in such a county as a body pohtic and corporate. ^ - - - -
Any thirteen or more citizens of the State, two-thirds of whom shall re-
side in the county where the proposed society shall be located, may
associate themselves together and incorporate a savings society or insti-
tution for sa\'ings.3 _ _ _ _ Any five or more persons in any coun-
ty of this State may be incorporated for the purpose of establishing a
bankof deposit or discount, or of both deposit and discount.^ _ . _ -
Any ten or more persons may be incorporated as a mutual saving fund,
loan or buildmg association, under any name or title designating such
business.^ _ _ - - Any number of persons, not less than nine, may
associate themselves together for the purpose of organizing a savings
society or institution for savings. 6 - - - - Any number of persons ^
not less than nine, may be incorporated as a sa\ings society or institu-
tion for savings.'^ _ _ _ _ Any number of persons, not less than
thirteen, may associate themselves together for the purpose of organiz-
ing a sa^dngs bank.s - - - - Any fifteen or more persons, being of
full age, may form a co-operative saving and loan association. ^
§ 178. Slack-water Navigation. — Any number of persons, not
less than ten, may form themselves into a corporation for the purpose
of building dams across any stream, so as to jifford slack- water naviga-
tion. ^^ - _ _ - For the improvement of the navigation of any
na\igable river within the jurisdiction of this State, and for the creation
of hydraulic power thereon not impeding the navigation of the same,
any nural)er of persons, not less than thirteen, may form themselves
into a corporation. ^1
1 Geu. Stat. Colo. 1883, p. 192, § ' 1 Rev. Stat. Mo. 1889, p. 728, §
281. 28i9.
2 2 Rev. Stat. Ind. 1888 [Myers & « 2 Rev. Stat, of New York [Banks
Co.], § 2703. & Bros. 8th ed.], p. 1563, § 236.
3 Laws of 111. 1887, p. 77. ^ 2 Kev. Stat, of New York [Banks
* 1 Rev. Stat, of Mo. 1889, p. 699, § & Bros. 8tli ed.l, p. 1592.
2743. 10 2 Rev. Stat. Ind. 1888 [Myers &
5 1 Rev. Stat. Mo. 1889, p. 715, Co.], § 4118.
§ 2808. *' 2 Kev. Stat. lud. 1888 [Myers &
« IRev. Stat. Mo. 1889, p. 728, §2849. Co.], § 4099.
117
1 Thonip. Corp. § 183.] puuposks fou which i'ermittku.
§ 170. Soldiers' Moniiinents. — Any number of persons, not less
than three, may form a corporation for the purpose of erecting a monu-
ment or monuments to perpetuate the memory of the soldiers and
sailors who served in the late war.^
§ 180. Sporting. — Any five or more persons of full age, a majority
of whom shall be citizens of this State, who shall desire to associate
themselves for social, temperance, benefit, gymnastic, athletic, military
drill, musical, yachting, hunting, fishing, bathing or lawful sporting
purposes, may incorporate themselves therefor. ^
§ 181. Stage Coaches. — Any number of persons, not less than
five, may incorporate a company to maintain and operate any stage or
omnibus route or routes for public use in the conveyance of persons
and property elsewhere than in the city of New York.^
§ 182. Street Railroads. — Any number of persons, not less than
five, may become a corporation to construct and use a street railroad in
any of the cities or towns of this State. ^ _ _ _ _ Any number of
persons, not less than five, being subscribers to the stock of any con-
templated street or horse railroad company may be formed into a cor-
poration for the purpose of constructing, owning and maintaining street
or horse railroads, switches or side tracks upon and through the streets
of the cities or towns within this State. ^ _ _ _ _ Any number of
persons, not less than thirteen, may form a company to construct, main-
tain and operate a street surface railroad for public use in the convey-
ance of persons and property in cars for compensation in any of the
cities, towns or villages of this State. "^
§ 183. Telegraphs : Telephones. — Any number of persons may
form themselves into a corporation for the purpose of estabhshing,
maintaining and operating lines of electric telegraph within this
State.' - - - - Any number of persons, not less than five, may
from a corporation to construct, own operate and maintain lines of
telephone or magnetic telegraph.^ _ _ _ _ Any number of persons
1 3 Rev. Stat, of New York [Banks ^ 2 Rev. Stat, Ind. 1888 [Myers &-
& Bros. 8th ed.J, p. 2058. Co.], § 4143.
2 3 Rev. Stat, of New York [Banks ^ 3 Rev. Stat, of New York [Banks
& Bros. 8th ed.], p. 1953. & Bros. 8th ed.], p. 1810.
3 3 Rev. Stat, of New York [Banks ■» 2 Rev. Stat. Ind. 1888 [Myers &
& Bros. 8th ed.], p. 1876. Co.], § 4162.
* 1 Code of Ala. 1886, p. 393, §§ » 1 Rev. Stat. Mo. 1889, § 2716.
1603, 1604.
118
EXAMPLES FR03I STATUTES. [1 Thomp. Corp. § 187.
may incorporate themselves for the purpose of constructing a line
of wires of telegraph through this State. ^ _ . _ _ Telegi'aph
companies, incorporated by this or any other State, shall have
the right to construct and operate lines of telegi-aph along any of
the railroads or other public highways in the State, and over the
lands of other persons and corporations upon making just compensa-
tions as now provided by law.^ _ _ _ _ Any number of persons
may form themselves into a corporation for the purpose of establishing,
maintaining and operating telephones, telephone lines, and telephone
exchanges within this State. ^
§ 184. Tobacco Warehouses. — Any number of persons may
form themselves into a corporation for the purpose of constructing
warehouses in which to inspect, store and sell tobacco.*
§ 185. Toll Roads : Plank, Gravel, Macadamized, Turnpike
Roads, etc. — Any number of persons, not less than seven, can be
incorporated for the purpose of constructing and operating a macada-
mized, turnpike, plank, wooden, shelled, graded, or other improved
toll-road. 5 - - - - Any number of persons may form themselves
into a corporation to construct or own plank, macadamized, gravel,
clay and dirt roads. ^ _ _ _ _ Any number of persons not less than
five may be incorporated to construct aud own a plank-road or a turn-
pike road by complying with the following requirements.' - - - -
Any five or more persons may form themselves into a corporation to
construct and own a graded or gravel road, or plank or macadamized
road, or a road composed partly of plank, macadam or gravel for a
covering, so as to form a hard and smooth surface.^
§ 186. Training IS'urses. — Any five or more persons may form a
corporation to educate, train and provide skilled nurses for the sick,
and to do such other practical or charitable work in hospital and else-
where, as may be consistent therewith,^
§ 187. Tramways, Elevated. — Any member or persons, not less
than thirteen, may incorporate a company to construct, maintain and
1 3 Rev. Stat, of New York [Bauks ^ i Code Ala. 188G, p. 396, § 1613.
&Bro8. 8th etl.], p. 2060. « 2 Rev. Stat. Ind. 1888 [Myers &
2 ICodo of Ala. 1886, pp. 401, 402, Co.], §.^.624.
§§ 1652-1654. 7 2 Rev. Stat, of New York [Banks
3 2 Rev. Stat. Ind. 1888 [Myers & & Bros. 8th ed.], p. 1477.
Co.], § 4181. 8 1 Rev. Stat. Mo. 188!), § 2690.
■• 2 Rev. Stat. Ind. 1888 [Myers & » 3 Rev. Stat, of New York [Banks
Co.], § 4193. & Bros. 8th ed.], p. 2087.
119
1 Thomp. Corp. § 191.] ruiiposios for which tekmitted.
operate an elevated tramway for the transportation of freight in sus-
pended buckets, cars or other receptacles, for hire.i
§ 188. Trust Companies. — Any number of person, not less than
three, may be incorporated to carry on a trust, deposit and security
business. 2 - - - - Any three or more persons may be incorpo-
rated, under any name or title designating such business, as trust com-
panies, to receive moneys in trust, and to execute any trusts confided
to them, and to guarantee the fidelity of any persons holding places of
public or private trust, and to act as guardian or curator of any in-
fant or insane person, and to hold any real or personal estate in
trust. ^ _ _ - - Any number of natural persons, not less than
thirteen, may organize a trust company, but three-fourths of such per-
sons shall reside in this State.^
§ 189. Union Depots. — Any number of persons, not less than
five, may form, or any two or more railroad companies may form, or
join others in forming, a corporation to construct, estabhsh and main-
tain a union station for passenger or freight depots, or for both, in any
city, town, or place in this State.^ - - - - The presidents of two or
more railroad companies running railroads to the same city, town or vil-
lage may by consent and under the direction of their respective boards of
directors, file articles of incorporation, for the purpose of purchasing depot
grounds, and locating, constructing and maintaining a common or union
station-house and passenger depot, and a union railroad by two or more
tracks connecting the raikoads of such companies for business purposes. ^
§ 190. TTatcr Works. — In case of the sale of any water-works
property within the State, by the judgment and decree of any court of
competent jurisdiction within this State, the purchaser or purchasers
thereof may form a corporation. ' - - - - Any number of persons,
not less than seven, may hereafter organize in any town or village of this
State a water-works company under the provisions of this act.^
§ 191. Indiana : Enumeration of Purposes for which Cor-
porations may be Formed. — Any number of persons may associate
1 3 Rev. Stat, of New York [Banks ^ 2 111. Anaot. Stat. [Starr & Cur-
& Bros. 8th ed.], p. 1879. tis] 1885, p. 1925.
2 Gen. Stat. Colo. 1883, p. 195, § ^ i Rev. Stat. Ohio [Giauque], 1890,
294. § 3446.
3 1 Rev. Stat. Mo. 1889, pp. 724, 725, ' 2 Rev. Stat. Ind. 1888 [Myecs &
2§ 2836, 2839. Co.], § 4200.
4 2 Rev. Stat, of New York [Banks & ^ 3 Rev. Stat, of New York [Banks
Bros. 8th ed.], p. 1596. & Bros. 8th ed.], p. 2047.
120
TEXAS STATUTE. [1 Tliomp. Corp. § 192.
themselves together and be incorporated : First. To establish associa-
tions for horticultural or agricultural purposes, or to promote and en-
com-age the mechanical arts, or for literary or scientific purposes, or
for dredging or deepening the channels of rivers and creeks, or for the
improvement of harbors. Second. To estabhsh and maintain schools or
institutions for the education of males or females. Third. To estabhsh
and maintain asylums for the care, support, disciphne and education
of orphan children ; or to estabhsh and maintain homes for the care and
support of aged females, who cannot support themselves, or for the care
and support of crippled persons. Fourth. To purchase and hold suit-
able grounds for the burial of the dead. Fifth. To organize lodges or
other bodies of Masons or Odd-Fellows, Knights of Honor and Knights
and Ladies of Honor : also divisions or associations of temperance or
other charitable associations or orders ; to organize churches, conferences,
and rehgious societies ; to organize societies for the prevention of cruelty
to either animals or childi-en ; and to organize a State Grange of Pat-
rons of husbandry and subordinate Granges. Sixth. To organize mil-
itary or fire companies, companies to erect buildings suitable for pubhc
meetings, and companies to plant shade trees. Seventh. To organize
safe deposit and loan companies. Eighth. To organize associations to
build, own and operate hotels. Ninth. To organize associations to buy,
hold and sell real estate. Tenth. To organize associations to buy, lease
and hold mineral springs and to build and carry on hotels, cottages and
bath-houses there. Eleventh. To organize companies to sink and operate
oil and gas wells. Twelfth. To establish companies to import hve stock
into the United States and to keep registers of all imported live stock.^
§ 192. Texas : Enumeration of Purposes for which Corpo-
rations may he Formed. — Private corporations may be formed by the
voluntary association of thi-ee or more persons, for the following pur-
poses, viz. : 1. The support of pubUc worship. 2. The support of any
benevolent, charitable, educational or missionary undertaking, 3. The
support of any hterary undertaking, the maintenance of a library, or
the promotion of painting, music or other fine arts. 4. The encourage-
ment of agriculture and horticulture by associations for the maintenance
of pubUc fairs and exhibitions of stock and farm products. 5. The
maintenance of a public or private cemetery. G. The construction and
maintenance of any species of road except a railroad and a bridge in
connection therewith. 7. The construction and maintenance of a
bridge. 8. The construction and maintenance of a telegraph or tele-
phone hne. 9. The establishment and maintenance of a ferry.
10. The establishment and maintenance of a line of stages. 11. The
1 2 Rev. Stilt. lud. 1888 [Myers & Co.], § 3502.
121
1 Thomp. Corp. § 200.] purposes for which PKUiMriTKi).
building and navigation of steamboats, and the carriage of persons and
property thereon. 12. The supply of water to the public. 13. The
manufacture and supply of gas, or of the supply of light or heat to the
pubhc by any means. 14. The transaction of any manufacturing or
mining business. 15. The transaction of a printing oi- publishing busi-
ness, and in connection therewith the sale of goods, wares and mer-
chandise of a stationery and blank book manufacturing business.
16. The establishment and maintenance of a hotel. 17. The erection
of buildings and the accumulation and loan of funds for the purchase
of real property in cities, towns and villages. 18. The transportation
of goods, wares and merchandise or any valuable thing. 19. The pro-
motion of immigration. 20. The construction and maintenance of
sewers. 21. The construction and maintenance of a street railway.
22. The erection and maintenance of market houses and market places.
23. The construction and maintenance of canals for the purposes of
irrigation, navigation and manufacturing. 24. The purchase and sale
of agricultural and farm products, goods, wares and merchandise, pro-
vided that the capital stock of such corporations shall not exceed
twenty thousand dollars. 25. The construction of harbors and canals
^n the coast of the Gulf of Mexico. 26. The growing, purchasing and
selling seeds, plants, trees, etc., for agricultural, horticultural andiorna-
mental purposes. 27. The construction and maintenance of mills and
gins. 28. The accumulation and loan of money ; but this subdivision
shall not permit incorporation with banking or discounting privileges.
29. The construction and maintenance of stock yards and pens.
30. The construction and maintenance of estabhshments for slaughter-
ing, refrigerating, canning, curing and packing meat. 31. The con-
struction and maintenance of establishments for the preserving and
canning of fruits, vegetables and fish. ^
SUBDIVISION II. Decisions Construing Particular Statutes.
Section
200. Corporations for internal im- 200. *' Beneficial or protective pur-
provemeuts. poses."
201. ''Lawful sporting purposes.'' 207. " Mauuf actm-ing purposes."
202. Erection of buildings. 208. " Works of public utility."
203. Industiial pursuits. 209. " Pecuniary profit."
204. " For any other purpose intended 210. "Loan, mortgage, security,
for mutual profit," eic. guaranty, indemnity com-
205. " Other lawful business." pany."
§ 200. Corporation for Internal Improvements. — The con-
stitution of West Virginia of 1861-3 contains this prohibition: "No
1 1 Sayles' Texas Civil Stat. 1888, pp. 212, 213, §§ 5G5, 560.
122
PAUTICULAR STATUTES CONSTRUED. [1 Thoilip. Corp. § 20'2.
special act iucorporating or granting peculiar privileges to any joint
stock company or association not ha^dng in view tlie issuing of bills to
circulate as money or the construction of some work of internal improve-
ment shall be passed." It has been held in that State that a corpora-
tion created by a special act of the legislature for the purpose of con-
structing and maintaining a. pipe line for the conveyance of petroleum
was valid, the purpose of the corporation being an internal improve-
ment within the meaning of the above prohibition. 1 It was further held
that the legislature might confer upon such a company the power of
appropriating lands necessary for its pipe line in virtue of the right of
eminent domain. ^
§ 201. ** Lawful Sporting Purposes" — Actions for Viola-
tion of Game Laws. — A statute ^ which authorizes incorporations for
" social, gymnastic, esthetic, musical, yachting, hunting, fishing, boating
or lawful sporting purposes," does not allow incorporations for the
purpose of instituting actions to recover penalties for violations of the
game laws. The authority given to the corporation by the act, to sue
and be sued, is subject to the quaMfication that it is in relation to some
matter within the scope of the statute and the legitimate purpose of the
organization.*
§ 202. Erection of Buildings. — A general statute authorizing
the formation of corporations " for the erection of buildings " is under-
stood to authorize the formation of corporations engaged or to be en-
gaged in the business of erecting buildings, — in other words, in the
formation of building companies or associations. It may be that such
a company may erect buildings on its own property, but it is reasoned
that the leading object of such an association must be, not the mere
purchase and improvement of real estate, and a subordinate and inci-
dental object the erection of buildings thereon, as one of the modes of
such improvement ; but that the leading object of the associates must
be to carry on the business of erecting buildings for themselves or
others, and not to confine themselves, as the primary and sole object
of their organization, to the erection or improvement of a single build-
ing upon a single property of their own, for its more convenient and
lucrative development and use.^
1 West Virginia Transportation Co. ^ AncicMit City Sportsman's Club v.
V. Volcanic Oil and Coal Co., 5 West Miller, 7 Lans. (N. Y.) 412.
Va. 382. '' People v. Troy House Co., 44
^ Ibid. Barb. (N. Y.) G25. In this case the coi*-
■^ New Yoirk Act of 18G5, chap. 368. pnrati m was ousted of its franchises.
123
1 Tbomp. Corp. § 205.] purposes for which permitted.
§ 303. "Industrial Pursuits." — A corporation organized to
carr)^ ou the business usually performed by an exprci^s company, is a
corporation organized for tlie prosecution of an industrial pursuit,
within the meaning of section 1889 of the Revised Statutes of the
United States. ^
§ 204. *' For any other Purpose intended for Mutual Profit,"
etc. — A statute of Texas, after enumerating twenty-six special purposes
for which corporations could be chartered, contained a twenty-seventh sub-
division reading as follows : ' ' For any other purpose intended for mutual
profit or benefit, not otherwise specially provided for, and not inconsistent
with the constitution and laws of this State." ^ Construing this statute,
it has been held that a corporation which, according to a recital in its
articles of association (called its charter) was formed " for the purpose of
bujdng, selling, and dealing in real estate, live stock, bonds, securities,
and other properties of all kinds, on its own account and for commis-
sion, in the United States and elsewhere," —was legally incorporated,
there being recited in the constitution and laws of the State no express
or impUed prohibition of the business. ^
§ 305. ror*'Otlier Lawful Business." — The question recently
arose under the Minnesota statute enabhng corporations to be formed
for the carrying on of certain enumerated kinds of business and also for
" other lawful business,"* whether a corporation whose purpose, as stated
in its articles of association, was " the purchasing and holding of real
estate, subdividing the same into town or village lots and town sites,
and seUing and disposing of the same," was a lawful corporation. The
Supreme Court of Minnesota held that the statute covered a business of
this kind. The court regarded the point as turning entirely on the
words of this statute, "or other lawful business." '^ - - - - A
corporation formed to carry on a manufacturing or mechanical business
and to purchase the stock of an insolvent corporation, may stand under
such a statute, although its organization purports to be under an-
other.*^ _ - - - la Penns3'lvania, an application under a statute for
a charter for the maintenance of a private park on a lake is for a law-
ful purpose, it not appearing that the object is to reduce a public
1 Wells V. Northern Pacific R. Co., ^ Minn. Stat. 1866, chap. 34, § 45, aS
23 Fed. Rep. 469. amended byMinu. Laws 1873, chap. 13.
2 Rev. Stat. Tex. art. 566, subdiv. 27. « Brown v. Corbin (Minn.), 42 N.
3 National Bank V.Texas Investment W. Rep. 481; s. c. 40 Minn. 508.
Co., 74 Tex. 421; s. c. 12 S. W. Rep. ^ state v. Minnesota Thresher
101; criticising Navigation Co. v. Gal- Manuf g Co., 40 Minn. 213; 41 N. W.
veston Co., 45 Tex. 272. 1020.
124
PAETICULAR STATUTES CONSTRUED. [1 Thomp. Corp. § 208.
lake to private dominion. i - - - - Wliere, as in Indiana, the law
permits the consolidation of corporations, it is not against pubhc pohc}^
for a corporation to be organized with the ulterior purpose of consolida-
tion with another. 2 _ - . - Corporations to protect the personal
property of the members against theft ; to confer with the State author-
ities, therefor; to employ counsel to assist in prosecuting persons
charged with crime ; to employ detectives to co-operate with the author-
ities ; and to raise means by uniform assessments on the personal prop-
erty of the members, are within the purview of that subdivision of the
Texas statute ^ prescribing the purposes for which corporations may be
formed which includes " any other purpose intended for mutual profit
or benefit . . . not inconsistent with the constitution and laws of
this State." ^ _ _ _ _ A corporation for " buying, selling, and deal-
ing in real estate, live-stock, bonds, securities, and other properties of
all kinds, on its own account and for commission," — is authorized by
the same statute. ^
§ 206. ** Beneficial or Protective Purposes.** — An incorpora-
tion for the purpose of recovering stolen property, and, in case of failure
to recover it, to pay a part of its value to the loser, has been held not to
be an incorporation ' ' for the maintenance of a society for beneficial or
protective purposes " under section 2 of the Pennsylvania Act of April
29, 1874, and a charter for such a purpose should be refused.^
§ 207. *' Manufacturing Purposes." — The fiHsmess of preparing
ice in its natural condition for use as an article of consumption is within
a statute authorizing the formation of corporations for manufacturing pur-
poses,' The manufacture of lumber, flour and meal is within the meaning
of the Illinois act of 1849 authorizing " the formation of corporations
for manufacturing, agricultural, mining and mechanical purposes." ^
§ 208. "Works of Public Utility." — The establishment and
maintenance of a wharf-boat and steam elevator at Monroe, for a general
storage and forwarding business, is a " work of public utility," within
La. Rev. St., sec. G83, for which a/corporation may be authorized. ^
1 Lake Wynola Assoc, 3 Pa. Coun- ^ Solebury Mut. Protection Asso.,
ty Ct. 0:^6. 3 Pa. Couuty Ct. 637.
2 Ilill V. Nisbct, 100 Ind. 341. ' Attorney- General v. Lormaa, 59
3 Rev. Stat, art 5G6, subd. 27. Mich. 157.
4 Guadalupe &c. Stock Asso. v. ^ crossu. Pinckneyville Mill Co., 17
West, 70 Tex. 391. III. 54.
^ National Bank v. Texas Invest- ^ Glen v. Breard, 35 La. An. 875.
ment Co., 74 Tex. 421 ; s. c. 12 S. W. 101.
125
1 Thomp. Corp. § 210.] stkps to perfect organization.
§ 209. "Pecuniary Profit." — A corporation organized entirely
for educational purposes is not " a corporation for pecuniary profit, " by
reason of the fact that fees are charged for tuition.^
§ 210. "Loan, Mortgage, Security, Guaranty, Indemnity
Company." — incorporation authorized to establish a public exchange
for receiving deposits of and transferring earnest moneys, stocks, bonds,
and other securities, procuring and making loans thereon, and guaran-
teeing the payment of bonds and other obligations, is a "loan, mort-
gage, security, guaranty, and indemnity company," and a corporation
"having the power of recei\ang money on deposit," within N. Y. Acts
1874, ch. 324, requiring reports from such corporations to the superin-
tendent of the banking department.^
Article II. Steps Necessary to Perfect Organization.
Sectiox
215. Corporations may be organized
under general laws.
216. Theory of tlie nature of a charter
where the incorporation is un-
der a general law.
217. When life of corporation com-
mences.
218. Distinctions between actions
against the supposed corpora-
tion and actions against a sup.
posed corporator.
219. Necessity of articles or certifi-
cate of incorporation.
220. Corporate existence proved by
user under an instrument of
Incorporation.
221. Defective certificate not prima
facie evidence of incorporation.
222. Distinction between us<t under
special charter and compliance
with conditions under general
law.
223. Originals evidence where statute
prescribes copy.
224. Literal compliance with statute
not necessary : Substantial
compliance sufficient.
compliance neces-
Srction
225. Substantial
sary.
2i.'G. Distinctions between conditions
precedent and conditions di-
rectory.
Illust ations.
Defects in the articles or certifi-
cate which do not vitiate.
Claiming more than the law al-
lows.
Provision as to expulsion of mem-
bers.
Specifying the objects of the as-
sociation.
Illustrations.
Stating the place where the busi-
ness of the corporation is to
be carried on.
Stating the manner of carrying
on the busine s.
235. Provision as to manner of pay-
ment of stock.
236. Fatal defects not supplied by
parol evidence.
237. Acknowledgment of articles.
238. Amendment of the articles or cer-
tificate.
227.
228.
229.
230.
231.
232.
233.
234.
1 St. Clara Female Academy v. Sul-
livan, 116 111. 375; s. c. 56 Am. Rep.
776.
126
2 People V. Mutual Trust Co., 96 N.
Y. 10.
THEORIES OF CHARTERS. [1 Thoilip. Corp. § 216.
Section Sectiox
239. Filing, publishing and recording 245. Provision as to assent and appro-
articles, bation of a judge.
240. Filing copy with secretary of 246. Subscription of the whole amount
state, etc. of the capital stock.
241. Illustrations. 247. Payment of a certain amount of
242. Recording in the wrong book. capital stock.
243. Fraudulent and surreptitious re- 248. Certificate of treasury board,
cording. comptroller of currency, etc.,
244. Non-compliance with provisions conclusive.
directing publication of arti- 249. Letters-patent of incorporation
cles. conclusive evidence of corpo-
rate existence.
§ 215. Corporations may be Organized under General
Laws. — As already seen, a corporation can only be created by or
under authority of the sovereign power, which power is in this
country expressed in acts of the legislature.^ It has already
been observed that it is a principle of American constitutional
law that legislative power cannot be delegated ; that, where cer-
tain power is vested in the general assembly of the State by the
constitution, it is not competent for that body to cast it off on
some other body or agency.^ A limitation of this rule is that it
is competent for the legislature to provide for the organization of
corporations through the action of judicial or ministerial officers
under general laws ; ^ and, as hereafter seen, constitutional pro-
visions exist in many of the States forbidding their creation by
special laws.*
§ 216. Theory of the Nature of a Charter where the Incor-
poration is under a General Law. — Where a corporation is
organized under a general law, it may frequently become a ques-
tion what provisions of its articles of association are to be deemed
to have the force and effect of a charter granted by the legisla-
ture, and what are to be deemed to have the force and effect of
hy-laws with which the public, in the absence of notice of their
terms, have no concern. This question was considered in a case
where it became material to inquire whether a provision in the
1 Ante, § 35. is no longer a debatable question."
2 Ante, § 3G. Black, J., in Granby Mining &c. Co. v.
s Ante, § 37. "That corporations Kichards, 95 Mo, 106, 112.
may be organized under geuoral l:nvs * Po.si, § 573, et seq.
127
1 Thomp. Corp. § 216.] steps to perfect organization.
articles of association of a banking corporation, \vhich limited
every stockholder to an ownership of one hundred shares, was to
be considered as having the force of a charter requirement, or
only that of a corporate by-law. It was said by Lewis, P. J. :
«* We cannot say that there is no charter in the case. For with-
out a charter in the generic sense there can be no such thing as a
corporation. The general statute, when aroused into specific
operation by a compliance with its terms on the part of an asso-
ciation of persons and capital, unites itself with the terms and de-
tails of such a compliance ; the law and the articles of association
become, as it were, the compact between the State and the asso-
ciation, and this constitutes a charter of the body politic. Thus,
when the law requires that the articles, to be filed with a particular
oflScer, shall set forth the amount of the capital stock, and the
capital stock is thus set forth at fifty thousand dollars, these con-
current declarations are the equivalent of a charter provision that
the new corporation shall be entitled to hold and operate a capital
stock amounting to the sum specified. But no provision in the
articles, which is not responsive to some specification in the law,
can have any such force or effect. Such a provision, not called
for by the law, will be a mere voluntary proposal from the asso-
ciation. It will be lacking in the essential elements of a com-
pact, will derive no operative energy from the statute, and can
have no claim to the dignity and efi'ectiveness of a charter regu-
lation. "^ Where, in preparing a certificate of incorporation,
the corporators employ only the words used in the statute to
describe the general purposes of such incorporation, it will be
presumed that they intended to create a corporation of the same
general nature and with the same general powers granted by the
1 O'Brien v. Cummings, 13 Mo. held one hundred shares was, not-
App. 197. It was accordingly held withstanding the prohibition in the
that, as the provisions of the general articles of association, valid and ef-
law contained no limitation as to the fectual as between the parties to it;
number of shares which any share- and accordingly that, the corporation
holder might own, the provisions of the becoming insolvent, a subsequent judg-
articles in question were inoperative, ment creditor of it could not have an
in so far as concerned the title of a execution against the transferor, by
stranger to the corporation who motion under the statute, on the
mighr become the purchaser of Its theory that he was still the owner of
shares ; and that a transfer of shares the shares.
made in good faith to one who already
128
DISTINCTIONS. [1 Thomp. Corp. § 218.
statute, rather than that, by such words, they sought to apply
special limitations on the powers of the corporation.^
§ 217. When Life of Corporation Commences. — " The life of
a corporation dates from its organizatio)i, and not from the time
it begins to do business." ^ Where the statute points out the
manner in which the corporation shall be organized, and the di-
rection of the statute is followed, this brings the corporation into
existence, so that it may enter upon the objects of its creation.^
§ 218. Distinctions between Actions against the Supposed
Corporation and Actions against a Supposed Corporator. —
Essential distinctions exist, in respect of the question when a
corporation is -deemed to be in existence, between cases where
the action is against the supposed corporation itself, and cases
where the action is against one of the supposed corporators, to
charge him personally upon a contract entered into in tiie name
of the supposed corporation. In the former case, the courts
generally decline to enter into an inquiry as to the regularity of
the organization of the c^irporation, for public reasons, — that is
to say, in view of the public inconvenience of litigating the
question of existence of a corporation in a collateral proceedins:.
1 Whetstoue v. Ottawa University, way and for depot grounds ; and books
13 Kan. 320. were opened for subscription to the
2 Hanna v. International Petroleum capital stock, and the stock was all
Co., 23 Ohio St. 622. But it does not taken; and the company obtained per-
foUow that a corporation has no legal mission of the commissioners of
existence, from the fact that it com- highways to locate and operate tracks
mences business in a foreign State, along and across all roads and high-
where there is a provision in its char- ways upon its route, and obtained
ter authorizing it so to do, without permission from the City of Chicago
having done any business in the State to locate and operate a track through
of its creation. PAd. a portion of the city and to build a
3 Columbia Bottom Levee Co. v. bridge over the Chicago river, which
Meier, 39 Mo. 53; People v. Bowen, grants were duly accepted; and the
30 Barb. (N. Y.) 24. Where the per- capital stock was also increased and
sons named in the charter of a railway the new stock subscribed for, — it was
company mot within a few days after held that the charter was in opera-
the passage of the charter, and, by a tion, within the meaning of a clause
resolution, adopted the same, and, on of the new constitution of Illinois
the following day, elected ofDcers, and (111. (^oust. of 1870, art. II, § 2), ab-
thereafter authorized the president to rogating corporate charters not in
survey routes and locate the road, operation. McCartney v. Chicago &c.
and to make contracts for the right of R. Co., 112 111. (Wl.
9 129
1 Thomp. Corp. § 219.] steps to perfect organization.
On the contrary, they hold the corporation, on the one hand,
and the party contracting with it, on the other, estopped from
questioning the validity of it.s organization. ^ In such a case it
has been said: '• If the papers filed, by which the corporation is
sought to be created, are colorable, but so defective that, in a
proceeding on the part of the State against it, it would for that
reason be dissolved, yet, by the acts of user under such organ-
ization, it becomes a corporation de facto, and no advantage can
be taken of such defect in its constitution, collaterally, by any
person." 2 But where the action is brought against an alleged
corporator, to charge him on a contract made for the pi'etended
corporation, if the corporation does not exist, he will ordinarily
be liable as a partner^ on the theory of a breach of warranty of
agency, elsewhere explained ; ^ and, in such an action, it will be
open to the plaintiff to show that there was no corporation; and
the defendant must show a valid corporate organization, in or-
der to escape personal liability.*
§ 219. Necessity of Articles or Certificate of Incorpora-
tion. — It has already been seen that a number of individuals, by
the mere act of uniting and calling themselves a corporation, can-
not constitute themselves such, but that a corporation can only
be created by the sovereign power. ^ It will hereafter be pointed
out that the principle which validates irregularities in the organ-
ization of corporations, when their corporate existence is ques-
tioned in collateral proceedings, applies only in cases where the
corporation might have existed. If we attend to these princi-
ples, we shall see that a corporation cannot be deemed to exist,
even de facto, where the adventurers never had any charter at all.*
It is elsewhere shown ^ that the voluntary act of individuals in
» Post, § 3573, et seq. « Post, § 2859, et seq.
2 Buffalo &c. R. Co. v. Gary, 26 N. * Kuiser v. Lawrence Sav. Bank,
Y. 77. Substantially the same doc- 56 Iowa, 104. The case of Humphreys
trine is announced in Krutz v. Paola v. Mooney, 5 Colo. 282, holding that
Town Co., 20 Kan. 403; Pape v. Capi- in such an action the plaintiff, by rea-
tol Bank, 20 Kan. 440. It is recog- son of having entered into an express
nized in Kaiser v. Lawrence Sav. contract with the assumed corpora-
Bank, 56 Iowa, 104, 108, where the tion, is estopped, is denied,
distinction stated in the text is taken, * Ante, § 35.
and in other cases almost without ^ Post, § 505.
number. ' Ante, § 216.
130
CERTIFICATE : ARTICLES. [1 Thomp. Corp. § 220.
compliance with a general law, whereby they sign, acknowledge
and file articles of association, makes them a corporation, and that
the articles of association, read in connection with the general
law, constitute their charter. It must follow, from a considera-
tion of these premises, that where a collection of persons claim
to have organized themselves into a corporation under a general
law, their claim will not be good, even when questioned collat-
erally, provided they tile no articles of association at all; and
such is the adjudged law.^ The rule is the same where the ad-
venturers file articles which hvq fatally defective by reason of not
conforming to the essential requirements of the governing stat-
ute. ^ On the other hand, the corporation is generally deemed
to exist from the time when the certificate of incorporation, ar-
ticles of association, or other instrument of incorporation pre-
scribed by statute, is executed, acknowledged, and recorded or
filed for record, in accordance with the governing statute; and
thereafter the lawfulness of the existence of the corporation can-
not be denied in any controversy, except in an action by the
State to vacate its franchises. ^ Thus, under the statutes of
Pennsylvania, where articles of association have been approved
by the attorney-general and Supreme Court of the State and
duly enrolled, such association becomes a corporation, and such
articles cannot be collaterally questioned.*
§ 220. Corporate Existence Proved by User under an In-
strument of Incorporation. — As more fully explained here-
after, ° the existence of a corporation is usually proved by show-
ing a valid instrument of incorporation and acts of user there-
under. This instrument of incorporation may consist of a
special charter, that is, a special act of the legislature incor-
porating the particular company, or a certificate or articles of
1 Abbott V. Omaha Smelting &c. » Palmer v. Lawrence, 3 Sandf. (N.
Co., 4 Neb. 41G; Chiids v. Smith, 55 Y.) 161; Hunt v. Kansas-Missoari
Barb. (N. Y.) 45, 53. Bridge Co., 11 Kan. 412. See Valk v.
2 Fifth Baptist Church v. Baltimore Crandall, 1 Saudf. Ch. (N. Y.) 179.
&c. R. Co., 4 Mackey (D. C), 43; New * Society for Visitation of the Sick
York Cable Co. v. Mayor, 104 N. Y. 1; v. Commonwealth, 62 Pa. St. 125.
McCallion v. Hibernia &c. Co., 70 Cal. & Post, § 497, and Ch. 184, Art. HI.
163; s. c. 12 Pac. Rep. 114; post, §221.
131
1 Thomp. Corp. § '220] stkps to perfect organization.
incorporation, by whatever name designated, executed and filed
in some public office, in pursuance of a general law.^ The
usual method of proving the existence of a corporation created
by special charter is to prove the act of incorporation (it being
a special law, of which the courts do not take judicial notice),
and to prove acts of user under it.^ If it is a corporation
created by a foreign statute, the statute must be proved as a
fact, in the mode prescribed by the law of the forum for the proof
of foreign laws. If the statute is a special law of a foreign State,
the mode of proving it will usually be by an exemplified copy,
certified by the Secretary of State, or otherwise authenticated as
provided by the act of Congress. If the corporation is organized
under a general law of another State of the Union, it will usually
be sufficient, under the rules of evidence in most of the States,
statutory or resting in adjudged cases, — to prove it by the pro-
duction of a book of the statutes of such other State, which pur-
ports on its face to be published by the authority of such State.^
If the corporation purports to be organized under a general law
of the State of the forum, it will usually be sufficient to prove the
charter or the making and filing of the certificate, articles of
association, or other instrument of incorporation, required by
the statute, and to prove acts of user thereunder.* But it is, no
1 "The proof of the act of incor- 87; s. c. 13 Atl. Rep. 137; 6 New Eng.
poration, of the action under it, and Rep. 921.
of the dealings of the respondent with ^ Williams v. Bank of Michigan, 7
the petitioner as such corporation, is "Wend. (N. Y.) 539.
presumptive evidence that the cor- ^ jq the absence of a local statute
poration was legally organized, and in relatioa to proving the incorpora- •
is siifHcient for the maintenance of a tion of a foreign corporation, the
petition in the corporate name." certificate of incorporation, duly ac-
Braintree Water Supply Co. v. Brain- linowledged before a notary public,
tree, 146 Mass. 482, 488. See also and authenticated by the certificate of
Narragansett Bank U.Atlantic Silk Co., the Secretary of State, and byacertifi-
3 Met. (Mass.) 282; Middlesex Hus- cate of a commissioner of the State of
bandmenw. Davis, 3 Met. (Mass ; 133; the forum, is a sufiicient autheutica-
Worcester Medical Institution v. tion. Hammer v. Garfield Mining Co.,
Harding, 11 Cush. (Mass.) 285; Ap- 130 U. S. 291; 32 Lawyer's ed. 964; 9
pleton Ins. Co. v. Jesser, 5 Allen Sup. Ct. Rep. 548.
(Mass.), 446; Topping u. Bickford, 4 ■* Bank of Toledo v. International
Allen (Mass.), 120; Hawes v. Anglo- Bank, 21 N. Y. 542; Leonardsville
Saxon Petroleum Co., 101 Mass. 385; Bank v. Willard, 25 N. Y. 574. When-
Wood V. Wyley Const. Co., 56 Conn, ever it is shown that the organization
132
certificate: articles. [1 Thomp. Corp. § 220.
doubt, competent for the legislature to declare what shall be
evidence i prima facie, of the formation of a corporation ;^ and
many of the statutes provide that a duly certified copy of the
articles of association shall be prima facie evidence of the in-
corporation of the company. Of course, the terms of the
statute are not uniform. Some of them call for a duly certified
copy of the articles, and also of the affidavit required by the
governing statute to be annexed thereto. The effect of such a
provision is to cast the burden u[)on the party attacking the
validity of the corporate organization, to prove the non-perform-
ance of any condition precedent prescribed by the governing
statute,^ — as, for instance, the payment into the treasury of
the corporation of the percentage of capital stock required by
the statute, if such is to be deemed a condition precedent. If
the acts and proceedings of a company or association consist
only of such acts and proceedings as might be performed by in-
dividuals without an incorporating act, or corporate grant or
franchise, a corporation cannot be inferred from such acts.'
It has been held that the acts and admissions of a party to a suit,
such as that he served as the president of a corporation, or gave
a note to it in its corporate name, constitute, as against him,
of a corporation ha8 taken place in Flandrau, J., in an early case in Min-
the manner directed by its charter, nesota, that, under a statute of that
there is a legally constituted company State providing that "every written
authorized by the charter to proceed instrument purporting to have been
to carry out the purposes of its crea- signed or executed by any person,
tion. And where a majority of the shall be proof that it was signed and
persons to be affected by the purposes executed, until the person by whom it
of a corporation are required to as- purports to have been signed or exe-
sent to its organization, it seems that cuted shall deny the signature or exe-
such consent may be shown by indi- cution of the same by his oath or affi-
rect acts of acquiescence, and that it is davit" (Comp. Stats. Minn., p, 685,
not necessary that it should appear § 80), — the articles of association of
that a majority of such persons au assumed corporation were, of
actually voted at an election of direct- themselves, proof that they were
ors, or that the directors were elected signed or executed, until the persons
by a majority of persons actually by whom they purported to be signed
voting. Columbia Bottom Levee Co. and executed denied the signatures of
V. Meier, 39 Mo. 53. execution under oath. Pennsylvania
1 Holmes V. Gilliland, 41 Barb. (N. Ins. Co. v. Murphy, 5 Minn. 37.
Y.) 569, per Leonard, .J. * Abbott v. Omaha Smelting &c.
2 Eastern Plank Road Co. v. Co., 4 Neb. 414, 420; citing Greene v.
Vaughn, 14 N. Y. 540. It was held by Dennis, 6 Conn. 302.
133
1 Thomp. Corp. § 221.] steps to perfect organization.
prima facie evidence of user of the corporate franchises, under
the rule of the preceding section.^
§ 221. Defective Certificate not Prima Facie Evidence of
Incorporation. — A certificate which fails to comply with the
essentials required by the statute will not be effective to bring
the corporation into existence, and will not be proof of its cor-
porate existence. 2 Thus, where the governing statute prescribes
that the certificate shall be signed by the stockholders, if it is
signed by the directors only, it is not suflScient, and the proceedings
thereunder, though in good faith, are void ; and there is no cor-
poration, and a mortgage given to the assumed corporation by
one of its oflicers to secure a stock subscription, cannot be en-
forced.^ So, where the governing statute required that the
articles of incorporation should, among other matters, <' set
forth . . . that a majority of the members of such asso-
ciation . . . voted at such election," etc.,* and the
articles failed to state this fact, it was held that they were not
sufficient to constitute the association a corporation.^ If, how-
ever, the object of the incorporation is expressed in the articles,
and is an object contemplated by the governing statute, and the
articles are substantially in the form prescribed by the statute,
and their provisions indicate an intention to form a corporation
rather than a voluntary association, — the associates, it has been
held, may be deemed a corporation, notwithstanding the fact
that the articles do not conform to the statute in some particu-
lars, — e.gr., in stating the residence of the subscribers, and in
referring to the statute.^
1 Williams v. Bank of Michigan, 7 trict of Columbia, § 535, a recorded
Wend. (N. Y.) 539. certificate of incorporation of a reli-
2 McCallion v. Hibernia &c. So- gious society is not evidence of a cor-
ciety, 70 Cal. 163; s, c. 12 Pac. Rep. porate organization, unless it state the
114; Fifth Baptist Cliurchr. Baltimore date of the eZec^ion or appointment of
&c. R. Co., 4 Mackey (D. C), 43; the trustees, the length of time for
People V. Selfridge, 52 Cal. 331 ; Har- which the trustees were elected or ap-
ris V. McGregor, 29 Cal. 124. pointed, and also unless it is verified
3 Valk V. Crandall, 1 Sandf. Ch. by an affidavit of one of the persons
(N. Y.) 179. making the certificate. Fifth Baptist
* Cal. Civ. Code, § 594. Church v. Baltimore &c. R. Co., 4
5 People V. Selfridge, 52 Cal. 331. Mackey (D. C), 43.
Under the Revised Statutes of the Dis- * Rogers v. Danby Universaliat
134
certificate: articles. [1 'Jhomp. Corp. § 223.
§ 222. Distinction between User under Special Charter and
Compliance with Conditions under General Law. — "There
is," said Sheldon, J., "a manifest difference where a corporation is
created by special charter and there have been acts of user, and where
individuals seek to form themselves into a corporation under the provis-
ions of a general law. In the latter case, it is only in pursuance of the
provisions of the statute for such purpose, that the corporate existence
can be acquired. And there would seem to be a distinction between
the case where, in a suit between a corporation and a stockholder or
other individual, the plea of mil tiel corporation is set up to defeat a
Mability which the one may have contracted with the other, and the
case of a suit against individuals who claim exemptions from individual
hability on the ground of their having become a corporation formed
under the provisions of a general statute. In the latter case, a stricter
measure of compliance with statutory requirements will be required than
in the former. ' ' ^
§ 223. Originals Evidence where Statute prescribes Copy. —
By a statute of North Carolina when certain things are done and the
articles of incorporation prescribed are recorded, " the clerk, under
the seal of the Superior Court, shall issue letters, declaring said
persons and their successors to be, and henceforth they shall be,
a corporation, for the purpose and according to the terms prescribed in
said articles," etc.^ Another section of the same statute provides that
" all such letters issued under the authority of this chapter, and copies
thereof, certified by the clerk of the Superior Court of the county where
the same are recorded, shall, in all cases, be admissible in evidence, and
the letters aforesaid shall, in all judicial proceedings, be deemed py-ima
facie evidence of the complete organization and incorporation of the
company purporting thereby to have been established."^ It is per-
ceived that this statute makes two things evidence: 1. Copies of the
record. 2. The letters of incorporation, which in substance and effect
are copies of the recorded articles of incorporation. It has been held that
the original record — that is the record book itself, — is evidence, since
*' the record or entry itself is as certain and effective as a copy of it." *
Society, I'J Vt. 187. Where the gov- ment was regarded as directory
erniug statute of a railroad corpora- merely. Eakriglit v. Logansport &c.
tion required that the directors should R. Co., 13 Ind. 404.
he named in the articles of a>socia- ^ Bigelowv. Gregory, 73 111. Itl4, 201.
tion, it was deemed a sufficient com- ^ Code of North Car., § 67!i.
pliance with the requirement that the ' Ibid., § 682.
articles were adopted at the time of * Carolina Iron Co. v. Abernathy,
electing the directors. The require- 94 N. C. 545. In an earlier case
135
1 Thomp. Corp. § 226] steps to perfect organization.
§ 224. liiteral Compliance with Statute not Necessary ;
Substantial Compliance Sufficient. — A literal compllauce with
the recitals prescribed by the statute to be contained in the certi-
ficate of incorporation is not necessary. A substantial compli-
ance is sufficient.^
§ 225. Substantial Compliance Necessary. — On the other
hand, there is much authority for the conclusion that the exist-
ence of a corporation, formed under a general statute which re-
quires certain acts to be done before the corporation can be
considered in esse, or before its transactions can be regarded as
valid, — must be proved by showing at least a substantial com-
pliance with the requirements of the statute. ^
§ 226. Distinction between Conditions Precedent and Con-
ditions Directory. — A distinction exists between precedent or
the court, against the objection that
letters of administration should be
produced, allowed the minute record
of the county court, showing the ap-
pointment of the administrator, to be
read for the purpose of proving his
appointment, qualification, and au-
thority; and this was held proper.
Hoskins v. Miller, 2 Dev. L. (N. C.)
360. Other cases are to the effect
th:it, while authenticated copies of
records are evidence because made so
by statute, yet the originals themselves
are competent and even better evi-
dence, when pertinent. State ?;."Voight,
90 N. C. 741. The originals are evi-
dence under the principles of the
common law. St. Louis Gaslight Co.
V. St. Louis, 12 Mo. App. 573; s c,
aff'd, 86 Mo. 495. See also State v.
Hunter, 94 N. C. 829.
1 Ex parte Spring Valley Water
Co., 17 Cal. 136; Spring Valley Water
Co. V. San Fnncisco, 22 Cal. 440;
People V. Stockton &c. R. Co., 45 Cal.
306, 313; Thompson v. People, 23
Wend. (N. Y.), 537; Hughes v. Antie-
tam Man. Co., 34 Md. 316, 324. This
136
rule was enacted in Louisiana by a
statute passed as early as 1852 : «' Nor
shall any mere informality in organiza-
tion have the effect of rendering a
charter null, or of exposing a stock-
holder to any liability beyond the
amount of his stock, provided the pro-
visions of this act have been substan-
tially complied with." Louisiana Aet
of 1852, p. 131, §8. In Colorado it has
been said: «' We have no doubt but
that in this State a substantial compli-
ance with the provisions of the general
law is an essential prerequisite to the
creation of a private corporation; and
that a failure to comply therewith, in
any material particular, is ground for
the impeachment of corporate exist-
ence, in an appropriate proceeding
prescribed by the proper authority."
People V. Cheeseman, 7 Colo. 376, 379,
opinion by Helm, J.
2 Mokelumne Hill &c. Co. v. Wood-
bury, 14 Cal. 4l>4; Bigelow v. Gregory,
73 111. 197; Union Insurance Co. v.
Cram, 43 N. H. 641; Harris v. Mc-
Gregor, 29 Cal. 124.
CONDITIONS PRECEDENT. [1 TllOmp. Coi'p. § 227.
necessary conditions named in the statute, and conditions which
are merely directory. If the former are not strictly complied
with, there is no corporation, and this may be shown in a collat-
eral proceeding. 1 But if the latter are not complied with, the
question is merely one between the state and the corporation ; it
can not be raised in a collateral proceeding. In a case often
quoted to this point it was said by the court, speaking through
Cope, J: "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 seek-
ing to become incorporated, but which are not made prerequi-
sites 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 respon-
sible only to the government, and in a direct proceeding to forfeit
its charter." ^
§ 227. Illustrations. — A statute of Michigan^ permits the organ-
ization of private corporations for supplying water to cities, towns and
villages and the inhabitants thereof, wherever the municipal authority
shall resolve that it is expedient to have water-works, but inexpedient
for the town to build them. No such corporation can be organized until
these conditions have been strictly fulfilled ; and the municipaUty can
not waive them. Nor can a subsequent recognition cure the de-
fect.* - - - - The following acts, under the terms of various gov-
erning statutes, have been held conditions 2yrecedent, without the doing
of which there is no incorporation : — fiUng articles of incorporation
with the county clerk ; ^ recording them in the proper county ; ^
obtaining the authorization or certificate of the district attorney or
* Attorney-General u. Hanchett, 42 95 Mo. 106, 111; Kaiser v. Lawrence
Mich. 436; Heiuig v. Adams &c. Savings Bank, 56 Iowa, 103, 109.
Manf. Co., 81 Ky. 300; Abbott v. 3 Mich. Comp. Laws, g 3355.
Omaha Smelting Co., 4 Neb. 416. ■* Attorney-General v. Hanchett, 42
2 Mokelumue Hill &c. Co. v. Wood- Mich. 436.
bury, 14 Cal. 424, 426. The doctrine 6 Abbott v. Omaha Smelting &c.
of this case and of the text is sup- Co., 4 Neb. 416.
ported by the following cases: Abbott 6 Childs v. Hnrd, 32 W. Va. 66; 9
V. Omaha Smelting &c. Co., 4 Neb. South East. Rep. 362.
416; Granby Mining Co. v. Richards,
137
1 Thomp. Corp. § 228.] steps to perfect organization.
judge, and having the act of incorporation duly recorded ; ^ pub-
lishing the articles of association, and filing a certificate of the pur-
poses of the organization. 2 _ _ _ - But if a charter is conferred
upon a body of persons named, in words which purport that the
grant is to take effect immediately^ and there is also a proviso that
the corporation shall commence business within a given time, this
proviso is not a condition precedent, and does not prevent the corpora-
tion from coming into existence prior to the time when it commences
operations, though it has been thought that it would limit the duration
of the corporation, if it should not commence operations within the time
designated.^ But it is submitted that even this would not happen un-
less the State should move for a judgment of ouster. - - - - So, when
Section 2 of the Ohio act to provide for the creation and regula-
tion of incorporated companies ^ has been comphed with, the cor-
porators and their associates become a body corporate, and its exist-
ence does not depend upon the election of, or the right to elect, direct-
ors.^ _ _ _ _ The same has been held of the failure to sexYQa notice
of the first meeting upon each corporator, in accordance with the law of
the State, when it appears that the powers conferred by the charter have
been assumed by the persons by whom it was intended they should be
enjoyed ; ^ and so of the failure to take a bond of the treasurer of a man-
ufacturing corporation.'^
§ 228. Defects in the Articles or Certificate w^hich do not
Vitiate. — The following irregularities in articles of association or cer-
tificate of incorporation have been held not sufficient to prevent the
incorporation: the failure of the notary to certify that those signing the
articles of incorporation were personally known to him ; ^ the failure of
the affidavit annexed to the articles of association to state that the pay-
ment of the ten per cent, of the capital stock, required by the statute,
had been made " to the directors," and " in good faith," as both will
be imphed ; ^ omitting to state the residence of the corporators ; ^^
^ Spencer v. Cooks, 16 La. Ann. tree, 146 Mass. 482, 486; Newcomb v.
153. Reed, 12 Allen (Mass.), 362; Wal-
2 Bigelow ??. Gregory, 73 111.197. worth v. Brackett, 98 Mass. 98.
But see post, § 244. ' Boston &c. Co. v. Moriug, 15 Gray
3 Cheraw&c. R. Co. v White, 14 S. Mass.), 211.
C. 51; Cheraw&c. R. Co. v. Garland, 14 ^ People v. Cheeseman, 7 Col. 376.
S. C. 63. » Buffalo &c. R. Co. v. Hatch, 20 N.
4 Swan & C, Oh. St. 271. Y. 157.
5 Ashtabula &c. R. Co. v. Smith, i° State v. Foulkes, 94 Ind. 493 ;
15 Oh. St. 328. Rogers v. DanbyUniversalist Society,
6 McClinch v. Sturgis, 72 Me. 288; 19 Vt. 187.
Braintree Water Supply Co. v. Brain- .
138
CONDITIONS PRECEDENT. [1 Thomp. Corp. § 228.
omitting to refer to the statute under which the corporation is organ-
ized ; ^ failing to navie the directors in the articles of association, where
they are drawn up (under a special charter) with the view of being
adopted at the first meeting at which the directors are to be elected ; ^
antedating the articles of incorporation by the Secretary of State at the
time of their fihng ; ^ signing by the initial letter of the Christian name,
instead of using the full prsenomen ; ^ the use of a double comma ( , , )
following the name of a subscriber, under the name of a certain speci-
fied locality, for the purpose of designating the subscriber's resWe?ice; ^
failing to state that the subscribers constitute an existing society with
rides and regidatinns^ or that the trustees named were chosen in accord-
ance with such rules and regulations ; ^ failing to set forth, in so many
words, that more than one thousand dollars per mile have been sub-
scribed, as required by a statute providing for the incorporation of
railway companies, where the articles stated that $84,100 had been in
good faith subscribed and ten per cent, thereof paid in, and it other-
wise appeared that the length of the proposed road was about seventy-
five miles.''' - - - - Where the governing statute requires the
certificate of incorporation to state " the amount of the capital stock,"
this is sufllciently complied with, for the purposes of a collateral pro-
ceeding, by a certificate which states that " said capital stock shall
consist of 600 shares at $100 per share." 8 _ _ _ _ Where the
governing statute provided that the certificate of incorporation should
state "the term of its existence, not to exceed forty years," and the
certificate stated such term to be " at least forty years," this was held
Bufficiently definite, in an action against a stoclcholder on an assess-
ment. ^ - - - - It is not necessary, under the general corporation
act of Maryland in force in the year 1870, that the particular trade
which a manufacturing company intends to carry on shall be stated in
the name of the company, as recited in the certificate of incorpora-
^ Rogers v. Danby Uuiversalist So- ing the location of the road, spec-
ciety, supra. ifying the name of the company,
2 Eakriaht v. Logansport &c. R. fixiug the amount of its capital stock
Co., 13 Ind. 404. and the number of shares, and con-
3 State V. Foulkes, 94 Ind. 493. taining a promise on the part of each
* State V. Beck, 81 Ind. 500. subscriber to pay twenty-five dollars
5 Steinraetz v. Versailles &c. Turn- for each share subscribed for, —
pike Co., 57 Ind. 457. have been held a sufficient compliance
* Roman Cath. Orphan Asylum v. with the statute of Indiana for the
Abrams, 49 Cal. 455. formation of such a company. Wert
' Buffalo &c. R. Co. v. Hatch, 20 v. Crawfordsville &c. Co., 19 Ind. 242.
N. Y. 157. Articles of association ^ Hughes v. Antietam Man. Co., 34
providing that the subscribers should Md. 316.
construct a turnpike road, describ- ' Ibid., p. 324.
139
1 Thomp. Corp. § 339.] steps to perfect organization.
tiou.i _ - - _ Where the statute required that there should be an-
nexed to the articles of incorporation an affidavit " setting forth in
substance that said amount of stock has been subscribed, and that
ten per cent, in cash thereon has been actually and in good faith paid
in as aforesaid," and the affidavit stated that ten per cent. " in cash
had been actually paid in," but omitted the words " in good faith,"
and it appeared that the body of the certificate recited that ten per
cent, of the amount subscribed had been actually, "in good faith,
paid thereon in cash," and the certificate and affidavit were in all other
respects regular, it was held that it was not invalid, so that the State
could sustain an information against the corporation to vacate its fran-
chise, by reason of the omission from the affidavit of the words " in good
faith. "2
§ 229. Claiming More than the Law Allows. — The mere fact
that the adventurers, in drawing their articles of association,
claim greater powers or privileges than the governing statute al-
lows, will not necessarily prevent them from becoming incorpo-
rate, since the law will reject the excessive claim as surplusage.^
In such a case all the acts done in pursuance of tlie illegal matter
will be invalid, but the title of the corporation, as to all matters
authorized by the statute, cannot be impeached collaterally by
reason of the illegal matter.* Thus, where the governing statute
provided among other things that the term of existence of cor-
porations formed under it shall not exceed twenty years ,^ and
the articles of association provided for a term of existence for
the corporation of fifty years, it was held, in a proceeding by quo
warranto ^\h^\i this was no ground of ouster before the expiration
of the twenty years. It did not prevent the corporation from
coming into existence. It could not, without renewal, live for
fifty years, but it might exercise the rights and privileges of a
corporation for twenty years.® So, the articles of association of
a plank road company, under a general law of New York,' were
not void because they contained a provision authorizing the di-
rectors of the company to increase its capital stock without the
1 Hughes V. Antietam Man. Co., * Albright v. Lafayette &c. Asso.,
34 Md. 316. 102 Pa. St. 411.
2 People V. Stockton &c. R. Co., 45 ^ Colo. Gen. Stat., § 238.
Cal. 306, 312. « People v. Cheeseman, 7 Colo.
3 Albright v. Lafayette &c. Asso., 376.
102 Pa. St. 411. ' N. Y. Laws of 1847, ch. 210, § 40.
140
certificate: articles. [1 Thomp. Corp. § 231.
consent of a majority in amount of the stockholders, as required
by the statute. It was said that all the acts of the directors pur-
suant to such a provision would be void ; but yet it was held
that, the articles being in other respects in accordance with law,
the existence of such a clause did not prevent the association
from becoming incorporate.^
§ 230. Provision as to Expulsion of Members. — From the
very nature of the case, no corporation can prevent a purchaser
of stock from becoming a member, when he purchases the shares
in the manner prescribed by the governing statute. ^ Nor can
any action of such a corporation prevent its shareholders from
disposing of their shares in the manner prescribed by law, and
thereupon ceasing to be members of the corporation.' With this
conception of the nature of joint-stock companies in view, it is
an easy transition to the conclusion that a clause in a general
statute relating to the formation of corporations, providing that
the articles of association shall state. " the methods and condi-
tions upon which members shall be accepted, discharged, or ex-
pelled, " * — does not apply to a stock corporation, and that the
omission of such statement from the articles does not affect the
validity of its incorporation; especially where the same section
further provides that, " in stock corporations, persons holding
stock according to the regulations of the corporation, and they
only, shall be members." ^
§ 231. Specifying the Objects of the Association. — The
articles of incorporation must specify the objects of the associa-
tion in substantial compliance with the governing statute.^
Where the law requires the articles of association to state dis-
tinctly and definitely the purpose for which it is formed, if they
1 Eastern Plank Road Co. v. ^ In some cases it is said that this
Vaughn, 14 N. Y. 5i6. must be done in strict compliance with
2 Re Klaus, 67 Wis. 401; Edger- the governing statute. West u. Bull-
ton Tobacco Man. Co. v. Croft, 69 skin Prairie Ditching Co., 32 Ind. 138;
Wis. 256, 259; post, § 2300. O'Reiley v. Kankakee Valley Draining
3 zind. Co., 32 Ind. 169. But, as elsewhere
* Rev. Stat. Wis. 1878, § 1772. seen, this is not the general view.
5 Edgerton Manuf. Co. v. Croft, 69 Ante, § 224, et seq.
Wis. 256; s. c. 31 N. W. Rep. 143; 2
Rail. & Corp. L. J. 452.
141
1 Thomp. Corp. § 233.] steps to rEurECX organization.
do not so state, or if they do not state a purpose for which the
statute authorizes a corporation to be formed, it will not be
legally incorporated, and its articles will afford no warrant for
the exercise of corporate action.^ The purpose and intent of
the incorporation must be ascertained solely from the articles,
and it has been said cannot be aided, varied or contradicted by
evidence outside the instrument itself .^
§ 232. Illustrations. — Where the statute provided that the cer-
tificate of incorporation should set forth " the objects for which the
company shall be formed," it was held that a certificate which stated
that " the objects for which the said company is formed are as follows,
namely, the mining of gold, silver and lead in the Territory of Utah,"
was sufficient.^ _ _ _ _ Under a statute requiring the purpose of
the incorporation to be distinctly and definitely stated, a statement that
the purpose was " to put up, pack, and manufacture for market, Detroit
river and lake ice, and to distribute and sell the same, was held suffi-
cient, in a proceeding by the State to oust the company of its franchises.'*
«
§ 233. Stating the Place where the Business of the Corpora-
tion is to be Carried on. — Where the statute provided that if
the company is formed " for the purpose of carrying on any part
of its business in any place out of this State, the said certificate
shall so state; and shall also state the name of the town and
county in which the principal part of the business of said com-
pany within this State is to be transacted," — it was held that a
certificate which stated that " the said company is formed for
the purpose of carrying on some part of its business outside the
State of New York, — namely, in Big Cottonwood District,
Utah, and the name of the place in which the principal part of
the business of said company is to be transacted is in the city
and county of New York," — was a sufficient compliance with tiie
statute.^ But a statute requiring a certificate of incorporation
1 Attorney-General v. Lorman, 59 ^ People v. Beach, 19 Hun (N. Y.)»
Mich. 157. 259. The court said: " If the mining
2 Ibid.; post, § 236. But see Buf- was to be carried on in this State, the
falo &c. Co. V. Hatch, 20 N. Y. 157. name of the town would be a sufficient
3 People V. Beach, 19 Hun (N. Y.), designation as to the particular local-
259. ity. The statute manifestly contem-
* Attorney-General v. Lorman, 59 plates only certainty in this regard to
Mich. 157. a common intent. The precise, exact
142
certificate: articles. [1 Tbomp. Corp. § 236.
to state the name of the city, or town and county, in which the
principal phice of business is to be located, is not complied with
by a certificate which states that the operations of the corpora-
tion are to be carried on in the county of Calaveras, State of
California, because this does not state the city or the town.^
§ 234. Stating the Manner of Carrying on the Business. —
A certificate of incorporation, which sets forth that " the manner
of carrying on the business shall be such as the association may
from time to time prescribe," is not a compliance with a statute
which requires the certificate to show '* the manner of carrying
on the business of said association." " Such an organization is
too loose, indefinite, and uncertain. An association through
which large sums of money are to be collected and disbursed,
for benevolent or any other purposes, should be constructed on
a more substantial foundation." ^
§ 235. Provision as to Manner of Payment of Stock. — A
provision in a statute that the " charter " shall set forth " the
time when and the manner in which the stock shall be paid for,"
is satisfied by a charter which requires that the stock shall be
paid for in cash, and that no certificate of stock shall issue until
this payment is made.^ So, where, under the same law, the
charter declared " that the stock shall be paid in cash at such
times and such amounts and with such notices to the subscribers
as the managers and directors shall deem best for all parties in
interest," — this was held a substantial compliance with the law.*
§ 236. Fatal Defects not Supplied by Parol Evidence. —
Where the certificate of incorporation is fatally defective in omit-
ting some essential recital prescribed by the governing statute,
point of location was not required or by equally general reference." People
expected to be stated, A town em- v. Beach, 19 Hun (N. Y.)» 259, 2G2.
braces considerable territory, often in i Harris v. McGregor, 29 Cal. 124.
our own State, with a moderately dense ^ State v. Central Ohio &c. Asso.,
population, from thirty to fifty square 29 Ohio St. 399, 407.
miles. Thus, it is seen that it was not ^ New Orleans &c. R. Co. v, Frank,
necessary to be very particular in giv- 39 La. Ann. 707; s. c, 30 Am. & Eng.
ing the place wliere the business was R. Cas. 275; 2 South. Rep. 310.
to be conducted. So, such place, * Baltimore &c. Tel. Co. v. Mor-
when out of the State, might be given gan's &c. Co., 37 La. Ann. 883.
143
1 Thonip. Corp. § 238.] steps to perfect okganization.
the defect cannot, it has been held, be healed by parol evidence.^
Thus, where the articles omitted to state that a majority of the
members of tlie association were present and voted at the elec-
tion of directors, it was held that proof could not be admitted,
in a proceeding by the State to vacate the franchises of the cor-
poration, that a majority were in fact present and did so vote.^
The alleged corporation can neither make out its corporate char-
acter, nor enlarge the effect of the certificate, by this species of
evidence.^
§ 237. Acknowledgment of Articles Under the general
corporation act of Maryland, in force in the year 1870, it was
held that the acknowledgment of the certificate of incorporation
by all the subscribers was not required. An acknowledgment
by five or more was sufficient.^ It was also held that an ac-
knowledgment by the president and directors for the first year
was not required.^ Some of the statutory schemes of organiza-
tion contemplate that an election of officers shall precede the
filino- of the instrument of incorporation, and that the instrument
shall be authenticated by the signatures of the officers thus
elected.*'
§ 238. Amendment of the Articles or Certificate. — Upon
principles stated in a former chapter with reference to special
charters,^ if the certificate of incorporation is materially altered
after one has signed it as subscriber for a given number of
shares, without the consent of such subscriber, it will release
him from his contract of subscription at his election, because it
makes for him a different contract from the one to which he as-
sented.^ The charter of a corporation organized under a gen-
1 People V. Selfridge, 52 Cal. 331; ing of a joint-stock company, estab"
Hallett V. narrower, 33 Barb. (N. Y.) lished by voluntary association under
537; Attorney-General v. Lorman, 59 Mass. Stat. 1851, ch. 133, may sign
Mich. 157. the certificate required by section 4:
2 People V. Selfridge, supra. the requirement of Rev. Stat. Mass.
3 Hallett V. narrower, supra. ch. 38, §§ 3, 4, is not applicable there-
< Hughes u. Antietam Man. Co., 34 to. Boston &c. Co. v. Moring, 15
Md. 310. Gray (Mass.). 211.
5 Ibid. ' Ante, § l\,et srq.
* Ofiicers chosen at the first meet- * Burrows v. Smith, 10 N. Y. 550.
144
AMENDMENT OF ARTICLES. [1 Thomp. Corp. § 238.
eral law is embodied in its articles of association and in the
general law; ^ and the articles of association, cannot, it has been
said, be changed without the unaimnous consent of the sliare-
holders, — at least of such shareholders as have vested riirhts^
in the corporation. The question has arisen in respect of build-
ing associations, and it has been held that where the articles of
such an association do not authorize the corporation to wind up
and close its existence short of eight years, unless all the stock is
redeemed at its value, such an association cannot dissolve itself,
by a resolution passed at a corporate meeting, without the con-
sent of all the shareholders.^ If the statute points out the steps
to be taken in order to amend the articles, its provisions must of
oourse be followed. But if the statute is silent, it is a sound
conclusion tliat, in order for such an amendment to be ofood,
the amended articles must be drawn up, signed, acknowledged
and filed as required by the statute in the case of original ar-
ticles.* If the governing statute does not provide for an amend-
ment of the certificate of incorporation, articles of association,
or other instrument of incorporation, any attempted amendment
must have the substantial effect of a reincorporation ; so that
the existence of the corporation will date from the amendment,
and will not date by relation from the filing of the original and
abortive instrument.^ The reasoning is that, if the defects are
radical, the original instrument is wholly inoperative and void,
and affords no basis for an amendment without the aid of an en-
abling statute. This reasoning would not, it is assumed, prevent
the amendment of the articles from taking effect by relation, in
respect of omissions not of an essential or radical character.
Where the governing statute ^ provides that the original articles
shall be recorded in a certain way, and another section of the
same statute ^ authorizes the amendment of the original articles
for any purpose which might have been provided therein, and
requires that a certificate of such amendment, executed as speci-
1 Ante, § 216. Iiis. Co., 75 Iowa, 694; 38 N. W. Rep.
2 Bergman v. St. Paul &c. Asso., 29 113; 18 Ins. L. J. 750.
Minn. 275. « Matter of N. Y. Cable R. Co., 109
* Barton v. Enterprise &c. Asso., N. Y. 32.
114 Ind. 226; s. c. 5 Am. St. Rep. « Here, Rev. Stat. Wis., § 1772.
«08. See Endlich Build. Asso. § 479. ' Ibid., § 1774.
* Day V. Mill Owners' Mut. Fire
10 145
1 Thomp. Corp. § 239.] steps to perfect organization.
fied in that section, shall be recorded in the office where the
original articles are recorded, — it is held that an amendment
increasing the capital stock is inoperative until the certificate of
amendment is left for record with the register of deeds of the
proper county.^
§ 239. Filing, Publishing and Recording Articles. — Where
a general law provides that persons may become a body politic
and corporate ui)on cora[)lying with the provisions of the law,
one of which is that, before any such corporation shall commence
business, its articles of association shall be published in a certain
way, and the certificate of the purposes of the organization shall
be filed in certain public offices, the performance of these acts
is a necessary prerequisite to the existence of such corporation,
for the purpose of relieving the corporators from individual lia-
bility.^ It has been said that the mere signing of articles of as-
sociation by parties proposing to form a manufacturing corpora-
tion, does not create such a corporation. The subscribers must
also make, sign and acknowledge the certificate of incorporation
prescribed by the governing statute, and must file the same in
the recorder's office of the proper county, as there required, and
must also file a duplicate thereof in the office of the Secretary of
State. Until these steps have been taken, in one view, the cor-
poration has no legal existence.' So, in Illinois the act of re-
cording the certificate with the recorder of the county is regarded
as a necessary and final act which gives to the organization its
corporate life, and endows it with its corporate franchises and fac-
ulties; and until this is done there is no corporation capable of
1 Wood V. Union Gospel Church Indianapolis &c. Mining Co. v. Her-
&c. Asso., 63 Wis. 9, 13. And, iuci- kimer, 46 Ind. H2; Clegg v. Hamilton
dentally, it is held that a complaint &c. Co., 61 Iowa, 121; Kaiser v. Sav-
averring that such certificate has not ings Bank, 56 Iowa, 104 ; Cresswell v.
been filed is equivalent to an aver- Oberly, 17 Bradw. (Ill) 281; Field u.
ment that it has not been left for Cooks, 16 La. An. 153; Garnett v.
record. Ibid. Richardson, 35 Ai-k. 144; Hurt v.
2 Bigelow V. Gregory, 73 111. 197; Salisbury, 65 Mo. 310; Childs «. Hurd,
overruling, it seems, Cross v. Pinck- 32 W. Va. 66; s. c. 9 South East. Rep.
neyville &c. Co., 17 111. 54; Diversey 362.
U.Smith, 103 111. 378; Gentv. Manu- ^ Indianapolis &c. Mining Co. v.
facturers &c. Ins. Co., 107 111. 652; Herkimer, 46 Ind. 142.
Ricker w. Larkin, 27 Bradw. (Til.) 625;
146
TILING WITH SECRETARY OF STATE. [1 Thomp. Coip. § 240.
transacting business or incurring liabilities.^ So, where a cor-
poration, instead of publishing the 7ioiice required by the govern-
ing statute,^ published its articles of incorporation, and it did not
appear from them when the corporation was to begin and end,
nor where its principal phice of business was to be, — it was held
that this was not a substantial compliance with the statute, and
that the stockholders remained liable for the debts of the concern
as partners.^ But the delivery of the articles to the officer whose
duty it is to put them on file, may be proved by evidence other
than his indorsement.* The date of filing is no part of the arti-
cles, and therefore may be proved by parol, regardless of the
statute provision for the proof of the articles.^ The failure of
the probate judge, upon request, to make the statutory certifi-
cate, does not, in Alabama, prevent the corporation from coming
into existence, if the proper antecedent steps have been taken.®
§ 240. Filing Copy with Secretary of State, etc. — But
where the other steps required by the statute are complied with,
the failure to file with the Secretary of State a duplicate or copy
of the certificate or articles of incorporation, will not vitiate the
organization.^ But here, as in other cases, the language of the
governing statute must be carefully kept in view.^ Thus, under
a statute of Missouri, which made it the duty of the officers of
the intended corporation to file a copy of the articles of associa-
tion with the Secretary of State, and which provided that "the
corporate existence of such corporation shall date from the time
» Cresswell v. Oberly, 17 Bradw. Man. Co., 37 Minn. 91; s. c. 33 N. W.
(Ill-) 281. Rep. 219; First Nat. Bank u.Davies, 43
2 Code of Iowa, § 10C3. Iowa, 424; Balder v. Neff, 73 Ind. 08;
3 Clegg V. Hamilton &c. Co., 61 Williamson v. Koljomo &c. Asso.,89
Iowa, 121. Ind. 390.; Portland &c. Turnpike Co.
* Johnson v. Crawfordsville &c. R. v. Bobb, 88 Ky. 226; s.c. 10 S. W. Rep.
Co., 11 Ind. 280. Tliat this is the 794; Guadalupe &c. Asso. t'. West, 70
proper conception of a"flllng," see Tex. 391; Van Pelt v. Association,
Engleman v. State, 2 Ind. 91. 79 Ga. 439. Compare Spring Valley
* Ibid. Water Works v. San Francisco, 22
« Sparks U.Woodstock Iron & Steel Cal. 434. The Illinois cases are dis-
Co., 87 Ala. 294; 6 South. Rep. 195. tinguished in Bigelow v. Gregory, 73
' Mokelurinio Hill&c. Co. v. Wood- 111. 197, 201.
bury, 14 Cal. 424; Cross v. Pinckuey- ** As was pointed out in Grauby
villc Mill Co., 17 111. 54; Hyde v. Doe, Mining Co. v. Richards, 95 Mo. 106.
i Sawy. (U. S.) 133; Re Shiikopee
147
1 Thomp. Corp. § 241.] steps to perfect organization.
of filing said copy of such articles," — it was held that, until the
officers took this final step, the corporation did not exist, and
had no power to execute a written obligation, and that such pre-
tended obligation could not be made the foundation of an action
against the supposed corporation.^
§ 241. Illustrations. — Where the governing statute provides that
" the corporation may commeuce business as soon as the articles are
filed for record in the office of the county court clerk," its organization
is not invalidated by its failure to comply with another portion of the
statute which requires the filing of a copy of its articles in the office of
%\xQ. Secretary of State wiihm three mouths; since the statute evidently
intends that it shall commence business as a corporation as soon as the
articles are filed in the clerk's office.''^ _ _ _ _ go, where the terms
of a special act of incorporation are, — " when such special company
or companies are created and organized, a certificate shall, in writing,
be filed," etc., — here the literal reading of the statute imports that the
corporation shall be organized first, and that the filing of the certificate
is a subsequent duty to be performed by its officers. In such a case
the failure to file the certificate is not fatal to the existence of the cor-
poration, and cannot be raised in a collateral proceeding questioning
the existence of the corporation. ^ _ - - _ So, a statute of Minne-
sota,* provides that, " before any corporation, formed and established
by virtue of the provisions of this act, shall commeuce business, the
president and directors thereof shall " do certain things, among others
deposit with the Secretary of the State a duplicate copy of its certificate
of incorporation. But, as a subsequent section of the same statute,^
imposes a personal hability on the officers of ' ' such corporation ' ' for
failing to perform this duty, — it was justly concluded that the legisla-
ture did not intend that the corporation should not exist until this had
been doue.^ _ _ _ - So, in an action by a banking association in
New York, the original certificate, recorded in the county clerk's office,
with proof that the association had done business and issued bills which
1 Hurt V. Salisbury, 55 Mo. 311. ^ Granby Mining &c. Co. v. Ricli-
See also Richardson v. Pitts, 71 Mo. ards, it5 Mo. 106.
128. As to the /ees to be paid on such * Minn. Gen. Stat. 1881, chap. 34,
filing: Gen. Laws Minn. 1889, ch. §28.
197; Laws Colo. 1885, p. 153; con- ^ n^ia., § 141.
strued in Edwards v. Denver &c. K. « Re Shakopee Man. Co., 37 Minn.
Co., 13 Colo. 59; s.c. 21 Pac. Rep. 1011. 91; s. c. 33 N. W. Rep. 219. To the
2 Walton V. Riley, 85 Ky. 413; s. c. same point under the Wisconsin stat-
3S. W. Rep. 605 (overruling Heinig ute, see Harrod v. Hamer, 32 Wis. 162.
V. Adams &c. Co., 81 Ky. 300).
148
RECORDING. [1 Thomp. Corp. § 243.
were countersigned, is sufficient evidence of its due organization,
without direct proof that the certificate of incorporation was filed in the
office of the Secretary of State. ^
§ 242. Recording in the Wrong Book It has beei held,
and on grounds which seem obviously correct, that the oro-ani-
zation of a corporation is not invalidated from the fact that the
clerk of the county court, in whose oflSce the articles are lodo-ed
for record, commits the mistake of recording them in the wrong
book, — as, for instance, in the book provided by law for the
recording of deeds. ^
§ 243. Fraudulent and Surreptitious Recording A pri-
vate corporation can only be created through the vohmtajy action
of its projectors in accepting a grant of franchises from the
State. This voluntary action is in the nature of a contract among
the projectors. This necessarily implies that, unless the pro-
jectors asse7it to the doing of the acts necessary to call the
corporation into existence, it does not exist. As fraud vitiates
all engagements, if one of the essential steps prescribed by law
is taken by one of the projectors fraudulently and without the
consent of the others, so that the corporation in fact appears to
exist, but is in appearance called into existence prior to the time
when the corporators intended that its existence should com-
mence, — and if these things are shown in an appropriate
judicial proceeding, it will be held that there is no corporation.
Thus, under a statute of Illinois, where it is held that the re-
cording of the certificate of organization in the office of the
recorder of deeds is a prerequisite to the organization of the
corporation,^ it has been also held that, where such paper is
fraudulently and surreptitiously recorded by one of the pro-
jectors, contrary to the agreement had among themselves, the
record is of no effect, and the corporation is not brought into
existence.*
1 Leonardsville Bank v. Willard, 25 625. Where a deed has been obtained
N- Y. 674. surreptitiously and phiced upon record
2 Walton V. Riley, 85 Ky. 413; s. c. by the grantee nothing short of an
3S. W. Rep. COo. explicit ratification of it, or of such
' -Ante, § 239. acquiescence, after a knowledge of
* Ricker ». Larkin, 27 Bradw. (111.) the facts, as would raise a presump-
149
1 Thomp. Corp. § 246.] stkps to perfect okgaiNizaiion.
§ 244. Nou-coinpliance with Provisions Directing Publica-
tion of Articles. — Many of the statutes, with the view of giving
publicity to the fact of the organization of the corporation, pre-
scribe tliat the certiticate, which sets forth its objects and
purposes, shall be published in certain newspapers, or in some
other way. Perhaps the statute of Minnesota,^ may be referred
to as a type of such statutes. It provides that *' before any
corporation, formed and established by virtue of the provisions
of this act, shall commence business, the president and directors
thereof, shall cause their articles of association to be published
at full length, in two newspapers published in the county in which
such corporation is located, or at the capital of the State." The
act of which this is a part relates to the organization of manu-
facturing corporations. The making of such a publication is
not a condition precedent to the coming into existence of the
corporation. 2
§ 245. Provision as to Assent and Approbation of a
Jvidgc. — A statute ^ relating to the organization of benevolent, charita-
ble and other like societies, authorized five or more persons to make,
sign, acknowledge or file a certain certificate and added that the certifi-
cate should not be filed unless by the written consent and approbation
of a justice. It was held that the Secretary of State was not, under a
just interpretation of the statute, concluded from questioning the
objects of the society, by the fact that it had secured the written con-
sent and approbation of the proper justice of the Supreme Court, as
provided by the statute. It was accordingly held that he might refuse
to file in his office a certificate of the incorporation of the stated num-
ber of persons, expressing the objects of the incorporation, though in
due form under the statute, and having such consent and approbation
indorsed.*
§ 246. Subscription of the Whole Amount of the Capital
Stock. — A subscription of the whole amount of the capital
stock is not a condition precedent to the legal existence of the
tion of an express ratification, can give ^ jjolmes v, Gilllland, 41 Barb,
it vitality. Hadlocli v. Hadlock, 22 (N. Y.) 5(i8.
111. 384. See also Illinois &c. R. Co. ^ n. y. Act of 1848, chap. 349.
V. McCullough, .59 111. 166. * People v. Nelson, 3 Lans. (N. Y.)
1 Rev. Stat. Minn. 1881, chap. 34, 394; «. c. 10 Abb. Pr. (n. s.) (N. Y.)
§ 128. 200; s. c. affirmed, 4G N. Y. 477.
150
SUBSCRIPTION OF WHOLE CAPITAL. [1 Thomp. Corp. § 246.
corporation, unless it is made such in terms by the governing
statute.^ Under a statute making it an essential prerequisite to
the valid organization of a corporation that stock to a certain
1 Schenectady &c. Plank Road Co.
V. Thatcher, UN. Y. 102; Hami ton
&c. Plank Road Co. v. Rice, 7 Barb.
(N. Y.) 166; Waterford &c. R. Co. v.
Dalbiac, 20 L. J. Exch. 227; s. c. 4
Eng. L. & Eq. 455 ; Johnson v. Kessler,
76 Iowa, 411; s, c. 41 N. W. Rep. 57.
See, also, Ernst v. Water-works Co.,
39 La Ann. 550; State v. Railroad Co.,
24 Neb. 143; Appeal of Scranton Elec-
tric Light & Heat Co., 122 Pa. St. 154;
State V. Canal Co , 40 Kan. 96. It is
obvious that if the terras of the statute
render the filling up of the subscrip-
tion list necessary to enable the com-
pany to make calls, until the stock is
all filled up they can not maintain an
action upon a subscription. Nor-
wich &c. Nav. Co. V. Theobald, 1
Mood.& Malk. 151; Salem Mill Dam
Corp. V. Ropes, 9 Pick. (Mass.) 187;
s. c. 6 Pick. (Mass.) 23; post, § ;
Central Turnp. Corp. v. Valentine, 10
Pick. (Mass.) 142. Where the act of
incorporation of a bank provided,
*'that the capital stock of said
corporation may consist of five hun-
dred thousand dollars, divided into
shares of ten dollars each, and shall
be paid in the following manner,
that is to say: one dollar on each
share at the time of subscribing, one
dollar on each share at sixty days,
and one dollar on eacli share ninety
days after the time of subscrib-
ing; the remainder to l)e called
for as the president and direct-
ors may deem proper," — it was held
that it was not a condition precedent
to the corporate existence of the bank
that the whole potential stock should
be subscribed for. Minor v. Mechan-
ics Bank, 1 Pet. (U. S.) 46, 63. A
bank incorporated with the privilege
of creating a stock of not less tlian one
sum, nor greater than another, may
commence business with the smaller
capital, and afterwards increase it to
the larger. Gray v. Portland Bank, 3
Mass. 364. The certificate required
by Mass. Stat. 1851, ch. 133, § 4, may
be filed in the office of the Secretary of
the Commonwealth, before any part
of the capital stock is paid in. Boston
&c. Co. V. Moring, 15 Gray (Mass.)
211. Under the statutes of Texas, a
legal organization of a corporation
may take place although its stock may
not be subscribed pr paid for. When
a corporation files itsarticlesof asso-
ciation with the Secretary of State, it
becomes a corporation in hiw, aud the
owners of the stock and the managers
of its business can not be held liable
as partners for its debts. National
Bank v. Texas Investment Co., 74 Tex.
421; s. c. 12 S. W. Rep. 101; citing:
Powder Co. v. Siusheimer, 46 Md. 315;
Society Perun v. Cleveland, 43 Ohio
St. 481, 3 N. E. Rep. 357; Bank v.
Almy, 117 Mass. 476. The Nebraska
general incorporation act does net
authorize corporations formed under
it to commence business before the
whole capital stock has been sub-
scribed, and until this is done they
cannot maintain an action on a stock
subscription. Liveseyw. Omaha Hotel
Co., 5 Neb. 50. Compare New Haven
&c. R. Co. V. Chapman, 38 Conn.
.W. A corporation which has been
duly organized, in pursuance of the
laws of Kansas, has the power to
transact such business as its charter
contemplates, although the entire
amount of the capital stock, as fixed
l)y the charter, has not yet been sub-
scribed for or taken. Massey v. Citi-
zens' Building &c. Assoc, 22 Kan.
G2t. Not uecessary, under Alabama
151
1 Thomp. Corp. § 347.] steps to perfect organization.
amount shall be subscribed, the subscriptions must have been
made in good faith by persons having a reasonable expectation
of being able to pay, in order to show a corporate organization
in a proceeding by quo warranto.^ But where the question of
the regularity of the organization is raised in a collateral pro-
ceeding, it is not admissil)le to show the insolvency of sub-
scribers to the stock,- — as in a suit by the corporation upon aa
unconditional subscription to its stock. ^ But there are cases
which hold that an assessment against a subscriber to stock can-
not be collected until the minimum amount required by the
statute has been subscribed, by persons apparently able to pay.
In such cases the subscriptions of insolvents and of persons in-
capable of contracting are not counted in arriving at the amount.*
§ 247. Payment of a Certain Amount of Capital Stock. —
Many of the statutes provide that a certain percentage of the
capital stock named in the articles of association must be paid in
before the articles are filed. According to one view the pay-
ment of this amount is not a condition precedent to incorporation,
such as will be available in a collateral proceeding.^ Clearly this
is so where, by the terms of the governing statute, the actual
payment of the capital is not required to precede the making and
filing of the certificate. In such a case if a certificate, regular in
form, has been made and filed, this will establish the existence
of the corporation as to third persons.^ Again, where something
is required to be done by the governing statute within a stated
period, and the corporation enters upon its business and con-
tinues in business as a corporation for a long time thereafter, —
it will be presumed, in an action by the corporation on a note
given for shares of its stock, that the thing required by the stat-
ute has been done.^ Where the thing required by the statute to
statute, that the written declaration ^ Lewey's Island R. Co. v. Bolton»
should provide that the unpaid por- 48 Maine, 451; Phillips v. Covington
tion be secured to be paid in fixed &c. Brid^^e Co., 2Met. (Ky.) 219.
installments : Boiling u. Le Grand, 87 « Eastern Plank Road Co. v.
Ala. 482; s. c. 6 South. Rep. 332. Vaughan, 14 N. Y. 546; post, § 1216.
1 Holman v. State, 105 Ind. 5G9. « Palmer ■;;. Lawrence, 3 Sandf. (N.
2 Ibid. Y.) 161.
3 Miller v. Wild Cat Gravel Road ' Agricultural Bank v. Burr, 24 Me.
Co., 52 Ind. 51. 256, 265.
152
PAYMENT OF CAPITAL. [1 Thomp. Covp. § 247.
be done was the payment into the treasury of the corporation of
fifty per cent, of its capital stock, in gold or silver, within six
months after receiving its charter, the certificate of the commis-
sioners was evidence that it had been done.^ Since a substantial
compliance with the conditions of the statute is all that the law
requires, except in the case of conditions precedent,^ it is gener-
ally held that, where the governing statute requires a certain
percentage of the stock to be paid in, it will be sufficient that the
aggregate sum produced by such percentage is paid in, and it
will be immaterial by whom it is paid.^ Where the charter of a
corporation requires the payment of its capital stock in cashy
and a subscriber, with the connivance of the directors and in
fraud of the statute, executes his promissory notes to the corpora-
tion in settlement of his subscription, a court of equity will
not relieve him from the payment of the notes, on the ground
that the corporation had no power, under its charter, to accept
notes in payment of stock subscriptions. In such a case what-
ever shift or device is resorted to for the purpose of evading the
provisions of the act of incorporation, *' a court of chancery will
never permit it to be set up to defeat a recovery on those notes
for the benefit of the creditors of the corporation, who are en-
titled to be first paid out of the trust property." *
1 Ihid. the said company may organize and
2 Ante, I 224. proceed to work." It was lield that
3 Thus, under the general statute of this requirement was sufficiently com-
New York authorizing the formation plied with when $100,000 was sub-
of railroad corporations, the condition scribed, and a sum in gross paid in
precedent to incorporation, that, for equal to $1 upon every share sub-
every mile of road, there must be not scribed. Spartanburg &c. R. Co. v.
less than $1,000 of the stock sub- Ezell, 14 S. C. 281.
scribed, and 10 per cent, paid thereon in ■* McLaren v. Pennington, 1 Paige
good faith, is satisfied if the cash pay- (N. Y.), 102, 112; post, §1220. The
ments, by whomsoever made, amount provisions of the Georgia Code (g
in the aggregate to 10 per cent, upon 1G76), that corporations sliall not com-
01,000 for every mile proposed to be mence business until ten per cent, of
made. Lake Ontario R. Co. v. Ma- the capital stock has been paid in, and
son, 16 N. Y. 451. So, a railroad com- that charters sliall have no force after
pany was, by the legislature of South two years unless action shall have
Carolina, created *' a body politic and been taken, etc., apply only to charters
corporate." A subsequent section of granted by the courts, not to those
the charter enicted " that when $100,- granted by the legislature. Atlanta v.
000 shall have been subscribed, and $1 Gate City Gas-Light Co., 71 Ga. lOG.
on each share shall have been paid in,
153
1 Thomp. Corp. § 349.] steps to perfect organization.
§ 248. Certificate of Treasury Board, Comptroller of Cur-
rency, etc., Conclusive. — Under a Canadian statute which makes
the doing of certain things and the certificate of the treasury board
that those things have been done, a prerequisite to the organiza-
tion of a corporation, it is not competent, in winding up a corpora-
tion and in settling a list of the contrihutories, for the sharehold-
ers to impeach the certificate of the treasury board under which
the corporation commenced business. Such a certificate is not
only prima facie, but conclusive evidence that all previous req-
uisites have been complied with.^ It has been held that, even
should the public officer appointed by law to grant such a certifi-
cate, miscount the shares, where there was not the statutory num-
ber, and so grant the certificate, it could not therefore be im-
peached. ^ In like manner, under the United States Banking
Act, which provides that banking companies shall not commence
business until they obtain a certificate from the comptroller of
the currency, the validity of this certificate cannot be questioned
in a collateral proceeding, but it is conclusive evidence of the
organization of the bank, as against everybody except the gov-
ernment. ^ The reason is that where, by reason of such a certifi-
cate, a corporation is held out to the world as ready to undertake
business, most disastrous consequences would follow to com-
mercial undertakings, if any person was allowed to go back and
enter into an examination of the circumstances attending the
original incorporation.*
§ 249. Letters-Patent of Incorporation Conclusive Evidence
of Corporate Existence. — lu Canada, a similar rule applies to letters-
patent incorporatiug a company, — such letters-patent being held to be
conclusive evidence that all the preliminary statutory requisites to in-
corporation have been comphed with.^
1 Re Central Bank of Canada, 25 < Oakes v. Turquand, L. R. 2 H. L.
Can. L. J. 238. 325; Peel's Case, L. R. 2 Ch. 684.
2 Bird's Case, 1 Sim. (N. S.), 47. ^ Lake Superior Co. v. Morrison,
» Casey v. Calli, 94 U. S. 673. 22 Can. C. P. 224.
154
RENEWAL OF CHARTER. [1 Thomp, Corp. § 255.
CHAPTER YII.
REORGANIZATION.
Section
255. Effect of renewal of charter.
256. Distinction between ttie revival
of an old corporation and the
creation of a new one.
257. Franchise to be a corporation
not the subject of judicial sale.
258. Statutory provisions under which
the reorganized company suc-
ceed to the franchises of the old.
259. Further statutory provisions.
260. These schemes of reorganiza-
tion favored.
261. Effect of reorganization after
mortgage foreclosure.
262. Special privileges of antecedent
companies pass to new.
263. New corporations, when not
liable for debts of old.
264. Illustrations.
265. Assets of old corporation liable
for its debts in hands of new.
266. Illustrations.
267. When new corporations liable
for debts of old.
268. Organization of new company
does not necessarily destroy
old.
Section
269. Stockholders bound to take notice
of plan of reorganization and to
signify their assent within the
prescribed time.
270. Members of stockholders' com-
mittee can not purchase at
sale.
271. But creditors may combine to
purchase and reorganize.
272. When minority of shareholders
not bound by reorganization
by majority.
273. When minority of bondholders
bound by reorganization by
majority.
274. Reorganization under British
and Canadian arrangement
acts.
275. Compromise arrangement must
be substantially complied with.
276. Bondholder may lose his rights
by laches.
277. Rights of holder of income bonds.
278. Effect of transforming a partner-
ship into a corporation.
279. Abortive corporations reincor-
porated under a general law.
§ 255. Effect of Renewal of Charter. — Judicial authority
is found for the proposition that when the charter of a corpora-
tion is renewed in the manner provided by hiw, this has not the
effect of creating a new corporation, but merely continues the
existence of the old one.^ And where the application for the
renewal was, without fault of the corporation, delayed by the
official to whom it was made, it was held that, when granted, it
1 St. Philip's Church v. Zion Presb. Church, 23 S. C. 297.
1 Thomp. Corp. § 256.] reorganization.
related back so as to prevent a reverter of property.^ The court
proceeded upon the analogy of the rule that a sheriffs deed
under circumstances may relate back to the time of the sale,
although executed after the sale, so as to protect a defendant in
possession.^ U})on the principle that grants of corporate priv-
ileges and franchises are to be construed strictly,^ it must follow
that, where it is claimed that an act of the legislature, under
which a corporation has been reorganized, absolves the new cor-
poration from the liabilities of the old, this conclusion cannot be
adopted unless it unmistakably ap[)ears in the language of the
statute.* But an act of the legislature reviving the charter of a
corporation may operate as a waiver, on the part of the State, of
penalties incurred by the corporation on account of its failure to
comply with conditions imposed upon it by its original charter,
and estop the State from claiming the enforcement of those pen-
alties.^ It was so held where a suit was pending, at the time of
the passage of the act reviving the charter, to enforce the rights
which it was alleged had reverted to the State on account of the
forfeiture.® Of course, the new corporation can have no powers
except such as are derived from the statute authorizing the reor-
ganization.'
§ 256. Distinction between the Revival of an Old Corpora-
tion and the Creation of a New one. — It is often a question of
great importance whether an act of reincorporation has had the
effect of merely reviving and continuing the old corporation, or
of creating a new one; since, if it has the latter effect, the new
corporation does not possess the rights, and is not subject to the
liabilities of the old one.^ If the act of reincorporation is under
a special charter granted by the legislature, the charter must be
1 Ibid. ' Mayor v. Steamboat Co., R. M.
2 See Kingman v. Glover, 3 Rich. Charlt. (Ga.) 342.
L. CS. C.) 27; Bank v. Manufacturing « Aug. & A. Corp. (11th ed.), § 780;
Co., 3 Strobh. L. (S. C.) 192. Colchester v. Seaber, 3 Burr. 18G(5;
3 Post, Chs. 115, 124. Scarborough v. Butler, 3 Lev. 237; Rex
< Trustees v. Moody, G2 Ala. u. Pasmore, 3 T. R. 241, 242, 246; Lut-
889. trel'sCase, 4 Coke Rep 87; Bellows u.
* Re Mechanics' Society, 31 La. Hallowell Bank, 2 Mason (U. S), 43;
An. 627. Union Canal v. Young, 1 Whart. (Pa.)
« Ibid. 410; Smith r. Morse, 2 Cal. 524, 554.
1.56
revival: reincorporation. [1 Thomp. Corp. § 256.
looked to for the purpose of solving this question.^ If the act is
accomplished by the action of the old corporation, through its
proper officers or members, in filing a new certificate or other in-
strument of incorporation under a general law, then the question
must be solved by reference to what they have done. In either
case it becomes a question of intent? Where it is to be deter-
mined upon the terms of a written instrument, e.^., the charter,
it is of course a question of law for the court; ^ but where it is
to be gathered from facts and circumstances, it is,' on principle,
a question of /ac^ for a jury. "The question of identity,"
said Randolph, J., " that is, whether the new act creates a new
body politic or corporate, or merely revives an old one, is one
of intention." * ''To ascertain," says Story, J., "whether a
charter creates a new corporation, or merely continues the ex-
istence of the old one, we must look to its terms, and give them
Vk construction consistent with the legislative intent, and the
intent of the corporators."^ Accordingly, where a religious
society, incorporated under a general law, hold a new election
of trustees for the purpose of being reincorporated, if the object
of the new election and certificate is to preserve, and not to
change or dissolve the old corporation, — the new corporation
will be held to be merely a continuance of the old.^ Where a
corporation has become dormant by reason of lapse of time a
party claiming under its recent deed must, of course, assume the
hurden of showing that it has been reorganized in the manner
1 Bellows V. Hallowell Bank, 2 Mason and a new charter is granted, the
(U. S.) 43; Wyman V. HollowellBank, acceptance of the new charter does
14 Mass. 58. not create a new corporation, but
2 Marshall v. Western &c. R. Co., merely revives the old one. So in
92 N. C. 322, 3.30; Young v. Rollins, Haddock's Case, 1 Ld. Raym. 439, it
85 N. C. 485. was said that a new charter " does
3 1 Thorap. Trials, § 1065. not merge or extinguish any of the
* Miller v. English, 21 N. J. L. 317, ancient privileges, but the corporation
-324. may use them as before." To the
* Bellows V. Hallowell &c. Bank, same effect is Rex v. Pasmore, 3 T.
2 Mason (U. S.), 43. R. 199, and 241. See also People v.
6 Miller V. English, supra. In Marshall, 6 111. 672, for the desrrip-
■Colchester Corp. v. Seaber, 1 Burr, tion of an act of the legislature which
1866, it was held that, where a corpo- was held not to create a new, but
ration, by the death of some of its merely to continue an old charter .
members, becomes disabled to act. Compare Union Manufacturing Co. v.
and the corporation hence dormant, Young, 1 Whart. (Pa.) 410.
157
1 Thorn |). Coi'i). § 257.] reorganization.
poiDted out by law.^ It is held that where a State bank has,
under the provisions of an enabling act of the State and of sec-
tion 44 of the national blanking act,^ reorganized as a national
bank, the identity of the corporation is not changed, and its
ol)ligations are not impaired. It remains substantially the same
institution under another name and under a new jurisdiction.
The change is a transition, and not a new creation.^ And where
the term of existence of a national banking association, which
would otherwise have expired in 1883, was by act of Congress
prior to that time extended twenty years longer, the identity of
the old corporation is in no wise affected. It simply has a
new lease of life.*
§ 257. Franchise to be a Corporation not the Subject of
Judicial Sale. — The franchise to be a corporation is not the
subject of sale and transfer, unless made so by a statute,
which provides a mode for exercising it.^ A franchise to be a
corporation is distinct from a franchise, as a corporation, to
1 Goulding v. Clark, 34 N. H. U8.
Acts reincorporating municipal cor-
porations do not have the effect of
creating new corporations, but merely
that of continuing the old ones. They
do not, therefore, extinguish the duties
or obligations of the precedent corpo-
ration. Smith V. Morse, 2 Cal. 524.
See Hopkins v. Swansea, 4 Mees. &
W. 621. The same principle applies
in respect of other public corpora-
tions. Thus, as already stated (ante,
§ 25) , the University of Alabama was
early held to be a public corporation
and subject to the control of the
legislature of the State. More re-
cently it was held that this corporation
had not been dissolved, or a new cor-
poration created in its stead, by force
of subsequent legislation or of the
constitution of 1868, but that its cor-
l)orate rights and powers continued
unimpaired. Trustees v. Moody, 62
Ala. 389. An act enabling a railroad
company to take a new name and ex-
tend its road, is not an act renewing
158
or extending its charter, or creating a
new corporation. Attorney-General
V. Joy, 55 Mich. 94.
2 U. S. Stat, at Large, ch. 106, p.
112, § 44.
3 Coffey V. National Bank, 46 Mo.
140; Grocers Nat. Bank v. Clark 48
Barb. (N. Y.) 26; Thorp v. Wege-
forth, 56 Pa. St. 82.
* Nat. Exch. Bank v. Gay, 57 Conn.
224; s. c. 17 Atl. Rep. 555. See also
Day V. Insurance Co., 75 Iowa, 694.
Recent Michigan statutes relating to
renewal of articles of association con-
strued: Attorney-General v. Perkins,
73 Mich. 303; s. c. 41 N. W. Rep. 426.
5 Post, Ch. IIG. " 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."
Hoar, J., in Com. v. Smith, 10 Allen
(Mass.), 448, 455. See also Hall v.
Sullivan R. Co., 21 Law Rep. 138; s. c.
2 Redf. Am. Railw. Cas. 621 ; 1 Brun.
Coll. Cas. 613.
SUCCESSION OF FRANCHISES. [1 Tllomi). Coi'p. § 258.
carry on a certain business, e.g., to maintain and operate a rail-
yf'A,y. The one is frequently designated as ix 'primary, and the
other as a secondary franchise. The latter is in the nature of
private property, is vendible on execution, is the subject of a
mortgage, and may pass to a purchaser at a foreclosure sale.
But a mortgage of the franchises of a corporation, made in the
exercise of a power given by statute, confers no rights upon the
purchasers at a foreclosure sale to exist as the same corporation.
The extent of the right which it confers upon them is to reor-
ganize as a corporation, subject to the constitution and laws of
the State existing at the time of the reorganization.^ A cogent
and practical reason in support of this conclusion is that, if the
foreclosure sale had the effect of transferring the vitality of the
old corporation to the new purchasers, it would necessarily dis-
solve the old corporation, which might have an injurious effect
upon its creditors ; or, if it should not operate to create such a
dissolution, there would then be the anomalous instance of two
corporations existing at the same time under the same charter;
for, " after an act of disposition which separates the franchise
to maintain a railroad and make profit from its use, from the
franchise of being a corporation, though a judgment of dissolu-
tion may be authorized, yet until there be such judgment, the
rights of the corporators and of third persons may require that
the corporation be considered as still existing." ^
§ 258. Statutory Provisions under which the Reorganized
Company Succeed to the Franchises of tlie Old. — Statutes exist
in many of the States, by force of which, where the property and fran-
chises of a corporation are sold to foreclose a mortgage, or otherwise for
the purpose of paying the debts of the corporation, the purchaser is
authorized or required to organize a new corporation to perform the
public duties required oi the old, which new corporation succeeds to
• Memphis &c. R. Co. v. Railroad and tlie mortgage in question under-
Commissioners, 112 U. S. 609. Com- took to pass both its charter and
pare Acres v. Moyiie, 59 Tex. 623; works. Memphis «&c. R. Co. v. Rail-
Stc'phenson v. Texas &c. R. Co., 42 road Commissioners, supra.
Tex. 1G3. It was so held, where the ^ qqq ^ Columbus &c. R. Co., 10
governing statute empowered the Ohio St. 372, 38G, per Gholson, J.;
company to borrow money "on the quoted with approval iu Memphis &c.
credit of the company and on the R. Co. v. Railroad Commissioners,
mortgage of its charter and works," 112 U. S. GO'J, 020.
159
1 Thomp. Coi[). § 258.] reorganization.
the corporate rights and franchises of the old.i An example of such a
statute is given in a recent work ^ from the statute books of the State
of Neiv York^ as follows : "In case the railroad and property connected
therewith, and the rights, privileges and franchises of any corporation,
except a street railroad company, created under the general railroad
law of this State, or existing under any special or general act or acts of
the legislature thereof, shall be sold under or pursuant to the judgment
or decree of any court of competent jurisdiction, made or given to
execute the provisions or enforce the lien of any deed or deeds of trust
or mortgage theretofore executed by any such company, the purchasers
of such railroad property, or franchises, and such persons as they may
associate with themselves, their grantees or assignees, or a majority of
them, may become a body politic or corporate, and as such may take,
hold and possess the title included in said sale, and shall have all the
franchises, rights, powers, privileges and immunities which were
possessed before such sale by the corporation whose property shall have
been sold as aforesaid, by and upon filing in the office of the Secretary
of State a certificate duly executed under their hands and seals, and
acknowledged before an officer anthorized to take the aknowledgment
of deeds ; in which certificate the said persons shall describe, by name
and reference to the act or acts of the legislature of this State under
which it was organized, the corporation whose property and fran-
chises they shall have acquired as aforesaid, and also the court by
authority of which such sale shall have been made, giving the date
of the judgment or decree thereof, authorizing or directing the same,
together with a brief description of the property sold ; and shall also set
forth," the name of the corporation, the capital stock, the number of
directors, and the plans and agreements of reorganization. ^ "Every
stockholder in any company, the franchises and property whereof shall
have been sold as aforesaid, shall have the right to assent to the plan of
readjustment and reoganization of interests, pursuant to which such
franchises and property shall have been purchased as aforesaid, at any
time within six months after the reorganization of said new company,
and by compljdng with the terms and conditions of such plans, become
entitled to his pro rata of the benefits therein, according to its terms." ^
^ For cases arising under such § 5, as amended by New York Laws of
statutes, see Pittsburgli &c. R. Co. v. 1854, ch. 282, and by New York Laws
Fierst, 90 Pa. St. 144; Cora. v. Central of 1873, ch. 710; New York Laws of
Passenger R. Co., 52 Pa. St. 506. Com- 1874, ch. 430.
pare Wellsborough &c. Plank Road * New York Laws of 1874, ch. 430,
Co. V. Griffin, 57 Pa. St, 417. 3. See Pratt v. Munson, 84 N. Y.
2 2 Beach Railw., § 767. 582, as to the effect of the act of 1854
8 New York Laws of 1850, ch. 140, in repealing the prior statute of this
160
FORECLOSURE SALES: STATUTES. [1 Thomp. Coip. § 258.
Referring to this statute, the Court of Appeals of New York say : " The
first section provides that in case a railroad and the property, rights,
pri\dleges and franchises connected therewith shall be sold under a
mortgage foreclosure, the purchasers, and such persons as they may
associate with themselves, their grantees or assigns, may become a cor-
lX)ration, and as such may take, hold and possess the property and
franchises sold, by executing and filing the certificate provided in the
section. Under that section any number of persons may, at a fore-
closure sale of a railroad and its franchises, purchase the property for
themselves, and organize a new company, which Avill possess all the
powers, rights, privileges and franchises of the prior corporation, and be
subject to the provisions of the general railroad laws of the State. In
such case the rights of all the stockholders of the prior coi*poration will be
absolutely barred and cut off by the foreclosure and sale. But purchas-
ers at such a foreclosui'e sale, instead of buying absolutely for themselves,
may buy the property in pursuance of a plan, as mentioned in the second
section of the act, for the readjustment of the respective interests therein
of the mortgage creditors and stockholders of the company. Notwith-
standing the formation of the plan, however, the foreclosure becomes
absolute against the corporation, and all its rights and all the proprietary
interests of the stockholders are absolutelj^ barred and cut off. The
entire property of the corporation passes under the sale as absolutely as
nature. The statute was further purchased, he stood in the awkward
amended by the act of 1876, chapter predicament of owning a property
446, and the construction of the which it was not certain he could
amended statute was involved in the either use or sell. It was to cure this
case of Vatable v. New York &c. R. difficulty that the act of 1854 and its
€o., 96 N. Y. 49; reversing s. c. II subsequent amendments were de-
Abb. N. C. (N. Y.) 133. In another signed. In the absence of an existing
case it was said: " Before these acts corporation, capable of taking and •
were passed, such a railroad mort- exercising the franchises sold, the
gage, while it certainly covered the purchaser was authorized to create a
special and peculiar franchises of new corporation, for the purposes of
the company, could with difficulty the transfer, but whose corporate life ,
be construed to cover its corporate came from the grant aud authority of
life, or right to be a corporation, the State. It is quite evident that this
and the subject created doubts, authority was intended only to meet
That right, it was argued, could a nossible emergency, and not at all to
scarcely be said to pass to a pur- pi event a sale or transfer to a corpom-
chaser by virtue of his purchase, tionalreadijezistinfj, and capiihle, under
and could only be given by the author- the law of its creation, of holding the
ity of the State. Unless, therefore, property and exercising the franchises
tlie purchaser could And some corpo- which passed to the purchaser by the
rate body in existence, capable of hold- mortgage sale." People u. Brooklyn
ing and exercising the franchises &c. R. Co., 89 N. Y. 75, 84.
11 161
1 Thomp. Corp. § 259.] reorganization.
it did under the prior statutes, and the plan has reference only to the
new corporation to be formed, and to interests therein. If the property
be purchased under the plan, then such plan must be embodied in the
certilicate to be filed as required by the lii'st section, and then, as pro-
vided in section 3, every stockholder ' shall have the right to assent to
the plan of readjustment and reorganization of interest, pursuant to which
such franchises and property shall have been purchased as aforesaid, at
any time within six months after the organization of said new company,
and by complying with the terms and conditions of such plan, become
entitled to his pro rata benefits therein, according to its terms.' So,
after the foreclosure sale, the only property interest which a stockholder
of the old company has left is in the surplus, if any, after satisfying the
mortgage and other preferential claims. It is entirely optional with him
whether he will come in under the plan and join the new company. All
the statute secures to him is the option or privilege to join the new com-
pany by a comphance with the terms of the plan. If he elects to join
the new company, then he gets the proportional interest therein, which
may be of great value to him. But his right to join the new company,
so far as it depends upon the statute, must be exercised within the six
months. If he fails within that time to exercise his right by assenting to
the plans and thus becoming a party thereto, he cannot take or claim any
rights under the plans. It is clearly a condition precedent that he must
signify his assent to the plan within six months. If he fails to do so, he
forfeits no property, as that was swept away by the foreclosure sale ; he
loses simply the right or privilege to join and become interested in the
new company and thus to acquire an interest in property. That is a
forfeiture, if it can properly be so called, which the law imposes, and
against which the courts can give no relief. In such a case equity can-
not relieve him from the performance of the condition precedent, and
thus vest him with rights of property which he did not otherwise have.
It would lead to intolerable inconvenience, confusion and difficulty, if
the stocldiolders of the old company could, in such a case, take their own
time to assent to the plan of reorganization, and to assert their right to
become members of the new company, upon such facts as they would be
able to establish in a court of equity. ' ' ^
§ 259. Further Statutory Provisions. — This statute has been
considerably further amended. As given in the latest edition of the
General Statutes of New Tork,"^ it permits purchasers and others asso-
1 Vatable v. New York &c. R. Co., ^ 3 Rev. Stat. N. Y. 1889 (Banks &
96 N. Y. 49, 5G, reversing s. c. 1 1 Abb. Bros, ed.), P- 1735,
N. C. (N, Y.) 133; opiuion by Earl, J,
102
FORECLOSURE SALES : STATUTES. [1 Thomp. Corp. § 259.
dated with them, upon fihng articles of association, to become a cor-
poration, and empowers them to succeed to and take the franchises,
privileges, etc., of any corporation organized by special act or under a
general law of the State, whose property and effects have been sold
under a mortgage. ^ The certificate must set forth the particulars re-
quired by the statute to be stated in the original certificate of incor-
poration. ^ Where the original corporation was organized under a
special act, the certificate shall state : 1. The name of the corporation
to be formed. 2. The amount of the capital stock, which shall not ex-
ceed that which the original corporation was authorized by law to have
at the time of the sale. It shall also state the number of shares of
which the stock shall consist. 3. It shall also state the title and date
of passage of the act creating the former corporation, and any other
acts relating to it. 4. It shall state the number of the directors, and
shall give the names of the first board of directors of the new corpora-
tion. ^ This last provision impUes that the new corporation is not or-
ganized and does not exist as a corporation until it has proceeded to
the election of a board of directors, — a circumstance which seems to
bring it within a rule declared in Ohio and Michigan in respect of con-
sohdation under a statute of Ohio.* This certificate is to be executed
in duphcate, acknowledged, and filed in the office of the Secretary of
State, and one of the duplicates is to be filed in the county in which
the first corporation had its principal place of business. The statute
also contains a general statement to the effect that the franchise vested
in the new corporation shall be as broad as those possessed by the old,
whether from the terms of its governing statutes, or as already judi-
cially construed.^ A certified copy of the certificate from the office
of the Secretary of State, or of the county clerk, shall be received in
all courts as legal evidence of such reincorporation.^ - - - - By
the statute of Pennsylvania^ whenever the rolling stock, property and
franchises of any railway, gas company, or any corporation created by
or under any law of the State shall be sold, under a decree of a court
of the State or of a court of the United States, the purchasers may in-
corporate with all the franchises of the preceding corporation, but sub-
ject to all the restrictions imposed upon it. They must meet within
thirty days of the sale, of which meeting a prescribed notice must be
given. They must there organize, elect a president and six directors,
adopt a name and seal, fix the amount of their capital stock, not ex-
ceeding that of the precedent corporation, in shares of $50 each, and
> Lbid., § 1. * Post, I 327.
2 Ibid., § 2. ^ Rev. Stat. N. Y., supra, § 4.
8 Ibid., § 3. « Ibid., § 5.
103
1 Thomp. Corp. § 259.] reorganization.
may issue stocks and bonds, and execute mortgages on all or any part
of their property. They must, within a month of the purchase, make a
certificate specifying the date, name, corporate stock, name of presi-
dent and directors of the new corporation, and send it to the Secretary
of State for record ; and a certified copy of it shall be evidence of the
incorporation of the new company. They must also signify their ac-
ceptance of the provisions of article 16 of the constitution of Pennsylvania
relating to private corporations. - - - - By the statute of Ken-
tucky, which applies only to railroads, ^ where the property of a railway
company is sold under a decree of court, the purchasers and associates
may become a corporation, with the right to exercise all the franchises,
privileges, etc., and subject to all the restrictions of the charter
of the original company. But they may not receive subscriptions
or aid from counties, towns, etc., and are subject to certain pro-
visions of the general laws of the State relating to corporations.^ The
mode of incorporation is the same as that prescribed by the general law.^
The new corporation may issue negotiable bonds, not in excess of the
original cost or proper cost of completing the road ; may give priorities
and exemptions to certain stockholders ; and may secure the bonds by
mortgage. A lien is reserved in favor of the wages of laborers, for work
done within three months before the sale or seizure, — that is to
say, the new corporation takes the property subject to this incum-
brance. - - - - By the statute of i(/assac/i'/.5eifs .• " Any or all of the
creditors of any corporation existing hy authority of this commonwealth
and organized or chartered for any purpose designated in this chapter,
which has been adjudged bankrupt or insolvent, or has made an assign-
ment of its property for the benefit of its creditors, or any or all persons
for whose benefit such corporation has assigned the whole or any part of
its property, and such other person or persons in either case as they may
elect, — may associate themselves for the purpose of forming a corpora-
tion to acquire the whole or any part of the property of such bankrupt
or insolvent corporation, or that have assigned for the benefit of its
creditors, and to carry on the business previously authorized to be car-
ried on by such bankrupt or insolvent corporation. " "* - - . - By
the statute of California, the franchises, etc., of corporations maybe
levied upon to satisfy judgments and sold as other property. The pur-
chaser must receive a certificate of purchase of the franchises, and
immediately be let into possession, and must transact the business of
1 Bull. & F. Ky. Stat. 1887, p. 767, ^ Qen. Stat. Ky., chap. 56.
§ 1. 4 Gen. Stat, of Mass. 1882, ch. 106,
2 Ky. Acts of 1855-6, No. 148, §§ 1 § 15.
and 2.
164
FORECLOSURE SALES: STATUTES. [1 Thomp. Corp. § 259.
such corporation, with its powers, privileges and liabilities, till the
franchise is redeemed. He may recover penalties for injuries to the
franchise, and for this purpose may use the name of the corporation, and
his recovery will be a bar to another recovery by the corporation. In
all other respects the corporation retains the same powers and continues
bound to discharge the same duties, and subject to the same penalties as
before the sale. The corporation may redeem within one year, by pay-
ing or tendering the money expended by the pui-chaser with ten per
cent, interest, but without any profits, he retaining the tolls and profits.
The sale must be made in the county where the corporation has
its principle place of business, or where it has taxable prop-
erty.i - - - - By the statute of J[fic/iig^a?z ;" Whenever any cor-
porations, now existing or hereafter formed, may have conveyed all
their corporate property, real and personal, together with their fran-
chises, growing out of or pertaining thereto, or together with all their
corporate franchises, by way of mortgage or deed of trust, in case of
the sale of the same thereunder, the purchasers at such sale and their
associates shall be entitled to have and exercise all the privileges and
franchises held by such corporation, and shall be deemed and taken to
be the true owners of its corporate rights, and to be corporators vested
with all the rights, powers, privileges, and benefits conferred by law or
the statutes of this State upon such corporations, in the same manner,
and to the same extent, as if they were the original corporators at the
formation of such corporations ; and they shall, within thirty days after
such sale shall become absolute, file articles of association, together with
a copy of the order confirming the sale, in the ofllce of the Secretary of
State, and in such other office or offices as the original articles of asso-
ciation or corporation were required to be filed in, and they shall hold
title to and enjoy all property acquired by, or donated to, such corpora-
tion, which may have been purchased by them at such sale ; and such
(successor) corporation may issue, and themselves hold new stock in
said corporation to such an amount and of such denomination as was
prescribed in the articles of association or charter of the original cor-
poration. After filing the new articles of association, as required by
this act, the old officers of said corporation shall be superseded, and the
old stock in said corporation shall be deemed forfeited and extinguished,
and may be canceled on the books of said corporation ; and the new
stockholders, and the officers by them chosen, or elected, shall, in the
law, be deemed and taken to be the stockholders and officers of said
corporation, and the said corporation shall not be liable for any debts or
obligations, except those by it thereafter contracted. But no prior mort-
Deer. Ann. Codes Cal. 1885, § 388.
1()5
1 Tliomp. Corp. § 200.] reouganization.
gage or lien shall be in any way affected by such proceedings, and all
property whatsoever, if any, that shall not be sold, shall remain liable for
aU debts of such original corporation, and no liability of any corpora-
tors, director, or other persons whatsoever shall be in any way lessened
or affected by any proceeding or act authorized by this act. Provided,
that in malcing such sale, the property essential to the exercise of cor-
porate rights, together with the corporate franchises, shall be deemed
an entire thing, and shall be sold as such, separate from any other
property mortgaged. " ^ _ _ _ - Such a statute was enacted in -4Za-
bama as follows: " In each and every case in which any railroad may
hereafter be sold by the State of Alabama, or by any commission, officer,
or agent of said State, or by any proceeding, judicial or otherwise, author-
ized by law, the purchasers at any such sale may constitute themselves into
a body politic and corporate, and shall have and possess all the powers
and franchises which belonged to the company or corporation origin-
ally owning the railroad so purchased, including the power to purchase
and hold real estate, and the franchise to bie and exist as a corporation
under such name as the purchasers may select and adopt. And the
board of directors of such new corporation shall have power . . .
to lease, sell, or mortgage all or any part of the franchises or prop-
erty of such corporation, including the franchise to be and exist as
a corporation." An amendment enacted in 1875 ^ defines the mean-
ing of the word purchasers in the preceding statute, and provides
that a majority in interest of the purchasers may organize the corpora-
tion, for the benefit of themselves and all others interested, and con-
tains further modifications not important to be stated. The effect of
this statute was to make the reorganized corporation a neio corpora-
tion as to the ownership of property, and in the sense of not being hable
for the debts and engagements of the former company ; but in re.
spect of its franchises it was but a continuation of the former company.
"These," said the court, " the new corporation succeeds to, precisely
as they were surrendered or lost by the defunct corporation." When,
therefore, the defunct corporation held its franchises subject to a law of
the State imposing a certain limitation as to the amount of tolls which it
could exact, the new corporation received its franchises subject to the
same limitation. ^
§ 260. These Schemes of Reorganization favored. —
Schemes among stockholders and bondholders, formed to buy
1 Mich. Ann. Stat. 1882, § 4885. ' Mobile &c. R. Co. v. Steiner, 61
2 Alabama Act of March 20, 1875; Ala. 659.
Alabama Laws of 1875, p. 132.
166
AFTER 3IORTGAGE FORECLOSURES. [1 Thomp. Corp. § 261.
and reorganize corporate properties, such as railroads, are
favored by the courts, unless they assume the form of schemes
and combinations prejudicial to the rights of the creditors.
In other words, they are favored when they are equitable.^
But members of the old company can no more be forced into a
reorganization against their will than they could be forced to
join a new company in the first instance.^ When therefore the
charter of a corporation expires, a majority of the stockholders,
proposing to form a new company, have no right, as against a
minority, to make an arbitrary estimate of the property of the
corporation to be transferred to the new company, and require
the minority to go into the new company or receive for their
interest in the property of the old company a sum fixed by
those who are buying them out.'
§ 261. Effect of Reorganization after Mortgage Fore-
closure. — The valid foreclosure of a mortgage upon all the
property and franchises of a corporation, cuts q^ absolutely the
rights of the stockholders. Thereafter they can have no rights in
the reorganized corporation, except such as are secured to them,
if any, by the decree of foreclosure, or by voluntary arrange-
ments among the parties in interest.* Where the foreclosure
takes place under an arrangement between the holders of bonds
secured by mortgage and the stockholders in the corporation,
whereby the latter are to be allowed to come into the reorgan-
ized company, upon certain conditions, such a stockholder can-
not come into the company without tendering compliance with
those conditions.^ It is a mere matter of contract, and he can-
not have the benefit of it without performance of the obligation
assumed on his own part. Where the purchasers of the prop-
erty of a railroad corporation under the statutes of New York^ at
a foreclosure sale reorganize the corporation, they thereby form
1 Robinson v. Phila. &c. R. Co., 28 Sup. Ct. Rep. 224; post, §§ 316, 343,
Fed. Rep. 340. See Riker v. Alsop, 27 et seq.
Fed. Rep. 251, construing the terms of < Thornton v. Wabash R. Co., 81
such an arrangement. N. Y. 402; Vatable v. New York &c.
2 Ante, § 52. R. Co., 96 N. Y. 49, 56.
3 Mason v. Pewabic Min. Co., 133 ^ Carpenter v. Catlin, 44 Barb. (N.
U. S. 60; 8. c. 33 L, ed. 524; 10 Y.) 75.
6 Ante, §§ 258, 259.
1G7
1 Thomp. Corp. § 262.] reorganization.
a neiu and entirely distinct corporation from the old company.
The right to be a corporation not being the subject of mortgage,
did not pass by the sale, but is obtained by a direct grant from
the State on filing the new certificate of incorporation.^ As this
proceeding is the organization of a new corporation, the adven-
turers must pay to the treasurer of the State of New York the
percentage upon their capital stock provided by another statute
of the State ; and the statute which obliges them to pay this, in
this operation of it, is in no wise an impairment of the obligation
of their contract as mortgagees of the old corporation. ^
§ 262. Special Privileges of Antecedent Companies pass
to New. — Where the statute empowers a railroad company to
mortgage all its property and franchises to secure an indebted-
ness, and the property and franchises are sold under the mort-
gage, and a new company is organized under the general laws of
the State, there is doubtful authority for the conclusion that spe-
cial privileges accruing to the old company under its charter vest
in the new, so that the new company will not, in respect of its
obligation to fence its track and its liability to damages for fail-
ure so to do, be subject to the general law, but will be subject
to the special charter provisions of the old company. ^ It was
said that "the object of the legislature was manifestly to keep
alive the rights and duties of the old company and to transfer
them to the new company, the purchaser. That the franchise
was not intended to be resumed by the State, is clear. The
intent of the legislature must have been . . . ' that such
property was to be holden in the same manner, and sub-
ject to the same rights as before. The owners of the property
were to lose no rights by the transfer, nor was the public to lose
any right thereby.' " * In like manner, it was said by the Su-
preme Court of Ohio : "It must be inferred that the legislature
intended the purchasing company to succeed to the powers and
privileges of the vending company, and to none other. The in-
1 People u. Cook, HON. Y. 443. linson v. Branch, 15 Wall. (U. S.)
2 People V. Cook, 110 N. Y. 443. 465, which was not a case of reorgani-
3 Daniels v. St, Louis &c. R. Co., zation, but of consolidation. Post,
62 Mo. 43. §365, eiseg.
* Ibid., p. 47; quoting from Tora-
1 ()8
AFTER MORTGAGE FORECLOSURES. [1 Thomp. Corp. § 263.
trinsic, as well as the market value, of such property as a rail-
road largely depends upon the rates which may be charged for
transportation thereon. If the chartered rates follow the prop-
erty, the contracting parties stand on perfect ecLuality ; but if the
value, or in other words, the inducement to contract, depend on
the chartered privileges of the purchaser, the equality is not
preserved, and especially would different companies, with differ-
ent charters, occupy unequal grounds as bidders for the purchase
of such property." 1 In every such case, the solution of the
question must be sought in the intent of the governing statute
and applicatory constitutional provisions. ^
§ 263. New Corporation when not Liable for Debts of
Old — To render the successor of a corporation liable for the in-
debtedness of the antecedent one, something more must be
shown than the mere fact that the new corporation succeeded to
the business of the former. The party seeking to recover of
the new corporation for a debt of the old must prove, at least,
that the new received some portion of its funds or property
which was chargeable with his debt.^ Where a new company is
established in the place of an old one whose property it has
purchased, neither this property, except so far as it is subject to
prior liens, nor the future earnings of the new company, can be
taken to pay the debts of the old.* Where a mortfjcige of the
1 Campbell v. Marietta &c. R. Co., in one corporation shall pass to an-
23 Oh. St. 188. In Sly v. Penn. R. Co., other corporation upon a sale by one
65 Pa. St. 209, the question is dis- to the other, 'passes a right of exemp-
cussed in relation to the successor- tion from taxation, where such risht
ship of corporate rights as between exists in the vendor company at the
lessor and lessee; and the court con- time of sale. Atlantic &c. R. Co. v.
eludes that "the lessee of a railroad Allen, 15 Fla. 637. In Arkansas a lew-
corporation must necessarily be bound islative privilecje granted to a railroad
by all the prohibitions and limitations corporation, that the /ares shall not be
contained in the charter of the reduced below a certain limit, does 7io«
lessor ; and, on the other hand, must pass to a corporation organized after
be held to be entitled to all their rights a foreclosure sale of the property and
and franchises. The legislature, by franchises of tlie original company,
authorizing another corporation to Dow y. Beidleman, 49 Ark. 325; s. c.
take such lease, have, by necessary 8. W. Rep. 297.
implication, conferred them." s Hopper v. Moore, 42 Iowa, 563-
2 A statute providing that "all post, 1^15.
rights " as to a line of railway which * Bruffett v. Great Western R. Co.
*' are and have been legally vested " 25 111.353.
1()9
1 Thomp. Coip. § 263.] keorqanization.
assets of a corporation — generally a railway company — is fore-
closed and the purchasers, for the purpose of managing the
property and taking to themselves the necessary corporate fran-
chises, organize p. new corporation, this, not being a continuation
of the old corporation, is not liable for its debts,^ or bound to
perform its obligations although the new company takes the
same name as the old one, unless such a liability has been as-
sumed by contract, or has been imposed by an operative statute.
This conclusion is obvious on the slightest reflection. It would
entirely defeat and destroy the value of a mortgage security upon
corporate property, if the mortgagees, obliged to become the
purchasers of the property at a foreclosure sale, could organize
themselves into a corporation for the purpose of managing
it only upon the condition of assuming the floating debts of
the old company. The result would simply be to oblige the se-
cured creditors to pay the debts due to the unsecured creditors.
Or, as Mr. Justice Cooper quaintly remarked, it *' would be a
practical illustration of the query, ' does prohibition prohibit,'
in the form of 'does security secure?' "^ Thus, a railway
company, organized under the provisions of a general law, with
power to purchase the franchises and property of an older com-
pany, previously sold under a mortgage, as well as to construct
and operate other lines of road, is not, by virtue of such pur-
chase, an assignee of the older company, so as to be bound by
its contracts, except such as are a lien or charge upon the
property and franchises thus purchased.^ A statute of Wiscon-
sin * authorizing any person or corporation becoming the pur-
1 Memphis Water Co. v. Magens, R. Co., 94 U. S. 806, 810; Child u. New
79 Tenn. 37. ' York &c. R. Co., 129 Mass. 170; Stew-
2 /&id., p. 44; Menasha w. Milwau- art's Appeal, 72 Pa. St. 291; Hatcher
kee &c. R. Co., 52 Wis. 415; Thornton v. Toledo &c. R. Co., 62 111. 477; Hoard
V. Wabash R. Co., 81 N. Y. 462; Neff v. Chesapeake &c. R. Co., 123 U. S.
V. Wolf River Boom Co., 50 Wis. 585; 222; s. c. 31 Law. ed. 130; 8 Sup. Ct.
Sapplngton v. Little Rock &c. R. Co., Rep. 74; Helton v. St. Louis &c. R. Co.,
37 Ark. 23; Oilman v. Sheboygan &c. 25 Mo. App. 322; Houston &c. R. Co.
R. Co., 37 Wis, 317; Vilas v. Milwau- v. Shirley, 54 Tex. 125, 137. See also
kee &c. R. Co., 17 Wis. 498; Smith v. Morgan County v. Thomas, 76 II. 147.
Chicago &c. R. Co., 18 Wis. 17; 3 Menasha u. Milwaukee &c. R. Co.,
Wright V. Milwaukee &c. R. Co., 25 52 Wis. 414.
Wis. 40; Cook V. Detroit &c. R. Co., * R. S. Wis., p. 521, §§ 1788, 1789.
43 Mich. 349; Sullivan?;. Portland &c.
170
AFTER MORTGAGE FORECLOSURES. [1 Thomp. Coi'p. § 264.
chaser of the property and franchises of any corporation at
mortgage, bankrupt or other judicial sale, to *' reorganize under
the charter or act of incorporation or law under which such com-
pany or association was created or organized," and to " have
the same rights, powers, privileges and franchises such com-
pany, association or corporation had or were entitled to at the
time of such purchase or sale," — does not make the reorganized
coi^oration a continuance of the old one and liable for its
debts. ^ But where the old railway company had appropriated
land of the plaintiff without paying him for it, and the new
company continued the operation, it was held that, although the
land-owner could not maintain against the new company an
action of debt on a judgment recovered against the old for the
taking, yet he might have a remedy in equity against the new
company to compel it either to pay compensation for the use
of his land, or to stop rnnning its cars over it. But this liabil-
ity would be founded upon the principle that the new company
had seen fit to adopt and ratify the original undertaking, and had
therefore made itself liable to make compensation. It would
be an application of the maxim qui sentit commodum seiitire
debet et onus.'^ The same principle applies in respect of the
rights of one who acquired a lien upon the property of the old
company subsequently to the making of the mortgage. This
lien does not, of course, follow the property into the hands of
the company which is reorganized after the mortgage fore-
closure; since the contract is one which does not affect the prior
mortgagees, and to allow it to operate as a lien upon the prop-
erty in their hands would be to allow the mortgagor, by a
subsequent contract with a stranger, to impair the security of
his mortgagee.^
§ 264. Illustrations. — A banking company existed in Texas,
under a charter of such a nature that the letrislature, in the event of its
expiration, had not, under the constitution, the power of renewing it.
It became insolvent, and made an arrangement with all its creditors,
1 NeS V. Wolf Riv. Boom Co., 50 3 child v. New York&c. R. Co., 129
Wis. 585. Mass. 170.
2 Gilinan v, Sheboygan &c. R. Co.,
37 Wis. 317.
171
1 Tlioni}). Corp. § 264.] reorganization.
save one, by which they agreed to accept 74 cents in the dollar of
their respective claims. Thereafter certain citizens subscribed about
$20,000, to be added to the assets of the insolvent bank ; a new bank-
ing corporation was orj^anized in a manner not shown by the evidence ;
but it took the same name as the old corporation, and the old corpora-
tion transferred all of its assets to it, and undertook to include in the
transfer its name and corporate franchises. It also obligated itself
to pay to the new corporation whatever amounts the latter might be
compelled to pay, in excess of the 74 cents in the dollar which all the
creditors save one had agreed to receive in compromise of their re-
spective claims ; and the new corporation agreed to pay for the old cor-
poration this 74 per cent. A dissenting creditor brought an action
against the new corporation to recover the balance due him as a depos-
itor, on the theory that it was the same corporation as was the old.
The court held that this theory was correct. " The shareholders at
that time agreed with a new set of shareholders that the latter should
become substituted to the rights of the former in the corporate prop-
erty and franchises, in consideration of their agreeing to pay its cred-
itors to the extent of 74 cents on the dollar. This is shown by the
facts that the business was resumed in the original name of the cor-
poration, and that the original seal was used in the authentication of
its transactions. The use of the seal conclusively establishes that the
operations of the concern were carried on under the franchises of the
original charter and its amendments ; for, since the adoption of the
present constitution, no new charter could have been obtained for the
purpose of doing a banking business. It is uniformly held that a cor-
poration is not dissolved by the mere fact that it becomes insolvent."
After citing cases in illusti-ation of this principle, the court proceed:
" There being a mere change of membership, and not a change of the
corporation itself, it follows that the obligations existing against it be-
fore the original organization, continued to exist against it when reor-
ganized." ^ - - - - An agricultural society, whose object, accord-
ing to its constitution, was " to improve the condition of agriculture,
horticulture, and the mechanic and household arts," was reorganized
into a joint stock company, " to improve the condition of agriculture,
horticulture, floriculture, mechanic and household arts," the name
being changed only by substituting the word " board " for " society."
The old society provided for holding annual fairs, and the new for
annual fairs and exhibitions. It was held, that there was no substan-
tial change in the objects of the society; and the new one, continuing
still a public institution, was liable only to the extent of its corporate
1 Savings Bank v. Sachtleben, 67 Tex. 421, 424.
172
AFTER MORTGAGE FORECLOSURES. [1 Thoilip. Coip. § 265.
property, i - - - - Where an act of assembly placed the coming
into existence of a railroad company upon the contingency of the sale
of a certain raih'oad under a mortgage and purchase thereby and al-
lowed the stockholders in the original company, by an arrangement
subsequent to the purchase and before the organization of the new
company, to become stockholders of the new company, without pay-
ment of any money, — it was held that this did not impose on the new
company the debt of the old.-
§ 265. But Assets of Old Corporation Liable for its Debts
in Hands of N'ew. — As elsewhere shown, ^ the assets of a corpora-
tion are a ^rMs^/wncZ in its hands, for its creditors. From this
it follows that any arrangement which involves an unauthorized
diversion of this trust fund, from an insolvent to a reorganized
corporation, will not affect the rights of dissenting creditors, so
^s to disable them from following the fund into the hands of
the new corporation and subjecting it to the payment of their
debts.* Where the corporation is reorganized in such a sense as
to create a new corporation, instead of merely reviving and
continuing the old one, — although the new corporation will
not be liable at law for the debts of the old one, jet the assets
of the old corporation may be pursued in equity, as a trust fund,
into the hands of the new corporation, and there subjected to the
debts of the old corporation.^ So, a conveyance of its assets by
one corporation to another, for the purpose of hindering, delaying
or defrauding its creditors, stands on the same footing as a fraudu-
lent conveyance by a private person, and is voidable at the suit
of a judgment creditor, or otherwise according to the rules of
procedure of the particular forum. A transfer of all the assets of
one corporation to another, wherebjs through a mere change of
name, an attempt is made to defraud creditors, or which would
1 Livingston County Agricultural * Railroad Oo. v. Howard, 7 Wall.
Society V. Hunter, 110 111. 155. (U. S.) 392; recognized in Vose v.
2 Stewart's Appeal, 72 Pa. St. 291. Cowdrey, 49 N. Y. 343.
That an assumption by the new com- ^ Marshall v. Western &c. R. Co.,
pany of the debts of the old, does not 92 N. C. 322 ; Von Glahn v. De Rosset,
oblige it to issue its shares to the 81 N, C. 4G7; Railroad Co. v. Rollins,
shareholders of the old, in exchange 82 N. C. 523; Dobson v. Simontou, 86
for theirs, see Conant r. National Ice N. C. 492; Agricultural Society v.
Co., 40 N. Y. Super. 83. Hunter, 110 111. 155.
3 Post, §2841.
17.3
1 Thonip. Corp. § 366] reorganization.
operate as a fraud upon them, will not be upheld as against them,,
and the transferee, taking the property with notice, takes it cutn
onere} Thus, it has been held that if the shareholders in a corpo-
ration enter into a scheme by which they purport to form a new
corporation and elect the officers of the old as officers of the new,
and divide the stock of the new among those who were stockholders
in the old, in proportion to their respective holdings in the old and
in exchange for the same, and the trustees of the old corporation
then cause its property to be conveyed to the new, — this convey-
ance will be held fraudulent as to creditors of the old corpora-
tion.^ In such a case, on principle, the right of a creditor of
the old corporation to pursue its property in the hands of the
new would seem to rest equally on either of the three following
grounds: 1. That of a fraudulent conveyance, as stated in the
case just cited. 2. That the property is a trust fund for the
payment of his debts, and that he can follow it in equity into
the hands of any new taker with notice and charge him as a
trustee. 3. That the new corporation is in fact merely a con-
tinuation of the old, and in law the same person as the old. In
some jurisdictions the equitable interest of the old corporation in
its assets, which have passed into the hands of the new, may be
levied upon under an attachment or execution at the suit of a
creditor of the old.^
§ 266. Illustrations. — A good illustration of the doctrine of the
preceding paragraph is found in a case where the stockholders of an
insolvent corporation contracted to sell all its property to another cor-
poration, under an arrangement with the mortgagees of the former,
whereby such mortgagees consented to receive 84 per cent, of the
purchase money, in satisfaction of their claims, to a much larger amount,
1 Blair v. St. Louis &c. R. Co., 22 corporation cannot transfer its prop-
ped. Rep. 36. erty, even for a valuable consideration,
2 San Francisco &c. R. Co. v. Bee, to a new corporation into which it is
48 Cal. 398. The transfer of the prop- reorganized, so as to hinder or delay
erty of a corporation to a new com- its creditors in the collection of their
pany, the stockholders of which con- debts, although such hindrance or de-
sist of the old stockholders and certain lay was not the purpose of the trans-
creditors of the old company, is fraud- fer. McVicker v. American Opera
ulent as to oi/ier creditors. Montgom- Co., 40 Fed. Rep. 861.
ery Web. Co. v. Dienelt, 133 Pa. St. ^ Such is the law of Georgia,
585; s. c. 19 Atl. 428. An insolvent Georgia Ice Co. v. Porter, 70 Ga. 637.
174
FRAUDULENT ARRANGEMENTS. [1 ThoiUp. Coi'p. § 266.
and whereby the residue (16 per cent.) was to be paid to the stock-
holders, which arrangement left certain judgment creditors unpaid.
It was held that this residue of 16 per cent, represented the equity of
redemption in the mortgaged property, and belonged to the insolvent
corporation, and not to its stockholders ; that the corporation was
entitled, as trustee for its creditors, to the benefit of the rebate made
by the mortgagee ; and that the judgment creditors were entitled to
have it applied to their demands in preference to the stockholders, to
whom, by the terms of the contract, it was payable ; and further, that it
made no difference that the title to the property was transferred to the
purchaser by means of a foreclosure of the mortgage thereon, — such
foreclosure having been made in pursuance of the arrangement, and
merely as a means of consummating the contract of sale and transferring
a clear title.i - - - - On the other hand, the application of this
principle was denied in a case presenting the following state of facts :
Certain creditors of an insolvent railroad company entered into an
agreement to purchase the property of the company upon a foreclosure
sale and to organize a new company. The agreement provided for the
issuing of bonds and stock by the new company, apportioning the same
among the holders of the mortgage bonds, actually issued, of the old
company, and certain other specified creditors. The property was pur-
chased for less than the aggregate amount of such mortgage bonds, and
was afterwards transferred to the new company, its bonds and stocks
issued, and apportioned as provided in the agreement. The old com-
pany being indebted to H. , one of the parties to the creditors' agree-
ment, for iron rails furnished by him, and A., being equitably entitled,
under the contract of purchase, to its mortgage bonds, for the unpaid
balance on the rails, he brouglit suit claiming that, his claim not being
included in the first mentioned agreement, the bonds to which he was
equitably entitled should be deemed to have been actually issued to him,
at the date of making the creditor's agreement, and that the property
in the hands of the new company be deemed held by it in trust to pro-
vide for plaintiff's mortgage bonds, as for those which had actually
been issued and provided for in such agreement. The complaint alleged
no fraud, either in the creditors' agreement or the foreclosure sale, or
that any of the stockholders in the old company derived benefit from
the creditor's agreement. The defendants demurred. It was held:
1. That the parties to the creditors' agreement wore bona fide pur-
chasers, and acquired the property unincumbered by any trust, ex-
cept such as was expressed in the agreement itself. 2. That although,
as between the old company and its creditors, equity would deem that
1 Railroad Co. v. Howard, 7 Wall. (U. S.) 392.
175
1 Thoinp. Corp. § 267.] reorganization.
to have been done which ought to have been done, this rule would not
apply to the rights of third parties (as between each other), who had
contracted, with reference to acts of the company already pex'formed,
and that the plaintiff, having himself been a party to that contract and
received benefit from it, could not bring it within the rule. 3. That
therefore the facts stated in the complaint did not constitute a cause
of action.^ - - _ - The Supreme Court of Georgia has said that
*'the conversion of a trading company, acting as a corporation de
facto, into one de jure, will not exempt the property held in the latter
character from liability for the obligations of the former." ^
§ 267. When New Corporation Liable for Debts of Old. —
While, as a general rule, the corporation which succeeds, by a
purchase under a foreclosure sale, to the property of another cor-
poration, is not liable for its general debts, it may become so by
organizing under a statute which imposes this liability upon it.
Such was the case where the Terre Haute, Alton & St. Louis
Railroad was sold under a judgment, and its purchasers were,
by an act of the legislature of Illinois, incorporated under the
name of the St. Louis, Alton and Terre Haute Railroad Com-
pany, with the following proviso in their charter: *' All bona
fide claims or judgments for stock heretofore killed by the
Terre Haute, Alton & St. Louis Railroad, and all claims for
right of way on that part of the road from Belleville to
lUinoistown, and all just dues for work and labor done, and for
wood and ties furnished or taken for the said Terre Haute,
Alton and St. Louis Railroad Company, shall be assumed and
paid by the St. Louis, Alton and Terre Haute Railroad Com-
pany, as a condition precedent to the operation of this act." ^
It was said of this statute; " It was manifestly the intention
of the legislature, in thus clothing appellants with the property
and franchises of the old company, to place them as a corpora-
tion in their shoes, on certain conditions, one of which was
that they should pay and discharge all unsatisfied judgments
recovered against the old company for work and labor per-
formed for it on their railroad. The name of the old company
may remain, but that is all. It is stripped of all its powers and
1 Vose V. Cowdrey, 49 N. Y. 336. ' 111. Priv. Acts of 1861, p. 530.
2 Georgia Ice Co. v. Porter, 70 Ga.
637, 642.
176
DEBTS OF OLD COMPANY. [1 Tliomp. Corp. § 268.
franchises and property, to all of which appellants have suc-
ceeded, and they have assumed, in consideration of the grant, to
become the debtors of such creditors of the old company as had
obtained judgments against it for work and labor done upon their
road, the benefits of which appellants are in the full and undis-
turbed enjoyment." It was not a good argument, in an action
brought against the new company on a liability of the old, that
the statute had given, in express terms, no action, for the com-
mon law would supply the remedy; nor was it an available ar-
gument that the new corporation was not di party io the judg-
ment against the old; nor that no notice had been given to the
new company of the existence of the judgment, since the statute
required no notice.^ So, of course there might be a valid agree-
ment, between the corporation, the trustees in the mortgage and
the bondholders that, after a sale under the mortgrase, the com-
pany should be so reorganized that the stockholders and unse-
cured creditors of the old company should become stockholders
in the new. Such an agreement would modify to that extent
the ordinary effect of a mortgage sale.^ It seems that no en-
abling act is necessary in order to the validity of such an agree-
ment, since it is nothing more than a concession by the mort-
gage creditors to the unsecured creditors and stockholders, who
are merely creditors of an inferior class.
§ 268. Organization of New Company does not Necessarily
Destroy Old. — The organization of a new corporation upon the
ruins, so to speak, of the old, does not necessarily have the effect
of destroying the legal existence of the old, so as to prevent
actions being prosecuted against it.^ An illustration of this is
frequently seen in the case where a mortgage covering all the
property and franchises of a railway company has been fore-
closed, and a new corporation has been organized by the pur-
chasers at the foreclosure sale to own and operate the property.
In such a case the original company continues, for the purposes
of legal remedies, until regularly dissolved. A case in New
1 St. Louis &c. R. Co. V. Miller, 43 » See for illustration of this, Cary
111. 199. V. Schoharie Valley &c. Co., 4 Thomp.
2 See Smith v. Chicago &c. R. Co., & C. (N. Y.) 285; ante, § 256,
18 Wis. 17.
177
1 Thomp. Corp. § 269.] reorganization.
Jersey presents an anomalous state of facts, where there was a
partial consolidation between two corporations, and then a subse-
quent reorganization of one of them, under a new legislative act
authorizing it to increase its stock. On the state of facts pre-
sented, it was held that the company which, under the arrange-
ment, was to absorb the other by receiving all its stock and pro-
perty, real and personal, would be protected in equity in the
possession of what it had received. It was also held that the
reorganized company which, under the statute authorizing its re-
organization, had taken a new name was a new company in
respect of the property owned by the predecessor company, had no
title either legal or equitable to the property which such company
had agreed to convey to the absorbing company. For the pur-
poses of the case, the court fell back upon the other proposition,
that if it were mistuken in this, and if the new company were not
a new corporation, but was merely the old company under a new
name, then the increased stock authorized by the legislature, as well
as the old stock, belonged in equity to the absorbing company,^
§ 269. Stockholders Bound to take Notice of Plan of Re-
organization, and to Signify their Assent within the Prescribed
Time. — Where a scheme of reorganization is drawn up under
the provisions of a statute, the stockholders are not entitled to
special notice of it, unless the statute so provides ; since it
would be impracticable to convey notice to the many scattered
stockholders of a railway company, living in different countries
and continually changing by the transfer of shares. On the
other hand, they are bound to take notice of it, and may fairly
be presumed to take notice of a judicial proceeding affecting
their interests, of so public a character as the foreclosure of a
mortgage upon the property and franchises of a railway cor-
poration, whose stockholders they are. Where a reasonable
time has been allowed then, e.g.^ six months, to come in and
assent to the scheme and comply with its terms, if they do not
come in within that time they will be barred and can have no
relief in a court of equity.^
1 New Jersey Zinc Co. v. Boston 96 N. Y. 49; reversing s. c. 11 Abb. N.
Franklinite Co., 15 N. J. Eq. 418. C. (N. Y.) 133.
2 Vatable v. New York &c. R. Co.,
178
AFTER FORECLOSURE SALE. [1 Thomp. Coi'p. § 271.
§ 270. Members of Stockliolders' Committee cannot Pur-
chase at Sale. — It is an established principle in equity that an
agent or trustee shall not be both the seller and buyer of the
same property.^ Where, in the event of the insolvency of the
corporation, the stockholders meet and arrange to sell the prop-
erty for the purpose of liquidation, and a sale takes place, and
some of the committee of stockholders, appointed to attend to
the matter, turn out to be interested in the purchase, the sale
will be set aside on application to a court and the showing of
these facts, at the pleasure of the other beneficiaries, although
the price may have been adequate, and although the purchaser
may have acquired no advantage.^ On the same principle, where
a corporation, formed for manufacturing purposes, of which A.
was a member, voted to sell its property, consisting of real estate
and machinery, and such property was purchased by A., not for
himself, but for such members of the corporation as should,
within a short time, pay their proportion of the debts of the cor-
poration and of the purchase money; and a large majority of
such members, formed a new association, assumed the debts
of the old company and paid the purchase-money, — it was
held, in a case in equity that, as a majority of the members
of the corporation, acting as agents for all, were in fact
both buyers and sellers, the sale was void.^ But in such a
case a stockholder, who has the right to maintain a suit in
equity to set aside such a sale, will lose his rights by failing to
disajjirm the transaction, or to move for relief for an unrea-
sonable length of time, especially where, by his delay, he has
avoided a risk which otherwise he must have shared with the
adverse party. ^
§ 271. But Creditors may Combine to Purchase and Reor-
ganize. — Where a default has occurred in the interest secured
by a railway mortgage, the creditors of the corporation may,
without any imputation of fraud, combine for the purpose of
protecting themselves, by purchasing the property when legally
brought to sale to foreclose the mortgage, — provided, it is no
> Banks v. Judah, 8 Conn. 145. ^ Banks v. Judah, 8 Conn. 145.
2 Reilly v. Oglebay, 25 W. Va. 36. * Ibid.
179
1 Thomp. Corp. § 27 3. J reorganization.
part of the agreement to prevent competition at the sale, or to
acquire any unfair advantage over others.^
§ 272. When Minority of Shareholders not Bound by Reor-
ganization by Majority — On principles which have already been
fully discussed,'^ where the governing statute provides that, when
the corporation expires by limitation, it shall remain a corpora-
tion simply for the purpose of having its affairs wound up, — a
majority of the sliareliolders cannot, by a reorganization bind the
minority, so as to continue their property in the new corporate
venture. The minority are therefore not bound by a scheme of
reorganization concocted by the majority, whereby the corpo-
rate property is to be transferred to the new corporation at a
certain valuation, unless at an attempted cash sale at auction,
no more can be procured.^ In such a case the minority will
be entitled to an injunction to prevent the intended sale, and
to a decree directing the sale of the property for cash to
the highest bidder, the proceeds of the sale to be applied
to the payment of the corporate debts and thereafter to the
shareholders upon a pro rata distribution, — with the proviso
that, if no bid exceeds the valuation fixed by the directors, the
arrangement sanctioned by the majority may be carried out, and
the property conveyed to the new company.*
§ 273. When Minority of Bondholders Bound by Reorgani-
zation by Majority. — A recent case in Connecticut runs contrary
to this view so far as concerns the rights of the bondholders, on
grounds which have been exceedingly well summed up in the re-
porter's syllabus, as follows: "Where a railroad company is
chartered with power to take private property and to construct
1 Kitchen v. St. Louis &c. R. Co., ^ Mason u.Pewabic Mining Co., 25
69 Mo. 224; Pennsylvania Transp. Fed. Rep. 882. Circumstances under
Co.'s Appeal, 101 Pa. St. 576 (inwbich which a bill in equity, by a dissenting
case it was held that there was noth- stockholder to prevent the reorganiz-
ing in the agreement illegal or fraud- ation and consolidation of the com -
ulent as to the complainant, a pany, was rejected: Mills v. Hurd,
judgment creditor of the old com- 29 Fed. Rep. 410.
pany). See also Sage u. Central R. * Ibid. The annexing of this pro-
Co., 99 U. S. 334. viso seem to be a large stretch of
2 Ante, § 71, et seq. equitable discretion.
180
AFTER FORECLOSURE SALE, [1 Thomp. CoPp. § 273.
and operate its road, the authority given is in the first instance
permissive merely, and no obligation rests upon the company to
exercise the powers granted. But wliere the company has taken
private property and constructed its road, it has come under an
obligation to carry into effect the objects of its charter, and its
capital stock, franchises and property stand charged primarily
with this public trust. Where such a company is empowered to
issue bonds and to secure them by a mortgage of its franchise
and all its property, the mortgagees take the mortgage subject
to this trust. Where such a company fails and the mortgage
has to be foreclosed, the legislature has full power to authorize
the bondholders, by a vote of a majority, and with an equal
opportunity to all, to reorganize as a new corporation, with the
rights of the old corporation, such authorized action being
merely a mode of securing the performance of the paramount
public trust; and a dissenting minority have no private rights
that can be successfully asserted against such action." ^ This is
in accordance with views which have been expressed by Mr.
Chief Justice Waite, of the Supreme Court of the United States:
"To allow a small minority of bondholders, representing a
comparatively insignificant amount of the mortgage debt, in the
absence of any pretense even of fraud or unfairness, to defeat
the wishes of such an overwhelming majority of those associated
with them in the benefits of their common security, would be to
ignore entirely the relation which the bondholders secured by a
railroad mortsrage, bear to each other. Railroad mort^aofes are
a peculiar class of securities. The trustee represents the mort-
gage, and in executing his trust may exercise his own discretion
within the scope of his powers. If there are differences of
opinion among the bondholders as to what their interests require,
it is not improper that he should be governed by the views of
the majority, acting in good faith and without collusion, if what
they ask is not inconsistent with the provisions of his trust." ^
A stricter view is that the scheme of reorganization can only be
made effective by the consent of all the original bondholders,
enforced by a foreclosure cutting off their lien ; that a bond-
' Gates V. Boston &,c. 11. Co., 53 2 shaw v. Railroad Co., 100 U. S.
Conn. 333. . 605, 612.
181
1 Thonip. Corp. § 271.] reorganization.
holder has a right to stand upon his contract, and that the trust-
ees have no power to compel him to make a new and different
one. It is a part of this conclusion that the trustees and a
majority of the bondholders have no right to enter into a scheme
of reorganization, against the dissent of a minority, which shall
involve a waiver of default in the payment of principal and in-
terest on the bonds. Each bondholder has a right to what his
contract gives him, and judicial power does not extend to
setting it aside at the will of a majority of those standing in the
same relation with him, however great. ^ Under this view the
majority of the bondholders will be obliged either to see that
the mortgage is foreclosed according to its terms, or else to pur-
chase the interests of the dissenting minority.
§ 274. Reorj^anization under British and Canadian Arrange-
ment Acts. — In Great Britain and in the Dominion of Canada,
where the power of the parliament is supreme, — that is to say,
unhampered by any constitutional prohibition against the passing
of laws impairing the obligation of contracts, or against depriving
persons of life, liberty or property without due process of law, —
it is competent for the parliament to enact a law providing for a
composition or arrangement among the parties interested in the
assets of an insolvent corporation, although the effect of such
law may be to compel a minority to surrender their rights at the
will of the majority, — which, as already seen, it is not com-
petent for the legislatures of the American States to do.^
" Hitherto," said Lord Cairns, L. J., in discussing such an act,
" such companies, if they desired to raise further capital to meet
their engagements, have been forced to go to parliament for a
special act, enabling them to offer such advantages by way of
preference or priority to persons furnishing new capital as would
lead to its being obtained. And parliament, in dealing with such
applications, has been in the hal)it of considering how far the
arrangements proposed as to such new capital were assented to
or dissented from by those who might be considered as the pro-
prietors of the existing capital of the company, either as share-
' Hollister v. Stewart, ill N. Y. nying Ketchum v. Duncan, 96 U. S.
644; distinguishing Canada Soutliern 659.
R. Co. V. Gebliard, 109 U. S. 527; de- 2 ^nte, § 66 et seq.
182
BRITISH ARRANGEMENT ACTS. [1 ThODip. Corp. § 274.
holders or bondholders. The object of the present act . .
nppears to be to dispense with a special application to parliament
of the kind I have described, and to give a parliamentary sanction
to a scheme filed in a court of chancery, and confirmed by the
court, and assented to by certain majorities of shareholders and
holders of debentures and securities ejusdem generis. ^^ ^ It is
said that the practice still prevails in England of passing special
"arrangement acts," whenever the provisions of the general act
above referred to by Lord Cairns are not such as are needed to
meet the wants of a particular company. ^ In Canada, as late as
1883, there was no general statute on this subject like that in
England, but the practice of passing special acts prevailed; and
it was said in one case in Canada: " Our statute books are full "
of legislation of this kind.' The authority of parliament to pass
such laws seems never to have been doubted, either in England
■or in Canada. " Many cases are reported in which such statutes
were under consideration, but in no one of them has it been inti-
mated that the power was even questionable." * The Supreme
■Court of the United States, after an investigation of this matter,
has held that the parliament of Canada has authority to grant to
an embarrassed railway corporation, within that Dominion, the
power to make an arrangement with its mortgage creditors for
the substitution of a new security in the place of the one which
they hold, and to provide that the arrangement shall be binding
on all the holders of obligations secured by the same mortgage,
when it shall hav(; received the assent of the majority, — pro-
vision being made for the protection of the minority in the en-
joyment of rights and privileges in the new security identical
with those of the majority.^ It was further held,^ that such an
arrangement is binding upon citizens of the United States, who
are bondholders in the Canadian corporation, where it gives them
the same rights to participate in the reorganization which are
1 Re Cambrian Railways Company's ' Jones v. Canada Central R. Co.,
Scheme, L. R. 3 Ch. 294. 46 Up. Can. Q. B. 250.
2 Waite, C. J., in Canada South- ^ Waite, C. J., in Canada South. R.
€rn R. Co. v. Gebhard, 109 U. S. 534; Co. v. Gebhard, sjtpm.
citing London Financial Asso. v. ^ Canada South. R. Co. v. Gebhard,
Wrexham &c. R. Co., L. R. 18 Eq. 109 U. S. 527.
566. 6 Mr. Justice Harlan dissenting.
183
1 Thomp. Corp. § 375.] reorganization.
accorded to Caiiadiiin citizens, or other British subjects.^ The
case is an apt and forcible illustration of the principle that rights
in a corporation are governed by the law of the place of the
domicile of the corporation.
§ 275. Compromise Arrangement must be Substantially
Complied with. — It is scarcely necessary to say that where a
compromise arrangement is entered into by different classes of
corporate creditors, whereby they surrender up their various se-
curities and accept bonds under a new mortgage, unless the ar-
rangement is substantially complied with, it will relieve any
dissenting: siorner of the contract, and he will be entitled to stand
upon his original rights.^ On the other hand, to entitle the
stockholder to the benefits of the scheme, he must comply sub-
stantially with its terras. Thus, where, by the terms of the
scheme as supplemented by an act of the legislature, the stock-
holders were to have its benefits, provided they should pay ten
per cent, on the amount of their stock within a time specifiedy
otherwise forfeit all rights under it, — a stockholder who paid
the ten per cent, after the specified time, could not maintain an
action to enforce any rights under the scheme.^ So, where it
was a part of the scheme that the subscribers should surrender
their bonds, with all the coupons thereon, whenever they should
be required to do so, and should receive in lieu thereof the new
bonds provided for by the scheme, — a bondholder, signing the
ao-reement, who received notice to surrender his bonds, but failed
to do so until after the purchase of the road at forclosure sale
and the formation of the new company, could not claim any ben-
efits under the scheme, or insist on the delivery of the new
bonds, not having complied with its terms.*
1 Ibid. 469. Agreements which have been held
2 Miller v. Rutland &c. R. Co., 49 void as against public policy. Munson
Vt. 399; s. c. 94 Am. Dec. 414. v. Syracuse &c. R. Co., 29 Hun (N. Y.),
3 Van Alstyne v. Houston &c. R. 7G; Bliss v. Matteson, 45 N. Y. 22.
Co., 56 Tex. 373. Compare Harts v. Brown, 77 111. 226;
* Carpenter v. Catlin, 44 Barb. (N. Twin Lick Oil Co. v. Marbury, 91 U.
Y.) 75. Equities of particular bond- S. 587; Kitchen ■;;. St. Louis &c. R.
holders or stockholders under arrange- Co., 69 Mo. 224; Carter v. Ford Plate
ments for the reorganization of insolvent Glass Co., 85 lud. 180; Jackson v..
corporations: Ex parte White, 2 S. C. Ludeling, 21 Wall. (U. S.) 616.
184
COMPROMISE ARRANGEMENTS. [1 Thomp. Corp. § 277.
§ 276. Bondholder may Lose his Rights by Laches. — As
already suggested, the holder of» a corporate security, whether
shares of stock or mortgage bonds, may lose his rights to object
to a scheme of foreclosure and arrangement, by standing by
until the rights of third parties have intervened in such a manner
that the arrangement could not be broken up so as to place the
parties in statu quo. Thus, a bondholder of a former corpora-
tion has no standing in chancery to dissolve the present organiz-
ation of a railway company, for which his agent had voted his
bonds, in excess of his authority, and to enforce a different plan,
where it appears that he knew of what his agent was doing, did
not dissent from it, but accepted his share of the bonds of the
new organization, had offered to buy and sell them, and had
brought suit for them. Such conduct was justly deemed to be a
ratification of the act. It was also regarded as conduct inducing
others to believe that he acquiesced in the organization, and
hence such as worked an equitable estoppel against his disputing
it.* After a railroad has been sold, the sale confirmed, the new
corporation organized, its stock issued and passed into the hands
of the public, original bondholders, secured by the mortgage
which was foreclosed, will not be allowed to come into the case
for the first time, be made parties to it, reopen it, and object to
and impeach the decree of foreclosure and sale. They are rep-
resented in the litigation by the trustees^ and if it is proper for
them to be made parties at all, they should be made such prior
to the decree of foreclosure, at least prior to the decree confirm-
ing a sale. They cannot come in at the end of a long litigation
and be made parties to the suit, and be treated in the double
aspect of persons who are parties to the suit, and who have all
the rights of parties from the beginning and also of persons who
were not parties to the suit and whose rights have not been fore-
closed. ^
§ 277. Rights of Holders of Income Bonds. — The holder
of bonds of a railroad and telegraph company, wiiichare secured
upon the income to be derived from sales of the lands of the
company and from the operation of its road and line, retains,
1 Matthews v, Murchison, 15 Fed. ^ Wetraore v. St. Paul &c R. Co., 5
Rep. 691. Dill. (U. S.) 531, per Miller, J.
185
1 Thomp. Corp. § 378.] reorganization.
after the consoliiUition of the company with another, a specific
lien upon the income derived from the property which has gone
from his debtor into the hands of the new company, and he may
maintain a bill in equity to enforce it after default in payment
of the principal of the bonds, or of the interest according to
their tenor. ^ Nor will the new company be liable for expenses
incurred in operating the property between the date of the fore-
closure and the organization of the new company, unless its pos-
session of the property is affirmatively shown. The presump-
tion in such a case will be that the purchaser at the foreclosure
sale, and not the company organized to acquire and operate the
property, was in possession during this interval and down to the
time of filing the certificate of reorganization. ^ On the other
hand, the old company is not liable for an obligation incurred in
operating the road after the foreclosure sale, provided the pur-
chaser has in point of fact taken possession.^
§ 278. Effect of Transforming a Partnership into a Cor-
poration. — The effect of transforming a partnership into a
corporation is such that, as soon as the life of the corporation
commences, the property ceases to be partnership property; the
partners cease to be partners and become shareholders; their
lien on the partnership property ceases and their character as
shareholders begins ; so that those who claim through a share-
holder cannot set up such a lien. A corporation, formed by
and consisting of the members of a partnership for the pur-
pose of conducting the partnership business by means of the
partnership property, takes the latter freed from equities sub-
sisting among the partners, all of which are settled and extin-
guished by the transfer of the assets from the partnership to
the corporation.* Such a transfer does not, however, divest any
equities which creditors may have in respect of the partnership
assets.^
• Rutten V. Union Pacific R. Co., 17 •* Francklyn v. Sprague, 121 U. S.
Eed. Rep. 480. 215. See Hoyt u. Sprague and Franck-
2 Pittsburgh;&c. R. Co. v. Fierst, 96 lyn v. Sprague, 103 U. S. 613.
Pa. St. 144. ^ Francklyn v. Sprague, 121 U. S.
3 Wellsborough &c. Plank Road Co. 215, 229.
-». Griffin, 57 Pa. St. 417.
186
UNDER GENERAL LAWS. [1 Thomp. Corp. § 279.
§ 279. Abortive Corporations Re-incorporated under a Gen-
eral Law. — A company, organized under a charter which is void
because passed in violation of a constitutional inhibition, may
save its rights, so far as such rights are conferred in a general
statute relating to companies of the like kind, by reorganizing
under such general law.^ In like manner, where a company has
become incorporated under one statute, but has never entered
upon business in the corporate character thus assumed, it may,
it has been held, without taking any steps to dissolve such incor-
poration, afterwards proceed to incorporate anew under a differ-
ent statute, and may under the latter statute acquire a valid
corporate character.^ A statute of Minnesota declares that
"any existing corporation, association or society, transacting
business of life, endowment, or casualty insurance upon the co-
operative or assessment plan and incorporated under the laws of
this State, may re-incorporate under the provisions of this act,
by filing," among other things, a prescribed declaration, exe-
cuted by "a majority of its board of directors, trustees or
managers." This statute has been held to be applicable to asso-
ciations whose attempted incorporation under prior statutes had
been unauthorized and ineffectual.^ In line with the principle
already explained in regard to the acceptance of amendments of
special charters by the directors, followed by user by the cor-
poration of the powers therein grunted,* it has been held that,
where a majority of the directors of an association which has
attempted to incorporate under a prior statute, but failed because
its objects were not authorized by such statute, proceed under a
new statute to effect a re-incorporation, so to speak, or rather an
originally valid incorporation, and the association thereafter acts
as a corporation, — it will be presumed, in proceedings of quo
warranto on the part of the State to test the question of its right-
ful corporate existence, that such action of the directors was
authorized by the other members of the association.^
1 Southern Pacific R. Co. v. Orton, » State v. Steele, 37 Minn. 428.
« Sawy. C. C. (U. S.) 157. * Ante, § 80.
2 Hyde v. Doe, 4 Sawy. (U. S.) 133. » State v. Steele, supra.
187
1 ThoQip. Corp. § 284.] names of cokporations.
CHAPTER YIII.
NAMES OF CORPORATIONS.
Section
284. Importance of the corporate
name.
285. Distinction between the names
of natural persons and of cor-
porations.
286. Acquired by usage and reputa-
tion.
287. Petition to change corporate
name.
288. Change of name by corporate ac-
tion.
289. Effect of changing corporate
name.
290. The corporate name in suits.
291. Misnomer of corporation in
pleading.
292. Effect of variances in corporate
name.
293. What misnomers amendable.
Section
294. Effect of misnomer of corpora-
tions in written obligations.
Misnomer in devises and be-
quests.
Corporation protected in use of
corporate name.
Illustrations.
Discretion of secretary of state
as to issuing certificates of in-
corporation for a corporation
having a similar name to one
already existing.
Illustration: "Kansas City real
estate exchange " — " Kansas
City real estate and stock ex-
change."
Prohibition in Missouri statute
against use of name of person
or firm.
295.
296.
297
298
299.
300.
§ 284. Importance of the Corporate Ifame. — Names are
necessary to the very existence of corporations. The corporate
name has been said to be " the very being of the constitution ;
the knot of their combination, without which they could not do
their corporate acts; for it is unable to plead and be impleaded,
to take and give, until it hath gotten a name." ^ A case is cited
below ^ where it is held that a corporate name, although acquired
by the organization of a corporation under a general law, ending
with a certificate of incorporation issued by the Secretary of
State, is in the nature of n francJiise and inviolable^ aXihoMgh.
wrongfully obtained, in the sense that it is an imitation of the
name of a previously existing corporation. But an examination
1 2 Bac. Abr. Corp. (C.) ; quoted in
Smith V. Plank Road Co., 30 Ala. 650,664,
188
« Post, § 296.
ACQUIRED BY REPUTATION. [1 Thomp. Coi'p. § 286.
of old precedents makes it doubtful whether the name of a cor-
poration can in a strict sense be regarded as a franchise, espe-
cially in view of Ihe fact that it may be acquired by usage or
reputation.^ Where individuals are allowed to incorporate them-
selves under general laws, by complying with certain forms and
conditions, they not unfrequently take to themselves a corporate
name at pleasure.^
§ 285. Distinction between the Names of Natural Persons
and of Corporations. — It has been said : " The name of a cor-
poration . . . designates the corporation, in the same man-
ner that the name of an individual designates the person. There
is this difference, however, that the alteration of a letter, or
transposition of a word, usually makes an entirely different name
of the person, while the name of a corporation frequently con-
sists of several descriptive words, and the transposition of them,
or any interpolation, or omission, or alteration of some of them,
may make no essential difference in their sense." ^
§ 286. Acquired by Usage and Keputation. — Besides their
true names, corporations may have and take by names of repu-
tation.* Thus, evidence was held to be admissible to show that
a body incorporated as " The Society for the Propagation of
the Gospel in Foreign Parts," was known as " The Church of
England Society ; " that its real estate was sometimes designated
■ 1 Post, § 286. In an old case in 2 gge Falconer v. Campbell, 2 Mc-
Salkeld, the following language is Lean (U. S.), 195, 198; Minot v. Curtis,
found: "My Lord Coke says, that a 7 Mass. 441.
corporation must have a name; but ' Newport Mechanics' Man. Co. v.
that must be understood to be either Starbird, 10 N. H. 123, 124, per Up-
expressed in the patent, or implied in ham, J.
the nature of the thing; as if the * Medway Cotton Man. Co. v.
King should incorporate the inhabit- Adams, 10 Mass. SUO; School District
ants of DaZfi with power to choose a v. Blakeslee, 13 Conn. 227; Reg. v.
mayor annually, though no name be Registrar, 10 Ad. & El. (n. s.) 839;
given, yet it is a good corporation by Episcopal Charitable Society v. Epis-
the name of mayor and commonalty, copal Church, I Pick. (Mass.) 372;
So the City of Norioich is incorporated Rex v. Morris, 1 Ld. Raym. 337 ; Reg.
to be a mayor and sheriffs, by the v. Bailiffs, 2 Ld. Raym. 1232; Dr.
charter ot Henry IV., and are called Ayray's Case, 11 Co. Rep. 19; Dutch
mayor, sheriffs, and commonalty." West India Co. v. Van Moses, 1
Anon., 1 Salk. 191. Strange, 612, 614.
189
1 Thomp. Corp. § 287.] names of corporations.
as " Church of England Lots ; " and, therefore, that it was en-
titled to certain lots of land thus designated in partition pro-
ceedings.^ So, the Queen's College, Oxford, had no name given
to it at its foundation, but having received its foundation and
several other benefactions from the Queen, it collected by repu-
tation the name of Queen's College, by which name it could sue
and be sued.^ So, a corporation may acquire a name by usage ; ^
and although the name of a corporation has been changed by an
act of the legislature, if the corporation continues to conduct its
business in its original name, and otherwise exclusively uses that
name after the passage of the act, it may, by usage, regain such
original name, and can be lawfully sued and proceeded against
in bankruptcy by that name.*
§ 287. Petition to Change Corporate Name. — Statutes ex-
ist in some of the States authorizing the judicial courts, upon a
petition by the corporation, for good reason shown, to change
the corporate name to some other name. Similarity of the pro-
posed name to that of an existing corporation is ground for
denying a petition for change of the name of a corporation.^
Under the New York statute ^ authorizing the court to permit a
corporation to change its name where it appears " that there is
no reasonable objection," the matter is discretionary with the
court. Though the Court of Appeals may think the court
below has been too cautious in refusing leave, for fear of
a possibility of confusion, this affords no ground for reversal.^
In Pennsylvania, the court will not change the name of a corpo-
ration unless good reason is shown ; and it is not a sufficient
reason that the new name proposed for a bank will be of assist-
1 Society «. Young, 2N. H. 310. new charter retains its old name: Reg.
2 Pits V. James, Hobart, 122, 124; v. Bailiffs of Ipswich, 2 Ld. Raym.
Dr. Ayray's Case, 11 Coke, 19, 20, 21. 1232, 1239.
The same point seems to have been * Matter of Manhattan Dispensary,
included in the judgment of the court 7 N. Y. St. Rep. 871 ; post; § 296.
in the case of the Dutch West India ^ N. Y. Laws of 1870, chap. 322.
Co. V. Van Moses, 1 Strange, G12, 614. ' Re United States Mercantile Re-
5 Smith V. Plank Road Co., 30 Ala. porting &c. Agency, 115 N. Y. 176; s.
650. c. 21 Northeast. Rep. 1034; 24 N. Y.
* Alexander v. Berney, 28 N. J. Eq. St. Rep. 548; affirming s. c. 22 N. Y.
90. When a corporation receiving a St. Rep. 494.
190
HOW CHANGED. [1 Tliomp. Corp. § 289.
ance among a certain nationality of the population.^ Under a
recent statute of that State ^ authorizing the improvement,
amendment, or alteration of the cJuirters of corporations, the
name of a corporation is apart of such charter, and may be al-
tered on proper application to the court. ^
§ 288. Change of Name by Corporate Action. — Where a
name has been given to the corporation by charter or statute,
this can not be changed by corporate action, either directly or by
user, without statutory permission.* But many of the general
laws of the States providing for the creation of corporations
contain provisions by which the name of the corporation may be
changed by corporate action. In Iowa, unless the rule has been
changed since the case below cited, a change in the name of a
corporation can only be effected by changing the articles of in-
corporation, and the best evidence of this change is the articles
themselves.^ In Illinois, the requisites of the certificate of the
president of a corporation showing a change of its name were
considered ; and it was held that, if the certificate showed that at
a special meeting of the stockholders of the company, held at its
office on a day named, and called in pursuance of the statute and
in strict conformity therewith, at which meeting over two-thirds
of the stock of the company was duly represented, a resolution
was unanimously adopted changing the name of the company to
another name stated, — is sufficient under the statute of that
State. «
§ 289. Effect of Changing Corporate Name. — In general,
it may be said that a changing of the name of a corporation has
1 Bank of North America, 2 Pa. terian Church of Bloomfleld, 111 Pa.
County Court, 97. St. 156.
2 Peun. Corp. Act of 1874, as M Dill. Mun. Corp. (4th ed.) § 178;
amended by Act of June 13th, 1883. Reg. v. Registrar, 10 Ad. & El. ("n.
8 Per Kirkpatrick, Att.-Gen. Re s.) 830; Sykes v. People, 132 111. 32;
Excelsior Oil Co., 3 Pa. County Ct. s. c. 23 N. E. Rep. 391. See Episcopal
184. The Pennsylvania act of April 20, &c. Society v. Episcopal Church, 1
1869, conferring on counties power to Pick. (Mass.) 371.
change the names of corporations, * Chicago &c. R. Co. v. Keisel, 43
applies to relifjious corporations^ and Iowa, 39.
is not repealed by Pennsylvania act ^ Anthony v. International Bank,
of April 29, 1874. Re First Presby- 93 111. 225.
191
[1 Thomp. Corp. § 290. names of corporations. *
no effect whatever upon the existence or identity of the corpo-
ration, or upon rights flowing to or from it ; ^ though it may have
the effect of introducing some additional averments in pleading
in particular cases.^ The corporation continues, as before, re-
sponsible for all the debts it had previously contracted.^ Sub-
scriptions to its capital stock are not invalidated,* but it msiy
sue and recover upon such contracts by its new name.^ If the
change of name takes place pending a suit, it has no effect upon
the rights of the plaintiff; ^ and if the suit is by a corporation,
and, pending the suit, there is a change of name, it will be too
late, after judgment, for the defendant to set up that there was no
such corporation, especially if he fails to make it appear that the
corporators accepted the new name.' When, by the terms of its
charter, a corporation is to be the successor of an insolvent cor-
poration, having the same functions, franchises, powers and
privileges, and is to become bound for the payment of certain
claims against the first corporation, an action of debt or as-
sumpsit may be maintained against the new corporation.^
§ 290. The Corporate Name in Suits. — It has been said
that the corporation can sue only in the name and style given to
it by law; ^ and it has been said that a company may sue and be
sued by its descriptive name.^'' But it seems that a corporation
1 Welfley v. Shenandoah &c. Co., Stage Co., 23 Me. 39, where the cor-
83Va. 768; Mayor of Scarborough v. porators " concluded to rub out and
Butler, 3 Lev. 237; Girard v. Phila- begin anew."
delphia, 7 Wall. (U. S.) 1; Corpora- ^ Keading v. Wedder, 66 111. 80;
tion of Ludlow v. Tyler, 7 Car. & P. Com. v. Pittsburgh 41 Pa. St. 278.
537; Attorney-General v. Wilson, 9 * Bucksport &c. R. Co. v. Buck, 68
Sim. 30, 48; Attorney-General u. Kerr, Me. 81; Greenville &c. R. Co. v. John-
2 Beav. 420, 429; Attorney-General v. son, 64 Tenn. (8 Baxt.) 332.
Corporation of Leicester, 9 Beav. 546; ^ Welfley v. Shenandoah Iron Co.,
Doe V. Norton, 11 Mees. & W. 913, 83 Va. 768; s. c. 3 S. E. Rep. 376.
928.
^ An action may be maintained ' Water Lot Co. v. Bank of Bruns-
against it in its new name by showing wick, 53 Ga. 30.
the fact that its name has been ^ St. Louis &c. R. Co. v. Miller, 43
changed without any change of its 111. 199; ante, §267.
corporate composition. Welfley v. ' Porter u. Nekervis, 4 Rand. (Va.j
Shenandoah &c. Co., 83 Va. 768. 359.
3 Deanv. La MotteL'-ad Co., 59 Mo. i" Drew w. Nat. Exchange Co., 1
523. Compare Longley v. Longley Pat. Sc. App, 953.
192
IN JUDICIAL PROCEEDINGS. [1 Tbomp. Coip. § 291.
may sue in the name which it has acquired by reputation or
usage, though it may not be the name designated in its charter.^
It nevertheless remains that it is unsafe for the pleader to de-
part from the legal name and to draw his pleading in the
popular name; for, as has been said by a Avriter of distinction,
" a name in a grant or obligation, to or by a corporation, may
be sufficient to enable the corporation to enjoy or to make it
liable, which would not be sufficient in an action by or ao-ainst
it." 2 It is pointed out by the same writer that, if the name of a
corporation is lawfully changed, and not the identity of the cor-
poration itself, the action should, in general, unless provision be
otherwise made, be brought in the new name.^ Thus, where a
town is merged into a city, and all the records and property of
the former are vested in the latter, an action on a written obli-
gation made to the town before the consolidation, should be
brought in the name of the city, and can not be brought in the
name of the town.* And if a written promise be made to a
corporation, by a name different from its corporate name, it may
sue in its true name, and allege that it is the party to whom the
promise or obligation was made,^ and an allegation that the de-
fendants acknowledged themselves to be bound unto the plaint-
iffs, by the description, etc., is equivalent to such an averment.^
§ 291. Misnomer of Corporation in Pleading. — The misno-
mer of a corporation in pleading is usually available only by plea
in abatement, and not by plea in bar; ^ nor is it a ground of non-
1 Ante, § 28G. s i Dill, Mun. Corp. (4thecl.),§ 181;
2 Dill. iMun. Corp. (4th ed.), § 181; citing Colchester v. Seabar, 3 Burr.
citing Cambridge University v. Arch- ISUtt; Keg. v. Ipswich, 2 Ld. Raym.
bishop of Yorli, 10 Mod. 208; Brittain 1232, 1238.
V. Newland, 2 Dev. & Bat. (N. C.)363; ^ pt. Wayne w. Jacljson, 7 Blackf.
lu.sane Hospital v. Higgins, 15 111. (Ind.) 36.
185; Berks County &c. v. Myers, 6 '- 1 Dill. Mun. Corp. (4th ed.), § 181 ;
Serg. & R. (Pa.) 12; Clark v. Potter citing African Society v. Varick, 13
County, 1 Pa. St. 159, 163; Porter v. Johns. (N.Y.)38; Trustees «. Reueau,
Blakely, 1 Root (Conn.), 440; Ken- 2 Swan (Tenn.), 94; Ft. Wayne v.
tucky Seminary y. Wallace, 15 B. Jackson, 7 Blackf. (Ind.) 36.
Monr. (Ivy.) 35; Romeo v. Cliapman, 2 ^ African Society v. Varick, mpra.
Mich 179; County Court v. Griswold, ' Burnham u. Savings Bank, 5 N.
58 Mo. 175; Carder v. Commissioners, H. 446
16 Oh. St. 353; Trustees v. Campbell,
16 Oh. St. 11.
13 193
1 Thomp. Corp. § 392.] names of corporations.
suit. It was so held where the true name of the cor[)oratioii
was " the mayor and burgesses of the borough of Stafford in the
County of Stafford," and the declaration laid the name as " tiie
mayor and burgesses of the borough of Statlbrd." ^ This ease
draws a distinction between the mere misnomer of a corporatiou
and the bringing of an action by a person altogether different,
or not in renim nahira. " When a corporation is sued, if the
name of the corporation is mistaken, materially and substan-
tially, the corporation cannot be affected by the proceedings.
There is, in these cases, a distinction made between a variance in
words and syllables only, and a variance in substance. If a cor-
poration be sued by a name varying only in words and syllables,
and not in substance, from the true name, — the misnomer must
be pleaded in abatement, otherwise it will not be regarded. But
if the name be mistaken in substance, the suit can not be regard-
ed as against the corporation." ^
§ 292. Effect of Variances in Corporate I^ame. — In a suit
upon a contract relative to the purchase of certain shares of stock, the
contract offered by the plaintiff in evidence disagreed with the plaint-
iff's declaration as to the name of the corporation ; but since the iden-
tity of the corporation was apparent from the recital in the contract
and from the records of the corporation, to which the contract referred,
this variance constituted no defense.^ - - - - In an action of
covenant, the plaintiff, a corporation by prescription, alleged a grant to
it by the defendant's ancestor under a name differing in some respects
from that by which it had been known during the past one hundred years.
Upon this point the court was clear that the deed of an ancestor describ-
ing a corporation by a certain name must be evidence against those who
claim from him that the corporation was then known by that
name.* - - - - Where a promissory note was given to " the presi-
dent, directors and company of the Newport Mechanics' Manufacturing
Company," instead of " the Newport Mechanics' Manufacturing Com-
pany," which was the true name of the corporation in whose favor the
note was intended to be drawn, — it was held that there was no such
variance as would preclude a recovery by the corporation suing by its
1 Mayor and Burgesses v. Bolton, ^ podge v. Barnes, 31 Me. 290.
1 Bos. & P. 39. * Mayor of Carlisle v. Blamire, 8
2 Burnhara v. Savings Bank, 5 N. East, 487.
H. 44G, 449, opinion by Ricliardson,
C.J.
194
IN JUDICIAL PROCEEDINGS. [1 ThoUip. Coip. § 293.
correct name.^ _ _ _ . The plaintiff, claiming to be a corporation
by the laws of New York, in Missouri sued by the name of ' ' The Bank
of Commerce." The articles of association, produced to prove the
plaintiff's right to sue as a corporation, declared that the name to be
used should be " Bank of Commerce, in New York." It was held that
the articles offered were not competent evidence to prove the existence
of a corporation bearing the name of the plaintiff. ^ - - - - In an
action against an incorporated bank, the writ described the defendants
by their corporate name of ' ' the president and directors of the Marine
Bank of Baltimore." The declaration ran against "the said Marine
Bank." The plea was that " the Marine Bank " did not assume, etc. ;
and the verdict and judgment used the corporate name. It was held, on
objections made to the declaration, that it was sufficient. ^ _ _ _ -
An ejectment was brought upon the demise of " the mayor, aldermen,
capital burgesses and commonalty of the borough town of Maiden."
The name of the corporation was " the mayor, aldermen, capital bur-
gesses and commonalty of Maiden." It was held that there was no
variance.* - - - - A judgment recovered against " the president,
directors and company of the Lafayette Insurance Company ' ' may be
sued upon as a judgment against the " Lafayette Insurance Company,"
the declaration averring that the judgment was recovered against the
defendants by the former name.^
§ 293. What Misnomers Amendable. — If the distinction
of an English case is attended to, that between the mere misno-
mer of a corporation and the bringing of an action by a person
altogether different from that named in the declaration, or by a
person not in existence,^ there will be no difficulty in solving the
question under what circumstances amendments ought to be al-
lowed so as to cure misnomers of corporations in pleadings. In
a well considered case in Alabama the court, after examining sev-
eral authorities, concluded " that the authorities adduced estab-
lish the conclusion, that there is a well marked distinction
between a misnomer, which incorrectly ?iame.s a corporation, but
correctly describes it, and the statement in the pleading of an
1 Newport Mechanics' Man. Co. v. * Doe v. Miller, 1 Barn. & Aid. 699.
Starbird, 10 N. H. 123. ^ Lafayette lus. Co. v. French, 18
2 Bank of Commerce v. Mudd, 32 How. (U. S.) 404.
Mo. 218. c Mayor & Burgesses v. Bolton, 1
3 Marine Bank v. Biays, 4 Harr. & Bos. & P. 39.
J. (Md.) 338.
195
1 Thomp. Corp. § 294.] names of corporations.
entirely different party. This conclusion being attained, the
question in this case is stripped of embarrassment." ^ The
distinction is that an amendment is always allowable, curing a mere
misnomer of the real i)arty which sues, but that an amendment
is not allowable introducing an entirely different party as plaint-
iff, unless such party may properly be introduced as the suc-
cessor in interest of the party originally bringing the action.
And the same rule would, it is supposed, apply, mutatis mu-
tandis, where a corporation is defendant.
§ 294. Effect of Misnomer of Corporations in Written
Obligations. — It is laid down in an old case^ that in all grants
by or to corporations, if there is enough expressed to show that
there is such an artificial being, and to distinguish it from others,
the body politic is well named, although there is a variance of
words and syllables. It is laid down by Chancellor Kent that
"a misnomer in a grant by statute, or by devise, to a corpora-
tion, docs not avoid the grant, though the right name of the
corporation be not used, provided the corporation really in-
tended it to be made apparent." ^ In the earliest American
treatise on the law of corporations it is said : " In a devise to a
corporation, if the words (though the name be entirely mis-
taken ) show that the testator could only mean a particular cor-
poration, it is sufficient.* And there is a general concurrence of
modern authority to the effect that "a misnomer or variation
from the precise name of the corporation in a grant or obligation
by or to it, is not material, if the identity of the corporation is
unmistakable, either from the face of the instrument or from
the averments and proof." '^ It was said by Gibson, J., that
1 Smitli V. Plank Road Co., 30 Ala. 323; Kentucky Seminary v. "Wallace,
650, 603. 15 B. Monr. (Ky.) 35; New York Cou-
2 10 Co. Rep. 135. ference v. Clarkson, 8 N. J. Eq. 541;
3 2 Kent. Com. 292. Pendleton v. Bank of Kentucky, 1 T.
4 Ang.& A. Corp. (1st ed.~), p. 379. B. Monr. (Ky.) 177; Medway Cotton
These propositions were quoted with Man. Co. v. Adams, 10 Mass. 360;
approval iu Vansant V. Roberts. 3 Md. People v. Love, 19 Cal. 676; African
119, 127, 128. Society v. Varick, 13 Johns. (N. Y.) 38
s 1 Dill Mun. Corp. (3rd ed.), § 179; Woolwich v. Forrest, 2 N. J. L. 84
cited with approval in Neely v. York- Bower v. State Bank, 6 Ark. 234
ville, 10 S. C. 141. To the same effect Pierce v. Somersworth, 10 N. H. 369
see Inhabitants v. String, 10 N. J. L. Douglas v. Branch Bank, 19 Ala. 659
196
IN CONTRACTS AND WILLS. [1 Thomp. Coi'p. § 295.
*' a departure from the strict style of the corporation will not
avoid its contract, if it substantially appear that the particular
corporation was intended ; and that a latent ambiguity may,
under proper averments, be explained by parol evidence in this,
as in other cases, to show the intention."^ In determining
whether or not the instrument, although misnaming the corpora-
tion, makes its identity apparent, the court will look, not only to
the languasre of the instrument, but will also consider surround-
ing circumstances? A good illustration of this prmciple is found
in a case where an individual had become the purchaser of a rail-
way, and thereafter took a lease of certain premises to be used in
connection with the railway, the lease being made to the railway
by its prior corporate name and not to the individual owner of
it. It was held that the lease was o-ood enouo-h as a lease to the
individual. "If he took the lease under that name, it would
bind him by the name he assumed, and it is immaterial that there
was no corporation of the name of the lessee." ^
§ 295. Misnomer in Devises and Bequests. — A misnomer
in a devise or bequest intended to be made to a corporation will not
make it void, hnt parol evidence may be resorted to to show what
corporation was intended.* The principle that parol evidence
Pittsburgh v. Craft, 1 Pitts. (Pa.) 77; Trustees v. Peaslee, 15 N. H. 317;
St. Louis Hospital v. Williams, 19 Mo. Bodmau v. American Tract Society, 9
609; People v. Runkel, 6 Johns. (N. Allen (Mass ), 447.
Y.) 334: Brock District v. Bowen, 7 2 Vansant ■;;. Roberts, 3 Md. 119.
Up. Can. Q. B. 471; Trenton &c. 3 Ecker v. Chicago &c. R. Co., 8
Road Co. V. Marshall, 10 Up. Can. C. Mo. App. 223, 226.
P. 337; Whitby v. Harrison, 18 Up. * Hornbeck v. American Bible
Can. Q. B. COS; Bruce v. Cronar, 22 Society, 2 Sandf. Ch. (N. Y.) 133;
Up. Can. Q. B. 321 ; The Case of General Lying-in Hospital v. Knight,
Mayor &c. of Lynne Regis, 10 Co. 21 L. J. (Ch.) 537; s. c. 11 Eng. L. &
Rep. 120, 122; Mayor of Carlisle v. Eq. 191; Winslow v. Curaraings, 3
Blamire, 8 East, 487; Rex v. Croke, Cush. (Mass.) 358; Telfair y. Howe,
Cowp. 29; Beverley u. Barlow, 10 Up. 3 Rich. Eq. (S. C.) 235; Carter ■;;.
Can C. P. 178; Re Goodwin u. Ottawa Balfour, 19 Ala. 814; Brewster v.
&c. R. Co., 13 Up. Can. C. P. 254. McCall, 15 Conn. 274; Ayres v. Weed,
1 President &c. v. Myers, G Serg. 16 Conn. 291. The rule is analogous
& R. (Pa.) 12. See also Milford &c. to the rule that, in applying the clause
Co. V. Brush, 10 Oh. Ill; Newport of & deed to the land, parol evidence
Mechanics' Man. Co. v. Starbird, 10 is admissible, and the question be-
N. II. 123; Society for Propagating comes a question of fact for a jury,
the Gospel v. Young, 2 N. H. 310; 1 Thomp. Tr., § 1461, ei seq.
197
1 Thomii. Corp. § 296.] names of corporations.
may be resorted to is peculiarly applicable, where there are two
associations of the same name which is used by the testator.*
Indeed, a devisee may be designated by description, as well as
by name ; and such a description is as available in the case of a
corporation as in the case of a natural person.^ Illustrations of
this principle will be given hereafter.'
§ 296. Corporation Protected in Use of Corporate Name. —
The name of a corporation is a necessary element of its exist-
ence, and, aside from any statute, the right to its exclusive use
will be protected, upon the same principle which protects persons
in the use of trade-marks.'^ An injunction may be granted, by
analogy to the law of trade-marks, to a corporation, to restrain
persons from adopting and using the same corporate name with
that previously adopted, regularly and in good faith, by complain-
ant; ^ or an injunctive order may require a sufficient modification
of the name to prevent confusion and obviate just objection. «
The same principle has been acted upon in respect of the organiz-
ation of companies in England, under the companies act of 1862.
A company, not registered under that act, can restrain the
registration of a projected new company, which is intended to
carry on the same business as the unregistered company, and to
bear a name so similar to that of the unregistered company as
to be calculated to deceive the public.^ Such a restraining order
can, however, be avoided, by the defendant giving an undertak-
ino- not to carry on business in the threatened name, but to
assume another name which will not lead to confusion.^ The
English courts proceed upon the view that the principles
applicable to individuals trading under identical or similar names
apply equally to companies. They have never taken up with
the untenable view that the name of a company, organized under
1 Bodraan v. American Tract 1 Deady (U. S.), G09; Holmes v.
Society, 9 Allen (Mass.), 447. Holmes &c. Manuf. Co., 37 Conn.
2 Brewster v. McCall, 15 Conn. 274. 278.
3 Post, Ch. 127, Art. I. " Ex parte Walker, 1 Tenn. Ch. 97.
< Boone on Corp., § 82; Newby u. ' Hendricks v. Montagu, 17 Ch.
Oregon &c. R. Co., 1 Deady (U. S.), Div. 638.
609 ; Ex parte Walker, 1 Tenn. Ch. 97 ; » Guardian Fire &c. Ass. Co. ».
s.c. 9 Am. Rep. 324. Guardian and General Insurance Co.,
5 Newby v. Oregon &c. R. Co., 50 L. J. Ch. 253.
198
PROTECTED IN EQUITY. [1 Tiiomp. Corp. § 296.
the companies act of 1862, is afranchise^ so that it can do busi-
ness under the name, although it is a name identical with that of
a previously existing company, or so nearly identical with it as
to produce confusion between the two companies in the minds
of the public, and so work a fraud on the prior company. If,
therefore, a company has been registered under the same name as
a prior company, it may be restrained from carrying on business
under the same or a similar name.^ But a Federal court can not
interfere to prevent the organization of a corporation bearing the
Slime name as that of a foreign corporation doing business in the
State. ^ The theory of this decision is that it is not competent for
the Federal courts to interfere with the officers of the States in the
exercise of their powers in creating corporations. Neither will
a State court, according to an untenable view, entertain a pro-
ceeding to oust a youngercorporation of its right to use a certain
name on the ground of interference with the name adopted by
an older corporation, — for the reason that a corporate name,
although acquired under a general law in the mode there pointed
out, is in the nature of a franchise , which can no more be im-
peached by private persons than can the franchise to be a cor-
poration.^ The theory of this decision is that the certificate
granted to a corporation by the Secretary of State, as provided
by statute, is conclusive, not only of its right to be a corpora-
tion,* but also of its right to be a corporation under the name
designated therein. Under this theory there would seem to be
no remedy whatever for such an infringement, — not even in a
suit by the State at the relation of the attorney -general. A tech-
nical course of reasoning, which leaves a wrong of this kind with-
out any remedy, is not creditable to any system of jurisprudence.
The better view is that the right of an existing corporation to
1 Merchant Banking Co. v. Mer- 2 Lehigh Valley Coal Co. v. Ham-
chant's Joint Stock Bank, 9 Ch. Div. blen, 23 Fed. Rep. 225. Quaere,
5G0. The companies act of 1802 pro- whether, after organization, it could
vides (§ 20) that •' no company shall interfere to prevent the use of the
be registered under a name identical name in fraud of the rights of a for-
with that by which a subsisting com- eign corporation. Ibid.
pany is already registered, or so ' Boston Rubber Shoe Co. v. Bos-
nearly resembling the same as to be ton Rubber Co., 149 Mass. 4;{().
calculated to deceive," except in cer- * Rice v. National Bank, 12G Mass.
tain cases. 300.
199
1 Thonip. Corp. § 297.] names of corporations.
the use of its corporate name, which is in the nature of a trade
name, cannot be infringed by a subsequent act of incorporation
by the legisbiture, either by the direct grant of a charter to a
coiporation to be organized under a similar name, or through a
ministerial officer of the State in g-rantino; a certificate of incor-
poration to a body of adventurers having a similar name. The
right of doinof wrous; and of committino; fraud cannot, althou2;h
thus conferred by or under a statute, be of such a sacred charac-
ter as to be beyond the corrective power of the judicial courts.
While the Massachusetts case may have been well decided on its
facts, the better view of the ruling principle is that, while the use
of a corporate name similar to that of a previously created corpo-
ration cannot be enjoined, if its adoption and use have proceeded
in good faith and without a.ny fraudulent intent, yet that, if its
adoption and use have proceeded with the fraudulent intent of
appropriating the trade of the prior corporation, by deceiving
the public and producing a public confusion between the two
corporations, the use of such name will be enjoined;^ though to
warrant such relief the fraudulent intent ought to be established
by very satisfactory proof .^ It is also a view worthy of consid-
eration that, where the State has granted to one cor[)oratiou the
right to use a particular name, that grant is a contract, and that
the obligation of the contract is impaired by a subsequent grant
by the State to another corporation to use a similar name; so
that the subsequent grant, whether emanating from a special
charter or accruing under a general law, is beyond the power of
the State, under the Federal constitution, and hence necessarily
subject to the corrective jurisdiction of the courts.
§ 297. Illustrations. — A manufacturing corporation existed under
the laws of Counecticut, which took its name from its principal stock-
holders, and whose names were Holmes, Booth and Haydens. Several
of the corporators and directors of this corporation organized another
corporation under the name of " The Hohnes, Booth &, Atwood Manu-
facturing Compan}^," for the purpose of carrying on the same business
as that done by the former corporation. On petition of the old corpora-
tion, the new corporation was enjoined from carrying on business under
1 Plant Seed Co. v. Michel Plant & ^ ma,^ 37 Mo, App. 313.
Seed Co., 23 Mo. App, 579; s. c, on
second appeal, 37 Mo. App. 313.
200
PROTECTED IN EQUITY. [1 Thomp. Corp. § 297.
the name which it had assumed. The court, speaking through Carpen-
ter, J., said : " The law ha\iag authorized the selection of a name, and
having declared the name so selected to be the name of the corporation,
we see no reason why the law should not protect the corporation in the
use of that name, upon the same principle, and to the same extent, that
individuals are protected in the use of trade-marks. Hence, it neces-
sarily follows that corporations, in the exercise of discretionary powers
conferred by the statute, must so exercise them as not to infringe upon
the established legal rights of others." ^ . _ _ - In a Federal case,
a corporation was enjoined from using as their corporate name the words
"The Oregon Central Railway Company," there being a prior corpora-
tion having that name. ^ - - - - The coi-porate ?ia?>ie, the " United
States Mercantile Reporting Company," is infringed by the use of the
name " United States Commercial Agency & Collecting Company," by
a corporation engaged in the same business as the former ; and a company
will hence not be allowed, on a petition for change of name, to take the
latter name.^ - - - - A bill filed by a stockholder in a long-estab-
lished corporation, alleging that a corporation several years old, of which
plaintiff was also a stockholder, and having for a corporate name the
same name as had been for many years used by the first corporation as
a trade name, had, contrary to representations made by its manager and
treasurer to plaintiff when he induced him to purchase stock, deter-
mined to engage in the same business as the older corporation ; that the
latter' s trade name would be infringed thereb}' ; that the younger com-
pau}'^ would be at great expense in defending infringement suits by the
other company; and that plaintiff's stock in both corporations would
therefore decrease in value, — cannot be maintained, either against the
younger company, to enjoin its embarkation in the new business, or
against its treasurer and manager, to prevent his voting therefor, or for
general relief.'* - - - - A company claiming to have been in-
corporated under the laws of Michigan, commenced doing business in
Illinois, under its assumed corporate name. Subsequently, another
company became incorporated by the same name, under the laws of
Illinois, and commenced business in the same city in that State where
the former company was established. The gecond company then brought
a bill in equity to enjoin the prior company from the use of its assumed
corporate name, alleging that its corporate character no longer existed,
1 Holmes, Booth & Haydens v. » Re U. S. Mercantile Reporting &c.
The Holmes, Booth & Atwood Mfg. Assoc, 22 N. Y. St. Rep. 494; s. c. 4
Co., 37 Conn. 278; s. c. 9 Am. Rep. N. Y. Supp. 916.
324. ^ Converse v. Hood, 149 Mass. 471 ;
2 Newby v. Oregon &c. R. Co., 1 21 North East. Rep. 878; 17 Mass. L.
Deady (U. S.), 609. Rep. 18; 26 Am. & Eng. Corp. Cas. 118.
201
1 Thomp. Corp. § 298.] names of corporations.
but that it had been ousted of its corporate franchises by a proceeding
in the State of Michigan, and that it had made an assignment and no
longer acted as a corporation. It was held that this disclosed no ground
for the relief sought. Whether the defendants were a corporation was
immaterial, nor was it material whether or not their original incorpora-
tion was legal ; since the}^ still had a right to prosecute their business as
partners under the name which they had originally adopted, and the
subsequent organization of the plaintiffs into a corporation by the same
name could give them no equity to have the defendants enjoined from so
doing. 1 - _ . - Where an English company existed under the
name of "The Merchant Banking Company of London, Limited,"
and thereafter another company was registered under the statute with
name of " The Merchants' Joint Stock Bank, Limited," and estabhshed
itself in business in another place in London, and there was no fraud, an
injunction was refused. ^ - - - - A loan and trust company, which
has taken the name of the State in which it does business as a part of its
corporate name, has been refused an injunction restraining a similar
use of the name of the State by another loan and trust company doing
business at a point 100 miles distant, the proof not showing a conflict of
interest, or that the business transacted by defendants would materially
interfere with plaintiff's business.^
§ 298. Discretion of Secretary of State as to Issuing Cer-
tificate of Incorporation for a Corporation having a Similar
Name to one already Existing. — By the statute of Missouri
relating to the organization of corporations it is provided : " No
certificate of its incorporation, or certificate of its change of cor-
porate name, shall be issued by the Secretary of the State, to
any company or association: First, under the same corporate
name and style as that already assumed by another corpora-
tion," etc.* Another section of the same statute provides in
detail of what the articles of association shall consist. It is then
made the duty of the Secretary of State to give a certificate that
the corporation has been, duly organized, and that certificate is
made evidence of the corporate existence of such corporation,
in the courts. That section, among other things, declares that
1 Ottomau Cahvey Co. u. Dane, 95 Div. 560; s. c. 47 L. J. Ch. 828; 26
111. 203. Week. Rep. 847.
2 Merchant Nat Banking Co. v. ^ Nebraska Loan & Trust Co. v.
Merchants' Joint Stock Bank, 9 Ch. Nine, 27 Neb. 507.
4 R. S. Mo. 1879, § 762.
202
INTERFERENCE PREVENTED. [1 TllOmp. Coi'p. § 299.
the articles of agreement shall set out " the corporate name of
the proposed corporation, which shall not be the name of any
corporation heretofore incorporated in this State for similar pm*-
poses, or an imitation of such name." ^ Under this statute it is
held that, while the duty thus imposed upon the Secretary of
State is a ministerial one, yet it is not a sound view that he can-
not refuse to give the certificate of incorporation on the ground
of a similarity of the proposed corporate name to the name of
some existing corporation, unless the names are exactly the
same ; but that he has a discretion so far that he will not be
compelled by mandmnus to issue a certificate where the pro-
posed name so nearly resembles the name of an existing corpora-
tion that confusion on the part of the public would be likely to
arise between the two corporations.^
§ 299. Illustration: " Kansas City Real Estate Exchange "—
*' Kansas City Real Estate and Stock Exchange." — The court
therefore refused a mandamus to the Secretary of State to compel him
to issue a certificate of incorporation to ' ' The Kansas City Real Estate
Exchange," when there was another corporation duly organized and
located at the same place, and for the same purpose, by the name of
"The Kansas City Real Estate and Stock Exchange," to which the
Secretary of State had previously issued a certificate of incorporation.
The court said: " It is the evident purpose of our statute to protect, to
some extent, these common-law rights, and, to do this, both as to the
corporation first adopting the name, and as to the public, which maybe
misled by the similarity of the two names. It is difllcult to state a pre-
cise rule by which one name may be said to be an imitation of another,
in the sense of the statute. Where, however, the names so far resemble
each other, that a person using that care, caution, and observation which
the public uses, and may be expected to use, would mistake one for the
other, tlien the new name is to be regarded as an imitation of the former.
The character of the business, and the location of the two corporations,
must be considered. Now, in the present case, both corporations are
located in the same city. Both are created for precisely the same pur-
poses, i.e., to establish and maintain a place, with a suitable building,
for the public and private sale of real estate, stocks, and other property.
The only difference between the two names consists in the use of the
1 Ihid.,^ 762. Rep. 391; 36 Alb. L. J. 165; 2 Rail.
2 State ex rel. v. McGrath, 92 Mo. & Corp. L. J. 252.
366; s.c.b S. W. Rep. 29; 10 West.
203
1 Thomp. Corp. § 300.] names of corporations.
words ' aud stock.' These words appear in the name of the former
corporation, but are omitted in the name adopted by the relators. The
omission of them from the combination with the other words, it is be-
lieved, does not furni:;h a fair distinguishing feature. A reasonably
prudent person would be constantly liable to mistake the one for the
other. It is doubtless the purpose of both corporations to encourage
the public sale of property, real and personal, at their place of business,
under mortgages, deeds of trust, and the like, and the names ought
not to be so similar as to lead to confusion and litigation." ^
§ 300. Prohibition in Missouri Statute against Use of Name
of Person or Firm. — The Missouri statute touching the organization
of corporations provides: "No certificate of its incorporation, or cer-
tificate of its change of corporate name, shall be issued by the Secretary
of State to any company or association: . . . Second, when
the corporate name and style assumed is the name of a person or
trade firm, unless there be joined thereto some word designating the
business to be carried on, followed by the word ' company' or ' cor-
poration." The Missouri Secretary of State refused a certificate of in-
corporation to an association of persons who had assumed the name of
" Mallinckrodt Chemical Works." The Supreme Court awarded a
peremptory writ of mandamus to compel him to issue the certificate,
taking the view that the corporate name above assumed contained neither
the name of a person nor the name of a firm. The court say: " The
law supposes every person to be designated by two names, one a family
name, and the other the name given to him at his baptism, and denom-
inated his Christian name.^ The family name is that portion of the name
of an individual which is employed by him in common with other mem-
bers of his family, aud, therefore, fails to designate any particular
individual. 'Mallinckrodt' is a family name, and not the name of a
' person' or individual, and need not, therefore, be followed by the word
'company' or 'corporation.' The object of the statute in question,
undoubtedly was to prevent corporations from conducting business in
firm names and in the names of individuals, thereby misleading the
public into the behef that they are deahng with individuals, and are
entitled to the protection afforded by their personal Uabihty. The
name assumed in the case before us, contravenes neither the letter nor
the spirit of the statute." ^
1 State ex rel. &c. v. McGrath, 92 ^ state ex rel. v. McGrath, 75 Mo.
Mo. 355, 358. 424, 426.
2 Citing Frank v. Levie, 5 Robt. (N.
Y.; 599; Bac. Abr. vol. 7, p. 7.
204
IN GENERAL. [1 Thomp. Corp. § 305.
CHAPTER IX.
CONSOLIDATION.
Art. I. In General, §§ 305-337.
II. Effect UPON Shareholders, §§ 343-360.
III. Transmission of Rights and Liabilities of Constituent
Companies, §§ 365-390.
rV. Effect on Remedies and Procedure, §§ 395-410.
Article I. In General.
Section
305. Statutes providing for consolida-
tions.
306. California: Railroad companies.
307. Colorado.
308. Illinois.
309. Michigan: Railroad companies.
310. Missouri: Railroad companies.
311. New York: Railroad companies.
312. Ohio.
313. Pennsylvania.
314. Texas: Prohibitions.
315. Necessity of legislative action.
316. Legislature cannot compel eonsol-
idation of private corporations.
317. Validation by curative statutes.
318. Validation by legislative recog-
nition.
319. Consolidation with foreign cor-
poration.
320. Remains a domestic corporation
in each of the concurring
States.
321. Foreign law not transferred:
local law not displaced.
322. With what powers and liabilities.
523. Jurisdiction not parted with or
transferred.
Section
324. Selling out to a foreign corpora-
tion and taking its shares in
payment.
325. Illustration.
326. Power to consolidate a contract
right and inviolable,
327. What steps necessary to effect a
consolidation.
328. Distinction between consolida-
tion and agreement to consoli-
date.
Agreements which do not amount
to a consolidation.
By one company purchasing the
capital stock of the other com-
pany.
Railroad companies combining to
purchase another road.
When deemed fraudulent in law.
Illustration.
334. Contract of amalgamation an en-
tirety.
335. Caunot be rescinded without re-
storing consideration.
336. Obligation of tiic committee to
account for profits.
337. Decisions under special statutes.
329.
330.
331.
332
3^3
§ 305. Statutes providing for Consolidations. — Statutes
no doubt exist in most of the States providing for the consoli-
dation of railroad companies, and some of them extend the priv-
205
1 Tliomp. Corp. § 307.] consolidation.
ilege to other corporations. The leading provisions of a few of
these statutes have been collected, and are given merely as ex-
amples of the Amercian statute law on the subject. Owing to
the necessity of economizing space, it has not been found prac-
ticable to reproduce the exact language.*
§ 30G. California: Railroad Companies. — Two or more
raih-oad corporations may consolidate their capital stock, debts, prop-
erty, assets and franchises, in such manner as may be agreed upon by
their respective boards of directors. No such amalgamation or consol-
idation must take place without the wi'itten consent of the holders of
three-fourths in value of all the stock of each corporation ; and no such
amalgamation or consolidation must in any way reUeve such corporation
or the stockholders thereof from any aud all just Uabilities. In case of
such amalgamation or consolidation, due notice of the same must be
given by advertisement for one month in at least one newspaper in each
county, if there be one published therein, into or through which such
road runs, and also for the same length of time in one paper pub-
lished at Sacramento, and in two papers pubhshed in San Francisco.
And when the consolidation and amalgamation is completed, a copy of
the new articles of incorporation must be filed in the office of the Sec-
retary of State. 2 - - - - Mining companies are also permitted to
consolidate in this State. "^
§ 307. Colorado. — In this State ditch companies, mining companies,
telegraph companies and railroad companies may consohdate. The pro-
1 Recent statutes : Arkansas. — visions for the consolidation of rail-
Unjust discrimination aud exorbitant roads (Mill. & V. Stats., § 1272),
charges of railroads; consolidation amended, by including street railroad
with, leasing, or purchasing any par- corporations iu its provisions. Tenn.
allel or competing line; officers act- Act, March 20, 1887; Acts 1887, c. 189,
ing at the same time as officers of two p. 321. Certain specified ccrporations
such lines; or their being interested prohibited from consolidating, or ac-
in furnishing supplies to the same; quiring from each other, by contract
and discrimination between transport- or otherwise, the franchises or prop-
ation companies and individuals pro- erty of the other, except with the con-
hibited. Ark. Act March 24, 1887; sent of the municipal governments of
Acts 1887, No. 81, p. 113. Florida.— the cities or towns iu which they are
The consolidation of parallel or com- located or carry on their business,
peting Jines of railway, except when Tenn. Act, March 19, 1889; Acts 1889,
special authority is given by tlie State c. 70, p. 97.
Railroad Commission, prohiliited. Fla. ^ Deering Ann. Codes Cal. 1885,
Act, June 7, 1887; Acts 1887, c. 3745, Civ. Code, § 473.
No. 65, p. 117. Tennessee. —The pro- ^ ji^ia. § 3G1.
206
STATUTES. [1 Thomp. Corp. § 308.
cedure in the case of the different companies is substantially the same, the
statute relating to railroad consolidation being the most typical and most
technical. The steps to bring about a consolidation of railroad com-
panies are: (1.) That the directors of each company call a separate
meeting of the stockholders to vote on the proposition, and if it is
adopted by a vote of three-fourths of the stock of each company, the
consolidation is approved. The directors now elect their quota of new
directors, less one, who is supplied at a general meeting. (2.) A
certificate is prepared, setting forth the fact of consolidation, and all
matters necessary in an original certificate of incorporation. It is
signed by three stockholders of each company, is filed with the Secre-
tary of State and lodged for record in each county through which the
roads run. (3.) Tb.c directors of each of the old companies must
formally convey its property to the new company, and must call in its
stock and cancel it, and issue in lieu thereof stock of the new company ;
but the certificates of original stock must be produced by their holders,
or satisfactory e\'idence given of destruction, before the new certificates
are issued. The consolidated company assumes all the liabilities and
duties of the several companies ; but no pending suits or causes of
action shall be affected, nor shall any action or right of action abate.
Special notice to the public is required in case of the consolidation of
railroad and telegraph companies, and competing parallel lines of rail-
road or telegraph shall not consolidate. Domestic companies may
consolidate with foreign companies, (1) if permitted by the laws of the
State or territory of such foreign corporation; (2) if the line of the
home company reaches the State boundary, and forms a continuous or
connected line with the line of the foreign company; (3) if the two
lines be not parallel or competing lines; (4) provided, that the consol-
idated company shall not form a foreign corporation.^ This last pro-
vision is contained in the constitution of Colorado. ^
§ 308. Illinois. — By the statutes of Illinois it is provided: (1.) If
the board of directors, managers or trustees of a corporation shall desire
to consolidate with another, they may call a meeting of the stockholders
for the purpose of submitting the question of such consolidation to their
vote ; but not more than two companies can consolidate and they must
be corporations of the same kind, engaged in the same general business,
and in the same vicinity. (2.) Due notice of the meeting to consider
the question of consolidation must be given for thirty days, sucli as is
generally prescribed in case of special meetings, the call for which must
be signed by a majority of the board of directoi's, managers or trustees.
i Gen. Stat. Colo. 1883. 2 p^st, § 320.
207
1 Thomp. Corp. § 309.] consolidation.
( 3. ) The proposition for consolidation may be adopted by a vote, personal
orb^' pi'ox}', of two-thirds of all the shares. (4.) A certificate of such
fact, verified bj' the president by aflida\it, and under the seal of the
corporation, is to be filed in the office of the Secretary of State,
and also in the office of the Recorder of Deeds of the county of
the principal business office of the corporation. The consolidated com-
pany subjects itself to the general laws of the State relating to corpora-
tions. Public notice of the consoUdation in some newspaper must be
given for three weeks. (5.) Corporations not having a joint-stock may
effect such consolidation by a majority vote. (6.) Such consolidation
is not to affect suits pending in which either of the corporations are par-
ties, nor to affect causes of action, nor the rights of persons, in any par-
ticular ; nor shall suits abate against either corporation. ^ - - - -
When corporations chartered and organized under the laws of Illinois
consolidate, their property, stock or franchises with another company or
companies, the cousohdated company becomes hable for all debts or
liabilities of each of the constituent companies, existing or accrued prior
to the consolidation, and actions may be brought, maintained and re-
covered therefor against such consolidated company. ^ - - - - If
a railroad company desires to consolidate with any other railroad com-
pany, a notice of sixty days must be given before the meeting called to
consider the question and a general notice pubhshed for nine consecu-
tive weeks. No railroad company shall consolidate with another operat-
ing a parallel or competing hue. 3
§ 309. Michigan: Railroad Companies. — (1.) By the statute of
Michigan it is provided that any railroad company in that State, forming
a continuous or connected line with any other railroad company, may
consolidate with it, either in, or out or partly in and partly out of the
State, — pro\ided that companies owning parallel or competing lines
shall not consolidate. (2.) The steps required to effect the cousohda-
tion are, that the directors of two or more companies shall enter into an
agreement with each other under their corporate seals for a consolida-
tion, prescribing the terms, mode of effecting the union, name of the
new company, number of its directors, which shall be not less than six
nor more than fifteen ; names of the first directors, time and place of
the election of the new board, which shall not exceed six months after
the scheme of consolidation has received the sanction of the stockhold-
ers ; the number of shares of the new company, the capital stock, the
amount of each share, the manner of converting the shares of stock into
Mil. Aiiu. Stat. (Starr & Curt.) p. 2 jj^-j.^ p. (J27, § 65.
624, § 50. " Ibid., § 67.
208
STATUTES. [1 Thomp. Corp. § 310.
stock of the new company, together with other necessary details. (3.)
The agreement must be submitted to a vote of the stockholders, notified
by publication in some newspaper published in Detroit, and also in a
paper published in each county through which the raih'oad passes, for four
successive weeks, the first publication to be at least sixty days before the
vote is taken on the question of consohdation, the notice to be signed by
the secretary of the company intending to have such a meeting and
vote. At the meeting the scheme of consolidation may be adopted by
the votes of a majority in interest. (4. ) A copy of the contract of
consolidation must be filed, in accordance with an act " to provide for
the incorporation of railroad companies," passed February 12th, 1855,
and its amendatory acts, with theSecretary of State, and a certified copy
of it by the Secretary of State is evidence in all courts. (5.) The
companies are now merged in the new corporation, in pursuance of the
agreement of consohdation. All franchises and rights of every kind of
the old companies are transferred to and vested in the new company ;
but all rights of creditors, and Hens on property of either of the constit-
uent companies, remain unimpaired ; and the respective companies are
deemed to exist so far as necessary to enforce the same. AU debts,
habihties, and duties of either of the old companies attach to the new
and are enforcible against it, as though incurred by it.^
§ 310. Missouri : Railroad Companies. — By the Missouri stat-
utes it is provided: (1.) That two or more railroad companies, owning
railroads forming a continuous line, may consoHdate and form one com-
pany, owning such continuous road, with all powers, rights and privi-
leges and immunities, and subject to all obligations and liabilities of the
constituent companies. (2.) The steps to effect a consolidation are :
a. The companies enter into an agreement as to the terms and condi-
tions of the consohdation, and this is ratified by a majority in interest
of the stock in each company, at a meeting of stockholders regularly
called for that purpose, or by approval in writing of such majority in
interest. 6. A certified copy of the articles of consolidation is filed with
the Secretary of State, and a certificate from his oflHce is conclusive evi-
dence of the consolidation, c. The board of directors of the new com-
pany may thereupon carry out the contract of consohdation. (3. ) Only
continuous Unes of railroad can be thus merged, so as not to deprive the
public of competition, and any prohibited consolidation is void, and any
person may bring an action in the circuit court of any county through
* Howell Mich. Stat. 1882, §3343. only, and to he published ou)y in tlie
The notice of each company is to be counties through which its own road
signed separately by its own secretary passes. Wells v. Ilodgers, 60 Mo. 525.
14 209
1 Thomp. Corp. § 311.] consolidation.
which the raih-oad passes, which shall have jurisdiction to grant an in-
junction against it. (4. ) Companies must accept the provisions of article
2 of the general laws entitled "Railroad Companies," by a resolution
filed with the Secretary of State, signed by their respective presidents
and attested by their respective secretaries, and under the seal of the
corporation, — which resolution shall be passed by a majority vote of
the stock of each company, at a meeting called for the purpose, — sixty
daj's' notice of the time, place and purpose of the meeting having been
given in the newspapers in the county where its general office is located.
(5.) Competing or parallel lines may not consoUdate, nor may one such
corporation in any manner exercise control over the road of the other,
but each must be run and managed separately. The punishment for
a Aiolation of this provision is a fine and forfeiture of corporate fran-
chises.^
§ 311. New York: Railroad Companies. — (1.) In this State
railway companies may consolidate where their roads, or branches, or
any part thereof form continuous connected lines. This may be between
a company organized under the laws of New York or of New York and
any other State, and a company organized under the laws of New York
or of any other State. (2.) The steps taken to effect such a consolidation
are : a. The dkectors may agree to consolidate, by an agreement under
seal prescribing the terms, conditions and mode of consolidation, the
name of the new company, the number and names of its directors and
officers, the number and value of its shares, and all the details neces-
sary to perfect a consolidation ; but its capital stock shall not exceed
the sum of the capital stock of the constituent companies, nor shall bonds
or other evidences of debt be issued as a consideration for consolidated
roads. The scheme of consolidation is to be submitted to the stock-
holders of each constituent company at a meeting called to consider the
agreement. Due notice, specifjdng the object of the meeting, is to be
given for a stated time previous thereto. Votes at the meeting are to
be taken by ballot, and if two-thirds of the ballots favor consolidation,
the fact shall be certified under seal by the secretary of the company,
and a certified copy of the agreement so adopted shall be lodged with
the Secretary of State. A certified copy by the Secretary of State,
under his seal of office, is evidence of the corporate existence of the new
company, in all courts. (3.) The new company thus created becomes
one corporation, under the restrictions, disabilities and duties of its
several constituent companies, but limited to the power of exacting a
fare of two cents per mile for carrying passengers. (4.) It succeeds
1 Rev. Stat. Mo. 1889, § 2567.
210
STATUTES. [1 Thomp. Corp. § 312.
to all the rights, powers, franchises, rights of way, etc., of its constitu-
ent eonapanies. (5.) Liens and rights of creditors upon the property
of either of the constituent companies are preserved unimpaired, and
each constituent company is to be deemed to be still in existence for the
purpose of preserving the same. But all debts and liabilities, except
mortgages, shall attach to the new company and be enforced against it,
with the same effect as if incurred by it. No pending suits abate, but
may be prosecuted in the name of the former corporation, or the new
corporation may be substituted as a party. (6. ) The consolidated com-
pany is assessed and taxed, as to its lines within the State of New York,
as other railroad companies. (7.) It shall not, in any place, increase
the rate of passenger fare beyond the Umit above stated. (8.) This act
of consolidation does not apply to street railway companies. (9.) The
general act organizing and regulating railroad companies applies to con-
solidated companies. (10.) Parallel or competing lines cannot con-
solidate. ^
§ 312. Ohio. — In Ohio the following kinds of corporations may
consolidate : railway companies ; ^ magnetic telegraph companies ; ^
bridge companies ; * hydrauHc companies ; ^ turnpike or plank road
companies ; ® fire and marine insurance companies ; '' religious
societies ; ^ societies for the relief of farm laborers and other charitable
corporations. 9 The scheme of consolidation, prescribed by the statute
in respect of each of these companies, follows the form prescribed for
railroad companies as a type, and differs from it but little in details of
procedure. Insurance companies must file an agreement of consolidation
with the superintendent of insurance. Religious societies need give only
such notice as is usual for caUing together the congregation. Farm la-
borers' societies and charitable corporations, when consolidated, do not
assume the debts of the constituent corporations. These acts of consoli-
dation apply equally to other voluntary associations, but may apply to so-
cieties when incorporated. As to railway companies, a summary of the
provisions of the statute, is: (1.) When lines of the several companies
permit of a continuous passage of trains without a break or interrup-
tion from one to the other, the companies may consolidate ; and when
the line of a company reaches a boundary of the State and there forms
a continuous Une with the line of a company outside of the State, these
1 Rev. Stat. N. Y. (Banks & Bros. ^ m^,^ § 3566.
8th ed.) 1889, p. 1783, et seq. « Ibid., § 3506.
2 Rev. Stat. Ohio 1880, § 3379 et ' Ibid., § 3G71 et seq.
seq. 8 jijid.^ § 3777 et seq.
3 Ibid., § 3470. 9 Ibid., § 3846.
1 Ibid., § 3547.
211
1 Thoiii}). Corp. § 313.] consolidation.
companies may consolidate, and the fact that an unbridged river is in-
terposed as a barrier between them does not prevent a consolidation.
(2.) The steps to bring about such a consolidation are: a. The direct-
ors of the several companies form au agreement, fixing the terms of
union, the number of the directors of the new company, the amount of
its capital stock, number of shares and value of each, mode of convert-
ing the stock of the old companies into that of the new, and other
necessary details, b. This scheme is to be submitted to the stock-
holders of each company, at a meeting called for the purpose, of which
due notice is given, — though if all the stockholders are present they
may waive notice. A vote by ballot is taken, and if two- thirds of the
stock vote for the adoption of the scheme, the fact is certified by the
secretary of each company, and the certificate is lodged with the Secre-
tary of State. This completes the consolidation. The new company,
thus formed, possesses within the State of Ohio all the rights, property
and franchises, and is subject to all the restrictions and duties of the
constituent companies, c. An election is held, upon due notice, for the
first board of directors. (3.) The new company now assumes all the
debts, liabihties and duties of the former companies, except liens,
mortgages, etc., which are preserved unimpaired; and the several
companies are deemed to be still in existence for the purpose of their
enforcement. (4.) The new company must establish its principal
office and give public notice of it, and may sue and be sued as other
corporations ; and its road, situated within the State of Ohio, is subject
to taxation. (5.) Stockholders in the old companies, who refuse to
have their shares converted into those of the new, shall be paid the
highest market price for them which has obtained within six months
previous to the consolidation ; or if no agreement as to the price can
be reached, it is to be submitted to arbitration. (6.) A cei'tified copy
of the agreement of consolidation, from the office of the Secretary of
State, is conclusive evidence of the consolidation in the courts.^
§ 313. Pennsylvania. — By the statutes of this State competing
pipe lines and telegraph lines may not consolidate ; and, in the case of
telegraph companies, a violation of this provision works a forfeiture of
franchises. The chapter relating to the consolidation of railway com-
panies is very extensive, but the provisions are substantially the same
as in other States. A summation of them is as follows : 1. Any rail-
road company chartered by this State may merge with any like com-
pany or with any foreign railroad company, where the lines of such
companies unite so as to form a continuous line, intervening rivers being
1 Rev. Stat. Ohio 1880, §3379, etseg.
212
STATUTES. [I Thomp. Corp. § 313.
no obstacle ; and they may consolidate where there is a connecting
line. 2. The steps to effect such a consolidation are : a. An agree-
ment formed between the boards of directors, in substance the same as
that recited in the case of other States, b. This scheme submitted to
the stockholders of each company, at a separate meeting duly called,
and there subject to ratification by a majoi'ity vote of the stock, c. A
certificate of consolidation filed with the Secretary of State, and this
effects a merger of the companies. 3. The new company is possessed
of all the rights, franchises and properties of the constituent companies.
4. All liens and rights of creditors are preserved against the property
of the constituent companies to which they attach, which companies are
deemed to exist for the purposes of their enforcement. 5. All debts,
liabilities, etc., of the constituent companies attach to the new company.
If differences exist in the statutes regulating the respective companies,
the consoUdated company is to be governed by the laws regulating the
company into which the merger of the others has been made, — the
statute thus recognizing the fact that the consolidation may take the
form of an absorption by one company of several others, which, as
hereafter seen,i is a frequent form of consoUdation. A certified copy
from the office of the Secretary of State, of the instrument of consoUda-
tion, is conclusive evidence thereof in the courts. A dissatisfied stock-
holder of the constituent companies may apply to a court to have arbi-
trators appointed, who shall estimate the damages caused to him by the
consolidation, and the company may elect to pay him the market value
of his shares, unaffected by the consolidation, or the damages found by
the arbitrators, and he thereby becomes divested of his shares. The
finding of the arbitrators of damages acquires the force of a judgment
if not paid within thirty days. Executors, guardians or trustees of
owners of shares may agree to contracts of consolidation or to contracts
fixing the specific franchises to be given to the new company. The
consoUdated company may increase its capital stock as much as neces-
sary to carry the purposes of the merger into effect. It has power to
issue bonds, to mortgage its property, franchises, etc., as security there-
for, and to deliver the bonds in discharge of the debts of the respective
constitutent companies. Such bonds shall not exceed the whole amount
of the indebtedness of the constitutent companies, nor bear more than
seven per cent, interest. They are given in lieu, exchange, or satis-
faction of the debts of the old companies, on such terms and conditions
as the parties may make. If the consoUdated company is composed
of a foreign constituent, it must have an office in this State, and also be
subject to taxation, as to its road in this State, under the laws thereof.^
1 Post, § 330. 2 Bright. Purd. Dig. Penn. Stat., 11th ed. p. 1429, et seq.
213
1 ThoiUp. Coi'l). § 315.] CONSOLIDATION.
§ 314. Texas. — No general statute has been found in the statate
books of Texas authorizing corporate consoHdations, though no doubt
such consoUdations have been effected under special acts. There are in
that State, however, prohibitive statutes, which seem to take rise in the
constitution of the State, and are in the substance, — 1. That con-
solidation by lease, ownership, or the simple consolidation of compet-
ing or parallel lines of railroad, shall not be made. This prohibition is
enforced by fining the officers, managers, etc., who have any voice or
control of the corporations.^ 2. Consolidations between Texas corpora-
tions and corporations created by other States are absolutely prohibited. ^
3. Quo warranto proceedings shall be instituted against corporations
violating sections 5 and 6 of article X of the constitution of Texas,
containing the above prohibitions ; and if it is found that such violations
are taking place, the consolidations shall be perpetually enjoined, and
a receiver appointed to carry out the decree of the court.
§ 315. Necessity of Legislative Action. — As already pointed
out, a number of co-adventurers cannot constitute themselves a
corporation, by merely joining together and agreeing to become
such : it is necessary that they should have the authority of the
legislature to assume the franchise of being a corporation.^ The
consolidation of the funds of two incorporated companies, so as
to form a single corporation, has, generally speaking, the effect
of dissolving both the old corporations, as distinct entities, and
of creating a new corporation.* This new corporation can no
more be created without the sanction of the legislature, than
could either of the original constituent corporations.^ Accord-
ingly, it is held in England that, in the absence of any special
power for that purpose in their deeds of settlement, an amalgama-
tion between two joint stock companies is ultra vires and invalid,
and that the obligations and liabilities arising out of such at-
tempted amalgamation, and assumed by the directors of the pur-
chasing company, cannot be enforced against the shareholders of
such company.^ Where power is given by statute to one rail-
1 Sayle Civ. Stat. Tex., art. 4296. How. (U. S.) 441; Clearwater v.
2 Ibid., § 4247. Meredith, 1 Wall. (U. S.) 25, 39; State
3 Ante, § 35. v. Bailey, 16 Ind. 46.
•* Post, § 395, et seq. ^ Re Era Insurance Soc, 9 Week.
* New York &c. Canal Co. «. Ful- Rep. 67; s. c. 3 Law Times (n. s.)
ton Bank, 7 Wend. (N. Y.) 412; 314; 30 Law J. Eq. (N. 8.) 137; 6
Pearce v. Madison &c. R. Co., 20 Jur. (n. s.) 1334.
214
LEGISLATIVE AUTHORITY. [1 Thomp. Coip. § 316.
road corporation to consolidate with any other, whatever other
corporation it selects for a union, and finds willing to join it, has
power to unite with it, althongh such other corporation is not
named in the statute.^ But an agreement cannot be made by
which one railway company shall turn over its railway to be
worked by another company, unless the latter company pos-
sesses, under its governing statute, the power to receive and work
it; for the former company cannot delegate or transfer its
power to work the road to the latter.^ Where the power to
consolidate exists, and the essential steps pointed out by the
statute to effect a consolidation have been taken, the question
whether the new company has a legal existence, in view of a
doubt as to the legal existence of one of the preceding companies,
is one which cannot be determined by a proceeding instituted by
the stockholders, but only in a proceeding instituted by the
State. 3 This is an application of the principle hereafter con-
sidered,* that, where the circumstances are such that an assumed
corporation 7?^^^/^^ exist, the fact of its existence will not be tried
collaterally, but only in a direct proceeding instituted by the
State.
§ 316. Legislature cannot Compel Consolidation of Private
Corporations. — The legislature has no power to compel the con-
solidation or merger of corporations of a purely private char-
acter which have assumed no public duties,^ any more than it
can force private persons to become members of such a corpora-
tion.^ Nor can a private corporation, without taking some steps
for that purpose, become absorbed or merged in any new cor-
poration, so as to relinquish its former status, without taking
some corporate action, which fully authorizes such a result. And
1 Matter of Prospect Park &c. R. mortgage or sell its property to an-
Co., 67 N. Y. 371. other company.
2 Winch V. Birkenhead &c. R. Co., ^ j^qh „_ Pennsylvania &c. R. Co.,
16 Jur. 1035, 1037. Compare South — N.J.Eq. ; s. c. 10 Atl. Rep. 741 ; 9
Yorkshire &c. R. Co. w. Great North- Cent. Rep. 138; 2 Rail. & Corp. L. J.
ern R. Co., 3 De Gcx M. & G. 576; 476.
State V. Consolidation Coal Co., 46 * Post, § 505.
Md. 1. These last two cases affirm * Mason v. Finch, 28 Mich. 282;
the principle that, without legislative conceded in Pennsylvania College
authority, a railway company cannot Cases, 13 Wall. (U. S.) 190, 212.
« Ante, § 52.
215
1 Thoinp. Corp. § 318.] consolidation.
where there is a vohuitary association, e.g., a Masonic chapter,,
in existence, the mere fact that another body becomes incor[)0-
rated by the same name, does not merge the former in the latter^
or creiite any identity between the two. Such an essential change
in the character of an organization, involving such an accession
to its membership, cannot be had without some action denoting
unanimous consent.^ Nor would acquiescence, by the voluntary
association, in the claims of the corporation that it was identical
with it, in the absence of any special circumstances creating an
estoppel, operate to extinguish the separate existence of the
latter. Nor would acquiescence on the part of its officers bind
the members, except to the same extent that their actual agree-
ment to the same end would bind tliem. An act of a constituent
character of this kind cannot be taken by the officers merely, or
if taken by them must be ratified by the members, for they alone
could authorize it in the first instance. ^ But where there is a
reservation in the constitution of the State, allowing the legisla-
ture of the State " to alter, revoke, or annul any charter of in-
corporation thereafter granted, whenever in their opinion it may
be injurious to the citizens, ... in such manner, however,
that no injustice shall be done to the corporators," an act of con-
solidation, unless plainly unjust to some of the corporators, is
not unconstitutional on the ground of impairing the obligation
of a contract.^
§ 317. — Validation by Curative Statutes. — If the legislature
has power in the first instance to authorize the consolidation of
certain corporations, it has the power by a subsequent curative
act to validate their consolidation informally or irregularly
made.*
§ 318. Validation by Legislative Recognition. — On a
principle more fully discussed hereafter ^ an informal or def ect-
^ Mason v. Finch, 28 Mich. 282. 419. Compare Racine &c R. Co. v.
2 Ihid. Farmers' &c. Co., 49 111. 331. See
3 Pennsylvania College Cases, 13 also Fisher v. Evansville &c. R. Co.^
Wall. (U. S.) 190; affirming s. c. 7 Ind. 407, 413 (doctrine recognized) j
sub nom. Houston v. Jefferson College, post § 512.
63 Pa. bt. 428, 437. 5 Pos«, § 512.
* Mitchell V. Deeds, 49 111. 416,
216
LEGISLATIVE RECOGNITION. [1 Thomp. Coip. § 318.
ive consolidation may, in like manner, be validated by a subse-
quent legislative recognition.^ Thus, a railway corporation was
formed by consolidation of several railway corporations, neither
of which had any authority to construct its road in the city of
Chicago. Subsequently to the consolidation, the legislature
passed an act providing that the rate of speed of the consolidated
company (using the name which it had taken), " within the limits
of that city, should be under the control of the common council,"
etc. " This amendatory act," said Sheldon, C.J. , " is a legislative
recognition of this consolidated company, and of the name of the
consolidated company, adopted by the articles of consolidation,
amounting to legislative ratification of the consolidation which
has been effected; and it is also a like recoornition of the right of
the company to construct a railway within the limits of the city
of Chicago." The court accordingly held that the consolidated
company could proceed to condemnland for its route within that
city. 2 This principle has been applied, in a case where it was
necessary to the validity of a railway consolidation, that it should
be sanctioned by the concurrent legislation of the States of Con-
necticut and New York. A general lawof New York authorized
railroad companies, having continuous lines, to unite and form a
single corporation. A resolution of the legislature of Connecti-
cut provided that, whenever a company owning a road lying
partly within that State should be consolidated with any other
company in the State of New York, in pursuance of the laws of
that State, the new company should have all the rights, within
the State of Connecticut, which were possessed by the old com-
pany. With these laws in force, a railway company owning a
railway lying wholly within the State of Connecticut, and an-
other company owning a road lying partly within the State of
New York and partly within the State of Connecticut, attempted
a consolidation. The question having been made as to the
validity of its consolidation, on the ground that the roads did not
form a continuous line, as required by the laws of New York,
the legislature of that State passed an act recognizing the exist-
ence of the consolidated corporation, and validating and estab-
1 Mead v. New York &c. K. Co., 45 - McCauley v. Columbus &c. R.
Conu. 199. Co., 83 111. 348, 352.
217
1 Thomp. Corp. § 320.] consolidation.
lishing the aorreemeiit under which the consolidation had been
made. It was held by the Supreme Court of Connecticut that
this might be done, and that, when the legal existence of the cor-
poration in the State of New York became thus established, it
satisfied the requirements of the Connecticut statute, and the
new company became possessed of all the rights in the State of
Connecticut which had been possessed by the old company.'
§ 319. Consolidation with Foreign Corporation. — As al-
ready seen, there is no insuperable difficulty in the creation of
one corporation by the concurrent legislation of two States of the
Union,^ though there are theories that such legislation operates
to create two corpoi'ations, and not one.^ Pursuing that subject
further, we find that the old view was that expressed by Mr.
Justice Story at circuit, that, where two corporations, created
by the legislation of two States, for the purpose of constructing
a public improvement extending across the boundary between
such States, are united by new concurrent acts of the legislatures
of the two States, by which the stockholders of each are made
stockholders in the other, they do not cease to exist as distinct
corporations; that the effect of such legislation is a mere union
of stocks and interests, but not a merger of powers.^ This doc-
trine, it is to be observed, remained that of the United States
down to the year 1861,^ and still inheres in our jurisprudence
to a qualified extent.®
§ 320. Remains a Domestic Corporation in Each of the
Concurring States. — From the foregoing observations, we are
justified in the conclusion that a corporation created by the con-
current legislation of two or more States, exists in each of such
States as a domestic corporation of that State.' This conclusion
1 Mead v. New York &c. R. Co., 45 See also Farmers' Loan & Trust Co. v.
Conn. 199. Trust Co., 21 Abb. N. C. (N. Y.) 104.
2 Ante, § 47. ^ So held in Re St. Paul &c. R. Co.,
3 Ante, § 48. 36 Minn. 85. The constitution of Col-
* Furnum v. Blackstone Canal orado so provides in express terms,
Corp., 1 Sumn. (U. S.) 46. thus: " If any railroad, telegraph,
* Ohio &c. R. Co. V. Wheeler, 1 express, or other corporation or-
Black (U. S.), 297. ganized under any of the laws of this
^ Ante,^ il. Receo. Newport News State shall consolidae by tale or
&c. Co.,32W. Va.l64; 9S,E. Rep. 212. otherwise, with any railroad, tele-
218
WITH FOREIGN CORPORATION. [1 TllOllip. Coip. § 320.
is justified by a comparatively recent decision by the Supreme
Court of the United States, in a case where a railroad corpora-
tion, chartered in Connecticut, had bought the franchises and
properties of a railroad corporation created under the laws of
Connecticut and of Rhode Island. The legislature of Rhode
Island ratified the sale, and authorized the Connecticut company
to exercise the rights thus acquired. It was held that the Con-
necticut company thus became the successor of the consolidated
company, and, as to so much of its road as existed within the
State of Rhode Island, a corporation of that State. ^ This is
quite in conformity with the observation of the same court,
speaking through Mr. Justice Swayne, in a former case : *' Nor
do we see any reason why one State may not make a corporation
of another State, as there organized and conducted, a corpora-
tion of its own, quoad any property within its territorial jurisdic-
tion."^ It was reaffirmed by the Supreme Court of Illinois in
1868, that court holding that a contract of consolidation, validated
by subsequent legislation, created substantially a new corpora-
tion with a new name, but that such corporation, in a legal point
of view, remained a distinct corporation in each State. That is
to say, there was a Wisconsin corporation of a given name and
an Illinois corporation of the same name, although the officers
graph, express or other corporation under which a company organized
organized under any laws of any other under the laws of one State, and after-
State or territory, or of the United wards consolidated with a company
States, the same shall not thereby be- created by another State, might in-
come a foreign corporation, but the crease its capital stock, in pursuance
courts of this State shall retain juris- of the law of the State of its creation:
diction over that part of the corporate Attorney-General v. Boston &c. R. Co.,
property, within the limits of this 109 Mass. 99.
State in all matters which may arise, i Clark v. Barnard, 108 U. S. 436.
as if said consolidation had not taken 2 Railroad Co. v. Harris, 12 Wall,
place." Colo. Const, of 1876, art 15, (U. S.) 66, 82. That this may be done,
§14. One of the results of such a doc- seems to have been the view of the
trine is that the provisions of the law same court in the previous case of
of each of the States whose legisla- Ohio &c. R. Co. v. Wheeler, 1 Black
ture has concurred in creating the (U. S.), 297; ante, § 47. See also
united company, relating to the service Railway Co. v. Wliitton, 13 Wall. (U.
of process on domestic corporations, S.) 270; Railroad Co. v. Vance, 96 U.
applies to such a corporation. Re St. S. 450; Memphis «&c. R. Co. v. Ala-
Paul &c. R. Co., 36 Minn. 85. Cir- baraa, 107 U. S. 581.
cumstauces of concurrent legislation
219
1 Thomp. Corp. § 320.] consolidation.
and stockholders of both corporations were the same.* From
such a refinement it would seem to follow that, when the per-
sons comi)osing the two corporations acted in Illinois, there was
present a domestic corporation and also a foreign corporation, —
that is to say, they were there as an Illinois corporation and
also as a Wisconsin corporation ; and so, conversely, when they
acted in Wisconsin. The court, however, went so far as to
concede that " the principle that a single corporation cannot
be created by the joint legislation of two States, while an irre-
sistible inference, from the established law in regard to corpo-
rate bodies, is nevertheless a technical and abstract principle ; and
when adjoining States authorize consolidations, as in the present
instance, and the consolidated lines are placed under a common
board with a common name and seal, such board will naturally
act as one company; and when their contracts assume that
form, the courts must, for the protection of the public, and to
enforce good faith, hold, as we have done in this case, that the
contract is to be construed as made by the corporation of each
State in which the subject-matter of the contract lies: ut res
magis valeat quam pereat? The court accordingly held that
where, after such a consolidation, a mortgage had been made in
the name conferred upon the corporation by the legislation of
each State, by the officers of the corporation as consolidated,
upon the line of railroad of the corporation in Illinois, the mort-
gage would stand as the sole mortgage of the Illinois corporation,
and as such be legal and valid. ^ That such a corporation is a
corporation created by the laws of each of the concurring States,
cannot be denied ; and accordingly it has been well reasoned
that, for the purpose of taxation, a corporation created by the
concurrent legislation of the State of Illinois and other States is
a company, " incorporated under the laws of this State," within
the meaning of a statute of Illinois relating to revenue and tax-
ation.* Obviously, the effect of such legislation is not to dis-
place the local law of either of the States in regard to the mode
of condemning land, or of acquiring the right of way for the use
1 Racine &c. R. Co. v. Farmers' * Ohio &c. R. Co. v. Weber, 96 111.
Loan & Trust Co., 49 111. 331. 443 (following Quincy Bridge Co. v,
2 Ibid., p. 352. Adams County, 88 111. 615).
^ Ihid.
220
WITH FOREIGN COMPANY. [1 Thomp. Coip. § 321.
of the consolidated railway company thus created, nor to import
into a particular State a provision of the statutes of the other
concurrent States in that regard.^
§ 321. Foreign Law not Transferred : Liocal Law not Dis-
iplaced. — Such statutes do not transfer the law of one State to the
other, except permissively, nor displace the local law, unless otherwise
expressly provided. Thus, a statute of lUinois, authorizing the consol-
idation of a railway company created by the laws of that State, with
companies created by the laws of other States, contained the following
recital: " And the said corporation shall also possess all the faculties,
powers, authorities, immunities, privileges and franchises at any time
held by the said Pittsburgh, Ft. Wayne and Chicago Railway Company,
or by any of the corporations heretofore consohdated into the said
company, or conferred on the said company, the said corporations, or
either of them, by an act or law of this State, or of either of the States
of Ohio, Indiana or Pennsylvania, and shall have power and capacity to
hold and exercise within each and every of the said States, and so far
as it may be deemed necessary to the general objects of its business,
within any other of the United States, all the faculties, powers, author-
ities, pri\dleges, and franchises, and all others which may hereafter be
conferred upon it by or under any law of this State, or of any of the
aforesaid States, and to hold meetings of stockholders and directors,
and do all corporate acts or things within any of the aforesaid States, as
validly as it might do the same within this State ; and may consohdate
with any corporation of said other States authorized to hold, maintain
and operate the aforesaid railroad." It was held that this statute had
no reference to the subject of the acquisition of the right of way by the
company to which it related. The court said: "It relates purely, as
the language unmistakably shows, to the faculties, powers, authorities,
privileges and franchises which may be deemed necessary to the general
objects of its business within any other of the United States. It relates
to the corporation itself, and is designed to make it a unit in each and
all of the States in which its line is located ; but it does not assume to
affect the local law in regard to the mode of acquiring title to the right
of way. It has the same power and capacity to take and hold right of
way in this State that it does in the other States ; but the mode of
acquiring right of way is obviously very different from the capacity to
take and hold it. The control of streets, and the mode of regulating
their use, and the mode of executing and acknowledging deeds and
•effecting condemnations are matters of local law, affected, to some ex-
1 Pittsburgh &c. R.Co.v. Reich, 101 111. 157.
221
1 Thomp. Corp. § 322.] consolidation.
tent, by local constitutions, which it would doubtless be impossible ta
place under precisely the same law in each of these four States. At all
events, we feel quite confident no such attempt has been here made." ^
§ 322. With what Powers and Liabilities. — In respect of
the financial poivers possessed by the consolidated company, it
can be safely said that it succeeds to whatever power of issuing
bonds and mortgaging its property and franchises was possessed
by both of the preceding companies under their governing
statutes.^ But whether, in case the governing statute of one of
the companies conferred upon it larger powers than that con-
ferred by its governing statute upon the other, the united com-
pany would succeed to the larger class of powers, may be a
question of difficulty. Where the act of consolidation passed by
the legislature of each of the concurring States provided that the
holders of the stocks of the two companies should, when consoli-
dated, hold, possess and enjoy, all the property, rights and priv-
ileges and exercise all the powers granted to and vested in the
companies, or either of them, by that law or any other law or laws
of that State, or of the concurring State, — it was held that the
purpose of the two provisions was to vest in the new company
the rights and privileges which the original companies had pre-
viously^ possessed under their separate charters, — the rights and
privileges which one of the original companies had enjoyed in
the State of its creation, and the rights and privileges which the
other had in like manner enjoyed in the State of its creation, —
and not to transfer to either State or to enforce therein the
legislation of the other. The new company, after the consolida-
tion, stood in each State as the original company had previously
stood in that State, invested with the same rights, and subject to
the same liabilities. ^ As elsewhere seen,* specitic liens upon the
property of a railway company follow the property into the
hands of the new company after the consolidation. The effect
of the consolidation is not, unless otherwise provided in the
governing statute, to enlarge the rights of the lien-holders, and
1 Pittsburgh &c. R. Co. v. Reich, ^ Delaware Railroad Tax, 18 Wall.
101 111. 157, 174. (U. S.) 206.
2 Mead v. New York &c. R. Co., 45 * Post, § 365, et seq.
Conn. 199, 221.
222
WITH FOREIGN CORPORATION. [1 Thomp. Corp. § 324.
it is not competent for the leojislature to diminish them. ^ The
lien of a mortgage upon the road-way of one of the precedent
companies is therefore enforcible by a sale of such road-way, al-
though it may operate to sell a portion of a continuous line of
railway. Where the consolidation has assumed the form of a
purchase by the absorbing company of the line of the absorbed
railway, which line is covered by a mortgage, the purchasing^
company will be estopped from setting up the defense that the
effect of such a sale will be to sever their line.^
§ 323. Jurisdiction not Parted with or Transferred. —
Where, in such a case, the State, the railway of whose corpora-
tion is absorbed, under the permission granted by its statute, by
the foreign corporation, — grants, by the terms of such statute, to
the foreign State, no jurisdiction over the property which it thus
allows to be absorbed by the foreign corporation, an action can-
not be maintained in such foreign State to foreclose a mortsfase
existing prior to the consolidation, upon the property thus ceded
to the foreign corporation. It follows that the existence in the
foreign State, of a foreclosure suit, in respect of such domestic
property, is no bar to the bringing and prosecution of such an
action in the State which has authorized the absorption. This
ruling proceeds upon the principle that a State will not be con-
sidered to have parted with jurisdictional power without the
clearest expression of the fact.^
§ 324. Selling out to a Foreign Corporation and Taking its
Shares in Payment. — Consolidations have often taken the form
of a purchase and sale, — that is, a purchase by one corporation
of all the shares of stock of another corporation, payment being
made in the shares of the purchasing corporation.* Of course,
1 Eaton &c. R. Co. v. Hunt, 20 Ind. mortgage." Eaton &c. R. Co. v.
457, 464, per Perkins, J.; Gantly v. Hunt, 20 Ind. 457, 464.
Ewing, SHOW. (U. S.) 707; Scobey u. 3 Eaton &c. R. Co. v. Hunt, 20 Ind.
Gibson, 17 Ind. 572. 457, 460; citing to tlie principle just
2 For " it will not do for the com- stated, Newcastle &c. R. Co. v. Peru
pany to say that six miles of road &c. R. Co., 3 Ind, 464; Johns v. State,
could not be sold separately, they 19 Ind. 421.
having purchased it after it had been * Such was the scheme in the case
mortgaged separately, subject to the of Lauraau v. Lebanon Valley R. Co.,
30 Pa. St. 4G.
223
1 Thomp. Corp. § 325.] consolidation.
it is competent for the legislature to authorize one corporation
to become consolidated with a foreign corporation, in such a
manner as to place the control of the consolidated stock in the
board of directors of the foreign company.^ But this cannot be
done without legislative authorization ; and the statute author-
izing it ought to be express. Such a power will not be allowed
to arise upon a doubtful implication.^
§ 325. Illustrations. — Accordingly, it has been held that a corpora-
tion organized under the laws of New York has no power to transfer all
its property to a foreign corporation carrying on the same business,
taking in payment the stock of the foreign company, and thus termi-
nating its own existence. Nor can a majority of the stockholders bind a
dissenting minority by a scheme of this kind, which operates to dissolve
the domestic corporation and to transfer its property to the foreign one,
so as to escape that scrutiny into its affairs which is enjoined by the laws
of New York. In such a case a dissenting stockholder may maintain a
suit in equity to have the transaction enjoined and to have the corpora-
tion wound up. Said the court: " He became a stockholder under the
security of the New York law, and, when that is taken from him, at least
he should have the property of his corporation appUed to the payment
of its debts, and the surplus, if any, divided among the stock-
holders." ^ - . _ - Of course, what a ma/or% of the stockholders
cannot do, the trustees cannot do. Accordingly, on the dissolution of a
joint-stock corporation, it is the duty of the trustees to convert the as-
sets into money, and to distribute the proceeds, first to the creditors,
and then to the stockholders. They have no right to exchange the assets,
or any portion of them, for the stock of any other corporation, without
the consent of all the stockholders ; and a stockholder, not consenting
to such exchange, may recover of the trustees the value of his stock
thus wrongfully disposed of, on the theory of a conversion^
1 Kacine &c. R. Co. v. Farmers' &c. granted is withheld, and that any am-
Co., 49 111. 331. biguity in the terms of the grant
2 Thus, where a statute authorizes must operate against the corporation
railroad companies to Zease their prop- and in favor of the public. Or, as it
erties, but does not in terms author- has been expressed, that to be in
ize such a company to lease its prop- doubt is to be resolved, and every
erties to a railroad company created resolution which springs from doubt
by the legislature of another State, is against the corporation. Black u.
such a power will be held not to exist, Delaware &c. R. Co., 24 N. J. Eq. 456.
on the settled rule of construction, in ^ Taylor v. Earle, 8 Hun (N. Y), 1.
respect of legislative grants to cor- * Frothingham v. Barney, 6 Hun
porations, that what is not clearly (N. Y.), 366. That a shareholder has
224
HOW EFFECTED. [1 Thomp. Coup. § 327.
§ 326. Power to Consolidate a Contract Right and Invio-
lable. — The power given to a railroad company, by the statute of its
creation, to form a union by consolidation with other companies, has
been said to be a right in the nature of a contract, when the statute is
accepted and acted upon by the corporation, which cannot be subse-
quently withdrawn or substantially impaired by the State, in consequence
of the prohibition of the constitution of the United States. ^
§ 327. What Steps Necessary to Effect a Consolidation. —
It follows from what has just been said that a corporation, e.g.,
a railway company, by " associating, allying and connecting it-
self " with another, does not thereby become equitably " amalga-
mated " with it; 2 though two such companies may form, by
agreement, such traffic arrangements as to operate their roads as
a continuous line., and render either company liable to a passen-
ger for the loss of his baggage,^ or such as to render iheva jointhj
liable to shippers.* As in the case of the creation of a corpora-
tion under a general law,^ where two or more companies under-
take to consolidate, the essential steps pointed out by the statute,
in so far as they constitute conditions precedent, must be taken
before the consolidation is effectual and the new company comes
into existence. Thus, if the governing statute requires a
certificate of consolidation to be filed with the Secretary of State,
until this is done the new company does not exist.^ On the
a right to have the contract, embodied 5 Hill (N. Y.), 383; ante, § T-t; post,
in the articles of association, per/ormed § 343.
by the trustees according to its terms, ^ Zimmer v. State, 30 Arlj. 077, 680,
and that he has a right to the aid of a per Harrison, J.
court of equity to compel them to per- ^ Shrewsbury &c. R. Co. v. Stonr
form it,— as for instance to compel Valley Co., 21 Eng. L. & Eq. C28;2
them to wind up the company, dispose De Gex, M. & G. 8G6.
of its property and distribute its pro- ^ Hart v. Rensselaer &c. R. Co., 8
ceeds, as provided in the articles, al- N. Y. 37; Stralton v. New York &c. R.
though some different scheme might Co., 2 E. D. Smith (N. Y.) 184; Lee
be more profitable and more beneficial Lin v. Terre Haute &c. R. Co., 10 Mo.
to all the shareholders, — was held in App. 125, and cases there cited.
Mann «. Butler, 2 Barb. Ch (N.Y.)3G2. * Wyraan v. Railroad Co., 4 Mo.
That stockholders cannot be forced App. 95.
into relations with new corporations ^ Ante, § 226.
against their consent, see Blatchford ^ Commonwealth v. Atlantic &c. U.
w. RoKs, 54Barb. (N. Y.) 42. And com- Co., 53 Pa. St. !). Peninsular R. Co.
pare Hartford &c. K. Co v. Crosswell, v. Tharp, 28 Mich. 506.
15 225
1 Thomp. Corp. § 338.] consolidation.
other hand, as in the case of an original incorporation,' the fil-
ing of such an instrument is usually sufficient to constitute the
consolidated company a legal corporation within the state.''
But when it is proved that a certificate of consolidation was de-
posited with the Secretary of State, as provided by law, the
presumption is that the secretary filed the same of record and
that it remains of record, and a mandamus will, if necessary,
issue to the Secretary of State to add the date of filing, or to do
any other ministerial act in the premises required by the govern-
ing statute.^ Moreover, as in the case of an original incorpora-
tion,* unless the certificate in its recitals complies in substance
with the statute, there will be no incorporation. It was so held
under a statute of Ohio, where the certificate failed to state the
residence of the directors of the new company.^ Outside of the
making and filing of the certificate, the statute may impose con-
ditions precedent to the existence of the consolidated company,
as, under one statute,® the condition of the election of a board of
directors of the new company, until which the new company does
not acquire the rights and franchises of the precedent companies.''
Again, while in the case of an original incorporation,* the filing
of a duplicate, or copy of the certificate of incorporation, with
the Secretary of State, is generally not regarded as a condition
precedent to the existence of the corporation, — yet, under a
statute of Michigan, it has been held such in respect of the filing
of a duplicate of the agreement of consolidation between rail-
way companies.^
§ 328. Distinction between Consolidation and Agreement to
Consolidate. — Two things are of course necessary to the consolida-
tion of two or more corporations: 1. An enabling statute. 2. An
agreement between the consohdating companies that they will cousoU-
1 Ante, § 220, et seq. State v. Lee, 21 Oh, St. 662; State v.
2 Commonwealth V. Atlantic &c. R. Central &c. Asso., 29 Oh. St. 399;
Co., 53 Pa. St. 9. People v. Chambers, 42 Cal. 201.
3 Com. «. Atlantic &c. R. Co., 63 Pa. « Comp. Laws Mich. 1857, § 1996.
St. 9. ' Mansfield &c. R. Co. v. Drinker,
* Ante, § 221, 30 Mich. 124,
« State V. Vanderbilt, 37 Ohio St. « Ante, § 240.
590, 645. The court cited : Atlantic ^ Mansfield &c. R. Co. v. Drinker,
&c. R. Co. V. Sullivant, 5 Oh, St, 276 ; supra.
226
HOW EFFECTED. [1 Thonip. Coip, § 330.
date. In addition to this, there must follow the other steps pointed out
by the statute to make the consolidation effectual. An agreement to
consolidate at a future time is, of course, no consolidation, and will not
amalgamate the two companies under any circumstances until the time
arrives.^
§ 329. A^eements which do not Amount to a Consolida-
tion. — A mere alhance, or association, or traffic comiection hetween two
railroad companies, does not have the effect of consolidating them, even
in the \dew of a court of equity. ^ But where, under such an agreement,
one of the companies has acquired rights against the other in respect to
the use of its properties, as the right to the joint use of one of its stations^
a court of equity will interfere in its behalf to protect these rights, pro-
vided the occasion is grave and the complaining corapanj^ is otherwise
without remedy. In such a case, the court may direct a. partition of the
station, and appoint a receiver, if necessary. But where provisions exist
for the settlement of disputes on such subjects by arbitration, the court
will withhold its interposition until the remedy thus provided for has
been resorted to. ^
§ 330. By One Company Purchasing- the Capital Stock of
the Other Company. — Statutes authorizing the consolidation
of railway companies have sometimes taken the form of em-
powering one company to purchase the capital stock of the other
company. Such was held to be the effect of certain special
statutes of New Jersey. One of these authorized certain rail-
road companies to consolidate their capital stock. Another
authorized one of the companies, which had then mortgnged its
after-acquired property, to purchase the stock of the other com-
pany, in lieu of a consolidation of its own stock with the capital
stock of ihe latter. The purchase and delivery of the stock
were actually made, for the purpose of consolidation. An actual
consolidation took i)lace, and was completely recognized by the
parties in interest ; and the company whose stock had been sold,
thereafter ceased to exist, except as a mere matter of form, and
1 Shrewsbury &c. R. Co. v. Stour 3 j^j-^^, nphat contracts between
Valley R. Co., 21 Eng. L. & Eq. 628; 2 diffiTent companies for an amalgaraa-
De Gcx, M. & G. 80G. lion are in England recognized and en-
2 Shrewsbury &c. R. Co. v. Stour forced in equity, see Mozley r. Alston,
Valley R. Co , 21 Eng. L. & Eq. G28; 2 1 Pliil. Ch. 790.
De Gex, M. & G, SCG.
227
1 Thomp. Corp. § JJSl.] consolidation.
for the benefit of the other oompany. It was held that the sale
and delivery of the capital stock of the absorbed company was
a consolidation, in accordance with the provisions of the acts in
question ; that the covenant for further assurance as to sucli
after-acquired property contained in the mortgage, would be
specifically enforced; and that equity would in such a case supply
all the formalities.^ Such also was the effect of the statute under
consideration in an important case in Indiana, where the legis-
lature of that State authorized the consolidation of a railway
company of that State with a similar company of the State of
Ohio. The Indiana statute provided that " the corporate name,
franchises, rights, immunities and organization, of the Eaton
and Hamilton Railway Company [the Ohio Company] shall be
preserved and remain intact ; " and that " the name and organiza-
tion of said Richmond and Miami Railroad Company shall cease ; "
and that all the property, rights, etc., of the Richmond and
Miami Railroad Company, " are hereby conveyed to " " the said
Eatonand Hamilton Railroad." " It thus appears," said Perkins,
J., " that, by the act of consolidation, the exact existence of the
Ohio Company is continued, while that of the Indiana company
is extinguished, after all its property is transferred to the Ohio
Company. It comes to this : the Eaton and Hamilton Company
bought out the Richmond and Miami corporation, and now owns
a line of railroad, six miles of the western end of which is in
the State of Indiana, and which that corporation, though a for-
eign one, thus owns and operates under the authority of the law
of Indiana." ^
§ 331. Railroad CompaniesCombining to Purchase Another
Road. — Where a railroad company, by reason of a lack of
proper running arrangements with other roads, is unable to pay
its expenses, and it appears unavoidable that it must go to sale,
either under a mortgage or under a judgment obtained by its
general creditors, courts of equity see nothing wrong or fraudu-
lent in connecting companies combining and forming an
association for purchasing it, and for operating it, under such
' Williamson v. New Jersey South- '^ Eaton &c. R. Co. v. Hunt, 20 Ind.
em R. Co., 2G N. J. Eq. 398. 457, 462.
228
WHEN FRAUDULENT. [1 Thomp. Coi'p. § 332.
arransements as will give it through connections, and enable it
better to serve the public, and afford profit to its owners.^
§ 332. When Deemed Fraudulent in l/avv. — The rule of
equity being that the assets of a corporation are a trust fund for
its creditors, and it being the settled policy of these courts to
guard sedulously this fund, and to annul all arrangements and
devices whereby it is frittered away ,2 they will scrutinize with
jealousy any arrangement by which the assets of one corporation
are turned over to and swallowed up by another, leaving the
debts of the former unpaid and unsecured. Such arrangements
are justly characterized as against public policy, and as frauds
upon the law. The motives with which they have been made
will not be regarded as a question of much concern; the result
will be justly looked to, for the purpose of determining whether
the transaction shall be permitted to stand or fall. Care must,
of course, be taken to discriminate between arrangements of this
kind done by the directors of the selling corporations, in breach
of their trust and in fraud of the rights of its creditors, and
bona fide amalgamations of corporations, accomplished in pur-
suance of law, through the proper corporate action, in which
case the assets of neither of the amalgamating corporations are
withdrawn from its creditors, but the amalgamated corporation
succeeds to the liabilities of both of the corporations by whose
union it was created, and holds the assets of both, in trust, for
the purpose of discharging those liabilities.^ Equity will annul
1 Kitchen v. St. Louis &c. R. Co., notice of the indebtedness, equity has
69 Mo. 224, 256; ante, § 271. jurisdiction of a suit to enforce the
2 Upton V. Tribilcock, 91 U. S. 47. indebtedness against the latter cor-
2 One court has held that a corpora- poration, although no judgment at
tion which takes, as owner, all the prop- law has been obtained against the
erty and assets of an old corporation former one, and that the president of
(which is dissolved without providing the former corporation is not properly
for all its debts) must pay the debts a party to such suit. Hiberuia Ins.
of the old corporation, at least to the Co. v. St. Louis Transportation Co.,
amount of the assets converted- 3 McCrary (U. S.), 3G8. The court
Brum V. Merchants Mut. Ins. Co., 16 examines Garrison v. Memphis Ins.
Fed. Rep. 140, Pardee, J. Another Co., 19 How. (U. S.) 312; Case v.
court has held that, where a corpora- Beauregard, 99 U. S. 119; s. c. 101
tion, after contracting debts, trans- U. S. 688. A construction company
fers, without consideration, all of its agreed to build a railroad for a Georgia
property to another corporation having corporation. As security for the out-
229
1 Thomp. Corp. § 332.] consolidation.
any scheme by which 07ie of two companies, pending negotia-
tions for a consolidation, commits ix fraud upon the shareholders
of tlie other. Thus, while negotiations were pending between
two gas companies for their consolidation, upon a certain basis
of indebtedness, one oi the companies passed a resolution, with-
out the knowledge of the other, declaring a scrip dividend often
per cent, on the amount of their capital stock, with interest, pay-
able at the option of the company, thus increasing their indebt-
edness to that amount. Certificates of indebtedness were issued
in accordance with the resolution. Consolidation was effected
between the companies without any knowledge of the other com-
pany as to such resolution and such increased indebtedness. It
was held on a bill for that purpose, that the scrip should be de-
declared void, and the company issuing it restrained from recog-
nizing the scrip as a valid obligation, and from permitting its
transfer. The certificates should have put the purchasers upon
inquiry, and they are not, therefore, within the rule applicable
to negotiable paper. Though purchased without knowledge of
their character on the i)art of the purchaser, and without inquiry,
they might be ordered to be delivered up to be cancelled.^ Con-
solidation arrangements will be set aside in equity where one
director is a director of both companies. Thus, it has been held
that a contract by which the bondholders of an insolvent rail-
road company agree to foreclose a mortgage on its property, to
lay to be incurred, the construction held, that A., B. and C. could raain-
company received most of the stock, tain a single suit to prevent the con-
bonds and assets, of the railroad cor- summation of these transactions, and
poration. Then without beginning to charge the second named railroad
the construction, the construction corporation as trustee of the assets of
company transferred the stock to the the construction company (which was
managers of another railroad corpora- insolvent), the transactions being a
tion whose road competed with the fraud on plaintiffs, besides being with-
projected road of the first named cor- in the inhibition of the provision of
poration. The money used by these the Georgia constitution against the
managers to purchase the stock was purchase by one corporation of the
the m')ney of the corporation which shares of another corporation, and
they control'ed. A., B. and C. each against agreements operating to de-
lent money to the manager of the con- feat or lessen competition or to encour-
struction company to enable that com- age monopoly, Langdony. Branch, 37
pany to carry out its contract to build Fed. Hep. 44<J ; 5 Rail. & Corp. L. J. 107.
the road, repayment to be made from ^ Bailey v. Citizens' Gas Light Co.,
the profits of the undertaking. It was 27 N. J. Eq. 196.
230
WHEN FRAUDULENT. [1 Thomp. Corp. § 333.
buy the property at the mortgage sale, and to transfer it to an-
otlier company of which one of the bondholders of the insolvent
road is a director, in consideration of the transfer of certain
bonds of the proposed new company, — is not such a contract
as is sanctioned by the New York statute, above <quoted,^ re-
lating to the reorganization of existing railroads, but is void as
ajrainst public policy, on the ground that the law cannot accur-
ately measure the influence of the single director who acts in the
double capacity of buyer and seller. The court say: "The
value of the rule of equity to which we have adverted, lies, to
a great extent, in its stubbornness and inflexibility. Its rigidity
gives it one of its chief uses as a preventive or discouraging in-
fluence, because it weakens the temptation to dishonesty or un-
fair dealing on the part of the trustees, vitiating, without
attempt at discrimination, all transactions in which they assume
the dual character of principal and representative." ^ The cir-
cumstances surrounding every case of amalgamation are so mul-
ti[)lied and various, the ramifications of fraud are so extensive,
and its devices so subtle, — that it would be impossible to in-
dicate, by any general statement, what amalgamations are to
be deemed lawful and j.^roper, and what fraudulent and unlaw-
ful. Each case must, obviously, be judged by its own facts;
and where these facts clearly appear, experienced and upright
judges will, in many cases, come to opposite conclusions respect-
ing them.
§ 333. Illustration. — A transfer of the assets of one life insur-
ance company to another, the selUng company, and probably both,
being at the time uisolvent, through the following method, and under
the following circumstances, was h^ld fraudulent in laio^ if not fraudu-
lent in fact: — The Life Association of America purchased of the St.
Louis Life Insurance Company all its stock notes, together with the
mortpjages and collaterals given as security for the same, paying for
them by its own draft. This draft was afterwards subchvided into three
others, aggregating in amount the same as the lu'st, one being for
$900,000, and the other two for smaller amounts. These two iauer
1 Ante, § 258. K- Cas. 377, 382. opinion by An-
2 Munson v. Syracuse &c. R. Co., drews, J.
103 N. Y. 58, 74; s. c. 29 Am. & Eng.
231
1 Thomp. Corp. § 331.] consolidation.
were subsequently paid. With the stock notes and securities so ob-
tained and a little cash, the Life Association, by the .nctive nssistarx^e of
the officers and directors of the St. Louis Life Insurance Company, pur-
chased 9,703 of the 10,000 shares constituting the capital stock of that
corporation, and had the same transferred to itself. By this transfer
the offices of the directors of the St. Louis Life Insurance Company be-
came vacant, and the Life Association caused its own directors to be
elected in their places. Using the power thus acquired, the Life Asso-
ciation then procured an amendment to be made to the charter of the
St. Louis Life Insurance Company by which the retirement of a portion
of the capital stock of the latter was authorized. The Life Association
then presented to the St. Louis Life Insurance Company 9,000 of its
9,763 shares for redemption, and, by order of the new board of direct-
ors, the treasurer of the St. Louis Life Insurance Company redeemed
the same, by returning to the Life Association the above mentioned
draft for $900,000.^ It was also held that a receiver of the selling
comjDany might maintain a suit in equity against the representative of
the purchasing company, for the recovery of the value of the assets
thus transferred ; that, on the head of fraud, and for the purpose of
preventing a multiphcity of suits, equity has jurisdiction of such an
action, although the only decree rendered will be for the recovery of
money ; and that the measure of damages in the particular case was the
face value of the draft for $900,000, together with interest, which draft
had been delivered by the purchasing company to the selling company,
and which the directors of the purchasing company, after they had
caused themselves to be elected directors of the selling company, had
ordered not to be collected. ^
§ 334. Contract of Amalgamation an Entirety. — The con-
tract by which two companies amalgamate or consolidate, or by
which one company transfers its assets and liabilities to another
company must, obviously, as a general rule, stand or fall as an
entire thing. When, therefore, an insurance company, being in
difficulties, transferred its assets and liabilities to another insur-
ance company, on a contract that the shares of stock of the sell-
ing company should be taken up by shares of stock of equal par
value of the purchasing company, issued to the shareholders of
the selling company, and that the new shares so issued should be
redeemable at par by the purchasing company within a year, at
the option of the shareholders, a receiver of the selling company
1 Alexander v. Relfe, 74 Mo. 495. 2 t^j^^.
232
DECISIONS UNDER SPECIAL STATUTES. [1 Tliomp. Corp. § 337.
could not, after the validity of the contract of transfer had been
established in another proceeding, recover of one of such share-
holders the redemption money which he had thus received for his
shares from the purchasing company. •
§ 335. Cannot be Rescinded without Restoring Considera-
tion. — Where two corporations have become consolidated,
through an arrangement under which a portion of the shares of
stock of the purchasing company was transferred to a shareholder
of the selling company, in lieu of his interest as a shareholder in
the selling company, neither the purchasing company nor a share-
holder therein, can claim, in a court of equity, a cancellation of
the shares so issued by the selling company, without offering to
return the consideration which the purchasing company received
for them.^
§ 336. Obligation of the Committee to Account for Profits. —
. If the committee to whom the matter of the arrangements for the
amalgamation sell the shares of the intended consolidated com-
pany, at a premium, they will of course be held to the obligation
of accounting to the company for the premium, on principles
hereafter stated and discussed.^
§ 337. Decisions under Special Statutes. — The statute of New
Hampshire, regulating the compensation to be paid by one railroad com-
pany for the use of the roadway of another ^ has been held not to repeal,
by implication, a statute restraining the consolidation of rival railroad
lines, by arrangements giving to one the management of both, and thus
destroying competition. Such an effect, it was reasoned, might be pro-
duced, not only by a lease, but by an agreement to divide the income
of both roads.5 - - _ _ The Pennsylvania act of 186 1,^ which au-
thorized any railroad company chartered by the commonwealth, to con-
soUdate with any other raih-oad company so chartered, has been held to
have no application to siree^passewj/e?- railway companies.'' - - - -
1 Bent V. Hart, 73 M->. 6U; adicm- •• Gen. Stats. N. H., oh. 150, § 10.
ings. c. 10 Mo. App. 143, Sherwood, » Currier v. Concord R. Corp., 48
C. J., dissented. N. H. 321.
2 Buford V. Keoljuk &c. Packet Co., ^ pub. Laws Pa. 1861, 702.
69 Mo. 611; a£fg. s. c. 3 Mo. App. 159. f Philadelphia v. Thirteenth &c. R.
^ Post, § 457. Compare Rossmore Co., 1 Leg. Gaz. Rep. (Pa.) 163.
V. Mowatt, 15 Jur. (n. s.) 238.
233
1 Thomp. Corp. § 337.] consolidation.
The consolidation between the Central Railroad and Banking Company
of Georgia and the Macon and Western Railroad Company, under the
name and charter of the former company, created a new corporation for
the specified purposes therein declared, and, as no time was specified
in the act for its continuance, it was held that it would not expire, un-
der the general law of the State, for thirty years. ^ The fact that all
the rights, privileges, etc., of the Central Railroad and Banking Com-
pany, as specified in its charter granted in the year 1835, were conferred
upon the new company, by general reference thereto in the act of Au-
gust, 1872, did not cause such a grant to operate as if made in the year
1835, but the legal effect was the same as if such rights, etc., had been
specifically enumerated in the latter act ; and the right of withdrawal or
repeal was therefore reserved to the State under section 1682 of the code,
in view of the provisions of which the new charter was accepted, and
which entered into it and became a part of the contract between the
new company and the State. ^ - - - - Of course, a statute provid-
ing for a consoUdation, and containing certain provisions, and prescrib-
ing certain things to be done by the new company, cannot become
operative unless a consohdation in fact takes place. ^ - - _ _ Under a
statute of Ohio,^ providing that railroad companies can consolidate only
when they are " so constructed as to admit the passage of burthen or
passenger cars over any two or more of such roads continuously, without
break or interruption," two companies, whose roads are nearly parallel
and connected only by leased roads, cannot be so consolidated. ^ The
statute intends to Hmit the power of consolidation to railroads which may
connect so as to extend the hue of either. - - - - Where the roads
of two companies are not parallel they may be deemed to ' ' unite and
form a continuous line," within Ohio Rev. Stat., § 3380, authorizing
consolidation, though they are connected, not directly, but by the tracks
of a " union ' ' company organized by them and by other companies to
secure a union depot and terminal facilities.^ _ . _ _ Under the
consohdation act (Ohio Rev. Stat., §§ 3379-3388), the consolidating
companies may agree upon the number and amount of shares of the
proposed consohdation company ; may classify such new stock into
" common " and " preferred, "and may issue a greater or less number of
shares than that of the aggregate of the constituent companies to secure
1 Central R. &c. Co. v. State, 54 Ga. 590. As to when consolidating rail-
401. roads are to be regarded as connected
2 Ibid. and continuous lines, see Black v. Del-
3 Gibbes v. Greenville &c. R. Co., aware &c. Canal Co., 22 N. J. Eq. 130,
13 S. C. 228. 202, and cases cited.
* Rev. Stats. Ohio, § 337'J. « Burke u. Cleveland &c. R. Co., 22
» State V. Vanderbilt, 37 Oh. St. Week L. Bui. (Oh.) II.
234
DECISIONS UNDER SPECIAL STATUTES. [1 Thomp. Coip. § 337.
a just and equitable division of property between the shareholders
of the constituent companies.^ _ - - . The franchises of one
company, which expire by limitation at a definite time, caunot be re-
vived and extended by incorporating such company with another
company, whose franchises extend to a later date, under a general
statute authorizing consolidations ; nor can a corporation whose fran-
chise has expired by limitation, be revived by a pretended consolidation
with another like corporation, whose franchises have not expired. ^
A statute of Louisiana ^ authorizing three-fifths of the stockholders of
two gas-light companies to effect a consolidation, — did not authorize
them to place stock of non-participating stockholders on a footing infe-
rior to their own, or to transfer their right to third persons without their
consent.*
1 Ibid.
2 Thus, the Louisiana law of 1874,
for consolidation of corporations, does
not authorize a compauy incorporated
in 1870, with the exclusive franchise
of making and vending gas in New
Orleans for fifty years, beginning April
2, 1875, to be consolidated with one
incorporated in 1835, with an exclu-
sive franchise of making and vending
gas in New Orleans until April 1, 1875,
when its charter expired. New Or-
leans Gas-Light Co. v. Louisiana
Light &c. Co., 4 Woods (U. S.), 90.
3 La. Acts of 1874, No. 157.
* Fee V. New Orleans Gas-Light
Compauy, 35 La. An. 413. Other de-
cisions in particular jurisdictions,
construing particular statutes of con-
.solidation, with reference to various
questions, can only be referred to. As
to the consolidation between the Kan-
sas Pacific and Union Pacific railroad
companies, in respect of its effect
upon tlie right of the United States to
retain a part of the earnings of that
part of the Union Pacific road belong-
ing to the K:insas Pacific : Union Pacific
R. Co. V. United States, IG Ct. of CI.
(U. S.) 353. That the consolidation
of the Southwestern and Muskogee
railroad companies of Georgia was
entered into in view of the provisions
of § 1082 of the code of that State,
reserving to the State the right to
withdraw the franchise : Southwestern
R. Co. V. State, 54 Ga. 401. Effect of
the Massachusetts statute of 1872,
chaptLT 180, permitting the lease of
a railroad under certain circum-
stances, — that it repeals pro tanto the
Mass. Laws of 1867, ch. 298, and of
1871, ch. 389, prohibiting such leases
and regulating consolidations, etc. :
Peters v. Boston &c. R. Co., 114 Mass.
127. Elaborate decision of the chan-
cery court of New Jersey, in a case
where the opposing parties were rep-
resented by counsel of great ability,
and where the printed arguments con
sumed some 240 pages, construing the
New Jersey act of March 17, 1870, con-
solidaing the Delaware and Raritan
Canal Co., the Camden & Amboy Rail-
road & Transportation Co., and the
New Jersey Railroad & Transportation
Co., — with reference to a variety of
questions, including the power of the
united companies to lease their prop-
erties to the Pennsylvania Railioad
Company, a corporation of another
State, etc.: Black v. Delaware &c.
Canal Co., 22 N. J. Eq. 130, 393. Va-
lidity of the consolidation of Atlantic &
Pacific Railroad Co. of Missouri with
South Pacific R. Co. of the same State
und(!r a particular enabling act: At-
lantic &c. R. Co. V. St. Louis, GG Mo.
235
1 Thomp. Corp. § 343.] consolidation.
Article II. Effect Upon Shareholders.
Section
343. Effect of consolidation upon the
rights of dissenting sharehold-
ers.
3ii. Illustration: Effect of guaranty
that stock of precedent corpo-
ration shall be at par at a fu-
ture date named.
345. View that majority can consent
on giving security to dissenting
shareholders.
346. Rule whore a statute authorizes
consolidation at date of sub-
scription.
347. Where there is a reserved power
of amending the charter.
348. Power to amend articles does
not extend to consolidation.
349. When entitled to an injunction to
restrain consolidation.
350. Extent of injunctive relief af-
forded.
Section
351. No injunction if interest se-
cured.
352. Action in equity against the con-
solidated company.
353. No right of action for damages
against directors.
354. Effect of acquiescence of share-
holders.
355. Rights of consolidated company
against shareholders of old
companies.
356. Action by new company for as-
sessments against sharehold-
ers in the old.
357. New company must show its
title.
358. Stockholders may plead no con-
solidation.
359. Illustration.
360. What in case the original sub-
scription was conditional.
§ 343. Effect of Consolidation upon the Rights of Dissent-
ing Shareholders. — As elsewhere seen, the consolidation of
228. Requisites and sufficiency of
proceedings under statutes of Michi-
gan to effect the consolidation of
railroad companies : Tuttle v. Michi-
gan Air Line R. Co., 35 Mich. 247.
Construction of Alabama act of 1848,
incorporating Alabama and Tennes-
see River R. Company and that of
1866, authorizing the company to ex-
tend its road with reference to an
agreement of consolidation made in
anticipation of special enabling legis-
lation by the State of Georgia,—
hoklinc that the Georgia companies
were dissolved and merged into the
Alabama company, which continued its
existence, but with enlarged powers
and extended franchises, etc.: Meyer V.
Johnston, 53 Ala. 237 ; Meyer v. Johns-
ton, 64 Ala. 603. As to the respective
• 236
rights of stockholders in two corpora-
tions which have become consoli-
dated: Bishop V. Brainerd, 28 Conn.
289. Validity of a payment by one
company to another to influence con-
solidation where legislative consent
doubtful: Gould v. Seney, 5 N. Y.
Supp. 928; 6 R. & Corp. L. J. 143.
Division of stock of new company
when not prohibited by § 309 of Cal.
Civil Code: Cole v. Lilenthal, 81 Cal.
378; s. c. 20Pac. Rep. 401. New York
statute, N. Y. Laws 1875, c. 108, pro-
viding that "in any case where two
or more railroad companies shall have
been or shall hereafter be organized
under the general laws of the State
the whole of whose lines, as located
by them, respectively, shall foimone
continuous and connecting line of
EFFECT UPON SHAREHOLDERS. [1 Thoilip. Coi'p. § 343.
one corporation with another is a change of such a, fundamental
character that, unless the change is authorized by the original
statute creating one of the consolidating corporations, the fact
of consolidation will operate to release any dissenting share-
holder.^ Having embarked his money in one venture, he can-
not, without his consent, be compelled to transfer it to another
venture. The general rule, therefore, is that a consolidation
can only take place with the unanimous consent of the share-
liolders of both companies.^ As already seen,^ statutes exist
providing that agreements of consolidation may be ratified by a
majority, or two-thirds, or three-fourths of the shareholders of
each company. Where these statutes exist at the time of the
shareholder's subscription, or where they become operative upon
it in consequence of a legislative right — reserved in the consti-
tution of the State or in a general statute at the time of the sub-
scription, — they establish an exception to the above stated rule.
Another exception exists where there is a statute, in like man-
ner operative notwithstanding the contract of subscription, pro-
viding for the purchase, at a sale or appraisement, of the shares
of the dissenting member. But in the absence of a statute thus
entering into, or qualifying or overriding the contract of sub-
scription, any rule short of that first stated allows the agree-
ment of consolidation to impair the obligation of the contract be-
tween the dissenting stockholder and the corporation which he
originally joined. The stockholders in the old corporation, who
do not enter into the new corporation, are therefore, in the absence
road, the said companies may consoli- Chapman v. Mad River &c. R. Co., 6
date their lines of road, stock, f ran- Oh. St. 119; Fisher v. Evansville &c.
chises, and property, according to R. Co., 7 Ind. 407; Blatchford w. Ross,
the existing laws of this State relating 54 Barb. (N. Y.) 42 ; s. c. 5 Abb. Pr. (n.
to the consolidation of railroad com- s.) (N. Y.) 434; 37 How. Pr. (N. Y.)
panies," is inconsistent with the pro- 100; McViclier u. Ross, 55 Barb. (N.
visions of N. Y. Laws 1809, c. 917, Y.) 247; McCray y. Junction R. Co., 9
which exempt street railroads from Ind. 358; Illinois &c. R. Co. w. Coolc,
the power it confers to consolidate, 29 111. 237; Botts v. Simsonville &c.
and it therefore repeals by implication Turnpiiie Co., 88 Ky. 54 ; s. c. 10 S. W.
such former provisions. Re Wash- Rep. 134; Mowrey v. Indianapolis &c.
ington Street &c. R. Co., 115 N. Y. R. Co., 4 Blss. (U. S.) 78; Nathan v.
442; 22 Northeast. Rep. 356; 2G N. Y. Tompkins, 82 Ala. 437; Indianola
St. Rep. 504. R. Co. v. Fryer, 50 Tex. 96, 117.
» Ante, § 75. 3 jinCe, §§ 305-313.
Kean v. Johnson, 9 N. J. Eq. 401 ;
237
1 Thomp. Corp. § SIS.] consolidation.
of such statutes, entitled to withdraw from the venture and cease
to be liable on their stock subscriptions.^ But, in the absence
of a statute existing at the time of his subscription, providing
for the consolidation upon a vote of less than the whole, or for
the i)urchase of the interests of dissenting stockholders in the
event of a consolidation, it is conceived that he will neither be
bound to consent to the consolidation nor to surrender his in-
terest in his original corporation. In such cases enabling oc(s,
authorizing the consolidation of existing corporations, or the
creation of a new corporation by a union of the members of
existing corporations, are construed as permissive merely, and
not as binding a dissenting member. Such a member does not
become a member of the new corporation, althougii the act may
be duly accepted by a majority of the members of each of the
old ones. 2 Nor without such a reservation of power as that
already stated, can the legislature confer upon existing corpora-
tions the power to consolidate their stock and form a new cor-
poration, without the unanimous consent of their stockholders,
because so to do would impair the obligation of the contract
subsisting between the stockholders of the precedent corpora-
tions. In such an event a dissenting stockholder would not be
bound. ^ In so holding, it was said by the court, speaking
through Mr. Justice Davis : " ^Yhen any person takes stock in
a railroad corporation, he has entered into a contract with the
company, that his interests shall be subject to the direction and
control of the proper authorities of the corporation, to accom-
plish the object for which the company was organized. He
does not agree that the improvement to which he subscribed
should be changed in its purposes and character, at the will and
pleasure of a majority of the stockholders, so that new responsi-
1 McCray v. Junction R. Co., 9 Ind. ment of their powers and franciiises
358; State u. Bailey, 16 Ind. 46; Clear- respectively, and may accept sub-
water V. Meredith, 1 Wall. (U. S.) scriptions to their capital st >ck at
25, 49. any time before the consolidation is
2 Hami'ton Mut. Ins. Co. v. Hobart, consummated by filing the agrei ment
2 Gray (Mass.), 543. Under the Ohio of consolidat'on with the Secretary of
act of 1856, providing for the consoli- State. Mansfield &c. R. Co. v. Brown,
dation of railroad corporations (53 26 Oh. St. 223.
Ohio Laws, 143), the corporations ^ Clearwater v. Meredith, 1 Wall,
which are parties to an agreement to (U. S.) 25, 39.
consolidate continue in the full enjoy-
238
EFFECT UPON SHAREHOLDERS. [1 Thomp. Coip. § 344.
bilities, and it may be, new hazards, are added to the original
undertaking. He may be very willing to embark in one enter-
prise, and unwilling to engage in another; to assist in building
a short line of railway, and averse to risking his money in one
having a longer line of transit. But it is not every unimportant
channre which would work a dissolution of the contract. It must
be such a change that a new and different business is superadded
to the original undertaking." ^
§ 344. Illustration : Effect of Guaranty that Stock of Pre-
cedent Corporation shall be at Par at a Future Date Named. —
A. sold a tract of laud to B. for $10,000, and received in pa;^Tnent 200
shares of stock of a railway corporation, of the par value of fifty dol-
lars per share, and B. executed a written guaranty that the stock would
be worth par on the first day of October, 1855, in Cincinnati. Subse-
quently, under an enabling statute of the State of Indiana, the
corporation was consolidated with another. The enabling statute pro-
vided that ' ' such railroad companies are authorized to merge and con-
sohdate the stock of the respective companies, making one joint stock
company of the two railroads thus connected. ' ' It had been held in that
State that the effect of such a consolidation was to create a new com-
pany out of the elements of the two preceding companies.^ Following
this exposition of the State statute by the State court, and applying the
principle of the preceding section, the Supreme Court of the United
States held that B. was liable on his guaranty, and could not set up, in
discharge of his liabihty, the fact of the consolidation ; since, as the
legislature had no power to force him to become a stockholder in the
new company without his consent, he must be taken to have consented to
the change.^
§ 345. View that Majority can Consent, on Giving Security
to Dissenting Shareholders. — So, it is stated in a case in Penn-
sylvania, which has been very much cited: "The contract of
consolidation is an act of dissolution in form and substance of
the Lebanon company, and the cor{)oration cannot, in tlic act
of dissolution, dispose of the rights of its members. The act
of dissolution, like the act of association, is not a corporate act,
but an act of the members of the association. They may com-
1 Clearwater v. Meredith, 1 Wall. ' Clearwater v. Meredith, 1 Wall.
(U. S.) 25, 40. CU. S.) 25.
2 McMahan v. Morrison. 16 Ind. 172.
239
1 Thonip. Corp. § 346.] consolidation.
mit to their officers the business of effecting it in all its
details, but they are not required to do so by the terms of their
association, and in effecting such a purpose the officers would be
rather trustees of the members than corporate functionaries.
Then it follows, quite obviously, that no corporate act can
settle the terms of dissolution, or distribute the effects among
the members, and that this company cannot decide what the_
plaintiff shall take for his interest. The act of dissolution
works a change in the form of the interests of its members,
by destroying the stock, and substituting the thing which the
stock represented, — that is, a legal interest in the property, and
leaves the members to seek a division of this. But this property
is indivisible, and therefore we see no objection to the act of the
legislature, so far as it allows the majority to dispose of it in the
way proposed, except that, under the constitution, they cannot
be allowed to divest or embarrass the plaintiff's interest therein
without first giving security therefor. The act of transfer and
dissolution is one. If carried into effect, it destroys his stock.
Before it is done he must be secured, and we must grant
the injunction asked for, to stand until this is done." An in-
junction was accordingly ordered to be issued, on the plaintiff's
giving security to the amount of $1,000 to the defendants; " and
let it be dissolved on the defendants giving security to the
plaintiff, in double the market value of his stock, to pay for
said stock when its value shall be ascertained." ^ This was a case
where one corporation was dissolved and extinguished by the
conversion of its stock into that of another corporation, — a
mere consolidation ; and the decision is to be quoted to the point
that a majority may force a dissenting minority into such a con-
solidation, provided they pay them the actnal vulue of their
stock, — a proposition which must be regarded as doubtful. ^
§ 346. Rule where a Statute Authorizes Consolidation at
Date of Subscription. — But of course where the consolidation
is authorized by a statute existing at the time of the subscription,
it will not have the effect of releasing a subscriber although he
1 Lauman W.Lebanon Valley R. Co., 4 Biss. (U. S.) 78, where it is criti-
30 Pa. St. 42, 49. cised by McDonald, J.
2 See Mowrey v. Illinois &c. R. Co.,
240
EFFECT UPON SHAREHOLDERS. [1 Thomp. Corp. § 346.
did not consent to it, unless the effect of the consolidation is such
as to work a material change in the organization and design of
the company as originally projected.^ Subscriptions to the capi-
tal stock of corporations are to l)e construed with reference to the
statutes in force relating to the subject of consolidation, on the
tlieory that governing statutes enter into and form a part of every
contract of stock subscription. It is, therefore, no defense for
a stockholder of one of the original companies, in an action upon
his subscription by the consolidated company, to say that, as he
only subscribed for the stock of the original company, his con-
trast has been changed by the consolidation without his consent. ^
In such a case, where a county, which had subscribed to the stock
of a railroad company, sought to be released from its subscrip-
tion, on the ground that there had been a subsequent consolida-
tion between the particular company and another, it was said by
the Supreme Court of the United States, in an opinion given by
Mr. Justice Strong: " It must be conceded, as a general rule,
that a subscriber to the stock of a railroad company is released
from obliiration to pay his subscription by a fundamental altera-
tion of the charter. The reason of the rule is evident. A sub-
scription is always presumed to have been made in view of the
main design of the corporation, and of the arrangements made
for its accomplishment. A radical change in the organization or
purposes of the company may, therefore, take away the motive
which induced the subscription, as well as affect injuriously the
consideration of the contract. For this reason it is held that
such a change exonerates a subscriber from liability for his sub-
scription; or, if the contract has been executed, justifies a stock-
holder in resorting to a court of equity to restrain the comjjany
from applying the funds of the original organization to any pro-
ject not contemplated by it. But while this is true as a general
rule, it has no applicability to a case like the present. The con-
solidation of the Kankakee and Illinois River railroad company
with another company was no departure from its original design.
The general statute of the State, approved February 28, 1854,
authorized all railroad corai)anies then organized, or thereafter to
be organized, to consolidate their property and stock with each
1 Nugent V. Supervisors, 19 Wall. ^ Manslield &c. R. Co. v. Stout, 26
(U S.) 241. Oh. St. 241, 255.
16 241
1 Thomp. Corp. § 346.] consolidation.
other, and with companies out of the State, whenever their lines
connect with the lines of such companies out of the State. The
act further declared that the consolidated company should have
all the powers, franchises, and immunities which the consolidat-
ing companies respectively had before their consolidation. Nor
is this all. The special charter of the Kankakee and Illinois
River railroad company contained, in its eleventh section, an ex-
press grant to the company of authority to unite or consolidate
its railroad with any other railroad or railroads then constructed
or that might thereafter be constructed within the State, or any
other State, which might cross or intersect the same, or be built
along the line thereof, upon such terms as might be mutually
agieeil upon between said company and any other company. It
was therefore contemplated by the legislature, and it must have
been by all the subscribers to the stock of the company, that pre-
cisely what has occurred might occur. Subscribers must be pre-
sumed to have known the law of the State and to have contracted
in view of it. When the voters of the county of Putnam sanc-
tioned a county subscription by their votes, and when the board
of supervisors, in pursuance of that sanction, resolved to make the
subscription, they were informed by the law of the State that a
consolidation with another company might be made ; that the
stock they proposed to subscribe might be converted into stock
of the consolidated company, and that the liability they assumed
might become owing to that company. With this knowledge,
and in view of such contingencies, they made the contract. The
consolidation, therefore, wrought no change in the organization
or design of the company to which they subscribed, other than
they contemplated at the time as possible and legitimate. It can-
not be said that any motive for their subscription has been taken
away, or that the consideration for it has failed. Hence the rea-
son of the general rule we have conceded does not exist in this
case, and, consequently the rule is inapplicable." ^ This decision
is in effect an affirmation of the principle that the subscriber for
stock is released from his subscription, by a subsequent altera-
tion of the organization or purposes of the company, only when
such alteration is both fundamental and not provided for or con-
1 Nugent V. Supervisors, 19 Wall. (U. S.) 241, 248-50; Miller and Davis,
JJ., dissenting.
242
EFFECT UPON SHAREHOLDERS. [1 Thomp. Corp. § 349.
templated by either the charter itself or the general laws of the
Stale. Other American authorities are not wanting in support
of this view. In a case in Indiana, after a public act had taken
effect, authorizing the consolidation of the charters of two rail-
road companies, the defendant subscribed for shares in one of
them, and a consolidation was afterwards made. He was held
liable to the consolidated company for his subscription ; and
this, though the consolidation took place without his knowledge
or consent.^
§ 347. Where there is a Reserved Power of Amending the
Charter. — The Supreme Court of Errors of Connecticut has gone
fui-ther, holding that, where a consolidation has been effected by direct
legislation, under the reserved power of amending the charter, it is not
necessaiy that the assent of all the stockholders should be obtained, nor
that there should be any action of the stockholders or du'ectors on the
subject ; and this effect has been given to a validating or curative act of
the legislature passed after the subscription and consolidation.^ But
the soundness of this conclusion is doubted, on a principle elsewhere
discussed. 3
§ 348. Power to Amend Articles does not Extend to Con-
solidation. — The articles of association of a company prohibited the
union or consoUdation of the company with any other, without the con-
sent of a majority of the stockholders, but also contained a clause pro-
viding for an amendment of the articles by a concurrent vote of two-
thirds of the executive committee and a majority of the trustees. It
was held, that the authority to amend the articles of association gave
no power to take away from the stockholders the power to prohibit the
merger of the company with any other company, which they had ex-
pressly reserved for their own protection. Such authority to amend
should be limited to amendments pertinent to the business and objects
for which the association was organized.*
§ 349. When Entitled to an Injunction to Restrain Consol-
idation. — Where the general rule first sti-ted^ has not beea
1 Sparrow v. Evansville &c. R. Co., 2 Bishop v. Brainard, 28 Conn. 289.
7 Ind. 3(59. To the same effect see ^ /ln«c, §§ 90, 91.
Bish I?. Johnson, 21 Ind.299; Compare < Blatchford v. Ross, 54 Barb. (N.
Cork &c. R. Co. v. Patterson, 37 Eng. Y.) 42; s. c. 5 Abb. Pr. (n. s.) (N. Y.)
L. & Eq. 398, and Nixon v. Brownlow, 434; 37 How. Pr. (N. Y.) 110.
3 Hurl. & N. 686. » Ante, § 343.
243
1 Thoinp. Corp. § 349.] consolidation.
displaced by valid and operative legislation, the dissenting
shareholder is entitled to an injunction to restrain the proi)osed
consolidation, on the ground that the directors and officers of the
corporation of which he is a member, in carrying it out, are at-
tempting an unauthorized and illegal diversion of the trust funds
committed to their care, — at least until his interest in the cor-
poration is secured.^ Nor is it necessary in such a case, as it is
in many others,''^ for the dissenting shareholder to make a vain and
useless attempt to obtain redress within the corporation, by ask-
ing the corporation, that is to say the majority who have deter-
mined upon the unauthorized consolidation, to bring an action
against themselves ; ^ but it is necessary to make the corpora-
tion of which he alleges that he is a member, a party defendant,^
Nor is it a ground for dissolving an injunction against an unlawful
attempt to consolidate one corporation with another, that the
attempt had been abandonedt where the abandonment is not
1 Laumanu. Lebanon &c. R. Co., 30
Pa. St. 42; State v. Bailey, IGInd. 46;
Mowrey v. Indianapolis R. Co., 4 Biss.
(U. S.) 78; Nathan u. Tomkins, 82 Ala.
437; 19 Am. & Eng. Corp. Cas. 333; 2
South. Rep. 747; 2 Rail. & Corp. L.
J. 315. In England, where the power
of Parliament is supreme and un-
restrained by any constitutional
prohibition against impairmg the
obligation of contracts, its power to
authorize the amalgamation of com-
panies created for public objects, such
as railway companies, without the
consent of all the shareholders, has
never been doubted. In that country
a shareholder in a railway company is
entitled to restrain the directors from
carrying into effect an agreement with
another railway company for the
amalgamation of their lines, which
has not received the sanction of the
legislature. So held where such
agreement contained clauses provid-
ing for throwing the receipts into the
common fund, and dividing the profit
and loss in certain proportions, and
also for handing over the entire man-
244
agement and plant of one company to
the other. Charlton u. Newcastle &c.R.
Co., 5 Jur. (N. s.) 1096; 7 Week. Rep.
731. The principle is a very general
one that an injunction will be granted,
at the suit of a dissenting shareholder,
to restrain the directors and m:inag-
Ing officers of a corporation from di-
verting its funds to objects not
authorized by the governing statute.
Post, Ch. 90. A very learned decision
on this question is the case of Stevens
V. Rutland &c. R. Co., published as an
appendix in 29 Vt. 545, where Chan-
cellor Bennett issued an injunction,
at the suit of a stockholder, to re-
strain the directors of a railway com-
pany from applying its funds or
pledging its credit for the purpose of
constructing a road beyond the termini
fixed by the statute of its creation.
2 Posi, Chs. 90 and 187.
3 Nathan i;. Tompkins, 82 Ala. 437.
Contra, Mozley v. Alston, 1 Phil. Ch.
790.
* Ridgway Township v. Griswold,
1 McCrary (U. S.), 151.
EFFECT UFO?^ SHAREHOLDERS. [1 Thomp. Coi'p. § 351.
shown, by an official declaration or by the rescission of the reso-
lutions under which the consolidation was attempted. ^ A clause
in the charter that the company, " in matters not expressed in
the charter, shall have the rights and privileges to the most fa-
vored turnpike companies," will not be construed as conferring or
implying power to compel a stockholder to consent that the cor-
poration of which he is a member shall be united with another.''
§ 350. Extent of Injunctive Relief Afforded. — But it has
been held that an iniunction to prevent the consummation of a consoU-
dation of two companies, which has been agreed upon by their respect-
ive directors, and where there has been a consequent transfer of prop-
erty of one of the old companies to the one newly formed, — ought not
to be extended to prevent the use, under the new company, of property
which has been delivered before the appUcation for the injunction ; nor
so as to restrain stockholders who may elect to do so, from uniting in
the new organization. But it was held that, in regard to property not
dehvered, the injunction should be continued and that the directors and
executive committee should be restrained from enforcing any compli-
ance with such terms of consolidation by the plaintiff and other share-
holders, who were not wiUing to become members of the new company,
by collecting assessments on the shares of the stock, or in any other
manner until the final decision of the cause. ^
§ 351. No Injunction if Interest Secured. — And while, as
already stated, a dissenting shareholder, like a retiring partner
in an ordinary partnership, is not obliged, in the absence of a
statute operative at the time when his contract of subscription
was made, or of an express agreement to that effect, to surren-
der his interest in the property to his remaining associates at an
estimated valuation, but has the right to have the valuation
actually ascertained by a sale^ in the ordinary manner of clos-
ing up partnerships where there is no express stipulation; yet
such an injunction will not, in one doubtful view,* be continued
after his interest has been secured. And another court has held
1 Nathan v. Tompkins, 82 Ala. consent of the plaintiff where unanim-
437. ity is necessary : Ibid.
2 Botts V. Simpsonville &c. Turn- ^ Blatchford v. Ross, 54 Barb. (N.
pike Co., 88 Ky. 54 ; s. c. 10 S. W. Rep. Y.) 42 ; s. c. 5 Abb. Pr. (n. 8.) (N. Y.)
134. Injunction should not be dis- 434; 37 How. Pr. (N. Y.) 110.
solved on answf'r T?hich fail-; to allege * AntCy § 345.
245
1 Thomp. Corp. § 354.] consolidation.
that, where the amount of dissenting stock is inconsiderable in
comparison with the stock whose owners have acquiesced in the
am-eement of consolidation, the court will order the consolidated
company to give a bond with sureties, conditioned that, upon the
final judgment, all the property transferred to it shall, if so re-
quired by the judgment, be delivered into the custody of the
court, for the protection of all the shareholders.^
§ 352. Action in Equity ag^ainst the Consolidated Com-
pany. — Where a consolidation between two corporations is wrongfully
effected, a dissenting stockholder of one corporation may maintain an
action in equity against the consolidated corporation, for the damages
which he has sustained, upon the theory of a wrongful appropriation by
it of liis equitable interest in the original corporation of which he was a
member. In such a case he is not barred by a delay of two years,
though such a delay might operate to prevent him from maintaining a
suit to restrain the consolidation. ^ In such an action the shareholder is
not precluded by the erroneous estimates of the officials of the corpo-
ration of which he was a member, embodied in a published report, from
showing the true value of its assets. ^
§ 353. No Right of Action for Damages against Direct-
ors. — ■ Where the consolidation is effected by the action of the
shareholders, it cannot be made the foundation of an action by
a dissenting shareholder against the directors for damages.*
§354. Effect of Acquiescence of Shareholders." — Of
course, the shareholders who consent to the consolidation, there-
by estop themselves, in the absence of fraud, from raising future
objections to it.^ They also become estopped to object to any
precedent steps which have formed an inducement to the consoli-
dation. Thus, where an amendment of the charter was one of
the chief steps leading to the consolidation of a railway com-
pany with another, the stockholders in the former company,
who assumed to be corporators in the consolidated company,
1 McVicker v. Ross, 55 Barb. (N. * International &c. R. Co. v. Bro-
Y.) 247. mond, 53 Tex. 96.
2 International &c. R. Co. v. Bre- ^ Compare ante, § 80.
mond, 53 Tex. 96. ^ To this principle see Zabriskie v.
» Ibid. Hackensack &c. R. Co., 18 N. J. Eq.
179.
246
EFFECT UPON SHAREHOLDERS. [1 Thomp. Coi'p. § 355.
thereby became estopped from proceeding in equity to have the
amendments to the charter declared void.^ But a sharehokler is
not precluded from making such an objection by the fact of his
having failed to object to an enlargement of the charter of the
former company, which did not, on its face, purport to give the
power to consolidate.^ If a member of the board of directors
is present at the adoption of a resolution looking toward a con-
solidation with another company, and is aware of what is l)eing
done, and makes no opposition to its adoption, he is presumed to
have assented to it. But if the proceeding is merely preliminary
to a decision by a subsequent vote of the stockholders on the
question of consolidation, which question can only be ultimately
decided by a vote of all the stockholders, and not by the board
of directors, — the consent of such director, so given, does not
estop him from afterwards objecting to the consolidation. "^ But
a bill in equity alleging that certain railroads were fraudulently
consolidated, that the consolidated road issued mortgage bonds,
that the mortgage was foreclosed, and a decree of sale made,
and asking that the consolidation be declared void, will be dis-
missed for laches, when it appears that the complainants were
cognizant of all the proceedings, and took no action until after
the decree of sale had been made.*
§ 355. Rights of Consolidated Company against Sharehold-
ers of Old Companies. — Generally speaking, upon the consoli-
dation being perfected, a stockholder of one of the old companies
becomes a stockholder in the new company, so that it may main-
tain actions thereon for assessments,^ though this is a matter
which may be varied by the governing statute or the contract.®
This is sometimes effected by a formal assignment, by the old
1 Deaderick v. Wilson, 8 Baxt. 1 McCrary (U. S.), 151; Wells v. Rod-
(Tenn.) 108. gers, GO Mich. 625; s. c. 27 N. W. Rep.
2 International &c. R. Co. v. Bre- 671; Cooper v. Shropshire Union II.
mond, 53 Tex. 9G. Delay of two years &c. Co., 13 Jur. 443, s. c. fi Railw. Cas.
when no bar. Ibid. ; ante, § 352. (KngO 13G; Foss v. Ilarbottle, 2 Hare,
3 Mowrey v. Indianapolis &c. R. 461; s. c. 7 Jur. 163; Exeter &c. R. Co.
Co., 4 Biss. (U. S.) 78. v. BiiUer, 11 Jur. 527; Lord v. Copper
* Bell V. Pennsylvania &c. R. Co., Miners' Co., 18 L. J. (Ch.) 65; Mozley
10 Atl. Rep. 741; 9 Cent. Rep. 138; 2 v. Alston, 1 Phil. (Ch.) 790; s. c. 11
Rail. &Corp. L. J. 476. Jnr. .",15.
« Riclgway Township v. Griswold, « Bishop v. Brainerd, 28 Conn. 289.
247
1 Thomp. Corp. § 355.] consolidation.
corporatious to the new one, of their properties and choses in ac-
tion. Such a transfer, it has been hold, is not invalid against the
claim of a creditor of one of the original corporations accruing after
the transfer ; and it has been reasoned that, even if it had ac-
crued previously, yet the original corporation, in the absence of
any fraudulent intent, had a right, for a valid consideration, to
dispose of its property.^ The soundness of this reasoning may,
however, be doubted, when it is applied to a disposition of all
the property of a corporation, in view of the doctrine that the
property of a corporation is a trust fund for its creditors. After
a consolidation has taken place, and the consolidated company has
succeeded to the right to enforce the stock subscriptions of the
antecedent companies, and a regular assignment by the officers of
the consolidated company of such a subscription of one of the
antecedent companies, — as by using the name of such company
instead of the consolidated company, — may be validated by a
subsequent ratification of the board of directors of the new
company .2 A subscription to the stock of the amalgamated
company is manifestly a sufficient consent on the part of
a shareholder, to the amalgamation.^ Where it appears
from the articles of association of one of the original corporations,
which contains among its members a dissenting shareholder, that
the consolidation has merely the effect of carrying out the pur-
pose of its organization, such shareholder will not be exonerated
from his subscription ; * for, as elsewhere seen,^ one corporation
may be created with the design of being consolidated with or
absorbed by another corporation,® and in such a case it will not
lie in the mouth of a shareholder of the former to object to such
consolidation : it is no change of the contract which he entered
into when he made his subscription.'
1 Ibid; ante, § 332. ^ Fisher v. Evansville &c. R. Co., 7
2 Ibid. Where the consolidated Ind. 407.
company made a call upon its share- * Hanna v. Cincinnati &c. R. Co.,
holders for the purpose of raising a 20 Ind. 30; anfe, § 68.
fund to pay for an indebteduess of * Ante, § 346.
one of the precedent companies, the * Washburn v. Cass Co., 3 Dill.
Enj^lish Court of Chancery refused to (U.S.) 251; Nugent v. Supervisors,
enjoin the enforcement of the call. 19 Wall. (U. S.) 241.
Mozley v. Alston, 1 Phil. (Ch.) 790; ' Injunction to restrain a creditor
s. c. 11 Jur. 315. from enforcing his demands against
248
EFFECT UPON SHAREHOLDERS. [1 ThoDip. Corp. § 357.
§ 356. Action l>y New Company for Assessments against
Shareholders in the Old. — A railroad corporation may main-
tain a suit upon a subscription to its capital stock, after consoli-
dation with another company, unless this fact is pleaded in
abatement; in which case, if the consolidation is authorized by
law, the suit may proceed in the name of the new company, if
the consolidation is pleaded in abatement.^ In England, until
the provisions for the amalgamation have been fnlly carried into
eflfect so that the new company has come into being, no suits for
calls against the holders of the consolidated shares can be sus-
tained in its name.^ So, in America the consolidated company
cannot proceed to enforce the stock subscriptions of the antece-
dent companies until the consolidation is complete, that is to
say until it has acquired a distinct corporate existence by
complying with the conditions precedent named in the statute au-
thorizing the consolidation, — as by filing the instrument of con-
solidation in the office of the Secretary of State,^ or by electing
a new board of directors.*
§ 357. New Company must Show its Title. — As the contract
of subscription, which is the subject of the suit, does not purport
to be made with the consolidated company by name, this com-
pany must, on the most obvious grounds, show in what manner
it has succeeded to the right of the original company to enforce
the contract against the subscriber.^ It is indeed true that,
where a corporation has taken a contract made to it in its cor-
porate name^ the obligor thereby, under a well understood prin-
ciple,^ confesses its existence as a corporation and becomes
estopped, when sued by the corporation to enforce the obligation,
from denying its corporate existence. But this rule does not
a shareholder in one of the precedent L. & Eq. 17. But see Cork &c. R. Co.
companies denied on the ground of an v. Patterson, 18 C. B. 414 ; Mansfleld
adequate remedy at law: Ilardinge &c. R. Co. v. Brown, 26 Oh. St. 223.
V. Webster, 1 Drew. & S. 101 ; s. c. 6 » Mansfleld &c. R. Co. v. Brown, 26
Jur. (N. s.) 88; 29 Law J. (n. s.) 161. Oh. St. 223. Compare ante, § 240.
' Swartwoiit 17. Michigan &c. R. Co., ■•Peninsular R. Co. v. Tharp, 28
24 Mich. 389; Hanna t. Cincinnati &,c. Mich. 506.
R. Co., 20 Ind. 30. * Mansfield &c. R. Co. v. Drinker,
2 Midland R. Co. v. Leech, 3 H. L. 30 Mich. 124.
Cas. 872; 22Eng. L. &Eq. 45; 28 Eng. « Post, §518, and Ch. 184, Art. I.
249
1 Thomp. Corp. § 358.] consolidation.
apply where a consolidated corporation brings an action for an
assessment against a stockholder of one of the precedent corpora-
tions. Such a stockholder has entered into a contract to pay for
certain shares of the stock of corporation A., and this Jigreeraent
will not support an action against him by corporation B., unless
corporation B. alleges and proves a state of facts showing that
it has become the successor to the risfhts under the contract of
corporation A. It is not enough, to authorize a recovery in such
an action, that the consolidated company is shown to be a cor-
poration de facto and entitled to enforce contracts as against
parties who have dealt with it. To acquire the rights of the
original corporation in its contract with its subscribers, other-
wise than by an assignment, it is essential that the statutory
requirements of a transfer by succession be complied with, — at
least in the absence of any participation by such subscriber as a
stockholder, in the business of the new corporation, by virtue of
his previous character of stockholder in the original corporation,
such as would estop him from disputing the consolidation.^
§358. Stockholder may Plead no Consolidation. — This
principle would be nugatory, if the subscriber to the shares of
the precedent corporation were not permitted, in an action upon
his subscription by the new company, to set up a defense in the na-
ture of the plea of nul iielcoi'poration ; and it has been accordingly
held that such a defense is available to him. He may, for instance,
dispute the corporate existence of the plaintiff, on the ground
that, at the date of the agreement to consolidate, the railroad of
the company to whose stock he subscribed, was neither made nor
in process of construction, as required by the governing statute
before a consolidation could take place. ^ He is not precluded
from questioning the validity of the steps which led up to the
consolidation, provided he took no part in them, although they
may have been sufficient to make the new corporation a corpora-
tion de facto. The reason is that no change in the corporation
' Mansfield &c. R. Co. v. Drinker, ^ Maasfield &c. R, Co. v. Stout, 26
30 Mich. 124; Tuttle v. Michigan Air Oh. St. 241; Tuttle u. Michigan Air
Line R. Co., 35 Mich. 247, 249 ; Mans- Line R. Co., 35 Mich. 247.
field &c. R. Co. V. Brown, 26 Oh. St.
223.
250
EFFECT UPON SHAREHOLDERS. [1 Thoiup. Coip. § 360.
which has violated any substantial statutory conditions can bind
a dissenting stockholder, or compel him to submit to the new
order of things against his will.^
§ 359. Illustration. — A person who becomes a subscriber to such
stock during the progress of the arrangement for consoHdation is to be
regarded as a stockholder within the meaning of § 10 of the Ohio stat-
ute of 1856.2 After the consolidation is completed by filing a certificate
with the Secretary of State, the new corporation thereby created can
succeed to the rights, powers and franchises of the original corporation
only by operation of the statute, which provides for such succession only
upon the election of the first board of directors of the new corporation.
As the election is not authorized by the statute before consolidation has
been consummated by filing the certificate with the Secretary of State,
it follows that the new company, in an action for money due on sub-
scriptions to the capital stock of one of the original corporations, must
show that it has succeeded to the rights of its predecessors, by the elec-
tion of a board of directors of its own.^
§ 360. What in Case the Original Subscription was Con-
ditional. — As hereafter seen,* in the case of conditional sub-
scriptions to the stock of corporations, if the condition is law-
ful and expressed in the contract, the corporation cannot enforce
its collection without performing the condition. So, in the case
of a consolidation, if the subscription to the capital stock of one
of the original companies is made upon a valid condition, it of
course passes to the new company subject to this condition. If,
therefore, the subscription is made on the express condition that
not more than ten per cent, shall be required at any one call, and
that calls shall not be made more frequently than once in sixty
days, and the directors of the original company make a general
call requiring the installment of five dollars, due upon each share
at the time of making the subscription, to be paid at once, and ten
per centum or five dollars on each share to be paid on the fifteenth
of each month following, until the whole amount shall be paid, —
1 Tuttlew. Michigan Air Line R. Co., Oh. St. 223; Mansfleld &c, R. Co. /?.
35 Mich. 247, 249. See also Mansfleld Drinker, 30 Mich. 124. (Decision
&.C. R. Co. V. Drinker, 30 Mich. 124. under Ohio statute.)
3 53 Oh. Laws, 143. < Post, § 1332.
8 Mansfield &c. R. Co. v. Brown, 26
251
1 Thomp. Corp. § 365.] consolidation.
this call h;is no validity in its application to the particular sub-
scription, and cannot be enforced against a particular subscriber
by the new company.^
Article III. Transmission of Rights and Liabilities of Constit-
uent Companies.
Section
365. New company succeeds to rights
and obligations of the old
ones.
366. Succeeds to rights of old in re-
spect of municipal aid.
367. "When consolidation revokes
power to subscribe.
Succeeds to exemption from tax-
ation.
How as to accretions and better-
ments.
When exemption' lost.
Special immunities pass by the
consolidation.
Liability of new for debts of
old.
Statute of consolidation valid,
although not providing for
payment of all debts of ab-
sorbed company.
Act of merger after mortgage
foreclosure.
375. Liable in equity to extent of as-
sets received.
Observations and illustrations.
Rule does not apply to bona fide
sale of assets.
Rights of bona fide purchasers
from consolidated company.
368.
369.
370.
371.
372.
373.
374.
376.
377.
378.
380.
381.
382.
383.
Section
379. Creditor of old corporation not
bound to accept responsibility
of new.
Power of new company to deal
with credits of old.
Guaranty by the officers of one
company of the obligations of
the other.
Damages for refusal to carry out
obligation of old corporation.
Illustration: damages for re-
fusal to exchange bonds for
stock of consolidated com-
pany.
384. Right of bondholder to notice of
privilege given him by the
consolidation.
Validity of bonds of old com-
pany put in circulation by new.
New company must perform
public obligations of the
old.
387. Illustration.
388. Enforcement of stipulations in
the contract of consolidation.
389. Consolidated company subject to
existing general law reserving
right of alteration or repeal.
390. Illustration.
385.
386.
§ 365. New Company Succeeds to Rights and Oblig-ations of
the Old Ones. — As a general rule, the new company succeeds to
1 Mansfield &c. R. Co. v. Pettis, 26
Oh. St. 259. The new corporation
may, under the Ohio statute of 1856,
perform the conditions named in sub-
scriptions to the capital stock of the
original companies, and it may also, by
the performance of the conditions, ac-
252
cept a continuing conditional offer to
subscribe such stock. Where a gen-
eral requisition, otherwise termed
an assessment or call, is duly made by
one of the precedent companies dur-
ing the pendency of the consolidation
proceedings under the above named
RIGHTS AND LIABILITIES. [1 TllOIlip. Coip. § 365.
the rights, duties, obligations and liabilities of each of the pre-
cedent companies, whether arising ex contractu or ex delicto.^
The charter powers, privileges and immunities of the corporations
pass to and become vested in the consolidated company,''^ except
so far as otherwise provided by the act under which the consoli-
dation takes place, or by other applicatoiy constitutional or
legislative provisions.*^ As the power to amalgamate with an-
other corporation is in the nature of a privilege or franchise, the
legislature may grant iton terms. It may require, as a condition
of the grant, the new company to assume liabilities of the old
corporations; ^ and in most cases, no doubt, statutes authorizing
the consolidations so provide in express terms. ^ A decision of
act, for the payment of subscriptions
to its capital stock in monthly install-
ments, and the consolidation becomes
complete before all the installments
are due, the requisition will continue
in force for the benefit of the consoli-
dated company, provided an officer
authorized to receive such payments
be continued at the place named in the
call. Such a requisition applies to
conditional subscriptions as soon as
the condition is performed, and to
subsequent subscriptions made before
the consolidation is complete, as well
as to subscriptions absolute at the
date of the call. Mansfield &c. R. Co.
V. Stout, 2G Oh. St. 241.
1 Ridgway Township v. Griswold, 1
McCrary (U. S,), 151; Chicago &c. R.
Co. V. Moffitt, 75 111. 524; Miller v.
Lancaster, 5 Coldw. (Tenn.) 514;
Atchison &c.R. Co. v. Phillips County,
25 Kau. 261; Washburn v. Cass
County, 3 Dill. (U. S.) 251 ; Paine v.
Lake Erie &c. R. Co., 31 Ind. 283;
Zimmer v. State, 30 Ark. C77; Thomp-
son v. Abbott, Gl Mo. 176; Barksdale
V. Finney, 14 Gratt. (Va.) 338; Harri-
son V. Arkansas Valley R. Co., 4
McCrary (U. S.). 264; Brum v. Mer-
chants' Mut. Ins. Co., 16 Fed. Rep.
140; Sappington v. Little Rock &c. R.
Co., 37 Ark. 23; Louisville &c. R. Co,
V. Boncy, 117 Ind. 501 ; s. c. 20 N. E.
Rep. 432; 3 Law. Rep. Ann. 435;
Selma &c. R. Co. v. Harbin, 40 Ga.
70G; Montgomery &c. R. Qo.v. Bor-
ing, 51 Ga. 682; Indianapolis &c. R.
Co. V. Jones, 29 Ind. 465; St. Louis
&c. R. Co. V. Miller, 43 111. 199;
Peoria &c. R. Co. v. Coal Valley Min-
ing Co., 68 111. 489; Baltimore &c. R.
Co, V. Musselman, 2 Grant Cas. (Pa.)
348; Lewis u. Clarendon, 6 Reporter,.
609; Baltimore v. Baltimore &c. R.
Co., 6 Gill (Md.), 288; s. c. 48 Am.
Dec. 531 ; Tomlinson v. Branch, 15
Wall. (U. S.) 460; State v. Greene Co.,
54 Mo. 540, 551.
2 Robertson v. Rockford, 21 111.
451 ; Toledo &c. R. Co. v. Dunlap, 47
Mich, 456; Central R. Co. v. Georgia,
92 U, S, 665; New York &c. R. Co. v.
Saratoga &c, R. Co., 39 Barb, (N. Y.)
289; Daniels v. St. Louis &c. R. Co.,.
62 Mo. 43; Zimmer v. State, 30 Ark.
677.
3 Chicago &c. R. Co. v. Moffitt, 75
111. 524; Zimmer v. State, 30 Ark. 677.
4 Day V. Worcester &c, R. Co,, 151
Mass. 302; s. c. 23 N. E. Rep. 824.
5 Ante, § 305, et seq. See Lightner
V. Boston &c. R. Co., 1 Lowell (U. S.),
338; Shaw v. Norfolk County R. Co,,
16 Gray (Mass.), 407; Western &c, R.
Co. V. Smith, 75 111. 496; Hatcher v.
Toledo &c. R. Co., 62 111, 477. It has
been observed, in view of numerous
253
1 Thoinp. Corp. § 366.] consolidation.
the Supreme Judicial Court of Maine qualifies this rule, by hold-
inf that, where the enabling act prescribes that the new company
is to have *' the powers, privileges, and immunities possessed by
each of the corporations" whose union constitutes the new
corporation, the latter will have only the privileges, powers, and
immunities which the corporation with the fewest privileges^
powers and immunities possessed, and which were common to
all.^ The mere fact that a corporation is created with the same
name and with the same franchises as those possessed by a pre-
ceding corporation, does not make it a continuation of the pre-
ceding corporation and liable for its debts. ^ But where the
legislature authorizes the surrender of the charter of one com-
pany and its incorporation into another existing company, in such
a sense that the latter company succeeds to the property, rights
andprivileges'of the former and becomes merely its successor, it
will be bound for its liabilities.'
§ 366. Succeeds to Rights of Old in Respect of Municipal
Aid. — The consolidated company succeeds to whatever rights
decisions, that "it is usual for con-
solidating statutes to introduce more
or less the element of succession or
continuity of legal person as to exist-
ing rights and duties, notwithstand-
ing the fact that, in other respects, the
old and new corporations are not the
same." Holmes, J., in Hancock
Mutual Life Ins. Co. v. Worcester &c.
R. Co., 149 Mass. 214 ; s. c. 21 N. E. Rep
364; citing Railroad Co. v. Railroad
Co., 1 Gray (Mass.), 340, 359; Abbott
V. Railroad Co , 145 Mass. 450,453;
s. c. 15 Northeast. Rep. 91; Pullman
Palace Car Co. v. Missouri &c.
R. Co., 115 U. S. 587; s. c. 6 Sup.
Ct. Rep. 194. Where such is the
provision of the statute, the new cor-
poration may lawfully use a patented
invention, which both the old corpora-
tions had been licensed to use, with-
out a formal assignment of it. Light-
ner V. Boston &.c. R. Co., 1 Low. (U.
S.) 338. Under such a statute provi-
sion, a person who was surety by bond
254
to one of the companies, before amal-
gamation, for the conduct of an em-
ploy6, was liable to the new company
for breaches of the bond committed
after the amalgamation. Eastern
Union Railway Co. v. Cochrane, 24
Eug. L. &Eq.495; s. c. 17 Jur. 1103; 23
Law J. (n. s) 61. The power of a rail-
road company to begin proceedings
for the co7ideintmtion of lands in Michi-
gan, is not lost by its consolidation
with another railroad company into a
new organization so as to constitute a
corporation subject to the laws of the
same State as the original company.
Toledo &c. R. Co. v. Dunlap, 47 Mich.
45G.
1 State V. Maine Central R. Co., 66
Me. 488.
2 For an example of this see Bruf-
fett V. Great Western R. Co., 25 IH.
353, and the very lucid opinion of
Walker, J. ; ante, ^ 202.
3 Montgomery &c. R. Co. ». Boring,
51 Ga. 582.
EIGHTS AND LIABILITIES. [1 Thomp. Coip. § 366,
each of the old companies possessed in respect of municipal
aid. It retains the privilege, conferred by the charters of the
old companies, of having such aid voted, if the proper munici-
pal body, or the electors, are so minded; and if the aid has been
voted, prior to the consolidation, to one of the constituent com-
panies, the consolidated company is entitled to the bonds. ^ The
authority given by the legislature to a county, to subscribe for
the stock of a railway company and to issue its bonds therefor,
is not extinguished by the subsequent consolidation of the com-
pany with other companies. The statute confers a riglit and
privilege upon the company, which passes, with its other rights
and privileges, into the new conditions of existence which it
assumes under the consolidation. ^ In holding that it was a
privilege to the corporation as well as an enabling act to the
county, the Federal court followed a decision of the Supreme
Court of Missouri which, as a construction of its own statute,
was binding upon the Federal tribunal. The Missouri court said :
"The power thus conceded to the counties or other municipal
bodies may well be termed a privilege to the corporation, and
we see no substantial objection to a transfer of such a privilege
by symbol, in general terms, embodying the section of the
original act which granted it into the new law. That such was
the intention of the legislature and of the railroad company is
clear; and, if the word 'privilege' admits of the narrow con-
struction claimed, the practical construction it has derived in
this State, as may be seen by reference to the decision of our
courts, would preclude any inquiry into the subject now. These
provisions were the principal means by which this and other
roads were built, and without them the charters would have
1 East Lincoln V. Davenport, 9i U. DilL (U. S.) 251; Nugent v. Super-
S. 801; Henry County v. Nicolay, 95 visors, 19 Wall. (U. S.) 241; Atchi-
U. S. 619; Callaway County v. Foster, son &c, R. Co. v. Phillips County, 25
93 U. S. 507; Scotland County v. Kan. 2G1.
Thomas, 94 U. S. 682; Smith v. Clark - Scotland County v. Thomas, 94
County, 54 Mo. 58; State v. Greene U. S. 682. To the same effect see
County, 54 Mo. 540; Hannibal &c. R. Lewis v. Clarendon, 6 Reporter, 609;
Co. V. Marion County, 36 Mo. 294; Smith v. Clark County, 64 Mo. 58;
Branch v. Charleston, 92 U. S. 677; Hannibal &c. R. Co. r. Marion County,
Tomlinson v. Branch, 15 Wall. (U. S.) 36 Mo. 294; State v. Greene County,
460; Hanna V. Cincinnati &c. R. Co., 54 Mo. 540; Henry v. Nicolay, 95 U.
20 Ind. 30; Washburn v. Cass Co , 5 S. 019.
255
1 Thomp. Corp. § 367.] consolidation.
been of no value." ^ Thus, where the charter of a railway
compan}^ empowered the county courts of the counties along the
line of its projected road to subscribe for stock in such company,
and issued the bonds of their respective counties in payment
thereof, and such railroad company became merged in another
railroad company by a consolidation, so that its road became a
branch of the road of the latter company, the charter right of
having the aid of the counties passed to the latter company,
and the bonds of such counties, issued and delivered to the latter
company, were valid. ^ In such a case the principle, which up-
holds rights depending upon -the existence of corporations
de facto ^ applies in favor of an innocent holder of the bonds; so
that, where the validity of the consolidation has not been dis-
puted by the State, or by any stockholder, the municipality can
not dispute it by way of defense to an action on the bonds. ^
§ 367. Wben Consolidatioii Revokes Power to Subscribe. —
But where authority has been given to a county courts by the
electors of a township^ to subscribe in its behalf for stock in a
certain railway company, this authority does not continue to
exist after the company ceases to exist in its separate character,
by being consolidated with another company. The reason is that
the county court is the mere agent of the township, having no
discretion to act beyond the precise terms of the power given.
The powers of an agent or attorney, authorized to act for another,
are very different from those possessed by a person acting in his
own behalf. Authority given to a person, to be exercised for
his own benefit, and at his own discretion, may be exercised by
him under a change of circumstances which would amount to a
revocation of a power given to an agent. " So long as it re-
mains unexecuted, the occurrence of any event which creates a
revocation in law will extinguish the power. The extinction of
the company, in whose favor the subscription was authorized,
worked such a revocation. The law authorizing the consolida-
tion of railroad companies does not change the law of attorney
1 Smith V. Clark County, 54 Mo. 58, » Washburn v. Cass County, 3 Dill.
67. (U. S.) 251.
2 State ex rel. v. Greene County, 54
Mo. 540. Vories, J., dissented.
256
RIGHTS AND LIABILITIES. [1 ThoDip. Corp. § 368.
and constituent. It may transfer the vested rights of one railroad
company to another, upon a consolidation being effected, but it
does not continue in existence powers to subscribe for stock
given by one person to another, which, by the general law, are
extinguished by such change." ^
§ 368. Succeeds to Exemption from Taxation. — If the pre-
cedent corporations enjoy, under their statutes, an exemption
from taxation, and if the statute authorizing the consolidation
provides by whatever language that the new company shall suc-
ceed to the rights, privileges and immunities of the old, this ex-
emption from taxation will pass to and become vested in the new
corporation. 2 If one of the precedent corporations enjoys this
exemption, it will not be enlarged by the consolidation. Nor
will it be diminished; but, as to its property which passes to the
new corporation, the latter will take it subject to the exemption.^
Thus, where one of the consolidating companies enjoyed under
its charter an exemption from taxation, this exemption did not,
by the consolidation, become extended to the new company in re-
spect of its entire road, but only in respect to that portion of it
which it had acquired from the company which had enjoyed the
exemption.* So, where one company, which, under its charter
enjoyed an exemption from taxation for a limited period, became
merged in another company which enjoyed a perpetual exemption,
this perpetual exemption did not, by the consolidation, become
extended to the road of the company which thus became merged.^
1 Harshman V.Bates County, 92 U.S. the sale. Atlantic &c. R. Co. v. Allen,
569. This case is distinguishable from 15 Fla. 637.
Scotland County v. Thomas, 94 U. S. ^ Central Railroad &c. Co. v. Geor
682, and other cases cited in the gia, 02 U. S. CGa, 075; Phila. &c. R. Co.
preceding section, on the ground that v. Maryland, 10 How. (U. S.) 376; Del-
in the latter case there was no ques- aware Railroad Tax Case, 18 Wall. (U.
tion of agency, S.) 206; Toralinsou v. Branch, 15 Id
2 Soulliwestern R. Co. v. Georgia, 400; Charleston v. Branch, 15 Wa'.l.
92 U. S. 670; State v. Woodruff, 30 N. (U. S.) 470; Branch v. Charleston, 92
J L. 94. A statute providing that "all IT. S. 077; State v. Phila. &c. R. Co.,
rights" as to a line of railway which 45 Md. 361; Chesapeake &c. R. Co. v.
"are and have been legally vested " in Virginia, 04 U. S. 718.
one corporation shall pass to another * Phila. &c. R. Co. v. Maryland, 10
corporation upon a sale by one to the How. (U. S.) 376.
other, passes a right of exemption '^ Toraliuson v. Branch, 15 Wall.
from taxation, where such rightexists (U. S.) 460.
in the ven<l()r conipany at t!ie time of
n 257
1 Thomp. Corp. § 370.] consolidation.
§ 369. How as to Accretions and Betterments. — When two
railroads are thus united, one of them enjoying an exemption
from taxation and the other not, embarrassing questions may
arise in applying this principle. Although now held by one cor-
poration, the property which enjoyed the exemption continues to
enjoy it, and that which did not enjoy such an exem])tion remains
subject to taxation. But how shall the rule be applied in respect
of improvements and additions put upon the property of one or
the other sections by the new company? These questions have
been the subject of consideration by the Supreme Court of the
United States.* In the last of these cases the court, in carrying
out the principle already stated, held that any repairs or im-
provements made on the old line, or the property of the old
company, would become a part thereof and subject to taxation,
since its original property was subject to taxation ; but newly
acquired property might not be. The court laid this down only
as the general principle, and admitted that the method of carry-
ing it out in detail admits of some latitude for the exercise of de-
liberation and judgment ; and the court affirmed a decree, rendered
on the report of a special master, with the exception that an item
of $25,000, for replacing the tracks and side tracks within the
limits of the city of Charleston, fairly belonged, in the opinion
of the court, to the old road, which did not enjoy the exemption,
and hence should have been taxed in toto and not pro tanto?
§ 370. When Exemption Lost. — But where the exemption
from taxation, although vested in both of the uniting companies
depends upon the performance of certain precedent acts to be
done by such companies, and the new corporation is neither re-
quired by the act of consolidation, nor able to perform such
precedent acts, it does not succeed to the right of exemption.^
It is a well settled principle of law that, when a creditor has two
classes of claims against his debtor, by uniting them in one suit
and obtaining judgment thereon, he reduces that in which his
rights are superior, to the level of that in which his rights are in-
^ Branch v. Charleston, 92 U. S. ^ Branch v. Charleston, supra.
677. See also Tomlinson v. Branch, * State v. Maine Central R. Co., 66
15 Wall. (U. S.) 4G0; Charleston v. Me. 488; s. c, aff'd, 96 U. S. 499.
Branch, 15 Wall. (U. S.) 470.
258
RIGHTS AND LIABILITIES. [1 Thomp. Corp. § 372.
ferior.^ Thus, by joining lien debts and non-lien debts in one
suit and obtaining judgment, the priority of right, to which a
portion of the debts was entitled before such joinder, is lost, and
1 he lien is extinguished. Upon this ground it has been held
that, by the consolidation of corporations claiming an exemption
from general taxation, with those not thus exempt, the right of
limited and conditional taxation exists no longer in favor of those
which had that right, it being impossible in this confusion of
estates to ascertain when the contingency would happen, — when
the fraction of the new and consolidated corporation would be-
come liable to the special and limited taxation prescribed in the
charter of such fraction, as it existed before the consolidation.
" The acceptance of tlie new charter is a surrender of exemp-
tions as before existing. The State makes no surrender of any
of its general rights of sovereignty, or of its reserved rights." ^
§ 371. Special Immunities Pass by the Consolidation. —
Special immunities inhering in one of the precedent corporations,
although attaching to its officers and agents, may [)ass to the new
company by the consolidation, — such as an exemption by its
charter of its officers, agents and servants from military, jury
and road duty.^
§ 372. Liability of New for Debts of Old — Where one
corporation goes entirely out of existence, by being annexed to
or merged into another corporation, if no arrangements are
made respecting the property and liabilities of the corporation
that cea-es to exist, the surviving corporation will be entitled to
all the property, and answerable for all the liabilities of the other. ^
The liabilities of the old corporations are enforcible against the
new one, in the same way as if no change had been made.*^
1 Bicknell u. Trickey, 34 Me. 273; stocks and loans, and annexin-j; to its
Miller u. Scherder, 2 N. Y. 202. capital and loans those additions
2 State V. Maine Central R. Co., which are made proportional to the
€6 Me. 488,511; s. c. aff' d, 9G U. S. original amounts. Lake Shore &c. R.
499. The general Michigan rai'road Co. v. People, 40 Mich. 193.
law, In porn>itting the consolidation 3 Zimmer v. State, 30 Ark. 677.
of railroad companies within the State * Thompson v. Abbott, 01 Mo. 176.
with otl crs beyond its boundaries, This rule had reference to corpora-
contemplates leaving the domestic tions for school purposes,
company in its orimnai position as to ■• Indianapolis &c. K. Co. v. Jones,
259
1 Tlioinp. Corp. § 373.] coxsolidation.
§ 373. Statute of Consolidation Valid, altlion^h not Provid-
tnsrf or Payment of all Ocbts of Absorbed Company. — A decision
of the Supreme Court of the United States must, it is believed, be quoted
in support of the proposition that an act of consolidation is valid, although
it does not provide for the payment of all the debts of the absorbed
company, butpro\ides, in a schodule, for the paAiuent of certain debts,
from which a vahd claim is omitted; and further, that the omitted
claimant can not maintain a suit in equity to have his claim audited and
paid, in the manner pro\'ided by the statute for the payment of tJie debts
which are included iu tlie schedule. The case was that tJie Potomac
Company, haAiug a charter from the States of Maryland and Virginia,
was authorized by the legislatures of those States, with the consent of
the stockholders, to surrender their charter, and assign all the ' ' property,
rights and pri\-ileges. by them owned," to tlie Chesapeake and Ohio
Canal Company, which was done. By the chax-ter of the latter com-
pany, they were to receive stock of the Potomac Company, not exceed-
ing a certain amount, in payment for their own stock issued to the
holders, and were to pay the claims of creditors of the Potomac Com-
pany, regularly certified by the president and directors of the latter
company, — pro\ided they should not, in the whole, exceed a certain
amount. On a bill against tlie new company, by a judgment creditor of
the Potomac Company, whose debt was not included in the list of debts
certified by the president and directors of the latter company, to com-
pel payment of his judgment, it was held, that Virginia and Maryland had
authority to authorize the surrender of their charter, bv the Potomac Com-
pany, with the consent of the stockholders, and that the Canal Company
were not bound, by their charter, to satisfy the complainant's judgment.
The court, speaking tlu-ough Mr. Justice McLean, said: " There can be
no doubt that the States of Virginia and Maryland, iu granting the
charter of the Chesapeake and Ohio Canal Company, had the power to au-
thorize a surrender of the charter of the Potomac Company, with the con-
sent of the stockholders : and to make the provision which they did make-
for the creditoi*3 of the company. This assignment does not impair the
obUgation of the contract of any creditor of the company, nor place him
iu a worse situation in regard to his demand. The means of payment
possessed by the old company are carefully preserved, and, indeed,
guaranteed by the new company. And if the fact can be established .
which is denied by the defendants, that some botia fide creditors of the
29 Ind. 465; Montgomery ic. R. Co. r. one of the old companies in its char-
Boring, 51 Ga. 582. An action may be acter of a common carrier of passen-
brought against the new company to gers. Ibid.
recover damages for the negligence of
260
RIGHTS AND LIABILITIES. [1 Thonip. Coi'p. § 374.
Potomac Company were unprovided for in the new charter, and conse-
quently have no redress against the defendants, it does not follow that
they are without remedy. It may be that all the creditors whose de-
mands make up the sum of $175,800, have not claimed stock in the new
companj^ or in the proportionate dividend secured to them. But if
they have not asserted their right to stock or the dividend, they may
well claim either, and the defendants are bound to satisfy their de-
mand." 1 It seems that the court regards the assets of the absorbed
company as being, by virtue of the statute of consolidation, impressed
with a trust for the particular creditors named in the schedule ; and while
the court says that it does not follow that the complainant is without
remedy, it does not state what, if any, remedy he has. Modern hold-
ings would, it is believed, on the general implications of the law, allow
a party standing in such a position as the complainant in this case did,
to bring a direct action against the consolidated company, and recover a
judgment in ijersonam.
§ 374. Act of Merger after Mortgage Foreclosure. — As al-
ready stated, 2 the foreclosure of a railway mortgage has the effect of
extinguishing, not only the rights of the shareholders, but also those of
the general creditors, unless it is otherwise provided in a statute opera-
tive at the time of the mortgage, or by some arrangement made between
parties interested, at the time of its foreclosure. ^ If, therefore, there
has been, prior to the consolidation, the foreclosure of a mortgage upon,
all the property and franchises of one of the companies, the effect of the
consohdation does not make the new company liable for the general
debts of the company, existing prior to the mortgage foreclosure. In
such a case, the general creditor could only claim through the pur-
chasers at the foreclosure sale; and, as already seen, he can have no
rights against them except on the conditions above stated.* Nor will a
statute, pro\idingfor a consolidation and enacting that the consolidated
company shall be liable for all the debts of each company entering into
the arrangement, be construed as retrospective ^ in such a sense as to re-
vive the general debts of one of the antecedent companies, which have
been cut off by a mortgage foreclosure, and to make the consolidated
company liable therefor ; and if such a statute were in terms retroactive, it
would be invalid, as impaii'ing the obligation of the contract between the
original corporation and its mortgagee. ^ By statute in Texas, "the
1 Smith V. Chesapeake & Ohio Canal ' Ante, §§ 2G0, 2C7.
Co., 14 Pet, (U. S.) 45, 47. Compare * Houston &c. R. Co. v. Shirley, 54
Thomas v. Visitors of Frederick Tex. 125.
County School, 7 Gill & J. (Md.) 3C9. « Hatcher v. Toledo &c. R. Co., 62
2 Ante, § 2G3. HI. 477.
261
1 Thomp. Corp. § 374.] consolidation.
road-bed, track, franchise and chartered rights and privileges " are to
be deemed an entire thing and to be sold as such ; and ' ' the pur-
chaser or purchasers at such sale and their associates shall be deemed
and taken to be the true owners of said charter, and corporators under
the same, and vested with all the powers, rights, privileges and benefits
thereof, in the same manner and to the same extent as if they were the
original corporation {sic) of said company ; and shall have power to con-
struct, complete, equip and work the road, upon the same terms and
under the same conditions and restrictions as are imposed by their
charter and the general laws of the State." ^ It is further provided that
such sale shall not pass to the purchaser any right to recover of " former
stockholders any sums which may remain due upon their subscriptions
of stock, but said stockholders shall continue Uable to pay the same in
discharge and hquidation of the debts due by the sold-out company."
The directors of the sold-out company, at the time of the sale, are made
"trustees of the creditors and stockholders of the sold-out company,
and shall have full powers to settle the affairs of the sold-out company,
collect and pay the outstanding debts, and divide among the stockhold-
ers the money and other property that shall remain after the payment of
the debts and necessary expenses; and the persons so constituted
trustees shall have authority to sue by the name of the trustees of such
sold-out company, and may be sued as such, and shall be jointly and
severally responsible to the creditors and stockholders of such company,
to the extent of its property and effects that shall come to their hands.
And no suit pending for or against any railroad company at the time
that the sale may be made of its road-bed, track, franchise, and char-
tered privileges, shall abate, but the same shall be continued in the name
of the trustees of the consohdated company. ^ Construing these pro-
visions, it is said : ' ' The plain intent of the statute is to transfer the road-
bed, track, franchise and chartered rights entire to the purchaser and
associates, upon their adopting the form of organization prescribed in
the charter and complying with its other requirements ; and to remit
creditors, unsecured by hen, to their remedy against such assets as pass
to the trustees of the sold-out company. Under this statute, it is be-
lieved that a number of railroads in this State have been sold out and
purchased by individuals, who have proceeded to organize and manage
the corporation under the original charter. ^ Not only the road-bed and
other mortgaged property, but the franchises to operate a road and the
1 Pasch. Dig. Tex. Stat., art. 4912; ^ Citing Galveston R. Co. v. Cow-
Kev. Code Tex., art. 4260. drey, 11 Wall. (U. S.) 459, 474.
' Pasch. Dig. Tex. Stat., arts. 4915,
4916; Key. Code Tex., arts. 4262-5.
262
RIGHTS AND LIABILITIES. [1 Thomp. Copp. § 376>
very corporate existence of the sold-out railway passes to the new or-
ganization by \irtue of the statute. Ordinarily such purchaser and as-
sociates need no further legislation." ^
§ 375. Liable in Equity to Extent of Assets Received. —
Where several corporations are united in one, and the property of
the old companies is vested in the new, the latter is liable in
equity for the debts of the former, at least to the extent of the
property received from them; and if it is also liable at law, the
legal remedy is not exclusive.^ The governing principle here is
that a corporation cannot give away its assets to the prejudice of
its creditors ; ^ but that a court of equity will follow such assets
as a trust fund into the hands of any new custodian, the same
not being a creditor or bona fide purchaser.* It is scarcely
necessary to add that, in such a case, the consolidated corporation
holds the property received from the absorbed company with
notice of any trust attaching to it in favor of its creditors, and
cannot claim the rights of a bona fide purchaser without notice?
§ 376. Observations and Illustrations. — A statute which pro-
vides for a consolidation by the purchase by one company of the stock
of another, and the issue of its own stock for the same, and which adds
that "the pm-chases herein provided for, or the surrender of the fran-
chises, shall in no way affect the rights of the creditors of the company,"
that is, of the absorbed company, — gives to the general creditors of
such company a remedy in equity against the assets of the absorbed
company in the hands of the absorbing company, upon the theory of a
lien, and is not limited to the vain and ideal remedy of an action at law
against the absorbed company, although the existence of such company
is continued for the purpose of such actions.^ In so holding it was
said: "If, leaving its debts unpaid, its capital, property and effects
are distributed among the stockholders, or transferred for their benefit to
third persons who are not bona fide purchasers without notice — and still
more, if the corporation be dissolved, or become so disorganized that it
> Houston &c. R. Co. ». Shirley, 54 S.)307; Bacon v. Robertson, 18 MAS;
Tex. 125, 138, 139. Hij^htower v. Thornton, 8 Ga. 503.
Harrison ■;;. Arkansas Valley R. ^ Monti;;omcry&c. R. Co. u. Branch,
Co., 4 McCrary (U. S.), 264; Barks- 59 Ala. 13!), l.-,4; The Key City, 14 Wall,
dale V. Finney, 14 Oratt. (Va.) 338; (U.S.) 053.
ante, § 205. 6 Montgomery &c. R. Co. v. Branch,
« Goodwin v. McGee, 15 Ala. 232. 59 Ala. 139.
* Curran v. Arkansas, 15 How. (U.
263
1 Tliomp. Corp. § 377.] consolidation.
caunot be made answerable at law, — then a court of equity will pursue
and lay hold of such property and effects, and apply them to the pay-
ment of what it owes to its creditors. A suit having that object is the
most direct, if not the only efficient means of asserting and vindicating
any right of the creditors, in such a case as the present; and, by hold-
ing that it is not maintainable, we should refuse to give any real effect
to the saving clause in the statute, if such a clause was necessary to
enable them to maintain the suit. Certainly if, by virtue of the act, one
of the contracting companies might transfer all of its ample property and
effects, out of which its creditors ought to be paid, to the other and
weaker company, in consideration of its admitting stockholders of the
former to become shareholders of its capital and property thus aug-
mented, and might then, b^^ a sort of legal suicide, slip out of existence,
leaAdng those creditors to sue at law the surviving company, which
they had never dealt with, or accepted as their debtor, their rights
would be very seriously affected thereby. " ^ - - - - Another ex-
cellent illustration of the principle of the preceding section is found in
a well considered case in Virginia where the president and acting man-
ager of a mining corporation which will be designated as the B. com-
pany, who owned most of the shares in it, contracted with certain per-
sons that he would obtain an act of incorporation for a new company,
with provisions which would enable them to conduct the business in
England ; that he would cause to be transferred to the new company
all the property of the B. company (except slaves and some specified
lands) and all the shares of stock in that company; for which they
were to paj^ him a certain sum of money and a royalty upon the product
of the mines. The new company was organized, and the shares of
stock in the B. company were transferred on their books to the new
company, but there was no conveyance of the real estate, which, how-
ever, the new company took possession of and held as its own. It was
held that the new company was the successor of the old, and held the
pi'operty of that company subject to its debts, and that equity would
charge it with the payment thereof.^
§ 377. Rule does not Apply to Bona Fide Sale of Assets. —
The foregoing does not, it is assumed, apply to a hona fide sale,
for a good consideration, by one company, of all its properties,
to another. In such a case the consideration of the sale would
pass to the directors of the selling company, and they would hold
it as a trust fund for their creditors first and their shareholders
1 Ibid. 153, per Manning, J. 2 Barksdale v. Finney, 14 Gratt. (Va.) 338.
264
RIGHTS AND LIABILITIES. [1 Thomp. Coip. § 378.
next. It would be a mere substitution of trust funds, and the
purchasing company would not, on well settled principles, be
bound to see to its proper application by the directors of the
selling company.^ Such purchases can only take place under
two conditions : 1. Where they are authorized by the legislatuie.
2. Where they are sanctioned by the stockholders, both of the
purchasing and of the selling company. In such a case there is
no principle which makes the purchasing corporation liable for
the debts of the selling corporation, except so far as it has un-
dertaken, under the terms of the contract of purchase, to become
so liable. It is precisely the same as a purchase by one individ-
ual of the property of another individual. If the purchase is in
good faith and for a valunble consideration, it will stand, al-
though it may operate to defeat the creditors of the seller. ^
Where the transfer is of this nature, a bill in equity by a cred-
itor of the selling corporation, brought against the purchasing
corporation, which contains no allegation of fraud nor that the
transfer was not made for a valuable consideration, nor that the
defendant was not a bona fide purchaser, nor that there was any
trust for the benefit of creditors, — will be dismissed.^
§ 378. Rights of Bona Fide Purchasers from Consolidated
Company. — A simple contract debt, owing by one of the ante-
cedent companies, does not constitute a lien upon the property
of such company, which passes into the hands of the consolidated
company; though, while it remains in the hands of the consoli-
dated company it will be chargeable in equity with any of the
debts of the antecedent company, the new company not being an
1 A purchaser in good faith from a Although this case seems to have been
trustee is not bound to see to the badly decided ou its facts, the reason-
proper application of the purchase ing of the opinion seems well enough,
money. Mason v. Bank of Commerce, It was, that there had been, under what
16 Mo. App. 275; Goodwin v. Ameri
can Nat. Bank, 48 Conn. 564; Shaw v
Spencer, 100 Mass. 391; Ashton v
Atlantic Bank, 3 Allen (Mass.), 217
Fountain v. Anderson, 33 Ga. 337;
had taken place, no consolidation be-
tween two railroad companies, but that
the property of one had merely been
conveyed to the other; and stress was
laid on the fact that thtre was no
Rev. Stat. Mo. 1879, § 3937. averment or proof that the defendant
2 Powell V. North Mo. R. Co., 42 held the property otherwise than as a
Mo. 631. See also Bruffutt v. Great- buna fide purchaser for a valuable
western R. Co., 25 111. 353, 356. consideration.
2 Powell ». N. Mo. R. Co., supra.
265
1 Thomp. Corp. § 380.] consolidation.
innocent purchaser. ^ It follows that if, before any judgment or
other lien has attached to the property, the consolidated com-
pany conveys it to an innocent purchaser, one who brings an ac-
tion against the original company and prosecutes it to judgment
airainst the consolidated company, cannot maintain a suit in
equity against the innocent purchaser to charge the property in
his hands. In the absence of fraud, the case is simply that of a
party who is in debt, conveying his property to a third person,
who takes as an innocent purchaser.^
§ 379. Creditor of Old Corporation not Bound to Accept
Responsibility of New. — But while the creditor of the old cor-
poration may pursue his remedy against the new, he is not bound
to assent to the arrangement of consolidation so as to create a
novation, if that term may be used. Thus, where a railroad com-
pany agreed to give its bonds in consideration of certain moneys
to be paid in installments, and afterwards becoming, by legislative
authority, amalgamated with two other companies, tendered the
bonds of the consolidated corporation, and brought suit for the
money, it was held that the action would not lie, the considera-
tion offered not being that agreed for.=^ The governing principle
here is that a party to a contract who disables himself from ren-
dering the agreed consideration, cannot require the performance
of a promise which rests on that consideration.*
§ 380. Power of New Company to Deal with Credits of
Old. — As the new company succeeds to the rights of each of
the precedent companies, it may compromise and settle a claim
ao-aiiist one of them, and sustain an action to enforce the settle-
ment ; ^ and the directors of the new company have authority
without a vote of the stockholders, to pay and cancel as many of
the outstanding obligations of one of the precedent corporations
as they may see fit.®
1 Ante, § 375. »• Clarksou, 7 Cow. (N. Y.) 24; New-
2 McMahan w. Morrison, 16Ind. 172. comb v. Brackett, 6 Mass. 161.
3 New Jersey &c. R. Co., v. Strait, ^ Paine v. Lake Erie &c. R. Co., 31
35 N. J. L. 323. Ind. 283.
< Keys V. Ilarwood, 2 C. B. 905; « Shaw v. Norfolk County R. Co.,
Planche v. Colburn, 3 Bing. 14; Frost 16 Gray (Mass.), 407.
266
RIGHTS AND LIABILITIES. [1 ThoiUp. Corp. § 381.
§ 381. Guaranty by the Officers of One Company of tlie
Obligations of the Other. — The courts of New York, with some
irregular it}'' aud coutradictiou, have made an innovation upon a strict
rule in the law of contracts, by which a promise made by A. to B. for
the benefit of C, may become the foundation of an action by A.
against C, although C. was privy neither to the promise nor to the con-
sideration ; ^ and other courts, especially those which have adopted the
modern codes of procedure modeled after that of New York, have
adopted the same rule.^ In New York it has been held that, where such
a promise is in the nature of a contract of guaranty, the party for
whose benefit the promise was made, may bring an action thereon
directly against the guarantor ; that the guaranty goes with the princi-
pal obligation, and is enforcible by the same person who could enforce
the other. ^ But the application of this principle was denied in a case
presenting the following facts : Pending negotiations for the consoli-
dation of the business of the A. insurance company with the B. insur-
ance company, officers of the A. company wrote that they pledged
themselves that all contracts of the B. company, of every name and
nature, would be fulfilled, to the same extent and in the same manner
as though no change had taken place. The consolidation was effected.
Both companies then were solvent, and the A. company agreed to as-
sume the habiUties of the B. company. Afterwards, both companies
were dissolved, and the assets of the B. company were insufficient to
reinsure its outstanding risks. It was held that the officers of the A.
company, who had written as above, were not liable, in an action
brought by the holder of a paid-up endowment policy in the B. com-
pany. The court laid stress on the fact that the promise which the
defendant guaranteed was a pledge that the contract obligations of one
of the precedent companies with its policy holders and others, of every
nature and kind, would be rigorously fulfilled to the same extent and
in the same manner, as if the change contemplated had not taken place.
The court could not read it, with this language in it, as a guaranty of
the absolute payment of the obligations of the precedent company, but
regarded it as amounting to notiiing more than an assurance to the five
1 See Lawrence v. Fox, 20 N. Y. (N. Y.) 188; Simson u. Brown, (58 N.
268, where the doctrine was estab- Y. 3G0; Thorp v. Keokuk Coal Co., 48
lished by a divided court; also Burr N. Y. 257; Arnold v. Nichols, 64 N. Y.
V. Beers, 2t N. Y. 180; TEtiia Nat. 119; Pardee u. Tnat, 82 N. Y. 387.
Bank v. Fourth Nat. Bank, 4G N. Y. * See, for instance, Markel v.
82; Coster v. Mayor &c. of Albany, 43 Western Union Tel. Co., 19 Mo. App.
N. Y. 411 ; Merrill v. Green, 55 N. Y. 80; Fitzgerald v. Barker, 13 Mo. App.
270; Claflin v. O-troni, 54N.Y. 531; 192.
Secor V. Law, 4 Abb. App. Dec. ^ ciaflin v. Ostrom, 54 N, Y. 581.
267
1 Thomp. Corp. § 384.] consolidation.
trustees, who were to obtain the amount of stock that would give the
absorbing company a controlUug interest in the other company, and to
the special committee to whom the matter was referred, that the men
who were to take the place of the resigning trustees, and who, being a
majority, were to have thereafter the control of the absorbed company,
would, in conducting its affairs, recognize and fulfill all its pre-existing
contract obligations with its policy holders and others.^
§ 382. Damages for Refusal to Carry out Obligation of Old
Corporation. — Where the new corporation is thus made the
heir, so to speak, of the obligations of the old, if the new com-
pany refuses to carry out such an obligation, the obligee can
maintain an action against it for the resulting damages?
§ 383. Illustration : Damages for Refusal to Exchange
Bonds for Stock of Consolidated Company. — A statute consol-
idating two corporations provided that the new corporation should ' ' be
subject to all the duties, restrictions, obligations, debts, and liabilities
to which at the time of the union either of said corporations is subject,"
and that " all claims and contracts . . . against either corpora-
tion may be enforced by suit or action . . . against the " new
corporation. Plaintiff held bonds issued by one of the corporations,
convertible into its stock on completion of its road. It was held that,
whether or not plaintiff was entitled to demand stock in the new corpo-
ration, it was entitled to hold the new corporation to its predecessor's
contract ; and that, on refusal to deliver stock either in the new or old
corporation, on demand, the plaintiff could recover from the new cor-
poration the damages provided for.^
§ 384. Right of Bondholder to Notice of Privilege Given him
by the Consolidation. — Upon the consolidation of two corpora-
tions, the holder of the bonds of one, containing a clause author-
izing their conversion at any time into stock at par, cannot be
deprived of his right to demand such conversion, and relegated
to different rights conferred by the articles of consolidation,
until he has had a fair opportunity, after notice, to exercise his
^ Wise V. Morgan, 13 Daly (N. Y.), ^ Hancock Mutual Life Ins. Co. x.
402. Worcester &c. R. Co., 149 Mass. 214;
2 Hancock Mutual Life Ins. Co. «. s. c. 21 Northeast. Rep. 364.
Worcester &c. R. Co., 149 Mass. 214;
s. c. 21 Northeast. Rep. 364.
268
RIGHTS AND LIABILITIES. [1 TllOmp. Coip. § 386.
original rights, and has elected not to do so.^ The words " all
the obligations, debts, and liabilities," and " all claims and con-
tracts," in a statute 2 relating to the liability of a consolidated
corporation for claims against one of the old companies, include
its liability on a contract to exchange stock for bonds ; and where
such stock would be exchangeable share for share for the stock
of the new company, its stock must be delivered.^
§ 385. Validity of Bonds of Old Company put in Circulation
by New. — Where the cousohdation took the form of the absorption of
one company into another, without changing in any respect the consti-
tuent character of the latter, and certain bonds had been put in circula-
tion by the absorbed company, but had returned into its hands before
matui'ity, and had then passed, by a transfer preceding the consoKda-
tion, to the absorbing company, by which company they were re-issued
before maturity, — the mortgage securing them being still held by the
trustee to whom it was executed, — the court lieklthat, the bonds being
commercial paper such as might pass by delivery, the re-issue was legal
under the powers conferred upon the absorbing compau}- by the statutes
authorizing the consolidation, — intimating also the opinion that the
absorbing company would be estopped from denying their vahdity.*
§ 386. New Company must Perform Public Obligations of
Old. — After the consolidation the new company becomes liable
to perform the public duties required of the precedent companies ;
and if no part of the franchise is reserved to either of the old
companies, they will not be liable to the public for the non-per-
formance of the duties thus devolved on the new company. The
duties which railroad companies owe to the public, and which are
the considerations upon which their privileges are conferred by
the legislature, cannot be cast off by an agreement between such
companies and other persons or corporations. Therefore, so
much of a contract for the consolidation of two railway companies,
as operates to prevent a faithful discharge by the new company
of its public duties, is void as against public policy.^
1 Rosenkrans v. Lafayette &c. R. •• Eaton &c. K. Co. v. Hunt, 20 Ind.
Co., 18 Fed. Rep. 513. 467.
2 N. II. Act 1883, chap. 239, and « Peoria &c. R. Co. v. Coal Valley
Mass. Act 1883, chap. 129. Mining Co., 68 111. 489.
3 Day V. Worcester &c. R. Co., 151
Mass. 302; s. c. 23 N. E. Kep. 824.
269
1 Tliomp. Corp. § 388.] consolidation.
§ 3S7. Illustration. — Where it was agreed, upon the consoUda-
tion of two railroad companies, that a corporation which owned one of
the roads so consolidated, and which had rolling stock and motive
power of its own, should cany coal over a certain part of the road, to a
certain amount, without charge, and that the new company should pay
the coal company 50 cents per ton for all coal transported by any party
except the coal company, it not appearing that the coal company was
under any legal obligation to the public to carry coal and passengers
after the consolidation, it was held that a court of equity would not en-
force the stipulation prohibiting the new company from carrying coal
except on paying 50 cents per ton, it being the duty of the new company,
under the law, to carry all freights, and the court not having the
power to transfer their duty to another.^
§ 388. Enforcement of Stipulation in the Contract of Con-
solidation. — Some difficulty must attend the question of the
enforcement of covenants in the contract of consolidation,
growing out of the difficulty of ascertaining who are tlie cove-
nantees. If the contracting parties are the two precedent
corporations, such covenants cannot be enforced in an action by
one or either of them, because the very nature of the contract is
to dissolve them and merge their existence in the new corpora-
tions. If it is to be regarded as a contract between the
aggregate shareholders of one of the old corporations on the one
hand, and the aggregate shareholders of the other of the old
corporations on the other hand, then other questions arise in re-
spect of pai'ties and form of relief. These difficulties presented
themselves to the Supreme Court of Ohio in a case where two
raih'oad companies, in their agreement for consolidation, had in-
serted an article providing for the completion and operation of
the road of one of the companies, which agreement the directors
of the consolidated compan^^ had failed to perform. It was held
that, if the duty thus created was owing to all the stockholders
1 Peoria &c. R. Co. v. Coal Valley tion of consolidated gas company, in
Mining Co., 68 111. 489. Liability of Louisiana, to continue furnishing gas
conS'Jidated company, in Sauth Caro- free to cliarity hospital: Charity Hos-
lina, to assessment for expenses of pital v. New Orleans Gas Light Co., 40
railroad commission: Charlotte &c. R. La. An. 382; 22 Am. & Eng. Corp.
Co. V. Giibes, 27 S. C. 385; 31 Am. & Cas. 569; 4 South. Rep. 433; 4 Rail. &
Eng. R. Cas. 404; 4 Southea.st. Rep. Corp. L. J. 115.
49; 3 Rail. & Corp. L. J. CA. Obliga-
270
RIGHTS AND LIABILITIES. [1 Thomp. Corp. § 389.
of the new company, one of them could not sustain an action
against the directors to enforce performance. On the other
hand, if the duty was owing to a class of stockholders having, in
respect of the covenant, an interest or right distinct from an-
other class, any proceeding to obtain relief, could only be had
after both the directors of the company and the two classes
of stockholders had been made parties.^ But it seems that
there is no precedent for a suit in equity to enforce an active
duty within the power of the directors. The remedy of the
stockholders lies in the election of a new board. ^ " If a court
of equity were to assume jurisdiction in such a case, could it do
so without opening its doors to all parties interested in corpora-
tions, or joint-stock companies, or private partnerships, who,
although a small minority of the body to which they belong,
may wish to interfere with the conduct of the majority? This
cannot be done; and the attempt to introduce such a remedy
ought to be checked, for the benefit of the community," ^
" There may be cases, however, where there were classes of
stockholders, and a duty may be owing to one class. This
might occur where there is preferred stock, and it might possi-
bly happen, that, in the consolidation of two companies, the
stockholders of one might, as a class, acquire rights distinct from
the stockholders of the other." * That individual stockholders
have a remedy in equity to restrain the fraudulent or ultra vires
acts of the directors and managing oflScers, is a principle resting
on different grounds.^
§ 389. Consolidated Company Subject to Existing General
liaw Reserving Right of Alteration or Repeal. — On a princi-
ple already explained, that the provisions of a general statute
existing at the time of the formation of a corporation, unless
otherwise stated in the statute creating it, enter into it and I'orm
a portion of the grant by the legislature,^ it has been held that,
where two corporations are consolidated under the authority of
1 Fort Clinton &c. R. Co. v. Clevc- Cleveland &c. R. Co., 13 Oh. St. 544,
land &c. R. Co., 13 Oh. St. 544. 5G1.
2 Ibid., 501. ■• Ilnd., per Gholson, J.
3 Lord V. Copper Miners Co., 1 '^ Ante, 349; post, §§ 1137, 2936.
Hall. & T\v. 85, 9'.); quoted with ap- « Ante^ § 92.
proval in Fort Clinton &c. R. Co. v.
271
1 Thomp. Corp. § JiOO.] consolidation.
a special act, and there exists at the time a general law declaring
that any act of incorporation subsequently passed shall at all
times thereafter " be liable to be amended, altered or repealed
at the pleasure of the legislature, in the same manner as if an
express provision to that effect were therein contained, unless
there shall have been inserted in such act of incorporation an ex-
press limitation or provision to the contrary," — this provision
of the general law qualifies the special act authorizing the con-
solidation, and the consolidated company receives its franchises
subject to the right of amendment, alteration or repeal at the
pleasure of the legislature, — there being in the special act of
consolidation no limitation on such power. ^ It has been added
that rights and interests acquired by the company, not consti-
tuting a part of the contract of incorporation, stand on a differ-
ent footing. 2 This principle applies where the consolidation
takes place in such a manner that the act of consolidation is to
be deemed in law the creation of a neio company} If the
merger is, under the governing statute, of such a character as
not to create a new company, but merely to continue the exist-
ence of an old one,* then a different principle may apply.
§ 390. Illustration. — A provision of the code of Georgia, which
took effect January 1, 1863, enacts that private corporations are sub-
ject to be changed, modified, or destroyed at the will of the creator,
except so far as the law forbids it ; and that, in all cases of private
charters thereafter granted, the State reserves the right to withdraw the
franchise, unless such right is expressly negatived in the charter. Two
railroad companies, created prior to that date, each of which enjoyed
by its charter a limited exemption from taxation, were consolidated, by
virtue of an act of the legislature passed April 18, 1863, — subsequent
to the taking effect of the code. This act authorized a consolidation
of their stocks, conferred upon the consolidated company full corporate
powers, and continued to it the franchises, privileges and immunities
which the companies had held by their original charters. It was held :
1. That, by the consoUdation, the original companies were dissolved^
1 Railroad Co. v. Georgia, 98 U. S. S. 104: Tomlinson v. Jessup, 15 Wall.
359. (U.S.) 454.
- Railroad Co. v. Maine, 96 U. S. ^ Railroad Co. v. Georgia, 98 U. S.
499; afiBrming s. c.,S2i6 nom. State??. 359.
Maine Central R. Co., G6 Me. 488. * As was the case in Central Rail-
Compare New Jersey v. Yard, 95 U. road &c. Co. v. Georgia, 92 U. S. 665.
272
REMEDIES AND PROCEDURE. [1 TllOmp. Corp. § 395.
and a new corporation created, which became subject to the above pro-
vision of the code. 2. That a subsequent legislative act, taxing the
property of the new corporation as other property in the State was
taxed, was not prohibited by that provision of the constitution of the
United States which declares that no State shall pass a law impairing
the obligation of contracts. ^
Article IV. Effect on Remedies and Procedure.
Section Section
395. View that consolidation dis- 403. View that new process not
solves the constituent com- necessary: effect of appear-
panies. ance and oral evidence of
396. Not necessarily a dissolution of consolidation.
both. 404. Substitution after referee's re-
397. Further of this subject. port aud before judgment.
398. New company estopped from de- 405. Action by creditors of old com-
f ying its corporate name and pany against new company,
character. 406. How fact of consolidation
399. Legal existence of old companies averred.
continued in the new com- 407. How averment replied to.
pany. 408. Proof of the consolidation.
400. Effect of a consolidation upon 409. Effect of dissolving consolida-
pending suits. tion upon judgments against
401. View that action abates as to old consolidated company
company. 410. Binding effect of admission of
402. View that new process is neces- one of the precedent corpora-
sary. tions.
§ 395. View that Consolidation Dissolves the Constituent
Companies. — It has been frequently said that the usual effect
of the consolidation of two railway companies is to extinguish
the two companies and to make of them one neio company .^ One
of the earliest expressions on the subject is found in a decision
of the Supreme Court of Indiana to the effect that, where the
legislature gives its consent to the consolidation of existing cor-
porations, the effect is to dissolve the former corporations, and
at the same instant to create a new corporation, with property,
liabilities and stockholders derived from the old, upon such
terms and conditions as may bo prescribed by the act of consoli-
1 Railroad Co. w. Georgia, 98 U. S. Ion, J.: Clearwater v. Meredith, 1
359. Wall. (U. S.) 25; Tomlinson v.
2 McMahan v. Morrison, 16 lud. Branch, 15 Wall. (U. S.) 460; Fee v.
172; Ridgway Township u. Griswold, New Orleans Gaslight Co., 35 La.
1 McCrary (U. S.), 151, 153, per Dil- Ann. 113.
18 273
1 Thomp. Coi'i). § 395.] consolidation.
dation. The court regard this as an illustration of the principle
that the corporation may be dissolved by a surrender of its fran-
chises and the acceptance of them by the leo^islature.^ These
views received the subsequent sanction of the Supreme Court of
the United States ; ^ but that court in a subsequent case pointed
out that the question was not necessary for its decision, and held
that, in the case before it, the effect was not a dissolution of either
of the precedent corporations, in such a sense as prevented its
immunities from passing to the new.^ In Louisiana it is said
that the consolidation terminates the existence of the original
corporations, creates a new corporation, transmutes the mem-
bers of the former into members of the latter and transfers the
property, rights and liabilities of each of the old to the new.*
In Ohio, the view has been taken that, when a corporation, in
pursuance of an act of the legislature, transfers or conveys its
franchise to be a corporation to another, the transaction, in
leofJil effect, is a surrender or abandonment of its charter to the
corporation, and a grant by the legislature of a similar charter to
the transferees ; and the charter so granted is subject to all the
provisions of the constitution existing at the time it was so
granted.^ In Massachusetts,^ and in Pennsylvania,^ the effect
of a consolidation has been held to create a new corporation out of
the members of several existing corporations. In Maine it has
been reasoned that the old corporations exist only so far as may
be necessary to protect their several creditors or mDrtgugees,
and cease to exist when that necessity ceases.^ In Texas, the
view is that the consolidation extinguishes the precedent compa-
nies, so that thereafter no action can be commenced and prose-
cuted against them.^ This view seems to be a sound one as to
actions commenced after the consolidation, but not as to actions
pending before it.
^ McMahan v. Morrison, 16 Ind. * Hamilton &c. Ins. Co v. Hobart,
172. 2 Gray (Mass.), 543.
- Clearwater v. Meredith, 1 Wall. ' Com. v. Atlantic &c. R. Co., 53
(U. S.) 25, 40. Pa. St. 9.
3 Central R. Co. v. Georgia, 92 U. * State v. Maine Central R. Co., QQ
S. 665, 671. Me. 488, 500.
•* Fee V. New Orleans Gaslight Co., ® Indianola R. Co. v. Fryer, 56
35 La. An. 413. Tex. 609.
* State V. Sherman, 22 Oh. St. 411.
274
REMEDIES AND PROCEDURE. [1 Thomp. Corp. § 396.
§ 396. Not Necessarily a Dissolution of Both. — But it is
plain that the consolidation of two corporations does not neces-
sarily work a dissolution of both and the creation of a new one ;
but that, whether such is its effect, depends upon the legislative
intent manifested in the statute under which the consolidation
takes place ; ^ and distinct expressions on this subject are no
doubt found in most of the statutes authorizing consolidations.^
It has been seen that consolidations frequently take the form of
one company purchasing the capital stock of another.^ In such
cases, and in others that may be imagined, the terms of the union
may be such that one corporation, without any change of name,
merely absorbes or annexes the other. In such a case the ab-
sorbing corporation continues unaffected and the other is dis-
solved. Railway consolidations^ for instance, often take the
form of the absorption by one railway of others, as where branches
are united Avith a trunk line, or short lines are united with longer
lines, so as to form one continuous line, — in which case the ab-
sorbing company proceeds without any change of name, and suc-
ceeds to the rights possessed by the absorbed company. A good
illustration of this is found in a case in the Supreme Court of the
United States, where the question under consideration was to
what extent the Georgia Railroad and Banking Company had
succeeded to an exemption from taxation possessed by the Macon
and Western Railroad Company, which company the former
company had absorbed by a consolidation. It was held, in view
of the statutes authorizing the consolidation, that the former
company had not been dissolved by the fact of consolidation,
such not being the intent of the legislature, but had succeeded to
the immunity from taxation possessed by the latter company, so
far as the property of that company, which passed to the former,
was concerned, but no further.^ Such also seems to have been
the case with the consolidation which took place between the
New York Central Railroad Company and the Utica and Schen-
ectady Railroad Company. The latter, it was held, became the
proper representative of the former in regard to leases executed
* Central Railroad &c. v. Georgia, ^ Ante, § 330, et seq.
22 U. S. 665. * Central R. Co. v. Georgia, 92 U.
2 Ante, § 306, et seq. S. 665.
275
1 Tbonip. Corp. § 398.] co.xsolidation.
by it, and entitled to the benefit of the provisions of such leases.^
Again, it is possible, though not usual, for one of the consolidat-
ing companies to be revived by the legislature as a separate cor-
poration, — though this, it is supposed, should rather be regarded
as the creation of a new one.^
§ 397. Further of this Subject. — Under the statutes of
New York, Missouri and other States, the managers or direct-
ors of a dissolved corporation have full power as trustees to
settle its affairs, if no other trustees are appointed to perform
this duty. Such a statute applies to the case of the dissolution
of one corporation, by its being absorbed into another, in which
case the directors of the dissolved corporation have power to
execute a written assignment of a patent to the new corporation,
which assignment will pass the legal title.^ It has been reasoned
that, while the consolidation and merger of one corporation
in another, whereby it may, in respect of future transac-
tions, lose its separate identity and corporate existence, will
not operate to relieve it or its corporators from responsi-
bility to those to whom it maybe indebted, — yet it may, by the
act of consolidation, become so situated as to be estopped from
claiming that it remains undissolved, against one who seeks to
enforce rights which accrue to him by reason of its dissolution, —
as, for instance, against one who has conveyed land to it, and
who claims that, by reason of the fact of its dissolution and of
fraudulent representations by which the conveyance was procured,
the land has reverted to him, instead of passing to the new cor-
poration.*
§ 398. New Company Estopped from Denying its Corporate
Name and Character. — Where an action is brought against the
new company upon an obligation of the old, and the act or acts
of consolidation, by which it has become the successor of the old
in respect of the obligation, are pleaded, and the new company
pleads the ^ewera^ issue, it is estopped to deny the name in which
1 New York &c. R. Co. v. Saratoga ^ Edison Electric Liglit Co. v. New
&c. R. Co., 39 Barb. (N. Y.) 289. Haven Electric Co., 35 Fed. Rep. 233.
2 See New Jersey Zinc Co. v. Bos- ■* Carey v. Cincinnati &c. R. Co., 5
ton Franklinite Co., 15 N. J. Eq. 418. la. 357, 367.
276
REMEDIES AND PROCEDURE. [1 TllOmp. Coip. § 399.
it is sued and also to deny that the old company executing the
obligation by the name then used, has, by force of the consolida-
tion, assumed the name by which the new company is sued: ^ a
decision which seems to mean that, in such a case, the non-liabil-
ity of the defendant must be specially pleaded and proved. The
same principle has been declared with reference to a case where an
action was depending against one of the old companies at the time of
the consolidation, and the consolidated company appeared by its
counsel and defended. By so appearing, it admitted its corpo-
rate existence, its successorship to the precedent corporation, and
its liability in case the precedent corporation should be adjudged
liable. 2
§ 399. tiBgal Existence of Old Companies Continued in the
New Company. — The Supreme Court of Indiana has been
troubled with the question of the effect of two railroad companies
consolidating, upon the rights of action for damages against one
of the previous companies, — in the particular case, for killing
an animal upon its railway track where it was not fenced. It
was contended that the company created by the consolidation
was not liable for damages done by one of the precedent com-
panies ; but the court overruled this contention in the following
language; "By the consolidation, both of the old companies
ceased to exist separately, and all their effects and franchises
were vested in the new company. The two corporations became
merged in one. We cannot imagine how the Indianapolis and
Cincinnati Railroad Company [the company by which the alleged
damage was done] could afterwards be sued. Upon whom would
process be served? It ceased to have any officers or agents. It
ceased to be a separate legal entity. Instead of two, there was
now but one corporation, made up of the mingled elements of the
two pre-existing companies, so combined and merged that neither
could be identified and brought into court. But what of the
rights of creditors and persons upon whom torts have been com-
mitted by the vanished corporations? A dead mun may have an
administrator to represent his estate and answer to suits, but a
1 Columbus &c. R. Co. o. Skidraore, 2 Kiniou v. Karnsas City &c. R. Co.,
€9 111. 5G6. 39 Mo. App. 382.
277
1 Thomp. Corp. § 400.] consolidation.
corporation lawfully disappearing thus, has no estate to be ad-
ministered. Its assets lawfully vested in the new consolidated
corporation. Must lawful claims be lost then? That result can-
not follow. The legislature has chosen to make no provision
upon the subject ; and the industry of counsel, as well as our own
examination of the books, has failed to discover any direct
authority upon the question before us. The analogies of the law,
too, afford little aid in its solution. We regret to be compelled
to decide it without a more thorough argument. Giving it, how-
ever, the best consideration of which we are capable under the
circumstances, we have reached the conclusion that, for the pur-
poses of answering for the liabilities of the constituent corpora-
tions, the consolidated company should be deemed to be merely
the same as each of Us constituents^ their existence continued in
it, under the new form and name, their liabilities still existing as
before, and capable of enforcement against the new company the
same as if no change had occurred in its organization or name.
This doctrine seems to spring from the necessities of justice, and,
so far as we are able to foresee, cannot result in wrong or em-
barrassment." ^
§ 400. Effect of a Consolidation upon Pending Suits. —
The consolidation does not destroy either of the precedent cor-
porations, in such a sense as works an abatement of actions
pending against them and requires the plaintiffs in such actions
to begin anew against the consolidated company. On the con-
trary, the effect of the consolidation is rather to blend the tw(>
companies together and to continue the existence of each in the
united corporation. It may be compared to the mingling of
two streams. Ordinarily, therefore, it is not such a dissolution
of either of the precedent corporations as will abate an action
commenced by or against it before the consolidation was effected.'
1 Indianapolis &c. R. Co. u. Jones, arrest of judgment; and that, if tlie
29 Ind. 4G5, 0!>iuionby Frazer, J. original corporation were to prose-
2 Baltimore &C.R. Co. v.Musselman, cute an appeal to the Supreme Court
2GrantCas. (Pa.), 348; Hanuav. Cin- and give an appeal bond in its o\v;i
cinnati &c. R. Co., 20 Ind. 30; Swart- name, it would thereby be estopped to
wout V. Michigan Air Line R. Co., 24 deny its corporate existence. East
Mich. 389, 394. It has been said that Tennessee &c. R. Co. v. Evans, G
if the rule were different the question Heisk. (Teun.) 607.
could not be raised by a motion in
278
REMEDIES AND rROCEDURE. [1 TllOllip. Corp. § 402.
It has been reasoned that, as to pendin<^ suits, the original corpo-
ration continues to exist for the purpose of judgment — that as to
them it has not lost its individuality or identity. Campbell, J.,
said: " No act of a defendant can defeat the right of the plaint-
iff. At common law a feme sole defendant marrying after
suit brought, though she lost her identity, changed her name
and merged her separate existence in that of her husband, did
not necessitate the taking of any notice by the plaintiff of her
change. He is entitled to judgment against her by her former
name. After judgment, scire facias is proper to charge the
husband.^ So in the case at bar." ^ Conversely, a suit by one
of the consolidated companies, pending- at the time of the consoli-
dation, — for example, a suit against one of its shareholders for
an assessment, — does not abate by the consolidation, but the
original company retains, it has been held, the right to enforce
the collection of the subscription.^ At most, as the cause of
action in such a case does not die, but passes to the new com-
pany, if this can be regarded a valid objection in any form, it
should be pleaded in ahatement^ by a plea puis darrein contin-
uance. If so pleaded, the suit can proceed in the name of the
new company, upon the proper suggestion being made.*
§ 401. View that Action Abates as to Old Company. — In
Kansas the exceptional view is taken that, where a raikoad company is
consolidated with other raihoad companies under a new name, it ceases
to exist as a corporation, and an action brought by or against such
railroad company before its consolidation, cannot afterward be prose-
cuted by or against it or in its original name.^
§ 402. View that New Process is Necessary. — The Supreme
Court of Georgia has held that it is eiTor to permit the plaintiff, in a
suit pending against one of the precedent companies at the time of the
consolidation, to take judgment against the consolidated companj^ in its
new name, -v^dthout taking proper steps to bring the new company, as
such, before the court, — which would require a new notice and proof
1 Citing Roosevelt v. Dale, 2 Cow. ^ Hanna v. Cincinnati &c. R. Co.,
(N. Y.) 581. 20 Ind. 30.
2 Shackleford v. Mississippi &c. R. ■* Swartvvout v. Micliigau Air Line
Co., 52 Miss. 150, 160, opinion by Camp- R. Co., 24 Mich. 389, 404.
bell, J. 5 Kansas &c. R. Co. v. Smith, 40
Kan. 192; s, c. 19 Pac. Rep. 63G.
279
1 Thomp. Corp. § 4();J.] consolidation.
of the fact of consolidation and successorship.^ It is believed that this
view is unsound, and that the true view is that the consolidated com-
pany is not a new company in the sense wliich requires new process.
But it must remain that there is a burden upon the plaintiff of alleging
and proAang the fact of the successorship, unless it has been produced in
such a manner as has wrought no change in the corporate name, in which
case the rule would apply that identity of name presumes identity of per-
son. But if the consohdated company has taken a different name from
the company whose contract, act, or neglect is the foundation of the suit,
it should seem that the plaintiff must regularly allege a state of facts
which shows the consohdation and successorship in habihty , and must also
prove the same, unless it is admitted, as it may be a general appearance
by the new company. This must be so regarded, when it is considered
that the consohdation of two private corporations is a fact which takes
place in pats, which depends upon the concun-ence of two things: 1. The
passage of an act by the legislature, or the existence of a general stat-
ute authorizing the consohdation. 2. An agreement or arrangement of
consohdation, followed by the steps prescribed by the statute to bring
about the amalgamation of the two companies. As the existence of the
statute does not prove the fact of the consolidation, it is plain that the
courts cannot take judicial notice of it,2 and that the plaintiff must
therefore ordinarily allege and prove it. Another view of this subject
is that the effect of the consohdation is to dissolve the old company, so
that actions thereafter cannot be brought against it, but can only be
brought and prosecuted against the new company. When, therefore,
an action was brought against the old company, and, by an amendment
the fact of consohdation was set up and judgment prayed against the
new company, and this company filed a general demurrer, it was held
error to sustain it ; since, by reason of the consohdation, the action
could only be prosecuted against the new company.^
§ 403. View that New Process not Necessary : Effect of
Appearance and Oral Evidence of Consolidation. — Where an
action had been commenced against one of the old companies, and the
only evidence of the consolidation was the oral admission of the attor-
ney of the consolidated company, who appeared in the action, and who,
in the same breath, delivered the evidence and then objected to it ; and
it appeared that, in another record between the same parties in the
1 Selma &c. R. Co. v. Harbin, 40 ^ indianola R. Co. v. Fryer, 56 Tex.
Gft 706. 609.
2'southgate t). Atlantic &c. R. Co.^
61 Mo. 90.
280
REMEDIES AND PROCEDURE. [1 Thomp. Coip. § 403.
same court, he had delivered the evidence without objection, and the
evidence stated that he was ' ' informed unofficially ' ' that a consolida-
tion had taken place at a given date, — the court refused to reverse the
judgment on the assignment of error that the fact of consolidation was
not sufficiently proved.^ The court said: " An examination of the de-
cisions "will, we think, show that, in a juridical sense, and so far as
regards any right of action that existed against either of the corpora-
tions prior to their being so united, the effect of a consohdation is not
more than a change of name. "We do not understand that an action
commenced against one of the pre^dous corporations, abates by the con-
solidation, though the effect may be to dissolve the old corporations as
such. On the other hand, we understand that, upon proof of the fact
of consohdation being made, the action may be revived against the new
corporation, by an amendment, as was done in this case. We know of
no sound reason why the new corporation should be regarded as a dif-
ferent person in a juridical sense, so as to require it to be brought into
court by a fresh service of process. So to hold would be equivalent to
regarding it as a distinct person for all purposes from either of the cor-
porations by the amalgamation of which it was created. The new
corporation, for instance, succeeds to the proprietary rights of the old
corporation, without any new conveyances.'^ We apprehend that, for
juridical purposes, in the case of such a consohdation, the new com-
pany may be regarded as identical with either of the old companies,
though under a different name ; and that, where an action is commenced
against one of the old companies, the most that is required for the pur-
poses of practical justice, in order to continue it against the new com-
pany, is to prove the fact of consolidation and amend the petition by
substituting the new company as defendant, as was done in this case.
The new company is the old company ; it is each of the old companies.
It is simply the onward flow of a stream which is formed by the uniting
of two precedent streams." ^ In the other case between the same
parties, above alluded to, oral testimony, of the character above stated,
of the fact of the consolidation, was given without objection ; and it
was held that this was tantamount to an admission of the fact by the
defendant. It was also held that no error was committed in permitting
the plaintiff to take judgment against the consolidated company without
a new citation, although the action had been commenced against one of
1 Kinion v. Kansas City &c. R. Co., Scotland County v. Thomas, 94 U. S.
39 Mo. App. 574. 682; State ». Greene County, 54 M©.
540.
2 Citing to this point, Thompson ^ Kinion v. St. Louis &c. R. Co.,
V. Abbott, 61 Mo. 176 ; Lightner v. ."O Mo. App. 574.
Boston &c. R. Co., 1 Low. (U. S.) 338 ;
281
1 Thomp. Corp. § 401.] consolidation.
the old companies. The court, speaking tbrougli Biggs, J., said : " By
the contract of consolidation all property belonging to the old com-
panies, including their corporate privileges and franchises, is trans-
ferred to the consoUdated company, and there is nothing left to sustain
the corporate life of the original corporations. It seems to us that the
old companies, by their voluntary act, completely merged their separate
existence, and, strictly speaking, a new legal entity was thereby formed;
The exact legal status of the consolidated company is somewhat anoma-
lous and hard to define. Literally speaking, it is a new corporation,
but substantially, it is but the continuation of the old companies under
a new name.i It is not formed like other corporations. The reincor-
poration, if we may use the term, is made complete by the mere act of
the original companies. The consent of the State is not necessary,
and the acts of the original companies leading up to the consoUdation
need not be ratified or approved by any officer of the State ; and it is
only made the duty of the Secretary of State to file and record in his
office the contract of consohdation. Technically speaking, however,
and for general purposes, it may be conceded that the consohdated
company is a new corporation ; but, touching the business of the old
companies and the rights of their respective creditors, we think the
consolidated company ought to be regarded as the continuation of the
old companies under a new name, and to that extent it ought not to be
regarded as a new corporation. Mr. Morawetz, in his treatise on the
law of corporations, in discussing this question, said : ' In considering
the rights of creditors of original companies, the consolidated company
may be regarded as a continuation of each of these respective com-
panies, with a change of its name and constitution and of the amount
of its capital stock.' 2 Under this view it was not necessary to bring
defendant into court by a new summons, and the simple and direct act
of substitution adopted by the court was right. If John Smith is sued,
and, during the pendency of the suit, he has his name changed to John
Jones, a claim that he, as John Jones, must be brought into court by
additional summons, would be somewhat novel. Practically, that is
this case. We think, however, that the amended complaint ought to
have set forth the fact of consolidation, etc., but we cannot see that
this omission did any particular harm." ^
§ 404. Substitution after Referee's Report and before
Judgment. — There may be sound reasons, however, why the consoli-
dated company should not be substituted in the place of the new com-
1 Citing Evans v. Exchange Bank, ^ Kinion v. Kansas City &c. R. Co.,
79 Mo. 182. 39 Mo. App. 382, 385.
2 Citing 2 Mor. Priv. Corp., § 956.
282
REMEDIES AND PROCEDURE. [1 Thouip. Coip. § 404.
pany, after the action has been prosecuted against the new company to
a decision; because there may be, in particular cases, particular grounds
for the conclusion that the properties of the new company should not,
in the aggregate, be subjected to the restraints which might, by an in-
junction or otherwise, be imposed upon the properties of the old. This
is illustrated by a case in New York, where the holder of certain pre-
ferred stock of one of the old companies, prosecuted a suit in equity
against it, to a final decision by a referee, whose report recommended a
judgment that the defendant company, its officers, agents, etc., and
their successors, be restrained from laying out, expending, disposing
of, or in any manner charging the property and assets of the company,
or its rights and franchises, until the payment of the amount found to
be due should be made. After the coming in of this report the con-
solidated company was, on motion of the plaintiff, substituted in the
place of the original company, and this order of substitution was ap-
pealed from. It was held that it was erroneous. The reasoning of the
court, in a per curiam opinion, was that, as far as the creditors of one
of the original companies were concerned, the consolidated company
was the successor of the old company ; but that, in respect of the pro-
perties of the other companies, it was a new and independent company,
in such a sense that the creditors of one of the old companies had no
claim against it upon their original contracts, but only by virtue of its
assumption of the obligations of the old company. The court also rea-
soned that the officers of the new company, so far as the trust devolved
upon them of managing the property acquired from the old company,
occupy, in relation to its creditors, the position of successors to the
officers of the old company, and are bound by all proceedings
had against them ; but that, as to the properties formerly of the other
companies, they are successors to the officers of those companies,
against whom such creditors have no right of action upon their
original contracts. The court concluded with this observation: "It
may be that the obligations which the consolidated company has as-
sumed render it just that such a judgment [as the referee had recom-
mended] should ultimately be rendered against it. But, however
clearly it may appear that the plaintiff and those in whose behalf the
action purports to be brought, are entitled to such a remedy, it can
legally be obtained only in an action against the parties affected,
founded upon their assumption of the Uabilities of others, and not by
the summary process of a motion to insert their names as defendants,
and thus to apply to them an adjudication previously made against the
original debtors. ' ' ^ The soundness of this decision may well be doubted.
1 Prouty V. Lake Shore &c. R. Co., 50 N. Y. 303, 368.
283
1 Thorn p. Corp. § 405.] consolidation.
It seems to involve the conclusion that the right of a preference share-
holder is merely a right in the nature of lien upon the particular prop-
erty owned by the original company, in which he was such a shareholder,
and that, upon the consolidation, it does not become a general obliga-
tion of the new company; for, if it does become such an obligation
there is no sound reason why it should have the opportunity of relitigat-
ing the question of its duty to discharge it. The decision seems to in-
volve the conception of a consolidation which does not consolidate, so
far as the properties are concerned ; and of a union which still continues
to be a separation.
§ 405. Actions by Creditors of Old Company against New
Company. — Where the statute of consolidation saves the rights
of creditors of the old corporations, they may enforce such rights
by a direct action against the new corporation. ^ There is also
much authority to the effect that the new corporation will be
liable in a direct action by a creditor of the old, although the
statute of consolidation contains no express provision saving the
rights of creditors of the old or giving such an action,^ — a doctrine
specially appropriate to municipal and other public corporations.^
It is immaterial whether this right of action is supported on the
ground that it is the case of a promise made between two parties,
founded on a good consideration, for the benefit of a third party,
which he may adopt and enforce, or whether it rests on tne ground
that the effect of the consolidation is not to dissolve the corpora-
tion which is his immediate debtor, but to continue its existence
in the consolidated company. Reasoning upon this question, it
1 Western &c. R. Co. v. Smith, 75 by implication the obligations of the
111. 496; Warren v. Mobile &c. R. Co., new corporation, it is settled in this
49 Ala. 582; Mt. Pleasant «. Beckwith, State that the act of consolidation in-
100 U. S. 514; Pullman Car Co. V. Mis- volves an implied assumpsit by the
souri Pacific R. Co., 115 U. S. 581; new company of all the valid debts and
Louisville &c. R. Co. v. Boney, 117 liabilities of the consolidated com-
lud. 501; s.c. 20 Northeast. Rep. 432; 3 panics." Louisville &c. R. Co. v.
Law Rep. Ann. 435. Speaking of this Boney, 117 Ind. 501, 504 ; citing Indian-
question in a late decision in ludiaua, apolis &c. R. Co. v. Jones, 29 Ind. 465;
it is said by Mr. Justice Mitchell: Columbus &c. R. Co. u. Powell, 40 Ind.
" While it is an open question in some 37; Jeffersonville &c. R. Co. v. Hen-
jurisdictions whether or not, in the dricks, 41 Ind. 48.
absence of a statute, the debts of the ^ Thompson v. Abbot, 61 Mo. 176.
original companies follow as an inci- ^ Ibid. (cas'J of school district),
dent of the consolidation, and become
284
REMEDIES AND PROCEDURE. [1 TllOllip. Corp. § 406.
has been said that, " while the action might have been maintained
against" the old company, *' by service of process on the presi-
dent of" the new company, *' it might also have been necessary
to bring a suit against the defendant to recover the assets. The
law abhors circuity of action, and there is no good reason why
the defendant, who has to pay, may not be directly sued." ^
§ 406. How Fact of Consolidation Averred. — An aver-
ment in a complaint that certain railroad companies, authorized
by law to consolidate, did consolidate and become one corpora-
tion under a certain name, has been held a sufficient averment of
the consolidation, without setting forth in detail the steps taken
by the different companies to effect the consolidation. The
contrary course would make the pleading very prolix, and
would impose a great burden on the pleader, who is presumed
not to have access to the corporate records showing the various
steps which were taken. ^ Besides, it would be proving facts
which it is not even necessary to prove. ^ But where, in an
action to foreclose a mortgage alleged to have been given by the
defendants to a certain corporation, and by the corporation as-
signed to the plaintiff, there was a paragraph in the answer
admitting that the mortgagee was a corporation at the date of the
mortgage, but averring that, under the laws of Ohio and Indiana,
it had consolidated with an Ohio company under a new name,
and the terms of the consolidation were not given, nor the dates,
nor the provisions of any statutes of Indiana or Ohio, — it was
held that no facts were set forth upon which any legal question
could be raised, and that so much of the answer was void for un-
certainty.^ Where an action is brought against a consolidated
railway company, to recover damages for a tort alleged to have
been inflicted by one of the precedent companies, the complaint
should aver the fact of the tort having been inflicted by the pre-
cedent company, and it should also aver the fact of consolida-
tion. But where the suit was brought against the united com-
1 Warren v. Mobile &c. R. Co., 49 ^ Ante, § 306, et seq.
Ala. 582, 580; citing Ready u. Tusca- * Hubbard v. Chappel, 14 Ind. 601;
loosa, 6 Ala. 327. citing Wright v. Bundy, 11 Ind. 398.
2 Collins u. Chicago &c. R. Co., 14
Wis. 492.
285
1 Thomp. Corp. § 408.] consolidation.
pany without these allegations in the petition, it was held not to
entitle the company to a reversal of a judgment against it ; for
the variance could have been cured by an amendment on the
trial, and was hence immaterial.^
§ 407. How Averment Replied to. — In quo warranto
against a company, which pleads that it became a corporation by
a contract of consolidation under a statute, a reply in the nature
of a plea of mil tiel record has been held proper; but the de-
fendants should have leave to rejoin that there is such a record
with a prout patet recordum? If, in support of this rejoinder,
the defendant produce the agreement and act of consolida-
tion, set forth in answer to the oyer craved by the attorney
general, with evidence that the same was deposited with the
Secretary of State, on a date prior to the commencement of the
action, judgment*will be given for the defendants.^
§ 408. Proof of the Consolidation. — Where the question of
the fact of the consolidation is put in issue, it will ordinarily be
proved by the same evidence which may be invoked to prove the
existence of any corporation, — by proof of its charter, or cer-
tificate, or articles of incorporation, and of user thereunder.*
As already seen, where a corporation is created under a general
law, the fact of the executing and filing in the proper office of
an instrument of incorporation is 'prima facie evidence of the ex-
istence of the corporation.^ So, in an action against a corpora-
tion which has been created by the consolidation of other cor-
porations, upon an application of one of the original companies,
the ordinary evidence of the consolidation will be copies of the
articles of consolidation on file in the office of the Secretary of
State, duly certified by that officer and authenticated by his
seal of office, in compliance with statutes which no doubt exist
in all of the States, making certified copies of such public acts
original evidence;*^ and also in compliance with the terms of
J Indianapolis &c. R. Co. v. Jones, * Ante^ § 220; jjosf, Ch. 184, Art. III.
29 Ind. 4G5. * Ante, § 220.
2 Com. VI. Atlantic &c. R. Co., 53 ^ Columbus &c. R. Co. v. Skidmore,
Pa. St. 9, 19. 69 lU. 566.
3 Com. V. Atlantic &c. R. Co., 53
Pa. St. 9, 19.
28<i
REMEDIES AND PROCEDURE. [1 Thomp. Corp. § 410.
statutes of consolidation, examples of which have been given,*
making copies of the instrument of consolidation certiiSed by
the Secretary of State, evidence of the fact in all courts.
§ 409. Effect of Dissolving Consolidation upon Judgments
against Consolidated Company. — A case in Indiana presents the
curious question, what will be the effect of a judicial decision declaring
an attempted consolidation void and severing the two companies, upon
judgments recovered against them by their consolidated name and in
their united character ; and it is held that, as the plaintiff in such an
action is not a party to the action dissolving the consolidation, it has no
effect upon his rights, but that, after the severance, his judgment stands
substantially as a judgment against both companies, and that he may
have an execution against either. ^
§ 410. Binding Effect of Admission of One of the Precedent
Corporations. — It has been held that an admission made by one of the
precedent corporations, in a judicial proceeding to which it was a party,
is binding upon the consolidated corporation. It was objected to evi-
dence of such an admission that it was not made by the defendants in the
case at bar, but by the Wilmington and Susquehanna Railroad Company,
another corporation. "It is true," said Mr. Justice Curtis, answering
the objection, " the action in the trial of which the admission was made,
being brought before the union of the corporations, was necessarily in
the name of the original corporation ; but as, by virtue of the act of
union, the Wilmington and Susquehanna Company, the Baltimore and
Port Deposit Company, and the Philadelphia, Wilmington and Balti-
more Company, were merged in and constituted one body corporate,
under the name of the Philadelphia, Wilmington and Baltimore Railroad
Company, it is very clear that, at the time the trial took place in Cecil
County Court, all acts and admissions of the defendant in that case,
though necessarily in the name of the Wilmington and Susquehannna
Company, were done and made by the same corporation which now de-
fends this action." ^
' Ante, § 300, e,t seq. » Philadelphia &c. R. Co.u. Howard,
- Ketcham v. Madison &c. R. Co., 13 How. (U. S.) 307, 333.
20 lud. 260.
287
1 Tiiouip. Corp. § 415.] promotees.
CHAPTER X.
PROMOTERS,
Akt. I. Liability ok their Contracts, §§ 415-437.
II, Liability to Subscribers, §§ 440-453.
III. Liability to the Company, §§ 456-476,
IV". NoN- Liability of the Company for Contracts of Pro-
moters, §§ 480-490.
Article I. Liability on their Contracts.
Section
415 Meaning of the term *' pro-
moter."
416. Personal liability of promoters
on contracts made for a pro-
jected company,
417. But promoters personally liable
although contract made in
name of corporation.
418. Rule applies in all cases to man-
agers.
419. Illustrations,
420. Theory that rule not applicable
where there is a corporation de
facto.
421. English view that promoters not
necessarily liable as partners.
422. This view further explained and
illustrated,
423. Character in which liable a ques-
tion of fact.
424. Liable when signing as *' agent,"
425. Illustration of the English rule.
42G. Promoters not, as such, contrib-
utories.
Section
427. Further of the English rule.
428. The English doctrine summed up
by Sir Nathaniel Lindley,
429. No action at law by one pro-
moter against the others.
430. Unless under exceptional circum-
stances.
431. Liability of committee-man sub-
sequently joining.
432. Members of provisional com-
mittee not liable for contracts
of managing committee.
433. Judgment and satisfaction
against one may be pleaded in
abatement by another.
434. Evidence to charge committee-
men.
435. Illustrations.
436. Evidence to charge the associ-
ates in an abortive corpora-
tion.
437. Liability of associates for ex-
penses of agents appointed to
procure charter.
§ 415. Meaning of the Term <' Promoter." — The word
*' promoter " is used in England to designate persons who exert
themselves in the formation of a company. "It is not a word
of art ; it must be understood by lawyers as it would by lay-
288
THEIR CONTRACT LIABILITY. [1 Thomp. Coi'p. § 416.
men." ^ The meaning of the word has come in England to be so
commonly understood that it was held, in one celebrated case, that
a judge in charging a jury, was not bound to define it to them.^
At the same time, it was said that the word has no very definite
meaning, but involves the idea of exertion for the purpose of
floating a company, and also the idea of some duty towards the
company imposed by, or arising out of, the position which the
so-called promoter assumes towards it.^ But, to brino- a per-
son within the meaning of the term, it is not sufficient to show
that, at the time when the property was purchased, it was con-
templated that a company should be formed for the purpose of
acquiring it.*
§ 416. Personal Liability of Promoters on Contracts Made
for a Projected Company. — In a future chapter we shall have
occasion to examine the rule that where a contract is signed by a
person professing to act as the agent of another, but who has no
principal in existence at the time, so that the contract will be
wholly inoperative unless binding upon the person who thus
signed it, he will be personally liable upon it.^ The rule is
the same whether the courts proceed upon the idea of a breach
of warranty of agency, or upon the idea that, in construing such
an instrument, such meaning ought to be given to its terras as
will save it from becoming wholly nugatory and inoperative — a
thing which the parties could not be supposed to have intended.
This principle applies with peculiar force to contracts made by
the promoters of a company which they intended to organize,
but which was not yet in existence at the time of the making of
the contract. Of course, if the contract specifies that the obligee
will not look to the promoters for payment or indemnity, but
will take his chances of their succeeding in organizing the pro-
posed company, and of the company ratifying the contract thus
' Bramwell, J., in Twycross v. ^ ^naraa Silver Mining Co. v. Lewis,
Grant, 2 C. P. Div. 503. The learned 4 C. P. Div. 396.
justice also held that the word is not ^ Tliid.
limited to persons acting before the ^ Ladywell Mining Co. v. Brookes,
company is formed, but might apply 35 Ch. Div. 400; s. c. 17Am. & Eng.
to those actively concerned in placing Corp. Cas. 22, 30.
its shares. Ibid. ^ Post,l29,b9. et seq.
19 289
1 Thomp. Corp. § -tlT.] promoters.
made by them for it, then there is no room for controversy.*
It must be confessed that even the English authorities on these
questions are in confusion ; but it is thought to be a sound course,
in most of these cases, to put the question to the jury whether
the plaintiff meant to contract on the footing of the personal
liability of the defendant, either alone or as a member of the
acting committee, or on the credit of the funds. ^ Obviously, the
question will be one of fact for the jury, except where it involves
the construction of a written contract, when it will be a question
of law for the court. The effort of the courts in all these cases will
be to give effect to the intention of the parties. Accordingly, if
a person agrees with the promoters of a company to bear, him-
self, the expense of promoting it, he cannot recover such expense
from the company when organized, although the act organizing
the company contains the usual provision that the company shall
pay the costs of the passing of the bill. The previous agreement
inures to the benefit of the company. "^ Even if the company
should in fact come into existence, it would not be l)ound by
such a contract, though it is supposed a court of equity would
not suffer it to retain an advantage thus acquired. " There
must be two parties to the contract, and the rights and obligations
which it creates can not be transferred by one of them to another
person, who was not in a condition to be bound by it at the time
it was made." *
§ 417. But Promoters Personally Liable although Contract
Made in Name of Corporation. — As already seen,^ the pro-
moters are personally liable on such contracts, although they
have assumed to make them in the name of the intended cor-
poration as though it were actually in existence. In such cases
1 Such was the contract in Land- ' Savin v. Hoylake R. Co., L. R.
man u. Entwistle, 7 Exch. G32; s. c. 1 Exch., 9; s. c. 4 Hurl. & Colt. 67;
21 L. J. (Exch.) 208; Higains v. Hop- 35 L. J. (Exch.) 52; 11 Jur. (n. s.)
kins, 3 Exch. 163; s. c. 6 Ry. Cas. 75; 934; 14 W. R. 109; 13 L. T. (n. s.)
18 L. J. (Exch.) 113. Compare 374.
Thomas v. Edwards, 2 Mees. & W. * Erie, C. J., in Kelner v. Baxter,
215. L. R. 2C. P. 174; s, c. Thomp. Off.
2 Higgins V. Hopkins, 3 Exch. 163; Corp., p. 117.
«. c. 6 Ry. Cas. 75; 18 L. J. (Exch.) ^ Ante, § 218.
113.
290
THEIR CONTRACT LIABILITY. [1 Thonip. Corp. § 417.
the rule which estops persons who contract with an assumed cor-
poration from subsequently denying its corporate character does
not apply ; but the obligee is allowed to go behind the assumed
corporation and to hold the individuals responsible, on the theory
of a breach of warranfy of agency, — that is to say for the rea-
son that they have held out to the obligee a contracting party
which really does not exist and which is unable to answer to him
in damages for the non-performance of the contract.^ The
theor}'" is that those who assume to make contracts for a corpora-
tion impliedly warrant its existence as a body capable of contract-
ing. ^ But the governing principle seems to be wider; for the
theory of breach of warranty of agency would only charge with
liability those who made the contract, or authorized it, or
assented to it, or ratified it, in some more direct way than by
purchasing shares in the supposed companv ; and in nearly all
the decisions first cited the defendants were charo;ed because
they were members, and not merely because they were ^97*omo<er5,
of inchoate or abortive corporations. A better ground is that
exemption from personal liability is a franchise or privilege,
which the State confers on adventurers on their complying with
certain conditions; so that, if they organize themselves into an
association and elect a board of officers to manage its affairs,
and authorize them to make contracts for the common body, be-
fore they have complied with those conditions, they stand like
the members of any other merely voluntary association in
respect of personal liability. While a discussion of the personal
liability of stockholders, as such, is reserved for a future portion
of this work, it may be observed here, that the shareholders of
an abortive or inchoate corporation cannot be charged with per-
sonal liability for its obligations, in any case, or on any theory,
unless the nature and purposes of the association are such that
they would be liable as partners if there were no pretense of
1 Johnson w. Corser, 34 Minn. 355; v. Werts, 4 Serg. & R. (Pa.) 356;
s. c. 25 N. W. Rep. 799; Field v. Eaton v. Walker, 7G Mich. 579; s. c.
Cooks, 16 La. Ann. 153; Abbott v. 43 N. W. Rep. 638; Hurt w. Salisbury,
Omaha Smelting Co., 4 Neb. 416; 5.5 Mo. 310; Hill v. Beach, 12 N. .1.
Kaiser v. Lawrence Sav. Bank, 56 Eq. 31.
Iowa, 104; Garnett v. Richardson, 35 ^ Hurt v. Salisbury, supra, and
Ark. 144; Bigrlow v. Gregory, 73 111. other cases.
197; Pettisu.Alkins, GO 111. 454; Hess
29i
1 Thomp. Corp. § 418. j promoters.
their being incorporated. Thus, where the purposes of the
association are not for pecuniary gain and profit, but merely to
secure the completion of a public work, e.^., the extension and
grading of a public street, the associates, in case it does not be-
come incorporated, are not, ipso facto, liable as partners, — that
is to say, there is no authority, implied from their relations, in
one of the associates to bind the others by contracts incurring
liabilities. In such a case, whether the associates will be bound
will be a question of fact for a jury, or, in a suit in equity, for
the chancellor, depending upon the circumstances of the case.^
§ 418. Rule Applies in all Cases to Managers. — Some courts
have exhibited a reluctance to apply this principle so as to charge
the \nwoQ,QvAj stochlioldprs as parfnei^s, where the managing officers
have entered upon the business of the corporation in violation of
positive law, or without complying with some condition prec-
edent enjoined by law; but no such reluctance has been felt as
to the managers. " Where the entire business, carried on by
persons in the name of a corporation, is such as the corporation
is prohibited by law from doing, they cannot interpose the cor-
porate privileges between them and the liabilities which the law
imposes upon individuals in the transaction of similar business
without the use of the corporate name." ^ In such a case the
managers may be held liable, on a theory which may not reach or
affect the stockholders. That theory \s the breach of warranty
of agency. 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 per-
sonally bound to make good any undertaking which they assume
in that character.^ If they have been guilty oi fraud in assuming
to act for a non-existent corporation, they may become personally
liable on another principle, which is that they who occasion in-
jury to others by the fraudulent use of corporate powers, are
personally liable in damages therefor.*
1 Johnson V. Corser, 34 Minn. 355. 613; Fay v. Noble, 7 Gush. (Mass.)
2 Medill V. Collier, 16 Ohio St. 599, 188.
613. •* Medill v. Collier, 16 Ohio St. 599,
8 Medill'u. Collier, 16 Ohio St. 599, 613; Bartholomew v. Bentley, 15 Ohio.
292
THEIR CONTRACT LIABILITY. [1 Thomp. Coi[). § 419.
§ 419. Illustrations. — The signers of the following promissory note
were held hable on this principle : —
^l^OOO- Salisbury, Mo., Feb. 22, 1869.
" Twelve months after date, for value received, the undersigned, as
directors of the North Missouri Central District Stock, Agricultm-al and
Mechanical Association, promise to pay Peyton T. Hurt, or order, the
sum of one thousand dollars, negotiable and payable without defalcation
or discount, and with interest from date at ten per cent, per annum.
"Lucius Salisbuey,
"M. M. Hurt,
" EliWayland,
"M. B. Williams,
"J. A. JOHNSTOX,
" Directors,
"James "W. Lewis,
" as Directors."
The note was thus signed and executed before the articles of associ-
ation were^?ecZmth the Secretary of State, and consequently before the
corporation had acquired a legal existence, and on this ground they
were personally charged.! - - _ . A banking corporation com-
menced business before complying with a statute, which prohibited such
corporations from commencing business before depositing certain securi-
ties with the Auditor of the State. While so doing business, they re-
ceived a deposit from the plaintiff, and afterwards made an assignment
by reason of insolvency. It was held that the plaintiff could maintain
an action against the managers to recover his deposit, and that they
would not be heard to set up the defense that he might have an action
against the corporation, in which the corporation would be estopped from
pleading its want of compliance with the statute.^ - - - - It has been
held, in an action on an account brought against certain indi\iduals,
charging them as partners, in a partnership called the Register Smelting
and Refining Company, in which they answered denying the partnership,
but alleging that the company was a corporation, — that the burden of
proving the incorporation rested upon the defendants, failing to estab-
Hsh which, the defendants could not avoid personal liability. ^ The ques-
tion at issue was said to be, not so much whether the defendants held
659; Bartholomew v. Bentley, 1 Ohio ' Hurt v. Salisbury, 55 Mo. 310.
St.37; Vose v. Grant, 15 Mass. 505, - Medillj;. Collier, 16 Ohio St. 599.
519; Trowbridge V. Scudder, 11 Cush. ^ Abbott v. Omaha Smelting &c.
(6»Ma8a.) 83. Co., 4 Neb. 416.
293
1 Thonip. Corp. § 421.] promoters.
themselves out as partners, but whether they were in fact members of
the company' which assumed to act as a corporation. ^
§ 420. Theory that Rule not Applicable where there is a
Corporation de Facto. — As already stated, ^ if the corporation
never comes into existence, at least in such a sense as to be regarded in
law as a de facto corporation, the promoters will be persoiiall}^ liable for
any contracts which they have assumed to make in its behalf ; and in
applying this principle it has been held that the managing agents of a
pretended corporation are so hable, where the circumstances are such
that the corporation could not have existed at all, as where they are as-
sociated together under a void law.^ On the other hand, the imphcation
is that, where there is a corporation de facto — in other words, where
the circumstances are such that a corporation might exist* — and where
the part}'^ seeking to charge the members indi\idually has dealt with
them as a corporation, he is estopped from setting up the fact that they
are not a corporation de jure, in order to charge them personally
instead of charging that he agreed to trust, namely, their common
fund.^
§ 421. English View that Promoters not Necessarily Liable
as Partners. — The present doctrine of the courts of England is
that persons who serve on provisional committees, appointed
at public meetings or otherwise, for the purpose of getting up a
company, are not ipso facto partners, so that one will be liable
upon contracts made by the others, although special facts may
exist which will make them liable as such.^ The reason of the
I Ibid. V. Belcher, 12 Q. B. 921; Ex parte
* Ante, % 417. Cottle, 2 Mac. & G. 185; Robert's
8 Eaton V. Walker, 76 Mich, 679; Case, 2 Mac. & G. 192 (affirming s. c.
a. c. 43 N. W. Rep. 638. 3 DeG. & Sm. 205) ; Wood v. Argyll, 6
* Post, § 505. Man. & G. 928 ; Norris v. Cottle, 2 H.
* Po«f, §§ 505, 2882, L. Cas. 647; Buruside v. Dayrell, 3
« Reynell v. Lewis, 15 Mees. & W. Exch. 224; s. c. 6 Ry. Cas. 67; 19 L.
617; s. c. Thorap. OfE. Corp., p. 121; J. (Exch.) 46 (overruling Barnett ??.
Bailey V. Macau'ay, 13 Q. B. 814; s. c. Lambert, 15 Mees. & W. 489). See
Thomp. OfE. Corp., p. 136; Forrester the observations of Lord Brougham
V. Bell, 10 Ir. Law Rep. 555; Land- in Norris v. Cottle, 2 H. L. Cas. G65.
man v. Eutwistle, 7 Exch. 632; s, c. The cases of Holmes v. Higgins, 1
21 L. J. (Exch.), 208; Higgins v. Barn. & Cres. 74; Lucas v. Beach, 1
Hopliins, 3 Exch. 103; s. c. 6 Ry. Cas. Man. & G. 417, and Hutton v. Upfill, 2
75; 18 L. J. (Exch.) 113; Carrick's H. L. Cas. 691, are overruled on this
Case, 1 Simons (n. s.), 505; Newton point.
294
THEIR CONTRACT LIABILITY. [1 Thomp. Corp. § 422.
rule is said to be that a partnership is not created by an agree-
ment to organize a future partnership.*
§ 422. This View Further Explained and Illustrated. — The
mere fact of a person agreeing to become a member of the pro-
visional committee of an intended corporation has been held, in
that country, to amount to no more than a promise that he will
act with other persons, appointed or to be appointed, for the
purpose of carrying the scheme into effect. Therefore, in an
action against a provisional committee-man for goods supplied on
the order of the solicitor of the company, it was held that the
law would not imply, from the mere fact of his agreeing to be a
member of the committee, an authority from him to the other
members of it to make contracts by himself or by the solicitor,
nor an authority to the solicitor to make them on behalf of the
committee, such as would make each committee-man liable as a
partner. 2 If the party not only consents to be a provisional
committee-man, but authorizes his name to be inserted and pub-
lished in a prospectus, which merely states the names of the
members of the provisional committee, and nothing more, that
fact does not alter the liability. If it states the names of an
acting or managing committee also, it is a question for a jury
whether it means that the latter are to take upon themselves the
whole management of the concern, or that the former have con-
stituted the latter their agents to manage it on their behalf, — in
which case the former would be liable for the contracts of the
latter. Or, if the solicitor's name were mentioned in it, the
question for the jury would be whether it meant that he was to
be employed by those of the committee who acted, or that he
was alreidy appointed by all whose names were mentioned, as
their solicitor, to do all solicitor's work on their behalf; and
further, what was the business then usually transacted by solici-
' Forrester v. Bell, 10 Ir. Law Rep. tributory. Tliere ncverwasa contract
555; 1 Lindl. Part. 1st. ed. 31. Sec to of partnership on his part, but only
the general question. Fox v. Clifton, G an ajircenient to become a partner in
Binj^. 77G; s. c. 'JBinji. 115, and Bourne case the company should be formed
V. Freeth, 9 Barn. & Ores. 032; Fay under an act of Parliament. Hutton
V. Noble, 7Cush. Mass. 188. It is upon v. Thompson, 3 H. L. Cas. 161.
this ground that an allottee of shares ^ Keynell v. Lewis, 15 Mees. & W.
in an abortive company is not a con- 517; s. c. Thomp. Off. Corp. 121.
295
i Tliomp. Corp. § 423.] promoters.
tors ill such undertakings, on behalf of the company; and the
same as to the secretary.^ Where there is also evidence that
the defendant li:is acted with relation to the proposed scheme, it
is a question for the jury whether, by his consent and acts, he
has authorized the solicitor, or secretary, or any member of the
committee, to pledge his credit for the necessary and ordinary
expenses to be incurred in forming such a company ; and if so,
whether the work was done and the credit given on the faith of
his being liable. Such an intended association does not consti-
tute a partnership, inasmuch as it constitutes no agreement to
share any profit or loss.^
§ 423. Character in whicli Liable a Question of Fact. —
The English doctrine, then, is that the character in which a mem-
ber of a provisional committee of a projected corporation is liable,
upon contracts for work and labor, etc., is a question of fact for
a jury.^ Thus, in an action against a member of the committee
of a projected railway company for work and labor done, goods
supplied and money paid, the jury are to consider whether the
defendant, by taking upon him the character of a committee-man
and afterwards acting in the affairs of the company, has author-
ized the company's solicitor or secretary, or any member of
the committee, to hold him out to the world as personally re-
sponsible for the reasonable and necessary expenses incurred in
forming such a company on its behalf ; and then, whether the
credit was given on the faith of his being so personally responsi-
ble.* Such a committee-man, by merely allowing his name to ap-
pear in that character, in the ordinary form of prospectus issued
by English railway companies, incurs no liability to a tradesman
who supplies goods to the company ; but the consent of a person
to his name so appearing might be a fact of importance on a
question of such liability, as showing that he took an interest in
the proposed concern: whether merely as a patron and well-
wisher, or as co-operating in the measures preparatory to its
formation. It became, therefore, material to know what the
1 Ibid. Bailey v. Macaulay, 13 Ad. & El. (n.
2 Ibid. 8.; 815; s. c. Thomp. Ofe. Corp. 136.
3 Reynell v. Lewis, 15 Mees. & W. ^ Bailey v. Macaulay, 13 Ad. & El.
517; s. c. Thomp. Off. Corp. 121; (n.;s.) 815; s.c. Thomp. Off. Corp. 136.
296
THEIR CONTRACT LIABILITY. [1 Thomp. Corp. § 425.
committee-man was doing when he joined it, tfnd whether he knew
what it was doing, and concurred therein. If advertising, print-
ing and stationery were necessary to the working of llie com-
mittee, and no fund liad been raised to pay for such necessaries,
the tradesman might justly suppose that all who acted on the
committee had authorized him to supply them on their credit,
although the individual committee-man had not specifically given
such authority, and although the tradesman might know nothing
more of the committee-men than that they were probably men of
character and substance. The absence of the committee-man's
intention to pledge his credit was deemed immaterial, if he had
given the authority beforehand.^ If, however, the tradesman
looked solely to the deposits on shares as the fund from which
payment was to be made to him, he had no cause of action against
the committee-man. 2 As the liability of the committee-man arose,
not from his filling that character, but from his authorizing the
orders for the goods or services, his admission of general liability
might be evidence of his having authorized such orders before
his name appeared on the committee.^ In such a case the jury
were to consider whether such an admission was made because
the actual liability in law was questionable, and for the purpose
of preventing litigation, or whether the admission was referable
to his conscientious conviction that his acts had made him per-
sonally liable. In the latter case, they might infer his general
liability.*
§ 424. Liable when Signing as "Agent." — But even under
the English rule, where a contract is signed by one who professes
to be signing " as agent," but who has no principal existing at the
time, and the contract would be wholly inoperative unless bind-
ing upon the person who signed it, he is personally liable on it;
a,nd a stranger cannot, by a subsequent ratification, relieve him
from the liability.^
§ 425. Illustrations of the English Rule. — In an English case,
one J., acting as solicitor and secretary of a projected railway com-
' Ibid. 6 Kelner v. Baxter, L. R. 2 C. P.
^ I^id. ]74; s. c. Thomp. Off. Corp. 106;
•^ Ibid. post, Ch. 108.
^ Ibid.
297
1 Thomp. Corp. § 426.] tromoters.
pail}', by the authorify of the promoters, and by means of a check
signed by two of them, obtained from the plaintiff an advance of £500,
to be applied in payment of the parliamentary fees which would be
necessary to get an act passed authorizing the proposed railway. This
advance was obtained upon an express agreement that it was to be re-
paid " out of the calls on shares." An act authorizing the construction
of the railway was passed, the promoters being named therein as first di-
rectors. At a meeting subsequently held the directors passed a resolu-
tion that the acts of J. should be adopted and confirmed. No shares were
allotted or calls made, and the undertaking was not proceeded with.
It was held, on the grounds just set forth, that the advance was made
upon the responsibility of the persons who signed the check, and that
the subsequent adoption of their acts by the directors did not alter
their position. i - - - - In a still earlier case, the secretary of a
local committee of a projected railway brought an action for his salai-y
against a member of the committee who became such after the secretary
was appointed. Alderson, B., told the jury, in summing up, that the
members of the committee were the persons to whom the plaintiff was
entitled to look for the payment of his salary, in the absence of an
agreement that he was to look anywhere else, — as, for instance, to
moneys which might be paid in as deposits or installments on shares ;
and, it appearing that the defendant was not a member of the com-
mittee at the time the plaintiff was first engaged as secretary, but be-
came so while the plaintiff continued secretary, it was held a question
for the jury whether the defendant did not continue to employ the
plaintiff upon the same terms as those upon which he was first engaged. ^
§ 426. Promoters not, as Such, Contribiitories. — In the
windino- up of an English joint stock company, in which all the
members are liable as partners, all the members of the firm or
company are liable to be placed on what is termed the list of
contributories, that is, they are liable to contribute to raise a
fund for the payment of its debts.^ The rule that promoters or
1 Scott V. Lord Ebury, L. R. 2 C. ^ In the winding up act, 1848, uu-
p. 254. der wliicli the decisions here quoted
2 Kerridge V. Hesse, 9Car. & P. 200. arose, it is expressed that the word
What if the services rendered to the "contributory" shall include "every
committee by an engineer, in making member of the company, and also ev-
an estimate of the expense of the en- ery other person liable to contribute
terprise, are of no value, or only of to the payment of any of the debts,
partial value. Moneypenny v. Hart- liabilities or losses thereof."
land, 2 Car. & P. 378; s. c. 1 Car. & P.
352.
298
THEIR CONTRACT LIABILITY. [1 Thomp. Coip. § 426.
provisional committee-men are not partners, necessarily ex-
cludes them from the list of coiitributories, unless they have
agreed to be personally liable for the expenses of the concern.
Where one has joined a provisional committee of a projected
compiiny, with the express stipulation that he shall not be liable
for such expenses, it is obvious that he will not, on winding up
the concern, be a contributory; they must make up the purse
to pay the debts who agree to be liable for them, not he.' If
one member of such a committee, in furtherance of the common
object, incurs liabilities, he must pay those liabilities himself,
and he will not be entitled to contribution from the others. In
the absence of special circumstanees,^ such a committee-mnn
would not be liable at law for such expenses, not directly author-
ized by himself or his agent; and when called upon in a court of
equity to contribute for the indemnity of a co-committee-man he
is held exempt from liability on the same ground. In this re-
spect equity follows the l:iw.^ The parallel between the rule of
equity and that of law extends further. It has already been
shown ^ that the question whether one provisional committee-man
or promoter is liable upon contracts made by his co-committee-
men or promoters, is one of fact, not of law. The same rule is
applied in equity. In the opinion of the judges to the lords in
the leading case of Bright v. Hutton,^ Mr. Baron Parke said:
" All the questions of contributories resolve themselves into two
simple questions of fact : 1. (by far the most frequent in occur-
rence) Did the alleged contributory make, or authorize to be
made, the contract in respect of which he is called upon to con-
tribute, on his account jointly with others? or, 2. If any one or
more entered into the contract in his own, or their behalf, did he
* Roberts' Case, 3 DeG. & Sm. 205 name was so inserted and advertised,
(aflBrmed, 2 Mac. & G. 192). but wiio did not expect to apply for
2 See § 429, pont. shares, or attend any meeting of tiie
8 Norris u. Cottle, 2 II. L. Cas. 647. committee, did not — the undertaking
This case was argued before and de- having been abandoned — become lia-
ciiled by Lord Brougham, the only law blc as a contributory under the Wind-
lord in town. The point actually de- ing-Up Acts of 1848 and 1819; but the
cided was that one who had consented general i)rlnciples laid down fully sus-
to have his name inserted in the list tain the text.
of provisional committee-men of a * Ante, § 41G.
proposed railway company which was ' 3 II. L. Cas. 341, 369.
provisionally registered, and whose
299
1 Thomp. Corp. § 427.] promoters.
agree to indemnify the person or persons contracting in part or
in all against the consequences of that contract? " This view
was ad()[)ted by the lords, and in so doing they were obliged to
overrule the judgment of Lord Brougham in Hutton v. UpfiU/
though they endeavored to avoid doing so directly.
§ 427. Further of the English Rule. — There is still another
view of the liability of this class of promoters. The pro-
visional committee of a projected company is one thing, and the
company itself, when formed, is another. Being a member of
a provisional committee of a company does not at all make a
person a member of the company. A man may actively inter-
est himself in building a railway in his neighborhood, and yet
take no shares in the company and not be liable for any of its
debts. On the other hand, he may, by contract, make himself
liable for the expenses incurred in floating the company. But
these would be debts of the committee, or of individual mem-
bers of it, and not debts of the company, unless the company
1 2 H. L, Cas. 674. To the same
effect is Carrick's Case, 1 Simon (n.
8.) 505. In his very able work on
Partnership (4th ed. vol. 2, p. 1375),
Sir Nathaniel Lindley, enumerates the
following cases as being overruled,
directly or indirectly, by Bright v.
Hutton, 3 H. L. Cas. 341 : " Upfill's
Case, 2 H. L. Cas. 674; Ex parte Bes-
ley, 2 Mac. & G. 176. This case oc-
curs three times in the books. It was
first decided by Vice -Chancellor
Knight Bruce (3 DeG. & S. 224), who
held that Besley was not a contribu-
tory. This decision was appealed
against and reversed by Lord Cotten-
ham (2 Mac. & G. 176). But the ap-
peal was reheard by Lord Truro, who
affirmed the decision of the Vice-
Chancellor (3 Mac. & G. 287). The
case as reported in 3 DeG. & S. 224,
and 3 Mac. & G. 287, is still law.
Bright's Case, 1 Sim. (n. s.) 602. This
was reversed on appeal (3 H. L, Cas.
341). Ex parte Brittain, 1 Sim. (n. s.)
284, decided reluctantly on the author-
300
ity of Upfill's Case. Hole's Case, 3
DeG. & S. 241, decided on the author-
ity of Ex parte Besley, 2 Mac. & G.
176. Markwell's Case, 5 DeG. & S.
528, decided on the authority of Up-
fill's Case, but after the decision of
Bright V. Hutton. It cannot, how-
ever, be considered law. See Ex parte
Capper, 1 Sim. (n. s.) 178, and Car-
rick's Case, 1 Sim. (n. s.) 505. Ex
parte Morrison, 15 Jur. 346, and 20
L. J. Ch. 296, decided on the authority
of Upfill's Case, and in effect overruled
by Sharp & Jenner's Case, 1 DeG. M.
& G. 565. Nicholay's Case, 15 Jur.
420, decided on the authority of Up-
fill's Case. Ex parte Sichell, 1 Sim.
(n. s.) 187, decided reluctantly on the
authority of Upfill's Case. Ex parte
Studley, 14 Jur. 539. This case was
very briefly reported, but it seems in-
consistent with such cases as Hall's
(3 DeG. & S. 214), Stocks (22 L.J.
(Ch.), 218), and Carrick's (1 Sim. (n.
8.) 505."
THEIR CONTRACT LIABILITY. [1 Thomp. Coip. § 428.
had, by ratification (creditors assenting) made itself liable for
them. Until the debt is so assumed by the company, with
assent of the creditor, it remains the debt of the committee, or
of the members of the committee who contracted it, and not its
debt. For this reason provisional committee-men do not, on the
winding up of the company, go on the list of its contributories,
although they might well be contributories on the winding up of
the committee.^
§ 428. The Eng-lish Doctrine Summed up by Sir Nathaniel
tiindley. — Sir Nathaniel Lindley, whose work is entitled to the
very highest consideration, thus sums up the doctrine of the
English courts on this subject:^ *' Upon the principles which
are now settled to be applicable to the case of an abortive un-
registered company, it may be taken : 1. That a mere subscriber
to or allottee of scrip in an abortive company is not, by virtue
of his subscription, or acceptance of scrip, a contributory on the
winding up of the company, whether he has paid his deposit^ or
not.* 2. That such a person does not become a contributory by
being one of the committee from which the scheme emanates,
and by which it is encouraged; or, in other words by being
what is commonly called a promoter of the company.^ This
holds, even although he may have subscribed something towards
» Besley's Case, 3 DeG. & S. 224. 17 Sim. 157; Ex parte Beardshaw, 1
Though this case was overruled by the Drew. 226. See, too, Ex parte Wal-
Lord Chancellor (2 Mac. & G. 176), stab, 20 L. J. (Ch.) 58, where the de-
nothing was said impugning in any posit had been paid and recovered
way the force of the observations of back.
Vice Chancellor Knight Bruce, which * As in Hutton v. Thompson, and
we have in substance embodied in the Norris v. Cooper, 3 H. L. Cas. 161;
text. The reversal was upon tlie Ex parte Capper, 1 Sim. (n. s.) 178;
ground that Besley had recognized his Carrick's ca-e, lb. 505; Ex parte
liability, and had, without compulsion Hirschel, 15 Jur. 942.
and with his eyes open, made a pay- ^ Bright v. Hutton, 3 H. L. Cas. 341,
ment towards lifjuidating the expenses reversing Bright's case, 1 Sim. (n. s.)
of the company. Besides the case 602; Norris u. Cottle, 2 H. L. Cas. 647,
was reheard by Lord Truro, who re- affirming Ex parte Cottle, 2 Mac. &. G.
affirmed the judgment of the Vice 185. See, too, Maitland's Case, 3 Giff.
Chancellor. 2 Mac. & G. 287. 28; Ex parte Roberts, 2 Mac. & G. 192
2 2 Lindley on Partnership, 1376-7, and 14 Jur. 539, note; Ex parte Clarke,
4th ed. 20 L. J. (Ch.) 14.
3 As in Maudslay and Field's case,
301
1 Thomp. Corp. § 439.] tromoters.
the expenses, if he do so under the erroneous supposition that
he was liable for them,^ or merely for the sake of peace ; ^ so,
although he may have concurred in the appointment of persons,
and have incurred liability by so doing, if all liability on that
score is at an end; ^ so, although he may have been party to the
appointment of a managing committee, by which debts still un-
paid have been incurred; * so, although his name may have been
put on that committee, if he never assented to join it, and never
acted on it.^ 3. That, a fortiori^ subscribers to and promoters
of an abortive company are not, as such, liable to be made con-
tributories on its winding up, if they never have, in fact, entered
into a binding agreement to take shares. Even before Upfill's
Case was reversed, this pro[)osition was well established.^ 4.
That if persons are actively engaged in forming a company, if
they act as a body, and as a body incur debts for which they
are all liable, if not directly, at all events as between each other,
then they form a company or association which may be wound
up, and on its winding up they will be contributories, whether
they have actually subscribed for shares or not.' 5. That per-
sons who, without being actively engaged in forming a company,
agree not only to take shares in it, but also to share the expenses
incuri ed in forming the company, are, on its winding up, liable
to be made contributories." ^
§ 420. No Action at Law by One Promoter against the
Others. — It is familiar law that one partner cannot maintain an
action at Imo agamst one or more or all of his co-partners for
1 Ex parte Besley, 3 Mac. & G. 287, Compare Spottiswoode's Case, 6 DeG.
affirming Besley's Case, 3 DeG. & S. M. & G. 345.
224; Hall's Case, 3 DeG. & S. 214. « See Matthew's Case, 3 DeG, & S.
2 Ex parte Stocks, 22 L.J. (Ch.) 234; Carmichael's Case, 17 Sim. 163;
218; Hall's Case, 3 DeG. &S. 214; Car- and Ouious's Case, 1 Sim. (n. s.) 394.
rick's Case, 1 Sim. (x. s.) 505; Ex ' Norbury's Case, 5 DeG. &S. 423;
parte Roberts, 1 Drew. 204; Tanner's Sharp and Jamas' Case, 1 DeG. M. &
Case, 5 DeG. & S. 182. G. 565; Pearson's Executors' Case, 3
3 Carrick's Case, 1 Sim. (n. s.) DeG. .M. & G. 241; Sp ittiswoode and
505; Ex parte Hight, 1 Drew. 485. Amsiuck's Tase, 6 DeG. M. & G. 345.
■* Tanner's Case, 5 DeG. & S. 182. See also Bowen & Martin's case, 22
^ Ex parte Roberts, 1 Drew. 204. L. J. (Ch.) 856, and Ex parte Apps,
See, too, Ex parte Osborne, 15 Jur. 72. 18 L. J. (Ch.) 409.
* See the last note.
302
THEIR CONTRACT LIABILITY. [1 Thomp. Coip. § 429.
anything due him on account of the partnership business. The
remedy is in equity.^ It was formerly held in England that if a
number of persons associate themselves together for the pur-
pose of promoting a corporation on the terms that each is to
have an interest in it, they become partners in the enterprise;
and if one of them give his services in furtherance of the com-
mon object and the others fail to indemnify him, he cannot
maintain an action at law against one of them — for instance,
against the chairman of the committee — for such indemnity.
If, however, the defendant personally undertook to pay the
plaintiff, the result would, of course, be different. ^ Accordingly,
where a solicitor had rendered services at the request of the
committee of a company organized for building a bridge, had
taken shares in the company, not in his own name, but in the
name of a man of straw, whom he had procured to act for that
purpose, it was held that he could not recover at law in an action
against the chairman of the committee for the value of his serv-
ices, for the reason that he really was a partner in the concern.^
But one who had entered into a contract to perform work and
furnish materials with a committee associated together for the
purpose of obtaining an act of Parliament for making a turn-
pike road, was not precluded from maintaining such an action by
the fact that, subsequently to such contract, he became a share-
holder in the company ; though it would prevent him from
recovering for the valne of any services rendered subsequently
to the time when he became a shareholder.* So, if a person
who is an inventor of a scheme, gets gentlemen to act as a com-
mittee, with the intention of forming a joint-stock company to
carry it into effect, and he himself acts as secretary to the com-
mittee, he cannot maintain an action against one of tlie com-
mittee for his services as such secretary, or for his trouble, or
for journeys which he undertakes in furtherance of the execu-
tion of the scheme, unless upon express evidence that the
member of the committee whom he sues, employed him.'^ The
1 Milburn v. Codd, 7 Barn. & Cres. 3 Tyrwh. 209 ; s. c. I Cromp. & Mees.
419; s. c. 1 Man. & Ry. 238. 33; Wii.son v. Curzon, 5 Ry. Cas. 24.
2 Holmes v. Higgins, 1 Barn. & ^ Goddard v. Hodges, supra.
Cres. 74; s. c. (a better report; 2 * Lucas v. Beach, I Man. & G. 417.
Dow. & Ry. 10(J; Goddard v. Hodges, ''' Parkin v. Fry, 2 Car. & P. 311.
303
1 Thomp. Corp. § 430.] promoters.
reader must continually beur in mind, in considering these earlier
English cases, that they related, not to full corporations, but to
joint-stock companies, which wore par-tnerships. For instance,
the doctrine in a case above cited ^ would not apply to an Ameri-
can corporation; for such a corporation is so far distinct from
each of its stockholders that there is no obstacle, even in a court of
law, to an action by the stockholder against the corporation, to re-
cover money advanced to, or the value of services rendered for it.
The retider will also note that the English courts subsequently
settled upon the rule that persons do not make themselves ^«r^/ie/s
by the mere act of joining together to organize a corporation."^
§ 430. Unless under Exceptional Circumstances. — From
what has preceded, it is obvious that special circumstances may
exist under which one promoter of an abortive company will be
entitled to maintain an action against the others for contribution.
Thus, if promoters have, by special agreements, among them-
selves, rendered themselves jointly liable, and, in order to dis-
charge this liability one of them has paid the whole debt, he will
be entitled to contribution from the others.^ Thus, A., B. and C.
hired premises of D., for the purpose of a company, of which A.,
B. andC. were the contract committee-men. The company hav-
ing suffered the rent to g-et in arrear, D. sued and recovered it of
A. It was held that A. could maintain separate actions at law
against B. and C. for contribution.* Again, twelve provisional
committee-men became jointly liable for a debt contracted in re-
spect of the scheme. One of them having paid the whole debt,
it was held that he was entitled to maintain actions at law against
the others. The measure of his recovery against each was an
aliquot part of the sum of money he had been compelled to pay,
in respect of the original number of the joint undertakers, with-
out reference to the number of them liable at law at the time of
payment. Accordingly, although two of them had died, he could
recover against each of the survivors but one-twelfth, and not
one-tenth, of the sum he had paid.^ Again, where a party had
^ Lucas V. Beach, supra. ■* Boulter v. Peplow, 9C. B. 493.
2 Ante, § 421. s Batard v. Hawes, 2 El. & Bl. 287.
3 2 Lindley on Partnership, 1022, See to the same effect, Edger v. Knapp,
4th ed. 7 Jur. 583.
304
THEIR CONTRACT LIABILITY. [1 Thomp. Corp. § 431.
incurred and paid costs, in bringing actions against committee-
men to recover the amount of his claim, at the request of another
committee-man, it was held that he might recover such cost from
the committee-man at whose instance he sued, under the common
count for money paid.^ Of course, a promoter may make him-
self liable to another by express contract ; and such contracts
have frequently been before the courts. A contract for the pay-
ment of money when an incorporated company, which the parties
propose to form, shall be organized, requires a legal incorpora-
tion before the money can be considered due. The condition is
not satisfied by any proceedings or arrangements preliminary to
filing the certificate directed by the statute; nor can the courts
sustain an action upon such agreement, commenced before such
filing, upon the ground that, in virtue of any inchoate arrange-
ments, the parties are to be deemed a corporation de facto, as
among themselves.^
§ 431. Liability of Committee-inan Subsequently Join-
ing. — From the rule that provisional committee-men are not
liable as partners, it would seem to follow, as a matter of course,
that one who joins such a committee would not be bound by
contracts entered into by its members before his joining, al-
though such contracts were in part executed subsequently to that
time; and it has been so held.^ Even an incoming partner
would not be so bound, unless the circumstances were such as to
indicate an adoption of the contract made by the prior part-
ners — as where a firm of carriers enter into a contract for the
carriage of goods which is in part executed after the incoming
of another partner,* Accordingly, where it appeared that the
defendants were members of a provisional committee which had
entered into a certain contract with the plaintiff for the supply
of certain machinery before M., another defendant, had joined
the committee ; that, under this contract, the plaintiff was to have
1 Bailey v. Macaulay, 13 Ad. & El. 5 Ry. Cas. 105; 11 Jur. 845; IG L. J.
(N. 8.) 815; s.c. Thomp. Off. Corp. ((4. B.) 410.
136. * Helsby v. Mears, 5 Barn. & Ores.
2 Childs V. Smith, 55 Barb. (N. Y.J 504. Compare Woods v. Russell, 5
45, 53. Barn. & Aid. 942; Story on Part., §
3 Beale v. Mouls, 10 Q. B. f)7G; s. c. 152.
20 305
1 Thomp. Corp. § 432.] promoters.
monthly payments on account of the work while in progress,
not exceeding the price of the work done and materials supplied
for the time being; that, after M. joined the committee, several
payments were made on account of the work, and several altera-
tions were made in the work with his sanction; and that he
took an active part in superintending the workand making exper-
iments with it ; — it was held that M. was not liable to the plaintiff,
either upon the special contract, or upon a common count for
goods sold and delivered. If the property, in the successive
portions of the machinery, passed from time to time by the pay-
ments on account while the work was in progress, it passed
according to the terms of the special contract, to which M. was
not a party. ^
§ 432. Members of Provisional Committee not Liiable for
Contracts of Managing Committee. — During the era of railway
building in England, the business of promoting or organizing
railway companies, assumed a somewhat definite form. Without
undertaking to state in detail the process which was generally
gone through, it may be said that the first step was to raise a
provisional committee. After the scheme had somewhat crys-
tallized, this provisional committee appointed what was termed a
managing committee. This managing committee necessarily in-
curred expenses; and when the scheme became abortive, and
there were no corporate funds out of which these expenses could
be paid, it became a question what person should pay them. It
was held that the provisional committee was not, ex vi termini,
responsible for expenses incurred by the managing committee.*
The managing committee were not the agents of the provisional
committee, but of the future company.'' In actions against a
^ Beale u. Mouls, swpra. Compare carrying on the scheme, but the reso-
Whitehead v. Barron, 2 Mood. & Hob. lutiou did not authorize any less num-
248; Maudslay V. LeBlanc, 2 Car. & P. ber than the whole of the committee
409, n; Ex parte Peele, 6 Ves. 602; to act, a provisional committee-man
Ex parte Jackson, 1 Ves. Jr. 131 ; was not bound by a contract made by
Clarke v. Spence, 4 Ad. & El. 448. six of such managing committee, in
2 Williams v. Piggott, 2 Exch. 201. the absence of proof of an intention
' Where the provisional committee on his part to be bound by a less num-
appointed a managing committee of ber than the whole. Brown v. An-
eight persons, and directed them to drew, 13 Jur. 938; s. c. 18 L. J. (Q. B.)
take the most energetic measures for 153.
306
THEIR CONTRACT LIABILITY. [1 Thomp. Corp. § 434.
member of the provisional committee, on a contract entered into
by the managing committee, it was a question of fact for the
jury, whether the provisional committee, in appointing the man-
aging committee, gave them power to pledge the credit of the
members of the provisional committee.^
§ 433. Judgment and Satisfaction against One may be
Pleaded in Abatement by Another. — If judgments are obtained
in separate actions against persons who are jointly liable, for the
same subject-matter, a satisfaction of one judgment is, in effect,
a satisfaction of both.^ If, therefore, separate actions are
brought against several committee-men of a projected corpora-
tion upon a demand for which they are jointly liable, and,
pending such actions, one of them pays the whole debt and
the costs in the suit against himself, the others will be entitled
to have the proceedings against them stayed, without payment
of costs. ^ " A plaintiff who, to multiply his chances of success,
brings several actions for a joint debt against the co-contractors,
has no reason to complain, if his success in obtaining payment
of the debt and costs in one, deprives him of the right to recover
costs in the other actions." * Joint contractors are entitled,
under this rule, to be discharged without payments of costs, even
after verdict; if judgment against them has not been signed.
Nor does it make any difference that separate evidence may be
necessary to establish the joint liability of each of the committee-
men separately sued ; for it frequently happens, where actions on
joint contracts are brought against several, that it is necessary
to establish the case against each by separate evidence.'
§ 434. Evidence to Charge Committee-men. — In order to
charge a member of such a committee, it is, therefore, necessary
to show that the contract on which he is sought to be charged
was his personal contract, entered into by him in person or by
' Williams v. Piggott, 2 Exch. 201; ^ Newton v. Blunt, 3 C. B. 675.
s. c. 5 Ry. Cas. 544; 12 Jur. 313; 17 L. * Bailey v. Ilaynes, 15 Ad. & El.
J. (Exch.) 196. (N. s.) 533, 538, per Lord Campbell,
2 Turner v. Davies, note (1), 2 C. J.
Wms. Saund. 148, 148a, 6th ed.; * Bailey v. Haynes, 15 Ad. & El.
Bailey v. Haynes, 15 Ad. & El. (n. s.) (n. s.) 533.
333, 539.
307
1 Thomp. Corp. § 43+.] promoters.
some one thereto authorized by him. When we say expressly
authorized by him, we mean that the term shall be understood
in its legal sense, merely distinguishing the case from one where
the law arbitrarily implies the party's assent to the contract, —
as that a husband shall pay for necessaries purchased by his wife,
or a father for those purchased by his minor child. It is not to
be inferred from the expression used that, in order to charge the
defendant, there must be evidence of a contract in writing, or
even one made b}' express words. A man may speak by his
conduct as effectively as by words or writings. Therefore, the
liability of a committee-man on a contract made by some
other members of the committee, may be proved by his acts
alone. A wide field of inquiry is thus opened up, as to what acts
of such a committee-man will constitute evidential facts to be
considered by a Jury on the question of his liability on contracts
made by other members of his committee, or by a sub-committee
appointed by the committee of which he was a member; and,
further, what acts will be sufficient evidence, as matter of law, to
entitle the plaintiff to recover. Upon these points the cases of
Reynell v. Lewis,^ and Bailey v. Macaulay,^ are very instruct-
ive. The fact that such a committee-man attended a meeting
at which a resolution to incur certain expenses was passed, will
obviously be sufficient to charge him, unless it appear that he
dissented from the resolution. On the other hand, where a
member of such acommittee had left the room, before the passage
by such committee of a resolution by which the members of
the committee incurred certain liability, it was held that he
was not bound to contribute towards the liquidation of such
liability.^ A member of such a committee, who takes part in
its affairs so as to make himself individually liable for contracts
on a given day, does not thereby make himself liable for
services rendered after that time, where the order was given
before it.*
1 15 Mees. & W. 517; s. c. Thomp. Case, 3 DeG. & S. 224; s. c. 2 Mac. &.
OfE. Corp., p. 121. G. 176, and 3 Mac. & G. 287.
2 13 Ad, & El. (N. 8.) 815; s. c. ^ Newton v. Belcher, 12 Q. B. 921 ;
Thomp. Off. Corp., p. 136. s. c. 6 Ry. Cas. 38; 13 Jur. 253; 18 L.
3 Robert's Case, 3 DeG. & S. 205 J. (Q. B.) 53.
(affirmed, 2 Mac. & G. 192) ; Besley's
308
THEIR CONTRACT LIABILITY. [1 Thomp. Coip. § 435.
§ 435. Illustrations. — In Riley v. Packington,^ the defendant was
associated with one Whitehead and others in the formation of a public
company. At a meeting of the projectors, of which the defendant was
chairman, a resolution was passed that the prospectus then read and
marked with the initials of the defendant, be approved and printed for
private circulation. At a subsequent meeting, of which also the defend-
ant was chairman, a further resolution was passed " that the prospectus,
as altered and marked with the chairman's initials, be approved as the
prospectus of the company, and that the same be printed for circulation
and advertised, at the discretion of Mr. Whitehead, as early as possible."
The plaintiffs were employed by Whitehead to print the prospectus, who
showed them the initialed copy, saying that he was authorized by the
defendant to get it printed. The printed prospectus was deUvered at the
office of the company, and was adopted and circulated by the defendant.
There was an arrangement, not communicated to the plaintiffs, between
the defendant and Whitehead, that all the expenses of forming the com-
pany, down to the allotment of shares, were to be born by Whitehead.
These facts were held to be some evidence from which a jury might infer
that Whitehead was authorized to pledge the defendant's credit for the
printing. - - - - In a case decided before the law had become set-
tled in Reynell v. Lewis,^ it appeared that a prehminary association was
formed for the purpose of estabhshiug a joint-stock company, of which
A. was named president, and B. vice-president. They both signed an
agreement to subscribe for a certain number of shares, and to pay a de-
posit of £5 per share when shares to the amount of £50,000 should have
been subscribed for ; and they attended two meetings of the association.
The company was never in fact formed. At the request of the secretary
of the proposed company, C. did certain work for it. In an action by C.
against A. and B. , it was held that the jmy were properly told to con-
sider (1), whether there had been a direct contract by A. and B. with
C. ; (2), whether A. andB. were members of a partnership ; (3), whether
they had held themselves out as such to C.^ - - - - Where it was
proved that A. had contributed to the funds of a building society, had
been present at a meeting of the society, and a party to a resolution that
certain houses should be built, it was held that this made him liable to an
action for work done in building these houses, without proof that he had
any actual interest in them or in the soil on which they were
built.* . ... On the other hand, it has been ruled that a member
1 L. R. 2 C. P. 536. ' Wood v. Duke of Argyll, 6 Man.
2 15 Mees. & W. 217; 8. c. Thomp. & G. 928.
OfiE. Corp. 121. * Braithwaite v. Skofleld, 9 Bam.
& Cres. 401.
309
1 Thornp. Corp. § 435.] promoters.
of a voluntary association formed for building a meeting-house, who is
appointed one of the building committee, and acts as such in making
contracts and procuring materials for building, is not individually liable
to pay for ser\nccs for which he thus contracts with one who knows his
agency, and who knows that the contract is for the benefit of the asso-
ciation, and that it is entered into by the defendant merely as such
agent.' - - - - A company was projected to work a patent for the
filtration and supply of water. Whilst the bill for the formation of the
company was before the House of Commons, the engineer, upon the sug-
gestion of counsel, employed a builder to erect a cistern for testing the
process of filtration, for which the patent had been granted. The de-
fendant was one of the provisional committee, and the cistern was, with
his consent, erected on land in his occupation. This was held no evi-
dence to warrant the jury in finding that the order for the work was given
by the defendant's authority, or that the work was done upon his
credit. 2 The fact that a provisional committee-man has admitted his
liability to pay for certain services rendered for the company is not con-
clusive of his liability, especially where it appears that unfounded opin-
ions were at the time prevailing respecting the liability of provisional
committee-men, 3 On like grounds, a person who had attended a meeting
of the provisional committee, of a provisionally registered railway com-
pany, but took no part in its proceedings, and expressly desired that his
name might not be inserted in the books of the company, was not a con-
tributory, although he had paid a sum of money under protest, upon as-
certaining that his name would be given to the creditors of the company.*
But where one who had acted as a member of a provisional committee,
had, in ignorance of the fact that his application to have his name with-
drawn from the committee had been acceded to, made a payment towards
liquidating the debts of the company, this was held such a recognition of
his liabihty as would warrant his name being put on the hst of contribu-
tories.^ - - - - In a joint action by engineers for work done by them
for a railway -company, of which the defendant was a provisional com-
mittee-man, in order to prove the joint employment of the plaintiffs by
the defendant, the plaintiff put in evidence all the resolutions of the
provisional committee at meetings at which the defendant was present
and in which he took part. The defense was that the plaintiffs, or one
1 Abbott V. Cobb, 17 Vt. 592; post, * Hall's Case, 3 De G. & Sm. 214.
§ . * Besley's Case, 3 Mac. & G. 287
2 Patricks. Reynolds, 1 C. B. (n. (reversing s. c. 2 Mac. & G. 176; and
8.) 727. affirming s. c. 3 De G. & Sm. 221).
3 Newton v. Belcher, 12 Q. B. 921; Compare Hole's Case, 3 DeG. & Sm.
8. c. C Ry. Gas. 38; 13 Jur. 253; 18 L. 241.
J. (Q. B.) 58.
.310
THEIR CONTRACT LIABILITY. [1 Thomp, Corp. § 437.
of them, was to hold the defendant harmless, and that he was to be free
from all personal liabihty. In order to establish this defense, the de-
fendant offered in e\ddence a resolution to the effect that the engineers
were to be emplo^^ed, that they were to give the usual bond of in-
demnity to the members of the provisional committee, and that such
bond should be immediately ready for execution so as to free them from
all responsibiUty. Neither the plaintiffs nor the defendant were present
at the meeting at which this resolution was passed, and the plaintiffs
had no notice of it. It was held that it was properly admitted in evi-
dence against the plaintiff's objection ; since it would not appear until
the conclusion of the case, whether the case was rested upon the actual
authority given by the defendant to the other members of the provisional
committee, or to persons acting by their authority, or whether the de-
fendant himself had personally employed the plaintiffs. That being so,
the defendant had a perfect right to show that, by the terms under which
he and the other members of the provisional committee had entered into
the undertaking, they were not to incur any personal responsibility, and
that such a member was not to have the power of binding the rest.^
§ 436. Evidence to Charge the Associates in an Abortive
Corporation. — Where the evidence was that all the members of
an association which failed to become incorporated, authorized
the prosecution of the contemplated work, and knew that it was
actually being carried forward under the direction of the
appointed agents of the association ; that the executive com-
mittee was authorized by the association to prosecute the work
as its agent, and for that purpose to employ laborers ; that the
contract which was the subject of the action was made by two
members of .the committee, professedly in behalf of the asso-
ciation ; and that the whole committee, havine; knowledire of
that fact, ratified the agreement, by making payment from time
to time in accordance with it, — it was held that there was evi-
dence to charge them all.^
§ 437. Liability of Associates for Expenses of Agents Ap-
pointed to Procure Cliarter. — Where certain persons associated
for the purpose of instituting a bank, and at a meeting held by them, at
which all were not present, appointed an agent to attend the legislature
for the purpose of procuring a charter, and the agent attended accord-
ingly and failed to obtain the charter, it was held that all the associates
' Rennie v. Clarke, 5 Exch. 292. =" Johnson v. Corser, 34 Minn. 355.
311
1 Thomp. Corp. § 440] promoters.
were jointly liable to the agent for his services. " If any of them were
not present, they tacitly agreed to be bound by the acts and doings of
those who attended ; especially as they did not afterwards protest or
object against those acts. Properly the jury might well infer their as-
sent to an act so necessary to the accomplishment of their views, as the
appointment of an agent to sohcit from the legislature a charter of in-
corporation ; and from such assent a moral obligation arises to make a
reasonable compensation for the time and labors of the agent so ap-
pointed." ^
Article II. Liability to Subscribers.
Section Section
4r40. Liability to subscribers for their 447. Release by contract of right to
deposits where the undertaking recover deposits.
proves abortive. 448. Construction of such a contract —
441. Grounds of recovery at law in agreement to execute future
such cases. agreement.
442. Illustration. 449. "What committee-men are liable.
443. Grounds of recovery in equity. 450. Action at law against promoters
444. Remedy in equity lost by laches. for deceit.
445. Equity repels actions brought for 451. Measure of damages in such ac-
barratrous purposes. tions.
446. In returning deposits, breach of 452. Remedy in equity, of sharetaker
trust to prefer particular share- against promoters for fraud,
holders. 453. Measure of recovery in equity.
§ 440. liiability to Subscribers for their Deposits where the
Undertaking Proves Abortive. — A person who has paid his
money for shares in a company which never comes into exist-
ence, or towards a scheme which is abandoned before it is car-
ried into execution, has paid it on a consideration which has
failed, and he may recover it back in an action at law as so much
money had and received to his use, unless it can be shown that
he has consented to, or acquiesced in the application of the
money which the directors or managers of the enterprise have
made ; ^ and he may maintain a bill in equity for the same pur-
pose.^ There is sound reason in placing the liability for the ex-
1 Sproat V. Porter, 9 Mass. 300, 82; Ward v. Lord Londesborough, 12
303. C. B. 254; Vollans v. Fletcher, 1 Exch.
2 Nockelst?. Crosby, 3 Barn. & Cres. 20; Chaplin v. Clark, 4 Exch. 402.
814; s. c. Thomp. OfE. Corp., p. 148; ^ Colt v. Woolaston, 2 P. Wms.
Ashpitel V. Sercombe, 5 Exch. 147; 153; s. c. Thomp. OfE. Corp., p. 169;
s. c. 6 Ry. Cas. 224; 19 L. J. (Exch.) Green v. Barrett, 1 Simons, 45; Will-
312
LIABILITY TO SUBSCRIBEKS. [1 Thomp. Coi'p. § 441.
penses of abortive concerns upon the promoters of them. In all
such projects, some expense must necessarily be incurred before
many members join the concern. Obviously this expense ought
to fall on those who enoi:aoje and undertake to float the concern,
and not upon those who advance their money on the faith of
the former being able to float it.^
§ 441. Grounds of Recovery at Law in such Cases. — There
are two grounds of such a recovery at law, namely: 1. The
failure of the project; and 2. The want of acquiescence in the
expenditure of the money paid into it. These are both ques-
tions of fact^ and, in such an action, they must both be deter-
mined for the plaintiff to enable him to recover. As to the first
ground of recovery, that the undertaking has failed, the burden
iams V. Page, 24 Beav. 654; Grand
Trunk &c. R. Co. v. Brodie, 9 Hare,
822; Williams v. Salmond, 2 Kay & J.
463 (where the principle was recog-
nized, though the bill was dismissed).
1 " On all projects," said Holroyd,
J., "some expense must be incurred
before many members join the con-
cern. Upon whom should that fall?
Undoubtedly, if the scheme proves
abortive, it should fall upon the orig-
inal projectors, and not upon those
who advance their money on the faith
of its going on." Nockels v. Crosby,
3 Barn. &Cres. 814, 822. To the same
effect were the views of Pollock, C B.,
in Wallstab v. Spottiswoode, 15 Mees.
& "W. 501, 516. On similar grounds,
where the holdar of shares (who was
not an original allottee of them), sold
them to B., and the company was
afterwards abandoned, it was held
that the vendee could recover of the
vendor the money advanced on them.
The decision proceeded on the prin-
ciple that since the shares were not
salable until the company was formed,
the vendor sold a mere nothing — an
alleged title of no value. " If he
bought of another," said Best, C. J.,
"he may sue the seller, and the seller,
the party from whom he purchased, till
at last we come to the original pro-
jectors, and in getting at them a great
service will be done." Kempson v.
Saunders, 4 Biug. 5; s. c. 12 Moore,
44. A case is found where the pro-
visional directors of a railway com-
pany covenanted with a land owner to
pay him £3,000 for all damages which
might be done to his land by the con-
struction of a proposed railway (in
case an act of Parliament should be
passed authorizing it), and he in turn
covenanted to convey to the company
the land which they might require for
their road, at a given price per acre.
An act of Parliament was passed, but
the road was not built, and conse-
quently the damages for which the
£3,000 were to be paid were not done
to the land ; but yet it was held by
Parke and Piatt, BB., that the £3,000
must be paid; Pollock, C. B., on the
other hand, thought that the building
of the road was a condition precedent
to the liability for the damages. Bland
V. Crowley, 6 Exch. 522. Compare
Webb V. Direct London and Ports-
mouth R. Co., 9 Hare, 129 (reversed
on appeal, 1 DeG. Mac. & G. 521).
313
1 Thomp. Corp. § 4:43.] promoters.
of proof is on the plaintiff; as to the second, that the plaintiff
has not consented to, or acquiesced in, the application of his
money which has been made, the burden is on the defendant ;
since, in the absence of all proof on this point, such acquies-
cence will not be presumed. On familiar grounds, these questions
are to be determined by the jury, unless the evidence arises
wholly out of documents, when they are to be determined by
the court. If a case arises in which there is evidence on the
first ground of recovery, namely, that the undertaking has
proved abortive, and no evidence, either for the court or for the
jury, that the defendant has acquiesced in the use of his money
which has been made, then it is not a misdirection for the judge
to leave out of view the second ground of recovery, namely,
want of acquiescence, and to tell the jury that if the project has
been abandoned as abortive, the plaintiff is entitled to a return
of his deposit. 1 The principle of these cases is that the ex-
penses of an abortive company are to fall upon the promoters,
and not upon persons who subscribe for shares therein. There
is no obstacle to the recovery of moneys so paid by a sub-
scriber in an action at law ; for, although an action at law will
not lie by one partner against another in respect of a partnership
demand, as already pointed out,^ yet even in England, where
joint-stock companies, when fully formed, were deemed no more
than extensive partnerships, it has been held that one who sub-
scribes for shares in a proposed company, does not, so long as it
remains a mere project, become a partner, or even a quasi-part-
ner with the promoters of it.^ And this is in conformity with
the rule elsewhere stated, that a partnership is not created by a
mere agreement to organize a partnership;* and the same prin-
ciple has been substantially ruled in Massachusetts, where it is
held that the stockholders of an abortive corporation are not
partners, and not liable as such for the debts of the company.'^
§ 442. Illustration. — Where a scheme for establishing a tontine.
was put forth, stating that the money subscribed was to be laid out at
1 Ashpitel V. Sercombe, 5 Exch. ^ Walstab v. Spottiswood, 15 Mees.
147; s. c. 6 Ry, Cas. 224; 19 L. J. & W. 501; s. c. 15 L. J. (Exch.) 193.
(Exch.) 82. * Ante, § 421.
2 Ante, § 429. ' Fayu. Noble, 7 Cush. 188.
314
LIABILITY TO SUBSCRIBERS. [1 TllOmp. Corp. § 44:4:.
interest, and, after some subscriptions had been paid to the directors,
in whom the management of the concern was vested, but before any
part of the money was laid out at interest, the directors resolved to
abandon the project, it was held that each subscriber might, in an action
for money had and received, recover the whole amount of the money
advanced by him, without the deduction of any part towards the pay-
ment of the expenses incurred.^
§ 443. Grounds of Recovery in Equity. — The jurisdiction
of courts of equity in such cases is sustainable on the two grounds
ot fraud and trust. Where the undertaking is a swindle \n its
inception — a bubble — courts of equity will sustain a bill by a
shareholder to recover back moneys which he has paid as deposits
on his shares, on the ground of fraud. ^ But where this is not
the case — where the undertaking is bona fide in its inception,
but is abandoned on account of the intervention of obstacles
which render it impracticable to carry it out, the principle holds
that the managing committee are not the mere agents of the
shareholders, but their trustees, and liable to account as such.^
§ 444. Remedy in Equity Lost by Liaches. — In the view of
Sir John Romilly, the nature of this trust is such that while time
1 Nockels V. Crosby, 3 Barn. & C. extracting oil from English radishes;
814; s. c. Thomp. Off. Corp. 148. and the Master of the Rolls quaintly
2 Colt V. WooUaston, ^ P. Wms. said, touching the promises made to
154; s. c. Thomp. Off. Corp. 169; the subscribers and the performances
Green v. Barrett, 1 Simons, 45. Since rendered, — " It is giving them vioon-
the leading case of Colt u. WooUaston shine instead of anything real."
(swpra), it has not been doubted that ^ Williams w. Page, 24 Beav. 654,
the promoters of abortive companies 661. " The trust," said Sir John
are liable in equity to persons who Romilly, in giving his judgment in this
have been induced by their fraudulent case, " no doubt is a peculiar one;
representations or advice to invest such as it is, they have undertaken to
their money therein, although the discharge the duties of it, and they
equitable action proceeds for no other must be responsible for the due pcr-
relief except the establishment of a formance of them. In my opinion, all
mere money demand. In that case principle and authority point one way
the simple proposition which the court upon this subject, and I should con-
ruled was that a bill in equity lies to sider myself wasting public time by
recover back money which a person enunciating and enforcing elementary
has been induced, through fraud, to principles which are familiar to every
invest in a " bubble." The bubble in one cognizant of legal matters, if I
question consisted of a scheme for were to enlarge upon this subject."
315
1 Thomp. Corp. § US.] promoters.
is not a bar to a suit in equity for an account by the mere force
of the statute of limitations, yet it is a very material ingredient
in such a transaction, which courts of equity will not fail
to consider, in view of the discretion which they have al-
ways exercised, of refusing their aid in the enforcement of stale
demands. If the managing committee of an abortive compan}^
have three or four years before the filing of the bill, rendered
their accounts, and divided the money in their hands, without
meeting any comment or remonstrance on the part of share-
holders, they might well suppose that they had got rid of the
whole matter, and might have lost or failed to preserve vouchers
and evidence on the subject of their account. In such cases, all
that is most favorable, ought to bo presumed in their favor.
But, on the other hand, if, in the account rendered by them,
there was any concealment of a material item, or if they sup-
pressed any important circumstance affecting that account, it
would be difficult to say that three or four, or even more years,
of acquiescence in an account so rendered would bind the share-
holders. ^ Accordingly, where, although there was no direct
concealment by the managing committee of an abortive railway
company, yet there was no publicity; where their books of ac-
count, though open to the inspection of shareholders, were not
so, in all cases, without difficulty ; and where there had been an
intervening suit agfainst them for an account which had not been
disposed of until two and a half years before the bringing of the
suit in judgment, — it was held that it did not constitute any bar
to the suit in equity by a shareholder for an account, however
justly it might do so in a case where their accounts had been
rendered, inspected, not objected to, and no error or defect sub-
sequently assigned in respect of them.^
§ 445. Equity Repels Actions Brought for Barratrous
Purposes. — It has been held that a court of equity will not
lend its aid to the undoing of such a scheme of fraud, or to com-
pel the managers of an abortive company to account, in favor of
a solicitor who has instituted the suit for barratrous 'purposes, if
1 Williams v. Page, 24 Beav. 654, language of Sir John Romilly in this
662. The text is substantially in the case.
» Ibid.
316
LIABILITY TO SUBSCRIBERS. [1 Thomp. Corp. § 44:6.
it appears that the nominal plaintiff ha? been indemnified by the
solicitor and has no real interest in its prosecution.^ If, how-
ever, it appears that the plaintiff has an interest in the success of
the suit, although small, he will not be turned out of court
merely because it is being prosecuted under a barratrous con-
tract with his solicitor.^
§ 446. In Returning Deposits, Breach of Trust to Prefer
Particular Shareholders. — If it appears that the managing
committee of an abortive company, in restoring to the share-
holders what remains of their advances, after applying what is
necessary to the payment of those expenses which, according to
the scheme, were to be so paid, 'prefer certain of the share-
holders by treating their advances as loans and paying them in
full, while the others get back only a percentage of their de-
posits, the transaction will be undone by a court of equity, in a
bill by a shareholder for an account.^ Moreover, if it appear
that such deposits were paid by shareholders who advanced them
in order to comply with the standing orders of the House of
Lords, which required a certain amount to be paid in by share-
holders, before a bill for an act of incorporation would be
entertained, this would make the transaction still worse ; for to
treat such payments as a loan by such persons, to the managers,
under color of a subscription to the stock of the proposed com-
pany, would be to sanction a fraud upon the House of Lords.*
The governing principle of these cases is this ; whoever makes
a colorable subscription for shares in a company, simply for the
purpose of deceiving others, with the understanding between
himself and the managers that he is not to be held to the
liabilities of a subscriber, will, nevertheless, beheld, both inlaw
and in equity, to the very form of the contract he has made.^
1 Grand Trunk &c. R. Co. v. ' Williams v. Page, 24 Beav. 654,
Brodie, 9 Hare, 822. 663.
* Williams v. Page, 24 Beav. 654, *■ Ibid.; Clement v. Bowes, 1 Drew.
6G5. As to the necessary parties to 684, 688.
such a bill, see this case and also * Litchfield Bank v. Church, 29
Williams v. Salmond, 2 Kay & J. 4G3; Conn. 137, 150; Centre Turnp. Co. v.
Grand Trunk &c. R. Co. v. Brodie, McConaby, 16 Serg. & R. 140; Graff
9 Hare, 822; Clement v. Bowes, 1 v. Pittsburgh &c. R. Co., 31 Pa. St.
Drew. 684. 489; White Mountains R. Co. v. East-
317
1 Thomp. Corp. § 447.] promoters.
And if the managers of the company give effect to the fraudu-
lent agreement, by restoring moneys which the Bubscriber has
advanced in pursuance of it, they will be subject to account for
the same in equity to those whose rights have been prejudiced
by the transaction.^
§ 447. Release by Contract of Right to Recover Deposits. —
Applicants for shares in English railway companies, disabled
themselves, in the absence of fraud ,2 for recovering back their
deposits at law by signing what was termed the *' subscribers
agreement and parliamentary contract," which, it is supposed,
contained provisions to the effect that the moneys advanced might
be expended in defraying the costs of the undertaking ; and where
a subscriber agreed to sign the "subscribers agreement and par-
liamentary contract," and the scrip certificate which he received
recited that he had done it, this cut off his right to sue for a de-
posit, the same as an actual signing.^ So, where the letters allotting
shares to subscril)ers in projected railway companies stated that
the deposits required to be paid, would be applied by the direct-
ors in the payment of preliminary expenses, the fact that such
moneys were so paid would be a defense to actions by subscribers
to recover them back.* Some questions have been made as to
the manner of proving the contract in such cases. It has been
held that it was not necessary for the plaintiff to show that he
had sent a letter of application for the shares, because a letter of
allotment to him and his payment of the deposit after the receipt
of such letter, constituted a contract.^
man, 34 N. H. 134; Custar v. Titus- although 35,000 shares had been allot -
Tille Gas Co., 63 Pa. St. 381, 386. See ted, and tb is fact was not coramuni-
also Miller v. Hanover Junction R. cated to hira, did not constitute such
Co., 87 Pa. St. 95; post, §1578. a fraud as would avoid his contract
1 That arrangements releasing par- and entitle him to recover back his de-
ticular shareholders other than fcono posits. Vane.v. Cobbold, 1 Exch. 798.
Jide forfeitures for non-payment of ^ Clements v. Todd, 1 Exch. 268.
calls, are void, see Hall's Case, L R. * Jones v. Harrison. 2 Exch. 52;
5 Ch. 707; s. c. 39 L. J. (Ch.) 730; 18 Willey v. Parratt, 3 Exch. 209.
Week. Rep. 1050; 23 L. T. (n. s.) 331; * Chaplin v. Clarke, 4 Exch. 402.
post, §1511.e« seq. As to acts in pais which were held in.
2 Atkinson V. Pocock, 1 Exch. 798. sufDcient to prove that the defendant
The fact that at the time when the sub- was a director, see Drouet v. Taylor,
Bcriber executed the deed, deposits 16 C. B. 670.
had been paid upon only 18,160 shares,
318
LIABILITY TO SUBSCRIBERS. [1 Thomp. Corp. § 449.
§ 448. Construction of such a Contract — Agreement to
Execute Future Agreement. — When a person applies in writ-
ing for shares in a projected undertaking, and in his application
agrees to execute any agreement, or deeds which may be tendered
to him for that purpose, and a proper and lawful agreement
such as was contemplated in his letter is tendered him for exe-
cution, and he fails or refuses to execute it, he will, it seems, be
bound by its provisions the same as though he had executed it ;
and if it appears that the money he has paid on account of his
subscription has been expended as therein authorized, he will in
the event the project becomes abortive, be estopped from main-
taininsr an action to recover back what he has paid. But if the
agreement tendered to him for execution contain provisions not
authorized by law, it will not have this effect.^
§ 449. What Committee-men are Liable. — From the doc-
trine that promoters and provisional committeemen are not
partners,^ it follows that where such a committee have issued a
prospectus for sub;*criptions to the capital stock of the proposed
company, and subscriptions have been sent in, and the company
has afterwards proved abortive, the subscribers can only recover
the deposits which they have made on account of their subscrip-
tions, from those committee-men who received them, or to whose
use they were received. The fact that the name of the commit-
tee-man, with his consent, appeared upon a prospectus soliciting
subscriptions to the stock of the proposed company, does not
make him so liable. In short, it must be shown that he got the
money. In the absence of such proof, a member of such a com-
mittee whose name had been so pubhshed, who had attended but
one meeting of the committee, at which, he had presided as
chairman, but at which he dissented from the proceedings, was
not liable in an action by a subscriber for the repayment of his
deposit money. ^
1 Ashpitel V. Sercomb, 5 Exch. 14; the English rule which holds pro-
s. c. 6 Ry. Cas. 224; 19 L. J. (Exch.) moters and provisional coininittee-
82. men not liable as partners — a rule
" Ante, § 421. which has been productive of frequent
3 Burnside «. Dayrell, 3 Exch. 224; injustice — we may venture to ques-
s. c. 6 Ry. Cas. 07 ; 19 L. J. (Exch.) 4G. tion the soundness of the above appli-
Without venturing a criticism upon cation of it. It undertakes to distin-
3iy
1 Thomp. Corp. § 451.] promoters.
§ 450. Action at Law against Promoters for Deceit. — Per-
sons who biive been induced, either by the fraudulent representa-
tions or conceabuents of promoters, to .subscribe for shares in a
comi)any and pay deposits thereon, have another remedy aii^ainst
them in an action at hiw for damages for the deceit. This action
differs from those considered in the previous sections. It is not
an action ex contixictu, proceeding on the fiction of an implied
assumpsit^ for so much money had and received by the defendant
to the use of the plaintiff, but it is an action of tori, the object of
which is to recover the damages which the plaintiff has sustained
by reason of the deceit which the defendant has practiced upon
him. Unless the company prove abortive, an action ex contractu
would not lie against promoters as such : for, at least under the
present plan of organizing companies in England, shares are not
issued until the organization of the company has been so far per-
fected that a board of directors has been constituted; it is with
this board of directors that contracts to take shares in the com-
pany are made, and not with the promoters. If the fraudulent
prospectus which induced the subscriber to take shares in the com-
pany was issued by the promoters, although this might afford
a ground for maintaining an action against the company for a
rescission of the contract, yet an action for damages for a deceit
can only be maintained against the persons who have actually
been guilty of it, namely, the promoters. Privity of contract
would not be necessary to support such an action. This distinc-
tion is well brought out in a leading case,^ and as we shall recur
to it again in considering the liability of directors for similar
frauds,^ it will not be necessary to dwell on it further here.
§ 451. Measure of Damages in Such Actions. — If, in such
an action, it would appear that the shares subscribed for never
had any real value, the measure of damages would be the money
guish Walstab v. Spottiswoode, 15 for money had and received to per-
Mecs. & W. 501, but in the writer's sons who have subscribed for shares
opinion it cannot be reconciled with in them, for the money advanced on
that case or with the earlier case of their shares.
Nocljels V. Crosby, 3 Barn. & Cres. ^ Gerhard u. Bates, 2 El. & Bl. 47G;
814 ; s. c. Thomp. Off. Corp. 148, which s. c. 20 Eng. L. & Eq. 129 ; Thomp. Off.
hold, broadly, that promoters of abor- Corp. 158.
live companies are liable in actions ^ post, § 4030, et seq.
320
LIABILITY TO SUBSCRIBERS. [1 Thomp. Coi'p. § 452.
which the fraud of the defendant had induced the plaintiff to part
with — that is, the money which he had paid on account of his
shares.^ But there seems to be no doubt that if the shares were
really worth anything when bought, the defendants ought to have
credit for what they were really worth. But this must be under-
stood as referring to their real value, and not to the fictitious and
delusive value which they might have acquired by reason of the
very fraudulent representations which induced the plaintiff to
purchase them; since the plaintiff, knowing the falsity of these
representations, could not sell the shares in order to save himself
from loss, without being himself guilty of a fraud of the same na-
ture as the one practiced upon him. It is obvious that such a
value, based upon such a foundation, could not be looked to for
a moment by a court of justice. For this reason, the fact that
shares put upon the market by means of false representations,
such as would be sufficient to sustain an action for deceit against
the promoters, were quoted at a premium on the stock exchange,
would not be conclusive of their value, since it would not show
a real, but only fictitious and delusive value. ^
§ 452. Remedy in Equity of Sharetaker against Promoters
for Fraud. — Where the promoter of a company, together with
the directors, puts forth a fraudulent prospectus, on the faith of
which a person is induced to purchase shares of the company, he
may bring a bill in equity against the company, the directors,
and the promoter, and under it he will be entitled to a rescission
of his contract. If, in the meantime, the company is ordered to
be wound up, he will be entitled to have his name removed from
the list of contributories, and to have an account of the moneys
he has paid to the company, and of the sums he has received as
dividends, with interest on both sides, and to have a decree
against all the defendants for payment to him of the balance so
found due him, and also an injunction against any further action
against him for calls. ^ Where a bill in equity is brought under
1 T>/ycros8 v. Grant, 2 C. P. Div. Cockbum, on the same question, iM(^.,
469. pp. 542-546.
2 Twycross v. Grant, 2 C. P. Div. ^ Kt-nt v. Freehold Land &c, Co., L.
469, 489, judgment of Lord Coleridge, K. 4 Eq. 588. In Henderson v. Lacon,
C. J. See aso the views of Lord L. 11. 5 Eq. 249, similar relief was
■j\ 321
1 Thomp. Corp. § 453.] promoters.
the English judicature act, 1875, in the nature of an action for
deceit, by a shareholder in a company against the promoter of
it, seeking to recover of such promoter the amount which the
plaintiff has lost by investing in the shares of the company,
which investment is alleged to have been induced by the fraud
and deceit of the promoter, the plaintiff, in order to succeed, it
has been held, must make out his action by proof similar to that
which, under the old practice, was required in an action for deceit.
He must prove a guilty scienter on the part of the promoter. On
this ground, where a person purchased a colliery for £16,000
odd, and then promoted a company to purchase it of him, and
sold it to the company for £23,000 odd, in which company he
became a managing director, the fact that he concealed from
those whom he induced to take shares in the company (among
whom was the plaintiff) the amount which he actually gave for
the property, was held by Vice Chancellor Bacon not to be such
a fraud and deceit as would support a bill in equity by the share-
holder against him, for the recovery back of the money which he
had been thus induced to part with. In fact, the learned judge
could not see that the transaction was not perfectly fair and
honest.^ This, it seems to the writer, was a perfectly clear case
of a promoter of a company speculating on the confidence of those
whom he induced to join in the proposed venture. Unless the
writer is greatly deceived, the conduct of the defendant was en-
tirely obnoxious to the doctrine of the House of Lords in the sub-
sequent case of Erlanger v. New Sombrero Phosphate Co.,^ and
the conclusion of the judge who tried the case does not do credit
to his perception of justice. We must, in any event, regard this
case as overruled by the Court of Appeal in Twycross v. Grant. ^
§ 453. Measure of Recovery in Equity. — A promoter par-
ticipating in the fraud of his personal representative is liable to
granted against directors of a com- no obstacle to the bringing of a bill by
pany under similar circumstances, the company for the relief prayed for.
though the promoters were not parties ^ Craig v. Phillips, 3 Ch. Div. 722.
to the suit. Compare Fossv. Ilarbot- ^ 3 App. Cas. 1218 (affirmiug s. c. 5
tie, 2 Hare, 461, where a bill of two Ch. Div. 73) ; 4 Cent. L.J. 510; infray
shareholders, filed on behalf of them- § 459.
selves and all other shareholders, was ^ 2 C. P. Div. 469. See § 456.
dimissed, on the ground that it showed
322
LIABILITY TO THE COMPANY. [1 Thomp. Coip. § 4:56.
the bona fide subscribers, not only for their due proportion of
the profits he himself has realized, but also for their due propor-
tion of the fund which he has received as trustee and misappro-
priated by paying it over to those privately interested with him.*
Article III. Liability to the Company.
Section Section
456. Promoters bound to disclose what 467. Illustrations.
they are to get for their serv- 468. Immaterial that directors of the
ices. corporatiou knew of the fraud.
457. Cannot make secret profits out of 469. Liability for fraudulent represen-
the corporation. tafions.
458. Purchasing and then selling to 470. Illustration.
corporations at a higher price. 471. No defense that the corporation
459. Illustrations. raised the money on an illegal
460. No liability when the transaction issue of its stock.
is fully disclosed. 472. Grounds of recovery against aid-
461. Company may affirm promoters' ers and abettors.
contract and enforce it for its 473. Whether liability of managing
own benefit. committee-man in equity for
462. Not necessary to rescind the fraud is joint or several.
whole transaction. 474. Who may bring the action in
463. Deduction for promoting com- equity.
pany. 475. Great latitude allowed in admis-
464. Compromise of suit against ven- sion of evidence.
dors. 476. When the fiduciary relation be-
465. Measure of recovery in equity. tween the promoter and the
466. Liability at law for secret profits. company commences.
§ 456. Promoters Bound to Disclose what They are to get
for their Services. — Where persons undertake the promotion of
a company for the purpose of purchasing certain existing prop-
erty, under an agreement with the owner and proposed vendor
of such property, by which they are to receive a certain com-
pensation for promoting the company, theyare bound to disclose
to those whom they induce to become members of the company,
what their compensation is to be. The concealment of such an
agreement is a fraud on the company. It amounts to an airree-
ment, by the vendor, with an agent of an intended purchaser, to
give him a bribe to betray the interests of his principal. ^ If the
1 Getty V. Devlin, 70N. Y. 504; s. c. 2 Rg Hereford &c. Co., 2 Ch. Div.
onformer appeal, 54 N.Y. 403. Contra, 621.
Bent V. Priest, 10 Mo. App. 543, Lewis,
P. J., dissenting.
323
1 Thomp, Corp. § 457.] promoters.
promoters of a company conceal such an agreement from those
whom they induce to join it, and the company proves abortive,
they will not bo allowed, in the winding up of the company, com-
pensation for their service, either before or after the formation
of the company. The reason is that labor performed by them
in inducing persons to become members of a company by fraud-
ulently concealing from them a certain material fact, is in the
eye of a court of equity, deemed to have been of no value to the
company." ^
§ 457. Cannot Make Secret Profits out of the Corporation. —
Promoters of a corporation occupy a fiduciary relation to it and
have no right to derive any advantage over other stockholders,
without a full and fair disclosure of the transaction ; and any secret
profits which they acquire through promoting the corporation must
be refunded, and may be recovered in equity by the corporation or
its legal representative, and in many cases at law.^ Persons who
organize a corporation for the purpose of working certain prop-
erty are bound to disclose to persons, who may be by them in-
duced to join them in the company, what the vendors of the
property actually received for it; and if, by deceiving the mem-
bers of the company as to the actual price paid for the property,
or if, by collusion with the vendors they are permitted to retain
for themselves a portion of the purchase money, they must ac-
count to the company for the same in equity ; * or the company
1 Ibid. Getty v. Devlin, 54 N. Y. 403; s. c. 70
2 Chandlers. Bacon, 30 Fed. Rep. N. Y. 504; Hichens v. Congreve, 1
538. The following cases support the Euss. & M. 150; Fawcett v. White-
principle that such profits are recover- house, 1 Russ. & M. 132; Beck v.
able, though some of them were ac- Kantorowicz, 3 Kay& J. 230; St. Louis
tions at law: Bagnall v. Carlton, 6 Ch. &c. Mining Co. v. Jackson, 5 Cent. L.
Div. 371 ; Whaley &c. Co. v. Green, 5 J. 317. The principle is found era-
Q. B. Div. 109; Charlton v. Hay, 31 bodied incases without number: Tyr-
L. T. (n. s.) 437; s. c. 23 W. R. 129; rell v. Bank, 10 H. L. Cas. 26; Kimber
New Sombrero Phosphate Co. v. Er- v. Barber, L. R. 8 Ch. 5G; Puzey v.
langer, 5 Ch. Div. 73; Emma Silver Senier, 9 Wis. 370; Pickett v. School
Mining Co. ». Grant, 11 Ch. Div. 918; District, 25 Wis. 551; Cook v. Mill
Densmore Oil Co. v. Densmore, 64 Pa. Co., 43 Wis. 433; Re Orphan Asylum,
St. 43; McElhcnny's Appeal, 61 Pa. St. 36 Wis. 534. It is more fully consid-
188; Simons v. Vulcan Oil &c. Co., 61 ered hereafter in its relation to direct-
Fa,. St. 202; s. c. Thomp. Off. Corp. ors. Post, ^38d9. et seq.
172; Emery v. Parrott, 107 Mass. 95; ^ Bank of London v. Tyrrell, 5 Jur.
324
LIABILITY TO THE COMPANY. [1 Thomp. Coi'p. § 457.
may maintain an action of assumpsit against them for the moneys
so secretly reserved to themselves, as so much money had and
received to its use.^ In like manner, persons who purchase prop-
erty and then organize a company to purchase it from them,
stand in a fiduciary position towards such company, and must
faithfully state to the company all material facts relating to the
property, which would influence the company in deciding on the
desirability of purchasing it.^ In such cases the owners of prop-
erty who desire to create a company for the purpose of pur-
chasing it from them are bound, if they wish to make a contract
which will stand, to nominate independent directors, and to dis-
close to them the actual facts. ^ The principle upon which courts
of equity proceed in these cases is a very familiar one. The pro-
moter of a company, like its directors, is deemed to sustain
towards the members of the company the relation of a trustee
towards his cestui que trust. This being so, he will not be per-
mitted to speculate out of that relation, or to derive secret ad-
vantages from it. He is bound to disclose to them fully all
material facts touching his relation to them, including the
amount which he is to get for his services as promoter, usually
called " promotion money." But, plain as this principle is,
great difficulty sometimes arises in applying it, for it is not
always easy to determine at what time this trust relation springs
into existence. If the contract is made with the company, or
with persons acting for it, before he assumes towards it the re-
lation of promoter, then he is not bound to disclose what he gave
for the property ; the case stands precisely like a case of bar-
gain and sale between two strangers ; and if, without fraud, he
gets a good bargain from the company, it is so much good for-
tune for him.*
(n. 8.) 924; Emma Silver Mining Co. ^ Erlanger v. New Sombrero Phos-
V. Grant, 11 Ch. Div. 918; Atwool v. phate Co., 3 App. Cas. 1218 (affirming
Merryweather, L. R. 5 Eq. 464, note; s. c. 5 Cli. Div. 103) ; 4 Cent. L. J. 510.
Lydney &c. Co. v. Bird, 33 Cli. Div. 3 md,, 3 ^pp, Cas. 1229, per Lord
85; s. c. 24 Am. & Eng. Corp. Cas. 23. Penzance.
Compare Cumberland Coal &c. Co. v. * Gover's Case, 1 Ch. Div, 182.
Sherman, 30 Barb. (N. Y.) 553. See also Erlanger v. New Sombrero
1 Simons v. Vulcan Oil &c. Co., 61 Phosphate Co., 3 App. Cas. 1218
Pa. St. 202; s. c. Thomp. Off. Corp., p. (aflirming s. c. 5Ch. Div. 103); 4 Cent.
172; Whaley &c. Co. v. Green, 6 Q. B. L. J. 610, and reversing the decision
Div. 109. of Vice Cliancellor Malins, 5 Ch. Div.
325
1 Thomp. Corp. § 458.] promoters.
§ 458. Purchasing and then Selling to Corporation at a
Higher Price. — It has been well said: "A trustee or agent
cannot purchase on his own account what he sells on account of
another, nor purchase on account of another what he sells on his
own account; . . . and \f he does bo, the cestui qui trust or
principal, unless, upon the fullest knowledge of all the facts,
he elects to affirm the act of the trustee or agent, may repudi-
ate it, or he may charge the profits made by the trustee or agent
with an implied trust for his benefit.^ This principle is undoubt-
edly applicable to promoters of a corporation not yet in esse,'^
though it may be difficult in strict logic to work out such a case
upon the theory that they are trustees for a body which is not
in esse and which they are proposing to create. Perhaps the
conclusion is better worked out upon the reasoning of a recent
writer of reputation; " Before any shares had issued, the exist-
ence of the company was a fiction. The shareholders really
formed the company, each one becoming a member when he
took his shares. While the contract for the purchase of the
property was nominally in force from the time of its approval
by the board of directors, yet it really took effect only after the
shareholders had taken their shares. It then became binding on
all the shareholders collectively, or, in other words, on the
company. The fraud really consisted in inducing the share-
holders to enter into this contract in their collective capacity,
and in using the funds belonging to the shareholders collectively
in paying the purchase price. It is evident therefore that the
injury to the shareholders was not an injury to the collective or
corporate interests, and that the company was the proper com-
plainant." ^ It seems, however, that the case cannot rest upon
the idea of two parties to a trade dealing with each other at
91, which proceeded on the authority Cook v. Berlin &c. Co., 43 Wis. 433;
of Cover's Case. Re Orphan Asylum, 36 Wis. 534.
1 Parker v. Nickerson, 137 Mass. ^ Society v. Abbott, 2 Beav. 559;
487; Parker v. Nickerson, 112 Mass. New Sombrero Phosphate Co. v. Er-
195. Cases affirming this principle: langer, 5 Ch. Div. 73; St. Louis &c. II-
Tyrrell v. Bank, 10 II. L. Cas. 2G; Co. v. Tiernan, 37 Kan. 606; Ke Paper
Kimber v. Barber, L. R. 8 Ch. BG ; Sim- Box Co., 17 Ch. Div. 471.
ons V. Vulcan Oil &c. Co., 61 Pa. St. ^ Mor. Priv. Corp., 1st ed. § 279;
202; Puzey v. Senier, 9 Wis. 370; commenting on Now Sombrero Phos-
Pickett V. School District, 25 Wis. 551 ; phate Co. v. Erlanger, 5 Ch. Div. 73,
326
LIABILITY TO THE COMPANY. [1 Thomp. Corp. § 458.
arm's length. While the promoters, at the time of making the
offer, are not in a relation of trust and confidence with those to
whom they make it, yet by the offer itself they propose to enter
into such a relation with them ; and this circumstance puts them
under the same duty of making full and fair disclosures to them
which they would be under if the trust relation had already been
established. There is a depth of turpitude in the concealment of
material facts under such cases, analogous to that which exists
where material facts are concealed by persons intending to enter
into the marriage relation with each other. The very suo-o-estion
made by associates to intending subscribers to tlie corporate
shares — " We are going to be your co-adventurers in this enter-
prise to be founded and prosecuted for the common profit of
all," — implies an obligation on their part to deal openly and
with the same fidelity which is demanded where a trust relation
has been established. If, under such circumstances, they pur-
chase property at one price and sell it to the corporation at a
greater price, concealing from its members the fact that they are
making a profit, according to all ordinary conceptions of honesty,
each member has the right to say that he has been cheated. ^
^ Sir Nathaniel Lindley, in his work
on partnership, after stating the rule
that neither partners nor directors of a
company are at liberty to make indi-
vidual profits out of the business of
the concern witliout the knowledge
and consent of tlieir associates, says:
"The rule under consideration is pe-
culiarly applicable to transactions
which precede the formation of a com-
pany or partnership. Judging from
recent events and disclosures, nothing
seems more common than for a person
engaged in getting up a company, to
obtain for the company property of
which it is in want, and try and make
the company pny him more than he
gave for it. .Such a transaction can
never stand. There may undoubtedly
be a valid sale to a company by persons
engaged in getting It up; . . .
but once let it be shown that the al-
leged vendor obtained the property
when it was his duty to obtain it for
the company, and it immediately fol-
lows that he can not, without the
fullest disclosure on his part, charge
the company with more than he actu-
ally gave." Lind. Part. (1st ed.) 497.
To the .same effect is the opinion by
Sir John Romilly, M. R , in Bank of
London v. Tyrrell, 5 Jur. (x. s.) 924,
distinguishing Great Luxembourg R.
Co. V. Maguay, 25 Beav. 58(;. Quoting
this language, it has been said in the
Supreme Court of Pennsylvania by
Mr. Chief Justice Thompson: "The
principle is undoubtedly the same
where parties profess to have acted
for a company and their purchases
have been accepted on representations
that they were made for it. In one or
the other of these attitudes, namely, as
agents of a company to be gotten up,
or as having professed so to have
acted, tlie jury must have found they
327
1 Thomp. Corp. § 459.] promoters.
It is immaterial that the company gets the property at a good bar-
gain. This does not relieve the promoter from liability ; for the
company has a right to the best bargain which those acting in its
interest as iiduciaries can, with full knowledge of the facts, give
it.^ Nor is it an answer to such an action that the company is a
fluctuating body, and that it may be that no person who was a
member at the time of the transactions is a member at the time
of the bringing of the suit; but in such a case the court is bound
to consider the company as having a perpetual existence, and is
not at liberty to go into the question of what individuals it is
composed of .^
§ 459. Illustrations. — A leading case on this subject is, with-
out doubt, that of Erlanger v. New Sombrero Phosphate Co. ,3 which
went thi-ough the various courts of equity in England to the House of
Lords, by which House it was decided in the year 1878. The facts of
it were as follows: A " syndicate" (or partnership) of persons, of
which one Erlanger was at the head, purchased from the official liqui-
dator of an insolvent company, an island said to coutain valuable mines
of phosphates. Erlanger, who managed the business of this purchase,
prepared to get up a company to purchase the island and work the
mines. He named five persons as directors. Two were abroad. Of
the three others, two of the proposed directors were persons entirely
under his control, and were fm-nished by him with the shares which
were set forth in the memorandum of association as necessary to
quahfy for the office of director. One of these two persons appears to
have acted as a business agent of Erlanger ; the other was his friend.
The sale of the island was made, nominally, by a person who really had
no interest in the island, and was made to the director who was the
business agent of Erlanger, and who appeared as the purchaser of the
company. The two directors, with whom, through Erlanger' s arrange-
ment, a third person, D. (one entirely uninformed on the subject of the
orio-inal purchase, and the subsequent sale), was associated, assuming
to act as directors of the company, accepted, on its behalf, the pur-
chase. A prospectus was issued giving a very favorable account of
the scheme. Many persons took shares. At the first meeting of the
stood. In either, it seems clear, they ^ Beck v. Kantorowicz, 3 Kay & J.
could not legally retain the advance 230.
price on the property which they re- ^ Phosphate Sewage Co. v. Hart-
ceived." Simons v. Vulcan Oil &c. mout, 5 Ch. Div. 394, 441.
Co , (Jl Pa. St. 202, 218; s. c. Thomp. ^ 3 App. Cas. 1218 (affirming s. c.
Off. Corp. 172, 192. 5 Ch. Div. 103) ; 4 Cent. L. J. 510.
328
LIABILITY TO THE COMPANY. [1 Thomp. Corp. § 459.
shareholders, D. took the chair as a director. Being questioned by a
shareholder as to certain rumors relating to the purchase of the island
and its price, on the first sale, and then on its resale to the company,
D. avowed his want of knowledge, but declared his belief, in the good-
ness of the scheme. The real circumstances of the sale and purchase
were not disclosed to the shareholders, but the purchase of the island was
adopted bj' the shareholders then present. This was in February 1872.
In June of the same year there was a general meeting of the share-
holders. The rumors before referred to had become stronger, and a
committee of investigation was appointed, on the receipt of whose re-
port in the following August, the original director's were, at a public
meeting, removed, and a new set of directors appointed, with power to
take measures, etc., for the good of the company. The new directors
entered into a correspondence with the vendors of the island, which
terminated in nothing; and in December, 1872, a bill was filed to
rescind the contract. It was held that the contract could not be sus-
tained. Upon these facts the only substantial disagreement between the
equity judges and the law lords, appears to have been on two points : 1.
Whether the syndicate represented by Baron Erlanger were really pro-
moters of the company at the time of the transaction sought to be
undone, in the sense that a fiduciary relation existed between them and
the company. It was upon this point that Vice Chancellor Malins, who
first heard the case, dismissed the bill. 2. Whether the company had
been guilty of laches in not sooner instituting proceedings for a rescis-
sion. Upon this ground Lord Cairns, in the House of Lords, thought
that the bill could not be sustained. With these exceptions, the
judges and law lords seem to have been agreed that it was a
case for equitable relief, and it was so finally decided. - - - -
By an agreement between the vendors of a mine and G. , a financial
agent, the vendors agreed to sell the mine to a company to be formed
by G. for its purchase at a price named, and that G. should receive
20 per cent, of the amount of the allotted capital of the company. By
a second agreement between P., the agent of the vendors, and D. (a
nominee of G.), described as agent of the intended company, P.
agreed to sell the mine to the company for the price mentioned in the
former agreement, but no reference was made to the percentage which
G. was to receive. Shortly afterwards the company was formed ; the
memorandum of association and prospectus which were settled by G. ,
stated that its object was to carry out the second agreement and for the
purchase and working of the mine, but they contained no reference to
the first agreement, under which G. received the amount therein agreed
upon. G. secured the services of the first directors, provided theu-
qualifications, and launched the company. In an action by the com-
329
1 Thomp. Corp. § 459.] promoters.
pany to make him liable for what he had received without the knowledge
of the company, it was held that G. was liable for the amount of the
secret profit which he had made ; also that, in estimating the amount of
such profit he was entitled to be allowed all sums bona fide expended in
securing the services of the directors and providing their qualification,
and in payments to the brokers, to the officers of the company and to the
public press in relation to the company.^ - - - - In another case
the facts Avere that the defendant applied to one W. to assist him in
disposing of certain lead mines which he held under an agreement for a
lease for twenty-one years, and which he had discovered to be of no value.
The defendant proposed to dispose of his interest for £4,000, and the
scheme concocted between himself and W. was, that a company should
be formed for the purpose of purchasing and working the mines, which
were to be sold to such company for £7,000. Of this money the de-
fendant was to receive £4,000, while the remaining £3,000 was to be
paid to W. for his assistance in getting up the company. This agree-
ment was concealed from the other directors, who were induced to
believe that £7,000 was bona fide to be paid as purchase money. Shares
in the proposed company were sold, on which £3,940 was received.
This money was paid over to the defendant and 600 shares were
registered in his name as paid up, in part payment of the £7,000, the
alleged price of the mines. The plaintiff filed a bill, on behalf of him-
self and all the other shareholders of the company, for the purpose of
compelling repayment from the defendant and W. of the £3,940, and a
return of the 600 shares allotted to the defendant. Sir W. Page Wood,
V. C, held that this " was a simple fraud, and nothing else ;" that W.
was in duty bound to inform the company at what price he had bought
the mines ; and he accordingly granted the prayer of the bill. 2 _ _ _ _
B. & C, as promoters of a projected corpoi*ation, negotiated an agree-
ment between the owners of certain patents and the corporation (to be
thereafter created) by which B. &C. were to receive 3,750 shares of the
capital stock of the new company, less 625 shares which they were to
assign to another. B. & C. offered the public an option to take stock
in the new company, disclosing the purchase of the patents and also
the fact that a portion of the stock was to be issued to the former owners
in part payment, but not informing purchasers that they were to have
stock on any different terms or conditions. It was further agreed be-
tween B. & C. and the owners of the patents that B. should be the presi-
dent and C. the treasurer of the corporation. They were so elected,
and placed a large amount of the stock at seven dollars a share, obtain-
^ Emma Silver Mining Co. U.Grant, 2 ^twool v. Merryweather, L. R.
11 Ch. Div. 918. 5 Eq. 464, note.
3.30
LIABILITY TO THE COMPANY. [1 Thomp. Corp. § 460.
ing their own for nothing. It was held, in a suit in equity by a receiver
of the corporation, that they must refund the secret profits so obtained.
It was further held that the corporation, or its legal representative, had
the right to elect (1) whether the shares should be transferred back to
it; or (2) if the shares had been sold, whether the entire profits accruing
from the sale should be turned over ; or (3) whether it should be paid
the sum lost by reason of being deprived of the right to place the shares
with other persons at sevdn dollars per share. ^ The company, or its
legal representative, had the right to say: " Although you may have
derived no profit by selling the shares, yet you deprived us of placing
them with other persons, and you must therefore pay us the sum we
have lost by reason of our being deprived of the right of placing these
shares with other persons." ^
§ 460. No Liability where the Transaction is Fully Dis-
closed. — It is only where the profit is secret &n^ undisclosed
from the other parties in interest, that an action lies to recover
it. There is no rule of law or equity which prevents the owner
of property from organizing a corporation and selling his prop-
erty to that corporation at a higher price than he paid for it,
provided he discloses the facts. He is bound to put the di-
rectors of the purchasing company in possession of full inf orma-
1 Chandler v. Bacon, 30 Fed. Rep. shareholder in such company from
538. his contract of subscription that
2 i7)id. ; citing Carling's Case, 1 Ch. H. ha^ secretly agreed to give
Div. 115, 126, 127; McKay's Case, 2 to certain directors paid-up shares
Ch. Div. 1; De Ruvigne's Case, 5 Ch. in consideration of his consenting to
Div. 306; Nant-y-Glo &c. Co., v. Grave, act as a director; nor that he had se-
12 Ch. Div. 738. The concealment of cretly given to two ocher persons,
a sub-agreement oetween the promot- who afterwards became directors, a
ers of a company and four of its di- sumof money in bills, in consideration
rectorsby whichapartof asumwhich, of their procuring a credit company
according to the articles of associa- to bring out the railway company in
tion, is to be paid to the promoters question. The reason assigned by
for their labor and expense in getting Lord Romilly, M. R., for so h >lding
up the concern, is in fact paid to such was that these transactions were not
directors, vitiates the whole contract such as materially to effect the sue-
between the company and promoters. cess of the undertaking, and hence the
Ex parte Williams, L. R. 2 Eq. 214. fact that tliey had been concealed from
But where 11., a contractor, obtained the shareliolders would not entitle
from one of the cantons of Switzer- him to say that if he had known of
land a concession for building a rail- them, he would not have taken the
road, which concession he transferred sliares. Heymann v. European &c. R.
to a company formed for that purpose, Co., L. R. 7 Eq. 154.
it was held no ground for relieving a
33 L
1 Thomp. Corp. § 463.] promoters.
tion, so that they can exercise an independent judgment touching
all matters which affect the interests of the company.' The
mere fact that he sells to the company and afterwards becomes
a director in it, does not make him liable for the profits which he
acquired, if he acts openly and honestly and as an independent
vendor.^
§ 461. Company may Affirm Promoters' Contract and En-
force it for its own Benefit. — It is not at all necessary to the
right of the company, as against its prompters, to recover what-
ever secret profits they have made in violation of their trust, that
there should be a rescission of the contract between them and
the strangers from whom they may have purchased the prop-
erty which they have conveyed to the company at an enhanced
price. ^ On the contrary, it is within the pleasure of the com-
pany to elect to disaffirm and recover specifically what it has
parted with, where such a recovery can be had, or to affirm and
compel its promoters to account for their profits ; * and if part of
the "promotion money," as it is termed in the English books,
remains unpaid, the company may recover in an action at law
against the vendors, as money belonging to the company, and not
to its promoters.^
§ 462. Not Necessary to Rescind tlie Whole Transaction. —
It is not necessary for the company, when it comes into exist-
ence, to rescind the whole transaction. It may affirm the trans-
action in so far as it is honest, and disaffirm it in so far as it is
fraudulent and asainst its risfhts.^
1 Erlanger v. New Sombrero Phos- ^ Whaley &c. Co. v. Green, 5 Q. B.
phate Co.,3 App. Cas. 1218. Div. 109; post, § 467, where the facts
- Densmore Oil Co. v. Densmore, are more fully stated.
64 Pa. St. 43; Lungren v. Pennell, 10 ^ This was held in Lydney &c. Co.
Weekl. Note of Cas. 297; Albion Steel v. Bird, 33 Ch. Div. 85; s. c. 24 Am. &
& "Wire Co. v. Martin, 1 Ch. Div. 580. Eng. Corp. Cas. 23. It is illustrated
* Emma Silver Mining Co. V. Lewis, by the following cases, in none of
4 C. P. Div. 396, 409. Compare Lady- which was the whole transaction set
well Mining Co. v. Brookes, 35 Ch. aside : Beck t?. Kantorowicz, 3 Kay & J.
Div. 400; s. c. 17 Am. & Eng. Corp. 230; Emma Silver Mining Co. v.
Cas. 22. Lewis, 4 C. P. Div. 396; Bagnall v.
* Chandler v. Bacon, 30 Fed. Rep. Carlton, 6 Ch. Div. 371; Whaley &c.
538. Co. V. Green, 5 Q. B. Div. 109,
332
LIABILITY TO THE COMPANY. [1 Thomp. Coi'p. § 465.
§ 463. Deductions for Promoting Company. — In one of
the authoritative English cases on this question, while the pro-
moter was held bound to account for secret profits, he was al-
lowed all sums bona fide expended in securing the services of the
directors, and providing their qualifications, and in payments to
the brokers and officers of the company, and to the public press
in relation to the company.^ But in a later case the Court of
Appeal of that country, in an opinion delivered by the Lord
Justice Lindley, refused to allow a fraudulent promoter the pay-
ments made by him in procuring the issue of shares, saying:
'* It appears to us wholly wrong to make the company pay for
the issue of its own shares. No part of the capital of the com-
pany could be properly so applied." On the other hand, it was
held that the promoter ought to be allowed legitimate expenses
incurred by him in forming and bringing out the company, and
that these sums would include six hundred pounds charged for the
report, the fees paid to solicitors and brokers, and the sums paid
for advertising, j^^^^nting, etc.^ The court refused to allow a sum
which the promoter had expended in obtaining from another per-
son a guaranty to a sharetaher who had been induced to sub-
scribe for some of the shares.^
§ 464. Compromise of Suit against Vendors. — The fact that
ihe company has compromised a suit against the vendors, for the
rescission of the contract of sale, affords no defense, in an action
against the promoters, to compel them to account for secret
profits ; since the promoters occupy toward the company a posi-
tion entirely different from that of vendors, who are strangers to
it.4
§ 465. Measure of Recovery in Equity. — It has been said
that in such cases equity does not give damages, but decrees a
restoration of the thing wrongfully taken, that is, the money re-
ceived, or an equal sum, with interest.* The company recovers
from the promoter the amount of profit which he has made out
1 Emma Silver Mining Co. v. Grant, » if)i^^
11 Ch Dlv. 918. ■• Bagnall v. Carlton, 6 Ch. Div. 371 .
2 Lydney &c. Co. v. Bird, 33 Cli. « McElhenny's Appeal, Gl Ta. St.
Div. 85. ' 188.
333
1 Thomp. Corp. § 466.] ruOxMOTERS.
of the secret agreement. This is not necessarily the round sum
which he secrelly received from the vendor of the property; nor,
where the transaction has taken the form of a sale of the pr(»perty
by the vendor to him, and by him to the company, is it necessarily
the round difference between the amount which he received from
the company and the amount which he paid to the vendor; but it
is the net 2)fofit which he has made out of the transaction — what
went into his pocket beyond what would have gone there if no
transaction had taken place. In other words, he must surrender
to the company the sura he received, less the costs, charges
and expenses properly incurred by him in the promotion of the
company. 1 In taking an account of such profit, he would be
credited with all sums bona fide expended by him in procuring
the services of directors and providing their qualification, and all
bona fide payments made to promoters and officers of the com-
pany, and to the public press in relation to the company.^
§ 466. Liability at Law for Secret Profits. — Although the
right to relief in equity has not been doubted in any recent period,
it seems to have become the settled law in America that promoters
are liable to the corporation, when it comes into existence, in an
action of assumpsit, or under the codes, in an action of the nature
of assumpsit, for any secret profits which they have made in the
matter of promoting the corporation and bringing it into exist-
ence. The leading American decision on the subject is the
Pennsylvania case of Snuons v. Vulcan Oil and Mining Co.^
decided in 18r>9. It was there held that, where persons pur-
chase land with a view of organizing a corporation to purchase
it of them, and then organize such a corporation and sell the
land to it, at a price in advance of what they gave for it,
representing that the price paid by the corporation is the same
price which they have paid to the original vendors, they are
bound to restore to the corporation the difference between the
price paid by them for the land and the price at which they sold
it to the corporation; and that, for this difference, the corpora-
' BajrnaU v. Carlton, 6 Ch. Div. 371; ^ Emma Silver Mining Co. v. Grant,
Emma Silver Mining Co. v. Grant, 11 supra, per Jessel, M. R.
Ch. Div. 918. ' Gl Pa. St. 202; Thomp. Off. Corp.
172.
334
LIABILITY TO THE COMPANY. [1 Thomp. Corp. § 467.
tion may maintain an action of assumpsit against them, although
the gravamen of the action is, fraud and deceit.^
§ 467. Illustrations. — In an action at laio it appeared that two
persons, whom we will call A. and B., connived together to make a
profit through the promotion of a company. A. had purchased certain
calico printing works for the sum of 15,000 pounds. He then asso-
ciated B. with him as a promoter of a company to be formed for the
purchase of the works from A. ; and, for the purposes of the negotia-
tions for the purchase, a contract, which a jury found to be a sham, was
entered into between A. and B. , pretending to sell the works by A. to
B. for 20,000 pounds. The company was ultimately formed, its
directors being nominees of A. and B., and the works were conveyed by
A. and B. to the company for 20,000 pounds. There was a secret
agreement between A. and B., that A. should pay to B. the sum of
3,000 pounds out of the purchase money. It was held that B. , as a
promoter of the company, was not entitled to this 3,000 pounds, but
that the company were entitled to affirm the agreement made between
A. and B, , as an agreement made by B. with A. on their behalf, and to
enforce it against A. ; and that consequently they could recover the
3,000 pounds from A.^ - - - - Secret profits, fraudulently made
by a promoter of a company, may also be recovered from him, under
the English view, by an action at law proceeding on the ground of
conspiracy. This was held by the English Court of Appeal in the
celebrated case of the Emma Silver Mining Co. v. Lewis.-' There
the defendants, who were metal brokers, having previously sold ore of
an American mine on a commission of two and one-half per cent.,
arranged with one of the proprietors to assist in selling the mine to a
company to be raised by him in England. He was to procure the
appointment of the defendants as metal brokers of the company, at the
usual rate of Enghsh commission, namely, one per cent., and he prom-
ised that the defendants should be liberally remunerated, to an extent
at least of 500 pounds, for their assistance, and to compensate for the
loss of the higher commission. They were, as he knew, acquainted
with the facts detrimental to the reputation of the mine, and he prom-
ised the liberal remuneration to insure their silence respecting those
1 The grounds on which such a re- submitted to him, — which charge and
covery is supported were stated at rulings were affirmed by the Supreme
large by Hare, P. J. — a very able Court.
judge, known to the American bar as ^ Whaley &c. Co. v. Green, 5 Q. B,
a writer upon several of the leading Div. 109.
titles of the law, — in his charge to 3 4 C. P. Div. 396.
the jury and in his rulings upon points
335
1 Thomp. Corp. § 468.] promoters.
facts. The defendants assisted him in his endeavors to sell the mine to
a company to be formed for the purchase of it, but left him to fix the
price, get up the company and manage all the details respecting the
sale. He procured the formation of the company and procured it to
purchase the mine at the price of 100,000 pounds, half to be paid in
cash and half in paid-up shares. The defendants were appointed
metal brokers of the company at one per cent, commission; allowed
themselves to be named in the prospectus as being ready to answer any
inquu-ies relating to the mine, and in fact answered such inquiries ; but
kept silence with respect to the detrimental facts known to them. Pay-
ment ha^iug been made for the mine to the proprietor, 250 fully paid-
up shares out of those received from the company were transferred by
him to the defendants, and were subsequently sold, and the proceeds
received by them. This transaction was not disclosed to the company.
Thereafter the company brought an action against the defendants to
recover the proceeds, as secret profits made by them as promoters.
The judge left the question whether they were promoters, without any
definition, to the jury, and it was held that this was no error. It was
further held that the defendants were in a fiduciary relation to the com-
pany, and therefore liable to refund the secret profits, although the
contract of sale was not rescinded. The jury found for the plaintiffs,
judgment was entered on the verdict, and a rule for a new trial was dis-
charged by the Court of Appeal. ^
§ 468. Immaterial that Directors of the Corporation Knew
of the Fraud. — The corporation is none the less defrauded, but
the crime committed against its innocent stockholders and credit-
ors is aggravated, by the fact that its directors, whose duty it is
to protect them against the fraud, have knowledge of it, and con-
cur in it, or, what is worse, participate in it. The knowledge of
the directors of the fraud will not, therefore, prevent the cor-
poration from maintaining an action at law against the pro-
moters. ^
1 Emma Silver Mining Co. v. Lewis, common-law action for deceit, and
supra. Unsuccessful action for dam- that, as there was no arrangement, hut
ages by a shareholder against a pro- only an expectation that the directors
moter, on the ground that he had would receive promotion money from
received promotion money not stated the company, the prospectus did not
in the prospectus : Arkwright •». New- contain any statement on which such
bold, 17 Ch. Div. 301. It was held an action could be grounded,
that, although the action was brought ^ Simons v. Vulcan Oil &c. Co., 61
in the chancery division, it must be Pa. St. 202; s. c. Thomp. Off. Corp.
decided on principles applicable to a 172.
336
LIABILITY TO THE COMPANY. [1 Thomp. Coi'p. § 469.
§ 469. Liiability for Fraudulent Representations. — While
negative concealment is, in equity, tantamount to positive fraud
where there is a duty to disclose the truth, yet the case which
calls for the application of the foregoing principles is, if possi-
ble, stronger, where, through fraudulent representations and
devices, a property is foisted upon a company by its promoters
at a grossly excessive valuation. In such a case the company
may maintain an action in equity against them, and also against
its directors concurring in the fraud, to recover what it has lost
thereby.^ The same result is reached, in England, in the event
of the insolvency of the company and its winding up under a
statute, by placing the fraudulent promoters upon the list of
contrihidories. Thus, where two of the promoters of an under-
taking for the purchase and alteration of a theater issued a circu-
lar, stating that " the remodelling, redecorating and refurnishing
will cost 12,000 pounds, and of this sum only 5,000 remains for
subscription," — it was held that, upon the winding up of the ven-
ture, the two promoters must be settled upon the list of con-
tributories for all the balance of the unsubscribed capital 'above
12,000 pounds, — in other words, that they must make good
their misrepresentation out of their pockets.^ But, of course,
if the representations are made in good faith, with an honest
belief in their truth, no liability attaches to the promoters, if
they should turn out to be erroneous in fact, — in other words,
1 The ruling principle is found in &c. R. Co, v. Tiernan, 37 Kan. 606; 15
the leading case of Charitable Cor- Pac. Rep. 544. See also Joint Stock
poration u. Sutton, 2 Atk. 400; s. c. Discount Co., v. Brown, L. R. 8 Eq.
Thomp. Off. Corp. 226, where Lord 3S1; Land Credit Co. ^7. Fermoy, L.
Hardwicke held that a corporation R. 5 Ch. 763 ; Panama &c. Tel. Co. v.
can maintain an action against its India Rubber Co., L. R. 10 Ch. 515.
directors to recover money lost through As to the like liability of directors, see
their gross frauds or breaches of i^ost, § 4034.
trust. The following cases are to the ^ Re Roya/ Victoria Palace Syndi-
same effect: Society for Practical cate, L. R. 18 Eq. 6G1. In Rawlins tJ.
Knowledges. Abbott, 2 Beav. 659; Wickhara, 3 De Gex & Jones, 304, a
McKay's Case, 2 Ch. Div. 1 ; Overend similar course was taken against one
& Gurney Co. v. Gibb, L. R. 5 H. L. who had induced others to enter into
480; Lindsay Petroleum Co. ■». Ilurd, a parfnersAip with him by fraudulently
L. R. 5 P. C. 221; Pho-^phate Sewage misrepresenting the assets and
Co. V. Hartraont, 5 Ch. Div. 394, 441. liabilities, — he was compelled to make
Pittsburg Mining Co. v. Spooner, 24 good his word.
Am. & Eng. Corp. Cas. 1 ; St. Louis
22
337
1 Thorn p. Corp. § 470.] promoters.
they arc not guarantors^ in the fullest sense, of the absolute
truth of their representations.^ It has been thought by some
courts that, while this doctrine is sound in its application to
the fraudulent misrepresentations or concealments of the
agents of existing corporationsj it does not apply to the
same acts committed by commissioners whose office it is to
procure subscriptions to a future corporation.'' But this con-
clusion rests on the fallacious idea that one cannot be agent of
something not in being. Such a person acts for the future en-
tity. As soon as it springs into existence, it derives the same
advantages from the acts he has done for it as though it had
been in existence when he did them. The conclusion follows,
almost as a matter of necessity, that, as soon as the corporation
is organized, he becomes its agent by relation ; and this, as already
seen, is the conclusion of the English courts, where the subject
has been frequently considered, the commissioner there being
called a " promoter." Frauds practiced by such a person, to
induce persons to subscribe for shares in the future corporation
will avoid the subscription, precisely as though the corporation
had been in existence at the time when the fraud was committed.-^
§ 470. Illustration. — Certain persons obtained control of a min-
ing option for $20,000, and proceeded to form a corporation to complete
the purchase. They represented to the persons who subscribed for the
stock that it would cost $90,000 to purchase the option ; the sum of
$90,000 was accordingly paid for the option, of which $70,000 was ap-
propriated by these persons to their own use, and the balance only was
actually paid. It was held that an action might be maintained in the
name of the corporation to recover the amount wrongfully appropriated
by them in breach of their duty.* The fact that the promoters formed
a corporation, and that such corporation passed a resolution to permit
one of their number to subscribe for the whole of the capital stock, and
to pay for it by a transfer of the mining option to the corporation, was
regarded as no defense to the action against the promoters; since
it appeared that, before this was done, an agreement had been made
1 Petrie v. Guelph Lumber Co., 11 * Ante, § 443. See post, § 1460.
Can. S. C. 451 ; s. c. 15 Am. & Eng, * Pittsburg Mining Co. v. Spooner,
Corp. Cas. 487. 74 Wis. 307; s. c. 24 Am. & Eng.
2 Smitli V. Heidecker, 39 Mo. 157; Corp. Cas. 1 ; 5 Rail. & Corp. L. J. 666
Rutz V. Esler &c. Man. Co., 3 Bradw. (Lyon, J., dissenting).
cm.) 83, 88.
338
LIABILITY TO THE COMPANY. [1 Thomp. Corp. § 471.
with other persons to become members of the corporation, and that the
transfer was not made to the corporation until after such persons had
become members and furnished the money necessary to complete the
purchase.!
§ 471. No Defeuse that the Corporation Raised the Money
on an Illegal Issue of its Stock. — In such a case the promoters
of a corporation, who are instrumental in the issue of the stock,
cannot plead, in defense of an action against them for the breach
of trust, that the issue of the stock was illegal and in violation
of a statute. Speaking for the court on this subject it was
said: '* Having changed their position in regard to this money,
by receiving it from the corporation as payment for the mining
option sold to the company, they cannot now claim to hold
it as money received by them as the agents of the corpora-
tion in making illegal sales of the stock of the corporation.
The money paid to the corporation on such an illegal issue or
sale of stock was, notwithstanding such illegal sale, the money
of the corporation, as against all the world. The purchasers of
such illegally issued stock could not recover back the money
paid by them to the corporation upon such illegal transaction ; ^
and if they cannot recover it back from the corporation, no one
else can. The corporation, having the possession of the money,
is, for all practical purposes, the owner of it; and, if these de-
fendants take the money from the corporation in an illegal and
fraudulent way, it is no defense to such illegal act that the cor-
poration obtained the money by a violation of the statute in
selling its stock. If A. obtains the title and possession of prop-
erty from B. by some fraudulent device, and C. obtains the same
property of A. by fraud, and A. brings an action against C. to
recover the property back or for damages for fraud, it would be
no defense for C. that A. had fraudulently obtained it from B.
This would certainly be so, unless B. made a claim for the
property against C. In this case the persons vvhose money came
to the possession of the corporation cannot enforce any claim to
it as against the corporation, and consequently they could not
enforce a claim to it as against the persons to whom the corpora-
tion transferred it; and if the present stockholders were instru-
* Ibid. 2 Citing Clarke v. Lumber Co., 5!) Wis. G55, 6GI,665.
33i)
1 Thomp. Corp. § 47'2.] riioMOTERS.
mental in bringing this action in the name of the corporation, as
they must be held to be, by bringing it in the name of the cor-
poration, they affirm the right of the corporation to the money
so received by it. By what rule of law have the defendants the
right to challenge the title of the corporation to the money
which was paid to them upon a sale of the mining option to the
corporation? I am unable to perceive such right, especially in
a case of this kind, where no other person can claim the money.
Briefly, the foundation of the claim of the plaintiff is this :
The corporation having in its possession the $90,000, the de-
fendants, as agents and trustees of the corporation, sold their
mining claim to the corporation for $90,000, and, acting for the
corporation, they bought it for the corporation, and paid out its
money to complete the purchase; and that, in making such sale
and purchase, they so conducted themselves that they were not
entitled as against the corporation, to retain the profits made on
the sale, but held such profits in trust for the corporation.
Under such circumstances, it appears to me wholly immaterial
how the corporation became possessed of the money received by
the defendants, unless they can show that some other person or
party has a better claim to such money than the corporation.^
§ 472. Grounds of Recovery against Aiders and Abet-
tors. — In such an action, where there is more than one de-
fendant, in order to sustain a joint recovery against them, it is
necessary to show that they were partners in the fraudulent
scheme, or else that they participated in the proceeds of the
fraud.^ Thus, in the celebrated case of (Jolt v. WooUasfon,^ it
was held just, that one of the defendants named Arnold, as well
as the principal defendant Woollaston, should be charged; " for,
as Woollaston was the first projector and procurer of the patent,
and purchaser of the land, so Arnold was his trustee, accepted
the conveyance, was the treasurer, received the money and gave
the receipts, was partner in the fraud, and plainly particeps
criminis.^*
1 Pittsburg Mining Co. ■». Spooner, Pa. St. 202; s. c. Thomp. Off. Corp.
74 Wis. 307, 325; s. c. 24 Am. & Eng. 172.
Corp. Cas. 1, 13; 42 N. W. Rep. 259; ^2 P. Wms. 154; s. c. Thomp. Off.
opinion by Taylor, J. Corp. 169.
2 Simon v. Vulcan Oil &c. Co., 61
340
LIABILITY TO THE COMPANY. [1 TllOmp. Corp. § 474.
§ 473. Wlietlier T^iability of 3Ianagiiig- Committee-man In
Equity for Fraud is Joint or Several. — lu a proceeding in equity,
where the object is to do complete justice to all, all the members of a
managing committee of the company who have concurred in a misap-
phcation of the funds placed in their hands for the purpose of promot-
ing the company, ought to be charged with the loss which the bene-
ficiaries have sustained, and it ought not to be thrown entirely upon
the sub-committee who disbursed the money under the orders of the
managing committee. Thus, in a case under the Enghsh winding-up
acts, 1848, 1849, it appeared that five individuals, with several others,
were members of the managing body of an abortive railway company ;
that these five individuals were appointed a finance committee, and that
power was lodged in any thi'ee of them to sign checks, which were to
be countersigned by the secretary. These five persons, acting by di-
rection of the managing body, had employed the funds of the company,
to a large amount, in buying up the shares of the company. The mas-
ter charged these five persons with the moneys which they were thus in-
strumental in applying to the purchase of the shares. This order was
discharged by Vice Chancellor Parker, on the ground that it did im-
perfect justice between the persons who were guilty of the breach of
trust; since, for the money paid, according to the master's order, the
other persons who had directed the misapplication of it, would have the
benefit of its being brought back. Some other course, he thought,
ought to be adopted, so as to do complete justice between all the
parties.^ It does not clearly appear from the report of this ease
whether the shares in question were bought in for the personal benefit
of the managing committee, or to be held by them in trust for the com-
pany, for its supposed benefit. In either case it would have been a
breach of trust, because the moneys were not paid in for such a pur-
pose. In the former case it would be a breach of trust in the nature of
embezzlement or larceny ; and, if such were the facts, the decision is
incapable of vindication ; for when did a court of equity sit for the pur-
pose of enforcing contribution among thieves?
§ 474. Wlio may Bring the Action in Equity. — Primarily,
the right of action lies in the defrauded corporation, as already
seen ; but if the directors have connived with or participated in
the fraud, and, being in control of the machinery of the corpora-
tion, refuse to bring the action, a court of equity will open its
doors to an action by a defrauded shareholder, on behalf of himself
^ Carpenter's and Weiss' Cases, 5 DeG. & Sm. 402.
341
1 Thomp. Corp. § 476.] piiomoteks.
and the other shareholders except the defendants, upon his show-
ing that the directors have refused to allow the action to be
brought in the name of the company. ^ In New York it is held
that the shareholders in a company, who have been defrauded
by such a secret arrangement on the part of the promoters; are
proper plaintiffs in a suit in equity to compel the fraudulent
promoters to account for their secret profits. ^ That such an
accounting is a proper subject of equitable cognizance has never,
it is conceived, been the subject of doubt. It has been held that
in such a suit in equity every person interested in the result,
whether as being liable to pay or entitled to participate in the
profits retained by the promoters, if any are recovered, is a proper
•party ^ and that an equitable action for such an accounting is
properly brought by two or more 6owa^cZe subscribers, claiming
as such, and also as assignors of other subscribers, against the
promoter who has committed the fraud, or his personal represent-
ative, making all the other subscribers parties defendant.^
§ 475. Great Latitude Allowed in Admission of Evidence. —
In such an action it has been said that great latitude is allowed in
the admission of evidence.* And this is a general rule in the law
of fraud, for fraud is so subtle and evasive that, without wide
latitude in admitting evidence in cases involving fraud, it would
be impossible to trace its vermiculations through the slime.^ It
has, therefore, been held competent in an action by a corporation
to recover of its promoters fraudulent and secret profits retained
by them, and to give in evidence false and fraudulent i)rospec-
tuses published by them to induce persons to subscribe for shares
of the company ; for, although the action is in form ex contractu ^
it is chiefly supported by evidence o^ fraud.^
§ 476. When the Fiduciary Relation hetween the Promoter
and the Company Commences — Gover's Case. — It is obvious
1 Atwool V. Merryweather, 37 L. J. ' Ibid.
Ch. 35. Compare Beatty v. Neelon, ■* Simons v. Vulcan Oil &c. Co., GI
13 Sup. Ct. Can. 1; s. c. 19 Am. & Pa. St. 202; s.c. Thomp. Off, Corp. 172.
Eng. Corp. Cas. 236; posi, Ch. 89. ^ Massey v. Young, 73 Mo. 260.
2 Getty V. Devlin, 70 N. Y. 504; 6 gimons v. Vulcan Oil &c. Co., CI
s. c. 54 N. Y. 403; 9 Hun (N. Y.), Pa. St. 202; s.c. Thomp. Off. Corp.
603. 172.
342
LIABILITY TO THE COMPANY. [1 TllOIlip. Corp. § 476.
that if a man has ah-eady purchased certain property and got a good
bargain, it is no fraud to organize a company and sell the property to it
at an advance. This is not at all what the rule means. It means that
he must disclose to the company what he gave, because he owes it to
those toward whom he stands in a fiduciary relation to make such dis-
closure. They have a right to be put in possession of all the material
facts concerning it which he possesses. It is only when the relation of
trust between him and the company does not exist, and when he is deal-
ing with the company at arm's length as with a stranger, that he is en-
titled to conceal such facts from them. Upon this point Gover's Case,i
turned. In this case M. agreed with the owner of a patent to purchase
it for £Go,000, to be paid partly in cash, and partly in shares of a com-
pany which he agreed to form for that purpose. M, then proceeded, in
pursuance of the agreement, to promote the company which was to pur-
chase the patent, and, three months afterwards, he was enabled to enter
into a contract with a person styling himself trustee of the proposed
company to sell the patent to such trustee for £125,000, to be paid partly in
cash and partly in shares of the company. Shortly afterwards the com-
pany was formed, M. being a director in it. A prospectus was issued
which did not mention the first agreement of purchase, and, on the faith
of this prospectus, G. purchased shares in the company. It was held
by James and Mellish, L. JJ. , affirming an order of Vice Chancellor
Bacon, that G. could not have her name removed from the list of share-
holders. Brett, J., dissented. This case is not of general value as
authority, because it turned for the most part on the meaning of § 38 of
the English Company's Act, 1867, which reads as follows: "Every
prospectus of a company, and every notice inviting persons to subscribe
for shares in any joint-stock company, shall specify the dates and names
of the parties to any contract entered into by the company, or the pro-
moters, directors or trustees thereof, before the issue of such prospectus
or notice, whether subject to adoption by the directors or the company,
or otherwise ; and any prospectus or notice, not specifying the same,
shall be deemed fraudulent on the part of the promoters, directors and
officers of the company, knowingly issuing the same, as regards any per-
son taking shares in the company on the faith of such prospectus, unless
he shall have had notice of such contract. ' ' ^
^ L. R. 20 Eq. 114; s.c. (affirmed) I shareholder could not be retired from
Ch. Div. 182. the list of contributories ; not th:i'- slio
2 It is to be observed, however, could not maintain an action uiuUt the
that Gover's Case did not really de- statute against the person who had
cide that the case was not within practiced the fraud upon her. Upon
the above statute. It held that the this ground Lord Cockburn distiu-
343
1 Thomp. Corp. § 480.] promoters.
AbTICLE IV. NOX-LIABILITY OF THE COMPANY FOB CONTRACTS OF
Promoters.
Section
480. Contracts of promoters not bind-
ing on future company.
481. Illustrations.
482. Engagement with promoters is a
proposal to corporation.
483. Illustration.
484. Not Liable for services rendered
in promoting it.
485. Illustration.
486. Limitations of rule of corporate
liability.
Section
487. Services rendered at the request
of all the corporators.
488. Rule not applicable where third
persons join the corporation.
489. Distinction between cases where
the remedy is in equity and at
law.
490. Illustrative cases where the cor-
poration was held liable on the
theory of estoppel.
§ 480. Contracts of Promoters not Binding on Future
Company. — The corporation must have a full and complete or-
ganization and existence as a legal entity, before it can enter
into any kind of a contract or transact any business. Nor have
the corporators power to bind it by contract unless authorized
by the charter.^ The American doctrine is that the engagements
of promoters do not bind the future corporation, unless the cor-
poration expressly or impliedly ratifies them.''^ It may, of
guished Cover's Case in his judgment
in Twycross v. Grant. 2 C. P. Div.
469, 536. But it is to be observed that
Craig V. Phillips, 3 Ch. Div. 722, cited
in a preceding section, was an action
against the promoter for an alleged
fraud, and it was there held by Vice
Chancellor Bacon that the case was not
within the 38th section of Companies
Act. The doctrine of this case was
denied by Lord Cockburn in his judg-
ment in the Court of Appeal in Twy-
cross V. Grant, supra, and it is clear
that it is overruled by that case, and
is opposed to the doctrine of the
Queen's Bench in Charlton v. Hay, 31
L. T. (n. s.) 437, and to the views
expressed by Mr. Justice Honeyman
in Cornell v. Hay. L. R. 8 C. P. 328.
Independently of the statute, both
Gover's Case and Craig v. Phillips
344
seem opposed in principle to the later
case of Erlanger v. New Sombrero
Phosphate Co., 3 App. Cas. 1218 (af-
firming s. c. 5 Ch. Div. 103) ; 4 Cent. L.
J. 510; ante, § 459; and in the opinion
of the writer, neither of them is now
entitled to be considered autliority.
1 Gent V. Manufacturers &c. Ins.
Co., 107 111. 652, affirming s. c. 13
Bradw. (111.) 308; s. c, 6 Am. & Eng.
Corp. Cas. 588; Munson v. Syracuse
&c. R. Co., 103 N. Y. 58; s. c. 29 Am.
& Eng. R. Cas. 377; Joslin v. Stokes,
38 N. J. Eq. 31; s. c. 5 Am. & Eng.
Corp. Cas. 98.
2 Rockford &c. R. Co. v. Sage, 65
111. 328; Safety Deposit Life Ins. Co.
V. Smith, 65 111. 309; Western Screw
&c. Co. V. Cousley, 72 111. 531 ; Paxton
©.Bacon Mill &c. Co., 2 Nev. 257; Joy v.
Manion, 28 Mo. App. 55, 60; Hawkins
NON-LIABILITY OF COMPANY. [1 TIlOllip. Corp. § 481.
course, make tliein its own by express agreement.^ And this
it may do precisely as it might make similar contracts in the
first instance. If the nature of the contract is such that formal
action of its board of directors would not be necessary to the
making of it in the first instance, its adoption when made for it
by its promoters will not require that formality. ^ So, it may,
of course, impliedly ratify such engagements, by accepting and
retaining any benefits which accrue to it therefrom, in which
case it becomes liable, not on the strict theory of contract, but on
the principle of estoppel.^
§ 481. Illustrations. — Accordingly, the agreement of parties, in-
tending to form, a corporation and engaged in forming it, to put in prop-
erty as stock, but which stock was never subscribed, did not bind the
corporation, nor did the property become the property of the corpora-
tion, although it was used by it.'^ - - - - Until a mutual fire
insurance company, projected under the laws of Ilhnois, has fully
completed its organization, by fihug the certificate of the auditor
of public accounts with the county clerk, that the corporators have
deposited the requisite capital stock, the transaction of business in
the name of the corporation is unauthorized. The corporators or pro-
moters of such a company are authorized to take apphcations for
insurance, and premium notes, as a fund or capital to authoi'ize the
granting of the charter, and enable the company to transact its business
when organized ; but, prior to its organization, the maldng of an apph-
cation and the giving of a premium note is only a proposition to insicre
in the company, and to receive a policy when the company shall have
become capable of contracting and transacting business. ^ . . - .
V. Mansfield Gold Mining Co., 52 Cal. &c. Co., 37 Minn. 89; s. c. 33 N. W.
513; Munson v. Syracuse &c. R. Co., Rep. 327.
103 N. Y. 58; Morrison v. Gold Mining 3 Edwards v. Railway Co., 1 Mylne
Co., 52 Cal. 306; Carmody v. Powers, & C, 650; Paxton Cattle Co. v. First
60 Mich. 26; s. c. 26 N. W. Rep. 801. Nat. Bank, 21 Neb. 621 ; s. c. 33 N. W.
i Rockford &c. R. Co. v. Sage, 65111. Rep. 271; Low v. Railroad Co., 45 N.
328; Reichwald v Commercial Hotel H. 370 (leading case) ; Bell's Gap. B.
Co., 106 111. 439; Wood v. Whalen, 93 Co. v. Christy, 79 Pa. St. 54 (doctrine
111. 153; Bell's Gap Railroad Co. v. recognized); Rockford &c. R. Co., v.
Christy, 79 Pa St. 54 (reasoning of Sage, 65 111. 328.
the court); Low v. Railroad Co., 45 * Stowe v. Flagg, 72 111. 397.
N. H. 370; Paxton Cattle Co. v. First ^ Gent v. Manufacturers' &c. Ins.
Nat. Bank, 21 Neb. 621; s. c. 33 N. W. Co., 107 111. 652, affirming s. c. 13
Rep. 271. Bradw. (111.) 308; ».c. 6 Am. & Eng.
2 Battelle v. Northwestern Cement Corp. Cas. 688.
345
1 Thonip. Corp. § 482.] promoters.
An attempt was made to organize a corporation nnder the general law
of Illinois, with a capital stock of $100,000. After part of the stock
was subscribed, the stockholders held a meeting, and employed a super-
intendent to attend to work being done for the proposed corporation,
Avhich he commenced doing; but afterwards, when it was ascertained
that the requisite subscription of stock could not be obtained, he quit
work. Most of the stockholders afterwards formed another company
•with a capital stock of $50,000, for the same purpose as the first one,
and completed their organization and incorporation. It was held that,
even if the first company had completed its organization, the superin-
tendent could not have recovered against it for his services, much less
against the new company, i - - - - The proprietors of a mine con-
tracted an indebtedness for the purpose of developing it. Afterwards,
with others, they formed a corporation in which they owned three-fourths
of the stock, and to which they conveyed the property for a valuable
consideration. It was held that the corporation was not hable for the
indebtedness without a promise to pay it.- - - - - An agreement
with individuals that, when they become incorporated they will give the
other contracting party a certain amount of the paid-up stock of the
corporation, is not a dealing with the corporation itself, nor will it bind
the corporation when organized, but is merely the personal engagement
of the promoters. 2 - - - - A good illustration of the principle un-
der consideration is found in numerous cases which hold that, in an
action against a subscriber by the corporation upon his contract of sub-
scription, evidence that certain promoters guaranteed that the route would
pass near a certain tract of land, and that it did not pass near it, will not
discharge the subscriber, although he subscribed in reliance upon the
statement, in the absence of evidence tending to show a fraudulent in-
tent ; ^ since such a guaranty is not binding on the company.
§ 482. Engagement with Promoters is a Proposal to Cor-
poration. — Again, an obligation assumed toward an intended
corporation, through its promoters, may, in legal effect, stand as
a proposition for a contract, and may become such when
accepted by the corporation after it comes into being. A fre-
quent illustration of this is found in cases where subscriptions
are made to the capital stock of an intended corporation before
it is organized. In such cases the corporation, when organized,
1 Western Screw &c. Co. v. Cous- ^ Carmody «. Powers, 60 Mich. 26.
ley, 72 111. 531. * Braddock v. Philadelphia &c. R.
2 Paxton V. Bacon Mill &c. Co., 2 Co., 45 N. J. L. 363; s. c. 16 Am. &
Nev. 257. Eng. R. Cas. i36', post, § 1394.
346
NON-LIABILITY OF COMPANY. [1 Thoilip. Corp. § 483.
may treat the subscription as a proposal^ intended to be made to
it, and may accept it and maintain an action against the sub-
scribers thereon. 1 But it has been held that, where there is no
formal act of acceptance on the part of the corporation when it
conies into existence, prior to the bringing of an action, it can-
not maintain an action on such a promise made prior to its
organization to its promoters in its behalf.^
§ 483. Illustration. — A declaration^ in an action by a corporation,
alleging the following facts, was held6ad on demurrer: — That certain
persons agreed to form a corporation under general laws, if they coidd
obtain certain machinery from the defendant, and to build a factory for
the manufacture of certain goods ; that such persons informed the de-
fendant of the premises, and, in the name and for the benefit of the
proposed corporation, appUed to the defendant, who was a manufacturer
of the machinery desired, for such machinery, and informed the de-
fendant that the proposed corporation would proceed with its organiza-
tion, and would build a factory only in case a contract could be made
with the defendant for the machinery ; that thereupon the defendant
made two contracts in writing, one of which was under seal, to furnish
the corporation with the machinery upon certain specified terms ; that
afterwards, in anticipation of the defendant's fulfilhnghis agreement, a
factory was built for the defendant ; that said machinery could not be
procured otherwise than from the defendant, which he weU knew ; that
the persons named, in behalf of the proposed corporation, before its
organization was completed, were always ready to receive and pay for
said machinery, and frequently demanded the same, but the defendant
neglected and refused to furnish said machinery or any part thereof ;
and that said corporation was duly organized and existed under the
general laWs.^ The court, speaking through W, Allen, J., said: " The
writings, as between the plaintiff and the defendants, show no more
than proposals by the defendants, revocable at any time before accept-
ance by the plaintiff after its incorporation. The fact that one is under
seal is immaterial in this respect. The only consideration shown for the
defendants' promises is the acceptance of them by the plaintiff, and the
promise to accept and pay for the goods implied in that; and the
acceptance must be by some act or assent of both parties which wiU fix
the rights of both, and is as essential to a promise under seal as by
parol. The defendants could not be bound, until such acceptance by
1 Post, § 1170. ^ Penn Match Co. v. Hapgood, 141
2 Penn Match Co. v. Hapgood, 141 Mass. 145.
Mass. 145.
347
1 Thomp. Corp. § 48-t.] promoters.
the plaintiff as would give them a right of action against it for refusal
to accept and pay for the goods. There is no allegation of acceptance
by the plaintit!f after its incorporation. The demand is not stated as
an act of acceptance perfecting the contract, but, in connection with
the refusal, to show a breach of an existing contract. ... A cor-
poration may become bound to fulfill a contract made in its name and
behalf in anticipation of its existence, by afterwards accepting the
benefits of the contract, as it may acquire a right to enforce such a con-
tract against the other party by his acceptance of performance by the
corporation. 1 ... In the case at bar the formation of the cor-
poration and procuring a bailding were no part of the contract, or of
the consideration of it. There was no agreement to do the acts, and
the doing of them was not made by the parties a condition upon which
the contract was to arise. The promise or proposals of the defendants,
though a motive for doing the acts by the plaintiff, are not alleged to
have been inducements offered by the defendants, nor are the acts
alleged to have been done at their request. The defendants are not so
connected with the acts to be done by the plaintiff that they would
have a right to regard the doing of them as the acceptance of the pro-
posals, so that, without other act of acceptance, by the plaintiff, they
could have maintained an action against it upon refusal to accept and
pay for the goods." ^
§ 484. Not liiable for Services Rendered in Promoting it. —
A claim for money expended and time employed for the organiza-
tion and benefit of a proposed corporation, cannot ordinarily be re-
garded and enforced as a debt of the after-formed corporation.^
In an action against a railway company to recover the value of
services performed before its incorporation, in procuring its char-
ter, in making surveys, it has been held that there can be no re-
covery, in the absence of proof that a majority of the corpora-
tors or promoters of the corporation authorized the rendition of
the services.* But it has been ruled that where, after the
charter and before the organization of a corporation, services are
rendered which are necessary to complete the organization, and,
after it has been perfected, the corporation elects to take the
1 Citing Low v. Connecticut &c. R. Mass. 145, 149. Compare Dayton &c.
Co., 45 N. H. 370, and referring to the Tump. Co. v. Coy, 13 Oh. St. 84.
common liabilities of subscribers of ^ Marchand v. Loan and Pledge
stock. Assoc, 26 La. An. 389.
2 Penn Match Co. v. Hapgood, 141 * Bell's Gap Co. v. Christie, 79 Pa.
St. 54; s. c. 21 Am. Rep. 39.
348
NON-LIABILITY OF COMPANY. [1 TllOllip. Coi'p. § 485.
benefit of such services, knowing that they were rendered with
the understanding that compensation was to be made, — it will
be held liable to pay for the services, upon the ground that it
must take the burden with the benefit; but that, " no promise to
pay would be implied from the fact that such services were ren-
dered at the request of any number of the corporators less than
a majority." ^ The principle of estoppel, invoked in cases al-
ready alluded to,^ has a just and undoubted application, where
the circumstances are such that the corporation is at liberty
either to accept or reject the benefit of the contract which the
promoters have assumed to make in its behalf. A more inter-
esting question arises where the services are of such a nature
that the corporation cannot reject them, — as in the case of
services rendered in bringing the corporation into existence. In
such a case there is judicial authority for the proposition that
the corporation will be bound. The court, struggling for a
principle on which to rest its liability, placed it upon the theory
of implied contract. ^
§ 485. Illustration. — In a leading case on this subject, the serv-
ices were rendered by the plaintiff at the request of certain persons
named in the charter of the corporation, in bringing it into existence ;
and the plaintiff, to enlist the services of a tlurd person, agreed to give
him " his best horse," when the contemplated railroad should reach a
certain town, and he accordingly did give him such horse. The plaintiff
brought an action of assumjosit against it, to recover for the value of the
services and the horse. " The court charged the jury that, by the char-
ter, all associates are corporators ; that, by the law of Vermont [the
State creating the corporation] , each corporator is charged with the duty
of rendering necessary services to carry out the provisions of the char-
ter and to effect an organization ; and that, if any one performs neces-
sary labor, and expends money in the discharge of such duty, and his
action is assented to by the corporators, or, being known to them, is not
objected to, and the corporation is organized and enjoys the benefit of
such services, the law implies a promise to pay for them ; that every
person interested in the objects for which an act of incorporation is
granted, and who, with the knowledge and without the objection of
1 Low V. Connecticut &c. R. Co., ^ ^,j;g^ § 4go.
45 N. II. 370, 375. Compare Preston •'' Low«. Conuecticut &c. R. Co., 45
V. Liverpool &,c. R. Co., 7 Eng. L. & N. U. 370.
Eq. 124.
349
1 ThoQip. Corp. § 4:85.] riiOMOTEus.
the corporators, and with the assent and at the request of some of
them, shall unite in assisting in the organization of the corporation, with
a bona fide intention of becoming a member, by taking stock, and shall,
as soon as the books are opened, take stock, by subscribing for shares,
is to be deemed an associate from the commencement of his labors,
\>'ithin the purview of the act of incorporation in this case, so far as the
liability of the corporation for his services is concerned ; that in this
case, if some few of the corporators mentioned in the charter requested
the plaintiff to perform the services now in suit, or if the greater num-
ber of those who, like himself, became associates, and in the manner
that he did, — by subscribing for stock in the road and becoming mem-
bers of the corporation, — either requested the plaintiff to render such
services or knew of them and assented thereto, he will be deemed to
have sufficient authority to render the services, and the law will raise a
promise of the corporation to pay for said services, if necessary and
reasonable." To this instruction the defendant excepted. " The de-
fendant requested the court to instruct the jury that, prior to the or-
ganization, no person or persons were competent to bind the corpora-
tion by contract, express or implied; that, prior to the organization,
it would require the concurrence of a majority of the corporators named
in the charter to bind the corporation by contract ; that no subscription
for stock could make the subscribers associates, within the meaning of
the charter, before organization; that no intention to subscribe for
stock, nor any of the acts done in furtherance of the objects of the en-
terprise could have that effect ; that no one would become an associate
within the meaning of the charter, except after the organization, by
being a subscriber for stock ; that the corporation could be bound by
no implied contract arising before organization ; that the plaintiff is not
entitled to recover anything on account of the horse delivered by him
to Addison Gilmore, nor for the services performed at Montpelier in
procuring a division of the charter, being of the kind called ' log roll-
ing.' " The court declined to give this instruction and the defendant
again excepted. " But the court did instruct the jury that the corpora-
tion would be bound to pay for the horse dehvered to Gilmore, if they
found, upon consideration of all the evidence, and the nature of the
employment, that Low was authorized to make such a contract in be-
half of the corporation, and did so make it, and not otherwise. . . .
The jury returned a verdict for the plaintiff . . ." which the de-
fendants moved to set aside by reason of the preceding exceptions.
The Supreme Court refused to set it aside, on the ground named,
but set it aside on other grounds. In its opinion, which is a long
one, the court, among other things, say: "The great question is,
whether the plaintiff is entitled to recover of the corporation, in any
3.50
NON-LiABiMTY OF COMPANY. [1 Thomp. Corp. § 485.
form, for services rendered by him antecedent to its organization, but
which were necessary to enable it to complete that organization ; and
if so, whether the action of assumpsit can be maintained. In consider-
ing the first question, it will be assumed for the present that the serv-
ices were necessary ; that they were rendered at the request of one or
more of the original corporators, or of those who were associated with
them ; and that the corporation accepted those services after its organ-
ization, and enjoyed the benefit of them. Under such circumstances
we are inchned to the opinion that it would become the duty of the cor-
poration to pay for such services, and that in some form this debt could
be enforced. . . . " The court then considered the decisions in
England and in other jurisdictions, and, after pointing out that in En-
gland resort is had to equity to enforce the liabiUty, proceeded: " The
question then is whether an action at law can be sustained in New
Hampshire to enforce such claims, or whether resort can be had to
equity alone. The objection to a recovery in a suit at law is purely
technical, but it must nevertheless prevail if it be well founded. We
are inchned to think, however, that it is no violation of settled principles
to hold that a suit at law may be maintained to enforce the obligation
to pay for services rendered in the manner described, and of which the
corporation after its full organization has taken the benefit. It it were
true that, at the time the services were rendered, the corporation had
no capacity to make a contrac1», — which is by no means clear after the
charter has been accepted, — still if the services were rendered for the
corporation upon the promise of the corporators that they should be
paid for by it when its organization was perfected, and after that the cor-
poration had adopted the contract and received its benefits, we think
that, upon a maxim that a subsequent ratification is equivalent to a prior
request, it may well be held that a promise to pay will be implied.
Upon this principle a person may sue upon a contract made in his name
by one assuming to have authority, but having none in fact. So, the
title of an administrator will relate back to the death of the intestate,
so as to entitle him to sue for the price of goods sold by one as-
suming to act for the administrator whoever might be afterwards ap-
pointed. . . . And still at the time of such sale there was no one
in existence having capacity to make a contract as administrator. So,
if one without authority buy goods for another, but afterwards the other
receives them, this is equivalent to a previous request. ... In
such cases it can avail nothing by way of defense, to show that, in fact,
the party had no capacity to make such antecedent request, or to bind
himself by a contract, as in the case of a corporation that was not or-
ganized at all, or imperfectly, any more than to show that, in point of
fact, there was no such request or no contract made. But the promise
351
1 Tliomp. Corp. § 486.] promoters.
is implied by law from the fact that the party, when it had capacity to
contract, has taken its beneQts, and, therefore, must be deemed to have
taken its burthens at the same time ; and he is estopped to controvert
it either by showing a want of capacity to make a contract, or that none
in fact was made. Upon the same principle, a person entering into a
contract with a corporation in their corporate name, is estopped to deny
that it is duly constituted. . . . The case of an infant is in point.
He has not capacity to bind himself by a contract except for neces-
saries, but if, after he arrives at full age, he apply the goods to his use,
he is bound to pay as he had promised. So here, if the corporation,
after its organization, has elected to receive the benefit of services ren-
dered for it prior to such organization, the law may well imply a
promise to make reasonable compensation for them. To bind the cor-
poration, however, by such ratification, it would be essential that it has
previous knowledge or notice of the existence of such claim, or of the
material facts upon which it is founded ; or, at least, that it was put
upon inquiry in respect to it. . . . The case before us stands
much upon the same ground as a promise to a corporation before it is
organized, to take and pay for shares in its capital stock, which may,
when adopted after organization, be enforced in a suit at law. Upon
these principles the instructions to the jury that, if a corporator perform
necessary labor and expend money in carrying out the provisions of the
charter and to effect an organization, and this is assented to by the
corporation, or being known to them is not objected to, and the cor-
poration is organized and enjoys the benefit of such services, the law
implies a promise to pay for them are, we think, substantially correct.
Indeed, it would be immaterial whether such services were rendered by
a corporator or another, because the subsequent ratification is equivalent
to an antecedent request ; but we think that, without such ratification,
either express or implied from taldng the benefit of such services, the
law would raise no such promise to pay, from the mere fact that the
plaintiff was requested to render them by one of the original corpora-
tors as associates." While, as above stated, the court expressed no
disapproval of the rulings of the ti'ial court on the instructions, it did
order a new trial, but on grounds which related to the admissibility of
evidence.^ It is to be regretted that the court did not advert to the
impossibility of the corporation rejecting the benefits accruing fi-om the
services, owing to their natui'e. It could not reject such benefits with-
out uncreating itself.
§ 486. Ijimitations of Rule of Corporate Hiiability A
limitation of the rule which makes the corporatioii liable in such
1 Low V. Connecticut &c. R. Co., 45 N. H. 370.
352
NON-LIABILITY OF COMPANY. [1 Thoinp. Corp. § 486.
eases is, that the services must have been necessary and reason-
able, and must have been performed under a contract with the
promoter or promoters of the corporation assuming to act in its
behalf, and with the intention and expectation that they shall be
paid for by the future corporation, and not as mere gratuities,^
nor on the mere credit of the individuals at whose immediate re-
quest they are rendered. In a case involving this question,
which was before it on a second appeal, the Supreme Court of
Arkansas, speaking through Eakin, J., have said ; " It was there
announced [referring to the opinion delivered on the former ap-
peal] that the doctrine cannot apply to cases in which private
persons, contracting exclusively upon their individual credit,
afterwards created a corporation for the more convenient man-
agement and enjoyment of the benefits acquired by the contract.
This is obvious from the consideration that the enhanced value
of the property so benefited, or the rights so acquired by indi-
viduals, are estimated and allowed by the corporation subse-
quently taking it, and shares are issued accordingly. It would
be unjust to other stockholders to require the corporate body to
pay again for the labor or material which enhanced this value.
That obligation should still rest upon the original contractors,
upon whose credit the work was done or the material furnished.
It may be illustrated by supposing that the proprietors of an
eligible site for a manufactory should contract, upon their indi-
vidual responsibility, for the erection of suitable buildings, the
addition of the necessary appurtenances, and the acquisition of
water privileges and rights of way, with a view to forming a cor-
poration for manufacturing; and should afterwards form one
with others, who subscribe for shares and put in their property
for shares at its enhanced value. It would be unjust, in the ab-
sence of any claim of lien, to hold the corporate body liable for
the improvements. The services performed must be intended
at the time to inure to the benefit of the future corporation ;
must be made or done in its behalf, and with the expectation
* "Of course, to entitle the plaintiff the understanding and expectation
to recover, such services must have that they were to be paid for." Bel-
been necessary and reasonable, and lows, J., in Low v. Connecticut &c. R.
rendered not gratuitously, but with Co., 45 N. H. 370, 378.
23 353
1 Thomp. Corp. § -tSS.] tromoters.
and confidence that the company will be bound, and not the
credit of the individuals.^
§ 487. Services Rendered at the Request of all the Cor-
porators. — The view has been put forward, and upon ojrounds
which seem just, that where an association of individuals unite
to carry on a certain business, and, before being incor[)orated,
contract debts, and afterwards become incorporated loithout tak-
ing in any outside persons or outside capital, the corporation
may be liable iyi equity for the payment of such debts. " Under
such circumstances the property of no one but those who con-
tracted the debts and were originally liable would be taken or
subjected to the payment of it. The same persons continue the
same business, with the same property, with no substantial
change except in name. In such a case there is no reason why,
in equity, the corporation should not be primarily liable for the
debts, as it has succeeded to the property of the association." ^
§ 488. Rule not Applicable where Third Persons Join the
Corporation. — But it has been pointed out that this rule could
have no just application where a corporation is formed with a
capital consisting in part of the property of the pre-existing as-
sociation, and in part of the property contributed by new cor-
porators, who had no connection with the association. Speak-
ing with reference to such a state of facts, it was said ; "If the
rule contended for by counsel for appellant be the law, the
property of a stranger to the contract of indebtedness, who may
have no knowledge of its existence, or even the means of ascer-
taining it, would be subjected to the payment of the liabilities
of individuals with whom he may have associated himself in a
common enterprise or business. The injustice of such a rule is
so apparent that no subtlety of reason can well disguise it. The
general rule of law is that none are liable upon contract except
those who are parties to it ; but here it is sought to charge an
entire stranger to the contract with the responsibility of discharg-
ing it. . . . The case of an incoming partner is analogous
» Perry v. Little Rock &c. R. Co., 44 Nev. 257, 260, opinion by Lewis, C. J.
Ark. 383. 395. Compare ante, §§ 265, 875.
2 Paxton V. Bacon Mill &c. Co., 2
354
NON-LIABILITY OF COMPANY. [1 TIlOlup. Coip. § 490.
to this, and it is universally held that he is not chargeable with
the liabilities of the firm contracted before he became a member.
If, instead of incorporating, the proprietors of the mill and
Racon mining ground had formed a partnership, the authorities
are uniform, that, without a promise by the new firm, the mill
proprietors would not be holden for the debts of the old firm." ^
It was also pointed out that any liens upon the property of the
associates would follow it into the hands of the corporation ;
and further, that the members of the original association con-
tinued personally liable as if no incorporation had taken place,
and that their interest in the corporation might be seized and
sold on execution. 2
§ 489. Distinction between Cases where the Remedy is in
Equity and at Law. — Where the contract made by the pro-
moters is intended to inure to the benefit of the future corpora-
tion when organized, the other contracting party may, under cir-
cumstances, acquire an equity to have the contract carried into
effect. But it becomes a legal right only where the corporation
affirms the contract, or does some act from which an affirmance
may be implied. At law the rule obtains that corporations can
not be bound merely by acts done or promises made by others in
their behalf before they come into existence, and this on the
simple conception that there is no privity of contract.^
§ 490. Illustrative Cases where the Corporation was Held
Liable on the Theory of Estoppel. — It may be useful to refer to
some other cases, where the corporation was held liable on the theory
of implied contract, or of estoppel, or on the reason that it could not
1 Paxton V. Bacon Mill &c. Co., 2 where there is a full discussion of the
Nev. 2G0, opinion by Lewis, C. J. subject. It was there announced
^ Ibid. See Chicago Coffin Co v. that the doctrine cannot apply to cases
Fritz, U Mo. App. 389. in which private persons, contracting
3 This principle is stated in Perry exclusively for tlieir individual benefit,
V. Little Rock &c. R. Co. 44 Ark., 383, afterwards create a corporation for
394. It was the ground of decision in the more convenient management and
Bommer v. American Spiral &c. Co., enjoyment of the benefits acquired by
81 N. Y. 4G9, where an action in the the contract. The same doctrine is
nature of an action at law was sus- found in the leading case of Low v.
taincd on the ground of a ratification. Connecticut &c. R. Co., 45 N. H. 370;
See als(; P(;rry v. Little Rock &c. Co. ante, § 485.
(on a former appeal), 37 Ark. 1C4,
355
1 Thomp. Corp. § 4:90.] promoters.
accept and retain the benefit and at the same time deny the liability-
After articles of association had been signed by the promoters of a caUle
company, but before they were recorded or filed, the promoters elected
a president of the corporation, who, in their presence and with their ap-
proval, executed and delivered to A. a promissory note in payment of
property, which A. sold and dehvered professedly to the corporation.
The corporation subsequently used the property in its business. The
note having passed into the hands of a bank by indorsement, it was
held, in a suit by the bank against the corporation on the note, that the
corporation was liable.^ _ _ _ . On like grounds, it has been held
that an agreement among pai'ties owning a mine, who expect to become
incorporated but have not become so, that a person shall be entitled to
a certain number of shares of stock of the proposed company, cannot
be enforced against the corporation after its organization in an action
for damages for the conversion of the shares, because it is not the
contract of the corporation. ^ - - - - A hotel company was organ-
ized with a capital of $160,000, which was all subscribed by one of the
corporators, except three shares of $100 each, none of which were ever
paid. At the time of the organization the principal stockholder, who
was elected president, was the owner of a large amount of hotel furni-
ture, subject to a chattel mortgage of $115,000. This he turned over
to the company in payment of his subscription, in pursuance of an ar-
rangement made prior to the organization ; and the company, in pursu-
ance of the same arrangement, gave its notes, secured by a chattel
mortgage on the same property, to release it from the prior incumbrances ;
and such property constituted the sole assets of the company. It was
held that, so far as the hotel company was concerned, it had received a
full consideration for the notes and mortgage given, and that they were
valid obhgations.3
1 Paxton Cattle Co. v. First Nat. Cal. SOR; Hawkins v. Mansfield Gold
Bank, 21 Neb. 621; s. c. 33 N. W. Kep. Mining Co., Id. 513.
271. 3 Reichwald o. Commercial Hotel
2 Morrison v. Gold Mining Co., 52 Co., 106 111. 439.
356
IRREGULAR CORPORATIONS. [1 Thomp. Corp. § 496.
CHAPTER XL
IRREGULAR AND DE FACTO CORPORATIONS.
Art. I. De Facto Corporations, §§ 495-513.
II. Corporations by Estoppel, §§ 518-533.
Article I. De Facto Corporations.
Section
495. Divergence of views on the sub-
ject of de facto corpora-
tions.
496. When rightfulness of corporate
existence presumed.
497. Presumed from user of corporate
powers.
498. Especially where rights have been
acquired thereunder.
499. Corporations by prescription or
user.
What necessary to give rise to
this presumption.
Validity of corporate existence
not litigated collaterally.
Limitations of this doctrine.
What is meant by existing de
facto .
Rule under Califoruia civil
code.
500.
501.
502.
503.
504.
Section
505. Rule applies only where the cor-
poration might exist.
606. Effect of this doctrine upon the
rights of shareholders and
creditors.
507. Validates irregularities in or-
ganization.
508. Except where the thing to be
done is a condition precedent.
509. Further observations and illus-
trations.
510. State precluded by lapse of time
from questioning regularity of
corporate organization.
611. Corporation suing for rights
which can only inhere in it as a
corporation.
512. Corporations by legislative recog-
nition.
513. Illustrations.
§ 495. Divergence of Views on the Subject of de Facto
Corporations. — It is impossible to formulate a rule on the sub-
ject 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 cor-
porate 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 arc a corporation. 2. That the con-
357
1 Tlionip. Corp. § 407.] irregular corporations.
dit'ions named in statutes authorizing the organization of corpo-
rations are conditions precedent^ and must be strictly complied
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 litigation with the pretended corporation,
unless he has estopped himself by his conduct from challenging
its corporate existence, and frequently without reference to the
question of estoppel. It is proposed to consider this subject
now, disconnecting it, as far as possible, from mere questions of
pleading and procedure, which are reserved for a future chapter.^
§ 496. When Rightfulness of Corporate Existence Pre-
sumed. — We may commence this discussion with the most atten-
uated thread of legal doctrine, 1\iq presumption of right-acting.
Men are presumed to do rightly what they do, unless the contrary
appears on the very face of their proceedings. In apparent
conformity'' with this principle, we find it sometimes laid down
that persons acting publicly as officers of a corporation are pre-
sumed rightfully in office, and that all necessary steps in order
to enable the corporation to act as such, are presumed to have
been taken. ^ Another expression of this doctrine is that, when
it is shown that a charter has been granted, then those in posses-
sion and actually exercising the corporate rights, shall be
considered as rightfully there against wrong-doers, and all those
who have treated or acted with them in their corporate charac-
ter. The sovereign alone has a right to complain ; for, if it is
an usurpation, it is upon the rights of the sovereign, and his
acquiescence is evidence that all things have been rightfully per-
formed.^
§ 497. Presumed from User of Corporate Powers. — While
the regular proof of incorporation consists of proof of ( 1 ) legis-
lative authorization, and (2) user thereunder,* — yet there is a
rule of evidence which in many cases dispenses with proof of the
1 Post, Ch. 184. C.) 476; s. c. 45 Am. Dec. 500; Wil-
2 Selraa &c. R. Co. v. Tipton, 5 mington &c. R. Co. v. Saunders, 3
Ala. 787; s. c. 39 Am. Dec. 344, 353. Jones L. (N. C.) 128; Atlantic &c. JR.
3 Tar Elver Nav. Co. v. Neal, 3 Co. tJ. Johnston, 70 N. C 348.
Hawks (N. C), .520; Elizai)eth City * Post, ^ VJd.
Academy v. Lindsey, 6 IreU. (N.
358
DE FACTO CORPORATIONS. [1 Thomp. Corp. § 4:99.
former element and holds the latter sufficient. Under this rule
the existence of a charier will be ])re»umed from the long exist-
ence of the body in the character of a corporation, and from a
long continued user of privileges which belong exclusively to
corporations, acquiesced in by the State. ^ The doctrine was
thus expressed by Howk, J., in the Supreme Court of Indiana,
in speaking of an assumed religious corporation: "For nearly
twenty-five years the ' Trustees of the Methodist Protestant
Church,' under that corporate name, have assumed to act and
have acted as a corporation. After that long lapse of time, no
person except the State can be heard to call in question the legal
corporate existence of said trustees, or their rights, powers and
franchises as said corporation." ^
§ 498. Especially where Rights have been Acquired There-
under. — Added force is given to this principle in cases where
rights have been acquired on the faith of the assumed corporation
being such de jure^ and where to declare it not possessed of cor-
porate powers would operate to disturb those rights. It is
therefore merely another way of reaching the same result, to say,
as some of the courts have said, that the legal existence of the
corporation will be presumed in such an action, where it has gone
into operation as a corporation, and where rights have been ac-
quired on the faith of its being such.^
§499. Corporations by Presumption or User. — This leads
us to a principle of somewhat infrequent application in this coun-
try, but of frequent application in England, especially in respect
of ancient boroughs and other municipal corporations, — which
is, that a corporation may exist hj prescription, although it can-
not exhibit a charter. The principle is similar to that which
* Greene v. Dennis, 6 Conn. 293; that the corporation was duly incor-
«. c. 16 Am. Dec. 58; Selraa&c. R. Co. porated. Sword v. Wickersham, 29
V. Tipton, 5 Ala. 787; s. c. 39 Am. Dec. Kan. 746.
344, 353. Where corporators sign and ^ White v. State, G9 Ind. 273, 279,
acknowlerlge their charter as " citi- ^ Hagerstown Turnp. Co. v.
zeus of G. County, State of Kansas," Creeger, 5 Harr. & J. (Md.) 122; s. c.
and describe themselves in the body 9 Am. Dec. 495. Compare Greene v.
of the charter as " all of Salt Springs, Dennis, 6 Conn. 393; s. c. 16 Am. Dec.
G. County, Kansas," it will be pre- 58; Selma &c. R. Co. v. Tipton, 5 Ala.
sumed that they were citizens of Kan- 787; s. c. 39 Am. Dec. 344.
sas, and, all else appearing regular,
359
1 Thomp. Corp. § 500.] irregular corporations.
creates title to real property, which has been held by a long con-
tinued exclusive possession, by tlie j^^'^sumption of a grant}
Stated in other language, wliere there has been a corporate bod}^,
de facto, for a considerable period of time, claiming at least to
be such, and holding and enjoying property as a corporation, it
will be presumed that all merely formal requisites to the due
creation of a corporation have been complied with.^ In respect
of the manner in which the prescriptive right to be a corpora-
tion is pleaded at common law, we find it ruled in an old case
that, in a proceeding by quo warranto against persons claiming
to exercise corporate franchises, if they set up that they are a
corporation by prescription, they must set up that they are a
corporation known by such a name time out of mind; for a pre-
scription cannot be alleged in several persons unless as a cor-
poration.^ The proof, of course, follows the pleading. There-
fore, in a case where it appeared that no record of the organiza-
tion of a school district could be found, and that the trustees and
their predecessors, by the same name and title, had exercised
their functions as trustees of the village district dnrmg forty
years, without objection, the due incorporation and organization
of the district was presumed.* The effect of prescriptive proof
of the existence of a corporation of a particular kind, is to es-
tablish the conclusion that the body possesses all the powers
usually giveu by law to such corporations.^
§ 500. What Necessary to give Rise to this Presumption. —
But in order to give rise to this presumption, the acts done must
bear the impress of corporate acts; they must be such as corpo-
rations are competent, and individuals incompetent, to perform.®
Thus, the fact that the yearly meetings of a community of Quak-
ers kept records, had a clerk and treasurer, received contribu-
tions, exercised general supervision over the spiritual concerns
of Quakers, celebrated marriages, and admitted and discarded
1 In a note to an old case it is said ^ Rgx v. Beardwell, 2 Keb. 52.
that a corporation can liave anything * Robie v. Sedgwick, 35 Barb. (N.
by prescription, and also by charter, Y.) 319.
and that it can use both titles. Black- ^ Ibid.
stonv. Martin, Latch. 112, 113. ^ Kirkpatrick v. Keota United Pres-
2 All Saints Church v. Lovett, 1 byterian Church, 63 Iowa, 372.
Hall(N.Y.), 191.
360
DE FACTO CORPORATIONS. [1 ThoDip. Coip. § 501.
members, — has been held not sufficient to prove that it was a
corporation.^ And similarly no presumption of incorporation
arises from the mere fact that the business was transacted by a
president and secretary.^
§ 501. Validity of Corporate Existence not Liitigated Col-
laterally. — Another step brings us to a class of cases where we
find the sweeping declaration that the rightfulness of an assumed
corporation cannot be litigated in a collateral proceeding, but
can only be litigated in a direct proceeding instituted by the
State for that purpose; ^ as, for instance, in an action by a cor-
poration on a transferable contract in which it claims as the
equitable assignee ; * or in a suit in equity to enjoin it from con-
structing its works, or by way of defense to its proceedings to
acquire land ; ^ or on a bill filed by stockholders for mismanage-
ment.^ On this principle, a stranger to contracts made with
stockholders of a company which has not completed its organiza-
tion as a corporation, but who have assumed to act as a corporation,
cannot object to the validity of the contracts because the corpo-
ration is not organized ; ^ and for equally strong reasons, a parti/
to such a contract cannot.^
1 Greene v. Dennis, 6 Conn. 293; s. Camp River Co. v. Woodman, 2 Me.
c. 16 Am. Dec. 58. 404; Charles River Bridge v. War-
2 Clark U.Jones, 87 Ala. 474. s. c. ren Bridge, 7 Pick. (Mass.) 371;
6 Soutli. Rep. 362. Trustees v. Hills, 6 Cow. (N. Y.) 23;
3 Toledo &c. R. Co. v. Johnson, 49 s. c. 16 Am. Dec. 429; Lehigh Bridge
Mich. 148; Rondell v. Fay, 32 Cal. 354; Co. v. Lehigh Coal Co., 4 Rawle (Pa.),
Jersey City Gaslight Co. v. Consum- 9; s. c. 26 Am. Dec. 11; Chester Glass
ers' Gas Co., 40 N. J. Eq. 427; Hacken- Co. v. Dewey. 16 Mass. 94; s. c. 8 Am.
sack Water Co. w. De Kay, 36 N. J. Eq. Dec. 128; John u. Farmers' Bank, 2
548; German Ins. Co. v. Strahl, 13 Blackf.(Ind.) 367; s.c. 20 Am. Dec. 119;
Phila. (Pa.) 512; Chicago &c. R. Co. Day v. Stetson, 8 Me. 372.
V. Stafford County Comm'rs, 36 Kan. * Toledo &c. R. Co. v. Johnson, 55
121 ; Keene v. Van Reuth, 48 Md. Mich. 456.
184; Town of Searcy v. Yarnell, IS. ^ Aurora &c. R. Co. v. Lawrence-
W. Rep. 319; s. c. 47 Ark. 269; Selma burgh, 56 Ind. 80; Aurora &c. R. Co.
&c. R. Co. V. Tipton, 5 Ala. 787; s. c. v. Miller, 56 Ind. 88.
39 Am. Dec. 344, 353. See to the ^ Merchants' & Planters Line v.
same effect Centre &c. Turnpike Waganer, 71 Ala. 581.
Co. V. McConaby, 16 Serg. & R. ' New Haven Wire Co. Cases, 57
(Pa.) 145; State v. Carr, 5 N. H. Conn. 352; s. c. 5 Law. Rep. Ann. 300;
371; Tar River Nav. Co. v. Neal, 3 16 Atl. Rep. 393.
Hawks (N. C), 520; Grays v. Turn- ^Post,^5l8.
pike Co., 4 Rand. (Va.) 578; Bear
361
1 Thomp. Corp. § 502.] irregular corporations.
§ 502. Liimitations of this Doctrine. — But it is apprehended
that the rule does not exist in any American jurisdiction in the
naked and unqualified form which the above language would
imply, except in cases where the party questioning the existence
of the corporation has, by its conduct, estopped himself from
making the issue. We must not get too far away from the
primal proposition that the legislature alone can create a corpo-
ration,^ and that a collection of individuals cannot make them-
selves a corporation by merely resolving to be such or calling
themselves such. The three tailors of Tooley Street did not
make themselves the people of England by passing a resolution
in which they styled themselves such. There must be some basis
for the operation of the rule, and accordingly we find a better
statement of it in the proposition that, where a corporation
exists de facto i and in fact exercises corporate powers, the ques-
tion whether it exercises such powers lawfully cannot be liti-
gated in a collateral proceeding between private parties or
between a private party and the corporation ; the question can
only be litigated between the corporation and the State. ^ The
term " collateral proceeding," in the statement of this principle,
is used to designate cases where the question of the existence of
the corporation is incidental or collateral to the main object of
the suit; ^ and the oft-repeated reason of the rule is the incon-
venience of trying the question of the right of an assumed cor-
poration to exist, where the question arises as a mere incident to
a private litigation, and where the State, which is chiefly inter-
ested in the question, is willing that it should exist. *'It would,"
said Brickell, C. J., *' produce only disorder and confusion, em-
barrass and endanger the rights and interests of all dealing with
the association, if the legality of its existence could be drawn in
1 Ante, § 35. 455; s. c. 6 Am. Corp. Cas. 155; Chubb
2 The following cases are to this gen- v. Upton, 95 U. S. 665; s. c. 6 Am.
eral effect: Smith v. Sheeley, 12 Wall, Corp. Cas. 23; Eaton v. Aspinwall, 19
(U. S.) 358; Clark v. Middleton, 19 N. Y. 119; Upton v. Hansborough, 3
Mo. 53; Gold Mining Co. u. National Biss. (U. S.) 417; Central Ag. &c.
Bank, 96 U. S. 640; National Bank v. Asso. v. Alabama &c. Co., 70 Ala. 120,
Matthews, 98 /d. 621; National Bank 133; s. c. 9 Am. Corp. Cas. 8, 13;
V. Whitney, 103 Id. 99; Reynolds?;. Cochran v. Arnold, 58 Pa. St. 399;"
Bank, 112 Id. 405; Fortier v. Bank, Tattison v. Albany &c. Assn., 63 Ga.
112 Id. 439; Thorington v. Gould, 59 393; North v. State, 107 lud. 356.
Ala. 461; Lehman v Warner, 61 Ala. ' State z7.Butler,15 Lea (Tenn.), 104.
362
DE FACTO CORPORATIONS. [1 Thomp. Coip. § 504.
question in every suit to which it was a party, or in which rights
were involved springing out of its corporate existence. No
judgment could be rendered which would settle the question
finally. But when the government intervenes by an appropriate
proceeding, the judgment is final and conclusive, putting an end
to controversy." ^
§ 503. What is Meant by Existing De Facto. — It is fre-
quently said that in controversies between citizens generally and
a corporation, the existence of the latter, when put in issue, is
established by showing a corporation de facto? By this it is
not to be understood that evidence of user alone will be conclu-
sive of the question of corporate existence. Otherwise, as just
suggested, corporations might spring into existence without any
warrant of law. "The least proof which has been held suffi-
cient," said Savage, C. J., " is the production of an exemplifi-
cation of the act incorporating the plaintiffs, and evidence of
user under their charter." ^ It has been said by an eminent
writer, in explanation of this principle, that if it appear to be
acting under color of law, and is recognized by the State as
such, such a question should be raised by the State itself, by
quo warranto or other direct proceeding. And the rule w^ould
not be different if the consiitution itself prescribed the manner
of incorporation. Even in such a case, proof that the corpora-
tion was acting: as such under leirislative sanction would be suf-
ficient evidence of right, except as against the State; and
private parties could not enter upon any question of irregu-
larity.* This doctrine has met with frequent judicial approval.^
§ 504. Rule Under California Civil Code. — The Civil Code
of California declares that " the due incorporation of any company,
1 Central &c. Asso. v. Alabama &c. dist Epis. Church v. Pickett, 19 N. Y.
Co., 70 Ala. 120, 133; s. c. 9 Am. Corp. 482; Searsburgh Turnp. Co. v. Cutler,
Cas. 8, 13. 6 Vt. 315, 323; Heaston u. Cincinnati
2 McAuley.w. Chicago &c. R. Co., 83 &c. R. Co., KJ Ind. 275, 279.
111. 348; Reisner v. Strong, 24 Kan. ^ Cooley Const. Lira. 254.
410; Wilcox v. Toledo &c. R. Co., 43 * gj, Louis v. Sliields, 62 Mo. 247,
Mich. .'iSl; Swartwout 17. Michigan &c. 252. Tlic rule applies to religious
R. Co., 24 Midi. 38!). societies as well as to others.
8 United States Banlc v. Stearns, 15 Trustees v. Hills, 6 Cow. (N. Y.) 23;
Wend. QN. Y.) 314. See also Metho- s. c. 16 Am. Dec. 429.
363
1 Thoiiip. Corp. § 504.] irregular corporations.
claimiug in good faith to be a corporation, and doing business as such,
shall not be inquired into collaterally, in any private suit to which such
de facto corporation may be a party." ^ This statute has been the sub-
ject of frequent interpretations. 2 It has been held that it does not go
to the extent of precluding a private person from denying the existence,
clejure or de facto, of an alleged corporation. The mere allegation that
a party is a corporation cannot put the question whether it is such a
corporation, beyond the reach of inquiry in a suit with private persons.
It has been further reasoned that the allegation that the plaintiffs are a
corporation is an indispensible allegation in any action brought by them ;
and necessarily the adverse party may deny it. The statute does not
contemplate that the mere allegation that the company has been
duly organized should put that fact beyond dispute : but only that when
the evidence establishes that the company claims in good faith to
be a corporation, and is actually doing business as such, then its due
incorporation shall not be inquired into collaterally. Irregularities or
defects in the mode of performing the acts prescribed by law as consti-
tuting a corporation, cannot be set up by a private individual. But he
may show that those acts have not been performed at all. Hence upon
an appHcation for a mandamus to compel county authorities to complete
their subscription to the stock of plaintiff's raikoad company, the de-
fendants may deny the plaintiff's incorporation; and may deny that
they have compUed with the provisions of the law prescribing theii-
organization, or are doing business as a railroad company.^ And
where, in an action by persons suing in a corporate name, against
an individual, there is no ground to doubt that the plaintiffs claim
in good faith to be a corporation, and are doing business as such
corporation, neither the vahdity of the incorporation, nor the
right to exercise corporate powers can be questioned by the defend-
ant.* More definitely speaking, where it appears that the plaintiff was
recognized in the community as a corporation, and its records show that
it was acting as such, that in all its deaUngs it was so styled, and that it
had held corporate meetings, and pursued corporate forms of action,
sufficient is shown to bring it within the statute. ^
1 Cal. Civ. Code, § 358. This sec- ^ Bakersfield Town Hall Assoc, v.
tion seems to be the same as the Chester, 55 Cal. 98.
California statute of 18G2, p. 110, § 6. ^ Oroville &c. E. C9. v. Plumas
The act of 18G2 was not limited to cor- County, 37 Cal. 354.
porations existing at the time of its ^ Ibid.
passage, but extended to corporations * Lakeside Ditch Co. v. Crane, 80
afterwards created. Pacific Bank v. Cal. 181; s. c. 22 Pac. Eep. 76.
De Ro, 37 Cal. 538.
3G4
DE FACTO CORPORATIONS. [1 TllOmp. Coi'p. § 506.
§ 505. Rule Applies only where the Corporation Might
Exist. — A limitation of the doctrine is that the rule under dis-
cussion extends only to those cases where there is a law under
which the corporation might exist. If there is no law under
which it might exist, its non-existence may be set up even in a
collateral proceeding;^ and the rule is the same where there is
only din unconstitutional law? " To be a corporation defacto^ it
must hQ possible to be a corporation 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. ^^ ^ It is an easy step from this
view to the general rule that, to establish the existence of a de
facto corporation, a charter or law authorizing the existence of the
corporation must be shown, and user under such authority.*
§ 506. Effect of this Doctrine upon the Rights of Share-
holders and Creditors. — An application of this principle is
moreover found ^ in a class of cases relating to the banking as-
sociations organized under an unconstitutional law in Michigan.
They were not de facto corporations in such a sense as enabled
their receivers to maintain actions to collect debts due to them,®
or to foreclose mortgages given to secure such debts. ^ Nor
1 Heaston V. Cincinnati &c. R. Co., tion, is necessary; or, if the law
16 Ind. 275, 278; Krutz y. Paola Town provides that a corporation may be
Co., 20 Kan. 397; Eaton v. Walker, 76 formed upon a subsequent compliance
Mich. 579; s. c. 6 Law. Rep, Ann. with prescribed regulations and forms,
102; 43 N. W. Rep. C38. some of those regulations and forms
2 Eaton V. Walker, supra; Green v. must have been observed, although
Graves, 1 Doug. (Mich.) 351; Hurlbut others have been omitted. DeWitt v.
V. Britain, 2 Doug. (Mich.) 191; State Hastings, 40 N. Y. Superior Ct. 463.
V. How, 1 Mich. 512; Heaston v. Cin- ^ Abbott v. Omaha Smelting Co., 4
cinnati &c. K. Co., 16 Ind. 275, 278; Neb. 416; Mianai Powder Co, u. Ilotch-
Harriman v. Southam, 16 Ind. 192; kiss, 17 111. App. 622; jpos«, Ch. 134.
Brown V. Killian, 11 Ind. 449; Snyder It has been held that nul tiel corpora-
V. Studebakcr, 19 Ind. 462 (overrul- tion may be pleaded in an action by a
ing on this point Evansville&c. R. Co., corporation wliere the incorporating
V. Evansville, 15 Ind. 395). act does not unconditionally create the
3 Everson v. Elliugson, 67 Wis. corporation. Maliony u. Bank, 4 Ark.
634, opinion by Orton, J. To establish 620.
the existence of a corporation de facto, ^ Compare post, Ch. 156.
Ihe more acting as a corporation, for '^ Green v. Graves, 1 Doug. (Mich.)
any length of time, is not sufficient. 351.
A charter, or law which of itself ere- ' Hurlbut v, Britain, 2 Doug.
ates, upon its acceptance, a corpora- (Mich.) 191.
365
1 Thomp. Corp. § 506.] irregular corporations.
could shareholders in a banking corporation organized under an
unconstitutional banking kiw, bo made \iah\G us pai'tners upon
the obligations of the pretended bank.^ But these decisions
stumble upon technical difficulties. The judges who rendered
them were unable to find a way by which an obligation which
ouoht in good conscience to be enforced, could be enforced
when there was technically no payee or obligee. Neither could
they understand how a body of co-adventurers who hud organized
themselves as a banking corporation under an unconstitutional
law could be made liable for the obligations of the pretended
bank, when the very issue of such obligations was forbidden by
law. They therefore allowed the adventures to escape liability
upon their obligations, and allowed the losses to fall upon the
innocent public, — a shameful instance of the sacrifice of justice to
mere theories. In a subsequent case, reviewing these decisions,
it was suggested by Mr. Justice Cooley, that if the business " had
not been illegal, possibly it might have been held that those who
assumed to carry on banking business in the name of an associa-
tion not empowered to do so, were personally responsible as
joint promisors to those who had trusted them." '^ The court,
in the last cited case, further concluded that, while a corpora-
tion organized under a void law cannot enforce obligations made
to it, yet if not organized for unlawful purposes, a receiver of
its assets can demand in equity an accounting for the debt pur-
ported to be secured by a mortgage made to it.^ It is a strik-
1 state V. How, 1 Mich. 512. to refuse to account to those who
2 Burton v. Schildbach, 45 Mich, were equitably entitled. There is an
504, 511; citing Medill v. Collier, 16 injustice in such conduct which equity
Oh. St. 599. ought to be able to correct. If the
3 Ibid. The court, in struggling money has been obtained in good
with this question, said, in its opinion faith, in the mistaken belief that a
by Cooley, J.: "When persons in corporation existed, it ought not to be
good faith proceed to organize what retained when the mistake is discov-
they intend shall be a corporation, ered, and the corporators, who cannot
contemplating a lawful business, and sue at law, ought to be at liberty to
the organization proves ineffectual, come into equity for an accounting,
but the money jointly contribut 'd by We know of no principle of equity
the members associated finds its way that would be violated by giving such
into the hands of one of thi-ir number, redress; and, on the other hand, there
or of some third person, it ought not is ground for the argument that it
to be in the power of such person to would be entirely competent for the
retain what he has thus received, and legislature retrospectively to affirm
366
DE FACTO CORPORATIONS. [1 Tliomp. Corp. § 506.
ins: illustration of the backward state of the law that we still find
eminent and enlightened judges struggling with such difiiculties.
The simple and true view is, that if men undertake to form them-
selves into a business company which the State cannot recognize
as a corporation, or which is even forbidden by the State, and in
that character contract debts which would be valid and enforci-
ble if contracted by individuals, the courts of justice should
hold them liable as partners.^ It is intolerable that A. B. & C,
by merely assuming a corporate name and pretending to be a
corporation, can incur with innocent members of the public ob-
ligations which would be valid if incurred by them individually,
and then escape liability because the law forbids them to act as
a corporation in the incurring of such obligations. A simple
rule, and one which should apply to all cases is that, where the
obligations of a pretended corporation are neither inequitable nor
immoral, the judicial courts should enforce them against the cor-
porations as partners.^ So to do would be strictly consonant
with public policy, because if business adventurers learn that,
unless their corporate organization is lawful and valid they are
liable as partners, this will deter them from attempting to form
illegal or prohibited corporations. The Supreme Court of
Michigan, abandoning its early conceptions, has recently held
that, whilst a law of that State which provides for the organiza-
tion of corporations, is voidy on account of its title not being
within the constitutional provision ; whilst an association under
its provisions, each member sharing in the profits and losses of
the business in proportion to the money he has put into the capi-
tal stock, will not constitute the parties thereto a corporation de
facto; and whilst their carrying on business in the corporate
name is not evidence of user which can be considered in aid of
their legal existence, — yet they are liable as partners for debts
contracted by them.^
and validate the promise to repay, so Gratt. (Va.) 1 ; Thompson v. Morgan,
that a suit at law in the name of the 6 Minn. 292.
association might be broughtupon it." ^ Ante, § 416.
Ibid.; citing Lewis v. McElvain, 16 ^ ^g ^y^s done in Kill v. Beach, 12
Oh. 347; Savings Bank v. Allen, 28 N.J.Eq.3l. See also an«e, § 417, efse?.
Conn. 97; Parmelee v. Lawrence, 48 ^ Eaton v. Walker, 76 Mich. 579;
111. 331 ; Town of Danville y. Pace, 25 43 N. W. Rep. 638.
367
1 Thorn p. Corp. § 507.] irregular corporations.
§ 507. Validates Irregularities in Organization. — An appli-
cation of tins principle, and one with which we have most
concern in this place, is that it operates to validate irregularities
in the organization of corporations. Applying this principle,
it has been ruled that the regularity of the organization of a
corporation can be questioned only in a direct proceeding taken
by the State, as by quo warranto, and that no private person
will be allowed to impeach collaterally the validity of its or-
ganization.^ This principle has the freest application where
certain adventurers have assumed to organize a corporation
under a law under which they might have organized it, and
where they have been for a greater or less length of time in the
user and enjoyment of the corporate privileges which they have
assumed, but where there has nevertheless been some defect or
irregularity in the mode of their corporate organization,^ — such,
for instance, as the failure to record a duplicate of the certificate
of incorporation in the county where the operations of the com-
pany are carried on.^ In short, it seems clear froin an examina-
tion of the authorities, that a bona fide attempt to organize and
a substantial compliance with the provisions of the law, are all
that is necessary to establish, as between the corporation and
persons other than the State under which it claims to be incor-
porated, its capacity to sue and to be sued, and to perform other
acts as a corporation.*
1 East Norway &c. Lutheran Church Although articles of incorporation
V. Froislie, 37 Minn. 447; 35 N. W. were not adopted until after the stock
Rep. 260; Baker v. Backus, 32 111. 79; was subscribed and business begun,
Tarbell v. Page, 24 111. 46; Ossipee they are binding upon the parties and
Man. Co. v. Canney, 54 N. H. 295; Lord fix their rights as among themselves,
V. Essex Bldg. Asso., 37 Md. 320. See at least from the time of their adop-
also Childs v. Smith, 46 N. Y. 34. tion ; and although the articles wore
2 Tliompson v. Candor, 60 111. 244; not recorded as required by statute,
Cincinnati &c. R. Co. v. Danville &c. yet where all the other steps necessary
R. Co., 75 111. 113; De Witt v. Hastings, to create a corporation were taken, the
40 N. Y. Super. 463 (irregularity of parties are stockholders of a corpora-
•fillng certificate of incorporation); tion, as among themselves. Heakl
Tarbell v. Page, 24 111. 46; Swartwout v. Owen, 70 Iowa, 23,
V. Michigan &c. R. Co., 24 Mich. 389; ^ Methodist Episcopal Church v.
Baker v. Backus, 32 111.79; Rondell Pickett, 19N. Y. 482; Mokelurane &c.
V. Fay, 32 Cal. 354; Buffalo &c. R. Co. Co. v. Woodbury, 14 Cal. 424; Marsh
V. Carey, 26 N. Y. 75. v. Astoria Lodge, 27 111. 421; Spring
3 Humplireys v. Mooney, 5 Col. 282. Valley Waterworks v. San Francisco,
368
DE FACTO CORPORATIONS. [1 Thomp. Coip. § 508.
§ 508. Except where the Thing to be Done is a Condition
Precedent. — An exception to the operation of the rule in this
particular is, that where the thing to be done is made by the
statute a condition precedent to the organization of the corpora-
tion, then there is no corporation unless this condition is sub-
stantially performed. 1 There is also considerable authority,
some of it discredited by time, to the effect that, where the body
does not become.entitled to corporate powers, until certain acts
have been performed, such acts must be shown to have been done
to establish the existence of the corporation, even in a collateral
proceeding.2 The effect of this doctrine is that, if the charter
requires the performance of certain acts as conditions precedent
to the existence of a corporation, mere general evidence of user
cannot be regarded as conclusive that such conditions have been
performed.^ In pursuing this inquiry, courts usually hold that
it is unnecessary to prove that the body have complied with cer-
tain statutory requisitions, which are not in terms, or by neces-
sary or reasonable implication, conditions precedent to their
existence or capacity to do particular acts.* The decided cases
afford no satisfactory test of what may be considered as condi-
tions precedent to the corporate existence, the performance of
which must be shown. Certain it is that many irregularities and
omissions which might affect the right of the corporation to exist
when called in question by the State, in a direct proceeding, do
not impair its capacity to sue and be sued in general. *' So lono-
as the State does not interfere," said Bronson, C. J., in one
22 Cal, 434; Baker v. NefE, 73 Ind. 68; 137; Mokelumne &c. Co. v. Woodbury,
ante, § 224. 14 Cal. 424.
1 J««e, § 22G ; Lord u. Essex Build- ^ hong, contiuued user, however,
ing A sso . , 37 Md. 320 ; Boyce v. Trust- has great weight in support of the pre-
ees, 46 Md. 359. sumption tliat the couditious upon
2 Fire Department v. Kip, 10 Wend, which the charter was granted have
(N. Y.) 2G6; Utica Ins. Co. v. Cad- been duly performed. All Saints
well, 3 Wend. (N. Y.), 296; Utica Church v Lovett, 1 Hall (N. Y.), 191;
Ins. Co. V. Tillman, 1 Wend. (N. Y.) Dunning v. New Albany &c. R. Co., 2
555; United States Bank v. Stearns, 15 Ind. 437.
Wend. (N. Y.), 314; Lucas v. Bank, 2 « NarragansettBankw. Atlantic Silk
Stew. (Ala.) 147; Wood U.Jefferson Co. Co., 3 Mete. (Mass.) 282; Bank of
Bank, Cow. (N. Y.) 194; Southbold United States v. Dandridge, 12 Wheat.
V. Horton, 6 Hill (N. Y.), 501; Bank (U. S.) 64, 81; Bank v. Allen, 11 Vt.
of Auburn ». Aikin, 18 Johns. (N. Y.) 302; Eaton v. Aspinwall, 19 N. Y. 119.
24 369
1 Thomp. Corp. § 509.] irregular corporations.
case, " the corapany may sue, or do any other lawful act, what-
ever sins may have been committed in bringing the body into
existence." ^
§ 509. Further Observations and Illustrations. — Where a
company, having taken all other steps to become incorporated under the
general law, omits to file the certificate of incorporation in the office of
the Secretary of State, such a non-compliance with the statute might sus-
tain a quo warranto ov scire facias on behalf of the people, and oust the
corporators from the exercise of their franchise ; but it does not neces-
sarily follow that it is not, as to third persons, a corporation. ^ So, it
has been reasoned that a defect in the organization of a corporation,
which would not avail a defendant in an action by the corporation,
upon the plea of nul tiel corporation, cannot be shown either by the cor-
poration itself when a defendant, or by a stockholder when sued for
debts of the corporation. ^ _ _ . _ Similarly, in one case, where
the affidavit annexed to the articles of association filed under a general
corporation law, did not contain the allegation "that it is intended in
good faith to construct or maintain and operate the road mentioned in
the articles of association," — the judge delivering the opinion of the
court said: " I am of the opinion that, under this and similar general
acts for the formation of corporations, if the papers filed, by which the
corporation is sought to be created, are colorable, but so defective that
in a proceeding on the part of the State against it, it would for that
reason be dissolved, yet by acts of user under such an organization it
becomes a corporation de facto, and no advantage can be taken of such
defect in its constitution, collaterally by any person."* - - _ _
Where a company was incorporated for the purpose of removing from a
1 McFarlan v. Trenton Ins. Co., 4 the county clerk's office," etc., is but
Den. (N. Y.) 392, 397; Swartwout v. directory, and is not a requisite to in-
Michigan &c. R. Co., 24 Mich. 389. corporation. Upon compliance with
That there are irreconcilable varia- section 1 of the act, the incorporatiom
tions in the views of the courts as to became complete. Rose Hill &c. Co.
what are conditions precedent and v. People, 115 111. 133. While, as
what are conditions directory, has been elsewhere seen {ante, § 227), the de-
already shown. Ante, § 226. Thus, cisions of other courts would make
the provisions of the Illinois act of this a condition precedent.
1859, relating to corporations, that * Baker v. Backus, 32 111. 79 ; ante,
•' any company formed under this act § 240.
shall file a copy of their by-laws, 3 Eaton v. Aspinwall, 19 N. Y. 119,
signed by the president and secretary 122.
of such corapany, and a list of the * Buffalo &c. R. Co. v. Cary,26N.
stockholders therein, and the amount Y. 75. But see the dissenting opinion
of the stock signed, as aforesaid, in of Allen, J., in this case.
370
DE FACTO CORPORATIONS. [1 Thomp. Corp. § 610.
river all obstructions to the free passage of logs, etc., and were author-
ized to demand toll from the owners of logs, etc., freely passing down
the river, it was held, in an action to recover tolls for logs that passed
the river freely, that the defendant could not show that the corporation
had not removed the obstructions, though the act of incorporation was
by its terms to be void if they would not be removed in one year,
and though more than a year had elapsed before the action was
brought.^ - - - - In an action upon a bond issued by a school
board, if it appear that such a school board had a de facto existence,
acted in that official capacity, was recognized as such by the county
court, it cannot be set up as a defense to avoid liability on the bond, that
it had no legal existence. "Such a board must be regarded as one
de facto whose right to act no one but the State is competent to ques-
tion." 2 _ _ - _ Where a corporation instituted a suit to establish
a certain paper wi-iting as the last will and testament of a deceased per-
son, which paper contained a bequest to a legatee having the name of
the plaintiff, to wit, "the Catholic Church at the city of Lexington,"
the principle was applied that, whether a corporation exists de jure or
not, its existence cannot be questioned in a collateral proceeding, if it
appear to be acting under color of law, and recognized by the State as
such. " The question of its being must be raised by the State itself, on
a quo warranto or other direct proceeding ; and this, although the act
incorporating it, or authorizing its incorporation, is violative of the
constitution of the State." 3 . . . _ In replevin by one claiming
the property under a chattel mortgage executed by a de facto corpo-
ration, defendant offered evidence to show the non-existence of the
corporation de jure by reason of the articles of incorporation being
acknowledged. The articles were otherwise regular, and showed an
attempt in good faith to comply with the statute, and there had been
open and pubUc exercise of corporate powers by the company for several
months prior to the date of the mortgage. It was held that this was
sufficient to authorize plaintiff to deal with the company as a corporation
de facto, and to warrant the refusal of the court to allow defendant to
attack its existence collaterally by introducing the evidence offered.*
§ 510. State Precluded by Lapse of Time from Questioning
Regularity of Corporate Organization — Although, us u general
1 Bear Camp River Co. v. Wood- - Cath. Church v. Tobbeia, 82 Mo.
man, 2 Me. 404. 418, 424.
2 Franklin Avenue &c. Inst. v. M)uji;gan v. Colorado Mortgage &c.
Board of Education, 75 Mo. 408. Co., 11 Col. 113; 20 Am. & Eng. Corp.
Ca.s.r>19; I7Pac. Rep. 105.
371
1 Thomp. Corp. § 511.] irregular corporations.
rule, the statute of limitations does not run against the State,
nor can laches be imputed to it, — yet this rule will not be al-
lowed to apply so as to destroy the existence of a corporation,
where many private rights have beeu acquired on the faith of it,
and where the vacation of its franchises would lead to confusion
and injustice. It was so held where it was sought by an infor-
mation in the nature of quo warranto ^ to vacate the franchises of
a railroad company, on the ground that its articles of association
were defective in not specifjang its terminus with sufficient cer-
tainty. As between eight and nine years had elapsed since the
filino- of the articles in the office of the Secretary of State, and as
such filing was notice to the State, at the time, of the manner in
which the organization of the corporation had taken place, a
judgment of ouster was refused.^
§ 511. Corporation Suing for Rights which can only Inhere
in it as a Corporation. — It is believed, however, that the
exception to the general rule obtains where the corporation is
the actor in the litigation and is therein seeking to enforce a right
which inheres in it as a corporation. Thus, if a corporation has
been created to erect a bridge, with power to take tolls thereon
for the period of twenty years, and after the lapse of twenty
years it sues to recover such tolls, the defendant may show that
the twenty years have expired and thereby defeat the action.-
It is also assumed that where a corporation proceeds to condemn
the lands of a private owner for public uses, it must show ajjritna
facie right to exercise this extraordinary power, by proving that
it has corporate existence, at least de facto. An administrator
cannot maintain an action in his representative character with-
out pleading and proving that he is an administrator, because it
is only in that character that he has a title to sue. He ordinarily
proves this by putting in evidence his letters of administration.
It should seem, upon the same principle, that where a plaintiff,
claiming to be a corporation, brings an action which, from its very
nature, it cannot have unless it is a body corporate, it must prove
1 State V. Bailey, 19 Ind. 452. As 2 Grand Kapids Bridge Co. v.
to the period of limitation for an in- Prauge, 35 Mich. 400; s. c. 24 Am.
formation iu the nature of quo ivar- Eep. 585.
ranto, see Aug. & A. Corp., § 743.
372
DE FACTO CORPORATIONS. [1 Thomp. Corp, § 512.
its corporate existence, at least by putting in evidence its cer-
tificate of incorporation.^
§ 512. Corporations by Legislative Recognition. — A doc-
trine frequently admitted ^ by American courts, is that, where a
body of persons act as a corporation, and the legislature passes an
act which distinctly recognizes their corporate character, they
may be deemed to be rightfully a corporation in consequence of
such legislative recognition. It has been frequently ruled that
defects in the organization of corporations, which have been or-
ganized under a general law, may be cured by subsequent legis-
lative recognition of the corporation." The rule is that, although
the organization of a corporation may be irregular, in such a
sense that it could be overthrown in a direct proceeding by the
State, yet where its corporate existence has been recognized by
the legislature, this will make it a good corporation, for the pur-
poses of collateral proceedings.* In like manner, the fact that
1 Thus, the owners of land whom
it is proposed to assess for the benefit
of a work undertalsen by a gravel road
company, if they are not shareholders
and have not contracted with the
company as a corporation, are not es-
topped in a suit to enjoin the collection
of the assessment, from denying the
corporate existence of the company.
Piper V. Rhodes, 30 Ind. 309. A rail-
road corporation claiming the right to
occupy with its traclis the streets of a
town or city must be a corporation de
jure and not merely a corporation de
facto. New York Cable Co. v. New
York. 104 N. Y. 43. So of a corpora-
tion seeking to condemn land for its
uses. Atlantic &c. R. Co. v. Sullivant,
5 Oh. St. 276; Atkinson v. Marietta &c.
K. Co., 15 Oh. St. 21; post, Ch. 184.
2 It has been said that corporate
powers cannot be created by implica-
tion, nor extended by construction.
Pennsylvania R. Co. v. Canal Coraraia-
sioners, 21 Pa. St. 9. In an earlier
case we find the conclusion that indi-
viduals acting together for the benefit
of a society are not to be considered
as a corporation, unless they ex-
pressly show their corporate capacity.
Ernst V. Bartle, 1 Johns. Cas. (N. Y.)
319. But this was before the doctrine
had become established that the cor-
poration may, as to third persons,
exist de facto; that a body of persons
holding themselves out as a corpora-
tion are thereby estopped, as against
third persons, to deny their corporate
character; and that persons entering
into contracts with supposed corpora-
tions are thereby estopped in actions
to enforce a contract to deny their
corporate existence.
3 Basshor v. Dressel, 34 Md. 503;
People V. Perrin, 56 Cal. 345; Atlantic
&c. R. Co. V. St. Louis, 66 Mo. 228.
* Atlantic &c. R. Co. v. St. Louis,
supra; Black River &c. R. Co. v. Bar-
nard, 31 Barb. (N. Y.) 258. The the-
ory of the last case is that, where the
organization of a railway company is
regular on its face, and the company,
while in the exercise of corporate
functions, is recognized as a corpora-
tion by the legislature, it becomes, by
that recognition, a legal corporation,
373
1 Thomp. Corp. § 512.] irrequlaii corporations.
two railway cotiipanies have become blended by a coyisolidation
may, it has been held, be shown by a legislative recognition in
the form of a private statute.^ But there is much force in tiie
opposing conclusion that, where the constilulion of the State
forbids corporations to be created except by general laws, the
mere recognition of a body as an existing corporation, in acts
of the legislature, cannot operate to give the organization valid-
ity, for this would be tantamount to creating it by a special
law.^ But if the language of the statute, from which it is souoflit
to infer a legislative recognition of the particular body as a cor-
poration, is equally consistent with the conclusion that the legis-
lature did not intend to recognize it as possessing such a
character, it will not be deemed such under the operation of this
principle. It has been reasoned that, while express words of
incorporation are not essential to create a corporation, general
language in a statute being sufficient, if a corporation is neces-
sary to accomplish the purpose contemplated, yet, if the
necessity for a corporation does not exist, it will not be deemed
created by implication.^ On a similar principle, where a cor-
and that, if any defect exist iu its or_
gauization it is thereby waived by the
State and cured. In that particular
case the articles of association were
in the proper form, and properly au-
thenticated, and the company had
built part of its road and had been do-
ing business five years, and the legis-
lature had, by three acts, distinctly
recognized its corporate existence. It
was held, in an action upon stock as-
sessments against one who had acted
as director, that the plaintiff was to be
deemed a legal corporation and as
such authorized to sue. In like man-
ner it has been held that the require-
ment for the formation of a private
corporation that an application be
filed with the Secretary of State and
acknowledged before a proper officer,
may be waived by the State, by a sub-
sequent statute recognizing the ex-
istence of a corporation organized
without compliance with said require-
ment. Central Agricultural &c. Asso.
374
V. Alabama Gold Life Ins. Co., 70 Ala.
120.
' McAuley v. Columbus &c. R. Co.,
83 111. 348; ante, § 318.
- Oroville &c. R. Co. v. Super-
visors, 37 Cal. 354; post, § 590. As
to the constitutionality of an act of the
legislature relieving the creditors of a
particular company, see Potts v. Dele-
ware Water Power Co., 9 N. J. Eq.
592; Corrigan v. Trenton Delaware
Falls Co., 7 N. J. Eq. 489.
3 Walsh V. New York & Brooklyn
Bridge, 96 N. Y. 427. In this case it
was held that, as the purpose of N. Y.
Acts 1875, eh. 300, in relation to the
New York and Brooklyn bridge, was to
extinguish the then existing corpora-
tion, and vest all its property iu the
two cities, and as all the purposes of
the act could be carried out without
the creation of a corporation, the
board of trustees, for whose appoini-
ment the act provided, were not to be
deemed a corporation, but merely
DE FACTO CORPORATIONS. [1 Thomp. Coi'p. § 513.
poration has done acts in excess of its powers, for which the
State might proceed to forfeit its franchises, it is a sound con-
clusion that, as the legislature might have clothed the corpora-
tion with such power, so it may ratify and confirm the illegal
acts, unless there is something in the constitution of the State
restraining this kind of legislative action.^ The original statute,
whether a special charter or a general law, and the subsequent
curative act will, in so far as they are consistent with each other,
unite to form the charter of the company, and the acceptance
of the new act will not have the effect of destroying, but
merely that of modifying the former corporate organization.^
§ 513. Illustrations. — A special act of the legislature changing
the name of a corporation, ^ or recognizing it by name and extending
and continuing its corporate rights and privileges,^ has been held to
validate its existence for the purposes of a collateral proceed-
ing. - - - - In a suit between a railroad and a municipal corpora-
tion, contesting the right of the railroad company to ojDerate its traclt
upon one of the streets of the city, there was no proof of the corporate
existence of the railroad company thi'ough which the plaintiff company
claimed to derive its franchises. But it appeared that the State,
through its legislature, had sold a railroad to certain individuals, and
required them to form themselves into a corporation for the purpose of
owning and operating it, and that the legislature had, on several subse-
quent occasions, recognized the existence of these vendees as a corpora-
tion. It was held that the existence of such a corporation could not be
agents for and representatives of the tions," it has been said, "are created
two cities. See ante, § 39. As to for tlae public good — are demanded
the revival of a dissolved corporation by the wants of the community; and
by a subsequent decree distinctly rec- the law, after long continued use of
ognizing its existence, see Lea v. corporate powers, and the public
American &c. Canal Co., 3 Abb. Pr. acquiescence, will indulge in pre-
(N. s.) (N. Y.) 1. sumptions in favor of their legal
1 Sliawv. Norfolk Railroad &c. Co., existence." Jameson v. People, 1(5
6 Gray (.Mass.), 1G2, 179; Richards v. 111. 257, 259. See also United States
Merrimac &c. R. Co., 44 N. H. 127, Bank v. Dandridgc, 12 Wheat. (U. S.)
136. G4; Dunning v. New Albany &c. R.
2 Johnston v. Crawley, 25 Ga. 31G. Co., 2 Ind. 437; Society of Middlesex
The rule which validates de facto cor- v. Davis, 3 Mete. (Mass.) 133; People
porations by legislative recognition v. Farnham, 35 111. 562.
and public acquiescence in their long ^ White v. Ross, 4 Abb. App. Dec.
continued existence, applies more (N. Y.) 589.
properly to municipal than to private ■♦ Kanawha Coal Co. v. Kanawha &c.
corporations. " Municipal corpora- Coal Co., 7 Blatchf., (U. S.) 391.
375
1 Thomp. Corp. § 513.] irregulau corporations.
questioned by tliird persons, and that such recognition dispensed witii
other eviilouce of the fact.^ - - - - In quo warranto against the
trustees of a town challenging its corporate existence, it appeared that,
by certain public statutes the legislature had authorized the president
and trustees of the town, as a corporation, to subscribe stock in a
certain railway company, and also in a certain plank road company,
upon conditions named in the acts ; to issue and negotiate bonds of the
corporation ; to provide for paying interest on such bonds, and to levy
and collect taxes upon property within the corporation. " These acts,"
said Skinner, J., " recognizing the existence of the corporation, and
empowering it to act as a body corporate, in issuing and negotiating ob-
ligations of the town, and upon the faith of which, individuals may have
invested their money, — preclude inquiry into the question of the orig-
inal legal organization of the town, and are conclusive upon the
question of the existence of the corporation. If there is no such cor-
poration, all acts done under the supposed corporate powers are mere
nulhties ; and no liabihties can exist by reason of contracts made in the
corporate name, except, perhaps, against individuals who never con-
templated themselves incurring personal liabilities, by acts performed
in an official capacity. Were we to hold, after this acquiescence of the
pubhc, and these recognitions of the legislature, that the town remains
unincorporated, on account of some defect in its original organization
as a corporation, what confidence could individuals have in the validity
of securities emanating from these local authorities ?' ' ^
Article II. Corporations by Estoppel.
Section Section
518. Obligor in contract with corpo- 524. View that incorporation must be
ration estopped to deny corpo- stated in tlie contract.
rate existence. 525. Except where party is induced by
519. Illustrations of the rule. fraud to recognize corporate
520. Various statements of this rule. knowledge.
521. Corporate existence proved by 526. Party dealing with corporation
showing that the objecting permitted to show corporate
party has dealt with it as such. existence.
622. Rule restrained to cases of de 527. Party claiming under legislation
facto corporations. creating a corporation estopped
523. This estoppel not raised where to deny its existence.
there is no law authorizing the 528. Stockholder estopped to deny
corporation. corporate existence.
I Atlantic &c. R. Co. v. St. Louis, » Jameson v. People, 16 HI. 257.
66 Mo. 228.
376
CORPORATIONS BY ESTOPPEL. [1 Thoilip. Corp. § 518.
Section
529. Estoppel to set up fraudulent
organization.
530. Exception where the corporation
has expired by lapse of time.
531. Forfeiture for misuser or non-
user not pleadable collaterally.
Section
532. Corporation estopped to deny
corporate existence.
533. Coi'porations for illegal pur-
poses.
§ 518. Obligor in Contract with Corporation Estopped to
Deny Corporate Existence. — A party who enters into a writ-
ten contract with a body purporting to be a corporation, in
which it is described by its corporate name, solemnly admits the
existence of the corporation for the purposes of a suit brought
to enforce the obligation, and in such an action he will not be
permitted to plead nul del corporation, or otherwise to deny the
corporate existence of the plaintiff.^
1 state V. Carr, 5 N. H. 367; Presi-
dent &c. V. Thompson, 20 111. 200;
Hamilton v. Carthage, 24 111. 22; Kay-
ser w. Bremer, 16 Mo. 88; St. Louis v.
Shields, 62 Mo. 247, 251 ; National Ins.
Co. V. Bowman, 60 Mo. 252; Farmers
&c. Ins. Co. V. Needles, 52 Mo. 17;
Ohio &c. R. Co, V. McPherson, 35 Mo.
13, 26; s. c. 86 Am, Dec. 128; Hub-
bard v. Chappel, 14 Ind. 601; Stu de-
bater Man. Co. v. Montgomery, 74
Mo. 101 ; Real Estate Savings Institu-
tion V. Fisher, 9 Mo. App. 593; Jones
V. Koliomo Building Association, 77
Ind. 340; Platte Valley Bank v. Hard-
ing, 1 Neb. 461 ; Fresno Canal &c. Co.
V. Warner, 72 Cal. 379; s. c. 14 Pac.
Rep. 37; 2 RaiL & Corp. L. J. 86;
McCord &c. Mercantile Co. v. Glen
(Utah), 21 Pac. Rep. 600; School Dis-
trict No. 61 V. Collins (Dak.), 41 N.
W. Rep. 466; Cravens v. Eagle Cotton
Mills Co., 120 Ind. 6; s. c. 16 Am. St.
Rep. 298 ; Town of Searcy v. Yarnell, 1
S. W. Rep. 319; s. c. 47 Ai'k. 269; Den
V. Van Houten, 10 N. J. L. 270; Mc-
Broom V. Lebanon, 31 Ind. 268;
Smelser v. Wayne &c. Turnpike Co.,
82 Ind. 417; Singer Mauuf. Co. v.
Bennett, 28 W. Va. 16; Commercial
Bank v. Pfeiffer, 108 N. Y. 242;
Dutchess Cotton Man. Co. v. Davis, i
Johns. (N. Y.) 237; s.c. 7 Am. Dec.
549 ; Sanger v. Upton, 91 U. S. 56 ; Buf-
ffalo &c. R. Co. V. Carey, 26 N. Y. 75;
Chubb V. Upton, 95 U. S. 665; Hender-
son &c. R. Co. V. Leavell, 6 B. Mon.
358; John v. Farmers &c. Bank, 2
Blackf. (Ind.) 367; Hubbard ». Chap-
pel, 14 Ind. 601; Chester Glass Co. v.
Dewey, 16 Mass. 94; Jones v. Cincin-
nati Type Foundry Co., 14 Ind. 89;
Bank of Toledo v. International Bank,
21 N. Y. 542; Cong. Soc. v. Perry, 6
N. H. 164; Case •y. Benedict, 9 Cush.
(Mass.) 540; Woodson v. Bank, 4 B.
Mon. (Ky.) 203; Worcester Medical
Inst. V. Harding, 11 Cush. (Mass.)
285; Tar River Nav. Co. v. Neal, 3
Hawks (N. C.),520; Douglass County
V. Bolles, 94 U. S. 104; Butchers &c.
Bank v. McDonald, 130 Mass. 264;
Farmers «S;c. Bank v. Detroit &c. R.
Co., 17 Wis. 372; West Winsted &c.
Assn. V. Ford, 27 Conn. 282; Danbury
&c. R. Co. V. Wilson, 22 Conn. 435;
Bank of Gallipolis v. Trimble, 6 B.
Mon. (Ky.) 599; Eaton v. Aspinwall,
6 Duer (N. Y.), 176; Peake v. llallcy,
14 Ind. 383; Meikel v. German Sav.
Fund Soc, 16 Ind. 181; Ryan v. Van-
landingham, 7 Ind. 416; Fort Wayne
377
1 Thomp. Corp. § 519.] de facto corporations.
§ 619. Illustrations of the Rule. — An apt illustration of the
rule is furnished by a case where a person makes a deed conveying:
land to a corporation by its corporate name, and the deed is duly re-
corded, and thereafter such person makes another deed conveying the
same land to A. B. , and thereafter A. B. makes a deed conveying the
same land to C. D. The estoppel which existed against the first
grantor exists against C. D. , and he will not be heard, in an action of
ejectment against the tenant of the corporation, to set up a defect in
the organization of the corporation, which might be available in a direct
&c. Turnp. Co. v. Deam, 10 Ind. 563 ;
Enseyi'. Cleveland &c. R. Co., 10 Ind.
178; Judah v, American Live Stock
Ins. Co., 4 Ind. 333; Brookville &c.
Turnpike Co. v. McCarty, 8 Ind. 392 ;
Brownlee v. Ohio &c. E. Co., 18 Ind.
68; Board v. Bright, 18 Ind. 93; Ran-
som V. Priam Lodge, 51 Ind. 60; Will-
iams V. Franklin Township Assn., 26
Ind. 310; Baker v, Neff, 73 Ind. 68;
Franklin u. Twogood, 18 Iowa, 515;
Cahill V. Kalamazoo Ins. Co., 2 Doug.
(Mich.) 134; Kennedy v. Colton, 28
Barb. (N. Y.) 59; All Saints Church v.
Lovett, 1 Hall (N. Y.), 191; Loaners
Banku. Jacoby, 10 Hun (N. Y.), 143;
Connecticut Bank v. Smith, 17 How.
Pr. (N. Y.) 487; Caryl v. McElrath, 3
Sand. (S. C.) 176; Tarbell v. Page, 24
111. 46; Cochran v. Arnold, 58 Pa. St.
399; Low v. Connecticut &c. R. Co., 45
N.H. 370, 378; Goodrich v. Reynolds,
31 111. 490; SwartwouttJ. Michigan &c.
RCo., 24 Mich. 389; Wood v. Coosa
&c. R. Co., 32 Ga. 273; Rice v. Rock
Island &c. R. Co., 21 111. 93; Owens v.
Pierce, 5 Mo, App. 576; St. Louis Gas
Light Co. V. St. Louis, 11 Mo. App.
55 ; Hamtramck v. Bank of Edwards-
ville, 2 Mo. 169; Jones v. Bank of
Tenn., 8 B. Mon. (Ky.) 122; s. c. 46
Am. Dec. 540; Montgomery R, Co. v.
Hurst, 9 Ala. 513. The doctrine was
denied in a forcible opinion by Mr.
Justice Nelson, of the Supreme Court
of New York, in Welland Canal Co.
V. Hathaway, 8 Wend. (N. Y.) 480; s.
c. 24 Am. Dec. 51. The case was that
of a Canadian corporation, and there
378
are indications here and there in the
opinion of that celebrated jurist, that
he did not take kindly to the assertion
of rights or privileges in the courts of
this country on behalf of British cor-
porations or British subjects. Al-
though his opinion is still regarded as
authority on the general law of estop-
pel, it has been generally overruled in
respect of this particular question.
See also Williams v. Bank of Michigan,
7 Wend. (N. Y.) 539; s. c. 5 Wend.
(N. Y.) 478; U. S. Bank v. Stearns, 15
Wend. (N. Y.) 314. Nevertheless this
doctrine has been followed to some
extent in subsequent cases in the same
State and elsewhere. First Baptist
Soc. V. Papalee, 16 Wend. (N. Y.) 605;
Buffalo &c. R. Co. v. Gary, 26 N. Y. 75 ;
Loaners Bank v. Jacoby, 10 Hun (N.
Y.), 143; DeWitt v. Hastings, 40 N. Y.
Super. 463; Hargrave v. Bank, 1 111.
84; Gaines v. Bank, 12 Ark. 769;
Boyce u. Trustees, 46 Md. 359; Bank
V. Simonton, 2 Tex. 531; Halloway w.
Memphis &c. R. Co., 23 Tex. 465;
Owen V. Farmers Bank, 2 Doug.
(Mich.) 134, note; Mitchell v, Rome
&c. R. Co., 17 Ga. 574, 589. Among
the cases holding contrary to the
above, that a promissory note given
to a company by its corporate name
estops the maker from denying its
corporate existence when sued upon
the note, are Pacific Bank v. De Ro,
37 Cal. 538; John v. Farmers &c.
Bank, 2 Blackf. (Ind.) 367; s. c. 20 Am.
Dec. 119. See also Hughes v. Bank
of Somerset, 5 Litt. (Ky.) 45.
COUPORATIONS BY ESTOPPEL. [1 ThoUip. Coip. § 519.
proceeding by the State to forfeit its charter.^ - - - - In like man-
ner a person claiming under a deed which recites a mortgage in favor
of a mortgagee bearing a corporate name, is estopped from disputing
the corporate existence of such mortgagee.^ This is in conformity with
the general principle, that when a person executing a deed recites there-
in particular facts, those facts become conclusive against him, and also
against those who derive title from him.^ - - - - A bank was
duly organized under an act of a territorial legislature, but could not
legally exercise its powers until the charter creating it was approved by
Congress. It was held that it was nevertheless a body corporate de
facto ^ and that a party making a sale of real estate to it was estopped
from thereafter questioning its capacity to take title after it had paid
the consideration for the pui'chase.^ Where the act under which the
corporation was organized was consohdated by the adoption of a new
constitution before the act of incorporation was accepted by the cor-
porators, as the act of incorporation was originally vahd, one who had
contracted with the corporation was estopped to show that the corpora-
tors failed to organize under it while it remained in force.^ . _ - -
Where a corporation takes a deed of trust upon land to secure a loan of
money, and, upon a foreclosure and sale under the deed of trust, be-
comes the purchaser and brings ejectment for the possession, it is not
necessary to introduce formal proof of its existence as ai^orporation, if
the deed of trust, being in evidence, recites that fact.^ - - - - It
is no defense to an action by a mutual insurance company to collect as-
sessments, to show that it met and chose officers before its charter
went into effect, if subsequently to that time persons were found, with
the consent and under the authority of the designated corporators and
without objection on the part of the State, actually exercising the cor-
porate powers and claiming and using the franchise.''' So, it has
been held that a debtor of a banking corporation, when sued upon an
» Broadwell v. Merritt, 87 Mo. 95, ^ Hassenritter v. Kirchhoffer, 79
There is even a larger principle, by Mo. 239.
which estoppels in pais are visited '^ Herm. on Est., §§ 616, 629.
upon those in privity oj estate with * Smith v. Sheeley, 12 Wall. (U. S.)
an owner of land. Thus, if the owner 358.
of laud would be estopped, by reason ^ Snyder v. Studebaker, 19 Ind. 462
of his own acts and conduct, from (overruling upon this point Harri-
setting up title thereto, those in man u. Southam, 16 Ind. 190).
privity with him, unless purchasers •> German Bank v. Stumpf, 6 Mo.
for value without notice, labor under App. 17.
a similar disability. Thistle u. Buford, ' Appleton Mutual Fire Ins. Co. v.
60 Mo. 278. See also Shew v. Beebe, Jesser, 5 Allen (Mass.), 446.
35 Vt. 205; Suodgrass u. Kicketts, 13
Cal. 359 ; Cooley r. Warren, 53 Mo. 166.
379
1 Thomp. Cor J). § 521,] de facto corporations.
acceptance, ^^^ll not be heard to set up certain frauds by reason of which
the banlc was never legally organized. ^ McDonald, J., said: "If
there were conditions precedent of the most imperative character in the
charter, and a grossly fraudulent organization had been gotten up by
collusion between the commissioners and the subscribers for stock, and
the bank had been put into operation apparently fairly, and held out to
the community as a regularly and honestly organized bank, discounting
notes and paying out bills, it would be a strong act of injustice to hold
that the fraud in the organization could be pleaded collaterally, as a
defense by the bank, against the payment of its notes, or by a debtor
to the bank, to defeat the collection of the debt due by him. The bank
should not be allowed to take advantage of its own wrong ; and the
debtor of the bank, who has received an equivalent for his note, ought
not to be allowed to avail himself of a defense of the sort, to diminish
the means of paying the debts of the bank. ' ' ^
§ 520. Various Statements of tliis Rule. — Some variations
are met with in the statements of the rule. It is sometimes said
that a party who enters into a contract with an assumed corpo-
ration, in its corporate name, thereby admits it to be duly con-
stituted a body politic and corporate under such name.^ It is
also said that the execution of a note or deed to a corporation is
prima facie evidence of the lawful existence of the corporation,*
or of the existence of a charter and of user under it, under a
plea of nid liel corporation.^
§ 521. Corporate Existence Proved by Showing that the
Objecting Party has Dealt with it as Such. — General expres-
sions are found in many cases which do not confine the grounds
of the estoppel to the fact that the party challenging the ex-
istence of the corporation has executed to the corporation, in its
corporate name, the obligation sued on, but which go further
and say that, where the legal existence of a corporation is chal-
lenged in a collateral proceeding, it may be proved by showing
that the party challenging it has dealt generalbj with the corpo-
ration, under such circumstances as impliedly did assume its cor-
' Posty § 529. •* Brown v. Scottish American
2 Sonthem Bank v. Williams, 25 Mortgage Co., 110 111. 235.
Ga. 5.S4, 536. » Montgomery Eailroad v. Hm-st, 9
3 Franz u.Teutonia Building Assc, Ala. 513.
24 Md. 259.
380
CORPORATIONS BY ESTOPPEL. [1 Thomp. Corp. § 522.
porate existence. This being shown, he will according to some
of these expressions be estopped, in a subsequent litigation with
the corporation or its receiver, assignee, or other legal repre-
sentative, from denying its corporate existence. ^ A person so
dealing with a corporation will not be heard to assert that, by
reason of some irregularity in its organization, it is no more than
a voluntary association and its stockholders liable as part-
ners. 2 The better conception is believed to be that the mere
fact of the party against whom the estoppel is claimed, having
dealt with the alleged corporal in some other matter, does not
estop him from denying its corporate existence, but is at most an
evidentiary fact, on the footing of an admission, tending to
prove the existence of the corporation. A qualified statement,
gleaned from a decision in Michigan, is that when 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, except where there are no facts
which make it legally unjust to forbid such a denial.^
§ 522. Rule Restrained to Cases of De Facto Corpora-
tions. — The rule as stated in a preceding section * leaves entirely
out of view any question as to the rightfulness of the assump-
tion of corporate existence by the party claiming it. It nakedly
is that one who enters into a written obligation with an assumed
or pretended corporation, thereby admits its corporate existence,
and estops himself from denying it, in an action by the corpora-
tion to enforce the obligation. In a numerous class of cases,
many of them recent ones, the rule is so stated as to be re-
strained in its operation to cases of colorable or de facto corpora-
tions. In these cases the proposition is frequently formulated
that a person who contracts with a de facto corporation cannot,
in an action against him on the contract, impeach the legality of
its organization ; ^ or that one who contracts with a corporation
IBank of Circlcville v. Renick, iu Sherwood w. Alvis, 83 Ala. 115; s.c.
15 Oh. 322; Spahr v. Farmers Bank, 3 Am. St. Rep. 695.
94 Pa. St. 429. Compare Freeland v. ^ Estey Mau. Co. v. Runnels, 55
Pennsylvania Central Ins. Co., 94 Pa. Mich. 130; s.c. 20 N. W. Kep. 823.
St. 504. " Ante, § 518.
2 Tarbell u. Page, 24 111. 40;'Leh- » Butchers & Drovers' Bank v.
mau V. Warner, Gl Ala. 455; restated McDonald, 130 Mass. 2G4; Winget r.
381
1 Thomp. Corp. § 622.] de facto corporations.
which has a de facto existence, that is to say, the reputation of
being a legal corporation in the actual exercise of corporate
powers and franchises, is estopped from denying the legality of
the existence of the corporation, or inquiring into irregularities
attending its formation, to defeat the contract or to avoid the
liability he has voluntarily and deliberately incurred.* Some of
the cases merely state the fact, as shown by the evidence of the
de facto existence of the corporation under a colorable organi-
zation, to strengthen the rule which raises the estoppel ,2 without
implying that even a de facto organization is necessary to the
rule. Others distinctly imply that proof of a de facto organi-
zation is also necessary, — such as evidence of proceedings in
professed compliance with a law authorizing the organization of
the corporation, and slight evidence of subsequent user. ^ " The
distinction," says one court, " is between an entire absence of
authority in the organic law itself, and a failure to comply with
some prerequisite which the law has made a condition precedent
to the exercise of corporate functions. In the one case, there
is a want of power to act; in the other, only an abuse of power
conferred.* One statement of the rule is that the person con-
tracting with an association assuming to be, and believed by the
person to be, incorporated, and acting in a corporate capacity,
cannot, after having received the benefit of the contract, set up
as a defense to an action brought by the company or its assignee,
that the company was not legally incorporated.^ Similarly, it
has been held that a person who has made a promissory note to
a body claiming or purporting to be a corporation cannot, in an
action thereon, avoid the estoppel resulting from such admission
of the existence of the corporation at the time, by an answer
alleging that when he made the note he believed the payee was a
corporation, but afterwards discovered that it was not.®
Quincy Building &c. Assn. 128111. 67; dence &c. Ins. Co. v. Murphy, 8 R. I.
s.c. 21 Northeast. Rep. 12; White u. 131.
Ross, 4 Abb. App. Dec. (N. Y.) 589. ^ Merriman v. Magiveny, 12 Heisk.
1 Central Ag. &c. Asso. v. Alabama (Tenn.) 494.
&c. Co., 70 Ala. 120; s. c. 9 Am. Corp. < Sherwood v. Alvis, 83 Ala. 115;
Cas. 8, 13. s. c. 3 Am. St. Rep. 690; opinion by
2 Commissioners of Douglas Co. v. Stone, C. J.
Belles, 94 U. S. 104; National &c. Ins- ^ Booslie v. Gulf Ice Co., 24 Fla.
Co. V. Yoemans, 8 R. I. 25; Provi- 550; 5 So. Rep. 247.
^ Ransom V.Priam Lodge, 51 lud. 60.
382
CORPORATIONS BY ESTOPPEL. [1 Thomp. Corp. § 523.
§ 523. This Estoppel not Raised where there is no Law
Authorizing the Corporation. — In the view of some courts this
estoppel extends only to matters of fact. By analogy to a
principle already stated,^ no such estoppel arises in cases where
there is no law authorizing the existence of any such corporation
at all, as the one which assumes to exist; and the same is true,
according to the same opinion, of cases where the law under
which the corporation claims to exist is unconstitutional •, for a
void statute is the same as no law at all.^ The Supreme Court
of Indiana have said : " The estoppel goes to the mere de facto
organization ; not to the question of legal authority to make an
organization. A de facto corporation, that, by regularity of or-
ganization, might be one de jure, can sue and be sued. And a
person who contracts with such corporation while it is acting under
its de facto organization, who contracts with it as an organized
corporation, is estopped, in a suit on such contract, to deny its
de facto organization at the date of the contract ; but this does
not extend to the question of legal power to organize. Hence,
if an organization is completed, where there is no law, or an un-
constitutional law, authorizing an organization as a corporation,
the doctrine of estoppel does not apply." ^ The Supreme Court
of Michigan have laid down the general rule in the following lan-
guage: "Where there is thus a corporation de facto, with no
want of legislative power to its due and legal existence ; where it
is proceeding in the performance of corporate functions, and the
public are dealing with it on the supposition that it is what it
professes to be ; and the questions suggested are only whether
there has been exact regularity and strict compliance with the
provisions of the law relating to incorporation, — it is plainly a
dictate, alike of justice and of public policy, that in controver-
sies between the de facto corporation and those who have entered
into contract relations with it, as corporators or otherwise, that
such questions should not be suffered to be raised." * The
1 Ante., I 505. &c. K. Co. v. Evansville, 15 Ind.
2 Harrimani). Southara, 16 Ind. 190; 395.
Brown v. Killian, 11 Ind. 449; Hea.ston ^ Heaston v. Cincinnati &c. R. Co.,
V. Cincinnati &c. R. Co., 16 Ind. 275; 16 Ind. 275, 278.
Snyder v. Studebakcr, 19 Ind. 402, < Swart wout v. Michigan &c. E.
overruling upon this point Evansville Co., 24 Mich. 389, 393.
383
1 Thomp. Coil). § 524.] de facto corporations.
.same court have further said: "But both in reason and on
authority, the ruling should be the same where an attempt has
been made to organize a corporation under a general law per-
mitting it. If due authority existed for the corporation, and the
question is one of regularity merely, ' the rule established by
law, as Avcll as reason, is that parties recognizing the existence
of corporations by dealing with them have no right to object to
any irregularity in their organization.' " ^ But the same court,
ina very recent case, have said: *' It is undoubtedly well settled
that a person who has entered into contract relations with a de
facto corporation cannot, in an action thereon, deny its corpo-
rate character or set up any informality in its organization to de-
feat the action. The distinction between such cases and the
present one is clear. If there had been an}'^ law under which de-
fendants had a right to incorporate, and the offer had been to
show a mere abuse or excess of its corporate powers, or had it
appeared that it was a de facto corporation, and the question re-
lated to the regularity of its organization merely, there could be
no doubt that the plaintiff would be estopped from questioning
its corporate existence. But the two things necessary to show a
corporation, even de facto, do not exist. There is no law under
which the powers they assume might lawfully be created ; and the
mere fact that they assumed to act as such, even in the full belief
that they were legally incorporated, would not constitute them a
corporation de facto. "^
§ 524. View that Incorporation must be Stated in the Con-
tract. — A few cases of doubtful authority have restrained the
rule so far as to hold that the fact that, in a contract with an
association or company, the defendant in the action has desig-
nated it by a name which is appropriate to a corporate body,
does not admit its legal existence as a corporation, unless it be
distinctly stated in the contract that the company is an incor-
porated company ; but that it admits only the existence of an
association acting under that name.^ It has been held that, in-
1 Ibid. 395. See also Merchants' 23 Tex. 4G5; s. c. 76 Am. Dec. 68;
&c. Bank v. Stone, 38 Mich. 779. Williams v. Bank of Michigan, 7
2 Eaton ?7. Walker, 76 Mich. 579, 589. Wend. (N. Y.) 539; Wellaud Canal
3 Holloway v. Memphis &c. E. Co., Co. v. Hathaway, 8 Wend. (N. Y.) 480.
384
CORPORATIONS BY ESTOPPEL. [1 Thoinp. Corp. § 526,
dorsing a bill of exchange to a bank does not admit that the bank
is a corporation.^ And more recently there is a decision to the
effect that the mere fact of mentioning, in a promissory note, a
particular bank as the place of payment of the note, does not
preclude the maker from disputing the corporate existence of
the bank.^ But the contrary and more general statement of the
rule is that one who executes a written obligation to an obligee,
by a name which imports that it is a corporation, is by that fact
estopped, in an action thereon to deny the corporate existence
of the payee.^
§ 525. Exception where Party is Induced by Fraud to Rec-
ognize Corporate Existence. — An exception to the rule has
been declared in Michigan in the case where no new rights have
accrued from the transaction, and where the recognition of the
existence of the corporation is fraudulently procured for the
purpose of entrapping the party into the action upon which the
recognition is based.*
§ 526. Party Dealing with Corporation Permitted to Show
Want of Knowledge. — In every estoppel in pais it is an essential
to the operation of the principle that the person against whom it
is sought to raise the estoppel, should either have known the state
of facts out of which the estoppel springs, or else should have
been in such a situation that it was in law his duty to know it, —
that is, in a situation where negligent ignorance is, in law, tant-
amount to actual knowledge.^ He is therefore ordinarily entitled
1 Hargrave v. Bank of Illinois, 1 void and not a lien upon real estate.
111. 84. Stoutiraore v. Clark, 70 Mo. 471.
2 Hungerford Nat. Bank v. Van ^ Doyle v. Mizner, 40 Mich, 160;
Nostrand, 106 Mass. 559. s. c. 3 N. W. Rep. 968.
3 Studebaker &c. Co. v. Montgom- ^ The essential idea of an estoppel
ery, 74 Mo. 101. Barbaroo. Occident- in pais is that he who will not speak
al Grove, 4 Mo. App. 429; U. S. Ex- when he should, will not be heard to
press Co. v. Bedbury, 34 111. 459. So speak when he loould. It is essential
held where a note was made payable to this idea that he either had knowl-
to the order of "the Missouri City edge, or owed the other party the duty
Savings Bank." Much less can it be of knowing tlie facts out of which the
reasoned that, where the payee does, estoppel springs; and it is therefore
by the name by which it is described often said in general terms that silence
in the note, bring a suit thereon and wiihont knowledge will n')t work an
recover a judgment, tlu; judgment is estop[)ol : Frederick v. Missouri &c.
385
1 Thomp. Corp. § 527.] de facto corporations.
to show thut he had uo knowledfije of such a state of facts.
When, therefore, in a case involving the question whether the
phiintiff had dealt with the defendants as a corporation or as a
partnership, he having sued them as individuals, a finding of fact
that he had full knowledge that they were a corporation, and
dealt with them as such, was held not supported by evidence of
publications made by the defendants of statements showing their
incorporation and of the mailing of letters and circulars to the
plaintiff showing such fact, which were not shown to have been
received, — especially where the court excluded the testimony of
the plaintiff denying his knowledge or information of the exist-
ence of the corporation ; and moreover such exclusion was error. ^
§ 527. Party Claiming under Legislation Creating a Cor-
poration Estopped to Denj' its Existence. — Obviously a l)arty
cannot deny the existence of a corporation by assailing the
validity of an act of the legislature by which the corporation has
been reorganized or at least endowed with its present name, when
his only standing in court is derived from the same act of the legis-
lature. Thus, in a suit in equity to foreclose a railway mortgage,
a holder of second mortgage bonds, in an answer and cross bill,
challenged the corporate existence of the railway company which
had issued the bonds. The bonds under which this defendant
claimed a standing in court were executed I)y the corporation by
the name which it had assumed under the act of the legislature
whose validity the defendant challenged. The mortgage itself,
in its preamble, recited the act of the legislature. " In view of
these facts," said Mr. Justice Bradley, " we think that the ap-
pellant is estopped from denying the corporate existence of the
company whose bonds he thus holds, and by virtue of which he
acquires ahcus standi in the suit. Irregularities and even fraud
committed in making the purchase authorized by the act, and
failure to perform strictly all the requisites for changing the
company's name, cannot avail the appellant, occupying the po-
sition he does in this suit, to deny the corporate existence of the
R. Co., 82 Mo. 402; Spurlock v. ^ Eaton v. Walker, ?(! Mich. 579;
Sproule, 72 Mo. 503; Collins v. Rogers, s. c. 43 N. W. Rep. 638.
63 Mo. 515; Evans v. Snyder, 64 Mo.
516.
386
CORPORATIONS BY ESTOPPEL. [1 Thomp. Corp. § 528.
Alabama & Chattanooga Railroad Company. He waived all
such objections when he took the bonds, and came into court
only as a holder and owner thereof. The irregularities on which
he relies might, perhaps, have been sufficient cause for a proceed-
ing on the part of the State to deprive the company of its
franchises, or on the part of third persons who may have been
injuriously affected by the transactions. But neither the State
nor any other persons have complained ; and it is not competent
for the appellant to raise the question in this collateral way, for
the purpose of gaining some supposed advantage over other
creditors of the same company, who have relied on its corporate
existence in the same manner that he has done."^
§ 528. StockUolder Estopped to Deny Corporate Exist-
ence. — A frequent application of the foregoing doctrine is met
with in actions by corporations against subscribers to their capi-
tal stock to recover assessments made thereon by the board of
directors. In those cases it is generally held that one who has
subsiribed for stock in the plaintiff company by its corporate
name, is, when so sued, estopped from setting up as a defense
that the plaintiff has no corporate existence. ^ And this estoppel
extends equally to its members in any proceeding instituted to
charge them with liability in respect of their membership.^ If,
beyond this, it appears that the subscriber to the stock partici-
pated in the organization of the corporation, as by attending
and voting at an election of directors,^ or by serving as a trustee
himself,^ he will be estopped from disputing the validity of its
organization, on grounds which we shall not tnrn aside to dis-
cuss now, but which will be more fully considered hereafter.^
1 Wallace v. Loomis, 97 U. S. 14G; ^ Post, §1849.<;« seq.; Ossipec Man.
s.c. 10 Myer Fed. Dec, § 21. Co. v. Canney, 54 N. II. l.'95; Svvart-
2 Dutchess Cotton Man. v. Davis, wout v. Michigan &c. R. Co., 24 Mich.
14 Johns. (N. Y.) 238 ; s. c. 7 Am. Dec. 389.
459; Ohio &c. R. Co. v. McPherson, < Henderson &c. R. Co. ??. Leavell,
35 Mo. 13, 2(!; s. c. 8ii Am. Dec. 128; !« B. Moa. (Ky ) 358.
Chester Glass Co. v. Dewey, IG Mass. ^ Phoenix Warehousing Co. v.
94; s. c. 8 Am. Dec. 128; Stoops v. Badger, V>7 N. Y. 294; Hunt v. Kansas
Greeusburg &c. R. Co., 10 Ind. 47; &c. Bridge Co., 11 Kan. 412.
Ensey v. Cleveland R. Co., 10 Iiid. « P(,s«, § 1972, ef seg.
178; Ft. Wayne &c. Turnp. Co. v.
Deam, 10 Ind. 563.
387
1 Thorn p. Corp. § 5»'U).] de facto corporations.
§ 529. Estoppel to Set lip Fraudulent Organization. — Cred-
itors of a corporation who have dealt Avith it knowing that it was
fraudulently constituted, and stockholders who have accepted the
charter and assisted in puttin<]j it in operation, cannot show in a
suit by or against a corporation, that the charter was obtained
by fraud. ^ And, generally, one who has entered into a contract
with a corporation is estopped by his contract, from setting up
the fraudulent organization of the corporation, in defense to a
suit brought by it against him.^
§ 530. Exception where the Corporation has Expired by
Lapse of Time. — There is much judicial authority for the propo-
sition that where a corporation is brought to an end by lapse of
time, that is, by the expiration of the distinct limitation of its life
in its charter, any further exercise of its corporate powers may be
questioned collaterally.^ The governing principle here is that,
upon the expiration of the term limited by the charter for the
existence of the corporation, its dissolution is complete. " The
dissolution in such a case," it has been said, " is declared by the
act of the leo;islature itself. The limited time of existence has
expired, and no judicial determination of that fact is requisite.
The corporation is de facto dead." * In line with this view, it is
held that the estoppel spoken of in a preceding section^ does not
extend so far as to preclude a party from showing that, since the
1 Cocbran v. Arnold, 58 Pa. St. v. Perry, 6 N. H. 164; Cochran v.
399, Smithu. Heidecker, 39 Mo. 157; Arnold, 58 Pa. St. 399; All Saints
Patterson v. Albany &c. Assn., 63 Church ?;. Lovett, 1 Hall (N. Y.), 191;
Ind. 373; Bear Camp River Co. v. John v. Farmers &c. Bank, 2 Blackf.
Woodman, 2 Me. 404; Charles River (Ind.) 367.
Bridge v. Warren Bridge, 7 Pick. 3 people -y. Manhattan Co., 9 Weud.
(Mass.) 371. (N. Y.) 351,382, per Sutherland, J.;
2 Jones V. Cincinnati &c. Co., 14 Morgan v. Lawreuceburg Ins. Co., 3
Ind. 89; Hubbard v. Chappell, 14 Ind. Ind. 285, per Blackford, J.; Wilson v.
601; Evansville &c. R. Co. u. Evans- Tesson, 12 Ind. 285, per Perkins, J. ;
ville, 15 Ind. 395; Meikel v. German Grand Rapids Bridge Co. v. Prange, 35
Savings &c. Soc, 16 Ind. 181; Brown- Mich. 400; s. c. 24 Am. Rep. 585;
lee»;. Ohio &c. R. Co., 18 Ind. 68; Dobson ^;. Simonton, 86 N. C. 492.
Commissioners ». Bright, J8 Ind. 93; * Sturges v. Vanderbilt, 73 N. Y.
Washington College v. Duke, 14 Iowa, 384, 390, per Rapallo, J. See also
14; Hamtramck v. Bank of Edwards- Bank of United States v. McLaughlin,
ville, 2 Mo. 169; Camp v. Byrne, 41 2 Crauch C. C. (U. S.) 20.
Mo. 525; Congregational Soc. in Troy 5 j^nte, § 518.
388
CORPORATIONS BY ESTOPPEL. [1 Thomp. Coip. § 530.
contract with the corporation was entered into, it has ceased to
exist. 1 As hereafter more fully shown, ^ when a corporation
expires by limitation of time or is judicially dissolved, it can no
longer prosecute or defend an action, in the absence of some
saving provision in its governing statute. An action can no more
be prosecuted against a dead corporation than against a dead
man.^ In such a case the opposing party suggests the death of the
corporation, and, upon the fact being admitted or proved, the
suit abates,* — just as an action for an injury to the person abates
on suggestion of the death of the defendant, unless there is a
saving statute allowing it to be revived against his legal represent-
ative.^ The estoppel already spoken of relates, therefore, only
to the time of entering into the contract with the corporation, and
does not admit that there cannot be or has not been a dissolution of
it.^ Carrying this view still further, it has been held that if the
corporate existence has been terminated by an act of forfeiture,
or otherwise, before the commencement of the suit, the facts pro-
ducing this result may be specifically set forth by plea, and
the court may judge whether they have this effect.^ Applying
the doctrine, we find a ruling to the effect that a stockholder
who, after expiration of the charter of a corporation, has sold
land belonging to it, as if recognizing its continued existence, is
not thereby estopped to set up such expiration in defense of an
action for the proceeds, brought in the name of the corporation.^
On the other hand, it has been ruled in Missouri that the question
whether the charter of a corporation has expired by limitation
of time, can be adjudicated only in a direct proceeding by the
State, — that such a defense cannot be setup collaterally in an ac-
tion by the corporation.^ And in West Virginia, a private business
1 Ensey v. Cleveland R. Co., 10 Ind. « Trustees v. Hills, G Cow. (N. Y.)
178; Ft. Wayne Turnp, Co. v. Deam, 23; s. c. 16 Am. Dec. 429, 431.
10 Ind. 5f;3. 7 Jones ■;;. Bank of Tennessee, 8 B.
2 Post, § :5257. Mon. (Ky.) 122.
3 Mumraa v. Potomac Co., 8 Pet. 8 Krutz v. Paola Town Co., 20 Kan.
(U. S.) 281; Pomeroy v. People, 1 397.
Wall. (U. S.) 23. » St. Louis Gas Light Co. v. City of
-* Terry v. The Bank of America, 77 St. Louis, 84 Mo. 202 ; affirming s. c.
Ga. 177; s.c. 9 Am. Corp. Cas. 45. 11 Mo. App. 65.
* See Bank of Gallipolis v. Trimble,
6 B. Monr. (Ky.) 699.
389
1 Thorap. Corp. § 5IU.] de facto corporations.
corporation, duly organized under the laws of that State, which
failed to wind up its business when its charter expired, but con-
tinued in its charter name to carry on its corporate business,
may be sued in its corporate name for a tort, committed by it
afier its charter hud expired.^ If the fact of the expiration of
the charter is not suggested by the opposing party, the suggestion
may be made hi/ the attorney who has represented the corpora-
tion in the litigation.'^ There is authority to the effect that
the fact that the corporation has ceased to exist prior to the
commencement of the suit may be pleaded in abatement^ though
not in bai\^ But this draws us into questions of pleading , which
are reserved for a future portion of this work.*
§ 531. Forfeiture for Misuser or Non-user not Pleadable
Collaterally. — But, in the absence of an express statute other-
wise providing, the question whether the charter of a corporation
has been forfeited for misuser or non-user of its franchises, or
for any other cause save the efflux of time, cannot be determined
in a collateral proceeding, but can only be determined in
a direct proceeding instituted by the State.^ Although a
1 Miller u. Coal Co., 31 W. Va. 836;
s. c. 8 S. E. Rep. 600.
2 " The attorney for the corpora-
tion may well suggest the death of the
corporation, by plea or otherwise, on
the record." Greeley v. Smith, 3
Story (U. S.), 657, 659. In Foster v.
Essex Bank, 16 Mass. 244, the attor-
neys who were originally retained by
the directors of the defunct corpora-
tion filed a suggestion in their own
names that, since the last term of
court, the corporation had been dis-
solved by the expiration of the time
limited for its duration in the act of
its incorporation.
3 Dental Vulcanite Co. v. Wether-
bee, 2 Cliff. (U. S.) 555; Meikel v.
German Saving Fund Society, 16 Ind.
181.
< Pos«, Ch. 184, Art. II. The expi-
ration of the charter of the bauk will
not work an abatement of an action
brought against its directors to charge
390
them with a personal liability for a vio-
lation of law in the management of the
bank. Moultrie v. Smiley, 16 Ga. 289.
5 Slee V. Bloom. 5 Johns. Ch. (N.
Y.) 366, 381; Hughes v. Bank, 5 Litt.
(Ky.) 45; John t;. Farmers &c. Bank,
2 Blackf. (Ind.) 367; BuiicombTurnp.
Co. V. McCarson, 1 Dev. & B. (N. C.)
306; McFarlan v. Triton Ins. Co., 4
Den, (N. Y.) 392; Ohio &c. R. Co. v.
McPherson, 35 Mo. 13; Bank of Gal-
lipolis V. Trimble, 6 B. Mon. (Ky.) 599 ;
Planters' Bank v. Bank of Alexander,
10 Gill & J. (Md.) 346 ; Farmers' Bank
V. Garten, 34 Mo. 119; State v. Bredow,
31 Mo. 523, 528; Rice u. Hock Island &c.
R. Co., 21 111. 93; Williams v. Bank, 6
111.667; Hammett v. Little Hock &c.
R. Co., 20 Ark. 204; Bank of Circle-
ville V. Kenick, 15 Ohio, 322; Asheville
Division V. Aston, 92 N. C 578; Logan
V. Vernon &c. R. Co., 90 Ind. 552; At-
lanta V. Gate City Gas Light Co., 71
Ga. 106; Barren Creek Ditching Co. v.
CORPORATIONS BY ESTOPPEL. [1 Thomp. Corp. § 532.
statute expressly declares that, upon the happening of certain
events, the corporation " shall be deemed to have surrendered
the rights, privileges and franchises granted by any act of
incorporation, or acquired under the laws of this State, and shall
be adjudged to be dissolved," ^ and it further appears that the
cotiditions upon which such dissolution may be declared have
been fulfilled, the corporation nevertheless remains in esse and
may be sued by its creditors unless restrained by injunction until
the surrender of its franchises has been judicially declared in a
direct proceeding. ^ So, it is no defense to a suit brought by a
corporation for goods sold, etc., that, for a failure to pay a
license tax to the State, the Secretary of State by publication*
had declared the corporate charter forfeited.^ But, by analogy
to the principle stated in the preceding section, when the forfeit-
ure has been judicialli/ declared, the corporation is dead, and
upon that fact being admitted or shown, the suit abates, unless
there is a saving statute permitting it to go on.*
§ 532. Corporation Estopped to Deny Corporate Exist-
ence. — This estoppel works both ways. Under its operation
the corporation itself, when proceeded against as such, on an
obligation which it has made in its corporate name and charac-
ter, is estopped to deny the regularity of its organization,^ or
otherwise to deny the validity of its corporate existence.® Stated
Beck, 99 lud. 247; "Vernon Society v. * See cases cited supra, also Suth-
Hills, 6 Cow. (N. y.) 23; Leliigli erland w. Lagro &c. Plauk Rd. Co., 19
Bridge Co. v. Lehigli Coal &c. Co., 4 Ind. 192.
Rawle (Pa.), 9; All Saints Church v. * Southern Bank v. Williams, 25
Lovett, 1 Hall (N. Y.), 192; State of Ga. 534.
Vermont v. Society &c., 1 Paine (U. ^ Ewingu. Robeson, 15 Ind. 26; Cal-
S ), G52; Merick v. Van Santvoord, 34 lender v. Painesville &c. R. Co., 11 Oh.
N. Y. 208; Barclay v. Talman, 4 Edw. St. 510; Knapp v. Joy, 9 Mo. App. 47
Ch. (N. Y.) 123; Pohquioque Bank r. and 575; Rush v. Steamboat Co., 84
Bethel Bank, 36 Conn. 325; s. c. 4 N.C. 702; Adams Express Co. v. Hill,
Am. Rep. 80. 43 Ind. 157; Callender v. Painesville,
» 1 Rev. Stat. N. Y. 463, § 38. &c. R. Co., 11 Oh. St. 516; United
2 Mickles v. Rochester City Bank, States Express Co. v. Bedbury, 34 111.
11 Paige (N. Y.), 118; s. c. 42 Am. 459, 467; McCullough v. Talladega
Dec. 103; Kincaid w. Dwinelle, 50 N. Ins. Co., 46 Ala. 376; DeWitt v. Ilast-
Y. 548. ings, 40 N. Y. Sujter. 463, 476. In the
3 Lumber Co. v. Ward, 30 W. Va. view of some courts the execution of
48. a written contract by a corporation in
391
1 Thomp. Corp. § 532.] de facto corporations.
more broadly, the proposition is that, when an association of
persons assume a name, which implies a corporate body, and
exercise corporate powers, they should not be heard to deny that
they are a corporation.^ Thus, where individuals have held
themselves out as a society with corporate powers, have held
meetings as such, and in one such meeting, duly called, have em-,
ployed a person to render services for them, — they cannot require
him to prove, in an action against them for the value of his
services, by their act of incorporation or written constitution,
that they are empowered to act as they have assumed to do.^
There is a modified view that, where an action is brought on a
paper purporting to have been issued by the defendant in a cor-
porate form or character, and the defendant pleads that it was
unincorporated when it issued the certificate in question, the plea
may be overthrown by evidence tending to show that the de-
fendant was a de facto corporation at the time.^ Another court
goes so far as to hold that the fact that a body has held itself
out as a corporation, treating with the plaintiff as such, does not
estop it from denying its liability as a corporation, where there
is a statute which expressly prescribes certain acts to be done in
order to constitute a corporation, and those acts have not been
done. The court reasoned that the omission of such statutory
requisites cannot be supplied by the application of the doctrine
of estoppel.* But this is not put forward by the writer as the
prevailing view. In the view of most courts there would, on
the state of facts just set forth, be a complete estoppel, and the
party claiming the benefit of the estoppel would not be required
even to go so far as to prove that the corporation was a color-
able or de facto corporation. So long as the State does not in-
terfere, it is unnecessary to inquire into the rights of the people
in relation to it.^ And though the corporation may have for-
feited its charter by an act which might be judicially declared a
Us corporate name is such an admis- ^ Stone v. Berkshire Cong. Society,
sion of incorporation as will, in an ac- 14 Vt. 86.
tion by the other party to the contract, ^ Jewell v. Grand Lodge, 41 Minn.
make out a prima facie case on that 406; s. c. 43 N. W. Rep. 88.
point. Real Estate Sav. Inst. v. * goyce tj. Trustees, 46 Md. 359.
Fisher, 9 Mo. App. 593. ^ Abbott v. Aspinwall, 26 Barb.
1 United States Express Co. v. Bed- (N. Y.) 202.
bury, 34 111. 459.
392
CORPORATIONS BY ESTOPPEL. [1 Thomp. Coi'p. § 533.
cause of forfeiture, yet it cannot absolve itself from legal re-
sponsibility by alleging the fact which might produce the for-
feiture.^ A corporation may also be estopped hy its conduct in
the particular judicial proceeding, — as by appearing and answer-
ing in its corporate name,^ or by executing in that name an
appeal bond.'^
§ 533. Corporations for Illegal Purposes. — But does the
same rule apply to the defense that the corporation was organized
for an illegal purpose? The authorities upon this point are few.
The Supreme Court of Nebraska, by analogy to the rule that a
citizen cannot, in general, raise the defense that the corporation
was irregularly organized, holds that the defense cannot be made
that the corporation was illegally organized and for an illegal pur-
pose.^ Perhaps this can hardly be maiutained'as a general prop-
osition. A distinction may be taken in this connection, namely,
that when the corporation is organized ostensibly for a legal pur-
pose, as in the case just noticed, this defense cannot be raised;
but where it appears, as is possible in the case of corporations or-
ganized under general laws, that the association although incorpo-
rated under the forms of law, is for a purpose unwarranted by the
terms of the general law, it would seem that this fact might be
shown. ^ Accordingly, a better statement of the doctrine under
discussion would seem to be that a person contracting with an
ostensible corporation, to do an act not p7'ohibited hy law is
estopped in an action by the corporation on the contract, to deny
the existence of the corporation or its power to enter into such a
contract.^
' Hughes V. Bank of Somerset, 5 ■* Lincoln Building Assn. v. Gra-
Litt. (Ky.) 47. See also Searsburgh ham, 7 Neb. 173.
Turup. Co. V. Cutler, G Vt. 315. ^ Ante, § 523.
2 Fost; § Chs. 180, 184. c Oregonian Ry. Co. w. Oregon Ry.
8 Fost, Ch. 184, Art. I. East Ten- & Nav. Co., 23 Fed. Rep. 233; Town of
nessee &c. II. Co. v. Evans, 6 Ileisk. S(!arcy v. Yaruell, 47 Ark. 201) ; 1 S. W.
(Tenn.) 009. Kep. 319, 322.
393
1 ThOQip. Corp.] CONSTITUTIONAL RESTRAINTS.
CHAPTER XII.
CONSTITUTIONAL RESTRAINTS UPON THE CREATION OF CORPORA-
TIONS AND THE GRANTING OF CORPORATE PRIVILEGES.
Art. I. Provisions of Various State Constitutions, §§ 538-568.
II. Restraints upon the Passing of Special Acts Conferring
Corporate Privileges, §§ 573-fi02.
III. Restraints as to the Titles of Laws, §§ 607-627.
IV. Restraints as to the Mode of Passing Lavts, §§ 632-639.
V. Various other Restraints and Provisions, §§ 643-659.
Article I. Provisions of Various State Constitutions.
Section
538. Scope of this chapter.
539. Corporations not to be created
by special laws.
640. But only under general laws.
541. And subject to legislative altera-
tion or repeal.
642. Legislature not to extend charter
nor remit forfeitures.
643. Except on condition of ac-
cepting constitutional provis-
ions.
544. Legislature may alter, revoke or
annul existing charters.
545. No special law as to more than
one corporation.
546. Existing charters annulled where
no organization has taken
place.
547. State aid not to be granted.
548. Nor debts to state, nor state's
lien, released or commuted.
540. Nor municipal aid granted.
550. Except upon conditions.
651. Neither state nor municipal aid
to be granted.
394
Section
552. Provisions of Minnesota consti-
tution as to state aid: " Minne-
sota railroad bonds."
553. Private corporations not to
have municipal or taxing pow-
ers.
564. Laws permitting alienation of
corporate franchises prohib-
ited.
555. Corporations not to employ Chi-
nese labor.
556. Existing rights saved.
557. Retrospective laws for benefit of
corporations prohibited.
558. Two-thirds legislative vote re-
quired.
559. Duration of corporation limited.
560. Power of creating corporations
devolved on the courts.
561. Raving rights arising during the
civil war.
562. Provisions as to religious corpo-
rations.
563. Police power over corporations
not to be abridged.
CONSTITUTIONAL PROVISIONS. [1 Thomp. Corp. § 539.
Section Section
564. Bills creating corporations con- 5G7. Meaning of the word "■ corpora-
tinued till next session of leg- tion " as used in American
islature. constitutions.
565. Laws to be passed protecting 568. Not to authorize investment of
laborers. trust funds in private corporate
566. Bonus to be paid to the state. securities.
§ 538. Scope of this Chapter. — It is proposed to consider
in this chapter a subject which might better perhaps have been
considered at an earlier stage of the discussion, but which, in
the struggle of other subjects for precedence, has been post-
poned until now. Constitutional provisions exist in most of the
States imposing restraints upon the legislature, in respect of the
granting of special charters and of the passing of laws, either
general or special, conferring corporate powers or privileges.
These are especially frequent in the more recent constitutions-
which have been adopted in some of the States, and in the con-
stitutions of the newly admitted States. So far as they relate to
restraints of a general and miscellaneous character and those
which are common to all corporations, they are collected and
given in the present article, with the exception of those of the
constitutions of the newly admitted States of North Dakota and
South Dakota, which constitutions were not, down to the time of
going to the press, accessible to the writer. So far as they re-
late to particular corporations, such as railway companies, tele-
graph companies, and the like, they are given in the chapters
relating to those corporations So far as they relate to subjects
which have been set apart for special discussion, they are post-
poned and given in those chapters, — as, for instance, that re-
lating; to the right of eminent domain.^
§ 539. Corporations not to be Created by Special Laws. —
"The general assembly shall pass no special act conferriug corporate
powers, except for charitable, educational, penal or reformatory pur-
poses, where the corporations created are to be and remain under the
patronage and control of the State.;' 2 - - - - " The legislature
shall not pass local or special laws in any of the following enumerated
cases, that is to say : Granting to any corporation, association, or
individual any special or exclusive right, privilege or imrau-
1 Post, Ch. 122. 2 Ark. Const, of 1874, art. 12, § 2.
395
1 Thomp. Corp. § 539.] constitutional restraints.
nitv-"^ _ - . - "The general assembly shall not pass local or
special laws in any of the following enumerated cases, that is to
say : . . . chartering or hcensing ferries or toll-bridges ; . . .
granting to any corporation, association, or individual the right to lay
down railroad tracks; granting to any corporation, association, or
indi\idual any special or exclusive privilege, immunity, or franchise
whatever. In all other cases where a general law can be made appli-
cable, no special law shall be enacted." 2 . . - - "No charter of
incorporations shall be granted, extended, changed or amended by spe-
cial law, except for such municipal, charitable, educational, penal or re-
formatory corporations as are or may be under the control of the State ;
but the general assembly shall provide by general laws for the organi-
zation of corporations hereafter to be created. " ^ - - - - " The
general assembly shall not pass local or special laws in any of the fol-
lowing enumerated cases, — that is to say, for . . . granting to any
corporation, association or individual any special or exclusive privilege, im-
munity, or franchise whatever. " ^ _ . . . " Granting to any corpora-
tion, association or individual the right to lay down railroad tracks, or
amending existing charters for such purposes. " ^ _ _ - - " No cor-
poration shall be created by special laws, or its charter extended, changed,
or amended, except those for charitable, educational, penal or reform-
atory purposes, which are to be and remain under the patronage and
control of the State ; but the general assembly shall provide, by general
laws, for the organization of all corporations hereafter to be cre-
ated." ^ _ . - - " The legislature shall pass no special act confer-
ring coi-porate powers. Corporations may be created under general
laws ; but all such laws may be amended or repealed. " ■' - - - - "The
general assembly shall not pass any local or special law creating corpo-
rations, or amending, renewing, or extending, or explaining the charter
thereof. . . . Granting to any corporation, association, or individ-
ual any special or exclusive right, privilege or immunity, or to any cor-
poration, association or individual the right to lay down a railroad
track." s - - - - "No corporation, after the adoption of this con-
stitution, shall be created by special laws ; nor shall any existing charter
be extended, changed, or amended by special laws, except those for
charitable, penal, or reformatory purposes, which are under the patron-
age and control of the State." 9 - - - - " The legislature shall not
1 Cal. State Const. 1879, art. 4, * Ibid.
§ 25, div. 19. « 111. Const, of 1870, art. 11, § 1.
2 Col. Const, of 1876, art. 5, § 25. ^ Kan. Const, of 1859, art. 12, § 1.
' Col. Const, of 1876, art. 15, § 2. « mo. Const, of 1875, art. 4, § 53.
4 111. Const, of 1870, art. 4, § 22. » Mo. Const, of 1875, art. 12, § 2.
396
CONSTITUTIONAL PROVISIONS. [1 Tliomp. Coip. § 539.
pass local or special laws in any of the following cases, that is to
say : . . . Granting to any corporation, association or individual
the right to lay down railroad tracks, or amending existing charters for
such purpose. Granting to any corporation, association, or individual
any special or exclusive privileges, immunity, or franchise whatever. In
all other cases where a general law can be made applicable, no special
law shall be enacted." 1 _ _ - _ " The general assembly shall not
pass any local or special law . . . relating to ferries or bridges,
or incorporating ferry or bridge companies, except for the erection of
bridges crossing streams which form boundaries between this and any
other State ; regulating labor, trade, mining, or manufacturing ; cre-
ating corporations, or amending, renewing, or extending the charters
thereof ; granting to any corporation, association, or individual any
special or exclusive privilege or immunity, or to any corporation, associa-
tion, or individual the right to lay down a railroad track." 2 _ _ _ .
By the constitution of Idaho, the general assembly shall pass no
law . . . chartering or licensing ferries, bridges, or roads . . .
creating any corporation." 3 - - - - " The legislative assembly shall
not pass local or special laws in any of the following enumerated cases,
that is to say : . . . Chartering or licensing ferries or bridges or
toll roads ; chartering banks, insurance companies and loan and trust
companies ; . . . granting to any corporation, association or indi-
vidual the right to lay down railroad tracks, or any special or exclusive
privilege, immunity or franchise whatever ; . . . relinquishing or ex-
tinguishing in whole or in part the indebtedness, hability or obligation
of any corporation or person to this State, or to any municipal corporation
therein. ... In all other cases where a general law can be made
apphcable, no special law shall be enacted."* - - - - " No charter
of incorporation shall be granted, extended, changed or amended by special
law, except for such municipal, charitable, educational, penal or reform-
atory corporations hereafter to be created ; provided^ that any such laws
shall be subject to future repeal or alterations by the legislative as-
sembly." ^ _ - - _ "The legislature is prohibited from enacting
any private or special laws in the following cases : . . . 3. For
authorizing persons to keep ferries wholly within this State. . .
6. For granting corporate powers or privileges. ... 10. Releasing
or extinguishing in whole, or in part, the indebtedness, liability or other
obligation of any person, or corporation to this State, or to any munici-
pal corporation therein." ^
1 Neb. Const, of 1875, art. 3, § 15. * Const. Montana, 1889, cart. 5, § 26.
2 Peuu. Const, of 1873, art. 3, § 7. * Const. Montana, 1889, art. 15, § 2.
8 Const. Idaho, 1889, art. 3, § 19. « Const. Wash. 1889-90, art, 2, g 28.
397
1 Thomp. Corp. § 540.] constitutional restraints.
§ 540. But only under General Laws. — " Corporations may be
formed under general laws . . . "^ - - - - " Corporations
may be formed under general laws, but shall not be created by special
act." 2 _ _ - - " Corporations may be formed under general laws,
but shall not be created by special act, except for municipal, manufact-
uring, mining, immigration, industrial, and educational purposes, or for
constructing canals, or improving navigable rivers and harbors of this
State, and in cases where, in the judgment of the general assembly, the
objects of the corporation cannot be attained under general
laws." 3 _ _ - - " The legislatui-e shall have power to enact a gen-
eral incorporation act to provide incorporation for religious, charitable,
literary, and manufacturing purposes, for the preservation of animal
and vegetable food, building and loan associations, and for draining low
lands ; and no attempt shall be made in such act or otherwise, to limit
or qualify the power of revocation reserved to the legislature in this
section."* _ - - - " The legislature shall provide by general law
for incorporating such municipal, educational, agricultural, mechanical,
mining and other useful companies or associations as may be deemed
necessary."^ . . - - " Corporations, other than banking, shall not
be created by special act, but may be formed under general
law. " *5 - - - - "No corporation shall be created by special laws ;
but the general assembly shall provide by general laws, for the organ-
ization of all corporations hereafter to be created, except as hereinafter
provided."" - - - - " Corporations may be formed under general
laws ; but shall not be created by special act, except for municipal pur-
poses, and except in cases where no general laws exist providing for the
creation of corporations of the same general character as the corpora-
tion proposed to be created ; and any act of incorporation passed in
violation of this section shall be void. And, as soon as practicable
after the adoption of this constiturion, it shall be the duty of the gov-
ernor to appoint three persons learned in the law, whose duty it shall
be to prepare draughts of general laws, pro\iding for the creation of
corporations in such cases as may be proper, and for ail other cases
where a general law can be made ; and for revising and amending, so
far as may be necessary or expedient, the general laws which may be in
existence on the first day of June, eighteen hundred and sixty-seven,
providing for the creation of corporations and for other purposes ; and
1 Ark. Const, of 1874, art. 12, § 6 * Del. Const, of 1831, art. 2, Ad-
(inpart). dendum of § 17.
2 Cal. Const, of 1879, art. 12, § 1 ° Florida Const, of 18G8,art. 5, §22.
(in part). ^ Ind- Const, of 1851, art. 11, § 13.
3 Ala. Const, of 1875, art. 13, § 1. ' la. Const, of 1857, art. 8, § 1.
39"8
CONSTITUTIONAL PROVISIONS. [1 Thomi). Corp. § 540.
such draughts of laws shall, by said commissioners, be submitted to the
general assembly at its first meeting for its action thereon." i - - - -
" Corporations shall be formed under general laws, and shall not be
created by special acts of the legislature except for municipal purposes,
and in cases where the objects of the corporation cannot otherwise be
attained ; and, however formed, they shall forever be subject to the gen-
eral laws of the State. "^ - - - - "Corporations may be formed
under general laws, but shall not be created by special act, except for
municipal purposes. All laws passed pursuant to this section may be
amended, altered or repealed. But the legislature may, by a vote of
two-thirds of the members elected to each house, create a single bank
with branches." 3 . _ _ _ (■•■'^q corporation shall be formed
under special acts except for municipal purposes." 4 - - - -
' ' No corporations shall be created by special law, nor its charter ex-
tended, changed, or amended, except those for charitable, educational,
penal or reformatory pui'poses, which are to be and remain under the
patronage and control of the State ; but the legislature shall provide
by general laws for the organization of all corporations hereafter to be
created. All general laws passed pursuant to this section may be
altered from time to time or repealed. " ^ _ _ _ _ " The legislature
shall pass no special act in any manner relating to corporated powers,
except for municipal purposes ; but corporations may be formed under
general laws, and all such laws may, from time to time, be altered or
repealed." 6 . _ . . " The legislature shall not pass private, local
or special laws in any of the following enumerated cases, that is to
say : . . . Granting to any corporation, association, or individual
any exclusive privilege, immunit}^, or franchise whatever. Granting to
any corporation, association, or individual the right to lay down railroad
tracks. . . . The legislature shall pass no special act conferring
corporate powers, but they shall pass general laws under which corpo-
rations may be organized and corporate powers of every nature
obtained, subject, nevertheless, to repeal or alteration at the will of the
legislature."''' - - - . " The legislature shall not pass a private or
local bill in any of the following cases : . . . Granting to any cor-
poration, association, or individual the right to lay down railroad
tracks. Granting to any private corporation, association, or indi\idual
any exclusive privilege, immunity, or franchise whatever. Providing
1 Md. Const, of 1807, art. 3, § 48. < Minn. Const, of 1857, art, 10, § 2.
2 Me. Const, of 1820, art. 4, § 14, « Neb. Const, of 1875, art. 11, § 1.
amend. 1876. « Nov. Const, of 18(;4, art. 8, § 1.
3 Mich. Const, of 1850, art. 15, § 1, ' N. J. Const. Amend, of 1875, art.
amend. 1862. 4, § 7.
399
1 Thomp. Corp. § 54:0.] constitutional restraints.
for building bridges, and chartering companies for such purposes, ex-
cept on the Hudson river below Waterford, and on the East river, or
over the waters forming a part of the boundaries of the State. The
legislature shall pass general laws proiiding for the cases enumerated
in this section, and for all other cases which, in its judgment, may be
provided for by general laws. " ^ - - - - " Corporations may be
formed under general laws, but shall not be created by special act, ex-
cept for municipal purposes, and in cases where, in the judgment of the
legislature, the object of the corporations cannot be attained under
general laws. All general laws and special acts, passed pursuant to
this section, may be altered from time to time or repealed." 2 . . _ _
" Corporations may be formed under general laws, but shall not be
created by special laws, except for municipal purposes. All laws
passed pursuant to this section may be altered, amended, or re-
pealed, but not so as to impair or destroy any vested corporate
rights.""^ - - - - "Corporations may be formed under general
laws, but all such laws may from time to time be altered or re-
pealed."* - - _ - " No corporation shall be created, or its powers
increased or diminished, by special laws ; but the general assembly
shall provide by general laws for the organization of all corporations
hereafter created, which laws may, at any time, be altered or repealed ;
and no such alteration or repeal shall interfere with or divest rights
which have become vested. " ^ . . - - " The legislature shall not,
except as otherwise provided in this constitution, pass any local or
special law, . . . For incorporating railroads or other works of
internal improvement. " 6 _ _ - - " No private corporation shall
be created except by generallaws." ■'' - - - - " General laws shall
be enacted providing for the creation of private corporations, and shall
therein provide fully for the adequate protection of the pubhc and of
the individual stockholders." s . . - _ " The legislature shall pro-
vide for the organization of all corporations hereafter to be created by
general laws, uniform as to the class to which they relate ; but no cor-
poration shall be created by special law : Provided, That nothing in this
section contained shall prevent the legislature from providing by special
laws for the connection by canal of the waters of the Chesapeake with
the Ohio river, by line of the James river, Greenbrier, New River, and
1 N. Y. Const, Amend, of 1874, art. •* S. C. Const, of 1868, art. 12, § 1.
2, § 18 (in part). * Tenn, Const, of 1870, art. 11, § 8.
2 N. C. Const. Amend, of 1876, art. ^ Texas Const, of 1876, art. 3, § 56.
8, § 1. ' Texas Const, of 1876, art. 12, § 1.
8 Oregon Const, of 1857, art. 11, » Tex. Const, of 1876, art. 12, § 2.
§2.
400
CONSTITUTIONAL PROVISIONS. [1 Thomp. Corp. § 54rl.
Great Kanawha." i - - - _ "Corporations, without banking
powers or privileges, may be formed under general laws, but shall not
be created by special act, except for municipal purposes, and in cases
where, in the judgment of the legislature, the objects of the corpora-
tion cannot be attained under general laws. All general laws or special
acts enacted under the provisions of this section may be altered or re-
pealed by the legislature at any time after their passage." 2 _ _ _ _
" The legislature is prohibited from enacting any special or private laws
in the following cases : For granting corporate powers or privileges, ex-
cept to cities." 3
§ 541. And Subject to Ijegislative Alteration or Repeal. —
" All general laws and special acts passed pursuant to this section may
be altered, amended or repealed." *----" Corpoi-ations may
be formed under general laws ; which laws may from time to time, be
altered or repealed. The general assembly shall have the power to
alter, revoke, or annul, any charter of incorporation now existing and
revocable at the adoption of this constitution, or any that may here-
after be created, whenever in their opinion, it may be injurious to the
citizens of this State ; in such manner, however, that no injustice shall
be done to the corporators."^ _ _ - _ " All laws now in force in
this State concerning corporations, and all laws that may be hereafter
passed pursuant to this section, may be altered from time to time or
repealed." 6 _ _ _ _ " Subject to the provisions of this article, the
general assembly shall have power to amend or repeal all laws for the
organization or creation of corporations, or granting of special or exclu-
sive privileges or immunities, by a vote of two-thirds of each branch, of
the general assembly; and no exclusive privileges except as in this
article pi'ovided, shall ever be granted." '^ - _ _ _ "All charters
granted or adopted in pursuance of this section and all charters hereto-
fore granted and created, subject to repeal or modification, may be
altered, from time to time, or be repealed. Provided, nothing herein
contained shall be construed to extend to banks or the incorporation
thereof."^ - - - - "The legislature may provide by law for
altering, revoldng or annulling, any charter of incorporation, existiug
and revocable at the time of the adoption of this constitution, in such
1 W. Va. Const, of 1872, art. 11, ^ Ark. Const, of 1874, art. 12, § 6.
§ 1. 6 cal. Slate Const. 1879, art. 12, §
2 Wis. Const, of 1818, art. 11, § 1. 1. Similar provisions exist in the
3 Wis. Const. Amoud. of 1871, art. Constitulions of many other States,
4, § 31. as seen by the preceding section.
* Ala. Const, of 1875, art. 13, § 1 ' la. Const, of 1857, art. 8, § 12.
(in part). « Md. Const, of 18U7, art. 3, § 48.
26 401
1 Tliomp. Corp. § 543.] constitutional restraints.
manner, however, that no injustice shall be done to the corpora-
tion." ^ _ _ - - "No charter of incorporation shall be granted, ex-
tended, changed or amended by special law, except for such municipal,
charitable, educational, penal or reformatory corporations as are or
may be under the control of the State, but the legislature shall provide
by general law for the organization of corporations hereafter to be
created : Provided, That any such law shall be subject to future repeal
or alteration by the legislature." 2 _ _ _ _ " Corporations may be
formed under general laws, but shall not be created by special acts.
All laws relating to corporations may be altered, amended or repealed
by the legislature at any time, and all corporations doing business in
this State may, as to such business, be regulated, limited or restrained
by law. ' ' 3
§ 542. Liegislature not to Extend Charter nor Remit For-
feitures. — "The legislature shall not extend any franchise or charter,
nor remit the forfeiture of any franchise or charter of any corporation
now existing, or which shall hereafter exist under the laws of this
State."* - _ - - " The general assembly shall not remit the forfeit-
ure of the charter of any corporation now existing, or alter or amend
such forfeited charter, or pass any other general or special laws for the
benefit of such corporations." ^
§ 543. Except on Condition of Accepting Constitutional
Provisions. — ' ' The general assembly shall not remit the forfeiture of
the charter of any corporation now existing, or alter or amend the same
or pass any general or special law for the benefit of such corporation,
other than in execution of a trust created by la\^^ or by contract, except
upon the condition that such corporation shall thereafter hold its charter
subject to the provisions of this constitution." 6 _ _ _ > "The gen-
eral assembly shall not remit the forfeiture of the charter of any
corporation now existing, or alter or amend the same, or pass any other
general or special law for the benefit of such corporation, except upon
the conditition that such corporation shall thereafter hold its charter
subject to the provisions of this constitution."'^ - - - - " No
corporation other than municipal corporations in existence at the time of
the adoption of this constitution, shall have the benefit of any future
' Const. Idaho, 1889, art. 11, § 3. ^ Mo. Const, of 1875, art. 12, § 3.
2 Const. Idaho, 1889, art. 11, § 2. 6 Ala. Const, of 1875, art. 13, § 3.
3 Const. Wash. 1889-90, art. 12, § 1. ^ Penn. Const, of 1873, art. 16, § 2;
< Cal. Const. 1879, art. 12, § 7; Ark. Const, of 1874, art. 17, § 8.
Const. Wash. 1889-90, art. 12, § 3.
402
CONSTITUTIONAL PROVISIONS. [1 Thomp. Coip. § 546.
legislation, without first filing in the office of the Secretary of State an
acceptance of the provision of this constitution in binding form." i
§ 644. Leg-islature may Alter, Revoke or Annul Existing
Charters. — ' ' The general assembly shall have the power to alter, re-
voke or amend any charter of incorporation now existing, and revocable
at the ratification of this constitution, or any that may hereafter be
created, whenever in their opinion it may be injurious to the citizens of
the State, in such manner, however, that no injustice shall be done to
the corporators." 2 - - - - " The general assembly shall have the
power to alter, revoke, or annul any charter of incorporation now exist-
ing and revocable at the adoption of this constitution, or any that may
hereafter be created, whenever in their opinion it may be injurious to
the citizens of the State, in such manner, however, that no injustice
shall be done to the corporators." ^ - - - . "The general as-
sembly shall have the power to alter, revoke, or annul any charter of
incorporation now existing and revocable at the adoption of this con-
stitution, or any that may hereafter be created, whenever in their opin-
ion it may be injurious to the citizens of this commonwealth ; in such
manner, however, that no injustice shall be done to the incorpora-
tors."* - - - - "The legislative assembly shall have the power
to alter, revoke or annul any charter of incorporation existing 3t the
time of the adoption of this constitution, or which may be hereafter
incorporated, whenever in its opinion it may be injurious to the
citizens of the State. ' ' ^
§ 545. No Special Law as to More than One Corporation. —
"No law hereafter enacted shall create, renew, or extend the charter
of more than one corporation. " ^ - - - . "No law hereafter
enacted shall create, renew or extend the charter of more than one
corporation." '
§ 546. Existing Charters Annulled where no Organization
has Taken Place. — " All existing charters or grants of special or ex-
clusive privileges, under which a bona fide organization shall not have
taken place, and business been commenced in good faith, at the time of
the adoption of this constitution, shall thereafter have no valid-
ity. "8 _ _ . . t ' jt^ii existing charters or grants of special or ex-
1 Const. Idaho, 1889, art. 11, § 7. * Const. Montana, 1889, art. 16,
2 Ala. Const, of 1875, art. 13, § 10 § 3.
(in part). 6 A!a. Const, of 1875, art. 13, § 10.
3 Col. Const, of 1876, art. 15, § 3. ' Penn. Const, of 1873, Art. IG, § 10.
* Penn. Const, of 1873, art. 10, § 10. « Ark. Const, of 1874, art. 12, § 1;
403
1 Thomp. Corp. § 547.] constitutional restraints.
elusive piivileges, under which organization shall not have taken place,
or which shall not have been in operation within ten days from the time
this constitution takes effect, shall thereafter have no validity or effect
whatever." 1 _ _ . - " All existing charters or grants of special or
exclusive pri\aleges under which organization shall not have taken place,
or which shall not be in operation within sixty days from the time this
constitution takes effect, shall thereafter have no validity or effect what-
ever." ^ _ _ _ _ " All existing charters or grants of special or ex-
clusive privileges under which organization shall not have taken place,
or which shall not have been in operation within two years from the
time this constitution takes effect, shall thereafter have no vaHdity or
effect whatever : provided, that nothing herein shall prevent the execu-
tion of any bona fide contract heretofore lawfully made in relation to any
existing charter or grant in this State." ^
§ 547. State Aid not to be Granted. — " Except as herein pro-
vided the State shall never become a stocldiolder in or subscribe to, or be
interested in, the stock of any corporation or association."* _ - _ _
" The State shall not be a stockholder in any bank after the expiration
of the present bank-charter ; nor shaU the credit of the State ever be
given or loaned in aid of any person, association or corporation ; nor
shall the State hereafter become a stockholder in any corporation or
association. " ^ - - - - " The State shall not become a stockholder
in any corporation nor shall it assume or pay the debt or liabihty of
any corporation unless incurred in time of war for the benefit of the
State." 6 _ _ - _ " The State shall not subscribe to or be in-
terested in the stock of any company, association or corpora-
ion."' - - - - " The State shall not in any manner loan its credit,
nor shall it subscribe to, or be interested in the stock of any company,
association or corporation. " ^ - - - - "No money shall ever be
appropriated or drawn from the State treasury for the use or benefit of
any corporation, association, asylum, hospital or any other institution
not under the exclusive management and control of the State as a State
Penn. Const, of 1873, art. 16, §1; Mo. ^ ^eb. Const, of 1875, art. 11, § 6.
Const, of 1875, art. 12, § 1; Colo. ^ w". Va. Const, of 1872, art. 11,
Const, of 1876, Art. 15, § 1 (in sub- § 3.
stance) ; Ala. Const, of 1875, art. 13, ^ Ark. Const, of 1874, art. 12, § 7.
§ 2 (with the word "ratification," in- ^ ind. Const, of 1851, art. 11, § 12.
teadof "adoption "); Coust. Idaho, ^ la. Coast, of 1857, art. 8, § 3.
art. 11, § 1 (in substance); Const. ' Mich. Const, of 1850, art. 1 4, § 8:
Mont. art. 15, . § 1 (in substance); Oregon Const, of 1857, art. 11, § 6.
Const. Wash., art. 12, § 2 (iu sub- « Cal. State Const. 1879, art. 12,
stance). § 13.
1 111. Const, of 1870, art. H, § 2.
404
CONSTITUTIONAL PROVISIONS. [1 Thomp. Corp. § 547.
institution, nor shall any grant or donation of property ever be made
thereto by the State ; provided, that notwithstanding anything contained
in this or any other section of this constitution, the legislature shall
have the power to grant aid to institutions, conducted for the support
and maintenance of minor orphans, or half orphans, or abandoned
children, or aged persons in indigent circumstances ; such aid to be
granted by a uniform rule and proportioned to the number of inmates
of such respective institutions ; provided further, that the State shall
have, at any time, the right to inquire into the management of such in-
stitutions ; pro\dded further, that whenever any county, or city and
county, or city or town shall provide for the support of minor orphans
or half orphans, or abandoned children or aged persons in indigent cu'-
cumstances, such county, city and county, city or town shall be entitled
to receive the same pro rata appropriations as may be granted to such
institutions under church or other control. An accurate statement of
the receipts and expenditures of public moneys shall be attached to and
pubUshed with the laws at every regular session of the legisla-
tui-e." ^ - - - - "No tax shall be levied upon persons for the
benefit of any chartered company of the State, or for paying the interest
on any bonds issued by said chartered companies, counties, or corpora-
tions for the above mentioned purposes, and any laws to the contrary
are hereby declared null and void. " 2 _ - _ _ " The credit of the
State shall not, in any manner, be given or loaned to or in aid of, any
individual, association, or corporation ; and the State shall never assume
or become responsible for the debts or Uabilities of any individual,
association, or corporation." ^ _ _ . _ "The credit of this com-
monwealth shall never be given or loaned in aid of any person, association,
municipality or corporation. " * - - - - "The credit of the State
shall not in any manner be given or loaned to or in aid of any individual,
association or corporation. " ^ _ _ . _ " The credit of the State
shall not be granted to or in aid of any person, association or corpo-
ration." 6 - _ . . " The credit of the State shall not be pledged or
loaned in aid of any person, association, or corporation ; nor shall the
State hereafter become a stockholder in any corporation or associa-
tion. " '^ - - - - " The general assembly shall have no power to
give or to lend, or to authorize the giving or lending of the credit of the
State in aid of or to any person, association, or corporation, whether
municipal or other, or to pledge the credit of the State in any manner
1 Cal. Const. 1879, art. 4, § 22. * Ky. Const, of 1850, art. 2, § 33.
■^ Florida Const, of 18C8, art. 12, § « Md. Const, of 18G7, art. 3, § 34.
8. 8 Mich. Con,st. of 1850, art. 14, §6.
s la. Const, of 1857, art. 7, § 1. ^ Miss. Const, of 1868, art. 12, § 6,
405
1 Thorn p. Corp. § 54:7.] constitutional restraints.
•whatsoever, for the payment of the habiUties, present or prospective, of
any individual, association of individuals, municipal or other corpora-
tion whatsoever." ^ - - - - "The general assembly shall have
no power to make anj^ grant, or to authorize the making of any
gi-ant of pubhc money or thing of value to any individual, association of
individuals, municipal or other corporation whatsoever: Provided,
That this shall not be so construed as to prevent the grant of aid in
a case of public calamity." ^ _ _ _ _ "The general assembly
shall have no power hereafter to subscribe or authorize the subscrip-
tion of stock on behalf of the State, in any corporation or association,
except for the purpose of securing loans heretofore extended to cer-
tain railroad corporations by the State." ^ _ _ _ _ "The State
shall not donate or loan money or its credit, subscribe to or be inter-
ested in the stock of any company, association, or corporation, except
corporationsformedfor educational or charitable purposes." ^ - - - -
"And the general assembly shall have no power to give or lend the
credit of the State in aid of any person, association, or corporation, ex-
cept to aid in the completion of such railroads as may be unfinished at
the time of the adoption of this constitution, or in which the State has a
direct pecuniary interest, unless the subject be submitted to a direct
vote of the people of the State, and be approved by a majority of those
who shall vote thereon."^ _ _ _ _ "Neither the credit nor the
money of the State shall be given or loaned to or in aid of any associa-
tion, corporation, or private undertaldng. This section shall not, how-
ever, prevent the legislature from making such provision for the educa-
tion and support of the blind, the deaf and dumb, and juvenile delin-
quents as to it may seem proper ; nor shall it apply to any fund or
property now held, or which may hereafter be held, by the State for
educational purposes." ^ _ - _ _ "The credit of the State shall
not, in any manner, be given or loaned to, or in aid of, any indi^ddual,
association, or corporation whatever ; nor shall the State ever hereafter
become a joint owner or stockholder in any company or association in
this State or elsewhere, formed for any purpose whatever." 7 - - - -
*' No appropriations, except for pensions or gratuities for military serv-
ices, shall be made for charitable, educational, or benevolent purposes,
to any person or community, nor to any denominational or sectarian in-
stitution, corporation or association."^ _ _ _ _ "The credit of
1 Mo. Const, of 1875, art. i, § 45. « n. y. Const. Amend, of 1874, art
2 Mo. Const, of 1875, art. 4, § 46. 8, § 10.
3 Mo. Const, of 1875, art. 4, § 49. ' Ohio Const, of 1851, art. 8, § 4.
* Nev. Const, of 18C4, art. 8, § 9. * Penn. Const, of 1873, art. 3,
5 N. C. Const. Amend, of 1876, art. § 18.
5, §4.
406
CONSTITUTIONAL PROVISIONS. [1 Thomp. Corp. § 547.
the commonwealth shall not be pledged or loaned to any individual,
company, corporation, or association, nor shall the commonwealth be-
come a joint owner or stockholder in any compan}', association, or cor-
poration."! - - - . "The credit of this State shall not be here-
after loaned or given to or in aid of any person, association, company,
corporation, or municipahty, nor shall the State become the owner, in
whole or in part, of any bank, or a stockholder with others in any asso-
ciation, company, corporation or municipahty." ^ - - - . "No
bonds of the State shall be issued to any railroad company which at the
time of its application for the same shall be in default in paying the in-
terest upon the State bonds previously loaned to it, or that shall here-
after and before such application sell or absolutely dispose of any State
bonds loaned to it for less than par. "3 .... " The legislature
shall have no power to give or to lend, or to authorize the gi^^ng or lend-
ing, of the credit of the State in aid of, or to any person, association, or
corporation, whether municipal or other ; or to pledge the credit of the
State in any manner whatsoever for the pa3mient of the liabiKties, pres-
ent or prospective, of any indivdual, association of individuals, munici-
pal or other corporation whatsoever. " * _ - . « " The legislature
shall have no power to make any grant, or authorize the making of any
grant, of public money to any individual, association of individuals,
municipal or other corporation whatsoever ; provided, that this shall not
be so construed as to prevent the grant of aid in case of pubhc calam-
ity." 5 - - - - " The credit of the State shall not be granted to or
in aid of any pounty, city, township, corporation, or person ; nor shall
the State ever assume or become responsible for the debts or liabiKties
of any count}^ city, town, township, corporation, or person ; nor shall
the State ever hereafter become a joint owner or stockholder in any com-
pany or association in this State or elsewhere, formed for any pui-pose
whatever." 6 . _ . . " The credit of the State shall not be granted
to, or in aid of, any person, association, or corporation."' - - - -
"The State shall not subscribe to or become interested in the stock of
any company, association, or corporation." 8 - - . _ "The credit
of the State shall never be given or loaned in aid of any individual, as-
sociation, or corporation." 9 - - - - " The credit of the State shall
not, in any manner, be given, or loaned to or in aid of any individual,
association, municipality or corporation ; nor shall the State, directly or
» Penn. Const, of 1873, art. 9, § 6, « W. Va. Const, of 1872, art. 10,
2 Tenn. Const, of 1870, art 2, § 31. § 6,
3 Tenn. Const, of 1870, art. 2, § 33. ' Va. Const, of 1870, art, 10, § 12.
* Tex. Const, of 1876, art. 3, § 50. 8 va. Const, of 1870, art. 10, § 14.
5 Tex. Const, of 1876, art. 3, § 51. » Wis. Const, of 1848, art. 7, § 3.
407
1 Thoiup. Corp. § 548] constitutional restraints.
indirectl}', become a stockholder in any association or corpora-
tion."^ _ _ _ _ " The credit of the State shall not, in any manner, be
given or loaned to, or in aid of, any individual, association, company or
corporation." 2 _ . . _ " The State shall not in any manner loan
its credit, nor shall it subscribe to, or be interested in the stock of any
company, association or corporation." ^
§ 548. Nor Debts to State, nor State's Lien, Released or
Commuted. — • ' ' The legislatui-e shall not pass local or special laws in
any of the following enumerated cases, that is to say : Releasing or ex-
tinguishing, in whole or in part, the indebtedness, liability, or obliga-
tion of any corporation or person to this State or to any municipal
corporation therein." 4 _ _ _ _ " The general assembly shall have
no power to release or extinguish, in whole or in part, the indebtedness,
liability or obligation of any corporation or individual to this State, or
to any municipal corporation therein. " ^ - - - - " Except as
herein otherwise provided, the State shall never assume or pay the debt,
or liability of any county, town, city or other corporation whatever,
or any part thereof, unless such debt or liability shall have been created
to repel invasion, suppress insurrection, or to provide for the public
welfare and defense. Nor shall the indebtedness of any corporation to
the State ever be released or in any manner discharged, save by payment
into the pubhc treasury." s - - - - " The general assembly shall
have no power to release or alienate the Ken held by the State upon any
railroad, or in any wise change the tenor or meaning, or pass any act ex-
planatory thereof ; but the same shall be enforced in accordance with
the original terms upon which it was acquired." ' - - - - "The
general assembly shall have no power to release or extinguish, or author-
ize the releasing or extinguishing, in whole or in part, the indebtedness,
liability, or obligation of any corporation or individual to this State, or
to any county or other municipal corporation therein. " ^ - - - -
" The legislature shall have no power to release or alienate any lien held
by the State upon any railroad, or in any wise change the tenor or
meaning, or pass any act explanatory thereof ; but the same shall be
enforced in accordance with the original terras upon which it was
acquired." 3 . - _ - "The liability to the State of any incorpo-
rated company or institution to redeem the principal and pay the
interest of any loan heretofore made by the State to such company or
1 Const. Idaho, 1889, art. 8, § 2. ^ 111. Const, of 1870, art. 4, § 23.
2 Const. Wash. 1889-90, art. 8, § 5. « Ark. Const, of 1874, art. 12, § 12.
3 Const. Wash. 1889-90, art. 12, § 9. ^ Mo. Const, of 1875, art. 4, § 50,
^ Cal. State Const. 1879, art. 4, » Mo. Const, of 1875, art. 4, § 51.
§ 25, div. 16. 9 Tex. Const, of 1876, art. 3, § 54.
408
CONSTITUTIONAL PROVISIONS. [1 Thomp. Coi'p. § 549.
institution shall not be released or commuted."^ _ - _ . "The
legislature shall not pass local or special laws in any of the following
enumerated cases, that is to say : . . . Releasing or extinguishing,
in whole or in part, the indebtedness, liability or obUgation of any per-
son or corporation in this State, or any municipal corporation there-
in." ^ - - - - "No obligation or liability of any person, associa-
tion or corporation, held or owned by the State, or any municipal
corporation therein, shall ever be exchanged, transferred, remitted, re-
leased or postponed, or in any way diminished by the legislative
assembly ; nor shall such liability or obligation be extinguished, except
by the payment thereof into the proper treasury." ^
§ 549. Nop Municipal Aid Granted. — "No county, city, town
or other municipal corporation shall become a stockholder in any com-
pany, association or corporation ; or obtain or appropriate money for,
or loan its credit to, any corporation, association, institution or indi-
vidual." * - - - - "No political or municipal corporation shall
become a stockholder in any banking corporation, directly or indi-
rectly. " ^ - - - - " The general assembly shall have no power to
authorize any county, city, town, or township, or other political corpo-
ration or subdivision of the State now existing, or that may be hereafter
established, to lend its credit, or to grant public money or thing of value
in aid of or to any individual, association, or corporation whatsoever,
or to become a stockholder in such corporation, association, or com-
pany." 6 _ . _ - " No city, county, town, precinct, municipality,
or other subdivision of the State shall ever become a subscriber to the
capital stock, or owner of such stock, or any portion or interest therein,
of any railroad or private corporation, or association."'^ _ _ _ -
"No county, city, borough, town, township, or village shall hereafter
give any money or property, or loan its money or credit, to or in aid of
any individual, association, or corporation or become secui-ity for or be
directly or indirectly the owner of any stock or bonds of any association
or corporation. " ^ - - - - " The general court shall not authorize
any town to loan or give its money or credit, directly or indirectly, for
the benefit of any corporation having for its object a dividend of profits,
or in any way aid the same by taking its stock or bonds." s> - - - -
" The general assembly shall never authorize any county, city, town or
1 Va. Const, of 1870, art. 10, § 21. « Mo. Const, of 1875, art. i, § 47.
2 Const. Idaho, 1889, art. 3, § 19. ^ Neb. Const, of 1875, art. 11, § 1.
3 Const. Montana, 1889, art. 5, ^ N. J. Const. Amend, of 1875, art.
§ 39. 1, par. 19.
4 Ark. Const, of 1874, art. 12, § 5. » N. H. Const. Amend, of 1877,
5 la. Const, of 1858, art. 8, § 4. part 2, § 5, proviso.
409
1 Thomp. Corp. § 550.] constitutional restraints.
township, by vote of its citizens or otherwise, to become a stockholder
in any joint-stock company, corporation, or association whatever; or to
raise money for, or loan its credit to or in aid of, any such company,
corporation, or association." ^ - _ - - " No county, city, town, or
other municipal corporation, by vote of its citizens or otherwise, shall
become a stocldiolder in any joint stock company, corporation, or as-
sociation whatever, or raise money for or loan its credit to or in aid of
any such company, corporation, or association. " ^ _ _ . _ "The
general assembly shall not authorize any county, city, borough, town-
ship, or incorporated district to become a stockholder in any company,
association, or corporation, or to obtain or appropriate money for, or to
loan its credit to, any corporation, association, institution, or individ-
ual."^ _ . _ - " The legislature shall have no power to authorize
any county, city, town or other political corporation, or subdivision of
the State, to lend its credit or to grant public money or thing of value,
in aid of or to any individual, association, or corporation whatsoever ; or
to become a stockholder in such corporation, association or com-
pany." 4 _ _ - - " No county, city, or other municipal corporation
shall hereafter become a subscriber to the capital of any private cor-
poration or association, or make any appropriation or donation, to
the same, or in any wise loan its credit ; but this shall not be con-
strued to in any way affect any obhgation heretofore undertaken
pursuant to law."^ - - - - "No county, city, town, township,
board of education, or school district, or other subdivision, shall lend
or pledge the credit or faith thereof, directly or indirectly, in any man-
ner to, or in aid of any individual, association or corporation, for any
amount or for any purpose whatever, or become responsible for any
debt, contract or liability of any individual, association or corporation in
or out of this State." ^
§ 550. Except upon Certain Conditions. — "No law shall be
passed by which a citizen shall be compelled against his consent, di-
rectly or indirectly, to become a stockholder in, or contribute to, any
railroad or work of public improvement, except in the case of the in-
habitants of a corporate town or city. In such cases, the general
assembly may permit the corporate authorities to take such stock, or
make such contribution, or engage in such work, after a majority of
the quaUfled voters of such town or city, voting at an election held for
1 Ohio Const, of 1851, art. 8, § 6. * Tex. Const, of 1870, art. 3, § 52.
2 Oregon Const, of 1857, art. U, * Tex. Const, of 1876, art. 11, § 3.
§ 9. * Const. Idaho, 1889, art. 8, § 4.
3 Penn. Const, of 1873, art. 9, § 7.
410
CONSTITUTIONAL PROVISIONS. [1 Thouip. Copp. § 550.
the purpose, shall have voted in favor of the same ; but not other-
wise."^ _ _ _ _ "No county of this State shall contract any
debt or obligation, in the construction of any railroad, canal or other
work of internal improvement, nor give or loan its credit to or in aid of
any association or corporation, unless authorized by an act of the
general assembly, which shall be published for two months before the
next election for members of the house of delegates, in the newspapers
published in such county, and shall also be approved by a majority of
all the members elected to each house of the general assembly, at its
next session after said election. " 2 _ _ _ _ " The legislature shall
not authorize any county, city, or town to become a stockholder in, or
to lend its credit to, any company, association, or corporation, unless
two-thirds of the qualified voters of such county, city, or town, at a
special election, or regular election, to be held therein, shall assent
thereto."^ _ _ _ - "No county, city, town or other municipal
corporation shall become a stockholder in any joint-stock company, cor-
poration, or association whatever, or loan its credit in aid of any such
company, corporation, or association, except railroad corporations,
companies, or associations."^ _ . _ _ "But the credit of uo
county, city, or town shall be given or loaned to or in aid of any person,
company, association, or corporation, except upon an election to be
first held by the qualified voters of such county, city, or town, and the
assent of three-fourths of the votes cast at said election. Nor shall any
county, city or town become a stockholder with others in any company,
association, or corporation, except upon a like election and the assent
of a like majority. But the counties of Grainger, Hawkins, Hancock,
Union, Campbell, Scott, Morgan, Grundy, Sumner, Smith, Fentress,
Van Buren, White, Putnam, Overtown, Jackson, Cumberland, Ander-
son, Henderson, Wayne, Marshall, Cocke, Coffee, Macon, and the new
county herein authorized to be established out of fractions of Sumner,
Macon, and Smith counties, and Roane, shall be excepted out of the
provisions of this section, so far that the assent of a majority of the
quaUfied voters of either of said counties voting on the question shall be
sufficient, when the credit of such county is given or loaned to any per-
son, association, or corporation : Provided, That the exception of the
counties above named shall not be in force beyond the year one thousand
eight hundred and eighty, and after tliat period they shall be subject to
the three-fourths majority applicable to the other counties of the
State." ^ . - . . " The legislative assembly shall have no power to
J Ga. Const, of 18C8, art. 3, § G, ^ Miss. Const, of 1868, art. 12, § 14.
No. 4. * Nev. Const, of 1864, art. 8, § 10.
« Md. Const of 1867, art. 3, § 54. « Tenn. Const, of 1870, art. 2, § 29.
411
1 Thomp. Corp. § 551] constitutional restraints.
pass any law authorizing the State, or any county in the State, to con-
tract any debt or obligation in the construction of any railroad, nor give
or loan its credit to or in aid of the construction of the same." ^
§ 551. ?f either State nor Municipal Aid to be Granted. —
' ' The legislature shall have no power to give or to lend or to authorize
the giving or lending, of the ci'edit of the State, or of any county, city
and county, city, township or other pohtical corporation or subdivision
of the State now existing or that may be hereafter established in aid of
or to any person, association or corporation, whether municipal or other-
wise, or to pledge the credit thereof, in any manner whatever for the
payment of the liabilities of any individual, association municipal or
other corporation, whatever ; nor shall it have power to make any gift,
or autnorize the making of any gift of any public money or thing of
value to any individual, municipal or other corporation whatever ; pro-
vided, that nothing in this section shall prevent the legislature granting
aid pursuant to section twenty-two of this article ; and it shall not have
power to authorize the State, or any political subdivision thereof, to
subscribe for stock, or to become a stockholder in any corporation
whatever." 2 _ _ _ _ "The legislature shall have power to pro-
\ide for issuing State bonds bearing interest for securing the debt of
State, for the erection of State buildings, and for the support of State
institutions, but the credit of the State shall not be pledged or loaned
to any individual company, corporation, or association ; nor shall the
State become a joint owner or stockholder in any company, association,
or corporation. The legislature shall not authorize any county, city,
borough, township, or incorporated district to become a stockholder in
any company, association, or corporation, or to obtain or appropriate
money for, or to loan its credit to, any corporation, association, institu-
tion or individual. " 3 . _ _ _ "No donation of land or appropri-
ation of money shall be made by the State or any municipal corporation
to or for the use of any society, association, or corporation wnat-
ever." * » _ _ _ " No county shall subscribe for stock in any in-
corporated company, unless the same be paid for at the time of such
subscription ; nor shall any county loan its credit to any incorporated
company, nor borrow money for the purpose of taking stock in any
such company, nor shall the general assembly ever, on behalf of the
State, assume the debts of any county, city, town, or township, nor of
any corporation whatever. ' ' ^
1 Const. Montana, 1889, art. 5, § 38. •• N. J. Const. Amend, of 1875, art.
2 Cal. State Const. 1879, art. 4, § 31. 1, par. 20.
3 Florida Const, of 1868, art. 3, « Ind. Const, of 1851, art. 10,
Add. 17. § 6.
412
CONSTITUTIONAL PROVISIONS. [1 Thomp. Coip. § 552.
§ 652. Provisions of Minnesota Constitution as to State Aid:
** Minnesota Railroad Bonds,'* — "The credit of the State shaE
never be given or loaned in aid of any indi\adual, association, or corpo-
ration." 1 - - - - Subsequently this section was so altered and
amended as to read: " The credit of this State shall never be given or
loaned in aid of any individual, association, or corporation, except that
for the purpose of expediting the construction of the lines of raUroads,
in aid of which the Congress of the United States has granted lands to
the territory of Minnesota, the governor shall cause to be issued and
delivered to each of the companies in which said grants are vested by
the legislative assembly of I^Iinnesota the special bonds of the State,
bearing an interest of 7 per cent, per annum, payable semi-annually in
the city of New York, as a loan of public credit, to an amount not ex-
ceeding twelve hundred and fifty thousand dollars; or an aggi-egate
amount to all of said companies not exceeding five millions of dollars,
in manner following, to wit : whenever either of the said companies shall
produce to the governor satisfactory evidence, verified by the affidavits
of the chief engineer, treasurer, and two directors of said company,
that any ten miles of the road of said company has been actually con-
structed and completed ready for placing the superstructure thereon,
the governor shall cause to be issued and delivered to such company
bonds to the amount of one hundred thousand dollars, and whenever
thereafter, and as often as either of said companies shall produce to the
governor like evidence of a further construction of ten miles of its
road as aforesaid, then the governor shall cause to be issued to such
company further like bonds to the amount of one hundred thousand dol-
lars for each and every ten miles of road thus constructed ; and when-
ever such company shall furnish hke evidence that any ten miles of its
road is actually completed and cars running thereon, the governor
shall cause to be issued to such company like bonds to the amount of
one hundred thousand dollars ; and whenever thereafter, and as often
as either of said companies shall produce to the governor like evidence
that any further ten miles of said road is in operation as aforesaid, the
governor shall cause to be issued to such company farther like bonds to
the amount of one hundred thousand dollars, untU the full amount of the
bonds hereby authorized shall be issued ; Provided, that two fifths and no
more of all bonds issued to the Southern Minnesota Railroad Company
shall be expended in the construction and equipment of the fine of road
from La Crescent to the point of junction with the Transit road, as pro-
vided by law : And further pro\ided, that the Minneapolis and Cedar
Valley Kaikoad Company shall commence the construction of their road
1 Mian. Const, of 1857, art. 9, § 10.
413
1 Thomp. Corp. § 552.] constitutional kestraints.
at Faribault and Minneapolis, and shall grade an equal number of miles
from each of said places. The said bonds thus issued shall be denomi-
nated ' Minnesota State Railroad bonds,' and the faith and credit of
this State are hereby pledged for the payment of the interest and the
redemption of the principal thereof. They shall be signed by the
governor, countersigned and registered by the treasurer, and sealed
with the seal of the State, of denominations not exceeding one thousand
dollars, payable to the order of the company to whom issued, transfer-
able by the indorsement of the president of the said company, and re-
deemable at any time after ten and before the expiration of twenty-five
years from the date thereof. Within thirty days after the governor
shall proclaim that the people have voted for a loan of State credit to
railroads, any of said companies proposing to avail themselves of the
loan herein provided for, and to accept the conditions of the same, shall
notify the governor thereof, and shall within sixty days commence the
construction of their roads, and shall within two years thereafter con-
struct, ready for the superstructure, at least fifty miles of their road.
Each company shall make provision for the punctual payment and re-
demption of all bonds issued and delivered as aforesaid to said com-
pany and for the punctual payment of the interest which shall accrue
thereon in such manner as to exonerate the treasury of the State from
any advances of money for that purpose ; and, as security therefor, the
governor shall demand and receive from each of said companies, before
any of said bonds are issued, an instrument pledging the net profits of
its road for the payment of said interest, and a conveyance to the State
of the first two hundred and forty sections of land, free from prior en-
cumbrances, which such company is or may be authorized to sell in
trust for the better security of the treasury of the State from loss on
said bonds, which said deed of trust shall authorize the governor and
Secretary of State to make conveyances of title to all or any of such
lands to purchasers agreeing with their respective railroad companies
therefor ; Provided, That before releasing the interest of the State to
such lands, such sale shall be approved by the governor ; but the pro-
ceeds of all such sales shall be applied to the payment of interest ac-
cruing upon the bonds in case of default of the payment of the same,
and as a sinking fund to meet any future default in the payment of in-
terest and the principal thereof when due ; and as further security, an
amount of first-mortgage bonds, on the roads, lands, and franchises of
the respective companies, corresponding to the State bonds issued,
shall be transferred to the treasurer of the State at the time of the issue
of State bonds, and in case either of said companies shall make default
in payment of either the interest or principal of the bonds issued to
said companies by the governor, no more State bonds shall thereafter
414
CONSTITUTIONAL PROVISIONS. [1 Thomp. Corp. § 552.
be issued to said company ; and the governor shall proceed in such
manner as may be prescribed by law to sell the bonds of the default-
ing company or companies, or the lands held in trust as above, or
may require a foreclosure of the mortgage executed to secure the
same : Provided, That if any company so in default, before the day
of sale, shall pay all interest and principal then due, and all ex-
penses incurred by the Stte, no sale shall take place, and the right
of such company shall not be impaired to a further loan of State
credit; Provided, If any of said companies shall at any time
offer to pay the principal, together with the interest that may
then be due upon any of the Minnesota State Railroad bonds, which
may have been issued under the provisions of this section, then
the Treasurer of State shall receive the same, and the liability of said
company or companies, in respect to said bonds, shall cease upon such
payment into the State treasury, of principal, together with the interest
as aforesaid : Provided further. That in consideration of the loan of
State credit herein provided, that the company or companies which may
accept the bonds of the State in the manner herein specified shall, as a
condition thereof, each complete not less than fifty miles of its road on
or before the expiration of the year 1861, and not less than one hundred
miles before the year 1864, and complete four-fifths of the entire length
of its road before the year 1866, and if any failure on the part of any
such company to complete the number of miles of its road or roads, in
the manner and within the several times herein prescribed, shall forfeit
to the State all rights, title, and interest of any kind whatsoever in and
to any lands, together with the franchises connected with the same not
pertaining or appUcable to the portion of the road by them constructed,
and a fee-simple to which has not accrued to either of said companies,
by reason of such construction, which was granted to the company or
companies, thus failing to comply with the provisions hereof , by act of
the legislature of the Territory of Minnesota, vesting said land in said
companies respectively."^ _ _ _ _ By an amendment ratified in
1860, this section was so altered and amended as to read : " The credit
of the State shall never be given or loaned in aid of any individual, asso-
ciation or corporation. Nor shall there be any further issue of bonds
denominated 'Minnesota Railroad bonds,' under what purports to be
an amendment to section ten of article nine of the constitution adopted
on the fifteenth of April, eighteen hundred and fifty-eight, which is
hereby expunged from the constitution, excepting and reserving to the
State, nevertheless, all rights, remedies, and forfeitures accruing under
1 Minn. Coust. Amendment of 1858, art. 9, § 10.
415
1 Thomp. Corp. § 55JJ. j constitutional restraints.
said amendment." i - - - - The following amendment was rati-
fied in 1871 : " Any law providing for the repeal or amendment of any
law or laws heretofore or hereafter enacted, which provides that any
railroad company now existing in this State, or operating its roads
therein, or which may be hereafter organized, shall, in lieu of all other
taxes or assessments upon their real estate, roads, rolling stock, and
other personal property, at and during the time and periods therein
specified, pay into the treasury of this State a certain percentage there-
in mentioned of the gross earnings of such railroad companies now
existing or hereafter organized, shall, before the same shall take effect
or be in force, be submitted to a vote of the people of this State, and
be adopted and ratified by a majority of the electors of the State
voting at the election at which the same shall be submitted to
them." 2 .... The following was ratified in 1872 :" The legis-
lature shall not authorize any county, township, city, or other municipal
corporation to issue bonds or to become indebted in any manner to aid
in the construction or equipment of any or all railroads to any amount
that shall exceed ten per centum of the value of the taxable property
within such county, township, city, or other municipal corporation ; the
amount of such taxable property to be ascertained and determined by
the last assessment of said property made for the purpose of State and
county taxation previous to the incurring of such indebtedness." ^
§ 553. Private Corporations not to have Municipal or Taxing
Powers. — "No power to levy taxes shall be delegated to individuals
or private corporations.""^ ... - " The legislature shall not
delegate to any special commission, private corporation, company, as-
sociation or individual, any power to make, control, appropriate, super-
vise or in any way interfere with, any county, city, town or municipal
improvement, money, property, or effects, whether held in trust or
otherwise, or to levy taxes or assessments, or perform any municipal
functions whatever."^ _ - . - " The general assembly shall not
delegate to any special commission, private corporation or association,
any power to make, supervise, or interfere with any municipal improve-
ment, money, property, or effects, whether held in trust or otherwise,
or to levy taxes or perform any municipal function whatever." ^
1 Minn. Const. Amendmentof 1860, * Ala. Const, of 1875, art. 10, § 2.
art. 9, § 10. * Cal. State Const. 1879, art. 11,
2 Minn. Const. Amendmentof 1871, § 13.
art. i, § 32 [a]. « Penn. Const, of 1873, art. 3, g 20;
» Minn. Const. Amend, of 1872, Const. Montana, 188i), art. 5, § 36
art. 9, § 15. (with slight verbal variations).
416
CONSTITUTIONAL PROVISIONS. [1 Thomp. Corp. § 558.
§ 554. Laws Permitting- Alienation of Corporate Franchises
Prohibited. — " The legislature shall not pass any laws permitting the
leasing or alienation of any franchise, so as to reheve the franchise or
property held thereunder from the habilities of the lessor or grantor,
lessee or grantee, contracted or incurred in the operation, use or enjoy-
ment of such franchise, or any of its privileges." ^ _ _ _ _ "No
corporation shall lease or alienate any franchise, so as to relieve the fran-
chise, or property held thereunder from the liabihties of the lessor, or
grantor, lessee, or grantee, contracted or incurred in the operation, use,
or enjoyment of such franchise, or any of its privileges." ^
§ 555. Corporations not to Employ Chinese Labor. — "No
corporation now existing or hereafter formed under the laws of this
State, shall, after the adoption of this constitution, employ, directly or
indirectly in any capacity, any Chinese or Mongolian. The legislature
shall pass such laws as may be necessary to enforce this provision." ^
§ 556. Existing Rights Saved. — "The rights and duties of all
corporations shall remain as if this constitution had not been adopted ;
with the exception of such regulations and restrictions as are contained
in this constitution. " ^ _ _ _ _ " Corporations created by or under
the laws of the Territory of Nevada shall be subject to the provisions
of such laws until the legislature shall pass laws regulating the same, in
pursuance of the provision of this constitution. " ^ - - - - " Noth-
ing in this article shall be construed to divest or affect rights guaranteed
by any existing grant or statute of this State or of the Republic of
Texas." 6
§ 557. Retrospective Laws for Benefit of Corporations Pro-
hibited. — " The general assembly shall pass no law for the benefit of
a railroad or other corporation, or any individual or association of in-
dividuals, retrospective in its operation, or which imposes on the people
of any county or municipal subdivision of the State a new liability in
respect to transactions or considerations already past." '
§ 558. Two-thirds Legislative Vote Required. — "No act of
incorporation, except for the renewal of existing corporations, shall be
1 Cal. State Const. 1879, art. 12, * Conn. Const, of 1818, art. 10, § 3
§ 10; Const. Montana, 1889, art. 15, '' Nev. Const, of 18G4, art. 8, § 4
§ 17; Const. Idaho, 1889, art. 11, § 15. 6 'pex. Const, of 1876, art. 12, § 7
2 Const. Wash. 1889-90, art. 12, § 8. ' Col. Const, of 187G, art. 15, § 12
3 Cal. State. Const. 1879, art. 19, Mo. Const, of 1875, art. 12, g 19;
§ 2. Const. Montana, 1889, art. 15, § 13.
27 417
1 Thomp. Corp. § 560.] constitutional restraints.
hereafter enacted without the coucurreuce of two-thirds of each branch
of the legislature, and with a reserved power of revoeatiou by the legis-
lature." ^ - - - - "The legislature shall pass no law altering or
amending any act of incorporation heretofore granted without the
assent of two-thirds of the members elected to each house ; nor shall
any such act be renewed or extended. This restriction shall not apply
to municipal corporations." ^ _ _ _ _ "No vote, resolution, law
or order, shall pass, granting a donation, or gratuity, in favor of any
person, except by the concurrence of two-thirds of each branch of the
general assembly, nor by any vote, to a sectarian corporation or asso-
ciation." ^
§ 559. Duration of Corporations Limited. — "No act of
incorporation which may be hereafter enacted shall continue in force
for a longer period than twenty years, without the re-enactment of
the legislature, unless it be an incorporation for public improve-
ment." 4 _ _ _ _ " No corporation, except for municipal pur-
poses, or for the construction of railroads, plank roads and canals, shall
be created for a longer time than thirty years." ^
§ 560. Power of Creating Corporations devolved on the
Courts. — " The general assembly shall have no power to grant corporate
powers and privileges to private companies, except to banking, insur-
ance, railroad, canal, navigation, mining, express, lumber, manufactur-
ing, and telegraph companies ; nor to make, or change, election pre-
cincts ; nor to estabhsh bridges or ferries ; nor to change names of
legitimate children ; but it shall prescribe, by law, the manner in which
such powers shall be exercised by the courts. But no charter for any
bank shall be granted or extended, and no act passed authorizing the
suspension of specie pajonents by any bank, except by a vote of two-
thirds of the general assembly. The general assembly shall pass no law
making the State a stocliholder in any corporate company ; nor shall the
• credit of the State be granted or loaned to aid any company without a
provision that the whole property of the company shall be bound for the
security of the State, prior to any other debt or lien, except to laborers ;
nor to any company in which there is not already an equal amount in-
vested by private persons ; nor for any other object than a work of
public improvement." ^
1 Del. Const, of 1831, art. 2, § 17. ^ Mich. Const, of 1850, art. 15, § 10.
2 Mich. Const, of 1850, art. 15, § 8. See Attorney-General v. Perkins, 73
3 Ga. Const, of 18G8, art. 3, § 6, Mich. 303; s. c. 41 N. W. Rep. 426.
No. 2. « Ga. Const, of 1868, art. 3, § 6,
* Del. Const, of 1831, art. 2, § 17. No. 5.
418
CONSTITUTIONAL PROVISIONS. [1 Thomp. Coip. § 565.
§ 561. Saving Rights Arising during the Civil War.— " All
rights, privileges, and immunities which may have vested in or accrued
to any person or persons, or corporation, in his, her, or their own right,
or in any fiduciary capacity, under any act of any legislative body sitting
in this State as such, or of any decree, judgment, or order of any court,
sitting in this State under the laws then of force and operation therein,
and recognized by the people as a court of competent jui-isdiction, since
the 19th day of January, 1861, shall be held in\-iolate by all courts of
this State unless attacked for fraud, or unless otherwise declared invalid
by, or according to, this constitution." 1
§ 562. Provisions as to Religious Corporations.— " The title
to all property of rehgious corporations shall vest in trustees, whose
election shall be by the members of such corporations." 2 _ _ _ _
" The general assembly shall not grant a charter of incorporation to any
church or religious denomination, but may secure the title to church
property to an extent to be limited bylaw." 3 _ _ _ _ " jsfo charter
of incorporation shall be granted to any church or religious denomina-
tion. Provision may be made by general laws for securing the title to
church property and for the sale and transfer thereof, so that it shall be
held, used, or transferred for the purposes of such church or rehgious
denomination." *
§ 563. Police Power over Corporations not to be Abridged. —
" The exercise of the pohce power of the State shall never be abridged,
or so construed as to permit corporations to conduct their business in
such manner as to infringe the equal rights of individuals or the general
well being of the State." ^
§ 564. Bills Creating Corporations Continued till next Ses-
sion of Legislature. ~ " Hereafter, when any bill shall be pre-
sented to either house of the general assembly to create a corporation,
for any other than for religious, literary, or charitable purposes, or for
a military or fire company, it shall be continued until another election
of members of the general assembly shall have taken place, and such
public notice of the pendency thereof shall be given as may be required
by law. ' ' ^
§ 565. Laws to be Passed Protecting Laborers. — " The
legislature shall, at its first session, pass laws to protect laborers on
1 Ga. Const, of 18fi8, art. 11, No. 5. ♦ W. Va. Const, of 1872, art. 6, § 47.
2 Kan. Const, of 1859, art. 12, § 3, ^ m,,. Const, of 1875, art. 12, § 5.
3 Va. Const, of 1870, art. 5, § 17. « K. I. Const, of 1812, art. 4, § 17.
419
1 Thomp. Corp. § 567.] constitutional restraints.
public buildings, streets, roads, railroads, canals, and other similar
public works against the failure of contractors and sub-contractors to
pay their current wages when due, and to make the corporation, com-
pany', or individual for whose benefit the work is done responsible for
their ultimate payment. "^
§ 566. Bonus to be Paid to the State. — " No corporation,
company, or association, other than those formed for benevolent, relig-
ious, scientific, or educational purposes, shall be created or organized
under the laws of this State, unless the persons named as corporators
shall, at or before the filing of the articles of association or incorpora-
tion, pay into the State treasury fifty dollars, for the first fifty thousand
dollars or less of capital stock, and a further sum of five dollars for
every additional tea thousand dollars of its capital stock. And no
such corporation, company, or association shall increase its capital
stock without first paying into the treasury five dollars for every ten
thousand dollars of increase: Provided, That nothing contained in this
section shall be constnied to prohibit the general assembly from levying
a further tax on the franchises of such corporation." ^
§ 567. Meaning of tlie Word " Corporation " as Used in
American Constitutions. — " The term ' corporation,' as used in this
article, shall be construed to include all joint-stock companies, or any
associations having any of the powers or privileges of corporations not
possessed by individuals or partnerships."^ _ _ _ - "The term
' corporation ' as used in this article, shall be construed to include all
associations and joint-stock companies having any of the powers or
privileges of corporations not possessed by individuals or partnerships," *
" except such as embrace banking privileges." ^ " The term ' corpora-
tion,' as used in this article shall be held and construed to include all
associations and joint- stock companies, having or exercising any of the
powers or privileges of corporations not possessed by individuals or
partnerships ; and all corporations shall have the right to sue, and shall
be subject to be sued in all courts in like cases as natural persons, sub-
ject to such regulations and conditions as may be prescribed by law." ^
1 Tex. Const, of 1876, art. 61, § 35. Kan. Const, of 1859, art. 12, § 6 (in
2 Mo. Const, of 1875, art. 10, § 21. substance); Mich. Const, of 1850, art.
3 Ala. Const, of 1875, art. 13, § 13; 15, § 11 (in substance).
Mo. Const, of 1875, art. 12, § 11 (in « jUnn. Const, of 1857, art. 10, § 1.
substance) ; N. C. Const, of 187G, art. « Const. Montana, 1889, art. 15,
8, § 3; Penn. Const. 1873; art. 16, § 18; Const. Wash. 1889-90, art. 12,
§ 13; Idaho Const. 1889, art. 11, § 16. §5 (in substance).
* Cal. Const, of 1879, art. 12, § 4;
420
SPECIAL STATUTES. [1 Thomp. Coi'p. § 568.
§ 568. Jfot to Authorize Investment of Trust Funds in
Private Corporate Securities. — " No act of the legislative assem-
bly shall authorize the investment of trust funds by executors, adminis-
istrators, guardians or trustees in the bonds or stock of any private
corporation. ' ' ^
Article II. Restraints upon the Passage op Special Statutes Con-
FERKiNG Corporate Privileges.
Section
573. Kestraints upon the passage of
special acts conferring corpo-
rate powers.
574. Object of such constitutional
provisions.
575. Such provisions not retroactive.
576. Accepting charter after date of
constitutional prohibition.
577. General laws perpetuating privi-
leges granted by previous
special charters.
578. Conferring corporate privileges
on corporations to be there-
after created under general
laws.
579. Illustration.
580. Rule in the federal courts where
a state constitution has re-
ceived conflicting interpreta-
tions in the state courts.
581. Further of prohibitions against
special acts conferring corpo-
rate powers.
582. States in which applicable only
to private corporations.
583. Prohibition against incorporating
includes prohibition against
amending.
584. A contrary view.
585. Restrains amendments enlarging
existing powers and privileges.
58'). General enabling acts applicable
to existing corporations.
587. Distinctions as to what are and
what are not corporate powers.
588. Exceptions where general laws
cannot be made applicable.
Section
589. Special act not made general by
legislative declaration to that
effect.
590. Acts curing defects in the organ-
ization of particular corpora-
tions.
591. What is a " local " law within the
meaning of such a prohibition.
692. Statute is general when uniform
in its operation upon all the
members of a particular class.
593. Provided classification natural
and not arbitrary.
594. Illustration: Invalidity of stat-
utes operative only in cities
having a certain number of
inhabitants.
595. Other cases illustrating these
distinctions.
596. Corporations carrying on opera-
tions in specific localities.
597. Creation of a park district out-
side of the corporate limits of
a city.
698. What statutes have been held
local or special.
599. Instances of statutes held not
local or special.
600. Special statutes granting " ex-
clusive privileges, immunities
or franchises."
601. Confei'riug certain public police
powers upon existing corpora-
tions.
602. Empowering existing municipal
corporations to subscribe for
stock in private corporations.
» Const. Montana, 1889, art. 5, § 37.
421
1 Thomp. Corp. § 575.] constitutional restraints.
§ 573. Restraints upon the Passage of Special Acts Confer-
ring Corporate Powers. — As already seen,^ the constitutions of
many of the States prohibit the legishiture from pa>;sing special
acts creating corporations, conferring corporate powers, extend-
ing corporate charters, or remitting forfeitures thereof. These
constitutional provisions will now be considered.
§ 574. Object of such Constitutional Provisions. — These
constitutional provisions were generally established for the pur-
pose of correcting existing evils of a flagrant character. Their
purpose was " to inaugurate the policy of placing all corpora-
tions of the same kind upon a perfect equality as to all future
grants of power ; of making such laws applicable to all parts of
the State, and thereby securing the vigilance and attention of its
whole representation; and, finally, of making all judicial con-
structions of their powers, or the restrictions imposed upon them,
equally applicable to all corporations of the same class." ^
§ 575. Such Provisions not Retroactive. — Such constitu-
tional provisions are not regarded as retroactive, unless they
are declared so in express terms; and if by their terms retro-
active, they would be invalid.^ They do not operate to vacate
charters already granted by special acts, where those charters
have been accepted and acted upon, as by organizing the corpo-
ration under them.* If, prior to the adoption of a constitution
containing such a prohibition, the legislature creates by a special
act a corporation, e.g., a railroad company, and the company in
good faith enters upon the construction of its road before the
1 Ante, § 539, et seq. (Ky.) 1, 17; State v. Illinois Central
' Atkinson v. Marietta &c. R. Co., R. Co., 33 Fed. Rep. 730; Covington
15 Oh. St. 21, 35; quoted witli ap- u. East St. Louis, 78 111. 648. Section
proval in San Francisco v. Spring 1 of article 1 of tlie lllinoi-* constitu-
Valley Water Works, 48 Cal. 493, 518. tion of 1870 was not designed to reppal
See also Van Riper v. Parsons, 40 the general law on the subject of pri-
N. J. L. 1. vate corporations in force prior to the
3 Ante, §66; post, Ch. 117. adoption of the constitution, and all
♦ State V. Stormont, 24 Kan. 686. corporations framed under such law
Compare Atchison v. Bartholow, 4 after the adoption of the constitu-
Kan. 124; State v. Young, 3 Kan. 445; tion were held formal and effectual.
State u. Hitchcock, 1 Kan. 178; Slack Meeker v. Chicago Cast Steel Co., 84
V. Maysville &c. R. Co., 13 B. Monr. IlL 276.
422
SPECIAL STATUTES. [1 Thomp. Corp. § 575.
adoption of the constitutional prohibition, the prohibition will
not have the effect of revoking its charter,^ Moreover, where
an act of this nature has been passed prior to the establishment
of the constitutional prohibition, the effect of the proliibition
will not be to disable the legislature from amending the former
act, provided the effect of the amendment is to make it less
onerous to the inhabitants of the counties aflfected by it.^ In like
manner if, prior to the establishment of such a constitutional or-
dinance, the legislature has passed an act clothing the county
courts with powt-r to grant aid to a railway company, and the
power remains unexecuted at the time of the passage of the or-
dinance, the ordinance will not operate to repeal the statute, or
to prevent the execution of the power thereby conferred ; ^ for
as already seen,* such a statute, although in terms a grant of
power to the municipal corporation, confers a right or privilege
upon the private corporation; and this, it seems, is in the na-
ture of a contract between the State and the private corporation,
which is not subject to subsequent impairment by the State,
even in the form of a constitutional ordinance. Indeed, where
the States have established new constitutions those instruments
frequently provide that laws enacted under the prior constitution
shall continue in force under the present constitution until
altered or repealed by the legislature ; and sometimes they con-
tain such a provision with special reference to acts creating cor-
porations, — for example, the following from the constitution of
Indiana, of 1850: " All acts of incorporation for municipal pur-
poses shall continue in force under this constitution, until such
time as the general assembly shall, in its discretion, modify or
repeal the same."^ When, therefore, a city had power under
the old constitution to subscribe to the stock in chartered com-
panies for making roads and other internal improvements, this
power remained unimpaired under the new.^ On the other hand,
1 Little Rock &c. R. Co. v. Little < Ante, § 36G.
Rock &c. R. Co., 36 Ark. 6(i3. = Ind. Const. 1860, Schedule Speci-
^ Ibid. Compare Quincy &c. R. Co. flcation, 4. See aLso Commissioners
V. Morris, 84 111. 410. of New Town Cut v. Seabrook, 8
8 Slack V. Mivsville &c. R. Co., 13 Strobli. (S. C.) 5G0; Demarest u. New
B. Mnnr. (Ky.) 1, 17; State w. Trustees New York, 74 N. Y. IGl.
of Union Township, 8 Ohio St. 394. ^ Aurora v. West, 9 Ind. 74, 85.
423
1 Thomp. Corp. § 577.] constitutional restraints.
as already seon,^ many of the State constitutions have annulled
existing special charters, under which bona fide organizations had
not taken place at the time of their adoption, or within a stated
period thereafter. But these provisions are subject to the same
rule of interpretation. Thus, the provisions of the constitution
of Illinois of 1870,^ that no corporation shall be created, or its
powers enlarged, by special laws, and that all the existing char-
ters or grants of special or exclusive privileges under which or-
ganization shall not have taken place, or which shall not have
been in operation within ten days of the time the constitution
took effect, should have no validity, — refer only to corporations
w^iich were then unorganized, or were not in operation, and do
not take away any special or exclusive privileges granted to cor-
porations organized and in actual operation.^
§ 576. Accepting Charter after Date of Constitutional Pro-
hibition. — But if a corporation is created by a special law, at a
time when there is no constitutional provision in force prohibiting
legislatures from passing such acts of incorporation, but the
persons named do not accept the charter or organize thereunder,
until after the passage of such a constitutional provision, their
organization will be regarded as a naked assumption, in such a
sense as will not prevent a person sued upon a promissory note
given for shares of their stock from setting up their want of
corporate character as a defense,*
§ 577. General Law Perpetuating Privileges Granted by
Previous Special Charters. — Where special charters are granted
conferring peculiar privileges, at a time when there is no consti-
tutional inhibition against the creation of corporations by special
acts, and subsequently such a constitutional inhibition is estab-
lished, the result will be that the peculiar privileges granted by
such special statutes will expire by the terms of limitation therein
prescribed. After the establishment of such a constitutional
inhibition, it will not be competent for the legislature to enact a
1 Ante, § 546. •* Gillespie v. Ft, "Wayne &c. Co., 17
"^ 111. Const. 1870, art. 11, §§ 1, 2. Ind. 243. See also Harriman v.
3 State V. Illinois Cent. R. Co,, 33 Southam, 16 lud, 190; ante, § 505.
Fed. Rep, 730,
424
SPECIAL STATUTES. [1 Thomp. Coi'p. § 579.
general law of such a nature that, by reorganizing under it the
coi-poration so specially chartered, the corporators can perpet-
uate their peculiar privileges indefinitely. When, therefore, a
bridge company was chartered by a special act, there being no
constitutional inhibition, for the period of twenty-one years, with
the francli ise of taking tolls, and it attempted to organize under
such a general law, enacted after the establishment of such a
constitutional inhibition, it was held that it could not, by thus
organizing, perpetuate its franchise of taking tolls, but that its
bridge thereafter became a public highway, and it would be
ousted of the franchise of taking tolls, by an information in the
nature of quo warranto.^
§ 578. Conferring Corporate Privileges on Corporations to
be thereafter Created under General Laws. — A constitutional
prohibition against creating corporations by special laws, can
not be evaded by the passage of a special act conferring corporate
privileges upon a body of associates to be thereafter incorporated
under a general law. An act which grants to individuals and to
their assigns certain powers and privileges, and then provides
that the act shall not take effect unless the persons to whom the
grant is made shall, within a certain time, organize themselves
into a corporation under existing laws, is a grant, not to the in-
dividuals as persons, but to the corporation when formed. Such
an act is an attempt on the part of the legislature to confer
powers and privileges upon a corporation by a special act, in the
face of the constitutional prohibition. When such persons or-
ganize themselves into a corporation under the general law, the
corporation possesses no powers or privileges except such as are
conferred by such law. ^
§ 579. Illustration. — With such a constitutional inhibition exist-
ing, the legislature of California undertook to pass " an act to authorize
George H. Ensign and others, owners of the Spring Valley Water
Works, to lay down water pipes in the public streets of the city and
1 State V. Lawrence Bridge Co., 22 Water Works, 48 CaL 493 (overruling
Kan. 438. The principle of ttiis decis- California State Tel. Co. u. AltaTel.
ion is embodied in some of the consti- Co., 22 Cal. 398). Compare Spring
tutious in express terms. Ante,, § 542. Valley Water Works v. San Francisco,
2 San Francisco v. Spring Valley 22 Cal. 442 ; post, § 580.
425
1 Thomp. Corp. § 580.] constitutional restraints.
county of San Francisco." The act provided that " the said George
H. Ensign and his associates and their assigns shall have the right,
and the same is hereb\^ granted to them and their assigns, to lay down
distributing iron water pipes in any of the public streets, ways or alleys
of the city and county of San Francisco," etc. The eighth section of
the act provided : ' ' This act shall not take effect until the parties named
in section one shall, within sixty days after its passage, duly organize
themselves, in conformity with the existing laws regulating corporations,
now in force in this State." It was held that this statute was unconsti-
tutional and void, as being an attempt by indirect methods to confer
corporate pri\dleges, by a special law, upon a corporation to be there-
after created. Mr. Chief Justice Rhodes, while agreeing generally with
the reasoning of the court, dissented from its conclusion, on the ground
that the statute did not involve an attempt to confer corporate powers
upon the grantees named, but that the powers conferred upon them
were such as might be conferred upon a natural person or upon an unin-
corporated association. In other words, his opinion was that a granting
of the mere right to lay down water pipes in the streets of a city, upon
certain terms and conditions, did not involve the granting of any cor-
porate powers.^
§ 580. Rule in the Federal Courts where a State Constitu-
tion has Received Conflicting^ Interpretations in the State
Courts. — This decision of the Supreme Court of California was
subsequently denied by the Circuit Court of the United States,
for the District of California. The Federal courts are foreign
jurisdictions, in respect of the States, to the extent that they
are bound by the interpretation which the State courts put upon
their own constitutions and laws, when such interpretation is not
in conflict with the constitution of the United States. ^ But to
this rule those courts have annexed the qualification that, where
the highest court of the State adopts an oscillating and incon-
sistent construction of its own constitution or statutes in a given
particular, the Federal court will not be bound, in successive de-
cisions, to follow the oscillations of the pendulum, when to do
so will give to the subsequent decisions, altering the construc-
tion of the constitution or statute, a retroactive efect, so as
1 San Francisco v. Spring Valley Debolt, 16 How. (U. S.) 415, 431;
Water Works, 48 Cal. 493, 509, 533. Gelpcke v. Dubuque, 1 Wall. (U. S.)
2 Webster v. Cooper, 14 How. 175, 206; Cliicago &c. R. Co. v. Min-
(U. S.) 504; Ohio Life Ins. &c. Co. v. nesota, 10 Sup. Ct. Rep. 462.
426
SPECIAL STATUTKS. [1 Thoiiip. Corp. § 580.
to allow them to render invalid contracts which were lawful
at the time when they were made.i " The sound and the
true rule is," said Mr. Justice Miller, "that if the contract,
when made, was valid by the Liws of the State, as then ex-
pounded by all the departments of the government and ad-
ministered in its courts of justice, its validity and obligation
cannot be impaired by any subsequent action of legislation or
decision of its courts altering the construction of the law. The
same principle applies when there is a change of judicial decis-
ion as to the constitutional power of the legislature to enact the
law. To this rule thus enlarged we adhere. It is the law of
this court. It rests upon the plainest principles of justice. To
hold otherwise would be as unjust as to hold that rights acquired
under a statute may be lost by its repeal." ^ Moreover, where
the course of decisions of the highest court of a State upon a
given question is so oscillating that the Federal court is at
liberty to regard the interpretation of the constitution or statute
in a given instance as unsettled by the State tribunal, it will be at
liberty to adopt the view which appears to it most correct.
This is well illustrated by a decision of Mr. Justice Sawyer at
circuit in an important case already cited. In 1863 the Supreme
Court of California construed a provision of the constitution of
that State restraining the legislature from creating corporations
by special acts except lor municipal purposes. That construc-
tion remained unquestioned by the courts of that State for
eleven years, during which time much legislation of a similar
character to that in question in the Federal court, and among it
that involved in the case in the Federal court, was enacted; and
under this legislation important rights had become vested. In
1874 the Supreme Court of California, being differently consti-
tuted, overruled the prior decision, three of the six judges who
sat in the two cases having taken one view, and three the other.
At the time of the decision in the Federal court the Supreme
Court was again being reorganized, with seven members, only
one of whom had considered the question as a member of the
State court of last resort. Under these circumstances Mr.
1 Ohio Life Ins. &c. Co. v. Deljolt, ^ Qelpcke v. Dubuque, 1 Wall. (U.
16 How. (U. S.) 4;]2; Rowan v. Run- S.) 206.
nels, 5 How. (U. S.) 134.
427
1 Thomp. Corp. § 581.] constitutional restraints.
Circuit Judge Sawyer held thiit the construction of the constitu-
tion was not settled, within the rule which oblio;es the Federal
courts to follow the construction of the State courts, and conse-
quently that the Federal courts were at liberty to adopt the view
which appeared to them correct.^
§ 581. Further of Prohibitions against Special Acts Confer-
ring Corporate Powers. — The constitutions of some of the
States are more explicit, in so far as they guard against any
possibility of misconstruction by providing that " the general as-
sembly shall pass no special act conferring corporate powers." ^
It is obvious that this language goes further than to prohibit the
creation of corporations by special act. It bars the way to the
passage of any such act, conferring upon an existing corporation
any powers which in their nature can only be possessed and
exercised by corporations. With this prohibition in force, a rail-
way company which, by its charter, did not have the power to
sell its franchise of being a corporation, 7nortgaged its properties,
and these properties were sold under the mortgage ; and the pur-
chasers thereafter procured a special act of the legislature, which
undertook to give effect to the sale, by authorizing them to re-
organize the former corporation, to create a new stock and to
elect a new board of directors.^ It was held that this, in sub-
stance and legal effect, was an attempt to create a corporation
and to confer corporate powers by a special act, and that it was
in conflict with the constitutional prohibition aV)Ove quoted.
The court, speaking through Ranney, J., said: " The defendant's
counsel insist that the act does not assume to confer corporate
powers, but is simply declaratory of the effect of a sale of the
road and franchises under the decree; that the object of the act
is to remove doubts as to the effect of such a sale, which it does,
not by conferring corporate powers, but by declaring that the
sale shall transfer to the purchasers the powers and capacities
1 Southern Pacific R. Co. v. Orton, by tlie court ia San Francisco u.
6 Sawy. (U. S.) 157. Tlie court ac-. Spring Valley Water Works, 48 Cal.
cordiu;j;ly adopted the view of the 493. As to these decisions see ante,
Supreme Court of California, as laid §§ 478, 479.
down in California State Tel. Co. v. ^ See, for instance, Ohio Const, of
Alta Tel. Co., 22 Cal. 398, and declined 1851, art. 13, § 1; o,nt&, § 539.
to follow that subsequently adopted ^ gee § 257, et seq.
428
SPECiAii STATUTES. [1 Thomp. Coi'p. § 583.
theretofore conferred upon the Cincinnati & Marietta Company,
which it sanctions as an incident of the sale and purcliase, includ-
ing the right of the purchasers to reorganize, without which the
purchase of the franchise would be a barren acquisition in their
hands. That the transaction assumed this form, there is no
doubt; but this does not relieve us from the necessity of inquir-
ing what it was in substance. Constitutional provisions would
be of little value, if they could be evaded by a mere change of
forms. These provisions of the constitution are too explicit to
admit of the least doubt, that they were intended to disable the
general assembly from either creating corporations, or conferring
upon them corporate powers, by special acts of legislation." ^
§ 582. States in which Applicable only to Private Corpora-
tions. — By judicial construction in some States,^ and by the
express language of constitutional provisions in others,^ restric-
tions against the passage of special laws creating corporations or
conferring corporate powers, apply only to private^ not to mw-
n^c^JO«^ corporations. This is the construction of the provision
of the present constitution of Pennsylvania, vacating all exist-
insT charters under which a valid organization shall not have
taken place.* On the other hand, a constitutional provision that
" the legislature shall pass no special act conferring corporate
powers " ^ has been held to apply to municipal as well as to private
corporations.^ But it has been held in Kansas that, while this
1 Atkinson v. Marietta &c. E. Co., izing these cases, " An act specially
15 Oh. St. 21, 35. Compare "Wallace amending the charter of a city in re-
V. Loomis, 97 U. S. 146; s. c. Myer spect to making local improvements
Fed. Dec, § 20. or assessments [citing Atchison v.
2 State V. Newark, 40 N. J. L. 71; Bartholow, 4 Kan. 124; Gilmore v.
Balleniine u. Pulaski, 15 Lea (Tenn.), Norton, 10 Kan. 491; State v. Pugh,
633. 43 Oh. St. 98], or specially extending
3 Ante, § 539. the limits of a particular city [citing
* Ante, § 54G; Lehigh Water Co.'s Wyandotte v. Wood, 5 Kan. C03; State
Appeal, 102 Pa. St. 515. v. Cincinnati, 20 Oh. St. 18], is uncon-
* Kan. Const., art. 12, § 1; Oh. stitutional; and so it seems is an act
Const., art. 13, §2. which authorizes a city by name to
6 Atchison V. Bartholow, 4 Kan. issue its scrip for a particular pur-
124; Wyandotte v. Wood, 5 Kan. 603; pose, and to levy taxes to pay it in aid
State V. Maloy, 20 Kuu. 619; State v, of a sinjrle enterprise, — the court iu-
Cincinnati. 20 Oh. St. IS. Hence, as dining to hold such an enactm 'ut to
observed Ijy Judge Dillon, in sumniar- be a special act, audoue which under-
429
1 Thomp. Corp. § 584.] constitutional restraints.
restriction includes municipal corporations properly so called, it
does not embrace quasi-corporations^ such as school districts, al-
though the latter are declared by statute to be bodies corporate.^
In New York it has been held that a constitutional provision
requiring the assent of two-thirds of the general assembly to the
passage of any bill creating, continuing, altering or renewing
any body politic or corporate,^ applies to municipal, as well as
to private corporations.^
§ 583. Prohibition against Incorporating Includes Proliibi-
tion against Amending. — A prohibition against incor[)orating
cities and towns except by general laws has been justly held to
include a prohibition against amending, by special statutes, acts
of incorporation already in existence. " To say that the legis-
lature may not pass a law to incorporate a city, but may to
amend an act of incorporation in existence before the adoption
of the constitution, or charters formed under the general law,
would make this provision of the constitution practically amount
to nothing. For if they may amend, they may to the extent of
passing an entire new law, except as to one section. Or they
may at one session amend half the law, and at the next the other
half; and thus the plain and positive prohibition of the funda-
mental law would be evaded. By such a construction, the evils
sought to be remedied would continue, if possible, in a more ob-
jectionable form." *
§ 584. A Contrary View. — A contrary view was taken of
this subject by Mr. Circuit Judge Sawyer, in an elaborate decis-
ion in the Circuit Court of the United States for the District of
took to confer corporate powers." As to what is an alteration within this
Dillon Mun. Corp. (4th ed.), § 46; provision, see Corning v. Green, 23
citing to the last point Commercial Barb, (N. Y.) 33; Smith v. Helraer, 7
National Bank v. lola, 2 Dill. (U. S.) Barb. (N. Y ) 416; Morris v. People,
353. 3 Den. (N. Y.) 381.
1 Beach v. Leahy, 11 Kan. 23. See * Ex parte Fritz, 9 la. 30, 33. To
also State v. Cincinnati, 20 Oh. St. the same effect see McGregor v. Bay-
18, 37; contra, School District v. In- lies, 19 la. 43; Davis v. Wooluough,
surance Co., 103 U. S. 707; ante, % 20. 9 la. 104; Baker u. Steamboat Mil-
2 Post, § 632. waukee, 14 la. 214; State v. Barbee, 3
3 Purdy V. People, 4 Hill (N. Y.), Ind. 258.
384; reversing s. c. 2 Hill (N. Y.;, yi.
430
SPECIAL STATUTES. [1 Thomp. Corp. § 584.
California, in 1879. He held that the provision of the constitu-
tion of California prohibiting the legislature from creating cor-
porations by special acts except for municipal purposes, did not
extend so far as to render invalid an act passed by the legislature
of that State authorizing the Southern Pacific Railroad Company
to change the line of its road, to accept a congressional grant of
land, and to construct its road as provided in the act of Congress
incorporating the Atlantic and Pacific Railroad Company. The
syllabus of the case as reported, understood to have been pre-
pared by the learned judge himself, gives as good a summation
of his course of reasoning as can be made. He proceeded upon
the view that the settled rules of construction of State constitu-
tions is that they are not special grants of powers to legislative
bodies, but general grants of all legislative power, not actually
prohibited or expressly excepted ; that the exception must be
strictly construed; in other words, that the construction is strict
against those who stand on the exception^ and liberal in favor of
the government itself. He laid stress upon the established rule
of strict construction, applicable to State constitutions, that an
act of the legislature should never be declared unconstitutional
unless there is a clear repugnance between the statute and the
organic law. He took the view that what the legislature author-
ized the railway company in the particular case to do, was not
the conferring of a corporate franchise at all. According to his
reasoning, the essence of a corporation consists only of a
capacity to have perpetual succession under the special denomi-
nation and in an artificial form; to take, hold and grant
property ; to contract obligations, and to sue and be sued by its
corporate name; and a capacity, by its corporate name, to re-
ceive and enjoy, in common, grants of privileges and immuni-
ties. He reasoned that the riglit to be a corporation is a dist inct,
independent franchise, complete within itself, having no neces-
sary connection with other distinct franchises, which arc the
subjects of legislative grunt, and which may, or may not be
given to corporations once created, as well as to natural persons,
as to the legislature may seem advisable. He proceeded upon
the view that corporate powers, strictly speaking, are such as
are peculiar to corporations, and essential to their being, :ind
not such powers as are usually, or may be, possessed and enjoyed
481
1 Thomp. Corp. § 585.] constitutional restraints.
indifferently by corporations and natural persons. Referring
specially to the meaning of the clause of the constitution of
California which prohibits the creation of corporations by
special act, he reasoned that the creation of a corporation is the
bringing into being of an artificial person having the essential
attributes of a corporation — the creation of the distinct and in-
dependent franchise called a corporation, — which, when created,
has a capacity, among other things, by its corporate name, to
receive and enjoy such other franchises, privileges and immuni-
ties, property and rights, as the legislature itself, or other per-
sons with its permission, may grant it. He reasoned tliat the
granting of independent franchises, other than the specific fran-
chises constituting a corporation, and of other privileges and
powers, to a pre-existing corporation, are not acts creative of a
corporation, but acts regulating the conduct of the existing cor-
poration in its relation to and intercourse with the public and
other persons, natural and artificial. His conclusion easily fol-
lowed, that an act of the legislature which merely granted to an
existing railroad corporation authority to change the line of its
road, is not an act creating a corporation in whole or in part and
does not involve the creation of any new corporate power. ^
§ 585. Restraining Amendments Enlarging Existing Powers
and Privileges. — There is no doubt that such a constitutional
provision ought to be construed as restraining the po wer of the
legislature to amend existing special charters, in any way, so as
to enlarge the powers or privileges thereby conferred. It has
been held that they do not prohibit the legislature from passing
special acts regulating existing corporations, in the exercise of
the powers already conferred upon them by special laws. This
seems to have been the conclusion of the Court of Appeals of New
York, in a case involving the rights of an elevated railway com-
pany created by a special statute prior to the constitutional amend-
ment which contained the prohibition. The court, speaking
through Church, C. J., laid stress on the fact that " no exclusive
1 Southern PaciQc R. Co. v. Orton, Francisco v. Spring Valley Water
6 Sawy. (U. S.) 157. The court de- Works, 48 Cal. 493, for the reasons
clined to follow the decision of the already stated. Ante, § 480.
Supreme Court of California in San
432
SPECIAL STATUTES. [1 Thomp. Corp. § 586.
right or franchise was granted to the respondent corporation upon
any construction of the clause. Every substantial right existed
before the passage of the act; and the conditions imposed, em-
bracing changes of structure and manner of occupying streets,
should be regarded asrestrictiveof existing rights, and not grants
of rights or franchises within the constitutional sense." ^ Quot-
ing this language, it was said in a subsequent case by Gray, J. :
" If the legislative act operates upon a charter in the direction of
a regulation, an adjustment, or a restriction of powers possessed,
it could not be objectionable. Within its reserved powers the
legislature may, at all times, amend or alter the charter ; but the
constitutional amendment will not permit it, by a private bill, to
make any new grant of rights, comprehended within those speci-
fied by the amendment." 2 The legislature could not, therefore,
by amending the charter of a corporation created with power to
transport freight and passengers through a pneumatic tube, which
charter had been granted by a special act before the constitutional
amendment, empower it to construct an ordinary railway for that
purpose, with any motive power which it might see fit to use,
not emitting smoke, cinders, etc.^
§ 586. General Enabling Acts Applicable to Existing Cor-
porations. — General enabling acts, applicable to existing cor-
porations or to all existing corporations of a particular kind, are
not unconstitutional, as being within the prohibition against con-
ferring corporate powers by special acts. Thus, an act providing
that any university or college, organized and incorporated under
the provisions of any special charter, etc., may, by a majority of
its board of directors, change its name, if done before a given
date, is valid. It is not a local act, nor does it amend the charter
of any particular college or university, or create a new corporation.
It operates alike, and uniformly throughout the Slate upon like
facts.* The fact that the act limits the time within which such
institutions of learning may change their names does not affect its
validity.^
1 Re Gilbert Elevated R. Co., 70 N. ■'' Ibid. But s^e post, § 5^9, p. 450.
Y. 361. -I Ilazclett v. Butler University, 84
2 Astorv. Arcade R. Co., 113 N. Y. Ind. 230.
93, HI; 's. c. 20 North East. Rep. 59i. ^ Ibid.; citing Clare v. State, 68
28 433
1 U'liomp, Corp. § 587.] constitutional restraints.
§ 587. Distinctions as to What are and What are not Cor-
porate Powers. — With reference to a constitutional prohibition
against creating corporations by special acts, much judicial
thought lias been expended upon the question what are and what
are not to be deemed corporate powers and franchises. It is
undeniably logical that where the legishiture is prohibited from
creating a corporation by a special act, it cannot, without an
evasion of the prohibition, confer by special act et<sential corpo-
rate francJiises on existing corporations, which are organized
under previous valid charters or under general laws. It is hence
highly important to consider what powers are in the nature of
corporate franchises and what are not. It has been reasoned,
on very doubtful grounds, that only such powers or faculties are
corporate franchises as can be possessed and enjoyed by corpora-
tions alone, and that powers or privileges which can be possessed
and enjoyed by individuals are not to be deemed corporate fran-
chises, and maybe conferreduponexistingcorporationsby a special
act of the legislature, notwithstanding the prohibition in question.^
On the other hand, it has been held that a grant of an easement in
a street^ made by the legislature to a corporation, cannot be sus-
tained as a grant of an interest in the lands, but must be
viewed purely as a grant of corporate power, which cannot
be made to a private corporation by special act.^ The rea-
soning in support of this view is that the State has no
proprietary interest in the streets of a city dedicated to public
use; and that its power to grant to a private corporation an
easement over streets, not common to the public at large, is
limited to such power as it possesses in its sovereign capacity to
grant a franchise, and not to any proprietary interest in the streets,
the fee of the streets in a city being, as a general rule, in the owners
of the adjoining land, on each side, to the center of the street,"
The conclusion therefore is that private corporations to supply
Ind. 17. As to distinction taken in nying the case next cited. See the
the same State between legal and reasoniug of the learned judge more
special acts, see Hymes v. Aydelott, at large, ante, § 584.
26 Ind. 431; State v. Reitz, 62 Ind. ^ city of San Francisco v. Spring
159. VaUey Water Works, 48 Cal. 493.
1 See the reasoning of Mr. Circuit ^ City of San Francisco v. Spring
Judge Sawyer in Southern Pacific R. Valley Water Works, 48 Cal. 493.
Co. ». Orton, 6 Sawy. (U. S.) 157; de-
434
SPECIAL STATUTES. [1 Thomp. Corp. § 588.
a city with water, cannot be created by special act, nor can
the power to supply a city with water be conferred on a private
corporation by special act ; and the fact that the franchise
of such a corporation consists chiefly in an easement in city
streets, does not exempt them from the constitutional rule.*
§ 588. Exception where General I^aws can not be Made
Applicable. — Some of the constitutions annex to the prohibi-
tion airainst the passage of local or special laws the qualification
that they shall not be passed where general laws can be made
applicable. 2 Although there is a division of opinion upon the
question, the weight of authority is that the legislature is the
exclusive Judge of the question whether a general law can be
made applicable in particular circumstances.^ The view that,
to remit the decision of this question exclusively to the dis-
cretion of the legislature would deprive such a constitutional
prohibition of all its vitality, is founded on the most ordinary
i City of San Francisco v. Spring
Valley VV^ater Works, 48 Cal. 493.
2 Ante, § 539. Thus, the constitution
of Indiana (Ind. Const. 1850, art. 4, §
22), enumerates along list of cases in
which the general assembly shall not
pass local or special laws, and then in
the following section provides: "In
all the cases enumerated In the pre-
ceding section, and in all other cases
where a general law can be made ap-
plicable, all laws shall be general, and
of uniform operation throughout the
State."
3 In Kansas, it is held that the leg-
islature is the exclusive judge of the
question: State v. Hitchcock, 1 Kan.
178; Beach v. Leahy, 11 Kan. 23; Har-
vey v. Rush County, 32 Kan. 159;
Francis v. Atchison &c. R. Co., 19
Kan. 303 ; Norton County v. Shoemaker,
27 Kan. 77 ; Knowles v. Board of Edu-
cation, 33 Kan. 692, G99. In Colorado
the same rule prevails. Brown v.
Denver, 7 Col. 305; Carpenter v.
People, 8 Col. 116; Darrow v. People,
Id. 426. So in Nevada: Evans v. Job,
8 Nev. 322. The same rule formerly
applied in Missouri. State v. County
Court, .50 Mo. 317; State u. County
Court, 51 Mo. 82; Hall v. Bray, Id.
288; Commissioners v. Shields, 62 Mo.
247; Murdock v. Woodson, 2 Dill. (U.
S.) 188; but under the present consti-
tution of Missouri the question cannot
arise, for the exception has been elim-
inated. In Indiana it was at first held
to be a judicial question. Thomas v.
Board of Commissioners, 5 Ind. 4.
But this decision has been subse-
quently overruled, and it is now held
to be a question for the exclusive de-
cision of the legislature. Gentile v.
State, 29 Ind. 409; Longworth v. Ev-
ansville, 32 Ind. 322; State v. Tucker,
46 lad. 358. See also 1 Dill. Mun.
Corp., § 48 (4th ed). In Iowa the
early Indiana doctrine (since over-
ruled) was followed: Ex parte Pritz,
9 la. 30, 36; Von Phul v. Hammer, 29
Iowa, 222. And so in New Jersey the
question has been recently held not
a question for the exclusive determi-
nation of the legislature. State V. New-
ark, 40 N, J. L. 71.
435
1 Thomp. Corp. § 589.] constitutional restraints.
observation of American legislation. In the Supreme Court of
Indiana it was said: " It would impose no restriction upon the
action of the legislature, nor confer any power which that body
would not possess in the absence of such a provision." And it
was further said ; "If that section permits the legislature to en-
act a special or local law ad libitum^ in any case not enumerated,
the principle involved would deprive this court of all authority
to call in question the correctness of a legislative construction
of its own powers under the constitution." ^ Although this de-
cision has been overruled in the State in which it was pronounced,
and although the weight of authority is no doubt opposed to its
conclusion, the above reasons have never been answered. Where,
however, the lanffuage of the constitutional inhibition is that
special charters shall not be granted except where, in the judg-
ment of tlie legislature, the general laws are insufficient to meet
the particular case, the question is put beyond the reach of ju-
dicial construction, because the constitution itself refers every
such case to the exclusive judgment of the legislature, and it is
inferred, wherever a special act of such a nature is passed that
the legislature has judged that general laws are insufficient to
meet the case, especially where the contrary holding would over-
turn many charters and destroy many vested rights. ^
§ 589. Special Act not Made General by L.egislative De-
claration to that Effect. — But whether the limitation on the
prohibition considered in the next preceding section exists or not,
an act which purports on its face to be, and is, in fact, a special
act, cannot be converted into a general act, by a declaration of
the legislatm'e in another act that it shall be considered a general
1 Thomas v. Board of Commission- a special act is necessary or not, rests
el's, 5 Ind. 4, 7 (followed in Es parte wholly in the discretion of the legis-
Pritz, 9 la. 30, 36). lature. People v. Bovven, 21 N. Y.
2 Johnson V. Joliet &c. R. Co., 23 517; s.c. aff'd 30 Barb. 24. The leg-
Ill. 202. This was the provision of islature having created a corporation
the former constitution of Illinois, art. by a special act, it is not competent
10, § 1 ; Scates Comp. 111. Stat. 71. to the judiciary to review the discre-
The provision of the constitution of tion or judgment of the legislature
New York is the same as the early and declare the act unconstitutional,
constitution of Illinois, and it has re- Hosier v. Hilton, 15 Barb. (N. Y.) 657.
suited in the same view, that whether
436
SPECIAL STATUTES. [1 Tliomp. Corp. § 590.
act;i otherwise the legislature might lift itself above the con-
stitutional prohibition, by merely declaring that what it was doing
was not within the prohibition. ^
§ 590. Acts Curing Defects in the Organization of Partic-
ular Corporations. — In the early periods of American legisla-
tion, it was the fashion for the legislatures to enact statutes
curing all sorts of misprisions and defects, so as to save rights in
particular cases. These statutes went under the general denom-
ination of curative acts. An extended reference to them would
not be of much practical value ; since the power to pass them has
been taken from the legislatures by many recent State constitu-
tions, in the form of ordinances prohibiting the passage af special
laws.^ The principle which was invoked to uphold such legis-
lation was thus stated by Chancellor Kent in his commentaries :
" This doctrine [that of the Dartmouth College Case] is not un-
derstood to apply to remedial statutes^ which may be of a retro-
spective character, provided they do not impair contracts, or
disturb al)Solutely vested rights; and only go to confirm rights
already existing, and are in furtherance of the remedy, by curing
defects, and adding to the means of enforcing existing obliga-
tions. Such statutes have been held valid, when clearly just and
reasonable and conducive to the general welfare, even though
they might operate in a degree on existing rights, — as a statute
to confirm marriages defectively celebrated, or a sale of lands
defectively made, to pay debts of a testator or intestate. The
leo-al rio-hts affected in those cases by the statutes were deemed
to have been vested subject to the equity existing against them, and
which the statutes recognized and enforced." * In other words,
these curative statutes have been supported upon the ground that
acts are valid which give remedies where none existed before,
throuo-h defects that would have been fatal, had the legislature
not interfered and given a perfect remedy by curing interven-
ing irregularities. In such cases the weight of judicial opinion
seems to have been that no rights are interfered with, which are
» Belleville R. Co. v. Gregory, 15 * Cooley Const. Lim. (5th ed.), pp.
m. 20. 455 to 472.
2 City of San Francisco v. Spring * 2 Kent Com. 34.
Valley Water Works, 48 Cal. 493.
437
1 Thoinp. Corp. § 590.] constitutional restiiaints.
vested in such a sense us to come within the rule that forbids tlie
interference of the legislature.^ According to Mr. Justice
Cooley, the rule applical)le to cases of this description is sub-
stantially the folio wiug: "If the thing wanting, or which failed
to be done, and which constitutes the defect in the proceedings,
is something the necessity for which the legislature might have
dispensed with by prior statute, then it is not beyond the power
of the legislature to dispense with it by subsequent statute. And
if the irregularity consists in doing some act, or in the mode or
manner of doing some act which the legislature might have made
immaterial by prior law, it is equally competent to make the
same immaterial by a subsequent law." ^ Quoting this language
and applying this principle, it is held by the Supreme Court of
Alabama, that it is competent for the legislature, by a curative
act, to render valid the organization of a corporation, which
might otherwise have been invalid by reason of the non-perform-
ance of something which the law required to be done as a condi-
tion precedent to the corporate existence.^ In other words,
where the State prescribes certain conditions as essen-
tial to the organization of a corporation, it is competent
for the State to waive or dispense with such conditions ;
and the State waives such conditions by enacting a subse-
quent statute declaring the existence of the association as a
corporate body, and approving or ratifying its organization and
amending its charter.* So, in New York the conclusion has been
reached that, notwithstanding a constitutional prohibition against
the passage of special charters creating banking corporations, it
is competent for the legislature, by a special curative act, to give
validity to the corporate organization of a banking company,
' Syracuse City Bank v. Davis, 16 past transactions, according to the
Barb. CN. Y.) 188, 192. See on tliis legislative judgment; the power of ui -
subject Fosters. Essex Bank, 16 Mass. terpreting and applying the laws 1 es
258; Cochran u. Van Surlay, 20 Wend, wholly with the courts. Lincoln
305; Butlerw. Palmer, 1 Hill (N. Y.), Building Assoc, v. Graham, 7 Neb. 173.
325; Hepburn ?;. Curtis, 7 Watts (Pa.), 2 Cooley Const. Lim. (oth ed.), [>.
300; Johnson v. Wells County 458.
Comm'rs, 107 Ind. 15; Lockhart u. ^ Central Ag. &c. Asso. u. Alabama
Troy, 48 Ala. 579. But it is not within &c. Co , 70 Ala. 120; s. c. 9 Am. Corp.
the power of the legislature to pass an Cas. 8.
act obliging the courts to construe and * Ibid,
apply a previous law, in reference to
4.38
SPECIAL STATUTES. [1 ThoDip. Corp. § 590.
which had been informally organized by reason of the insuffi-
ciency of its certificate of incorporation, and the acknowledg-
ment and recording thereof.* The test by which to determine
the validity of an act curing the defective organization of a cor-
poration, is to consider whether the legislature had the power to
create the corporation in the first instance ; since it will not be
denied that it has the same power to cure defects in the organi-
zation of an informally and irregularly organized corporation, as
it has to brinor into existence a new one.^ Numerous instances
are found where the courts have sustained statutes curing irregu-
larities in the votes or other acts of municipal corporations, or
the like, where a statutory power has failed of due and regular
execution, through the carelessness of officers or other causes.^
1 Syracuse City Bank v. Davis, 16
Barb. (N. Y.) 188. See also People
V. Plank Road Co., 86 N. Y. 1.
2 Mitchell V. Deeda, 49 111.416,419.
3 Menges v. Wertman, 1 Pa. St.
218; Yost's Report, 17 Pa. St. 524;
Bennett u. Fisher, 26 la. 497; Allen v.
Archer, 49 Me. 346 ; Com. v. Marshall,
69 Pa. St. 328; State v. Union, 33 N.
J. L. 350; State v. Guttenberg, 38 N.
J. L. 419; Mutual Benefit Life Ins.
Co. V. Elizabeth, 42 N. J. L. 235;
Rogers v. Stephens, 86 N. Y. 623;
Unity V. Burrage, 103 U. S. 447;
Spaulding v. Nourse, 143 Mass. 490;
Tifft V. Buffalo, 82 N. Y. 204; Citizens'
Water Co. v. Bridgeport Hydraulic
Co., 55 Conn. 1; Bridgeport?;. Rail-
road Co., 15 Conn. 475; Truchelut w.
City Council, 1 Nott & McC. (S. C.)
227; Frederick v. Augusta, 5 Ga. 561 ;
Atchison v. Butcher, 3 Kan. 104 ; Bis-
sell V. Jiffersonville, 24 How. (U. S.)
287, 295; McMillen v. Boyles, 6 Iowa,
304; Mattlngly v. District of Colum-
bia, 97 U. S. 687 (ratification by Con-
gress of assessments against prop-
erty) ; Lockhart v. Troy, 48 Ala. 579 ;
San Francisco v. Certain Real Estate,
42 Cal. 513; Emporia v. Norton, 13
Kan. 569 (curing defects in proceed-
ings to collect taxes) ; Mason v.
Spencer, 35 Kan. 512 (curing defect in
mode of levying sewer tax) ; Anderson
V. Santa Anna, 116 U. S. 356, 364;
Bolles V. Brimfleld, 120 U. S. 759;
Williams v. Supervisors, 122 U. S.
154 (tax assessments) ; Otoe County
W.Baldwin, 111 U. S. 1; Katzenberger
V. Aberdeen, 121 U. S. 172; State v.
Newark, 3 Dutch. (N. J.) 185; New
Orleans v. Clark, 95 U. S. 644 : Grenada
County V. Brogden, 112 U. S. 261 (dis-
tinguishing Hayes v. Holly Springs,
114 U. S. 120) ; St. Joseph Townp. v.
Rogers, 16 Wall. (U. S.) 644; U. S.
Mortgage Co. v. Gross, 93 111. 483,
494. Compare Danielly v. Cabanness,
52 Ga. 211; Pompton w. Cooper Union,
101 U. S. 196; Keithsburg v. Frick, 34
111. 405; Jasper County v. Ballon, 103
U. S. 745; Copes v. Charleston, 10
Rich. L. (S. C.) 491; People v.
Mitchell, 35 N. Y. 551; Thomson v.
Lee County. 3 Wall. (U. S.) 327; Bass
V. Columbus, 30 Ga. 845; Campbell v.
Kenosha, 5 Wall. (U. S.) 194; Stines
V. Franklin County, 48 Mo. 167; Knapp
V. Grant, 27 Wis. 147; Duanesburgh
V. Jenkins, 57 N. Y. 177 (reversing
s. c. 46 Barb. (N. Y.) 294, and distin-
guishing People V. Batchellor, 53 N.
Y. 128) ; Kimball v. Rosendale, 42
Wis. 407; s. c. 24 Am. Rep. 421;
Ritchie v. Franklin County, 22 Wall.
(U. S.) 67; Bradley v. Franklin
439
1 Thonip. Corp. § 590.] constitutional restraints.
But, keeping in mind the principle that the legislature can only
validate where it could authorize^ it follows thut the legislature
loses its power to validate, after the establishment of a con-
slitulional ordinance prohibiting it from authorizing.* In-
stances of curative acts in respect of municipal corporations
which have been held void are, — acts ratifying void assessments
for local improvements ; 2 acts validating a tax upon property
not within the corporate limits when levied.^ Instances of
curative acts which have been held valid are, acts ratifying
an ultra vires contract for street improvements,^ and validat-
County, 65 Mo. 638; Lewis v.
Shreveport, 3 Woods (U. S.), 205;
Thompson v. Perrine, 103 U. S. 806;
s. c. 106 U. S. 589; Dows v. Elm-
wood, 34 Fed. Rep. 114; Gardner
V. Haney, 86 Ind. 17. As already
seen (ante, §§ 649-551) this power
is now witlidrawn by many of the
State constitutions. See Marshall
V. Silliman, 61 111. 218, a case which
arose under the present constitution
of Illinois.
1 Sikes V. Columbus, 55 Miss. 115;
Grenada County v. Brogden, 112 U.
S. 261; Hayes v. Holly Springs, 114
U. S. 120; Cairo &c. R. Co. v. Sparta,
77 111. 505; Kettle v. Fremont, 1 Neb.
329 ; Re Sackett &c. Streets, 74 N. Y.
95; Jacksonville v. Bassnett, 20 Fla.
525 (legalizing assessment of tax).
So, the legislature may ratify the title
to an office, after which it cannot be
questioned in a proceeding by quo war-
ranto. People V. Flanagan, 66 N. Y.
237. In Marshall v. Silliman, 61 111.
218, and Wilie v. Silliman, 62 111. 170,
the Supreme Court of Illinois held
that, under pretense of ratification, a
municipal corporation could not be
coerced by the legislature into the con-
tracting of an indebtedness. In Elm-
wood Township v. Marcy, 92 U. S.
289, the Supreme Court of the United
States, three judges dissenting, fol-
lowed this decision. " Subsequent
legislative sanction within constitu-
440
tional limits is equivalent to original
authority." Dill. Mun. Corp. (4th ed.),
§ 544. The learned author cites to
this truism, "Wilson v. Hardesty, 1 Md.
Ch. 66; Jasper County v. Ballou, 103
U. S. 745; Shaw v. Norfolk R. Co., 5
Gray (Mass.), 180; Satterlee v.
Matthewson, 2 Pet. (U. S.)380; Wil-
kinson V. Leland, 2 Pet. (U. S.) 627;
Watson V. Mercer, 8 Pet. (U. S.)88;
Charles River Bridge v. Warren
Bridge, 11 Pet. (U. S.) 420; Stanley
V. Colt, 5 Wall. (U. S.) 119; Croxall
V. Shererd, 5 Wall. (U. S.) 268;
Keithsburg v. Frick, 34 111. 405. That
a doubtful, obscure or covert valida-
tion will not be upheld, see Hayes v.
Holly Springs, 114 U. S. 120.
2 Baltimore v. Horn, 26 Md. 194.
Comp. Lenuon v. New York, 55 N. Y.
361; Baltimore v. Porter, 18 Md. 284
(where the attempt was made to
ratify hy ordinance a void assess-
ment). In People v. Lynch, 51 Cal.
15; s. c. 21 Am. Rep. 676, and in
Schumacher v. Tobeman, 56 Cal. 508,
it was held that the legislature could
not legalize a void assessment, nor by
direct act make an assessment within
an incorporated city.
3 Atchison &c. R. Co. v. Maquillon,
12 Kan. 301.
4 Brown v. Mayor, 63 N. Y. 239.
See also Duanesburg v. Jenkins, 57
N. Y. 177; O'Hara v. State, 112 N. Y,
146.
SPECIAL STATUTES. [1 Thomp. Corp. § 591.
ing municipal subscriptions to the stock of a private corpor-
ation.^
§ 591. What is a " Local Law " within the Meaning of such
a Prohibition. — In tlie constitutions of some of the States, as
already seen,^ the prohibition is in form against the passage of
local or special laws relating to many subjects, among them to
the subject of corporations. In the constitution of Georgia, the
prohibition is against the passage of local acts where there is a
general law embracing the same subject-matter. A local act,
therefore, concerning elections, etc., in a particular county, to
determine whether municipal bonds should be issued was void,
there being a general statute in force on the same subject.' In
New York, the prohibition is against the passage of private or
local bills, granting to corporations the right to lay down railway
tracks, or granting to them any exclusive privilege, immunity or
franchise whatever, — an application of which has already been
considered.* The Supreme Court of Wisconsin has pointed out
that acts may be general acts within the meaning of the provis-
ion of the constitution of that State that ♦* no general law shall
be in force until published," and special or local acts within the
1 Bridgeport v. Railroad Co., 15 Connell u. Connell, 6 Oh. 358; Good
Conn. 475; Winn v. Macon, 21 Ga. v. Zercher, 12 Oh. 364; Meddock v.
275; Municipality v. Theater Co., 2 Williams, 12 Oh. 377, and Silliman ».
Robb. (La.) 209. Proceeding on these Cummins, 13 Oh. 116). See also
or similar grounds, the courts have Dulany v. Tilghman, 6 Gill & J. (Md.)
uphold special statutes curing mar- 461; Journeay v. Gibson, 56 Pa. St.
riages defectively celebrated: Goshen 57; Grove v. Todd, 41 Md. 633; s. c.
V. Stoniugton, 4 Conn. 209, 221; s. c. 20 Am. Rep. 76; Montgomery v. Hob-
10 Am. Dec. 121; State v. Adams, 65 son, Meigs (Tenn.), 437. But see
N. C. 537 (validating slave marriages); Routsong v. Wolf, 35 Mo. 174; Rus-
Andrews v. Page, 3 Heisk. (Tenn.) sell v. Rumsey, 35 111. 362. Usurious
653 (legitimating childreu). Compare contracts previously made, and which
Whi'e V. White, 105 Mass. 325. Judi- under the statute with regard to usury
cial sales defectively made: Beach v. were void in part. Savings Bank v.
Walker, 6 Conn. 190, 197. See Cooley Allen, 28 Conn. 97. Compare Welch
Const. Lim. (5th ed.) 459, and cases v. Wadsworth, 30 Conn. 149.
cited in note 2; judgments defec- ^ Ante, § 539.
tively entered: Underwood u. Lilly, 10 ^ Dougherty County ij. Boyt, 71 Ga.
Serg. & R. (Pa.) 101; certificates of 484.
acknowledgment of deeds by married * Ante, § 586; Aster v. New York
women defectively drawn: Tate v. &c. R. Co., 113 N. Y. 93; 20 Northeast.
Stooltzfoos, 16 Serg. & R. 35; Chest- Rep. 594.
nut V. Shane, 16 Oh. 599 (overruling
441
1 Tliomp. Corp. § 593.] constitutional restraints.
meaning of a constitutional inhibition against the passage of
local laws containing more than one subject and that not ex-
pressed ill the title. ^ It has been held in that State that '< an
act to legalize and authorize the assessment of street improve-
ments and assessments," which in its body related solely to cer-
tain street assessments in the city of Janesville, and undertook
to legalize the same, was a general l;iw within the provision
above quoted relating to the publication of laws, so that it would
not take effect until published, but was at the same time a local
law within the meaning of the constitutional inhibition concern-
ing the titles of statutes, and was therefore void because the
subject of it was not expressed in its title.^ The court held that
*' the subject of a local act cannot be expressed in the title
without reference to the place over which it is to operate being
made known therein." ^ On the same lines of reasoning, the
same court has held that " an act to incorporate the Yellow River
Improvement Company," which, besides creating the corpora-
tion with ordinary corporate powers, authorized it to improve the
Yellow River within two specified counties, for the purpose of
facilitating the running of logs, etc., and, after expending a
certain sum of money for that purpose, to collect tolls on logs,
etc., floated down the river, was a local act within the meaning
of the constitutional provision touching the entitling of laws;
but whether it was a special or private law the court did not de-
termine.* To this principle the Supreme Court of Pennsylvania
have annexed the following qualification: *' Whenever the pro-
visions of an act are compulsorily binding upon every city of the
particular classification, the legislation is general and constitu-
tional. Whenever the provisions are binding at the option of the
local authorities, the legislation is special, local and unconstitu-
tional." 5
§ 592. Statute is General when TJnifornx in its Operation
upon All the Members of a Particular Class. — Statutes which
1 See Yellow River Improvement ^ Durkee v. Janesville, 26 Wis. 697.
Co. V. Arnold, 46 Wis. 214, 222; Dur- 3 /^^-qt,
kee V. Janesville, 26 Wis. 697; Mills v. * Yellow River Improvement Co. v.
Charleton, 29 Wis. 400; Phillips ■». Arnold, 46 Wis. 214.
Albany, 28 Wis. 340; Lavvson v. Mil- « Readings. Savage, 120 Pa. St. 198;
waukee &c. R. Co., 30 Wis. 597. opinion by Ermentrout, J.
442
SPECIAL STATUTES. [1 Tliomp. Corp. § 593.
are general and uniform in their operation upon all persons com-
ing within the class to which they apply, are not obnoxious to
constitutional provisions against special legislation. Accordingly,
statutes which embrace all persons who are, or may come into
certain situations and circumstances, and which are *' general
and uniform, not because they operate upon every person in
the State, for they do not, but because every person, who is
brought within the relations and circumstances provided for, are
affected by the law," are not within such a prohibition. ^ Thus,
legislation which classifies railroads and imposes restrictions in
respect of tariffs, is valid, if it bears uniformly upon each class. ^
§ 593. Provided Classification Natural, and not Arbi-
trary. — But the proposition of the foregoing section is subject to
the qualification that the classification has some reasonable
foundation in the nature of things and is not arbitrarily made to
afford means of evading the constitutional inhibition. In the
view expressed by Chief Justice Beasley, something more is
required to render such legislation valid " than a mere designa-
tion by such characteristics as will serve to classify; for the
characteristics which thus serve as the basis of classification mu^t
be of such a nature as to mark the objects so designated as
peculiarly requiring exclusive legislation. There must bo a
substantive distinction, having a reference to the subject-matter of
the proposed legislation, between the objects or places embraced in
such legislation and the objects or places excluded. The marks
of distinction on which the classification is founded must be
such, in the nature of things, as will, in some reasonable degree
at least, account for or justify the restriction of the legislation." ^
Following up the same idea, it was said in a later case by Vice-
Chancellor Van Fleet: " Legislation in respect to matters enu-
merated in this paragraph of the constitution, affecting particular
subdivisions or parts of the State and not others, may be valid ;
1 Little Rock &c. R. Co. w. Hanni- (Tenn.), 379; Railroad Co. v. Iowa,
ford, 249 Ark. 291; McAunich i?. Mis- 94 U. S. 155; Thomas v. Wabash &c.
eissippi &c. R. Co., 20 la. 342; Iowa R. Co., 40 Fed. Rep. 126.
&c. R. Co. V. Soper, 39 la. 116; ^ Dovf v. Beidolraan, 49 Ark. 325;
Chicago &c. R. Co. v. Iowa, 94 U. S. Railroad Co. v. Iowa, 94 U. S. 155.
163; Humes v. Missouri Pacitic R. Co., ^ Kidiards v. Hammer, 42 N. J. L.
82 Mo. 221; Davis v. State, 3 Lea 435,440.
443
1 Thomp. Corp. § 594.] constitutional restraints.
but to be valid, it must, as I understand the adjudications, rest
on some characteristic or peculiarity, plainly distinguishing the
places included from those excluded; while, if it embraced those
excluded, it would be so inappropriate to their condition as to be
of no advanttige or benefit to them. But legislation of this kind,
which is controlled in its operation as to locality by a mere
arbitrary distinction, having no affinity to or connection with tiie
subject-matter of the legislation, falls within the constitutional
interdiction, and is invalid." ^
§ 594. Illustration : Invalidity of Statutes Operative only in
Cities having a Certain liumber of Inhabitants. — It has been
held in numerous instances that statutes which, by their terms, operate
onl}^ in cities, towns, or counties which have a certain number of in-
habitants, are within this constitutional inhibition against the passage of
local and special laws. It was said of such a statute by Van Fleet, V.
C. . in the Chancery Court of New Jersey : " It is the law in cities and
towns and villages ha^^ug a population of not more than 11,000 and not
less than 2,000, and no where else. The question whether it is effective
or not in any particular place is determined by the number of its in-
habitants and nothing else." And it was held invaUd, on the principles
stated in the preceding section.^ - - - - In like manner, the
Supreme Court of Pennsylvania have held, under a constitutional pro-
vision that ' ' the general assembly shall not pass any local or special law
regulating the affairs of counties, cities, townships," — etc., that an act
providing that, in counties the population of which exceeds 100,000 and
falls below 150,000, the fees belonging to certain county officials shaU
be turned over to another, is unconstitutional, as being an attempt to
legislate directly for certain particular counties selected from all others,
there being but four counties in the State which could be affected by
the act.^ Under such a provision an act providing for the dissolution of
1 Atlantic City Water Works Co. v. General v. Railroad Co., 35 Wis. 425;
Consumers Water Co., 44 N. J. Eq. Kimball v. Rosendale, 42 Wis. 407;
427, 435. Stevens Point &c. Co. v. Keilly, 44
2 Atlantic City Water Works Co. v. Wis. 295; Welker v. Potter, 18 Oh.
Consumers Water Co., 44 N. J. Eq. St. 85; Lafayette v. Jcnuers, 10 Ind.
427, 435. 70, 80. As to a constitutional pro-
3 McCarthy 77. Cora., 110 Pa. St. 243. vision that there shall be but one
Other decisions under similar con- system of town and county gov-
stitutional provisions are : Tierney v. ernment, which shall be as nearly
Dodge, 9 Minn. 1G6; «. c. 12 Minn. 41; uniform as practicable, see State v.
Virginia City t;. Mining Co., 2 Nev. 86; Dousman, 23 Wis. 541; State v. Rior-
Von Phul V. Hammer, 29 la. 222 ; Atty.- dan, 24 Wis. iU.
444
SPECIAL STATUTES. [1 Tiiomp. Corp. § 596.
a bankrupt municipal corporation has been held void.i But an act
creating a new class of such corporations, and imposing upon all cities
of the class the same powers and duties is vaUd.^
§ 595. Other Cases Illustrating these Distinctions. — The fol-
lowing cases have been cited in illustration of the foregoing distinctions. ^
A statute which would give to all cities in this State, situated on tide water
the privilege of using such waters in connection with their sewers ; * or
which should give to all the cities in the State bordering upon tide
water, power to construct dikes or to estabhsh quarantine regulations ; ^
or which should provide that, in all towns having volunteer Jive depart-
ments, the men should have power to choose a commissioner to govern
them,6 would be a valid exercise of legislative power. On the other
hand, a statute which should declare that, all cities containing a certain
number of inhabitants should have one system for lajdng out streets, and
that those having a smaller population should have another ; ' or which
should delare that, in every city in which there are ten churches, there
should be three commisioners of the water department with certain
prescribed duties ; ^ or which should confer upon cities having a pop-
ulation of not less than 25,000, the power to issue bonds to fund their
floating debts, — ^ would be invalid, for the reason that such statutes
would all be controlled, as to localities in which they should have effect
by a quality or characteristic which is purely arbitrary, and which
has no connection whatever with their subject-matter.^"
§ 596. Corporations Carrying on Operations in Specific
tiocalitics. — But a constitutional provision that " corporations may
be formed under general laws, but shall not be created by special act
1 State V. Starke, 18 Fla. 255. ■• Richards v. Hammer, 42 N. J. L.
2 Lake v. Florida, 18 Fla. 501. See 435.
also 2 Dill. Mua. Corp. (4th ed.,) §§ « Ibid.
701a, 7016. Under a constitutional 6 ^^derson v. Trenton, 42 N. J. L.
provision that corporations shall not 486.
be created by special acts except for '' Van Riper v. Parsons, 40 N. J.
municipal purposes, a board of com- L. 1.
missioners charged with the duty of » Richards v. Hammer, 42 N. J. L.
tilling up certain slough-ponds in a 435.
city has been held a corporation for '•♦ Anderson v. Trenton, 42 N. J. L.
municipal purposes, and validly 486.
created. St. Louis v. Shields, G2 Mo. '» These illustrations are given by
247. See also Wharton v. Mobile Van Fleet, V. C, in Atlantic City
School Commrs., 43 Ala. 598. Water Works Co. v. Consumers Water
•" Referring to the doctrine of ^ 493, Co., 44 N. J Eq. 427
ante.
445
1 Thoinp. Corp. § 507,] constitutional kesthaints.
except for municipal purposes," has been held not to extend so far as
to prevent the legislature from creating, by an act which piirports to be
o-cneral in its character, a corporation to carry on operations in specific
localities, which, from the nature of the case, could not be carried on
elsewhere in the State, — as, for instance, a corporation for the promo-
tion of slack- water navigation in certain counties. Said the court :
' • The great purpose of the provision was to introduce a system of legis-
lation in regard 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 class 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
corporation within narrower bounds than it would naturally be com-
pelled 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 sec-
tion, in any case when, in consequence of natural conditions, such work
or business could not be carried on elsewhere." ^
§ 597. Creation of a Park District Outside of the Corpo-
rate tiimits of a City. — Under a constitution prohibiting the legis-
lature from creating municipal corporations, except cities, by special act,
and providing that no city shall be incorporated with less than 5,000
permanent inhabitants, etc., it has been held beyond the power of the
legislature to incorporate a board of park commissioners and a park
district, outside a city, for the purpose of establishing and maintaining
a public park for the pleasure of the inhabitants of the city. The court,
speaking through Wagner, J., said: " By this act there is no municipal
corporation chartered nor attempted to be chartered. The declaration
that the corporation is for municipal purposes does not make it so.
There may be corporations for municipal purposes, but they must be
connected with the municipal corporation itself, and instituted for pur-
poses of carrying out some of the known objects of the municipality.
But in the present case a district outside of the city is incorporated ;
none of the commissioners who have the exclusive management and con-
trol of it reside within its boundaries ; the people who own the lands
within it are taxed against their consent by persons who have no inter-
ests in common with them, and then they are gravely told that resist-
^ Attorney-General v. McArthur, 38 Mich. 20i, opinion by G-aves, J.
446
SPECIAL STATUTES. [1 Thomp. Corp. § 598.
ance is useless — that they have been incorporated foi' municipal
purposes. If this can be done, then special acts of incorporation for
municipal purposes may be passed in the vicinity of all our towns which
do not rise to the dignity of cities, but are nevertheless municipal cor-
porations, and the farming community will be made to pay for whatever
they fancy or conceive will redound to their benefit. If the legislature
can do this, it is difficult to set any bounds to their power. The con-
stitution never contemplated such an exercise of power, but sought, on
the contrary, to place a prohibition on it." ^
§ 598. What Statutes have heen Held tiocal or Special. —
Statutes authorizing a certain school district to issue bonds to erect a
scliool house, and setting aside funds to pay the same ; ^ authorizing a
precinct to issue bonds to erect a court-liouse ; ^ and extending the corporate
limits of a particular city over land which before its passage was not
within such hmits,^ have been held void, under a constitutional provis-
ion forbidding the passage of special laws conferring corporate pow-
ers. - - - - An act purporting to authorize the establishment of a
single ferry, at a designated point on a particular river, has been held
void, under a constitutional prohibition against licensing ferries by local
or special laws. It was well pointed out concerning the act that it was
not only limited in its application to one ferry, but that one was located
at a definite place ; and the court observed that it contained no feature
of an act of general apphcation, but that its whole scope and purpose
were special. 5 _ _ _ _ The following case was held not to be the case
of legislation affecting a particular class, within a principle above ex-
plained, ^ and the statute was accordingly held void : — Under the general
corporation act of Illinois, all railroad corporations, whose lines termi-
nate on bordering navigable streams, have power to condemn lands at
their terminus, in order to reach /ernes. It was held by Mr. District
Judge Allen that the proviso of a later statute,' limiting the right to own
and use boats to carry freight and passengers, to " such railroad com-
panies as own the landing for such water craft," was within the prohi-
bition of the constitution of that State against the passage of special laws
granting special or exclusive privileges to corporations ; and, further,
that the statute could not be upheld on the ground that it classified the
railroad companies whose roads terminated on bordering rivers into
1 State V. Leffingwell, 54 Mo. 458, " Dunby v. Richardson County, 8
472. Neb. 508.
2 Clefig V. Richardson County * Wyandotte v. Wood, 5 Kan. 603.
School District, 8 Neb. 178; School « Frye v. Partridge, 82 111. 267.
District v. Insurance Co., 103 U. S. ^ Ante, § 692.
707. ' 111. Act May 24th, 1877.
447
1 Thomp. Corp. § 599.] constitutional restraints.
such as then owned a landing place and such as did not.^ - - - _
On more doubtful grounds, a statute for the incorporation of street
raihcays, in cities of the second and third class, has been held void,
within a constitutional prohibition against the passage of local and sjie-
cial laws, — the court taking the view that the act was special, because
it related to but a certain class of street railway corporations, and that
it was local, because confined to cities of the second and third classes. ^
While this holding may be sustained under the stringent view taken by
the Supreme Court of Pennsjdvania of such a constitutional provision,
it is ob\ious from the instances collected in the next section, that such
a statute would be regarded as good in several of the other States
having a similar constitutional prohibition. ^ - - - - A statute
authorizing any number of persons not less than seven, a majority of
whom should reside in the State, to form a company for the purpose of
constructing water-works in any city, town or village in the State having
a population of not more than 150,000 nor less than 2,000, for the pur-
pose of supplying such city, town or village and the inhabitants thereof
with water, has been held void, under a constitutional inhibition against
passing private^ local, or special laws, granting to any corporation, asso-
ciation or individual any exclusive privilege, immunity or franchise
whatever ; and also under a provision prohibiting the passage of special
laws, conferring corporate powers, but requiring the legislature to pass
general laws under which corporations might be organized and corporate
powers of every nature obtained.* As this statute was both local and
special, it was held that if, as decided in a former case,^ it invested a
corporation created under it with an exclusive franchise, it was void.^
§ 599. Instances of Statutes Held not Local or Special. —
The following are instances of statutes which have been held not
1 Thomas v. Wabash &c. R. Co., 40 mechanic to a lien under a general
Fed. Rep. 126. law. Davis v. Clark, 106 Pa. St. 377.
2 Weiman v. Wilkinsburg &c. R. See also Morrison i;. Bachert, 112 Pa.
Co., 118 Pa. St. 192. St. 323, where the court declared its
3 In Pennsylvania, it has been held purpose " to adhere rigidly to that
that a statute which undertakes to instrument [the constitution], that
deal with mechanics' liens in counties the people may not be deprived of its
whose population is less than 200,000, benefits."
is void, as a local laio,— the court ^ Const. N, J. Amendment 1875,
reasoning that the statute did not art. 4, par. 11, § 7.
attempt to classify counties for any ^ Atlantic City Water Works Co. v.
purpose of local government, but Atlantic City, 39 N. J. Eq. 367.
merely attempted to provide a lien in " Atlantic City Water Works Co. v.
one part of the State, in circum- Consumers Water Co., 44 N. J. Eq.
stances which would not entitle the 427, 434.
448
SPECIAL STATUTES. [1 Tliomp. Corp. § 599.
obnoxious to constitutional prohibitions against the passage of
special laws. An act making it punishable for railroad em-
jployes to burn, mutilate, haul off, or bury stock killed by
trains; ^ appropriating five thousand dollars to aid the Farmers'
Protective Association of Iowa, a corporation organized to pro-
vide the farmers of that State with barbed wii^e, at the actual
cost of manufacture, and to defend suits for the alleo-ed infrino;e-
ment of patents ; ^ authorizing the board of education of a par-
ticular city to issue bonds of the school district, for the purpose
of purchasing a site for the school buildings^ erect buildings,
etc., to an amount not exceeding $100,000 upon a majority vote
of the electors of the district, — the court holding that this was
neither a special law nor a law conferring corporate power ; ^
providing that foreign corporations created for the purpose of
making and guaranteeing bonds may be accepted as sureties by
the courts, etc., — the court holding this not unconstitutional as
a special law regulating the practice of the courts;^ regulating
rates of charges for the carriage of passengers by railroad com-
panies, imposing a penalty for overcharges, and including in
such penalty a reasonable attorney's fee;^ authorizing the or-
ganization of annuity, safe deposit and trust companies, and
granting to such corporations the power to act as guardians of
the estates oi insane persons, — such a statute being a general
law for the organization of corporations for certain purposes
and defining their powers;® exempting seaside railroads from
the receivership imposed by the body of the act on railroads
which fail to run trains for a given time, — this not being a
special law conferring corporate privileges; ^ providing for the
1 Bannon u. State, 49 Ark. 167. v. Insurance Co., 103 U. S. 707; ante,
2 Merchants' Union Barbed Wire § 598.
Co. V. Brown, 64 la. 265. Tiie decis- ■* Cramer v. Tittel, 72 Cal. 12.
ion is a shameful one, as the act ap- ^ Dow v. Beidelraan, 49 Ark. 455;
propriates public money, raised by citinj; Peoria &c. K. Co. v. Duggan,
taxation, for purposes which are 109 111. 537; Kansas Pacific R. Co. v.
purely private in their character. Vauz, 16 Kan. 583; Missouri Pacific R.
3 Knowles v. Topeka, 35 Kan. 692. Co. v. Abney, 30 Kan. 41.
This decision seems clearly unsound. « Minnesota Loan & Trust Co. v.
It is opposed to the following cases: Beebe, 40 Minn. 7; s. c. 41 N. W. Rep.
Clegg V. Richardson County School 232.
District, 8 Nebr. 178; School District ' Delaware Bay&c. R. Co. v. Mark-
ley, 45 N. J. Eq. 139; 16 All. Rep. 436.
29 449
1 Thomp. Corp. § 599.] constitutional restraints.
organization of loan associations, and enacting that no pre-
miums, lines or interest in such premium that may accrue under
the act shall be deemed usurious, — this not being a local or
special law regulating the rate of interest on money; ^ requiring
all electric wires, in any city having a population of 500,000 or
more, to be placed under the surface of the streets, and provid-
ing for a board of commissioners of electric sub-ways, etc. ; ^
appropriating money to be expended in removing obstructions
from and improving the navigation of a certain river which falls
into a navigable water of the State, — this not being n private or
local purpose, requiring a two-thirds vote under the constitution
of New York; ^ enabling a particular foreign corporation to be
sued within the State, — the same not being a private or local
bill within the same constitutional provision;* regulating the in-
spection of grain in a particular city, ^ authorizing a, plank road
company to mortgage its road, — the same not being a " private
or special law " providing for the sale or conveyance of any real
estate belonging to any persons, but merely an amendment of a
charter ;^ fixing the rate of compensation to be paid by a boom com-
pany to the surveyor-general of logs, for surveying logs coming
within its boom, at a rate less than that fixed by the general
law, the statute affecting equally the rights and interests of all
owners of logs within the designated territory, — this not being
partial or unequal legislation ; ^ amending the charter and enlarg-
ing the powers of a corporation previously existing ; ^ conferring
upon a board of police commissioners the power to appoint and
control the policemen of a city, even though the expenses of the
police establishment are defrayed by city taxation.^ _ _ _ _
The constitution of Alabama, in force in 1868, declared that
" corporations may be formed under general laws, but shall not
^ Winget V. Quincy Building &c. ^ Joy i?. Jackson &c. Co., 11 Mich.
Assoc, 128 111. G7; s. c. 21 Northeast. 155.
Rep. 12. ' Merrittv. Knife Falls Boom Corp.,
2 Western Union Tel. Co. v. Mayor, 34 Minn. 245; 25 Northwest. Rep. 403.
38 Fed. Rep. 552. See also Augusta &c. R. Co. v. Ran-
3 People V. Allen, 1 Lans. (N. Y.) dall, 79 Ga. 304.
248; Const. N. Y. 1846, art. 1, § 9. » State v. Clark, 23 Minu. 422. But
•* Fall Brook Coal Co. v. Lynch, 47 see ante, I 585.
How. Pr. (N. Y.) 520. * Ohio v. Covington, 29 Ohio St.
« People V. Harper, 91 111. 357. 102.
450
SPECIAL STATUTES. [1 ThoDip. Corp. § 600.
be created by special act, except for municipal purposes."
With this constitutional provision in force, the legislature of Al-
abama passed a special act authorizing the Wills Valley Railroad
Company (a pre-existing corporation) to purchase the railroad
and franchises of the Northeast & Southwestern Alabama Rail-
road Company (another pre-existing corporation), and, after
doing so, to change its own 7iame to that of the Alabama & Chat-
tanooga Railroad Company. The Supreme Court of the United
States held that this act was not within the constitutional inhi-
bition. Mr. Justice Bradley, in giving the opinion of the court,
said: " We are unable to see anything in this legislation repug-
nant to the constitutional provision referred to. That pro-
vision cannot, surely, be construed to prohibit the legislature
from changing the name of a corporation, or from giving it
power to purchase additional property; and this was all that it
did in this case. No new corporate powers or franchises were
created." ^
§ 600. Special Statutes Granting Exclusive Privileges,
Immunities or Frauchises. — In determining whether a statute
falls within a constitutional inhibition against the passage of
private, local or special laws " granting to any corporation, asso-
ciation or individual any exclusive privilege, immunity or fran-
chise whatever, the courts will not find such grants in the statute
by implication ; for while courts will resort to implications to
sustain a statute, they will not to destroy it. If, therefore, such
a statute admits of two constructions, one of which will render it
unconstitutional and the other not, that construction will be
adopted which will render it valid, for it must not be presumed
that the lejrislature intended to violate the constitution. ^
1 Wallaces. Loomis, 97 U. S. 146; tered by the legislature in the valid
s. c. 10 Myer Fed. Dec, § 20. Under exercise of its powers. United States
the constitution of New York, it was Trust Co. v. Brady, 20 Barb. (N. Y.)
competent for the legislature to create 119.
corporations other than banks by ^ Atlantic City Water Works u. Con-
special charter. Const. N. Y., art. 8, sumer's Water Co., 44 N. J. Eq. 427,
§ 1. The United States Trust Com- 437. This case contains a curious
pany of New York was held not to be and very doubtful application of this
a bank within the meaning of this pro- principle,
vision and hence to have been char-
451
1 Thomp. Corp. § 602.] constitutional restraints.
§ GOl. Conferring Certain Public Police Powers upon Exist-
ing- Corporations. — A statute M'hich confers certumpolice powers
upon existing corporations, to be exercised for the public good^
not for the benetit or eniokunent of such corporations or their
members, is not obnoxious to such a constitutional provision,
although it refers to them in terms as " existing corporations,"
since these words may be regarded as descriptio personarum.
The reason is that the powers are not corporate powers in a proper
sense, and are not conferred upon the corporations named
as corporations. It was so held in respect of an act of the leg-
islature " to regulate iho, practice of medicine,''^ which conferred
the power of appointing boards of examiners upon three certain
medical societies, therein named as existing corporations, and
which prohibited theappoiatmeut of such examiners by any other
corporation, society, person, or persons, and made it a misde-
meanor for any person except an appointee of one of the three
societies named to sign, seal or issue a certificate purporting to
authorize the practice of medicine.^
§ 602. Empowering Existing Municipal Corporations to
Subscribe for Stock in Private Corporations. — On the other
hand, where there is a constitutional provision that corporations
" shall not be created by special act, except for municipal pur-
poses," it is held not competent for the legislature to pass a
special act conferring upon an existing municipal corporation
the power to subscribe to the stock of a corporation created for
commercial purposes, such as a steam navigation company. With
such a constitutional inhibition in force, a special statute author-
izing a municipal corporation, under certain conditions, toloanits
credit, etc., " to any improvements," must be restrained so as to
mean any improvement which is the proper subject of police and
municipal regulation, such as gas, water, almshouses, hospitals
and the like, and cannot be extended to subjects foreign to the
objects of the corporation, existing or to be carried on beyond
its territorial limits. ^ To construe such a statute so as to allow
a city to engage in commercial speculations would, it was said,
violate the constitutional prohibition above recited, because it
1 Ex parte Frazer, 54 Cal. 94. * Low v. Marysville, 5 Cal. 214.
452
TITLES OF STATUTES. [1 Thomp. Corp. § 607.
would operate to grant to the corporation powers, by a special
act, for other than municipal purposes.^
Article III. Restraints as to the Titles of Laws.
Section
607. Constitutional restraints as to
tlie titles of statutes.
608. Such provisions mandatory.
609. Judicial expressions as to the
design of these provisions.
610. Construed liberally in support of
legislation : general expres-
sions of this doctrine.
611. The result of the cases.
612. Illustrations: acts granting spe-
cial charters.
613. Act creating a corporation, etc.,
need not enumerate powers
conferred.
614. Acts " incorporating " railway
companies and providing for
municipal aid.
615. Setting out in incorporating act
the entire constitution of the
company.
616. Acts relating to municipal cor-
porations.
Section
617. Instance of statutes embracing
more than one subject.
618. Instances of statutes not embrac-
ing more than one subject, and
hence valid.
619. Instances of statutes containing
subjects not expressed in their
titles.
620. Instances of statutes not subject
to the constitutional objection.
621. General acts of incorporation.
622. Illustrations.
623. Acts purporting to amend former
acts.
624. Illustrations of the titles of
amendatory acts.
625. Void as to matter not expressed in
title, though valid as to the rest.
626. Distinctions depending upon the
use of the words " subject "
and " object."
627. Long practical construction.
§ 607. Constitutional Restraints as to the Titles of Stat-
utes. — The constitutions of most of the States contain provisions
1 Ibid. It is pointed out by Judge
Dillon that "there is no power in a
municipal corporation (even suppos-
ing it to be competent for the legis-
lature to confer such power), as
incidental to the usual grants of mu-
nicipal authority, to talie stock in a
manufacturing company located in or
near the corporation (citing Cook v.
Manufacturing Co., 1 Sneed (Tenn.),
698; Commercial Nat. Bank v. lola, 2
Dill. (U. S.) 553,) or to aid or engage
in other enterprises essentially pri-
vate." 1 Dill. Mun. Corp. (4th ed.),
§ 161. To the last i)oint, see Clark v.
Des Moines, 10 Iowa, V.V.); Hanson v.
Vernon, 27 Iowa, 28; I'euiisylvania K.
Co. V. Philadelphia, 47 Pa. St. 189. But
an act confirming a municipal tax as-
sessed to aid in " manufacturing pur-
poses, and for the better securing an
abundant supply of water for the
city," has been lield valid. Frederick
V. Augusta, 5 Ga. 561. As already
seen (ante, § 549), the power of mu-
nicipalities to extend their aid to pri-
vate corporations has been withdrawn
by many of the State constitutions.
Nevertheless, in some States the power
still exists, and even where it has
been withdrawn many undetermined
questions remain whicli have arisen
under such municipal subscriptions
before the power was withdrawn.
Post, § 1115. et seq.
453
1 Thomp. Corp. § 609.] constitutional restraints.
like the following, which is found in the constitution of Missouri :
" No bill . . . shall contain more than one subject, which
shall be clearly expressed in its title." ^ Others contain a simi-
lar provision restricted to private or local bills, like the follow-
injr, which is found in the constitution of New York: "No
private or local bill which may be passed by the legislature shall
embrace more than one subject, and that shall be expressed in
the title." ^ It is perceived that these provisions require two
things, each relating to a different part of the bill: 1. It must
be single in respect of its subject-matter. 2. That single sub-
ject-matter must be expressed in its title. If, therefore, the
statute embraces more than one subject it is void, whether or
not the subject is expressed in its title. On the other hand, al-
though a statute may embrace but one subject, it is still void if
that subject be not expressed in its title.
§ 608. Such Provisions Mandatory. — Such constitutional
provisions are mandator t/, and not merely directory to the legis-
lature ; the courts, and not the legislature, are the final judges
of whether they have been complied with; and if a statute is
passed in violation of such a provision, the courts v/ill set it aside
in whole or in part,^ according to its nature.* The legislature
cannot evade a constitutional provision that no private or local
law shall be passed embracing more than one subject, and that
expressed in its title, — by declaring that such an act is a public
law.^
§ 609. Judicial Expressions as to the Design of these Pro-
visions. — Although the design of such a constitutional provision
may seem obvious, a clearer understanding of the subject may
perhaps be had if the discussion is prefaced by some judicial
statements of that design. The Court of Appeals of New York
1 Const, Mo. 1875, art. 4, § 28. where the provision is held to be
2 Const. N. Y., art. 3, § 16. merely directory to the legislature, —
3 Post, §§ 025, 658. which is tantamount to frittering it
* Weaver V. Lapsley, 43 Ala. 224; away entirely : Washington v. Page, 4
State V. Miller, 45 Mo. 595; Cannon v. Cal. 388; Pierpont v. Crouch, 10 Cat.
Hemphill, 7 Tex. 184; People v. Flem- 315; Pim v. Nicholson, 6 Ohio St. 176.
ing, 7 Col. 230. To this statement ^ Belleville &c. R. Co. v. Gregory,
exceptiotis exist ia California and Ohio, 16 111. 20.
454
TITLES OP STATUTES. [1 Thomp. Corp. § 609.
have said that " the design of the constitutional provision was
to prevent the uniting of various objects having no necessary or
natural connection with each other, in one bill, for the purpose
of combining various pecuniary interests in support of the whole,
which could not be combined in favor of either by itself." ^
Another purpose of the provision has been declared to be " that
neither the members of the legislature nor the public should be
misled by the title, — not that the latter should embody all the
distinct provisions of the bill in detail." ^ Again, it has been
said ; " The constitntional provision referred to has been deemed
by statesmen and jurists, conditores legum^ of so much impor-
tance that it is found in the fundamental laws of most of the
States. Its purpose is to prevent fraud and deception by con-
cealment, in the body of acts, of subjects not by their titles dis-
closed to the general public and to legislators, who may rely upon
them for information as to pending legislation.^ Again, it has
been said by the Supreme Court of Michigan: "There was no
design by this clause to embarrass legislation, by making laws un-
necessarily restrictive in their scope and operation, and thus
multiplying their number; but the framers of the constitution
meant to put an end to legislation of the vicious character re-
ferred to, which was little less than a fraud upon the public, and
to require that in every case the proposed measure should stand
upon its own merits, and that the legislature should be fairly
satisfied of its design, when required to pass upon it." * In like
manner it has been said of the same constitutional provision by
Beasley, C. J., that its purpose is plainly twofold : " First, to
insure a separate consideration for every subject presented for
legislative action ; second, to insure a conspicuous declaration of
such purpose. Qy the former of these requirements, every sub-
ject is made to stand on its own merits, unaffected by ' improper
influences,' which might result from connecting it with other
measures having no proper relation to it; and, by the latter, a
1 Conner v. The Mayor, 5 N. Y. People v. Commissioners, 47 N. Y.
293. 501.
2 Sun Mutual Ins. Co. v. Mayor, ^ Astor u. Arcade R. Co., 113 N. Y.
8 N. Y. 241, 253. See also People v. 93, 109, per Earl, J.
Lawrence, 36 Barb. (N. Y.) 192; * People v. Mahauey, 13 Mich. 481,
Brewster v. Syracuse, 19 N. Y. UG; opinion by Cooley, J
455
1 Thomp. Corp. § 610.] constitutional restraints.
notice is provided, so that the public, or such part of it as may
be interested, may receive a reasonable intimation of the mat-
ters under legislative consideration." ^ The Supreme Court of
Alabama have nUo said: " It has been often said in this court,
repeating the words of other courts, that this clause of the con-
stitution is intended to accomplish but one purpose, the suppres-
sion of a practice which had been too prevalent, leading at times
to unfortunate, if not corrupt legislation, by which several pro-
jects or subjects, having no proper relation to each other, were
combined in one bill, and the supporters of each assisted in pass-
ing all into law; or, clauses were inserted, of which the title
gave no intimation; and the prevention of the deception of the
legislature, and the people, by concealing under alluring titles
legislation which, if its real character had been disclosed, would
have been condemned." ^
§ 610. Construed Liberally in Support of tiegislation t
General Expressions of this Doctrine. — The courts everywhere
agree in taking the view that these constitutional restraints should not
receive a rigid and exact appUcation, but that they should be construed
and applied hberally with the view of supporting, rather than of over-
turning, acts of the legislature.^ As this is a subject of great impor-
tance, especially in connection with the titles of statutes conferring or
extending corporate powers, we shall take the liberty of quoting at con-
siderable length expressions of judicial opinion confirming this view^
and indicating the general lines of thought on which the courts proceed
in applying such provisions. - - - - " It is settled by abundant
authorities, resting on sound reason and principles, that the title of
an act is not required to enumerate all the particulars, incidents and
details by which its object is to be carried out. The constitution re-
quires only that the title should announce its general object. The pro-
visions in the body of the act, such as are ancillary to accomplish the
purpose of the act and come within its purview, which are incidental
or germane thereto, are considered as covered by the title, where its
language is broad enough to include the same." * - - - - " This
1 Rader v. Union Township, 39 N. visors, 33 Hun (N. Y.), 279; Blake v.
J. L. 509. People, 109 111. 504; Otoe County u.
2 Montgomery &c. Assn. v. Robin- Baldwin, 111 U. S. 1.
son, 69 Ala. 413, 416, opinion by ^ Mississippi &c. R. Co, v. Wooten,
Brickell, C. J. 36 La. An. 441, opinion by Berraudez^
8 Harris v. Niagara County Super- C. J.
45()
TITLES OF STATUTES. [1 Thomp. Coi'p. § 610.
provision of the constitution must receive a fair and reasonable con-
struction; one which will repress the evil designed to be guarded
against, but which, at the same time, will not render it oppressive or
impracticable."! ... - Such a constitutional provision has
been said to have been adopted to prevent amendments to legislative en-
actments, by which distinct and unconnected matters might be intro-
duced ; hence it " should not be so construed as to restrict legislation to
such an extent as to render different acts necessary, where the whole
subject-matter is connected, and may be properly embraced in the same
act." And the rule has been laid down " that none of the provisions of
a statute should be regarded as unconstitutional, where they all
relate, directly or indirectly, to the same subject, have a natural
connection, and are not foreign to the subject expressed in the title." ^
- - - - Again, it has been said: "In the construction of this
and similar constitutional provisions, prescribing rules of legislative
procedure, the observance of which is essential to the validity of
legislative enactments, the courts have kept steadily in view the
purposes of their adoption, and have avoided a closeness of con-
struction tending to embarrass legislation. " ^ - - - - The same
court said in an earlier case : ' ' The evil contemplated was not the
generahty and comprehensiveness of titles. Those faults do not
tend to mislead or deceive. . . . The particular subject selected by
the legislature, and put in the title, must embrace every part of the law.
The question must always be, whether, taking from the title the subject,
we can find anything in the bill which cannot be referred to that sub-
ject. If we do, the law embraces a subject not described in the title.
But this conclusion should never be attained, except by argument,
characterized by liberaUty of construction and freedom from all nice
verbal criticism."* - - - - And the same court has added : "No
statute having but one general object, reasonably and fairly indicated
by its title, has been condemned because of the generahty of the terms
of the title. Whatever provisions that have, by fair intendment, a neces-
sary or proper connection with the subject expressed in the title, may
be introduced into the body of the enactment. When the generality of
the title is not made a cover for legislation incongruous to, or diverse
from, the subject expressed, the spirit and purpose of the constitution
1 Belleville &c. R. Co. v. Gregory, ^ Montgomery &c. Asso. v. Robin-
15111. 20, 20, opinion by Caton, J. son, 69 Ala. 413, 416, opinion by
2 Phillips V. Covington &c. Co., 2 Brickell, J.
Mete. (Ivy.) 219, 222; McReynolds v. < Ex parte Pollard, 40 Ala. 99, opin-
Smallhoase, 8 Bush (Ky.), 447, 453. ion by Walker, C. J.
See also Louisville &c. Turnp. Co. v.
Ballarii, 2 Melc. (Ky.) 165.
457
1 Thomp. Corp. § 610.] constitutional restraints.
are satisfied." ^ _ _ _ _ Again, it has been said : "It is not in-
tended that the body of a legislative enactment shall be a repetition of
the title, nor that the title shall be a summary or epitome of the body.
The expression in the title, ... of the actual subject to which the
body of the act is devoted, is all that is required. . . . The degree
of particularity which must be observed in the expression of the sub-
ject in the title of a legislative enactment, must rest largely in legislative
discretion. The duty of the general assembly is met, when the title
draws attention directly to the subject." 2 _ _ . _ go, it is said by
the Supreme Court of the United States : " It is not intended by the
constitution of New Jersey that the title to an act should embody a de-
tailed statement, nor be an index or abstract of its contents. The one
general object, the creation of an independent municipality, being ex-
pressed in its title, the act in question properly embraced all the means
or instrumentalities to be employed in accomplishing the ob-
ject." -^ - - - - It lias been added that " the objection should be
serious, and the conflict between the statute and the constitution plain
and unmistakable, before the judiciary should disregard a legislative en-
actment upon the ground that it embraced more than one object, or if
but one object, it was not sufficiently expressed in the title." ■* _ _ _ _
The Supreme Court of Illinois has said that " the court has leaned
rather in favor of the vahdity of private acts, when the subjects of the
acts were multifarious." ^ - _ _ _ The following observation of an
eminent writer on constitutional law has been frequently quoted: " The
general purpose of these provisions is accomplished when a law has but
one general object, which is fairly indicated by its title. To require
every end and means necessary or convenient for the accomplishment of
this general object to be provided for by a separate act relating to that
alone, would not only be unreasonable but would actually render legisla-
tion impossible. " ^ - - - - Again, the New York Court of Appeals
have said: " There must be but one subject, but the mode in which the
subject is treated, or the reasons which influenced the legislature, could
not, and need not be stated in the title, according to the letter and spirit of
1 Montgomery &c. Assn. v. Robin- 113 U. S. 135; Mahomet v. Quacken-
son, 69 Ala. 413, 417, opinion by Brick- bush, 117 U. S. 508.
ell, C. J. ^ Hope v. Gainesville, 72 Ga. 246,
2 Montsomery &c. Assn. v. Robin- 250, opinion by Blandford, J.
son, 69 Ala. 413, 418, opinion by Brick- ^ O'Leary v. Cook County,28 111. 534,
ell, C. J. ^ Cool. Const. Lim. (4th ed.), 144,
3 Montclair v. Ramsdell, 107 U. S. § 2. Quoted with approval in Fuller
147, 155, opinion by Harlan, J. See v. People, 92 111. 182, 185, and in Ma-
also Otoe County v. Baldwin, 111 U. homet y. Quackenbush, 117 U. S. 508,
S. 1, 10 ; Ackley School District v. Hall, 513.
458
TITLES OF STATUTES. [1 Thomp. Corp. § 610.
the constitution. " 1 _ _ « _ The same court has again said : "The
constitution does not require that the title of an act should be the most
-exact expression of the subject which could be invented. It is enough
if it fairly and reasonably announces the subject of the act. . .
A subject is that of which anything may be affirmed or predicated, and
if the various parts of this act have respect to or relate to local improve-
ments, the act is not obnoxious to the constitutional objection inter-
posed, and the degree of relationship, if it legitimately tends to the
accomphshmeut of the general purpose, is not material. " - - - - -
In an earlier case in the same court, it was said: " The different steps
hy which the relief is to be brought about are not distinct subjects, but
are minor parts of the same general subject. The degree of particular-
ity with which an act is to express its subject is not defined in the con-
stitution and rests in the discretion of the legislature." ^ One of the
latest expressions on the subject in the same court is the following :
*' When the subject is ex|3ressed, all matters fairly and reasonably con-
nected with it, and all matters which will or may facilitate its accom-
plishment, are proper to be incorporated in the act, and are germane to
the title. The title must be such, at least, as fairly to suggest or give
a clue to the subject dealt with in the act, and unless it comes up to this
standard it falls below the constitutional requirement."* - _ _ -
The Supreme Court of Pennsylvania have said that ' ' if the title fairly
gives notice of the subject of the act, so as reasonably to lead to an in-
quiry into the body of the bill, it is all that is necessary." 5 - - - -
"With equal aptness the same court has said that ' ' the title need not be a
complete index to the contents of the bill." ^ - - - - At the same
time, " it has never been doubted that the subject of proposed legislation
must be so expressed in the title of the bill as to give notice of its
purpose to the members of the legislature and others specially inter-
ested." 7 - - - - Again, it was said by the Supreme Court of
* Sun Mut. Ins. Co. v. Mayor, 8 N. 'Re Road in Phoenixville, supra;
Y. 240, 253, opinion by Gardiner, J Com. v. Green, 58 Pa. St. 226,233;
2 Re Mayer, 50 N. Y. 504, opinion Dorsey's Appeal, 72 Pa. St. 192; Beck-
by Church, C. J. crtw. Allegheny, 85 Pa. St. 191. In
3 Brewster v. Syracuse, 19 N. Y. Blood ■;;. Mercelliott, 53 Pa. St. 391,
116. " an act to increase the boundaries of
■* Astor V. Arcade R. Co., 113 N. Y. Forrest County," which required the
93, 109, per Earl, J. addition of new territory, and also
^ Allegheny County Home's Appeal, provided for a re-location of the
77 Pa. St. 77. county seat, was held to be valid; but
* Rogers v. Manufacturing &c. Co., while that case has not been expressly
109 Pa. St. 109; Dorsey's Appeal, 72 overruled, it is obvious from the man-
Pa. St. 102, 195; Re Road in Phoenix- ner in whicli it has been subsequently
ville, 109 Pa. St. 44, 49. distinguished (Ke Road in Pliocnis-
459
1 Thomp. Corp, § 610.] constitutional restraints.
Illinois that "it is sufficient that the act is fairly covered by its title.
The coustitutiou does not require that all the legal effects of an act^
such as repeals by impUcaiion, should be expressly stated in the
title." ^ _ - - - The same court has said that its uniform rulings
have been that this constitutional prohibition is ' ' construed liberally in
favor of the validity of euactmeuts ; 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 furtherance of
the general subject of the enactment; " ^ and the same may be said of
the provisions of a statute which deals with several branches of one and the
same subject-matter.^ Accordingly, the question whether an act em-
braces more than one subject is to be determined by considering the
controlling purpose of the law, and not by considering the various pro-
visions which are enacted for carrying the controlling purpose into
effect.^ In other words, while the subject must be expressed, the ad-
juncts to that subject, or the modus operandi, need not be.^ _ _ _ -
The Supreme Court of Texas have said that while this provision is
mandatory, yet " the most liberal construction has been given by the
Supreme Court of this State, in accordance with the general current of
authority, to make the whole law constitutional, where the part objected
to as infringing this provision of the constitution could be considered
as appropriately connected with, or subsidiary to, the main object of the
act as expressed in the title." ^ _ _ _ _ The same court has also
said that, " so long as the provisions are of the same nature, and come
legitimately under one general denomination or object, we cannot say
that the act is unconstitutional. " ' In a later case the same court, after
re\iewing the authorities, say: "We deduce from the authorities the
following as the principal test of the validity of a statute under this con-
stitutional provision : Does the title fairly give such reasonable notice
of the subject-matter of the statute itself as to prevent the mischief
intended to be guarded against? If so, the act should be sustained.
The reason of the rule not applying to such cases, the rule itself does
not apply." ^ - - - - It is said by the Court of Appeals of Mary-
ville, 108 Pa. St. 44, 49; Rogers v. ^ Bius v. Weber, 81 111. 288.
Manufacturers &c. Co., Id. 109, 111) ^ Ottawa v. People, 48 111. 233.
that it is no longer regarded in that ^ Giddings v. San Antonio, 47 Tex.
State as sound law; and it should not 556.
be so regarded anywhere. ' Austin v. Gulf &c. R. Co., 45 Tex.
1 Mix V. Illinois &c. R. Co., 116 111. 234, 267.
502, 508; s. c. 6 Northeast. Rep. 42. » Stone v. Brown, 54 Tex. 330, 344^
2 Blake V. People, 109 111. 504. opmion by Bonner, J.
2 Gunter v. Dale County, 44 Ala.
639; Ex parte Upshaw, 45 Id.. 234.
460
TITLES OF STATUTES. [1 Thomp. Corp. § 611.
land that if the several sections of a law " refer to and are germane to
the same subject-matter, which is described in its title it is considered
as embracing but a single subject, and as satisfjdng the requirements of
the constitution in this respect." ^
§ 611. The Result of the Cases. — Without quoting further
from judicial opinions, we may collect the conclusion from
numerous cases that it is not the purpose of the constitutional
provision to require details and particulars to be specified in the
title, nor the means by which the purposes of the act are to be
accomplished ; but that it is its purpose to prevent the uniting
of different or incongruous subjects in one act, and to require
the single subject embraced in each act of the legislature to be
fairly and reasonably indicated by its title. ^ Such a constitu-
1 Mayor v. Eeitz, 50 Md. 579;
County Commissioners v. Meekins, 50
Md. 28, 41 ; Maryland Agricultural Col-
lege V. Keating, 58 Md. 580, 584.
2 Re Knaust, 101 N. Y. 188; People
V. Whitlock, 92 N. Y. 191 ; Re Applica-
tion of Department of Public Parks,
86 N. Y. 439; Re New York &c.
Bridge, 72 N. Y. 527; Mayor &c. u.
Colgate, 12 N. Y. 146; People v. Law-
rence, 41 N. Y. 137; Lockhart u.Troy,
48 Ala. 579; Blake u. People, 109 111.
504; State v. Daniel, 28 La. An. 38;
Rader v. Townsliip of Union, 39 N. J.
L. 509; Nuendorff v. Duryea, 69 N. Y.
557; Central Cross-town R. Co. v.
Twenty-third Street R. Co., 54 How.
Pr. (N. Y.) 168; Freeman v. Panama
R. Co., 7 Ilun (N. Y.), 122; Green v.
Mayor, R. M. Charlt. (Ga.) 368; Mar-
tin V. Broach, 6 Ga. 21 ; Johnson v.
Higgins, 3 Mete. (Ky.) 566; San
Antonio u. Gould, 34 Tex. 49; Shoe-
maker V. Harrisburg, 4 Pa. County
Ct. 86; Joncsboro v. Cairo &c. R.
Co., 110 U. S. 192; Neifing v. Pontiac,
56 111. 172; People v. Wright, 70 111.
388, 396; People v. Brislin, 80 111. 423;
Guild V. Chicago, 82 111. 472; Fuller
V. People, 92 111. 182, 185; Peoples.
Briggs, 50 N. Y. 553; Re Mayor, 50
N. Y. 504; Brewster v. Syracuse, 19
N. Y. 116; Blood v. Mercelliott, 53
Pa. St. 391; Firemen's Association v.
Lounsbury, 21 111. 511; Phillips v.
Albany, 28 Wis. 340; Santo v. State,
2 la. 209 ; County Judge v. State, 2 la.
283; Walker v. Caldwell, 4 La. An.
298; Succession of Lanzetti, 9 La. An.
329; Davis u. State, 7 Md. 157; Battle
V. Howard, 13 Tex. 345; Sweet u. Buf-
falo &c. R. Co., 79 N. Y. 293; Carothers
V. Philadelphia Co., 118 Pa. St. 468; s.
c. 12 Atl. Rep. 314; David v. Portland
Water Committee, 14 Or. 98; Carter
County V. Sinton, 120 U. S. 517; Alle-
gheny County Home's Appeal, 77 Pa.
St. 77 ; Union Passenger Co.'s Appeal,
81 Pa. St. 91. See also Edwards v.
Police Jury, 39 La. An. 855; Peop'e v.
Goblos, 67 Mich. 475; State v. Palmes,
23 Fla. 620; State v. Duval County,
Id. 483; People v. Henshaw, 76 Cal.
436; City of Atlanta v. R. Co., 80 Ga.
276; Dolese v. Pierce, 124 111. 140;
Jarrard v. State, 116 Ind. 98; City of
Indianapolis v. Hueg'e, 115 Ind. 581;
Sanilac County v. Auditor-General, 68
Mich. 659; Graham v. Conger, 85
Ky. 582; State v. Dubois, 39 La. An.
676; People v. Kirsch, 67 Mich. 539;
Boyce ■;;. Sebring, 06 Mich. 210; Wil-
cox V. Paddock, 65 Mich. 23; Gillett
V. McLaughlin, 69 Mich. 547; Meyer
461
1 Thomp. Corp. § 613.] constitutional restraints.
tional inhibition does not imply tliat no act shall have any
operation beyond what is expressed in the title. ^ And, in gen-
eral, if the title is not misleading, or the subject disguised, or
concealed thereby, it is sufficient.^
§ 612. Illustrations : Acts Granting and Amending Special
Charters. — The very liberal manner in which the courts have con-
strued the constitutional proAdsions under consideration, with the view
of upholding, as far as possible, defective legislation, will now be illus-
trated by a class of cases where special acts of the legislature were
under consideration, creating particular corporations or amending their
charters. An act to incorporate a particular railroad company need
not enumerate or suggest in its title the various powers conferred upon
the company, in order to be valid under such a provision ; nor is it void be-
cause it authorizes the construction of branches which are not suggested
in the title ; nor because it authorizes the purchase of lands, the makiug
of coal beds thereon, the purchase or lease of ferry franchises, etc. In
these cases, it is sufficient that all of the subsidiary powers granted are
necessary to promote the main object, the building and equipping of the
main line of railway. Nor need the name of the railway company, as
recited in the title, give the full name of the railway authorized to be
constructed. It has been suggested that, if such requirements were im-
posed upon such special legislation, scarcely a railway charter of any
kind could stand. "The 'Illinois Central' gives no accurate idea of
the location and extent of that road and its branches ; and the ' Chicago
and Mississippi ' would apply equally to any of the six or seven roads
extending from Chicago to the Mississippi river ; and the ' Ohio and
Mississippi ' tends actually lo mislead as to the location of that road,
for it nowhere touches the State of Ohio or the river having that name."
And it has been added : ' ' The names of corporations have ever been
arbitrary and fanciful, and they probably ever will be. They most
generally, it is true, give some idea of the purposes of the corporation,
but necessarily in the most general way."^ - - - - In like
manner it has been held that the right to build branch roads and to ex-
propriate land for the purpose is conferred by a charter which reads
V. Berlandi, 39 Minn. 438; Baker v. 2 Fredericks «;. Pennsylvania Canal
Prewett, 3 Wash. T. 474, 595. Cora- Co., 109 Pa. St. 50.
pare State u. Union, 33 N. J. L. 350; ^ Belleville &c. R. Co. v. Gre-
Stuart V. Kinsella, 14 Minn. 524. gory, 15 111. 20, 28-30, opinioa by
1 Harrington v. Wands, 23 Mich. Caton, J.
385. Compare Washington County v.
Franklin R. Co., 34 Md. 159.
402
TITLES OF STATUTES. [1 Thomp. Corp. § 612.
*' an act to incorporate the Mississippi, Terre-aux-Bceufs and Lake
Borgne Railroad Company, and to define its powers and author-
ity." 1 - - - - The charter of a railwa;i corporation will not be
subject to this constitutional objection from the fact that it authorizes
the construction of one or more extensions of the principal line even in
different directions, provided the extensions are of such a character as
not to constitute independent and distinct lines from the main
road.^ _ _ _ _ "An act f or the reh'e/ " of a certain railroad com-
pany has been held sufficiently broad as a title to include a provision
authorizing the extension of the road of such company. ^ - _ _ -
An act incorporating a railroad company which states, among other
objects of the corporation, that of " purchasing and navigating such
steam or sailing vessels as may be proper and convenient to be used in
connection with such road," — is not unconstitutional from the fact that
the power conferred in the language quoted is not expressed in its
title. ^ _ - - _ An act, the title of which was " an act to make pro-
visions for the government of the county of New York," contained a
provision repealing in part a former act which exempted the real estate
of the New York Hospital from taxation. This subject was not foreign to
the bill, within the meaning of the constitutional provision above quoted.^
So "an act to incorporate the Green River Navigation Company," prop-
erly embraced the right to chai-ge tolls upon the vessels of other owners
and imposed on the corporation the duty of keeping its locks and dams
in repair, etc., — these being directly connected with the object ex-
pressed in the title, namely, the creation of the particular corporation.^
A still looser construction of such a constitutional provision has held
that, under the title of "an act to incorporate the bank of Fulton," a
clause is valid authorizing the joinder in one action of all parties to a
note or bill, given to be negotiated or actually negotiated in such
bank,''' — a provision which relates to the general law of procedure.
" An act to incorporate the Northwestern University ' ' has been held wide
enough as a title to embrace a prohibition against the sale of spirituous
liquors within four miles of such university, under a penalty to be re-
covered by the county. The court reasoned that "the object of the
charter was to create an institution for the education of young men, and
1 Mississippi &c. R. Co. v. Wooten, * Freeman v. Panama R. Co., 7
36 La. An. 441, 442. Ilun (N. Y.), 122.
2 Ross V. Cliicago &c. R. Co., 77 ^ People v. Commissioners, 47 N.
111. 127. See also Ottawa v. People, Y. 501, 505.
48 111. 233. c McReyuolds v. Smallhouse, 8
3 Houston &c. Ry. Co. v. Odum, 63 Bush (Ky.), 447.
Tex. 343. ' Davis v. Bank of Fulton, 31 Ga.
69.
463
1 Thomp. Corp. § 613.] constitutional restraints.
it was competent for the legislature to embrace within it everything
which was designed to facilitate that object. Every provision which
was intended to promote the well-being of the institution, or its students,
was within the proper subject-matter of that law." i - - - - Un-
der the title of "an act to incorporate the Firemen's Benevolent Asso-
ciation, and for other purposes," it has been held competent to provide
that the agents of all foreign insurance companies doing business in
Chicago should pay the asssociation two dollars on every hundred dol-
lars of premiums received by them during a j^ear, — the court saying :
" We think the sixth section germane to the objects of the bill and em-
braced properly in the same subject, the whole of which is sufficiently ex-
pressed in the title. " 2 _ _ . _ " An act to incorporate the Yellow River
Improvement Company," is a title broad enough to include provisions
granting to the corporation the power to run, drive, sort and stack
logs on the Yellow river, after the improvement thereof, and to charge
tolls for so doing, — such business having a natural and legitimate con-
nection with the improvement of the river. ^
§ 613. Act Creating a Corporation, etc., Need not Enumer-
ate Powers Conferred. — An application of this principle, in
support of which several adjudications may be collected, is that
an act incorporating a company, or amending its charter, need
not enumerate in the title all the powers conferred. Thus, an
act incorporating a railroad company need not express in its title
any of the powers, rights, privileges, or immunities which the
charter is intended to confer. It is reasoned that the charter of
a private corporation is a contract as between the State and the
corporation; and the stipulations, terras, and conditions of a
contract are to be looked for in the body of the instrument, not
1 O'Leary v. Cook County, 28 111. day of September, 1881," appropriated
534, 538. $5,999, and Md. Acts, 1880, ch. 432,
2 Firemen's Benevolent Association with the same title as the foregoing,
V. Lounsbury, 21 111. 511. except that 1882 was substituted for
3 Yellow River Imp. Co. v. Arnold, 1881, appropriated $5 to said college.
46 Wis. 214. The Maryland Agricul- It was held that the acts in question
tural College was entitled to $(),000 did not violate the constitutional pro-
aunually from the State, unless the vision that every law shall embrace
legislature should at any time enact but one subject, to be described in its
otherwise. A statute entitled, " An title, and that the endowment of the
act to make appropriations for the college was reduced to the suras
support of the State government for named. Maryland Agricultural Col-
the fiscal year ending on the thirtieth lege v. Keating, 58 Md. 580.
4G4
TITLES OF STATUTES. [1 Thomp. Coi'p. § 614.
in the title or caption. ^ So, a penalty for running a toll-gate
without paying toll, may be included in an act under the title
*' An act authorizing the construction of plank, macadamized and
gravel roads; " ^ and so may provisions for appointment of, and
reports by, inspectors of turnpikes.^ So, the fact that the limit
of the taxing power of the State over a railroad company is not
expressed or indicated in the ti t le of the act of incorporation , does
not render that provision of the charter unconstitutional.* So,
an act " to establish a charter for the city of Troy," need not
enumerate in its title all the powers intended to be conferred
upon the corporation.^
§ 614. Acts <* Incorporating " Railway Companies and Pro-
viding for Municipal Aid. — This is illustrated by a collection
of cases embracing the decided weight of authority which hold
that an act, which by its title simply incorporates a railway
company or amends the charter of an existing railway company,
may properly embrace in its body a provision authorizing muni-
cipal corporations to subscribe for its stock and to issue its
bonds therefor; ^ — though there is some recent authority to the
effect that such a statute, in so far as it embraces such a pro-
vision for municipal aid is void, and that the bonds issued in
pursuance of it are void.' The Supreme Court of Georgia, in so
1 Goldsmith v. Rome R. Co., 62 Ga. Perrin, 30 S. C. 1; s. c. 8 S. E. Rep.
473. U; Whitesides v. Neely, 30 S. C. 31;
2 Hunter v. Burnsville Turnp. Co., s. c. 8 S. E. Eep. 27.
66 Ind. 213. ' People v. Hammill (III.), 17
3 Ibid. Northeast. Eep. 799; Peck v. Sau An-
^ Goldsmiths. Georgia R. Co., 62 tonio, 51 Tex. 490; disapproving San
Ga. 485. Compare Goldsmith u. Rome Antonio u. Lane, 32 Tex. 405; and San
R. Co., Id. 473. Antonio v. Mehaffy,96 U. S. 312; Gid-
s Lockhart v. City of Troy, 48 Ala. dings v. San Antonio, 47 Tex. 648. In
670. conformity with the weight of author-
8 Supervisors v. People, 25 111. 181 ity, as above shown, it has been held
(overruled by People v. Hammill (111.), that " an act to amend the charter of "
17 N. W. Rep. 799; Phillips v. Coving- a bridge company is not invalid, al-
ton &c. Co., 2 Mete. (Ky.) 219; Ma- though it authorizes an increase of its
hornet V. Quackenbush, 117 U. S. 508; capital stock, and empowers a particu-
Phillips V. Albany, 28 Wis. 340; Ma- l;ir city to subscribe therefor, and to
rion County Commissioners v. Harvey issue its bonds in payment therefor.
County Commissioners, 26 Kan. 181; Phillips v. Covington &c. Co., 2 Mete.
Abington ?;. Cabeen, 100 III. 200; Hope (Ky.) 219.
V. Gainesville, 72 Ga. 246; Floyd v.
30 465
1 Thomp. Cori). § 61-4.] constitutional restraints.
hokliug, have rea-oned that an act cannot be obnoxious to such a
constitutional provision, " when it appears from the whole act that
the great purpose and object of the legislature was to create a
corporation, to lay ouu and construct a railroad between certain
points, and to carry out this object and purpose certain means
and instrumentalities were authorized by the act.
When it is plain by the act a certain thing is to be done, any
instrumentality authorized by the act in aid of, to conduce to,
to assist the one great purpose of the act, is not a different sub-
ject-matter, but is part of the main subject-matter; it is a part
of the ' substantial unity in the statutable object,' and is not un-
constitutional; " ^ and this quotation is a fair statement of the
views of most of the courts on this subject. Accordingly, it has
been held that an act empowering a railroad corporation to ex-
tend its road through a certain county, and the county to sub-
scribe to its capital stock, embraces only one object. ^ So, it has
been held that a statute legalizing elections held in a county, on a
question of issuing county bonds to aid certain railroad compa-
nies, and authorizing townships, lying on or near a certain rail-
road, to subscribe for its stock and issue bonds therefor, does not
conflict with such a constitutional provision.^ So, an act " in
relation to" a particular railroad company, may embrace pro-
visions validating town bonds previously, but irregularly is-
sued to such company.* Some fluctuations on this particular point
appear in the decisions of the Supreme Court of Illinois. Thus, it
was held by that court in one case that " an act to amend the char-
ter of the village of Lockport," was not broad enough to embrace
a provision legalizing certain appropriations theretofore made by
the president and trustees of the village and certain orders drawn
by the clerk. ^ Another decision of the same court held that
" an act to legalize certain aids heretofore voted and granted to
aid in the construction " of a proposed railroad, was not broad
enough to include a provision authorizing the issue of bonds in
liquidation of appropriations voted under a prior act,^ which act
1 Hope V. Gainesville, 72 Ga. 246, < Hardenbergh v. Vau Keuren, 4
250. Abb. N. Gas. (N. Y.) 43.
2 Baltimore &c. R. Co. v. Jefferson ^ Lockport v. Gaylord, 61 111. 276.
County, 29 Fed. Rep. 305. ^ Middleport v. ^tna Life Ins. Co.,
3 Unity V. Barrage, 103 U. S. 447. 82 111. 562.
466
TITLES OF STATUTES. [1 Tliomp. Corp. § 615.
provided for the collection of such appropriations by taxation
only. Still later, the court expressed itself as " inclined to
hold," on the authority of the case last cited, that power could
not be given to municipal corporations to subscribe to the stock
of a railroad company, in an act the title of which was " an act
to amend the charter " of such company. ^
§ 615. Setting- out in Incorporating Act the Entire Con-
stitution of the Company.— " Au act to incorporate the Mont-
gomery Mutual Building and Loan Association," has been held not
obnoxious to such a constitutional provision, although it embraced in
the body of the statute the constitution of the association, consisting
of eleven articles declaratory of its objects, defining the rights and
liabiUties of its members, providing specially for the management, loan
or investment of its funds, and prescribing the number, duties and
powers of its officers, and although other sections related to the open-
ing of the books for subscriptions to stock, the allotment of shares, the
election of officers, etc. Although the conclusion of the court seems
perfectly obvious without any discussion, — yet, as this is a type of a
good many decisions upon this question, and as this question was evi-
dently pressed upon the court with vigor and very carefully considered,
it seems appropriate to quote some of the observations in its opinion.
Brickell, C. J., said: '• The subject is single — the title with clearness
indicates it, though it may not indicate the objects the incorporation,
the body pohtic, is designed to accompHsh, nor the powers with which
it is to be invested, nor the agency to be employed, nor the mode to be
pursued in exercising the powers. These are incidents of necessity
pertaining to corporate existence — parts of the general subject ex-
pressed in the title.2 . . . The objection urged to this enactment
is very far-reaching, and, if sustained, would sentence to nullity in-
numerable legislative enactments. When the creation of private cor-
porations rested within legislative province, they were invariably
created by special statutes, having titles, declaring the subject to be an
incorporation of a particular name and style. Many such enactments,
having such titles, were passed at the same session Of the general
assembly at which this statute was passed. These, though corporate
existence under them has been established, corporate powers exercised,
property and rights actiuired, liabihties incurred, and for fifteen years
1 Welch V. Post, m 111. 471, 474. 2 citing Sun Mutual Ins. Co. v.
Compare Mahomet v. Quackonbush, Mayor, 4 Seld. (N. Y.) 247; Brewster
117 U. S. 508, 513, where the authority v. Syracuse, 19 N. Y. 116.
of this case is questioned.
467
1 Thomp. Corp. § 617.] constitutional rkstraints.
their valiclit}^ unquestioned, — if the objection now urged were sus-
tained, would be blotted from the statute book. . . . Building and
loan associations or societies have existed so long, their organization as
corporations under general laws, or special legislative enactments, had
been so frequent, that it may well be doubted, whether a more appro-
priate title could be selected for a special enactment of incorporation, a
title more expressive of the subject of the enactment, than the title
given to this statute. The idea at once suggested is, that the purpose
of the corporation will be the accumulation of funds for division among
the members, the investment of such funds until the appointed period
of division, and enabling its members to obtain by anticipation, on such
terras as may be prescribed, the proportion to which, on division, it is
contemplated they will be entitled to receive. This is the subject of
the present enactment, and all the provisions introduced into it, relate
immediately to this subject." ^
§ 616. Acts Relating to Municipal Corporations. — "An act
to incorporate the town of Munford," etc., has been held a sufficient
title to include a clause making it a misdemeanor to sell or give away
spirituous liquor within the corporate limits. ^ "An act relating to
Weston Avenue," has been held broad enough to authorize a convey-
ance by a turnpike company, and the acceptance by the commissioners
of a park in the city to which the act refers, of a portion of the turnpike
road, and to authorize the commissioners to improve the road as an ap-
proach to the park and to make provisions for the improvement. The
reason is that the whole act relates solely to the portion of the road
specified in the title, and the purpose is confined to that one subject,
which is sufficiently expressed in the title. ^ An act "attaching certain
territory to the town of Westport, to enable it to take stock in a rail-
road," — has been held, not void by reason of failure to comply with
such a constitutional provision.*
§ 617. Instances of Statutes Embracing more than One
Subject. — The following are instances of statutes which have been
held void because embracing more than one subject. A statute amend-
ing the charters of several cities ; ^ incorporating two toions in different
parts of the State ; ^ incorporating three distinct corporations, or reviv-
ing by name three charters which had become obsolete.'' So of an act
' Montgomery &c. Assn. v. Robin- * Henderson v. Jackson County, 2
son. 69 Ala. 413, 417. McCrary C. Ct. (U. S.) 615.
2 Ex parte Moore, 62 Ala. 471. ^ State v. Wright, 14 Or. 365.
3 People V. Banks, 67 N. Y. 568. « King v. Banks, 61 Ga. 20.
468
' Exp. Connor, 51 Ga. 571.
TITLES or STATUTES. [1 Tliomp. Corp. § 617.
providing for the expenditure of the non-resident highway taxes, for
the improvement of two State roads, and for the construction and im-
provement of another State road, — the latter not being expressed in
the title. Here it was said by Mr. Justice Cooley: "These objects
have certainly no necessar}'^ connection, and, being grouped together
in one bill, legislators are not only precluded from expressing by their
votes, their opinion upon each separately, but they are so united as to
invite a combination of interests among the friends of each, in order to
secure the success of all, when, perhaps, neither could be passed sepa-
rately."^ The same has been held of an act releasing the interest of
the State in certain real estate to A. B. C. D. E. & F., and for other
'purposes ; ^ and of an act ' ' relating to the M. Boom Corporation ; ' ' im-
posing additional duties upon another and separate corporation ; ^ "to
provide for the incorporation of merchants' mutual insurance companies,
and to regulate the business of insurance by merchants and manufact-
urers' mutual insurance companies," — nor could the act be maintained
as to one of its objects and rejected as to the other ',^ "to release the
Fishkill and Beekman Plank-road Company from the construction of
part of their road, and for other purposes;" ^ " to authorize the opening
and paving of certain portions of Fifteenth, Sixteenth, and Norris
streets;"^ to authorize a certain railway company "to declare divi-
dends quarterly, and to lay additional tracks of railway;"'^ "regu-
lating appeals from justices' and police courts, and officers of the
quarterly coui't." ^ So, it was held that an act entitled " an act to tax
and regulate" certain named foreign corporations, could not, under
such a constitutional inhibition, contain any provision in relation to any
other foreign corporation. ^ It was held by the Suprame Court of Cali-
fornia, in a very doubtful decision, that an act " to promote drainage,"
which provided for the control of debris from mining operations which
raised the natural bed of rivers and caused them to overflow the sur-
rounding country, was void, as containing more than one subject.^"
1 People V. Denahy, 20 Mich. 350. relate to " other purposes," was held
2 Johnston v. Spicer, 107 N. Y. 185; valid.
13 Northeast. Rep. 753: 9 Cent. Rep. <> Commonwealth v. Dickinson, 9
666; II N. Y. State Rep. 436. Phila. (Pa.) 561.
3 Mississippi &c. Boom Co. v. ' West Philadelphia &c. R. Co. v.
Prince, 34 Minn. 79; 24 N. W. Kep. Union &c. R. Co., !) Phila. (Pa.) 495.
361. 8 Hind v. Rice, 10 Bush (Ky.), 628.
* Sliinner v. Wilhelm, 63 Mich. 568; » Oregon & Wash. Trust &c. Co. v.
8. c. 30 N. W. Rep. 311. Rathbuii, 5 Sawyer (U. S.), 32.
5 Fi.shliill V. Fishkill &c. Plank- ^° P<;ople v. Parks, 58 Cal. 624;
Road Co., 22 Barb. (N. Y.) 634. The Doaue v. Weil, Id. 3:54, Myrick and
first section of this act, which did not Sharpensteiu, JJ., dissenting.
469
1 Thomp. Corp. § GIS.] constitutional restraints.
§ 618. Instances of Statutes not Embracinjf more than One
Subject, and licnce Valid. — "An act to prevent the issue of
false receipts or bills of lading, and to punish fraudulent transfers of
property by warehousemen, wharfingers, and others," is not objection-
able as embracing more than one subject. Its object is to provide for
a whole class of cases, and remedy an existing evil. The subjects have a
natural connection.^ _ . . - Pro\asions authorizing a State bank to
organize a national bank, providing for the sale of the stock owned by the
State in such bank, protecting the seminary and school fund, and
providing for its safe investment, are properly included in one
act.- - - - - " An act to revive and amend the act to incorporate
the Sugar River Valley Railroad, approved March 29th, 1855, and to
authorize certain towns therein named to aid in the construction of
said railroad," was not obnoxious to the constitutional inhibition against
an act containing more than one subject. The act, in the opinion of the
court, embraced but one general subject, and that was the building of
a railroad, or the creation of a corporation for that purpose, and pro-
\'iding means for the accomplishment of the object. Dixon, C. J., in
giving the opinion of the court, further said : ' ' An act might be passed
creating or chartering a company in full, and providing for municipal
subscription to its stock, with all their details and particulars, and yet not
be obnoxious to constitutional objection on this ground." 3 . . . ,
"An act to revise the laws providing for the incorporation of
railroad companies, and to regulate the running and management, and
to fix the duties and liabiKties of all railroad and other corporations
owning or operating any railroad in this State," — is not unconstitu-
tional as embracing more than one subject, since its general object is
to bring together the legislation concerning the creation and manage-
ment of railroads.^ _ - - - "An act in relation to mortgages
against preferred stock in, and the deUvery of goods by railway com-
panies," is not void as embracing more than one object; for the whole
title relates to railways.^ . - . - "An act to regulate the use of water
for irrigation," which, in addition to regulating the use of such water,
contains a provision setthng priorities of right in respect of the use of the
same, has been held not to embrace two subjects, within the meaning of
such a constitutional inhibition.*^ - - - - " An act to provide for the
1 State V. Miller, 45 Mo. 495. '= Attorney-General y. Joy, 55 Mich.
2 State V. Bank of the State, 45 Mo. 94.
528. ^ Golden Canal Co. v. Bright, 8
3 Phillips V. Albany, 28 Wis. 340, Colo. 144. In Colorado it is held that
356. *' in the absence of express statutes
^Toledo &c. R. Co. v. Dunlap, 47 to the contrary, the first appropilator
Mich. 456. of water from a natural stream for a
470
TITLES OF STATUTES. [1 Thomp. Corp. § 619.
transmission of letters, packages, and merchandise ... by means
of pneumatic tubes," etc., has been held, to embrace in its title but one
subject.^ - - - - " An act for the redress of injuries arising from
the neglect or misconduct of raih-oad companies, or others," which in its
body provides a remedy against natural jpersons as well as against corpo-
rations^ has been held not obnoxious to the objection of relating to
more than one subject,^ — a conclusion which must be regarded
as doubtful. - - - - Nor is an act void for duplicity of title and
object, from the fact that it provides for the incorporation of mutual fire
insurance companies, and also for the repeal of previous acts, which
would be repealed hy implication without express mention.^ - - - -
Nor is " an act for the organization of corporations for works of public
improvement and utihty," subject to constitutional objection for this
reason ; since it embraces but one subject, the organization of corpo-
rations of a particular class.*
§ 619. Instances of Statutes Containing Subjects not Ex-
pressed in their Titles. — The following, among many other instances,
of statutes which have been held void as containing subjects not ex-
pressed in their titles, are given: — " An act in relation to streets vd.
Union township ' ' was void because it conferred the power to lay out a
parli.^ So, of a statute "relative to grading, paving, curbing and
otherwise improving the Troy Hill Road in the City of Allegheny,"
which contained a provision relating to a park, the court holding the
statute void as to the latter provision.^ So, of "an act to restrict the
sale of personal property in certain cases," which also provided that
the willful destruction of personal property on which there was an un-
satisfied lien should be punishable as a misdemeanor,''' So of " an act
to regulate marks and brands,'' which contained a provision that any
beneficial purpose, has, with the quali- ject that would naturally be consid-
ficationcontained in the constitution, a ered." Golden Canal Co. v. Bright, 8
prior right thereto to tlie extent of such Colo . 144, 1 48.
appropriation." Coffin v. Left Hand ^ Astor v. New Yorli Arcade Rail-
Ditch Co., r, Colo. 443; Thomas V. Gui- way Co., 48 Hun (N. Y.), 5G2.
raud, Id. 530. Quoting this language, ^ Chiles v. Drake, 2 Mete. (Ky.)
the court add: " It requires no argu- 146.
ment to demonstrate that a genaral •"' Tolford v. Church, 66 Mich. 413;
law, intended to fully regulate the use 33 N. W. Rep. 913; 9 West. Rep. 885.
of such water, would, almost of neces- '^ Bridgeford v. Hall, 18 La. An. 211.
sity, touch upon the subject of priority '^ Rader v. Township of Union, 39
of right thereto; while of course the N. J. L. 509, 514.
payment of expenses and costs in ^ Dewhurst v. Allegheny City. 95
•determining such priority of right. Pa. St. 437.
and in regulating such use, is a sub- ' Wall<er v. State, 49 Ala. 329.
471
1 Thomp. Corp. § 619.] constitutional restraints.
person who, with intent to defraud, kills any stock running at large,
whether branded, marked, or not, shall, upon conviction, be deemed
guilty of felony, etc.^ So of "an act relating to the llidge Avenue
Passenger Railway Co.," ratifying \\\q consolidation of the company with
another company, and repealing the provisions in the charters of the
two companies so as to release them from the control of the city.^ So
of " an act to facilitate the carriage and transfer of passengers and
property by railroad companies," which authorized all railroad com-
panies having a terminus on any navigable river bordering on the State,
to own for theii* own use any water-craft necessary in carrying across
such river any property or passengers transferred on their lines, and
provided ' ' that no right shall exist under this act to condemn any real
estate for a landing for such water-craft, or for any other purpose," and
that the act should apply only to ' ' such railroad companies as own the
landing for such water-craft." The title was held misleading, and not
sufficiently broad to include the proviso. ^ So of " an act authorizing
the acquisition of turnpikes, roads, or highways, heretofore or hereafter
constructed near or through any borough or township in this common-
wealth, upon which tolls are charged the traveling public : " because (1)
its title excludes turnpikes in cities, and the body of the act includes
them; (2) it is confined to such turnpikes as lie wholly within the
bounds of single counties ; and (3) the title of the act does not indicate
that counties are in any way affected.* So of " an act to incorporate
the village of F.," in so far as it included provisions for dividing the
township of F. and incorporating the portions set off as a new town.^
So of an act ' ' to consolidate and amend the several acts incorporating
the city of B., and for other purposes therein mentioned," but confirm-
ing ' ' all the ordinances of the Mayor and City Council of the city of
B. heretofore passed, and not in conflict with the constitution," etc.*'
So of " an act to amend " the charter of a city, in so far as it contained
provisions legalizing and making valid past proceedings of the corporate
authorities which were not authorized by the charter.' So of " an
act making appropriations for certain expenses of government," in so
far as it contained provisions authorizing local taxation to defray a part
of the expense of building a bridge.^ So of " an act for the incorpora-
1 State V. Silver, 9 Nev. 227. The soundness of this decision is
2 Philadelphia tJ. Ridge Avenue Pas- doubtful.
Sanger R. Co., 6 Pa. County Ct. 283. ^ Brieswick v. Mayor &c. of Bruns-
3 Thomas u. Wabash &c. R. Co., 40 wick, 51 Ga. G3;). Held void as to
Fed. Rep. 12G. the provision recited.
* In re Carbondale &c. Road (Pa.), ^ Williamson w. Keokuk, 44 Iowa, 88.
13 Atl. Rep. 913. * People v. Chautauqua County, 43
5 Stuart V. Kinsella, 14 Minn. 524. N. Y. 10.
472
TITLES OF STATUTES. [1 TllOtlip. Corp. § 619.
tion of insurance companies, defining their powers and prescribing theii-
duties," in respect of a section which regulates the agencies of foreign
insurance companies doing business within the State. ^ So also as to
" an act to regulate the manner of voting in B. county on questions of
tax for subscriptions to railroad companies." containing a clause pro-
viding that no tax should be imposed for such purpose upon the prop-
erty of those residing outside the limits of a certain city, unless the votes
of a majority of the voters residing outside such Uniits should be cast in
favor of such subscription. ^ So of " an act to incorporate" a certain
raihoad company, in so far as it conferred upon the company the power
to construct and lease its road, and authorized other railroad companies
to accept such lease. ^ A strained and doubtful interpretation of such
a constitutional provision has resulted in the conclusion that a statute
expressing in its title that its object was to provide a means for the col-
lection of claims for cattle and other stock, etc., by railroads, could not
embrace in its body a provision creating an absolute liabihty on the part
of railroad companies for the killing of cattle, which Kability did not exist
prior to its passage.'^ So of " an act relating to the Mississippi Boom
Corporation," in so far as it contained a provision imposing additional
duties on another corporation, — in effect amending its charter. ^ So
of "an act to repeal certain acts therein named," repealing certain
special laws relating to municipal corporations, and then following
with affirmative legislation. Such a statute is void, both as to the re-
pealing portion and as to the affirmative portion, because neither is ex-
pressed in its title. ^ So of a special act of incorporation, the title of
which was '• an act to incorporate the Manufacturers' Improvement
Company," the body of which expressed the object of the incorporation
to be to clear out, improve and render navigable a certain stream and
its tributaries. Here, the title expressed in no sense the principal pui--
pose of the act, since the word ' ' manufacturer ' ' gave no clue to it.
The whole act was ther-^fore void." So of " an act relating to boroughs
in the County of Chester," which repealed certain pro%-isions of a gen-
eral act entitled " an act regulating boroughs." respecting the proceed-
ings for la3ing out and opening roads within the boroughs of Chester
County, the effect of which was to relieve the propertj^-owners in the
1 Grubbs v. State, 24 Ind. 295. a judicial aberration that it is scarcely
2 Kentucky &c. R. Co. v. Bourbon, proper to quote it.
85 Ky. 98; s. c. 2 S. W. Rep. 687. * Mississippi &c. Boom Co. r.
3 Camden &c. R. Co. v. May's Land- Prince, 34 Minn. 70.
ing &c. R. Co., 48 N. J. L. 530; 7 Atl. « People v. Mellen, 32 111. 181.
Rep. 523; 4 Cent. Rep. 801. " Rogers v. Manufacturers' &c. Co.,
* Savannah &c. R. Co. v. Geiger, 21 109 Pa. St. 109.
Fla. 669. This decision is so plainly
473
1 Thomp. Corp. § 620. J constitutional restraints.
boroughs from the burdeu of paying damages for roads opened in the
boroughs, and to shift that burden upon the county.^
§ 620. Instances of Statutes not Subject to the Constitu-
tional Objection. — " An act to provide for the closing of the en-
trances of the tunnel of the Long Island Railroad Company, in Atlantic
JStreet, in the city of Brooklyn, and restoring said street to its proper
grade, and for the relinquishment by said company of its right to use
steam power within said city," — has been held not obnoxious to a
constitutional provision declaring that " no private or local bill which
may be passed by the legislature, shall embrace more than one subject,
and that shall be expressed in the title." The single special subject em.
braced in this act was the provision for changing a steam railroad and
tunnel into a surface horse raih'oad, and the mere fact that the owners
of the steam railroad and franchise were compensated for surrendering
it, and that the statute provided for the raising of the funds to make the
compensation did not bring it within the inhibition. Moreover, the title
of the act was regarded as sufficiently expressing the object, within the
spuit and meaning of the constitutional restriction. "This constitu-
tional restriction," said the court, " does not require that the title of an
act shall specify all its provisions." ^ _ . . _ " An act requiring
railroad corporations, or other persons operating and controlUng rail-
roads, to fence their right of way and raikoad track, and to construct
bari'iers and cattle guards at certain public road and highway crossings,
and to maintain and keep the same in repair, and prescribing remedies
and i^enalties for failing to do so," has been held sufficiently broad to
embrace a section providing that gates at private farm railroad crossings
shall be constructed and maintained by the land-owners. 3 - - - -
*' An act concerning drainage" constitutionally embraces legislation
authorizing a board of drainage commissioners.^ The provisions of a
body of revised laws under a title called " Code of Civil Practice,"
subdivision " Executions," pointing out the duties of officers of corpora-
tions in regard to the payment of judgments against a corporation, and
declaring the consequences to the officers personally of a failure to com-
ply with the requirements of the law, are ' ' properly connected with the
subject and title of the enactment of which they form part. " ^ - - - -
*' An act to provide compensation to the owners of animals killed or in-
1 Re Road in Phoenixville, 109 Pa. ^ Hunt v. Lake Shore &c. R. Co.,
St. 44. 112 Ind. 69, 79; s. c. 13 Northeast. Rep.
2 People V. Lawrence, 41 N. Y. 137, 263; 11 West. Rep. 107.
139. See also People v. McCann, 16 * Ross v. Davis, 97 lad. 79; Wish-
N. Y. 58; Conner v. Mayor, 1 Seld. (N. mier v. State, Id. 160.
Y.) 285. ^ Porter V. Thomson, 22 Iowa, 391.
474
TITLES OF STATUTES [1 Thoilip. Coip. § 620,
jured hy the cars, locomotives, or other carriages of any railroad
companies in this State," may properly embrace an exception in
the case of such railroads as are suitably fenced.^ _ . _ -
"An act to regulate public warehouses, and the warehousing and in-
spection of grain, and to give effect to article 13 of the constitution of
this State," — has been held broad enough to include a section pre-
scribing the penalty for issuing warehouse receipts for any property not
actually in store, or for issuing fraudulent receipts, or for not canceling
receipts under certain circumstances. ^ - - - - " An act relating
to the liability of railroads for damages by fire " is a sufficient title to
include a pro^ision that, when it is established that the fire was set out
by the operation of the railroad, it shall he prima facie evidence of neg-
ligence on the part of the company, and that in an action for damages
plaintiff's contributory neghgence shall be considered in determining his
right of recovery. 3 _ . _ _ " An act in relation to a portion of the
submerged lands and Lake Park grounds Ipng along and adjacent to the
shore of Lake Michigan on the eastern frontage of the city of Chicago,"
has been held sufficiently expressive as a title to include provisions
giving the city the fee to certain partially submerged lands, with author-
ity to sell the same, and giving the fee of certain other submerged
lands to a railroad company, with the right to maintain docks and
wharves thereon.* - - - - "An act for the benefit of the Louis-
ville and Oldham Turnpike Road Company," authorizes the company
to borrow moue}^ and to execute mortgages to secure its payment ; the
second section gives the directors power to sell the road, right of way,
etc., and apply the pi-oceeds to the payment of debts ; the third section
authorizes the chancellor to sell the road, etc., upon the application of a
creditor ; and the fourth section subrogates the purchaser to the rights
and powers of the company. All this relates to but one subject, and that
is fully expressed in the ^ 'tie. ^ - - - - The subject of an act entitled
1 MadisoQ &c. R. Co. v. Whiteneck, Co., 124 U. S. 656; s. c. 8 Sup. Ct Rep.
8 Ind. 217. 643; "to legalize the issuing of
2 Sykes V. People, 127 111. 117; s.c. bonds," — the object being to raise
19 N. E. Rep. 705. money to pay bounty to volunteers to
3 Missouri «&c. R. Co. v. Merrill, 40 serve in time of war: Coffman v.
Kan. 404; s. c. 19 Pac. Rep. 793. Keiglitly, 24 Ind. 509; Board of Com-
* State V. Illinois Central R. Co., missioners v. Bearss, 25 Ind. 110;
33 Fed. Rep. 730, opinion by Harlan, •' for the relief of the creditors of the
J. Acts witli the following titles have Lockport & Niagara Falls Railroad
been held not within such a coustitu- Company:" Mosier v. Hilton, 15 Barb,
tional inhibition: "To enable the (N. Y.) 057.
United Companies to improve lands ^ Louisville &c. Co. v. Ballard, 2
under water at Kill von Kull and other Mete. Ky. 166.
places: " Hobokenu. Pennsylvania R.
475
1 Thomp. Corp. § 623.] constitutional restraints.
" An act to provide for the relief of the city of Rochester, and the New
York Central and Hndson River Railroad Company in said city," whose
provisions relate to the elevation of the company's tracks, and the closing,
widening and changing the grade of streets when necessary to secure
that object, and to the payment of costs and expenses thereof, is single,
and sufficiently expressed in the title, ^
§ 621. General Acts of Incorporation. — General acts of in-
corporation, such as have been considered in a former chapter of
this work,2 may be validly passed under the most general
titles, — such as "an act concerning private corporations," —
and may embrace within their provisions all matters germane to
the subject expressed in their title, without coming in conflict
with constitutional provisions such as those under consideration.
An act under the title just quoted may embrace within its pro-
visions the entire body of statute law concerning private corpo-
rations: the purposes for which they may be formed; the
manner of their organization ; their powers and duties ; the
grounds and manner of their dissolution ; and in addition thereto,
it may contain separate articles devoted to particular classes of cor-
porations, such as insurance companies, railroad companies, and
the like. In treating of railroad corporations, it may confer upon
them power to condemn land for right of way and to receive
subscriptions of municipalities to their stock, — and all this
without coming within such a constitutional inhibition.'
§ 622. Illustrations. — An act "to revise the laws providing for
the incorporation of railroad companies," does not \dolate such a con-
stitutional provision, by including the substantial pro\isions of a former
law which imposes a liabihty upon railroad companies for injuries result-
ing from neglecting to /ence their tracks.* - - - - " An act to au-
thorize the organization of annuity, safe deposit and trust companies,"
may properly embrace a provision granting to such corporations the
power to act as guardians of the estate of insane persons.^ . - - -
' ' An act to provide for the incorporation of mutual lire insurance oom-
1 Wilson V. New York &c. R. Co., 2 * Continental Improvement Co. v.
N. Y. Supp. 65. Phelps, 47 Mich. 29!).
2 Ante, § 132 et seq. ^ Minnesota Loan & Trust Co. v.
3 Marion County Comm'rs v. Harvey Beebe, 40 Minn. 7; s. c. 41 N, W. Rep.
County Comm'rs, 26 Kan. 181. 232.
476
TITLES OF STATUTES. [1 TllOlUp. Corp. § 623.
panies, and defining their powers and duties," is sufficient to embrace,
without particular mention, provisions for loinding up such companies
when they become insolvent, including their examination by the insur-
ance commissioner, the appointment of a receiver, and the assessment
of policy-holders to pay Uabilities. These are all necessarily incident to
the object expressed in the title. ^ . . . . " Pro\isions prescrib-
ing the examination^ by proper State officers, into the affairs of imur-
ance companies, and imposing penaZ^i'es for false representations on such
examination, even if made applicable to existing companies, may be in-
cluded in an act entitled ' ' an act relative to the organization and powers
of fire and marine insurance companies transacting business within this
State." The court, speaking through Cooley, C. J., say: "It is by
no means essential that every end and means necessary or convenient for
the accompHshment of the general object, should be either referred to
or necessarily indicated by the title. All that can reasonably be re-
quired is, that the title shall not be made to cover legislation incongruous
in itself, and which, by no fair intendment, can be considered as having
a necessary or proper connection." 2 .... " An act in relation
to the duties of railroad companies " may properly embrace provisions
in respect of the liabilities of railroad companies.^
§ 623. Acts Purporting to Amend Former Acts. — It may be
stated, as a general proposition, that an act which by its title
merely purports to amend a former act, which it recites by its
title, is unconstitutional and void, under the provisions which we
are considering, if it introduces a subject not germane to the title
of the former act. The test by which to determine whether a par-
ticular subject can be embraced within the title " iin act to amend' '
a former act, is to consider whether the subject could have been
embraced within the original act under its title. " If, under the
original title of the act incorporating the company, it would have
been competent to confer upon the corporation the powers con-
tained in the amendments, then there can be no doubt of the
power to confer them upon it by way of amendment to such act,
and under the title of ' an act to amend ' the original act, recit-
ing its title. Any additional powers may be given to the com-
1 Wardle v. Townsend, 75 Mich. Potts, 7 Ind. 681; People v. Mahaney,
385; s. c. 42 N. W. 950. 13 Mich. 495.
2 People V. State Ins. Co., 19 Mich. '' McAunich v. Mississippi &c. R.
392, 398; citing Indiana &c. R. Co. v. Co., 20 Iowa, 338.
477
1 Thonip. Corp. § 623.] constitutional kestuaints.
pany under an amendatory act, which could have been constitu-
tionally conferred under the original act." ^ It was so held by
the Supreme Court of Iowa, in a case where the act under con-
sideration was entitled " an act to amend the act to incorporate
the city of Muscatine." The amendatory act extended the limits
of the city, and the court held that the law was valid, because
this might have been done under the title of the original act.*
It has also been said that " if the title of the original act is suffi-
cient to embrace the provision in question, it is unnecessary to
inquire whether the title of the amendatory act would of itself be
sufficient." ^ To illustrate this principle, it has been held that,
where the title of the original act was an act to incorporate the
Yellow Kiver Improvement Company, an amendatory act whose
title merely purported to amend the former act, might embrace
a provision empowering the company to run logs and lumber on
the river, after the same had been improved by it, and to take
tolls therefor. This was not so disconnected with and foreign to
the business of improving the river, as to form a new subject
which could not be legitimately connected with the business of
the improvement company created by the original act, and which
miajht not therefore have been embraced under its title. The
court, speaking through Taylor, J., said: *' We are of the
opinion that the title of the act is not so narrow and restricted as to
prevent the conferring of any powers upon the company except
such as relate strictly to the improvement of the river and the
receiving of tolls for the use of such improvement. It is prob-
ably true that, when the title of an act incorporating a company
indicates the business to be performed by such company, it would
be a violation of the constitutional provision in question to pro-
vide in the act for the carrying on of a business by the corpora-
tion entirely disconnected with and different from that indicated
in the title. The rule is, that any business which is properly
connected with the business indicated by the title of the act, may
be authorized to be done by the act, without violating the consti-
tutional rule that it shall contain but one subject." * An act is not
1 Yellow Iliver Improvement Co. v. ^ Brandon v. State, 16 Ind. 197.
Arnold, 4(j Wis. 214, 224, opinion by * Yellow River Improvement Co. wv
Taylor, J. Arnold, 46 Wis. 214, 225.
2 Morford v. Unger, 8 la. 82.
478
TITLES OF STATUTES. [1 Tliomp. Corp. § 624.
necessarily invalid because, being amendatory of a previous act,
the title does not expressly so state. ^
§ 624. Illustrations of the Titles of Amendatory Acts. — A
recent case in New York furnishes an excellent illustration of this. By
an act, a corporation had been created whose business was the trans-
mission of letters, packages and merchandise through pneumatic tubes
under the streets of New York and Brooklyn. A supplementary act-
expressing in its title the same pui-pose contained in its body provisions,
which in effect authorized the purposes of the corporation to be
changed to the construction and maintenance of an underground steam
or horse railroad. It was held that this was so wide a departure from
the purpose of the act as expressed in the original title and in the title
of the amendatory act, as to render it voil. Earl, J., said: " A title
purporting that an act provides for pneumatic transportation would not
be sufficient for an act authorizing the construction and operation of a
horse railway or a steam railway ; as a title purporting that an act
authorizes a hue of omnibuses for the transportation of passengers,
would not be sufficient for an act authorizing the construction of a rail-
way for the same purpose." ^ _ - - - The above proposition is.
also well illustrated by a case in Pennsylvania, where the title of an act
of incorporation of a passenger railway company authorized them to
lay their tracks in a number of designated streets. Subsequently, an
act was passed entitled "a supplement" [to the first named act}
authorizing the company to declare di\Tidends quarterly and to lay addi-
tional tracks of railway. It was held that this latter clause did not
warrant a provision in the body of the amendatory act, authorizing the
company to extend its railway into new territory not hitherto authorized
to be used. 3 - - - - So, where the title of the original act was,
"an act for the incorporation of manufacturing companies," and the
title of the amendatory act was, " an act to amend section 1, of an act
entitled ' an act for the incorporation of manufacturing companies,' '"
etc., and this amendatory act contained a provision for the incorpora-
tion of companies to carry on a mercantile business, it was held that it
was void."* _ . _ - Another very apt illustration of this principle
is furnished by an attempt to amend a statute of Michigan, the title of
which was " an act to authorize the formation of corporations for
literary and scientific purposes." The third section, in prescribing
' Timra v. Harrison, 109 111. 503. ^ Union Passenger R, Co.'s Appeal,
2 Astor V. Arcade R. Co., 113 N. 81 Pa. St. 91.
Y. 93, 109; s. c. 20 Northeast. Rep. * Eaton v. Walker, 76 Mich. 579;
594. s. c. 43 N. W. Rep. 638.
479
1 Thorap. Corp. § 624.] constitutional restraints,
what should be set forth by each society in the articles, included:
'• Third, The objects for which it is organized, which shall be only for
the promotion of literary and scientific pursuits." ^ The second sec-
tion, in giving general directions for the agreement of incorporation
contained a similar reference to this purpose. In 1867 an act was
passed to amend section 2 of the above act so as to include ' ' missionary
and other benevolent purposes." ^ This amendment made that section
read as follows: " Sec. 2. Any number of persons, not less than ten,
who shall, by articles of agreement in writing, associate themselves to-
gether according to the pro\asions of this act, for Uterary or scientific
pui'poses, or both, or for missionary or other benevolent purposes, and
who shall comply with the provisions of this act, shall, with their suc-
cessors and assigns, constitute a body politic and corporate," etc. An
association was organized under this amendatory act, the objects of
which were thus expressed in its articles: " 3, The objects for
which this corporation is organized, are : to encourage total
abstinence from all intoxicating beverages, including cider, cordials,
fermented and spirituous hquors of every kind, name and description ;
to provide relief in case of sickness and accident, and for the burial of
deceased members ; and to promote, foster and encourage literary pur-
suits of any kind among its members, including the cultivation of a taste
for music and scientific acquirements, and to which end a library shall
be procured and maintained." It was held that the amendatory act was
not a vahd statute ; that no action depending upon it could be upheld,
but that the original statute must be read as though the amendatory act
had never been passed. In delivering the opinion of the court, Camp-
bell, C. J., said: " Our constitution is very positive in its requirement
that ' no law shall embrace more than one object, which shall be ex-
pressed in its title.' ^ The statute of 1865 is confined by its title
expressly to ' literary and scientific purposes.' The third section de-
clares that the objects for which corporations are organized under it
' shall be only for the promotion of literary and scientific pursuits.'
The title and this section remain unchanged, and indicate a clear un-
derstanding that literary and scientific pursuits are not to be confounded
with other matters, however proper and desirable. Our laws have al-
ways distinguished between religious purposes and those of general
benevolence, as they have between purposes of benevolence and those of
a different character. It has been deemed expedient to provide differ-
ent regulations for all these subjects. No one can hesitate to see that
the purpose of the statute of 1867 was to introduce an entirely new
1 Sess. Laws Mich. 1865, pp. 725, 2 1 Sess. Laws Mich. 1867, p. 21.
726. 3 Citing Const. Mich., art. 4, § 20.
480
TITLES OF STATUTES. [1 Thomp. Corp. § 621.
object of legislation foreign to the existing statute, and incapable, by
the most hberal construction, of falling within its terms. This being
so, the new law could only have the effect of bringing in an amendment
outside of the pui-pose indicated by the title, and inconsistent with sec-
tion three, which conforms to the title, and which is not amended or
repealed. Such an amendment is void, as within the express prohibi-
tion of the constitution. It does not seek to add to literary and scientific
corporations any new incidental powers not inconsistent with theu'
articles. It treats the whole matter added as a new and independent
purpose, not requiring any connection with those mentioned in the
title, and absolutely repugnant to the third section, which would neces-
aarily be repealed as to its third subdivision, if the amendment could be
upheld. "1 - - - - " An act to amend the several acts in relation to
the city of Rochester," has been held large enough as a title to embrace
any matter relating to the business and government of that municipal-
ity, — the court saying that " when the title of a local or private act ex-
presses the general purpose or object, all matters fairly and reasonably
connected with it, and all measures which will facihtate its accompKsh-
ment, are proper to be incorporated in the act and are gei'mane to the
title." And again: "Where the subject is general, comprehending
all the functions of the corporation, provisions in relation to any of them,
or necessary, or pertinent to accomplish and carry out any of them,
may be, so far as this constitutional clause is concerned, incorjDorated
in the bill. No one can be misled by such a title, and the legislators
and people are alike notified of the pui'pose of the act."^ - - - -
Under " an act to reorganize the Medical Society of New Jersey," the
powers of the former society could be repealed and new ones confer-
red. •' - - - - " An act to amend the charter of " a railroad company,
may embrace a provision that ' ' actions for injuries to stock and other
property on said raikoad by the company or its agents, must be brought
within sta; mowf/is after such injmy," — the court saying: "This act
relates to but one subject, and that is clearly expressed in the
title, and the legislation under it is in reference to the subject-
matter of the title, and has a direct connection with it." * - - - -
' ' An act to amend an act entitled ' an act to incorporate the North-
western University,' " validly embraced a provision prohibiting the sale
of ardent spirits within four miles of the University, under a penalty to
be recovered by the county.^ _ _ _ _ An act to amend a certain
1 People u. Father Matthew &c. So- •* O'Bannon v. Louisville &c. R.
ciety, 41 Mich. G7, 72. Co., 8 Bush (Ky.), 348,352.
2 People V. Briggs, 50 N. Y. 653; * O'Leary v. Cook County, 28 111.
opinion by Church, C. J. 534.
' Hill V. Morrison, 4G N. J. L. 488.
31 481
1 Thonip. Corp. § 635.] constitutiOxNal kestkaints.
chapter of the general statutes entitled " an act to provide for the for-
mation of corporations," has been held sufficiently specific to embrace
a pro^^sion requiring thepajanent of a/ee to the Secretary of State of a
corporation upon filing its certificate of organization.^ _ _ _ _
" An act to amend an act to create a commission of arbitration and
award, to define the powers and duties thereof, and to make appropriation
to pay the salaries of the judges thereof," which amended an act creat-
ing what is usually called a supreme court commission^ by merely adding
another duty to that originally imposed on the so-called commission of
arbitration, was not obnoxious to such a constitutional provision.^
- - - - " An act to amend the charter of a city, changing the of-
fice of city attorney from an appointive to an elective office, was held
properly to embrace this provision. ^ _ _ _ _ " An act to amend the
charter " of a certain turnpike company, provided that " the charter of
the said turnpike company be and the same is hereby repealed as fol-
lows, to wit," — providing that the company should be relieved from
the provisions of a general statute relating to the election of officers,
and prescribing the manner in which the stock owned by the society
should be voted. It was held that the subject of this act was sufficient-
ly expressed in the title, the word " repealed " having been used instead
of ' ' amended " by an obvious mistake : it was an amendment accord-
ing to legislative intent. 4 _ _ _ _ An act to amend the charter of
the city of New York ^ has been held broad enough to embrace a pro-
vision prohibiting aldermen from sitting as judges of Oyer and Ter-
miner and of the Sessions, and providing that the remaining judge in
those courts should hold the courts without the aldermen.*^ So, pro-
visions for the extension of the limits of a city may be embraced under
the title " an act to amend the charter of the city of," etc.'''
§ 625. Void as to Matter not Expressed in Title, though
Valid as to the Rest. — On a principle elsewhere more fully
stated,^ it is the constant practice of the courts to declare
statutes which contain matters not expressed in their titles, void
as to such matters, though valid as to the rest. In such cases
1 Edwards v. Denver &c. R. Co., 13 * The exact language of the title
Colo. 59; s. c. 21 Pac. Rep. 1011. does uot appear to be given in the re-
2 Stone V. Brown, 54 Tex. 331, 341. port.
3 Powell V. Jackson Common Conn- ^ Phillips v. Mayor, 1 Hilt. (N. Y.)
ell, 51 Mich. 129; citing Pack v. Bar- 483.
ton, 47 Mich. 520. ' Prescott v. City of Chicago, 60
* Cassell V. Lexington &c. Turnp. III. 121.
Co. (Ky.), 9 S. W. Rep. 502. « Post, § 658.
482
TITLES OF STATUTES. [I Thomp. Copp. § 626.
the incongruous matter is generally severable from the other
matter, within the principle already explained.^
§ 626. Distinctions Depending upon the Use of the Words
<« Subject " and " Object." — Most of the constitutional pro-
visions under consideration declare that an act of the legislature
shall contain but one " subject " and that that shall be expressed
in its title ; but some of them use the word " object." A dis-
tinction has turned on the substitution of the word " subject"
instead of " object." In a case in the Supreme Court of New
York it is said : '< It must not be overlooked that the constitu-
tion demands that the title shall express the subject^ not the
object, of the act. It is the matter to which the statute relates
and with which it deals, and not what it proposes to do, which
is to be found in the title. It is no constitutional objection to a
statute, that its title is vague or unmeaning as to its purpose, if
it be sufficiently distinct as to the matter to which it refers." ^
In Texas, under a constitutional provision using the word
" object," it was said : " It could not have meant that the word
* object' should be understood in the sense of * provision;'
for that would render the title of the act as long as the act it-
self. Various and numerous provisions may be necessary to ac-
complish the one general object which an act of the legislature
proposes. Nor could it have been intended that no act of legis-
lation should be constitutional which had reference to the
accomplishment of more than one ultimate end. For an act
having one main or principal object in view, may incidentally
affect or be promotive of others; and it would be impossible so
to legislate as to prevent this consequence. The intention
doubtless was, to prevent embracing in an act, having one osten-
sible object, provisions having no relevancy to that object, but
really designed to effectuate other and wholly different objects,
and thus to conceal and disguise the real object proposed by the
provisions of an act, under a false or deceptive title." ^ It may
be doubted, however, whether any sound distinction can be
1 Mississippi &c. Boom Co. v. in Stone v. Brown, 54 Tex. 330,
Prince, 34 Minn. 79; Dewhurst u. 341.
Alle<iheny City, 95 Pa. St. 437. 3 Tadlock v. Eccles, 20 Tex. 782,
2 Tcople V. Lawrence. 3fi Barb. (N. 79'-'; s. c. 73 Am. Dec. 213, opinion by
Y.) ]89, 192. Quoted with approval Wheeler, J.
483
1 Thomp. Corp. § 627. J constitutional hkstraints.
drawn upon the use of either of these words instead of the
other ; for it is perceived that those courts, in whose consti-
tutions the word " subject" is used, take the same view of the
meaning of the provision as that above stated by the Texas court.
§ 627. Liong Practical Construction. — The maxim com-
munis error facit jus, has been, in substance, applied in the solu-
tion of this question, and it has been held that a long practical con-
struction of an important statute, in which it has been acquiesced
in as valid, will bar any mere technical objection to its consti-
tutionality, based on a want of precision in setting forth its pur-
pose in its title. In so holding it was said by Graves, J.: " It
is now more than ten years since the act was passed and dove-
tailed into our system of important statutes. The people and
the government have acquiesced in it, as a piece of legislation
lawfully enacted, and interests of vast maguitude have mean-
while sprung forth and flourished under it. The whole country
has acted on the faith that it originated legitimately and con-
stituted a valid statute; and if we were satisfied that the legisla-
ture stumbled and overlooked something which a nice regard
for the clause referred to would have prompted, wo should deem
it our duty to yield to the long practical construction and
acquiescence, and decline to set up a view which would reach
back and overturn the statute, and uproot and destroy an array
of interests it would be difficult to either measure or number." ^
Article IV. Restraints as to the Mode op Passing Laws.
Section Section
632. Constitutional provisions requlr- 636. Whether parol evidence admissi-
ing assent of two-thirds of ble on the question.
each house. 637. Signed by the governor or no law.
633. Whether provisions as to pass- 638. Constitutional provisions requir-
ing bills directory or manda- ing amendments of charters to
toiy. be submitted to a vote of the
634. Whether courts will go behind people.
the enrollment. 639. That no law shall create, renew
635. Presumptions in favor of regu- or extend the charter of more
larity of passage. than one corporation.
1 Continental Improvement Co . v. application of the maxim, communis
Fhelps, 47 Mich. 299, 303. As to the error facit jus, see Cole v. Skrainka,
extent to which courts can go in the 37 Mo. App. 427, dissenting opinion.
484
MODE OF PASSING LAWS. [1 Thomp. Corp. § 632.
§ 632. Constitutional Provision Requiring Assent of Two
Thii-ds of each House. — A constitutional provision that " the
legislature shall pass no act of incorporation, unless with the
assent of at least two-thirds of each house," was held by Mr.
Justice McLean at circuit not to restrict the legislature from
creating more than one corporation in the same act ; but in his
view the legislature might establish an indefinite number of
corporations in the same act, as well as a limited number.^ This
view was denied by the Supreme Court of Michigan, and, it
beino" a question of the interpretation of the constitution of
that State, the view of the State court prevailed.^ Such a
provision existed in the constitution of New York. It was at
first held that it did not apply to public corporations, but that it
applied only to private corporations, such as banking institutions,
etc.^ But this doctrine was denied and overruled in subsequent
cases.* In another case two members of the Court of Errors of
New York advanced the opinion that this constitutional provision
1 Falconer v. Campbell, 2 McLean
(U. S.), 195.
2 The Michigan Banking Law of
1837 was held to be unconstitutional
after many banks had been organ-
ized under it and after many rights
had thereby become vested, on the
ground that it had been enacted in
violation of a constitutional provision
of that State that "the legislature
shall pass no act of incorporation
unless with the assent of at least two-
thirds of each house." Green v. Graves,
1 Dougl. (Mich.) 351; Farmers & Me-
chanics Bank v. Troy City Bank, Id.
457. Mr. Justice McLean at circuit
twice held the same statute to be
valid, — once in his very elaborate
judgment in Falconer v. Campbell, 2
McLean (U. S.), 195, and again in
White V. How, 3 McLean (U. S.), HI-
But the Supreme Court of Michigan
finally declared it unconstitutional
and, the Federal court being bound by
the State decision in respectof the in-
terpretation of its own constitution,
Mr. Justice McLean subsequently in
Nessmith v. Sheldon,4 McLean (U. S.),
375, declared the act unconstitutional,
and his decision was affirmed on
error in 7 How. (U. S.) 812.
3 People V. Morris, 13 Wend. (N.
Y.) 325.
* In People v. Purdy, 2 Hill CN. Y.),
31, 43, the act in question was one
taking from the aldermen of the city
of New York certain judicial powers
exercised by them individually. Cowen,
J., was of opinion that the act did not
interfere with any corporate powers,
and therefore did not require a two-
thirds vote for its passage; Nelson,
C. .J., adhered to his opinion in People
V. Morris, supra, that the constitu-
tional inhibition did not apply to
■nmnicipal corporations ; and Bronson,
J., dissented. This case was reversed
in the Court of Errors, sm6 nom. Purdy
V. People, 4 Hill (N. Y.), 384, and the
doctrine of People v. Morris was there
finally overthrown. See also DeBow
V. People, 1 Denio (N. Y), 9, 12 (over-
ruled in Gifford v. Livingston, 2 Denio
(N. Y.), 381).
485
1 Thomp. Corp. § 632.] constitutional restraints.
did not reach private corporations^ such as banks, provided they
were created under general laws which authorized everybody to
form corporations.^ Tlie struggle finally ended with a decision
in the Court for the Correction of Errors, decided by a vote of
fifteen members against seven, in which it was resolved, on the
authority of the case of Warner v. Beers,^ that the statute was
valid and constitutionally enacted, although it may not have re-
ceived the assent of two-thirds of the members elected to each
branch of the legislature, and that the decision in that case was
conclusive.^
1 Warner v. Beers, 23 Wend. (N.
y.) 103. But this view was thought
to be opposed to the subsequent de-
cisions of the Court of Errors. Purdy
V. People, supra. See the observations
of Brouson, C. J., in DeBowu. People,
1 Denio (N. Y.), 9.
2 23 Wend. (N. Y.) 103.
3 Gifford V. Livingstone, 2 Denio
(N. Y.), 380, 402. See also Thomas
V. Dakin, 22 Wend. (N. Y.) 9; Hunt v.
Van Alstyne, 25 Id. 605; Bank of
Watertown v. Watertown, Id. 686;
Curtis V. Leavitt, 17 Barb. (N. Y.) 309;
Palmer v. Lawrence, I Seld. (N. Y.)
389. Decisions tinder obsolete constitu-
tions, special statutes, etc.: Many decis-
ions in the earlier courts, or in the
less authoritative courts, or in cases
under obsolete constitutional provis-
ions, or under special and peculiar
statutes, have been collected by the
writer; but the limits of space allowed
to him will not permit a statement of
them in detail; nor is it thought that
it would be useful to make such a
statement. They will be referred to
with the greatest brevity, — indexed, so
to speak. A statute was held not un-
constitutional as being a private bill
granting to a corporation the right to
lay down tracks, — the right already
existing, — nor as being an "exclu-
sive privilege," in People v. Long
Island R. Co., 60 How. Pr. (N. Y.)
395. The charter of the State Bank
486
of Alabama was not unconstitutional,
by reason of the fact that the remedy
for and against the bank was not re-
ciprocal ; that all debtors must be sued
in the county in which the bank was,
and that the president was authorized
by the charter to create a certificate
to be used as evidence in its favor:
Lyon V. State Bank, 1 Stew. C^^l^")
442, 467. The original charter granted
to the Bank of Illinois in 1816 was
constitutional, the court proceeding
upon the view that the power of legis-
lation is inherent in a State legisla-
ture, and is plenary, except in so far
as the constitution is restrictive upon
it: People v. Marshall, 6 111. 672.
The Illinois act of 1835, extending the
charter of the same bank, was also
constitutional : Ibid. ; Wilmans v. Bank
of Illinois, 6 111. 667. The proviso to
the third section of the Illinois act of
1857, amending the general banking
law, was constitutional, although not
submitted to a vote of the people:
Smith V. Bryan, 34 111. 364. The pro-
viso was "that in presenting notes or
bills for payment under this section,
the party presenting shall not be re-
quired to present or receive payment
for each bill separately, but the whole
amount presented shall be treated as
though it were a single obligation of
that amount." This proviso was re-
garded as merely declaratory of the
common law: Reapers' Bank v. Wil-
MODE OF PASSING LAWS. [1 Thomp. Coip. § 634.
§ 633. Whether Provisions as to Mode of Passing Bills Di-
rectory or Mandatory. — In one or two States constitutional provis-
ions as to the mode of passing acts of incorporation are held to
be directory.^ Thus, the provision of a State constitution, that,
when a bill is presented for an act of incorporation, it shall be
continued until another election of members of the assembly
shall have taken place, and public notice of the pendency there-
of is given, is directory to the assembly, and, in the absence of
anj' clause forbidding the enactment without observing the direc-
tions, does not affect the corporators, unless the State itself inter-
venes.^ But this is contrary to the general American doctrine.
As already seen, constitutional provisions restraining the pas-
sage of private special or local laws creating corporations,
amending corporate charters, or granting or extending corporate
powers and privileges, are almost universally held to be manda-
tory.' We have seen that the same rule prevails, except in two
or three States, in respect to constitutional provisions that an act
shall embrace but one subject which shall be expressed in its
title. The same rule prevails generally in respect of other con-
stitutional directions and requirements concerning the passage of
laws.*
§ 634. Whether Courts will go Behind the Enrollment. —
In considering this question the courts have had to determine,
first, whether they would go behind the fact of the enrollment
of the bill in the office of the Secretary of State. Some of
them, proceeding with a just delicacy in regard to the faith and
credit which is to be given to the acts of a co-ordinate branch of
the government, have held that they would not look beyond the
fact of the signing and enrollment of the bill. The meaning of
this is that \hQ presumption which springs from the fact of the
lard, 24 111. 433; s. c. 76 Am. Dec. > Compare «n«e, § 608.
755. Compare Bank of Republic v. ^ McClinch v. Sturgis, 72 Me. 288.
Hamilton, 21 111. 53. An act creat- » Ante, § 673. See a learned note
ing a private banking corporation, on this question by W. W. Thornton,
was not a " bill of a general charac- l*:sq., in 2G Am. L., Reg. (a. s.,) 304,
ter," which, under art. 2, § 21, of the n; also learned note In 85 Am. Dec.
former constitution, of Tennessee re- 356, discussing the subject at length,
quired the calling of the ayes and with an exhaustive list of authorities,
noes on its final passage : Ferguson u. ■* Ante, § 608.
Miners &c. Bank, 3 Sueed (Tenn.), 609.
487
1 Thomp. Coi'i). § 635.] constitutional restraints.
bill being signed and enrolled is conclusive, and that the couits
will not look either to the journals of the houses of the legisla-
ture, or hear any evidence for the pur[)ose of overthrowing that
presumption.^ Other courts have held thtit it is competent for
the courts to go behind the official enrollment and publication of
the statute, and look to the journals of the two houses of the
legislature for the purpose of ascertaining whether the statute
was passed in conformity with the requirements of the constitu-
tion, and that they may declare it to be no law if they find that
it was not so passed.^
§ 635. Presumptions in Favor of Regularity of Passage. —
But even under this rule, the courts will indulge in every reason-
able prefiumption in support of the validity of an act of the legis-
lature, which has been duly authenticated, enrolled and published.
The publication of an act in the volume of session laws of the
year, verified by the Secretary of State, creates a presumption
that it became a law pursuant to constitutional requirements.^
» Whited V. Lewis, 25 La. An. 568;
Danielly v. Cabiniss, 52 Ga. 211 ; Ter-
ritory V. Clayton, 5 Utah, 598; 18 Pac.
628 Exp. Wren, G3 Miss. 512 (overruling
Brady v. West, 50 Miss. 68) ; Jones v.
Hutchinson, 43 Ala. 721; Common-
wealth V. Jackson, 5 Bush (Ky.), 680;
Evans v. Browne, 30 Ind. 514; Paine
V. Lake Erie &c. R. Co., 31 Ind. 283;
Broadax v. Groom, G4 N. C. 244 (PJ"!-
vate act.) ; Usener v. State, 8 Tex.
App. 177 (overruled by Hunt V. State,
22 Tex. App. 396) ; People v. Commis-
sioners of Highways, 54 N. Y. 276;
Ryan v. Lynch, 68 111. 160. Compare
Jordan v. Wapello Circ. Ct., 69 Iowa,
177; s.c. 28, N. W. Rep. 548.
2 Hunt V. State, 22 Tex. App. 396;
(disapproving Blessing v. Galveston,
42 Tex. 641 ; Usener v. Stale, 8 Tex.
App. 177) ; State v. Robinson, 20 Neb.
96 (journals made competent evi-
dence by statute) ; State v. Brown, 20
Fla. 407; Brown v. Nash, 1 Wy. Ter.
85; Berry v. Baltimore &c. R. Co., 41
Md. 446; Post v. Supervisors, 105 U.
488
S. 667; Smithee v. Garth, 33 Ark. 17;
Osburn v. Stanley, 5 W. Va. 85 ; Gard-
ner V. The Collector, 6 Wall. (U. S.)
499; Ryan V. Lynch, 68 111. 160 (stat-
ute held not void because not read on
three different days in the senate and
not passed by a vote of the ayes and
noes); Smithee v. Campbell, 41 Ark.
471 (statute held void because never
formally passed by the senate) . It is
competent for the Supreme Court of
Missouri to examine into the sufficiency
of the preliminary proceedings of the
general assembly, in order to determine
the validity of an amendment of the
constituiion. State v. McBricIe, 4 Mo.
303. The journals of the houses of
the legislature, though not evidence
of the meaning of a statute, are ad-
missible to identify a bill referred to
in a subsequent act. Southwark
Bank v. Commonwealth, 27 Pa. St.
446.
3 Bound V. Wisconsin Central R.
Co., 45 Wis. 543.
MODE OF PASSING LAWS. [1 Thomp. Coip. § 636.
The courts must receive a law, so published, as having been duly
passed, unless the contrary is clearly made to appear.^ In favor
of the regularity of the passage of a law, the courts will, if
necessary, presume that a motion to reconsider prevailed; ^ that
it was duly referred to the appropriate committees;^ and that it
was passed by a majority of all the members elected, where that
is the constitutional requirement.* They will presume, in the
silence of the record, that it received the constitutional major-
ity, where the record shows that it was signed in open session ; ^
and that it was read three times on three different days, as re-
quired by the constitution,^ although this involves a presumption
that a rule was suspended by the requisite two-thirds vote.' It
is but a different expression of this rule to say that the courts
will not declare that the published statute is not a valid law,
from the mere fact that the journals of the legislature fail to
show a strict observance of the formalities prescribed by the con-
stitution for the enactment of laws.^ In line with this view, an-
other court has reasoned that it must clearly appear that it was
not enacted.^
§ 636. Whether Parol Evidence Admissible on the Ques-
tion. — One court has even gone so far as to hold that they will
not only look merely to the journals of the two houses, but that
they will hear other competent evidence, for the purpose of as-
certaining whether a law was duly passed.^" But if this means
that the journals of the two houses can be contradicted by parol
evidence, it is contrary to all principle ; for it sinks the records of
a co-ordinate branch of the government to a lower level than
that occupied by the records of the judicial courts, or even a
constable's return. On the other hand, if it means that the re-
citals on those records can be varied or explained by parol evi-
dence, it introduces a rule which in many cases is denied in
1 Hensoldt v. Petersburg, 63111. 157. Fed. Rep. 730; Glidewell v. Martin, 51
2 State V. Algood, 87 Tenn. 163; 10 Ark. 559; s. c. 11 S. W. Rep. 882.
S. W. Rep. 310. ' State v. Peterson, 38 Minn. 143;
3 Day Laud &c. Co. v. State, 68 Tex. s. c. 36 N. W. Rep. 443 ; Same v. Ole-
526; s.c. 4 8. W. Rep. 805. son, W. 150; Suine t;. SMnnerud,7d. 229.
* People V. Chenango, 10 N. Y. 317. « State v. Mead, 71 Mo. 206; Bless-
5 WiUiams v. State, 6 Lea (Tenn.), ing v. Galveston, 42 Tex. 641.
549, 9 State V. Brown, 20 Fla. 407.
6 State V. Illinois Central R. Co., 33 '" Fowler v. Pierce, 2 Cal. 165.
489
1 Thomp. Corp. § 636 ] constitutional restraints.
respect of private contracts and writings. It is therefore ut-
terly impossible to uphold the decision above alluded to, hold-
ing tluit an act was void, which was passed on the last day
of the session, was presented to the governor on the same
day, and purported to have been approved* on the same day,
on the strength of its being shown by parol evidence that it
was not approved on that day, but on the next day.^ The Su-
preme Court of Ohio have considered this question in a very
elaborate opinion by Minshall, J., in which the decisions upon
the admissibility of parol evidence to affect the authenticity of
a statute, appearing by the journals of the legislature to have
been duly passed, are reviewed, and in which the court reaches
the conclusion that, out of a multitude of decisions, not one
is found in which any court has assumed the office of going be-
hind the proceedings of the legislature, as recorded in the jour-
nals required to be kept, for the purpose of ascertaining
whether a law has been constitutionally enacted; and the
court accordingly hold that the authenticity of a statute can-
not be impeached by parol evidence, where it is enrolled
and attested as required by the constitution. ^ The Su-
preme Court of Michigan have reached the same conclusion,
and have gone further, and held that the court will not allow
parties, interested in nullifying legislative action, to stipulate or
agree or admit by their pleadings, that a statute was not properly
or constitutionally passed, unless the informality is shown by
the printed journals or the certificate of the secretary.^ It is
difficult to understand, on principle, the ruling of the Court of
Appeals of New York to the effect that the certificate of the
presiding officers of the two houses of the legislature, that three-
fifths of the members were present at the passage of a bill, may
be supplied, by parol evidence, where it is omitted, on the theory
that the certificate is only presumptive evidence of the fact.*
1 Fowler tJ. Pierce, 2 Cal.165. Seealso » Att.-Gen. v. Rice, 64 Mich. 385 ; s.
Berry u. Baltimore &c.R.Co.,41Md.446. c. 31 N. W. Rep. 203; 26 Am. L. Reg.
2 State V. Smith, 44 Ohio St. 348; (n. s.) 299; s. c. sub. nom. People v.
s. c. 7 Northeast. Rep. 447; 12 North- Rice, 7 West. Rep. 642.
east. Rep. 829; 4 West. Rep. 101. To * People v. Chenango, 10 N. Y. 317.
this statement the learned judge The decision is tantamount to holding
should have noted the exception of that par )1 evidence may be heard for
the California case cited above. the purpose of sustaining the validity
490
MODE OF PASSING LAWS. [1 Thomp. Coi'p. § 637.
§ 637. Signed by the Governor, or No Law. — Where the con-
stitution requires that bills shall be signed by the governor, and
especially where he possesses a limited veto power, he is thereby
made a part of the legislative department of the government ;
and this is in analogy to the British constitution, under which the
legislature consists of the king, the lords and the commons.^ In
order to the formal passage of a law, the concurrence of the
three branches of the legislature, — the governor, the senate and
the house of representatives, is therefore usually regarded as
necessary. From this it follows that, although a bill may have
passed both branches of the legislature, yet unless signed by the
governor it is no law.^
of a statute. But it should seem that
a statute is an instrument of such a
solemn character, that its validity,
like that of a judgment of a court*
ought to be proved by the record only,
and that parol evidence ought to cut
no figure either in supporting or in
overturning it. The better view is
that, while the courts may look behind
the enrollment, and into the legislative
journals, to ascertain whether an act
was passed in accordance with consti-
tutional requirements, it cannot act
on anything not found in the journals,
nor presume that any such require-
ment has been omitted, unless the fact
affirmatively appear in the journals*
People V. McElroy, 72 Mich. 446; 40
N. W. Rep. 750. When the fact of the
passage of an act over the governor'' s veto
appears from the published journals of
the legislature, its validity cannot be
questioned because of the failure of
the clerk of the house and secretary
of the senate to certify to its jjassage
before termination of their official
functions. Houston &c. Co. v. Odura,
53 Tex. 343. As to mistakes in
enrolled laws, it seems to be a sound
view that if it clearly appear, from all
the sources of interpretation, that a
provision of a statute was inserted
through inadvertence, it will be disre-
garded. Pond V. Madc^oec, 38 Cal. 672.
Compare Jones v. Hutchinson, 43
Ala. 721 ; Walnut v. Wade, 103 U. S.
683 (word dropped from title while
on Its passage) ; Williams v. State, 6
Lea (Tenn.), 549 (mistake in the
number of the bill) ; Dow v. Beidel-
man, 49 Ark. 325; 5 S. W. Rep. 297
(mistake in enrollment discovered
after adjournment and corrected) ;
Ayers v. Trego, 37 Kan, 240; s. c. 15
Pac. Rep. 229 (irregularities of title
as shown by house journal) ; State v.
Robertson (Kan.), 21 Pac. 382 (dis-
crepancies as shown by house jour-
nal — correction of omission not
appearing). In each of the cases
just cited the statute was upheld.
Passage of amendatory acts: Mor-
rison V. St. Louis &c. R. Co., 96 Mo.
602; 9 S. W. Rep. 626. Amending
bills on their passage: People v.
Chenango, 10 N. Y. 317; Smithee
V. Campbell, 41 Ark. 471. A .statute
without an enacting claiise is void.
State V. Patterson, 98 N. C. 660. Joint
resolution not a law : Field v. Auditor,
83 Va. 882; s. c. 3 S. E. Rep. 707-
Declaration of legislature as to
emergency conclusive: Day Land &c.
Co. v. State, 68 Tex. 526; 4 S. W. Rep.
865.
1 1 Bla. Com., p. 153.
2 Fowler «. Pierce, 2 Cal. 165; Hunt
V. State, 22 Tex. App. 396; 3 S. W.
491
1 Tliomi). Corp. § C39.] constitutional restraints.
§ 638. Constitutional Provisions Requiring Amendments
of Charters to be Submitted to a Vote of the People. — Con-
stitutioniil provisions have existed, during the period when it was
supposed to be necessary to restrain the multiplication of banks,
prohibiting the legislature from creating banking corporations
without submitting the act to a vote of the people. Such was
the provisions of the original constitution of Illinois. ^ This pro-
vision did not prevent the legislature from amending the general
banking law of 1851, without submitting the amendment to a
popular vote.^ On the contrary, the banking law of Wisconsin,
which was held to be in the nature and to have the force and
effect of a constitutional provision,^ could not be amended with-
out a vote of the people.*
§ 639. That no Law shall Create, Renew or Extend the
Charter of More than one Corporation. — The former constitu-
tion of Pennsylvania^ provided that no law should create, renew
or extend the charter of more than one corporation. Whether
this provision is anything more than in the nature of a direction
to the legislature has been doubted, and doubts have been ex-
pressed whether the courts have a judicial veto over the legisla-
ture, so to speak, which would authorize them to pronounce a law
void for the reason that it had been enacted in violation of this
provision. It was observed by Black, J.: "It is not asserted
that the legislature had no jurisdiction of the subject-matter, or
that the law, if carried out, would interfere with any right made
inviolable by the constitution, but merely that the two houses of
assembly neglected a form of proceeding which the constitution
prescribes. The objection goes, not to the nature, and essence,
and character of the law itself, but to the behavior and conduct
of the legislative bodies who passed it." However this may be,
the court construed the provision as meaning that to create, re-
Rep. 233; State V. Glenn, 18 Nev. 34. » 111. Const. 1819, art. 10, § 5;
Compare Taylor v, Wilson, 17 Neb, 88. Scate's Comp. 111. Stat. 71.
Bill signed by the governor by mis- ^ Smith v. Bryan, 34 111. 364.
take immediately notified to speaker ^ State v. Hastings 12 Wis. 47.
of house and read aloud, and bill * Van Steenwyck v. Sackett, 17
held no law: Peoples. Hatch, 19 111. Wis. 645.
283. 5 Peun. Const, of 1838, art. 1, § 25.
492
DELEGATION OF LEGISLATIVE POWER. [1 Thomp. Corp. § 64:3.
new or extend a charter, moans to make a charter which never
existed before, to revive and restore one which has expired, or
to increase the time for the existence of one which would otlier-
wise reach its limits at an earlier period.^
Article V. Various Other Restraints and Provisions.
Section
643. Objections on the ground of dele-
gations of legislative power.
644. Grounds on which this question
to be determined.
645. Proliil)ition against the delegation
of municipal powers to special
commissions, private corpora-
tions, etc.
646. Further of this subject.
647. May grant exclusive privileges in
the absence of constitutional
restraint.
648. Rule under constitutional pro-
hibitions.
649. Further of this subject.
650. Holdings under other constitu-
tions.
651. Rights which the legislature can-
not bargain away.
Section
652. Prohibition against granting
charters of incorporation to
churches or religious denomi-
nations.
653. Corporations in aid of rebellion.
654. Estoppel to raise question of con-
stitutionality of act creating
corporation.
655. Validity of a statute allowing a
depositor to appoint a person
to whom his deposit shall be
paid after his death.
656. Unconstitutional law may operate
as a legislative license.
657. Charters exempting corporations
from general laws.
658. Statutes may be valid in part and
void in part.
659. Illustrations.
§ 643. Objections on the Ground of Delegations of Legis-
lative Power. — The power to enact laws is a public trust com-
mitted by our constitutions. Federal and State, to a particular
branch of the government, and it is clear that the body to which
it has been delegated cannot cast it off by delegating it to some
other body. It is therefore a general maxim of American con-
stitutional law that the legislative power of a State cannot be
delegated by the legislature to any other body, except within
the limits prescribed or permitted by the constitution.^ In the
1 Cleveland v. Erie, 27 Pa. St. 380,
388.
2 Houghton 77. Austin, 47 Cal. 64G;
Bartow. Hirarod, 8 N. Y. 483; Bank
&c. V. Rome. 18 N. Y. 38; Starin u.
Genoa, 23 N. Y. 439; Clarke v. Roches-
ter, 28 N. Y. 605; Thorne v. Cramer,
15 Barb. (N. Y.) 112; Bradley v. Bax-
ter, Id. 122; Parker v. Com., 6 Pa. St.
507; Commonwealth v. Jud-jje &c., 8
Pa. St. 391; Commonwealth ». Locke,
72 Pa. St. 491 (overruling 6 Pa. St.
507); State i;. Wilcox, 45 Mo. 458;
State V. Weatherby, 45 Mo. 17; Rice^v.
Foster, 4 Harr. (Del.) 479; State v.
Copeland, 3 R. I. 33; Cincinnati &c. R.
493
1 Thomp. Corp. § 643.] constitutional restraints.
view of many courts, this principle forbids that the legislature
should enact a law to take effect only upon approval by vote of
the people of the State, or of any territorial division or district of
the State. ^ But in the view of other courts, it is competent for
the legislature to submit to a vote of the people of particular lo-
calities the question whether they will adopt particular police reg-
ulations,2suchas regulations suppressing the sale of intoxicating
drinks, prohibiting animals from running at large, or the like.
Nor does this principle extend so far as to prevent the legisla-
ture from delegating to municipal corporations, municipal
boards, and other public corporations or ^wasz-corporations, cer-
tain portions of the legislative, judicial and even executive
power of the State, to be exercised strictly for the purposes of
local government and administration.^ In some of the cases
Co. V. Clinton, 1 Ohio St. 77; People v.
Collins, 3 Mich. 343 ; Santo v. State, 2
la. 165; Geebrick v. State, 6 la. 491;
State V. Beneke, 9 la. 203; State v.
Weir, 33 la. 134 ; State v. Pond, 93 Mo.
606; Laramertv. Lidwell, 62 Mo. 188;
Maize v. State, 4 Ind. 342 ; Meshmeier
V. State, 11 lud. 482; Groesch v. State,
42 Ind. 547; State v. Swisher, 17 Tex.
441; State v. Parker, 26 Vt. 357; State
V. Young, 29 Minn. 551 ; s. c. 9 N. W.
Rep. 737; recognized in State v.
Chicago &c. R.Co., 38 Minn. 281; s.c.
37 N. W. Rep. 782, 787; Winters v.
Hughes, 3 Utah, 443; Brown v.
Fleischner, 4 Oreg. 132; Boyd v. Bry-
ant, 35 Ark. 69 ; Fell v. State, 42 Mary-
land, 71; State v. O'Neill, 24 Wis. 149;
Commonwealth v. Bennett, 108 Mass.
27.
1 Exp. Wall., 48 Cal. 279, 313; Lam-
mert w. Lidwell, 62 Mo. 188; Santo v.
State, 2 Iowa, 165; State v. Beneke, 9
Iowa, 203; Barto v. Himrod, 8 N. Y.
483; States. Copeland, 3 R. I. 33; Peo-
ple V. Collins, 3 Mich. 343. Nor can
the legislature submit the question of
the repeal of a law to the decision of
the people. Geebrick v. State, 5 Iowa,
491; State ??. Weir, 33 /d. 134.
2 Louisville &c. R. Co. v. Davidson,
494
1 Sneed (Tenu.), 637; State v. O'Neill,
24 Wis. 149. The Supreme Court of
Wisconsin has taken the view that a
law, though affecting the whole people
of the State, is not invalid because it
is enacted to take effect only on ap-
proval by a popular vote. The legis-
lature may make such regulations and
conditions as it pleases in regard to
the taking effect or operation of laws.
They may be absolute, or conditional
and contingent; and if the latter, they
may take effect on the happening of
any event which is future and uncer-
tain, such as a vote of the people in
favor of a law. Smith v. Janesville,
26 Wis. 291.
3 The common case of the creation
of municipal corporations by acts of
the legislature, is an instance of this.
Another instance is found in a holding
that the legislature may delegate to
village hoards the power to grant
franchises for the collection of wharf-
age for the use of piers on navigable
waters. Faruum v. Johnson, 62 Wis.
620. So, it is no objection to the con-
stitutionality of the Illinois statutes
providing for drainage districts, etc.,
tiiat the county court is invested with
power to fiad the facts necessary ta
DELEGATION OF LEGISLATIVE POWER. [1 Thomp. Corp. § GM.
cited, the practical impossibility of the legislature discharging
this duty in respect of all the railroads in the State, without re-
maining continuously in session, has been pointed out.^
§ 644. Grounds on which this Question to be Determined. —
But it is clear that the question whether the power is legislative
in its nature or not, cannot be determined upon the consideration
whether its exercise is convenient or practical. Fourteen years
ago it was held by the Supreme Court of the United States, in a
succession of decisions, that the power was legislative in its na-
ture, and that, if erroneously or oppressively exercised by the
legislature, the only remedy was by the people at the polls.^
But those holdings lead the question into this diflaculty, that if it
is a legislative power, it cannot be delegated, under the principle
above stated, but can only be discharged by the legislature, al-
though in order to discharge it, it is necessary for that body to
remain continuously in session. An escape from this conclusion
is reached by adopting the conception that it is a legislative power
if the legislature sees fit to retain or exercise it, but that it may
be regarded as a judicial power for the purpose of being com-
mitted by the legislature to permanent commissioners, which shall
the creation of the corporations; for Whorter v. Pensacola &c. R. Co., 24
in such a case the legislature, not the Fla. 417; s. c. 5 South. Rep. 129;
court, creates the corporations. People w. Harper, 91 III. 357; Georgia
Blake v. People, 109 111. 504; ante Railroad Co. v. Smith, 70 Ga. 694;
§ 110. Giving the State board of Tilleyu. Savannah &c. R. Co., 4 Woods
agriculture discretion in issuing (U. S.), 427; s. c. 5 Fed. Rep. 656.
licenses for phosphate mining, is not Compare Stone v. Yazoo &c. R. Co.,
unconstitutional, as a delegation of 62 Miss. 607; Stone u. Farmers' &c. R.
the legislative power to the board. Co., 116 U. S. 307 (where the subject
Port Royal Min. Co. v. Hagood, 30 of the delegation of legislative power
S. C. 519; s. c. 9 S. E. Rep. 686. A was not discussed) ; State w. Medical
statute creating a board of railroad Examiners, 34 Minn. 387 ; s. c. 26 N.
and warehouse commissioners, and W. Rep. 123; Hildreth v. Crawford,
clothing them with the power of de- 65 Iowa 339; s. c. 21 N. W. Rep. 667.
termining what are reasonable rates But see Chicago &c. R. Co. v. Miuue-
of railway transportation, has been sota, 134 U. S. 418; s. c. 10 Sup, Ct.
held by several uf the State courts not Rep. 462, 702.
a delegation of legislative power. i See especially the language of the
State V. Minneapolis &c. R. Co., 40 courtin Tilley v. Savannah&c. llCo., 4
Minn. 166; s. c. 41 N. W. Rep. 465; Woods (U. S.) 427.
State V. Chicago &c. R. Co., 38 Minn. 2 Munn v. Illinois, 94 U. S. 113;
281; s. c. 37 N. W. Rep. 782; Mc- Peik v. Railway Co., 94 U. S. 16t.
4;)5
1 Thorap. Corp. § 644:.] constitutional restraints.
exercise it in proceedings, judicial in their nature, upon notice
and the hearing of evidence. Tliis seems to be the conception of
the Supreme Court of the United States in its hitest obscure de-
liverance upon this question, in an opinion by Mr. Justice Blatch-
ford, reversing the Supreme Court of Minnesota in one of the
cases before cited. ^ The court there hold that the power, when
exercised by such a board as the Railway and Warehouse Com-
mission of the State of Minnesota, must be exercised upon the
principles \\]}onvf\\\ch. judicial power alone can be exercised, that
is, upon the giving of notice and the hearing of evidenc/O, —
otherwise, it involves the deprivation of property without due
process of law, and violates the fourteenth amendment to the
constitution of the United States. Beyond all question the de-
cision is a sound and wholesome one, in so far as it decides that
a railway and warehouse commission must, in fixing the rates to
be charged for railway and warehouse service, act judicially, that
is, upon notice and the hearing of evidence, and that they cannot
bya mere ex parte declaration, fix a rate of charges which shall be
conclusive, and which shall cut off all inquiry as to its reasonable-
ness. But the decision is weakened, not only from the fact that
three members of the court dissented, but from the further
fact that it was a decision rendered in a mere moot case. Ac-
cording to the statement of the facts in the opinion of the court,
given by Mr. Justice Blatchford, there was a formal complaint
of the rates charged by the railway company; there was a noti-
fication of that complaint by the commission to the railway com-
pany ; there was a time and place set for a hearing of the matter ;
the complainant and the railway company appeared, the latter by
its duly authorized attorney, and, after an investigation, the com-
mission ordered the rate to be chansred. There is no suscojestion
in the opinion of the court that, in this investigation, the railway
company was deprived of any right, such as it would have had
in an ordiniiry judicial proceeding in the courts, or even that the
court excluded any evidence which it tendered. It should be
further stated that the Supreme Court of Minnesota has never
held that the commission could proceed ex parte and without
1 Chicago &c. R. Co. v. Minnesota, 134 U. S. 418; s. c. 10 Sup. Ct. Rep.
462, 702: 41 Alb. L. J. 325.
496
DELEGATION OF LEGISLATIVE POWER. [1 Thomp. Corp. § 644.
giving notice to the railway company to be affected, or without
the hearing of evidence. In its original opinion upon this ques-
tion ^ that court holds that the committing of such an office to
the railway and warehouse commission is not a delegation of leg-
islative power ; and that its decision fixing a rate for a particular
railway is conclusive. But, although the act under which the
commission proceeds does not provide for the giving of notice
and for an opportunity to the railway company to be heard, the
Supreme Court of Minnesota nowhere says that the commission
can proceed without giving notice or without affording an
opportunity to the company to be heard. As the commis-
sion did not assume to do this, no such question was before
the court. ^ There is no implication in the language em-
ployed by the Supreme Court of Minnesota that, under the act,
the commission is empowered to proceed ex parte and without
notice, unless it could be drawn from the use of the words " dis-
cretionary " and "administrative." The mere fact that the
statute does not provide for the giving of notice and an oppor-
tunity to the railway company to be affected to be heard in
opposition to a change of rates, is no argument against its validity,
unless the highest court of the State, whose statute it is, declares
that it authorizes the commission to proceed without notice ; and
then the statute cannot be declared void for that reason, unle>^s in
a case where the commission have proceeded without notice.
The mere fact that the statute is silent on the question of giving
1 State V. Chicago &c. R. Co., 38 road problem, it is that mere abstract
Mian. 281; s. c. 37 N. W. Rep. 782. laws against unequal charges are of
2 In the course of its opinion, given little or no value; hence modern leg-
by Mitchell, J., the Minnesota court islation has usually taken the form of
say: " If such a power is to be exer- creating boards of commissioners, en-
cised at all, it can only be satisfac- trusted with general supervision over
torily doue by a board or commission, railroads. Almost all efficient legis-
constantly in session, whose time is lation on the subject is under such
exclusively given to the subject, and commissioners, vested with discre-
who after investigation of the facts, tionary administrative powers, more
can fix rates with reference to the or less extensive. Our legislature has
peculiar circumstances of each road, gone a step further than most others,
and each particular kind of business, and vested our commission with full
and who can change or modify these power to determine what rates are
rates to suit the ever-varying condi- equal and reasonable in each particu-
tions of traffic. If experience has lar case."
proved anything in the so-called rail-
32
497
1 Thomp. Corp. § 646.] constitutional restraints.
notice and affording the railway company an opportunity to be
heard, affords no excuse for its overthrow by a judicial fulmina-
tion, especially in a case where the company was notified and was
heard. Where such a statute is silent, the implication always is
that the tribunal will not violate those principles of common
right which are embodied in the American constitutions and in
the common law, by proceeding without notice.^
§ G45. — Prohibition against the Delegation of Municipal
Powers to Special Commissions, Private Corporations, etc. —
Provisions from the constitutions of some of the States have
been already set out,^ prohibiting the legislatures from delegat-
ing to any special commission, private corporation or associ-
ation, any power to make, supervise or interfere with any munic-
ipal improvement, money, property or effects, or to perform
any municipal function whatever. Such an inhibition does not
prevent the legislature from creating a permanent board of puh-
lic works for a particular city, the members of which are to be
appointed by the governor with the advice and consent of the
senate, charged with duties and endowed with powers relating to
the expenditure of city funds, the payment and cancellation of
outstanding city warrants, and the making of public improve-
ments. Such board is not a " special commission," but a per-
manent department of the city government.^
§ 646. Further of this Subject. — It has been already point-
ed out that it is not a delegation of legislative power for the
legislature to prescribe the terms and conditions upon which cor-
porations maybe organized by the voluntary action of individuals,
and to vest in the judicial courts, or in ministerial officers, the
duty of deciding whether those terms and conditions have been
complied with.* We shall further see, in a future chapter, that
1 Kay Co. v. Barr, 67 Mo. 290. of Minnesota (Minn. Laws 1883,
2 Ante, § 583. ch. 73), providiag for the incor-
3 Re Senate Bill, 12 Colo. 188; s. c. poration of villages on petition to
21 Pac. Rep. 481. Compare Dunn v. the judge of the District Court, and
Wilcox County, 85 Ala. 144; Metropol- empowering the court to act in the
itan Police Board u. Wayne County, 68 premises, etc., has been held uiicon-
Mich. 576. stitutional iu delegating legislative
* Antt, §§ 36, 37, 110. A statute powers to a tribunal not entitled, un-
498
GRANTS or EXCLUSIVE PRIVILEGES. [1 Thouip. Corp. § 647.
the power to confer franchises upon corporations of a particular
kind, such as gas companies, street railway companies, water
supply companies, and the like, is in many cases delegated by
the legislature to municipal corporations, and that this delegation
of power, when authorized, or in some opinion, when not re-
strained by the constitution, is upheld.^
§ 647. May Grant Exclusive Privileges in the Absence of
Constitutional Restraint. — In the absence of any constitutional
prohibition, it is a sound conclusion that the legislature of a
State has the power to grant an exclusive privilege to a corpora-
tion, in consideration of the performance by it of public serv-
ices. Such legislation is not unconstitutional from the circum-
stance that it may create what is ordinarily called a monopoly?
In the absence of any constitutional restraint, the legislature may
therefore confer upon a private corporation the exclusive privi-
lege of laying down gas pipes and of manufacturing, distributing
and vending illuminating gas in a city,^ or the exclusive privilege
of erecting or maintaining a system of water works and of supply-
ing the city and its inhabitants with water.* Such grants are
customarily conferred upon corporations concurrently with their
der the constitution, to exercise them. 741. A condition in a legislative grant,
State V. Simons, 32 Miuu. 540. that the grantee should obtain the
1 Post, Ch. 117. The legislature of consent of a third party, before en-
Louisiana granted to a company the joyraent, is not a delegation of legis-
exclusive privilege of supplying the lative power, and will not render the
inhabitants of a city with water, by act unconstitutional. Morgan?;. Mon-
a charter which provided that nothing mouth Plank-Road Co., 26 N. J. L. 99.
therein should be " so construed as to - Re Philadelphia &c. R. Co., 6 Whart.
prevent the city council from granting (Pa.) 25; State v. Milwaukee Gas
to any person, contiguous to the river, Light Co., 29 Wis. 454; State Tel. Co.
the privilege of laying pipes to the u. Alta Tel. Co., 22 Cal. 398. Contra,
river, exclusively for his own use." It Norwich Gas Light Co. v. Norwich
was held, that the power conferred on City Gas Co., 25 Conn. 19. Compare
the city council was not legislative, but San Francisco v. Spring Valley Water
administrative, and an ordinance of Works, 48 Cal. 49.'?, 515.
the city, permitting one to liiy pipes ^ LouLsville Gas Co. v. Citizens
for his own use is a license, whose Gas Co., 115 U. S. 683; New Or-
validity in no way depends on the leans Gas Co. u. Louisiana Light Co.,
constitution or laws of the United 115 U. S. 650.
States. New Orleans Water- Works * New Orleans Water Works Co. u.
Co. V. Louisiana Sugar Refining Co., Rivers, 115 U. S. 674.
126 U. S. 18; s. c. 8 S. Ct. Rep.
499
1 Thomp. Corp. § 018.] constitutional ukstraints.
creation; but it has been held that, in the absence of any
constitutional restraint, an existing corporation may receive
from the legislature a direct grant of special privileges and
franchises.^ Reasoning upon this subject, the Supreme Court
of Pennsylvania have said: "It seems scarcely necessary
to say that monopolies are not prohibited by the constitution ;
and that to abolish them would destroy many of our most
useful institutions. Every grant of privileges, so far as it goes,
is exclusive; and every exclusive privilege is a monopoly."^
§ 648. Rule under Constitutional Prohibitions. — By the
constitution of Kentucky it is declared that " no man or set of
men are entitled to 3xclusive, separate public emoluments or
privileges from the community, but in consideration of public
services." It is because of this obligation to render public
services that the legislature has power to make a grant of exclu-
sive privileges. The power, therefore, does not extend to the
making of a grant of exclusive privileges to a merely private
corporation which renders no public services. Accordingly, a
charter provision allowing such a corporation to charge a greater
rate of interest than allowed by the general statutes of the State
to other persons was held void.^ In a later case the same court
say: *' When the citizen undertakes to discharge a duty to the
public that the State is under an obligation to discharge, and in
consideration for the undertaking an exclusive privilege is granted,
the grant is constitutional, because in consideration of public
service." The court instances the exclusive right to keep a
ferry, to construct and operate highivays, etc., as among the
exclusive privileges which the constitution empowers the legisla-
1 California State Tel. Co. v. Alta illuminating gas. The court say that
Tel. Co., supra. But see ante, I 578. it is a monopoly, and that, although
2 Re Philadelphia &c. R. Co., 6 they have in that State no direct con-
Whart. (Pa.) 25, opinion by Gibson, J. stitutional provision against a mouo-
Conirary to the principle stated in the poly, — yet the whole theory of free
text, and on grounds which do not government is opposed to such grants,
seem to be tenable, it has been rea- Norwich Gas Light Co. v. Norwich
soned by the Supreme Court of Errors City Gas Co., 25 Conn. 19.
of Connecticut, that the legislature of ^ Gordon v. Winchester &c. Asso.,
that State hasnopowerto grant toone 12 Bush (Ky.), 110; s. c. 23 Am. Rep.
party the exclusive right to u~e the 713.
Streets of a city for the distribution of
500
GRANTS OF EXCLUSIVE PRIVILEGES. [1 Thomp. Corp. § 648.
ture to grant. ^ In another case in Kentucky, which affords a
good illustration of this principle, the State had improved the
navigation of a river, by locks, so as to render its navigation
practicable. The keeping of the locks in repair had become a
drain on the revenue of the State. The State therefore leased
the works to a private corporation, which it authorized to collect
toUs for the use of the navigation. It was held that the under-
taking of the lessee to keep the improvements in repair was a
sufficient consideration for the giant of the powers con-
ferred by the legislature, and that the act was not in viola-
tion of the provision of the constitution of Kentucky under
consideration.^ But the Court of Appeals of that State were
equally divided upon the question whether the above constitu-
tional provision forbade the legislature to grant to a private
corporation the exclusive privilege of manufacturing and
distributing illuminating gas, for public and private use, in one
of the cities of the State, by means of pipes and mains laid
under the streets and other public ways of such city. On
other grounds, the court reversed a decree refusing an injunc-
tion against a newly created gas-light company in such munici-
pality, to restrain an elder company which had received such a
errant of exclusive rights from asserting against it the exclusive
rights defined in its charter.^ But this decree was in turn re-
versed by the Supreme Court of the United States on error, and the
court, deeming the question on which the State conrt was equally
divided an important one, proceeded to decide it, by holding, by
analogy to previous decisions of the Court of Appeals of Ken-
tucky, that the supplying of gas to a city and its inhabitants for
illuminating purposes by means of pipes under the streets, is a
franchise belonging to the State, and that the services performed,
as the consideration for the grant of such a franchis*e to a
private corporation, are services of a public nature. Such pul)lic
services, the court hold, authorize the legislature, under the
constitution of Kentucky, to grant exclusive privileges.*
1 Cora. V. Whipps, 80 Ky. 269. ■* Louisville Gas Co. v. Citizens'
2 McKeynolds v. Smallliouse, 8 Gas Co., 115 U. S. 683. See also
Bush (Ky.), 447. Cora. v. Bacon, 13 Bush (Ky.), 210;
3 Citizens Gas-Light Co. v. Louis- O'llara v. Lexington &c. R. Co., 1
ville Gas Co., 81 Ky. 263. Dana (Ky.), 232; Gordon v. Winches-
501
1 Thomp. Corp. § 619.] constitutional restraints.
Such a grant, being in the nature of a contract^ provided it is
validly made in the first instance, cannot bo impaired by subse-
quent legislation granting the same privilege to a newly created
corporation.^
§ 649. Further of this Subject. — One court has taken
what, after a reconsideration of the subject, seems to the writer
a refined distinction, in so far as it holds that, under the consti-
tutional provision ^ that " no title of nobility, hereditary emolu-
ment, privilege, or distinction, shall be granted," it is beyond
the power of the legislature to grant to a private corporation
the exclusive privilege of making and vending gas within the
limits of a city; but that the legislature can, by a charter granted
to the city, vest in the city such an exclusive control over its
streets and alleys as will enable it to confer upon such a private
corporation the exclusive right to use them for laying gas pipes
therein.^ The court draw a distinction between conferring the
exclusive privilege of vending an article of manufacture which
creates a monopoly, contrary to the principles of the common
law, and the power which a municipal corporation has over the
•use of its highways, where the care and reparation of them have
been exclusively committed to it for the benefit of the pub-
lic. The decision results in the solecism that what the legislature
cannot grant directly it can grant indirectly, by conferring the
power upon the municipal corporation to grant it. The gas com-
pany claiming the exclusive privilege, did not of course take so
absurd a position as to claim that the legislature could create a
monopoly in the mere vending of illuminating gas, provided it
could be conducted to the purchasers or consumers by any other
means than the use of the public streets. The exclusive right to
use the* public streets for the laying of gas mains therein, was
the thing struggled for; and so much of the opinion as dwelt on
the inability of the legislature to grant an exclusive privilege to
vend illuminating gas was an unnecessary discussion.
ter, 12 Bush (Ky.), 110, 114 (views of Gas Co. v. Citizens Gas Co., 115 U.
Cofer, J.) ; Com. v. Wliipps, 80 Ky. S. 683.
269. 2 Const. Mo. 1820, art. 12, § 20.
1 New Orleans Gas Co. U.Louisiana ^ st. Louis Gas Light Co. v. St.
Light Co., 115 U. S. 650; Louisville Louis Gas, Fuel &c. Co., 16 Mo. App. 52.
502
GRANTS OF EXCLUSIVE PRIVILEGES. [1 Thomp. Coip. § 650.
§ 650. Holdings under Other Constitutions. — The consti-
tution of New York (amendment of 1875), forbids the legisla-
ture from passing any special act granting to any corporation
the right to lay down railway tracks, or any exclusive privilege,
immunity or franchise. It has been held that a statute amend-
ing the charter of an underground railroad company authorizing
it to widen its excavation and to change its motive power, was
not the grant of an exclusive privilege within this inhibition.'
The provision of the present constitution of Illinois^ against
«' granting to any corporation, association, or any individual, any
special or exclusive privilege, immunity or franchise whatever,"
has been held to extend only to the passing of special or local
laws for such purposes. Accordingly, a statute regulating the
public warehouses and the warehousing and inspection of grain,
was not in contravention of this constitutional provision. "^ The
constitution of Tennessee forbade perpetuities and monopolies.
Tiie Supreme Court of Tennessee have reasoned, upon ancient
authority, that a monopoly is an exclusive right granted to a few,
of something which was before of common right. Lord Coke's
definition, adopted by the Supreme Court of the United States in
a celebrated case,* was approved by the Tennessee court. Ac-
cordingly, the court held that the right to erect water-ioorks in a
city involving the privilege of taking up the pavements of the
streets, of occupying the streets with water-mains, and of doing
such other things as were necessary and proper in completing
works for the distribution of water to the inhabitants, was ex-
clusive in the city, until the legislature took it away and conferred
it on a private corporation. But the court reasoned that, while
it was an exclusive privilege, it was not a monopoly in the sense
of the constitutional prohibition. The court accordingly upheld
the exclusive right of the private corporation to supply the in-
habitants of the city with water. ^ In Louisiana the constitu-
tionality of a statute giving to a private corporation the exclusive
1 Astor^. New York Arcade R. Co., ^ Munn v. People, 69 111. 80; s. c.
48 Hua (N. Y.), 5G2; s. c. 1 N. Y. amrmed, 94 U. S. 113.
Supp. 174; Bailey u. New York, I N.Y. < Charles River Bridge v. Warren
Supp. 304. Compare Astor v. New Bridge, 11 Pet. (U. S.) 707.
York Arcade R. Co., 113 N. Y. 93. « Memphis v. Memphis Water Co.,
2 Const. 111. 1870, art. 4, § 22. 5 Ileisk. (Tenn.) 495.
503
1 Tliomp. Corp. § 652.] constitutional hestraints.
right to keep a slaughter-house, and also the exclusive control and
supervision over the inspection of all animals slaughtered for
market in the city of New Orleans, and at the same time pro-
hibiting any other person from the business of purchasing or
slaughtering live stock or selling the meats thereof in the markets
of the city, was sustained against the objection that it violated a
clause of the constitution of that State which provides that all
persons shall enjoy the same civil, political and public rights and
privileges.^ It was also sustained in the same court, against the
objection that it violated the fourteenth amendment to the con-
stitution of the United States, and that it interfered with com-
merce among the States ; "^ and the decision in this aspect was
affirmed by the Supreme Court of the United States.^
§ 651. Rights which the Legislature Cannot Bargain
Away. — There are, however, rights of so high a nature that the
legislature cannot bargain them away. Of this nature is the
power of eminent domain,^ the police power of the State, to be
exercised for the public health and public morals,^ and the power
of taxation. These several subjects will be considered in
their appropriate places in future chapters.
§ 652. Prohibition against Granting Charters of Incorpo-
ration to Churches or Religious Denominations. — The consti-
tution of Virginia contains this prohibition: "The general
assembly shall not grant a charter of incorporation to any
church or religious denomination, but may secure the title to
church property to an extent to be limited bylaw." ^ This pro-
vision was considered by the Court of Appeals of West Virginia
as not extending so far as to prohibit the legislature of Virginia
from incorporating the individuals composing the " executive
committee of publication," commonly called " the Presbyterian
Committee of Publication," by the name and style of "the
1 State V. Fagan, 22 La. An. 545. ^ Butchers' Union Co. v. Crescent
2 Ibid. City Co., Ill U. S. 746; New Orleans
3 Slaughterhouse Cases, 16 Wall. Gas Co. v. Louisiana Light Co., 115
(U. S.) 36. U. S. 650.
* Cooley Const. Lim. (3d ed.) 525; ^ Const. Va. 1867, art. 5, § 17.
Hyde Park v. Oakwoods Cemetery As-
sociation, 119 111. 141.
5U4
CHARTERS TO RELIGIOUS DENOMINATIONS. [1 Thomp. Corp, § 652,
Trustees of the Presbyterian Committee of Publication." Such
act of incorporation was not deemed an evasion or violation of
the above prohibition, because the publication committee was
not the church, but merely the hand or servant of the church, so
to speak, whose orders it obeyed, and whose work in the matter
of distributing the religious literature of the church, it carried
on. The court laid needless stress on the fact that the incorpo-
ration of this committee did not amount to an incorporation of
the church itself.^ The constitution of Missouri contains this
provision: *' No religious corporation can be established in this
State, except such as may be created under a general law for the
purpose only of holding title to such real estate as may be pre-
scribed by law for church edifices, parsonages and cemeteries." ^
A corporation organized for the purpose of raising funds for the
establishment of Catholic colonies was held not to be within this
provision.^ In considering what is a religious corporation, within
the meaning of this statute, the definition given in a New Yorkcuse
that a religious society is " a voluntary association of individuals or
families, united for the purpose of having a common place of wor-
ship, and to provide a proper teacher to instruct them in religious
doctrines and duties, and to administer the ordinances of bap-
tism," etc., has been rejected.* On the other hand, it has been
said: '* It is impossible to consider our constitution as requiring
that all these elements and conditions shall enter into the composi-
tion of ' a religious corporation,' in order to bring it within the
constitutional inhibition. It plainly intends to forbid the creation
of any corporation (other than those which are expressly ex-
cepted), whose purposes are directly and manifestly ancillary to
divine worship or religious teaching. This does not mean that a
corporation, created for educational or benevolent purposes,
may not hold prayers or impart religious instruction to its pupils
or votaries, without a forfeiture of its charter or a violation of
the law. A distinction must be observed, between what the
members or servants of a corporation may lawfully do, as not
being forbidden by any moral or civil precept, and such things
1 Wilson V. Perry, 29 W. Va. 169, ^ St. Louis Colonization Associa-
Green, J., dissenting. tion v. Hennessey, 11 Mo. App. 555.
2 Const. Mo., art. 2, § 8. ^ Ba[)tist Cliurch v. Witherell, 3
Paige (N. Y), 301.
1 Thomp. Corp. § 653.] constitutional restraints.
as inhere in the declared purposes and objects for which the cor-
poration was created. ' The leading purpose of an associatioa
is the purpose which determines its character.' ^ The constitu-
tional provision under consideration does not, in any degree,
abridge religious freedom; but, on the contrary, secures its uni-
versality, by withholding special powers and privileges from any
one denomination of religionists, or its adjuncts or coadjutors."
The court accordingly held that the decree of incorporation was
rio^htly refused, since the corporation would be a religious cor-
poration within the prohibition of the constitution, and a busi-
ness corporation for pecuniary gain, within the prohibition of
the statute. The court further said : " The leading purpose of the
intended corporation is, the healing of physical and mental dis-
eases. But all the healing is to be accomplished by the sup-
posed efficacy of a religious tenet. Take away the religious
agency, and there is literally nothing left, whereby the corpora-
tion may effect its purposes. Religion is its motive power, and
quite as essential to all its work, as money to a banking corpora-
tion, or a railway cars and locomotives to a railway company.
If this does not make it a religious corporation, within the con-
stitutional meaning, then nothing short of a church regularly or-
dained for public worship can come within the constitutional
intent." Finding that it had in it an element of pecuniary profit,
the court also held that its incorporation was rightfully refused,
under the provisions of a statute of Missouri ,2 which directed
that " no association, society or company formed ... for
pecuniary profit in any form . . . shall be incorporated
under this article." ^
§ 653. Corporations in Aid of Rebellion — Acts of State
letrislatures creating corporations for purposes in aid of the late
rebellion have been declared void. Thus, a statute of South Car-
olina, incorporating a company for the purpose of exporting
produce and importing arms, munitions of war, and other com-
1 Quoting from Sheren v. Menden- of New Hampshire to autliorize towns,
hall, 23 Miim. 93. etc., to make provisions for religious
2 R. S. Mo. 1879, § 978. teachers: Hale v. Everett, 63 N. H. 9.
3 Re St. Louis Institute of Chris- Very long opinion, in which the sub-
tian Science, 27 Mo. App. 633, opinion ject was evidently intended to be
by Lewis, P. J. Power of legislature " exhausted."
506
ESTOPPEL : CONSTITUTIONALITY. [1 Thomp. Corp. § 654.
modities, with i)ower to sue and be sued, and make by-laws not
inconsistent with the constitution and laws of the State and the
Confederate States, was held to be null and void, as against pub-
lic policy, and to vest the company with no power to make con-
tracts and sue thereon in its corporate name.^ On like grounds,
a charter granted by one of the so-called Confederate States to a
corporation, during the civil war, organized to provide charitably
for the Confederate soldiers, was held void.^
§ 654. Estoppel to Raise Question of Constitutionality of
Act Creating Corporation. — It has been held that, in an action
by an incorporated bank, the debtor of the bank cannot set up
the defense that the incorporation of the bank was a violation of
the constitution. " After having borrowed the paper of the in-
stitution, both public policy and common honesty required that
the borrowers should repay it. It is therefore unnecessary to de-
cide whether the incorporation of the bank was a violation of the
constitution or not." ^ With a barbaric adhesion to technicality
and a low sense of justice, the early Supreme Court of Michigan
held that, the general banking law of that State * being uncon-
stitutional and void, in so far as it purports to confer corporate
powers, no foreclosure could be had of a mortgage executed to
a bank organized under its provisions.^ In the first case in which
the same court held this law unconstitutional and void, the ques-
tion arose on a demurrer to a declaration by a receiver of one of
the banking associations thereby created on a promissory note,
and the court, on the ground that the banking association had
never been incorporated under a formal law, sustained the de-
murrer and the rascal was allowed to escape the payment of his
note.^ The calamities which were produced by these stupid de-
cisions are within the memory of persons still living. Mr.
Justice McLean, in a case before him at circuit, was not able to
discover any way out of this difficulty. The action was a bill
in equity to make responsible, under the general banking law of
1 Chicora Company v. Crews, 6 S. * Mich. Stat. 1837, p. 76.
C. 243. '^ Hurlbut v. Britain, 2 Doug.
2 Trustees of N. C. Endowment (Mich.) 191.
Fund V. Satchwell, 71 N. C. 111. « Green v. Graves, 1 Doug. (Mich.)
3 Snyder v. State Bank, I 111. 351.
(Breese) 122.
507
1 Thomp. Corp. § 656.] constitutional restraints.
Michigan, the directors and stockholders of one of the banks,,
organized under that law, which had become insolvent. The
Supreme Court of Michigan having declared the law unconstitu-
tional, and the Federal court being bound on this question to fol-
low the State court, the learned justice found it " difficult to find
any principle on which the obligations of such associations can be
enforced." " They have," said he, " no standing within the
protection of the law, they having been established in defiance of
its prohibitions. As between the individuals concerned, as yar-
ticeps criminisy the law could give no aid ; and it is not perceived
how an individual can become indebted to the bank, or have
a claim on it, without being involved in its illegality." He
therefore sustained the demurrer to the bill.^ The Supreme Court
of New York seems to have had the same trouble in respect
of the New York banking law of 1838. The court, following its
previous decision, ^ held that the act was unconstitutional, and
therefore, in an action of assumpsit on a promissory note, by a
bank created under the act, gave judgment in favor of the defend-
ant; but the Court of Errors, being of opinion that the act was
constitutionally passed, reversed this judgment.^
§ 655. Validity of a Statute Allowing a Depositor to Ap-
point a Person to wlioni Iiis Deposit shall be Paid after his
Death. — It is, of course, no objection to the validity of a statute in-
corporating a saving fund society, and providing that a book shall be
kept at the office in which every depositor shall be at liberty to appoint
some person to whom, at his death, his deposit shall be paid, if not other-
wise disposed of by will, that it is contrary to the statute of wills. As one
act of the legislature, both being within its constitutional power, is as good
as another, it is no objection to the validity of such a statute that it is
contrary to another statute, or that it creates an exception to it.*
§ 656. Unconstitutional Law may Operate as a Legislative
License. — Where certain persons had been indicted for setting up
and carrying on a lottery, and they justified under a statute incorporat-
1 Nessmith v. Slieldon, 4 McLean ion, sub nom. Nessmith v. Sheldon, 7
(U. S.), 377. This decision was af- How. (U. S.) 7\2; ante, ^
firmed, as to the point that it was the ^ Debowv. People,! Denio (N.Y.), 9.
duty of the Federal to follow the State 3 Gifford v. Livingstone, 2 Denio
court, by the Supreme Court of the (N. Y.), 380.
United States, on a certificate of divis- ^ Knorr's Appeal, 89 Pa. St. 93.
508
VALID IN part: void IN PART. [1 Thoiiip, Coi'p. § 658.
ing them as a company for that purpose, " to raise funds for the com-
mon school system of Alabama," the court reached the conclusion that
although their act of incorporation was void, as being in conflict with
the clause of the constitution which prohibited the legislature from
creating corporations by special act, except for municipal purposes, —
yet that it might operate as a legislatiA^e license to carry on the lottery,
and would, in some way or other, estop the State from punislnng the
corporators for carrying it on. The court had no difficulty in finding
that the defendant ' ' acted in good faith and verily believed he was doing
what the State, by the statute, clearly authorized him to do."^
§ 657. Charters Exempting Corporations from General
ll<aws. — A constitutional pro\ision empowering the legislature to grant
' ' such charters of incorporation as they may deem expedient for the
public good," has been held not to empower them to grant a charter
of incorporation exempting the corporation from the usury laws
of the State, by authorizing it to issue its mortgage bonds, bearing a
higher rate of interest than that fixed by general law. Notwithstanding
such a charter provision, a bill in equity was entertained, brought by
general creditors, the object of which was to confine the bondholders of
the corporation to the rate of interest prescribed by the general law of
the State, and to subject the surplus to the payment of the debts of
the complainants, and a decree granting this relief was affirmed. The
bill was well brought as to such of the complainants as were judg'
ment creditors. ^
§ 658. Statutes may be Valid in Part and Void in Part. —
It is a principle of constitutional law that a statute may be
valid in part and void in part. If a provision, which is not ob-
noxious to any constitutional objection, is found, even in the
same section, with another provision which is repugnant to the
constitution, the provision which is in itself valid must be sus-
tained, unless the two are so united that it must be presumed
that the legislature would not have adopted the one without the
other. ^ An appropriate case for the application of this princi-
ple is where the objects of the statute which are held to be
unconstitutional, and those parts of it which are valid, arc
1 Brent v. State, 43 Ala. 297. The » Robinson v. Bidwell, 22 Cal. 379;
decision is destitute of eitlier legal or People v. Nally, 49 Cal. 482; Ex parte
moral sense. Frazer, 54 Cal. 94; Com. v. Ilitchings,
2 McKiuney v. Memphis Overton 6 Gray (Mass.), 485.
Hotel Co., 12 Heisli. (Tenn.) 104.
509
1 Thomp. Corp. § 659.] constitutional kestraints.
wholly independent of each other, so that the latter may be
carried into effect without reference to the former. ^ When the
parts of a statute are so mutually connected and dependent, as
conditions, considerations or compensations for each other, as to
warrant a belief that the legislature intended them as a whole,
and that, if all could not be carried into effect, the legislature
would not have passed the residue, independently, if some parts
are unconstitutional and void, all the provisions, which are thus
dependent, conditional, or connected, must fall with them.^
§ 659. Illustrations. — It has already been seen that if 'a part of a
statute is not expressed in the title, and such part is severable from the
rest, it may be declared void, and the rest allowed to stand, under a
constitutional provision that an act shall contain but one subject, which
shall be expressed in its title. ^ _ - - . go, if we refer to some of
the principles discussed in the preceding article in regard to restraints
upon the enacting of laws, we shall find that where it is ascertained
from the journals of the two houses of the legislature that a particular
amendment to a bill was not passed in conformity with the requirements
of the constitution, but that the bill without the amendment was passed,
the courts may, it has been held, sever the amendment from the bill and
1 Warren V. Mayor of Charlestown, v. Sargent, 36 Cal. 379; Nelson v.
2 Gray (Mass.), 98; French!?. Tesche- People, 33 111. 390; McCulloch v.
maker, 24 Cal. 518, 648; Ex parte State, 11 Ind. 424; Santo v. State, 2
Frazer, 54 Cal. 94; St. Louis v. St. Iowa, 165; Fisher u. McGin, 1 Gray
Louis R. Co., 14 Mo. App. 221 ; Harris (Mass.), 1; Matter of DeVauceue,
V. Niagara County Supervisors, 33 31 How. Pr. (N. Y.) 289; State v.
Hun (N. Y.), 279; Tripp v. Overocker, Copeland, 3 R. I. 33; State v. Snow,
7 Col. 72; Gunnison County Comm'rs 3 R. I. 62.
W.Owen, Id. 467; Peoples. Jobs, Id. ^ Warren v. Mayor &c., 2 Gray
475; Franklin Co. v. Nashville &c. R. (Mass.), 84; Commonwealths. Clapp,
Co., 12 Lea (Tenn.), 521; South & 5 /(^. 97; Commonwealths. Hitchings,
North Ala. R. Co. v. Morris, 65 Ala. Id. 482; Commonwealth v. Pomeroy,
193; States. Clark, 54 Mo. 17; Rood Id. 486; Slauson s. Racine, 13 Wis.
V. McCargar, 49 Cal. 117; Mobile &c. 398; Campau s. Detroit, 14 Mich. 276;
R. Co. V. State, 29 Ala. 573; People v. San Francisco v. Spring Valley
Hill, 7 Cal. 97; Lathrop v. Mills, 19 Water Works, 48 Cal. 493; State v.
Cal. 513; Robinsons. Bidwell, 22 Cal. Pugh, 43 Ohio St. 98; O'Brien s.
379; Campbell s. Union Bank, 7 Miss. Krenz, 36 Minn. 136; Hinze s. People,
(6 How.) 625; Exchange Bank v. 92 111. 406; Eckhart s. State, 5 W. Va.
Hinds, 3 Ohio St. 1; State s. Com- 515.
missioners, 5/d. 497; Bank of Hamil- ^ Ante, §625; People s. Hall, 8
tons. Dudley, 2 Pet. (U. S.) 526; Colo. 485.
Duer s. Small, 4 Blatchf. 263; Mills
510
VALID IN part: void IN PART. [1 Thomp. Corp. § 659.
declare the amendment void and the rest of the law valid. i - - - -
A general act authorizing the formation of corporations may, like any-
other statute, be valid in part though void in part. For instance,
although a statute authorizing the creation of rafting or boom compa-
nies, may be invahd in so far as it gives a corporation the right to take
exclusive possession of a public navigable stream and bar the rights of
all others therein, yet in so far as it merely provides for the formation
of corporations with the power to make contracts, it is constitutional and
vahd.2 - - - - By analogy to the rule that a statute may be valid
in part and void in part, it has been held that an order of court made in
pursuance of such a legislative authorization, organizing a corporation
for the purpose provided by a general law, is valid to the extent of the
pro\dsions of that law, and void only so far as it confers powers or priv-
ileges in excess of those authorized by the statute. ^ - - - - As an
illustration of the principle, it has been held that a portion of a section
of a general statute regulating the incorporation of cities, which pre-
scribes the form of judgment to be rendered on appeal, may be judi-
cially stricken out as unconstitutional, without impamng the rest or
without impairing the rights of suitors.* - - - - Appljdng this
principle, it has been held that a statute imposing a tax on telegraphic
messages being invalid as to interstate messages, the whole statute must
fall. 5
1 Berry v. Baltimore &c. R. Co., 41 part. The Supreme Court of Texas
Md. 446. has been called upon to hold that
2 Ames V. Port Huron &c. Co., 6 where there is an irreconcilable
Mich. 266. The court do not decide conflict between two provisions of a
that the statute is void even in the constitution, the more comprehensive
particular case. and specific provision should control.
3 Heck u. Ewen, 76 Tenn. 97. Gulf &c. R. Co. v. Rambolt, 07 Tex.
* Allen V. Silvers, 22 Ind. 491. 654. It is scarcely necessary to say
« Western Union Tel. Co. v. State, that an unconstitutional statute ac-
62 Tex. 630. A more difficult question quires no force by being subsequently
is presented where the court cannot incorporated in a revision of the stat-
sustain some part of the constitution utes. Cock v. Stewart, 85 Mo. 575.
Itself without disregarding some other
511
1 Thomp. Corp. § 665.] national corporations.
CHAPTER XIII.i
NATIONAL CORPORATIONS.
Section
665. Definition — division — introduc-
tion.
666. Within the states: historical
sketch : national banks.
667. Transcontinental railway compa-
nies.
668. Maritime Canal Company of Ni-
caragua.
669. Other corporations chartered by
congress.
670. Formation of national corpora-
tions.
671. Power of congress to confer
franchises on them: exemp-
tion from state control and
taxation.
672. Power to confer right of
eminent domain within the
state.
Section
673. May confer on federal courts ex-
clusive jurisdiction of suits by
and against.
674. Protection under the fourteenth
amendment.
675. Status of national corporations
within the states: jurisdiction
over them.
676. Further of this subject.
677. How dissolved.
678. Power of congress to revoke
their charters.
679. Effect of reservation of right to
amend.
680. Not dissolved by state action.
681. Corporations of the territories.
682. Corporations of the District of
Columbia.
683. State corporations holding fed-
eral franchises.
§ 665. Definition — Division — Introduction. — The term
national corporation, as used in this chapter, means a corporation
existing under a franchise conferred by the national government.
A corporation existing under a franchise conferred by a State of
the Union is not within the definition. National corporations
may be divided with convenience into two classes: 1. Those
authorized to act within the States. 2. Those authorized to act
within the territories and the District of Columbia. Some cor-
porations fall within both classes. Coiporations of the first
class, of which national banks and the Pacific Railway Companies
are examples, are of general interest, both from the legal ques-
1 This chapter was written by Rus-
sell H. Curtis, Esq., of the Chicago
bar, and was first published in 21 Am.
Law Rev. 258. It is now republished,
512
with the consent of its original publish-
ers and of Mr. Curtis, after a revision
of the text and notes by him, to bring
them down to date. .
HISTORICAL SKETCH. [1 Thomp. Coip. § 666.
tions to which they give rise, their wide territorial distribution,
their wealth, and the possible consequences of their increase in
the future. The capital stock of the more noticeable of them is
now worth on the market, in round numbers, $600,000,000.^
Yet they have received hitherto from writers on leo-al topics but
little attention. They are alluded to in the standard text-books
on corporations, but they are not treated as a class of corpora-
tions by themselves.
§ 666. Within the States : Historical Sketch ; National
Banks. — It is not difficult to enumerate the principal national
corporations which have been authorized to act within the States,
for such corporations have been important at almost all periods
since the formation of the Federal government. In 1791, the
first Congress which sat under the constitution incorporated the
earliest bank of the United States. ^ The corporate existence
of this bank expired, according to the limitation contained
in its charter, in 1811. In 1815 a bill to incorporate a na-
tional bank was passed by Congress, but was vetoed by Presi-
dent Madison.'^ In 1816, Congress incorporated the second
bank of the United States.* Its franchises expired by the
limitation contained in its charter, on March 3, 1836. The
famous controversy between President Jackson and the bank,
over the question of the renewal of its charter, culminated three
years earlier, when the President secured a Secretary of the
Treasury who would obey his orders to withdraw from the bank
the public funds. ^ The opinion held by that secretary con-
cerning the rights of this national corporation, was not, it has
been supposed, the least of the causes which led to his appoint-
ment to the office of Chief Justice of the United States Supreme
Court. In 1841, Congress passed a bill to incorporate a national
bank, but it was vetoed by President Tyler.^ In 1863, Congress
for the first time authorized the formation of national banks by
1 This stiiteraent was true at the ■» 3 U. S. Stat. 2M>.
date when this chapter was first writ- ^ Tyler's Life of Taney, pp. 205,
ten, namely, January, 1887. 206.
2 1 U. S. Stat. 191. MO Congressional Globe, 337.
3 Annals of Congress, 13th Con-
gress, vol. 3, p. 208.
33 513
i Tliomp. Corp. § 668.] national corpouations.
a generiil statute.^ Statutes relating to particular national
banks are still passed at every session.
§ 667. Transcontinental Railway Companies. — In 1862,
Congress chartered the Union Pacitic Railroad Company, with
power to construct a railway and telegraph line through the ter-
ritories, and b}^ the same act of incorporation granted franchises to
several State railway corporations; provided for operating the
lines of these corporations as one line, and provided for their
future consolidation. 2 The consolidation provided for by the
charter was effected in part in 1880.^ The name of the consoli-
dated corporation is the Union Pacific Railway Company.
Whatever may be thought of the status of the constituent cor-
porations from which this consolidated corporation was formed,
it appears to be a national corporation authorized to act within
the States of the Union.* In 1864, Congress chartered the
Northern Pacific Railroad Company, and authorized it to con-
struct a railway and telegraph line from a point in the State of
Minnesota, or the State of Wisconsin, west to Pnget Sound, ^
The charter contained the provision that no road should be con-
structed within a State, without the previous consent of the
legislature of the State. In 1866, Congress chartered the Atlan-
tic & Pacific Railroad Company, with authority to construct a
railway and telegraph line from a point in the State of Missouri
to the Pacific ocean. ^ In 1871, Congress chartered the Texas
Pacific Railway Company, to construct and operate a railway in
part in the States of California and Texas. ^
§ 668. Maritime Canal Company of Nicaragua. — In 1889
Congress chartered the Maritime Canal Company of Nicaragua,
to be a private stock corporation for pecuniary profit, with its
principal ofBce in the city of New York, for the purpose of con-
structing and operating a ship canal between the Atlantic and
Pacific ocean, through the territory of the Republics of Nicara-
1 12 U. S. Stat. 665. « 14 u. S. Stat. 292; Santa Clara
2 12 U. S. Stat. 489. County v. Southern Pac. R., 118 U. S.
3 Poor's Manual for 1882, p. 762. 394, 398.
* Pacific Railway Removal Cases, "> 16 U. S. Stat, 573; Supplemental
115 U. S. 1. Act, May 2, 1872, 17 Stat. 59.
s 13 U. S. Stat. 365.
5U
HOW FORMED. [1 Thomp. Corp. § 670.
gua and Costa Rica.^ It is to be noticed that the principal
action of the corporation, the construction and operation of a
ship canal, are to be performed exclusively in foreign territory.
§ 669. Other Corporations Chartered bj' Congress. — Con-
gress has chartered corporations not for pecuniary profit. In
1871 Congress chartered the Centennial Board of Finance, as a
corporation, to conduct the centennial celebration, in 1876, of
the Declaration of American Independence. ^ In 1865, Congress
chartered the Freedmen's Savings and Trust Company as a
savings bank for emancipated negroes.^ In 1866, Congress
chartered the National Asylum for Disabled Volunteer Soldiers.*
Congress, in an act to authorize the incorporation of national
trades unions in the District of Columbia, provided that corpora-
tions formed under the act might establish branches in the
States.^ It is uncertain whether Congress intended to confer the
right to establish a branch union, if the State in which it should
be located did not consent. Several quasi-ummGipal corpora-
tions have been created within State limits by treaty with
Indian tribes,^ though necessarily on soil over which Cono-ress
retained jurisdiction.
§ 670. Formation of National Corporations. — It will be in-
teresting to examine the question, how national corporations em-
powered to act wilhin the States, may be formed. The Federal
constitution, the people's sole grant of power to their national
officers, does not contain any express grant of power to create a
1 Act of Feb. 20, 1889; 25 U. S. 6 United States v. Kagaraa, 118 U.
Stat. 673. It is probable th;it Con- S. 375; Utah &c. R.v. Fisher, 116 U. S.
gross has chartered other corpora- 28; Ex parte Crow Dog, 109U. S.55G;
tions for the purpose of building a The Kansas Indians, 5 Wall. (U. S.)
railway or canal across the Isthmus, 737; Worcester u. Georgia, 6 Pet. (U.
but a single example is a sufficient S.) 515, 561 ; History of the Creek and
illustration of the class. Cherokee controversy, 1 Von Hoist's
2 Act of June 1, 1872, 17 St. at L. Const. Hist, of U. S. (Am. ed.) 433.
203. Notice Ute Reservation in State of
" Actof MarchS, 18G5; 13U. S. Stat. Colorado, created in territory of
510. Colorado by treaty of March 2, 1868,
♦ Act of March 21, 1866; 14 U. S. (15 U. S. Stat. 619) and alluded to in
Stat. 10. United States v. McBratney, 11 Fed.
* 49th Congress, 1st session, chap. Rep. 96, note.
567.
515
1 Thomp. Corp. § 671.] national corporations.
corponition, but it contains, as interpreted by the United States
Su[)reme Court, by Congress, and by the acquiescence of the peo-
ple, an implied grant to Congress of power to create a corpora-
tion under certain circumstances. In McCulloch v. Maryland,
decided in 1819, Chief Justice Marshall laid down the rule, which
has been followed ever since, that Congress has power to create
a corporation, whenever to do so is an appropriate measure to
carry into execution the enumerated powers of that body.^ It
was also decided in that case that the question, whether the
creation of a corporation in a particular instance is an appropriate
means to accomplish the end sought, is one for the courts to de-
cide ; and that the question, whether such measure is expedient
is one solely for Congress. Congress has not indicated under
which of its express powers it acted when it passed the national
banking statutes and the special charters of the several national
corporations to which allusion has been made. The banking
statutes may perhaps fall under the power of Congress to borrow
money, to regulate interstate commerce, to coin money and to
regulate the value thereof. The railway statutes may be referred
to the power of Congress to establish post roads, to support
armies, and to regulate interstate commerce.^ The purposes for
which national corporations maybe created in the future are only
limited by Marshall's rule that such corporations must be appro-
priate means to carry into execution the express powers of the
national government.
§ 671. Power of Congress to Confer Franchises on them :
Exemption from State Control and Taxation. — We have consid-
ered in the preceding section the power of Congress to confer the
franchise to exist as a corporation. We come now to consider the
power of Congress to confer on national corporations other fran-
chises. The franchises, which Congress may confer on national
corporations to be exercised within the States of the Union, are
probably limited by Marshall's rule, previously stated. Subject to
such restriction, no reason is perceived why Congress may not con-
1 McCulloch u. Maryland, 4 Wheat. Dearing, 91 U. S. 29; Legal Tender
(U. S.) 316, 400; affirmed in Osborn Case, 110 U. S. 421.
V. United States Bank, 9 Wheat. (U. ^ Const. U. S. art. 1, § 8.
S.) 738; Farmers' &c. Nat. Bank v.
516
EXEMPTION FROM STATE CONTROL. [I Thomp. Coi'p. § 671.
fer franchises upon such corporations, to the same extent as upon
natural persons.^ A national corporation is exempt, in general,
from State control, like any corporation or person, in the exer-
cise of all rights held by it under the Federal constitution and
statutes. 2 Such corporations are exempt from State control and
taxation, so far as State legislation may impair their efficiency
as agencies of the national government.^ The exemption of
national corporations from State taxation is not so broad under
this rule as it was under the ruling in McCulloch v. Maryland*
and in Osborn v. United States Bank,^ decided when Chief Jus-
tice Marshall was on the bench. In those cases such corpora-
tions were held to be wholly exempt from State taxation, with
the exception of taxation of their real estate, and of the taxation
of stockholders residing within the taxing State, upon the stock
held by them. In Railroad Company v. Peniston^ the right of
a State to tax property within its territory belonging to a rail-
way corporation cliartered by Congress was directly in issue, and
the court, applying the rule just announced, — that such corpora-
tions are taxable in the States in those cases in which their effi-
ciency as Federal agencies is not impaired, — arrived at the further
rule that the States may tax th.Q property , but not the operations j
of Federal agents, and decided that the property in question
was subject to State taxation. Congress may give the State the
1 Example of incidental franchise a sister State corporation to do busi-
conferred ou national corporatiou: ness in the State, that it agree not to
Exemption of national bank from sue in Federal courts is void, because
attachment before final judgment. Rev. it makes the right to the permit de-
Stals. U. S. § 5242. Pacific Nat. Bank pend on surrender of a right conferred
V. Mixter, 124 U. S. 721. The grant of by Federal constitution and statute,
the right of way through public lands, Barron v. Burnside, 121 U. S. 186.
within and without the States, to na- ^ Farmers' &c., Nat. Bank v. Dear-
tional, State and territorial railway ing (1875), 91 U. S. 29; National Bank
corporations, has been quite common v. Commonwealth (1869), 9 Wall. (U.
in the past; also the donation of public S.) 353; affirmed in Railroad Co. v.
land to such corporations. Peniston, 18 Wall, (U. S.) 5; s. c. 1
2 Afranchise conferred by Congress, Dill. (U. S.) 314; Thomson v. Pacific
e.g., to construct a railway across a Railroad, 9 Wall, (U. S.) 579.
State, cannot be taxed by a State ^ 4 Wheat. (U. S.) 316.
without the permission ot Congress. ^ 9 Wheat. (U. S.) 738.
California v. Central Pacific R. Co., c is Wall. (U. S.) 5; s. c. 1 Dill.
127 U. S. 1. A State statute making (U. S.) 314; accord, Tel. Co. v. Texas,
it a condition of granting a permit to 105 U. S. 460.
517
1 Thoiiip. Corp. § 673.] national corpokations.
right to tax national corporations, and may impose conditions
upon such grants.^ It has done so in the case of the national
banks. ^ If a national corporation is a party conducting interstate
commerce, Congress may exempt it from State taxation also on
that ground. If so engaged, it would be exempt from State taxa-
tion, in many cases, under the Federal constitution, without any
action by Congress. Interstate commerce conducted by a cor-
poration is entitled to the same protection against State exactions
as is given to such commerce conducted by individuals.^
§ 672. Power to Confer Right of Eminent Domain within
a State. — The national government may exercise the power of
eminent domain within the States, whenever necessary to carry
into execution the powers conferred upon it by the constitution.
The case of Kohl v. United States,^ has settled the point. Con-
gress has delegated to national corporations the right of eminent
domain, to be exercised within the territories.^ And it is prob-
able, judging from the settled practice of the States towards cor-
porations created by themselves, that Congress has power to
delegate the right of eminent domain to national corporations, to
be exercised within a State without its consent. In the case of
some of the national railway corporations, all controversy was
avoided by provisions in the statutes creating them, forbidding
or rendering impossible the construction of roads within the
boundaries of a State without its assent. However, in one case
at least, the assent of the State was obtained after the construc-
tion of the road." The charter of another national railway cor-
poration provides for the condemnation of private property
within States, according to the law of the State in which the prop-
erty is situated.^
§ 673. May Confer on Federal Courts Exclusive Jurisdic-
tion of Suits by and Against. — Congress has power, under the
1 Van Allen v. Assessors, 3 Wall. * 91 U. S. 367; affirmed U. S. ».
(U. S.) 573. Jones, 109 U. S. 513.
2 U. S. Kev. Stat. (ed. of 1878), § * See several Pacific railway acts
5219. cited supra.
2 Gloucester Ferry Co. v. Penn, ^ Recital in Pacific Railroad Re-
lU U. S. 196; Pensacola Telegraph moval Cases, 115 U. S. 2.
Co, V. Western Union Telegraph Co., ^ 16 IT. S. Stat. 576, § 10.
96 U.S.I.
518
JURISDICTION OF u. s. COURTS. [1 Thomp. Coip. § 674.
constitution, to give the Federal courts jurisdiction of all suits by
or ao-ainst national corporations/ and to authorize such corpora-
tions to remove to the Federal courts suits brouj^ht against them
in the State courts. ^ Congress may undoubtedly make the ju-
risdiction of Federal courts, over suits by or against national cor-
porations, exclusive. The creation of a corporation by Congress
is held by the United States Supreme Court, to make any con-
troversy to which such corporation may be a party, a controversy
arisino: under the laws of the United States, and hence acontro-
versy to which the judicial power of the United States extends,
irrespective of the citizenship of the parties.^ And it is settled
that Congress may make exclusive the jurisdiction of the Federal
courts over all controversies arising under a law of the United
States, if not, indeed, over all controversies to which the ju-
dicial power of the United States extends.* Congress may con-
fer a special jurisdiction on a Federal court to try a special
matter, and it has exercised such power with reference to a na-
tional corporation. In this instance it prescribed that matters
and defendants might be joined in a manner which, but for
the special authorization, would have constituted multifarious-
ness.^
§ 674. Protection under tbe Fourteenth Amendment. —
Apart from the shelter afforded by other clauses of the Federal
constitution, a national corporation is probably protected against
unreasonable State exactions by the clause of the fourteenth
amendment to the Federal constitution, which prohibits a State
from denying to any person the equal protection of the laws. It
is settled by the decisions of the United States Supreme Court,
that a domestic corporation of a State of the Union, is, as to such
1 Osborn v. Bank of United States, * The Moses Taylor, 4 Wall. (U. S.)
9 Wheat, (U. S.) 738; accord, Ken- 411; Gaines v. Fuentes, 92 U. S. 10;
nedy t?. Gibson 8 Wall. (U. S.) 498; Claflin v. Houseman, Assignee, 93 U. S.
Pacific Railroad Removal Cases, 115 130. These cases by implication over-
U. S 2. rule Cook v. State Nat. Bank, 52 N.
2 Pacific Railroad Removal Case«, Y. 96.
supra. ^ United States v. Union Pacific R.
3 Osborn «. Bank of United States, Co. (1878), 98 U. S. 569; for report
supra; Pacific Railroad Removal of case below, see 11 Blatch. (U.S.)
•Cases, supra. 386.
519
1 Thorn p. Corp. § 675.] national corporations.
State, ii person within the meaning of this coHstitutioniil iimend-
ment,^ although a sister State or foreign corporation is not.^
§ 675. Status of National Corporatious vvitliiu the State:
Jurisdiction over tliem. — The status of a national corporation,
witliin a State where it acts, depends upon several circumstances.
As we have seen, Congress may exempt a national corporation
from State control, so far as such control would impair its
efficiency as an agency of the Federal goverument, and so far as
such corporation is a party conducting interstate commerce. In
New York, a national corporation is by statute defined to be a
domestic corporation of the State, ^ and it may sue in the State
courts as citizen of the State. ^ In Pennsylvania, it has been
held that a national corporation is not a foreign corporation with-
in the meaning of a State statute imposing a tax on foreign
corporations.^ In another case, a Pennsylvania court, acting
upon the rule that a corporation has in general a legal existence
everywhere within the limits of the sovereignty from which its
corporate existence is derived, decided that a national corpora-
tion was, in Pennsylvania, neither an alien nor a citizen of
another State of the Union, nor a foreign corporation, and hence
that a Federal statute, governing the removal of causes from a
State to a Federal court by an alien, did not apply to an applica-
tion for removal by a national corporation.^ What has been
said of the status of national corporations does not apply to such
corporations chartered by Congress, in the exercise of its powers
of local legislation over the territories and the District of Col-
umbia. The jurisdiction of the Federal courts over suits by
and against national banks is, by Federal statute of March 3,
1887,' the same, except as to suits by the United States and in
one or two other specified cases, as the jurisdiction of suits by
1 Santa Clara County v. Southern Pa- ^ N. Y. Code of Civil Procedure^
ciflc R. Co., 118 U. S. 394, 390 ; Pembina § 3343, clause 18.
&c. Co. V. Pennsylvania, 125 U. S. 181 ; * Market National Bank v. Pacific
Minneapolis &c. R. Co. v. Beckwith, Nat. Bank (1882), 64How.Pr. (NY.) 1.
129 U. S. 26. ^ Commonwealth v. Texas &c. R.
2 Philadelphia Fire Association v. Co. (1881), 98 Pa. St. 90.
New York, 119U. S. 110; Pembina &c. 6 Eby ?). Northern Pacific R. Co.
Co. V. Pennsylvania, 125 U. S. 181, (1879,) 36 Leg. Int. 164.
189. ' U.S. Stat. 1886-7, page 552, ch. 273.
520
STATUS WITHIN THE STATES. [1 Thomp. Corp. § 676.
and ao-ainst banks not organized under a law of the United States.
For the purpose of determining the jurisdiction, a national bank
is deemed a citizen of the State in which it is located.^ The
power of a national corporation, other than a banking corpora-
tion, to sue, and its liability to be sued, are, since the repeal in
1887 of R. S., § 640, without express regulation by general stat-
ute. If the United States Supreme Court adheres to its former
decision, any suit by or against a national corporation will con-
tinue to be deemed a suit involving a Federal question. ^
§ 676. Further of this Subject. — An injunction lies to pro-
tect a national corporation in the enjoyment of its franchises.^
For example, an injunction lies against the agent of a State,
threatening to prevent the exercise of such franchises by the
execution of void State laws.* And a stockholder of such a cor-
poration may have such remedy.^ A State tax, collected in
violation of a Federal franchise, from a stockholder in a national
corporation, may be recovered back.^ The validity of a de facto
national corporation will be inquired into only in a direct pro-
ceeding for that purpose.^ Congress has provided, in a particular
instance by statute, that a national corporation may be compelled to
perform its duties \iY mandamus, and the courts have enforced such
statute.^ Congress has also provided in a particular instance for
the enforcement of rights against a national corporation by the
recovery of treble damages in a civil suit and by the fine and
imprisonment of the officers of the corporation in a criminal suit.^
It has been held on circuit that the property of a national corpo-
1 ihid,. chartered by such State, to test the
2 Consult cases cited ante, § 671. validity of the merger of such corpora-
3 Osborn u. Bank of U. S., 9 Wheat, tiou into a national corporation, is a
(U. S.) 737; Peltou W.Nat. Bank (1879), suit arising under the laws of the
101 U. S. 143; Hills v. Exchange Bank United States. Ames v. Kansas, 111
(1881), 105 U.S. 319. U. S. 449.
•t Osborn v. Bank of U. S., supra. * Union Pacific R. Co. v. Hall (187.5),
6 EvansvilleBank V. Britton(1881), 91 U. S. 313. Same case below, Hall
105 U. S. 322. v. Union Pacillc R. Co., 3 Dill. (U. S.)
6 Supervisors w. Stanley, 105 U. S. 515.
305. » Act of June 20, 1874, 18 St. Ill;
' Pacific Railroad Removal Cases, Pelton v. Nat. Bank (1879), 101 U. S.
115U. S. 2. A 9M0 ?'Mm<n<o suit, l)y a 143; Hills u. Exchange Bank (1881),
State against a corporation originally 105 U. S. 319.
521
1 Thomp. Corp. § 678, j national corporations.
ration may be appropriated by a State, within whose limits such
property is situated, under the State's right of eminent domain,
for the use of a State corporation.^ In this case, merely a cross-
ing for the line of a State railway corporation was taken. It is
probable that the })roperty of a national corporation cannot be
appropriated by a State, under any circumstances which would
impair the efficiency of such corporation as a Federal agent.
Land occupied by a national corporation is in general subject to
the criminal jurisdiction of the State where the land lies.^
§ 677. How Dissolved. — We come now to the consideration
of the question, how national corporations may be dissolved. To
the present time, the only mode in which such corporations have
ceased to exist is by the expiration of the terms for which their
charters were granted, as was the case with the first and second
United States Banks, or by some other method expressly provided
for in their charters, as in the case of banks formed under the
national banking statutes. The merger of the Union Pacific Rail-
road Company in the Union Pacific Railway Company was ac-
complished by a consolidation made in pursuance of the charter
of the original company and with its consent. A national corpo-
ration may probably be dissolved, like other corporations, by an
accepted surrender of its franchise to exist, by a judicial forfeit-
ure of such franchise for non-user or misuser of it,^ or by the ap-
propriation of such franchise by the Federal government under
its rights of eminent domain. It is possible that such a corpora-
tion may be dissolved by the operation of some future Federal
statute governing bankruptcy. And such a corporation may be
dissolved, as before indicated, by any method provided for in its
charter.
§ 678. Power of Congress to Revoke their Charter. — The
question, whether a franchise to be a corporation and such fran-
chises as are given with it, conferred by one Congress without
conditions, are irrevocable by a future Congress, is one of specu-
lative interest rather than practical importance, as the charters of
1 Union Pacific R. Co. v. Burling- 2 jq re O'Connor, 37 Wis. 379.
ton &c. Co. (1880),! McCrary (U. ^ Post,Ch. \b2.
S.), 452. ^
522
EEVOCATION OF THEIR CHARTERS. [1 Thomp. Corp. § 679.
the Pacific Railway Companies and the general statutes provid-
insr for the formation of national banks all contain a reservation
by Congress of the power to amend them. The question has
never been directly raised before the United States Supreme
Court. The grant of a franchise to be a corporation is, by our
case law, a contract between the grantor and the grantee. It is
settled law that Congress may in general make contracts which
are binding upon the Federal government, and which will be en-
forced when Congress has provided courts with jurisdiction to
enforce them.^ The question under discussion seems reduced to
this : Is the grant of a franchise to be a corporation, or is the grant
of any other franchise, subject to the general rule controlling
contracts of the g-overnment? The consideration that Cono-ress,
in the exercise of its functions as a national legislature, may enact
laws which impair the obligation of contracts between citizens, as
it has perhaps done in the case of the Legal Tender Acts, seems
irrelevant.
§ 679. Effect of Reservation of Right to Amend. — The ques-
tion remains, how far a corporate franchise conferred by one
Congress, with the reservation of the right to amend, is binding
upon a future Congress. Under the constitution, the power to
amend the charter of a corporation cannot be used to take away
from it property already acquired under its charter, or to deprive
it of the fruits, actually reduced to possession, of contracts law-
fully made ; but, subject to such restrictions. Congress may estab-
lish by amendment, whatever it might have prescribed in the
original charter. ^ Under this rule, it was held that Congress
might require a national corporation to establish a sinking fund,
to secure the payment of claims against it, not yet due.^
1 United States v. Union Pacific R. any reason for the forfeiture, — e.g. Act
Co. (1875), 91 U. S. 72; U. S. v. U. P. of Feb. 28, 1885; U. S. Stat. 1884-5,
R. Co., 98 U. S. 550; also oMler re- p. 337; Act of July, 6, 1886; U. S. Stat,
marks of court in Sinking Fund Cases 1885-6, p. 123. See an act to provide
(1878), 99 U. S. 700. for the adjustment of laud grants
*2 Sinking Fund Cases (1878), 99 U. made by Congress to aid in the con-
S. 700. Congress has, in a number of struction of railroads aud for the for-
cases, declared by statute the forfeit- feiture of unearned lauds. March 3,
ure, by a national railway corporation, 1887; U. S. Stat. 188G-7, p. 556.
of lands previously granted to it by ^ Ibid.
Congress, aud often without assigning
523
1 Tliomp. Corp. § 681.] national corporations.
§ G80. Not Dissolved by State Action. — A national corpora-
tion cannot be dissolved, or its property confiscated, or its
operations seriously crippled, by State action. We hare already
seen that a national corporation is exempt in general from State
control, in the exercise of all rights held by it under the Federal
constitution and statutes.^
§ 681. Corporations of the Territories. — What has already
been said of the power of Congress to create corporations to act
within the States, is true of the power of Congress to create
corporations to act within the territories; but it is comparatively
unimportant with reference to the latter. By the Federal con-
stitution ^ Congress has general legislative control over the Ter-
ritories, limited only by the restrictions contained in that instru-
ment, while in respect of the States it exercises merely enumerated
powers. Congress has empowered the territorial legislatures to
authorize, by general statutes, the formation of corporations
within their territorial jurisdictions, and has forbidden such legis-
latures to grant private charters or special privileges.^ No such
restriction rests upon Congress itself.* It has authorized a rail-
way corporation, created by one territory, to extend its line
through other territories.^ Territorial corporations become
State corporations upon the admission into the Union of the
territory creating them.^ A corporation created by Congress
directly, in pursuance of its powers of local legislation over a
territory, or mediately through a territorial legislature, is prima
facie a corporation of the territory, as a corporation created by
a State of the Union is a corporation of the State. A corpora-
1 Ante, § 671. the incorporation of insurance com-
2 U. S. Const., art. 4, sec. 3, cl. 2. panics and to declare corporations
3 U. S. Rev. Stat. (2 ed. 1878), formed under said laws legally incor-
§1889. Under an act of Congress porated. June 30, 1886; U.S.Stat,
which gives a territorial legislature 1885-6, p. 107.
general legislative power, such legisla- ^ U. S. Laws 1877-1878, p. 241, ch.
ture may charter a corporation. Vin- 362.
cennes University v. Indiana, 14 How. ® Kansas Pacific R. Co. v. Atchison
(U. S.) 268. &c. R. Co., 112 U. S. 414. Accckd,
* Example of congressional legis- Vance v. Farmers' Bank, 1 Blackf.
lation relating to territorial corpora- (Ind.) 80; Bank of Vincennes v.
tions: An act to legalize the general State, 1 Blackf. (Ind.; 267.
laws of the Territory of Dakota for
524
IN THE DISTRICT OF COLUMBIA. [1 Thomp. Corp. § 682.
tion of a territory, unless it holds other franchises than are
necessarily implied from its corporate character, has no right to
act within the limits of a State without its consent; but if such
corporation is permitted by its charter to act generally beyond
the territory, it may act by comity within any State, so long as
the consent of such State continues.^ A corporation of a terri-
tory cannot sue or be sued in the Federal courts as a national
corporation.^
§ 682. Corporations of the District of Columbia. — Con-
gress is given by the constitution general and exclusive legisla-
tive power over the District of Columbia.^ Under the authority
thus conferred. Congress may create corporations within the
District.* It has frequently done so. In one volume of the
Statutes at Large, ^ are to be found an act to incorporate a build-
ing company, an act to incorporate a railway company, an act to
amend the charter of another railway company, and acts to in-
corporate an inebriate asylum, a cemetery company and an insur-
ance company.^ The franchises which Congress, acting as a
local legislature for the District, may confer on a corporation,
beyond the franchise to exercise the powers which a natural per-
son exercises without special authorization, are probably co-ex-
tensive with those it may confer on a natural person. Congress
probably cannot create a corporation within the District of
Columbia and confer upon it power to act within the States with-
out their assent, unless such corporation is, according to Marshall's
rule, an appropriate means to carry into execution the enumer-
ated powers of Congress, acting as a national legislature.^ But
Congress may permit a corporation of the District to act within
the States, just as any State may permit a domestic corporation
1 See authorities cited as to powers v. Nat. Life lus. Co. (1878), 64
of corporations of tlie District of lud. 1.
Columbia, j9o.s<, § G82. ^ 19 U. S. Stat.
2 Adams Express Co. v. Denver &c. ^ Statutes at Large, vol. 18, p. 513,
R. Co., IG Fed. Rep. 712. contain " An act to incorporate, the
8 U. S. Const., art. I., sec. 8, cl. 17. Inland and Seaboard Coasting Com-
4 Such power recognized. Hunt- pany of the District of Columbia."
ington V. Savings Bank, DO U. S. 388; "> Congress can only confer on the
Hadley v. Freedman's Savings &c. District of Columbia municipal pow-
Co. (1874), 2 Tenn. Ch. 122; Williams crs. Stontenburgh v. Hennick, 129 U.
V. Creswell (1876), 51 Miss. 817; Daly S. 141.
525
1 Thomp. Corp. § 683.] national corporations.
to act beyond the State limits. A corporation acts beyond the
territory of the sovereign creating it, only by comity. The States
generally permit corporations of the District to act within their
limits as foreign corporations.^ Congress, in the exercise of its
powers of local legislation over the District, in 1868 incorporated
an insurance company, with permission to it to act within the
States with their assent.^ In 1867 it passed a general incor-
poration law, authorizing the formation of " national trades
unions " within the District, with authority to establish branches
within the States.^ The statute does not expressly provide that
a branch union shall only be established within a State, with the
express or implied consent of such State; but such is probably
the meaning of the statute.
§ 683. State Corporations Holdiug Federal Franchises. —
To avoid misapprehension, it is proper to say that Congress has
not chartered any corporation, with power simply to operate
telegraph lines within the States. It has conferred, by general
statute, upon such State telegraph companies as choose to accept
the terms offered, the franchise to construct and operate their
lines on all post routes, which include all railways, public roads
and streets in the country. These State corporations, although
they are made agents of the national government and have im-
portant powers confided to them to be exercised in all parts of
the union, are not within the scope of this chapter.* A State cor-
poration holding a patent right is not a national corporation.^
1 Hadley v. Freedman's Trust Co., sacola Tel. Co. v. Western Union Tel.
2 Tenn. Ch. 122 ; Daly v. Nat. Life Ins. Co., 96 U. S. 1 ; Telegraph Co. v. Texas,
Co., 64 Ind. 1; Williams v. Creswell, 105U. S. 460. Act to protect telegraph
51 Mis.s. 817. lines owned or occupied by the United
2 15 U. S. Stat. 184. States: June 23, 1874, 18 St. 250; West-
3 Stats. 49th Congress, 1st Sess., ern Union Tel. Co. v. Pendleton, 122
ch. 567, p. 86. U. S. 347; Western Union Tel. Co. v.
4 Consult: Act of July 24, 1866, sub- Massachusetts, 125 U. S. 530; Eatter-
stantially re-enacted as Rev. Stat., §§ man u. Western Union Tel. Co., 127
5263-52G8; as to penalties: Act of June U. S. 411; Lelou p. u. Port of Mobile,
10, 1872, 17 Stat. 3CG; same: Rev. 127 U. S. 640; Western Union Tel.
Stat., § 5209; as to what are post Co. v. Alabama, 132 U. S. 472.
routes: Act of June 8, 1872, 17 Stat. ^ United States v. Araer. Bell Tele-
283 at p. 308, § 201 ; Uev. Stat., § 3964 ; phone Co. (1886), 29 Fed. Rep. 17.
Act of March 1, 1884, 23 Stat. 3; Pen-
526
PLACE OF CORPORATE MEETINGS. [1 Thouip. Coip. § 687.
CHAPTER XIY.
PLACE OF HOLDING CORPORATE MEETINGS AND OF DOING CORPO-
RATE ACTS.
Section Section
686. Scope of this chapter. 693. Enjoining a corporation from re-
687. Corporations anciently named as moving its assets out of the
of some place. state.
688. A corporation cannot have two 694. Constituent acts must be per-
domicils. formed within the state of
689. Resides where it exercises its creation.
functions. 695. Corporation when estopped from
690. Power to establish agencies at raising the question.
other places. 696. Validity of corporate elec-
691. Whether they lose their corpo- tion held outside the
rate character by migrating. state.
692. Distinction between citizenship 697. Meetings held at what place
and residence of a corporation. within the state.
§ 686. Scope of this Chapter. — In this chapter it is intended
to discuss the question of the residence of corporations^ and the
place of holding corporate meetings and of doing corporate
acts, except so far as the question relates to jurisdiction, to
taxation, and to the status of foreign corporations. These sub-
jects are reserved for separate treatment.
687. Corporations Anciently Named as of Some Place. —
It is said, by Sir James Grant, in his work on corporations, that
by the ancient law of England, every corporation must be cre-
ated as of some place. This expression was used in the con-
struction of ancient charters granted by the king, and meant
nothing more than that, unless the charter named a certain
place for the residence of the corporation, it was void.^ But
the ancient learning on this subject had reference to the name
and identity of the corporation, and not to any power or disabil-
ity to act in one place, and not in another. Thus, it is said in
Bacon's Abridgment, " A corporation must be named of such a
' Grant Corp. U, 53, 54; Case of Sutton's Hospital, 10 Coke Rep 29b.
527
1 Thomp. Corp. § 688.] tlace of corporate meetings.
place as will distinguish its situation from that of others." ^
The ancient rule that, unless a corporation is created and named
as of some place, its charter is void, is said to be no longer the
law in England.^ " Generally," says this author, " we find that
though formerly locality was held to be of tho essence of the
corporation,^ in times when corporations were almost entirely
municipal or intrusted with local government in some way, yet
of late a different doctrme has prevailed, at least in practice;
and it is not now necessary that a corporation unconnected with
the administration of justice, and not holding land should be
named of a place." *
§ 688. A Corporation Cannot have Two Domicils. — A cor-
poration, it is often said, can have no legal existence outside of
the bounds of the sovereignty by which it is created. It exists
only in contemplation of law and by force of law ; and where the
law, by virtue of which it exists, ceases to operate, it can have
no existence. It must dwell in the place of its creation.^ As it
can oidy exist, as a legal being, within the bounds of the sov-
ereignty in which it has been created, it follows that it cannot
have two domicils. And this principle has even been applied
where a corporation has been created and endowed with the fac-
ulties which it possesses by the cooperating legislation of
two or more States. In such a case, it is held, it cannot be one
and the same legal being in both States. And this is so, al-
though it is spoken of in the laws of the two States as one cor-
porate body.^
' Bac. Abr. tit. Corp. C. 2 ; citing or within three miles thereof, this was
10 Coke Rep, 296,- 32b; 2 Brownl. 244; held to establish such local limits as
And. 196; RoUe Abr. 513. were requisite upon such a charter.
2 Grant Corp. 14, 53, 54. London Tobacco Pipe Makers' Co. v.
3 Citing Button v. Wightinau, Cro. Woodroffe 7 Barn. & Cress. 838, 852.
Eliz. 338. ^ Bank of Augusta v. Earle, 13 Pet.
" Grant Corp. 53, 54. See Mayor & (U. S.) 519, 588; Ohio &c. R. Co. v.
Burgesses of Stafford U.Bolton, 1 Bos. Wheeler, 1 Black (U. S.), 286, 295;
& Pul. 39; London Tobacco Pipe Rece u. Newport News &c. Co., 32 W.
Maker's Company v. Woodroffe, 7 Va. 164; s. c. 9 S. E. Rep. 212.
Barn. & Cress. 838. In this last case it ^ Ante, §§ 47, 48, 319,320; Ohio
was held that, where the charter of &c. R. Co. v. Wheeler, 1 Black (U.
the corporation of a guild of trades- S.), 286, 297. " It is true," said
men fixed the company's place of Taney, C. J., in giving the judgment
meeting at London or Westminster, of the court in this case, " that a
528
residence: agencies. [1 Thomp. Corp. § 690.
§ 689. Resides where It Exercises its Functions. — ' ' The
residence of a corporation," says the Supreme Court of Illinois,
*' if it can be said to have a residence, is necessarily where it exer-
cises corporate functions. It dwells in the place where its busi-
ness is done. It is located where its franchises are exercised."
Accordingly, it was held that a railroad corporation chartered
by the State had a legal residence in any county in which it
operated its roads.* There is, therefore, no difficulty in holding
that, for the purposes of jurisdiction, procedure, litigation affect-
ing a corporation, 2 and the taxation of its personal property,^
it may be taken to reside where its chief office is.
§ 690. Power to Establish Agencies at Other Places. — A
very strict and possibly a narrow construction of corporate char-
ters has held that, in the absence of express authorization in such
charters, they have no power to establish agencies for the trans-
action of their business at any other place than that fixed by
their charters for their residences. Thus, a banking corporation
chartered to do business at Pontiac, in Michigan, could not es-
tablish an agency in Detroit. The court said: <' It would be
corporation by the name and style
of the plaintiff's appears to have
been chartered by the States of In-
diana and Ohio, clothed with the
same capacities and po;Yers, and in-
tended to accomplish the same objects,
and it is spoken of in the laws of the
States as one corporate body, exer-
cising the snme powers and fulfilling
the same duties in both States. Yet it
has no legal existence in either State,
except by the law of the State. And
neither State could confer on it a cor-
pornte existence in the other, nor add
to or diminish the powers to be there
exercised. It may, indeed, be com-
jH)sedof or represent, under the corpo-
rate name, the same natural persons.
But tiie legal entity or person, which
exists by force of law, can have no ex-
istence beyond the limits of the State
or sovereignty, which brings it into
life and endues it with its faculties
and powers. The President and Di-
rectors of the Ohio and Mississippi
Railroad Company is, therefore, a dis-
tinct and separate corporate body from
the corporate body of the same name
in Ohio, and they cannot be joined
in a suit as one and the same plaintiff,
or maintain a suit in that character,
against a citizen of Ohio or Indiana iu
a Circuit Court of the United States."
Oiiio and Mississippi Railroad Co. v.
Wheeler, I Black (U. S.), 286, 297,
298. To the same effect see Farnura
u. Blackstone Canal Co., 1 Sumu. (U.
S.) 46; Rece v. Newport News &c. Co.,
32 W. Va. 164.
* Bristol V. Chicago &c. R. Co., 15
111. 436; New Albany &c. R. Co. v.
Haskell, 11 Ind. 301.
2 Bristol V. Chicago &c. R. Co., 15
111. 436; Bank of North America v.
Chicago &c. R. Co., 82 111. 493.
3 Sangamon &c. R. Co. ■;;. County of
Morgan, 14 IU. 163.
34
529
1 Thonip. Corp. § 691,] plack of corporate meetings.
idle for the legislature to locate a bank, if the institution could
perambulate the State, and establish agencies whemver and
wherever it miijht think for its interest." * Somewhat analoj»;ous
is an early decision in New York, where it was held that the
trustees of an mcorporated college, situated in the village of Gen-
eva, in the western part of that State, had no power to establish
a medical school in the city of New York, or at any other place
than Geneva. 2 So where, by its charter, a college was located
at Spring Arbor in Michigan, and a subscription was started for
the purpose of erecting a college building therefor at Hillsdale^
and it did not appear, by the subscription or otherwise, that it
was desio;ned as an inducement to the college to endeavor to ob-
tain legislative authority to remove to Hillsdale, it was held that
the subscription was void, as being made for a purpose not au-
thorized by law ; ^ — a good illustraaon of the doctrine that a cor-
poration has not general peraml)uhitory powers.
§ 691. Whether they Lose their Coi-porate Character by Mi-
grating-. — It follows from what has preceded, that a corporation
may have a permissive existence in a State or county other than
that which created it, by delegation or representation ; it may have
agents there, through whom it may make and take contracts,
carry on its business and sue and be sued. But where a corpo-
ration migrates to another sovereignty, transfers to such State
its personnel and the whole of its business, it has been held that
it does not carry its corporate attributes with it, but that it be-
comes, in the State to which it has migrated, nothing more than
a partnership, and its stockholders become liable as partners.*
The Supreme Court of New York took this view of the question,^
1 Atty.-General v. Oakland County upon contracts entered into by the
Bank, 1 Walker Ch. (Mich.) 90,97; corporation, in any State with citizens
People V. Oakland County Bank, 1 of that State, in like manner, and to
Dougl. (Mich.) 282, the same extent as upon contracts
2 People V. Trustees, 5 Wend. (N. entered into in Massachusetts with
Y.) 211. its citizens. Hutchins v. New En-
3 Underwood v. Waldron, 12 Mich, gland Coal Co., 4 Allen (Mass.), 580.
73. ^ Merrick v. Bniiuard, 38 Barl).
^ Taft V. Ward, 106 Mass. 58. The (N. Y.) 574, 583. Mullin, J., in laying
same court ha«, however, held that the down this doctrine, used the follow-
resident members of a corporation ing language: " If a corporation ere -
created in Massachusetts are liable ated in another State can transfer to
530
MIGRATION OF CORPORATIONS. [1 Thomp. Coi'p. § 691.
but its judgment was reversed by the Court of Appeals in a very
able opinion by Porter, J.'
this State the whole of its business
and transact the same here, under the
principles of comity above alluded to,
then, not only is our own legislature
rendered useless and unnecessary, at
least so far as the creation of corpo-
rations is concerned, but all the
States in the Union, and all the legis-
latures in Christendom, can let loose
upon us a multitude of these corpora-
tions, more destructive and pernicious
than the frogs and lice let loose on
the Egyptians."
1 Merrick v. Van Santvoord, 34 N.
Y. 208. The question substantially
■v^as whether a Connecticut corpora-
tion, by migrating to New York with
its principal office and its business,
performing no other acts in Connecti-
cut than the holding of its annual
meetings, had so far forfeited its cor-
porate character that its members
became liable in New York, as princi-
pals, for the torts of its servants. In
giving judgment upon this question
in the negative. Porter, J., said : " We
think the recognition, In our State, of
the rights hitherto conceded in our
courts to foreign corporations is
neither injurious to our interests,
repugnant to our policy, nor opposed
to the spirit of our legislation. Ours
is peculiarly a commercial country.
We have large inland lakes which
serve as State and national bounda-
ries. We have continental rivers
which unite the States they seem to
divide, and at their headwaters the
tributaries of two oceans interlock.
We have every variety of climate and
production. Our agricultural and min-
eral resources are almost boundless.
We have j,reat facilities for internal in-
tercourse, and favorable openings on
every side in the various departments
of human industry and enterprise. By
common consent, all these advantages
have been regarded as open to every
American citizen, though many of the
inland States are untouched by the
great natural highways of commerce.
In no other country has so much been
achieved by the association of capital
and labor, through coi'porate organiz-
ation. It has enabled the many whose
means were limited, to contribute to
the accomplishment and participate in
the benefit of great undertakings,
which were beyond the compass of
individual I'esources and enterprise.
It has taken, without let or hindrance,
the direction to which it was invited
by the general law of supply and de-
mand. The same enlightened policy
has prevailed in eveiy portion of the
country. All have welcomed labor
from abroad, and invited the free
investment of capital. Hitherto, cor-
porate enterprise has not been
trammeled by unfriendly legislation.
No jealousy of competition or rivalry
of adverse interest has been permitted
to convert State lines into barriers of
obstruction to the free course of gen-
eral commerce. Its avenues have
been open to all. In this country our
material interests are so interwoven
that the union of the States is due, in
its continuance, if not in its origin,
as much to commercial as to political
necessity. The citizens of each claim
a birthright in the advantages and
resources of all. They demand from
their local authorities such facilities
as the law-making powers can afford
in the employment of labor and capital.
They claim such corporate franchises
and immunities as may enable them
to compete on equal terms with the
citizens of other States. For these,
from the structure of our institutions,
they naturally look to their own gov-
ernment. They acknowledge a double
allegiance in their local and Federal
581
1 Thomp. Corp. § 093.] place of corporate meetings.
§ 692. Distinction between Citizenship and Residence of a
Corporation. — A distinction is sometimes taken between the
relations, which, by general consent,
carries with it a cori*elative community
of rights. They may live in an inland
State, but they are none the less citi-
zens of a maritime nation; and they
may lawfully organize companies at
home for traffic on ocean highways.
A corporate charter is in the nature of
a commission from the State to its
citizens, and their successors in inter-
est, whether at home or abroad.
Each government, in the exercise of
its own discretion, determines the
conditions of its grant. It is free to
impose or remit territorial restric-
tions. It cannot enlarge its own ju-
risdiction, but it can confer general
powers, to be exercised within its
bounds, or beyond tliem, wherever the
comity of nations is respected. For
the purposes of commerce, such a
commission is regarded, like a govern-
ment flag, as a symbol of allegiance
and authority; and it is entitled to
recognition abroad until it forfeits its
recognition at home. Under such
commissions, New York has sent
forth its citizens, from time to time,
with corporate franchises and im-
munities, to gather wealth from the
coal mines of Pennsylvania, the silver
mines of Mexico, and the gold mines
of California; to establish lines of
inland navigation on the Orinoco
and the Amazon; to plant forest
trees beyond the Mississippi; to fish
in the Northern and Southern Oceans;
to found Christian missions in Asia,
and to colonize freedmen on the coast
of Africa. In many of these cases the
franchises were, by the terms of the
charter, to be exercised in foreign
territory. In 1826, for instance,
Churchill C. Cambreling and others
were, by a law of New York, consti-
tuted a body corporate, under the
532
title of * The United States Mexican
Company,' organized ' for the purpose
of purchasing, leasing, and working
gold and silver mines in Mexico and
South America.' Laws 1826, p. 143.
In the act of 1827, incorporating * The
New York South American Steamboat
Association,' it was provided that the
annual elections should be held in
the city of New York, but there was
no requirement that any of the officers
should be residents ; and the company
was authorized, in terms, to navigate
its vessels ' upon any water or waters
not within the jurisdiction of New
York.' Laws 1827, p. 308. The
Panama Railroad Company was or-
ganized, under a charter from this
State, to construct and maintain a
railway ' across the Isthmus of Pana-
ma, in the republic of New Granada.'
The only act which the charter re-
quires to be done in this State is the
annual election of its officers; and,
on the theory maintained by the re-
spondents, every shareholder in that
company, wherever found, is individ-
ually liable for all the wrongs it
commits and all the debts it conti'acts.
Laws of 1849, p. 407. Other illustra-
tions of our legislative construction
of the rules of national comity will
be found in the acts incorporating the
' North Carolina Gold Mining Com-
pany,' the 'Orinoco Steam Naviga-
tion Company,' the ' Pacific Mail
Steamship Company,' the 'California
Inland Steamship Navigation Com-
pany,' the ' African Civilization Com-
pany,' and the ' American Forest-Tree
Propagation and Land Company.'
Laws 1828, p. 211; Laws 1847, p. 513;
Laws 1848, p. 396; Laws 1850, p. 627;
Laws 18G4, p. 758; Laws 1865, p.
360." Compare Smith «. Alvord, 63
Barb. CN.Y.),415.
ENJOINING KEMOVAL OF ASSETS. [1 Thouip. Corp. § 693.
citizenship and the residence of a corporation. Thus, it is said
that a corporation may have a i^esidence at any place where it exer-
cises its functions;^ but it can only be a citizen — so far as it
can be said to be a citizen, of the State by which it was created.
*' While the citizenship of a corporation would depend upon the
place of the law of its creation, its residence might manifestly,
upon the principle above stated, be in any State where it was,
by comity, permitted to exercise its franchises.^
§ 693. Enjoining a Coi'poration from Removing its Assets
out of the State. — Recurring to the doctrine that the assets of
a corporation are a trust fund primarily for its creditors and
secondarily for its stockholders,^ it seems not an unreasonable
conclusion that, where the circumstances warrant such interpo-
sition, its managing agents may be enjoined in equity from
removing its assets into a foreign jurisdiction. Where such an
injunction was granted, the court started with a presumption
against the right of the corporators to exercise their corporate
powers and franchises outside the State by which the corpora-
tion had been created, and proceeded on the principle that the
l)urden rested on them to show that, by the laws of the State
into which they proposed migrating, they were permitted to
maintain their corporate existence and to perform their corpo-
rate functions within that sovereignty. Said Allison, P. J.:
'* Conceding, therefore, that the use intended to be made by the
defendants of the property of the corporation is, in every re-
spect, just, as well as strictly legal, they stand convicted, by
their own confession, of an intention to remove it from the
jurisdiction which had undoubted control over it, and the cor-
poration which is represented by its trustees in this proceeding,
and when once beyond our reach, our power over it may be lost
forever." * This is analogous to the principles on which courts
of equity proceed in the control of trustees. Thus, if a trustee
becomes so situated that he cannot effectually execute the office,
as by becoming a permanent resident abroad, a court having
1 Bank of North America v. Chi- » Post, § 2841.
caso &c. R. Co., 82 111. 4!>3; Bristol v. * Matthews v. Trustees, 7 Phila.
Chicago &c. R. Co., 15 111. 436. (Pa.) 270.
^ Bank of North America v. Chicago
&c. R. Co., supra.
5.33
1 Thomp. Corp. § 003.] plach of couforate meetings.
jurisdiction over the trust will remove him and appoint a new
trustee in his stead. ^ It has been held that where a trustee in a
railway mortgage voluntarily removes to a foreign country and
becomes a resident thereof, this vacates his office and disables
him from performing its functions ; so that if, after such re-
moval, he attempts to prosecute a suit in a Federal court, the
State court having jurisdiction of the trust will enjoin him.^ On
the other hand, where the cestui que trust was prohibited by law
from coming into the State, the court having control of the
trust, on the trustee's own petition, discharged him, and ap-
pointed one living in the same State as the cestui quetrust.^ In
short, if the trustee absconds or otherwise places himself beyond
the reach of the court having control of the administration, this
will be ground for appointing a new trustee.* In like manner,
if the trustee is a corporation and has become subject to a
foreio-n power, this will be a good ground of removing it and .sub-
stituting another trustee.^ Accordingly, where the College of
Willicim and Mary in Virginia, originally chartered by the crown,
had become, in consequence of the revolution, subject to the
jurisdiction of a foreign power, to wit, the State of Virginia, it
was held by the Court of Chancery in England that a new scheme
must be laid before the court for the administration of a charity
which had been committed to that corporation.^ Regarding the
assets of a corporation as a trust fund, and its directors and
officers, and the legal entity called the corporation as well, as
trustees, for the beneficiaries in the trust, the foregoing decisions
indicate the grounds upon which the migration of a corporation
and the carrying of its assets into another jurisdiction may be
restrained. It ought to be said that such injunctions are unusuaU
1 1 Perry Trusts (Sd ed.), § 275; ^ Farmers' Loan & Trust Co. v.
O'Reilly v. Alderson, 8 Hare, 100; Re Hughes, 11 Huu (N. Y.), 130.
Ledwick, 8 Irish Eq. 561 ; Com. &c. v. ^ Ex parte Tuaao, 1 Bailey Eq.
Archbold, 17 Irish Eq. 187; Lill w. (S- C.) 395.
Neafie, 31 111. 101; Re Rignold Settle- ^ Millard v. Eyre, 2 Ves. Jr. 94;
ment, L. R. 7 (Ch.) 223; Maxwell u. Gale's Pet., R. M. Charlt. (Ga.) 109;
Finnie, 6 Coldw.(Tenn.) 434; Mennard Re Mais, 16 Jur., Part 1, 608.
V. Welf ord, 1 Smale & G. 426 ; Re Stew- » Atty.-General v. London, 3 Brown
art, 8 Week. Rep. 297; Re Harrison's (Ch.), 171.
Trusts, 22 L. J. (Ch.) 69; Dorsey v. ^ Ibid.
Thompson, 37 Md. 25; Ketchumw. Mo-
bile &c. R. Co., 2 Woods (U. S.), 532.
584
PLACE OF DOIXG COXSTITUENT ACTS. [1 TllOmp. Coi'p. § 694,
and that the case above cited, ^ is the only instance of the kind
which has come to the writer's notice.
§ 694. Constituent Acts must be Performed within State of
Creation. — It is undoubtedly true that, for the purposes of per-
forming constihient acts, that is, those acts which are necessary
to the organization and existence of the corporation itself, or to
its final dissolution, it only exists within the territory of the
jurisdiction which has created it; and this, we apprehend, is all
that remains of the meaning of the proposition, frequently
announced in general terms in the judicial decisions, that a cor-
poration exists only within the territory of the jurisdiction which
has created it.^ As the corporate faculty cannot accompany the
natural persons beyond the bounds of the sovereignty which
confers it, they cannot, it has been held, possess and exercise it
there, and any attempt to exercise such a faculty there, is
merely a usurpation of authority by persons destitute of it, and
acting without any legal capacity to act in the manner attempted.
It was accordingly held that all votes and proceedings of per-
sons professing to act in the capacity of corporators, when
assembled without the bounds of the sovereignty granting the
charter, are wholly void.^ The Maine court lay down the further
rule, that corporations duly existing within the State may act
and contract beyond its limits, by an agent or agents duly con-
stituted, but can neither exist nor contract, per se, without those
limits, except by the assistance of its officers or agents duly
elected or appointed within them.* In other words, while a cor-
poration cannot exercise its j)rimary franchises outside the sov-
ereignty by which it is created, yet it may exercise its secondary
franchises within the territory of another sovereign, if not for-
1 Matthews v. Trustees, 7 Phila. 3 Miller v. Ewer, 27 Me. 509,519;
(Pa.) 270. s. c. 46 Am. Dec. 619. The same doc-
2 Galveston R. Co. v. Cowdrey, 11 triue prevails with refereuce to the
Wall. (U. S.) 459, 476; Hilles v. powers of executors, administrators,
Parrish, 14 N. J. Eq. 380, 383; Bank guardians, assignees under bankrupt
of Augusta u. Earle, 13 Pet. (U.S.) and insolvent laws, and the like.
519,588; Runyani). Lessee of Factory, Story Connict Laws, §§ 405-417, 512;
18 Pet. (U. S.) 122, 129. See, how- Williams v. Storrs, G Johns. Ch. (N.
ever, Ohio &c. R. Co. v. McPherson, Y.) 3.->;$, 357.
35 Mo. 13, 26; Arms v. Conant,36 Vt. ^ Miller v. Ewer, supra.
750.
535
1 Thomp. Corp. § 695.] place of couronATE meetings.
bidden to do so by its own charter or by the l;ivv of that sover-
eign. Thus, a banking corporation ma}', if not forbidden by its
charter, make contracts in another State by the comity of such
State, which will be valid and enforcible.^ In accordance with
this view, it has been held by the Supreme Court of Connecticut,
that it is competent for the directors of a manufacturing corpo-
ration chartered by the State of Connecticut, to meet in the
State of New York and there appoint a secretary; and the secre-
tary so appointed was held to have been legally appointed. ^
§ 695. Corporation when Estopped from Raising the Ques-
tion. — In a later authoritative case, a new element has been in-
troduced into this subject, the element of estoppel. The board
of directors of a corporation created by the State of Texas, held
a meeting in the city of New York, at which a mortgage of the
property and franchises of the company was ordered to be exe-
cuted. In all other respects the mortgage was executed and re-
corded with the prescribed formalities; so that the question
came down to this : Can a corporation repudiate a mortgage given
to secure its bonds, held by bona fide holders, on the ground that
its directors authorized its execution by a resolution passed out-
side the State, the mortgage being in other respects executed
and recorded in due form of law. Can it take all the benefit of
such a transaction, unload the bonds on the business community,
and then repudiate its mortgage for such a cause ? It was held
that it could not. In giving the judgment of the court, Mr.
Justice Bradley used the following language: " No doubt it may
be true, in many cases, that the extra-territorial acts of directors
would be held void, as in the case cited from the 14th New Jersey
Chancery Reports, 383,^ where a set of directors of a New Jersey
corporation met in Philadelphia, against a positive prohibitory
statute of New Jersey, and improperly voted themselves certain
shares of stock. And other cases might be put where their acts
would be held void without a prohibitory statute ; and it is gen-
erally true that a corporation exists only within the territory of
' Lane v. Bank, 9 Heisk. (Tenn.) ^ Referring to Hilles v. Parrish, 14
419, N. J. Eq. 380.
2 McCall V. Byram Man. Co., 6
Conn. 428.
530
ELECTIONS OUTSIDE THE STATE. [1 Thoilip. Corp. § 696.
the jurisdiction that created it. But it is well settled that a cor-
poration may, by its agents, make contracts and transact busi-
ness in another territory, and may sue and be sued therein. It
may hold land in another territory, so long as the local authori-
ties do not object. And we see no reason why it should not be
estopped by the action of its directors in another territory, when
that action is the basis of negotiations by which third parties have
bona fide parted with their money and the company has received
the benefits of the transaction. A contrary doctrine would au-
thorize a company to take advantage of its own wrong, and would
seriously impair the negotiability and value of such securities.
Must a person, purchasing railroad bonds in Wall street or Wal-
nut street, first send to Illinois, California, or Texas, to see
whether the meeting of the directors which authorized the mort-
gage given to secure the bonds was held in a proper place ?
Whoever may, under supposable circumstances, raise an objec-
tion of this kind, it ought not to lie in the mouth of the company
to raise it. And, if the company are estopped, then those who
purchase the property of the company at an execution sale must
be estopped. It has frequently been held that such a purchaser
takes only the right, title, and interest which the debtor had,
subject to the equities which existed against the property in his
hands when the judgment was recovered." ^
§ 696. Validity of Corporate Elections lield Outside the
State. — It has been laid down by the Supreme Judicial Court of
Maine that the votes and proceedings of persons professing to
act in the capacity ot corporators and as a corporation, when
assembled without the bounds of the sovereignty granting the
charter, are wholly void? It is held by the same court that a
general clause in the charter of a corporation authorizing certain
persons to call the first meeting of the corporation at such time
and place as they think proper, does not authorize them to call
the meeting at a place without the limits of the State, and that
the oflScers elected at such a meeting are not even ofiicers de
1 Galveston Railroad y. Cowdrey, 46 Am. Dec. G19; Freeman v. Machias
11 Wall. (U. S.) 45!), 476. &c. Co., 88 Me. 345. But see Copp v.
2 Miller v. Ewer, 27 Me. 509; s. c. Lamb, 12 Me. 312, 314.
537
1 Thomp. Corp § 696] place of corporate meetings.
facto} In New Jersey, where there was a statute which pro-
vided that all corporations whose charters did not designate the
places of their meeting should hold their business meetings and
the meetings of their directors within the State, it was held that
a resolution of the board of directors of a corporation at a meet-
in*^ held in the city of Philadelphia, in Pennsylvania, whereby
certain transfers of stock were ayithorized, was void.^ The
same rule prevails in Texas ; and where the articles of associa-
tion of a corporation, created under the laws of Texas, author-
ized the corporation to transact its business at Paris, in France,
it was held that the corporation could not hold stockholders'
meetings outside of Texas, and that directors elected at a meet-
ino- held at Paris were not even directors de facto ^ and that their
acts were a nullity? On the contrary, the view taken in Colo-
rado is that the fact that the annual meeting of the stockholders
of a corporation created under the laws of that State, for the
election of directors, is held outside the State, cannot be raised
in a collateral proceeding, either by the corporation or by one
who has contracted with it as such, although such a meeting is
irreo-ular and illegal; * and this is in accordance with a principle
elsewhere explained.^ A corporation created by the concurrent
legislation of two States,^ receiving from each the same charter in
legal effect, has a legal domicile in each State, and may lawfully
hold its meetings and transact its corporate business in either
State? In some of the new States and territories, whose policy
it is to encourage the introduction of foreign capital, provisions
have been made by statute, allowing corporate meetings to be
held beyond the limits of the State or territory. Thus, the pro-
visions of the civil code of Dakota territory, relating to the
place of meeting of directors and stockholders of corporations,^
has been amended so as to permit such meetings to be held at
any place within or without the territory, where the corporation
appoints an agent within the territory upon whom service of
1 Miller V. Ewer, 27 Maine, 509; s. c. ^ Ante, § 518, et seq.
46 Am. Dec. 619. ^ Ante, §§ 47, 48, 319, et seq.
2 Hilles V. Parrish, 14 N. J. Eq. ' Covington &c. Bridge Co. v.
380_ Mayer, 31 Ohio St. 317.
3 Franco-Texan Land Co. •». Laigle, » Civ. Code Dak. Ter., § 412, sub-
59 Tex, 339. sec. 3.
4 Humphreys v. Mooney, 5 Col. 282.
.538
WHERE WITHIN THE STATE. [1 Thomp. Corp. § 697.
process may be made.^ And the statute of Colorado^ allows
meetings of directors to be held beyond the limits of the State,
if ptovision is made therefor in the certificate of incorporation.^
The statute of Minnesota * permits meetings to be held at any
place within or without the State.
§ 697. Meetings Held at what Place within the State. —
Where the by-laws of a corporation authorize the president to
call special meetings of the directors, upon giving notice of the
time and place thereof, and such place is not prescribed by the
by-laws, the president may call such meeting at a place other
than the principal place of business of the corporation.^ Where
the charter does not prescribe the place where the annual elec-
tions are to be held, the board of managers have the right to fix
the place, and the officers elected at the place so fixed will be at
least officers c^e/acifo, with power to hold their offices unless
ousted by quo warranto brought during the official terms of such
officers.^
1 Act March 11, 1887, L. 1887, c. St. 59. Mandamus refused to compel
36, p. 85. a corporation to keep its records at tlie
2 Gen. Stat. Colo., cliap. 19, §18. place wiiere its business of manufact-
3 See Humphreys V, Mooney, 5 Col. uring was done ; the evidence showing
282. that the booiis had been correctly Ivept,
4 Eev. Stat. Minn. ("1881), p. 449, and that the petitioner had been fur-
§ 404. nished with all the information from
s Corbett v. Woodward, 6 Sawyer, such books which he required : Pratt
(U. S.), 403. V. Meriden Cutlery Co., 35 Conn. 36.
6 Commonwealth v. Smith, 45 Pa.
539
1 Thomp. Corp. § 700.] corporate elections.
CHAPTER XY.
COKPORATE ELECTIONS.
Art. I. Assembling the Meeting, §§700-722.
II. The Quorum, §§725-729.
III. Right to Vote, §§730-743.
IV. Conduct of the Election, §§745-758.
V. Right to the Office: Contesting the Election, §§761-794.
Article I. Assembling the Meeting.
702.
703.
Section
700. Mandamus to compel the holding
of a corporate election.
701. Time of holding corporate elec-
tions.
Statutory provisions as to time of
holding meeting.
Statutory provisions as to place
of holding corporate meetings.
704. Who may call the meeting.
705. Statutory provisions as to who
may call.
706. Necessity of having meeting duly
assembled.
Corporate meetings lavalid unless
duly notified.
If the meeting is special all must
be summoned.
709. And in the statutory mode.
710. Requisites of the notice.
711. Statutory provisions as to man-
ner of giving notice, length of
time, etc.
707.
708.
of notice by appear-
of the foregoinc
Section
712. Waiver
auce.
713. Illustrations
rule.
714. Notice dispensed with by unani-
mous written consent.
715. When personal notice re-
quired.
716. Must be given for the statutory
time.
717. When notice must state objects
of meeting.
718. Meeting when confined to sub-
jects expressed in notice.
719. Illustrations.
720. Adjournment to a subsequent
day.
721. Statutes providing for adjourned
or special elections.
722. Statutes under which elections
fixed and regulated by by-
laws.
§ 700. Mandamus to Compel the Holding of a Corporate
Election. — A mandamus has been frequently granted by the
English Court of King's Bench, in the case of municipal corpora-
tions, to compel the corporate authorities to hold a corporate
540
ASSEMBLING THE MEETING. [1 ThoUip. Corp. § 700.
election.^ The English courts, it is well known, restrain the writ
of mandamus to the enforcement of rights of a public nature,
thouo-h in America the remedy has been much enlarged, and now
extends in many cases to compel the doing of acts of a iwivate
nature^ where the relator has no other remedy. The use of the
writ to redress injuries in private corporations is vindicated by
a decision of the Supreme Judicial Court of Massachusetts, where
it was held, on a learned review of the decisions, that the cir-
cumstance that a corporation is in the nature of a partnership,
as where it is merely a manufacturing company^ does not pre-
clude the use of the writ of mandamus in a proper case. This
holding is a distinct authority for the proposition, denied in
some of the English cases, that the use of mandamus in such
cases is not restricted to instances where public rights are in-
volved.^ On the other hand, the directors of a corporation, who
are in office, cannot dispute the right of a stockholder, holding a
majority of the stock, to have an election in accordance with the
by-laws, on the ground that he intends to use his legal rights for
purposes detrimental to the interests of the corporation, and
that the desired election is merely a step toward that end.^ If
1 In one case a mandamus was be first ousted was held not good, be-
granted to the mayor, bailiffs and bur- cause the intent of the statute was to
gesses of the corporation of Cam- give the corporation a rightful officer
bridge, to compel the holding of a as soon as might be; whereas this
corporate election. After the election pretense would waste the whole year,
had taken place, it was shown to be This decision, however, was made to
merely colorable and illusory, and had rest upon Its own peculiar circum-
f or the mere purpose of enabling the stances, — the court saying that it
mayor to hold over. The election " might be otherwise where there was
in question resulted in choosing as a probable election and room to
mayor an officer in the array, just doubt; and that tliese writs were dis-
gone to North America and without cretionary. Besides there was no
the least probability of returning till harm done; for it is not a peremptory
long after the year, which was the mandamus, and they may return ' that
term of the office, would be expired, there is a rightful officer.' " Case of
Rex V. Mayor of Cambridge, 4 Burr, the Borough of Boffiuy, 2 Strange,
2008. In another case a mandamus 1003.
was granted under a statute, 11 Geo. 2 American Railway -Frog Co. v.
I., c. 4, to compel the election of a Haven, 101 Mass. 398; s.c. 3 Am. Rep.
mayor, although there was a mayor 377.
de facto. The ol)jection that a de/ac<o s Camden &c. R. Co. v. Elkins, 37
officer (who appeared to l>e holding N. J. Eq. 273.
without a shadow of right), ought to
541
1 Thorap. Corp. § 701.] corporate elections.
the election is to fill a vacancy^ the officer elect holds for unex-
pired term of the officer, whose death, resignation or removal
created the vacancy, in the absence of a contrary provision in
the governing statute or by-laws.^ The board of directors can-
not enlarge the tenure of a ministerial officer of the corporation,
beyond that expressed in the governing statute. When, there-
fore, the charter of an association required a chief engineer to
be elected " annually" by the board of delegates, also elected
annually, and a board elected one for a term of five years, it
was held, that his tenure ended the election of another by the
succeeding board ; and this although such election did not take
place on the day prescribed in the charter therefor, but at a later
regular meetino-.^
§ 701. Time of Holding Corporate Elections. — Several de-
cisions are met with, on the question of the ti7ne at which corpo-
rate elections are to be held, but they mostly turn upon the
language of particular charters or statutes, and do not follow the
thread of any definite principle. On obvious grounds, it has
been held that where the charter provides for an annual election
of a board of managers, those in power cannot lengthen their
term of office by changing the date of the annual election from
May to November, and thus extend their official terms. ^ The
provision of a special charter requiring directors to be chosen at
the annual tneelings of the corporation, has been held directory
and not restrictive, so that its observance was not deemed neces-
sary to the validity of an election.^ It has been held that a
statute requiring the directors and treasurer of a corporation
to be chosen annually by the stockholders, at such time and
place as shall be provided by the by-laws of the company, is in-
applicable to the first choice of officers by persons associating
themselves together, and proceeding to create and constitute
themselves a body politic. The court reason that no by-laws can
be adopted by or for a corporation before the corporation itself
is created. When the associates first meet together, in pursu-
ance of their articles of association, and then commence the in-
1 People V. McKiuney, 41 Barb. (N. ^ Mattu v. Primrose, 23 Md. 482.
Y.) 51«. ^ Hughes ;;. Parker, 20 N. H. 58.
2 State V. Bait, 38 La. An. 955.
542
ASSEMBLING THE MEETING. [1 TllOmp. Coip. § 703.
itiatoiy steps towards constituting themselves a body politic and
corporate, they may and must determine the manner in which
all needful officers shall be elected. Having been duly organ-
ized, the association becomes a corporation, with all the powers
and privileges, and subject to all the duties, restrictions, and lia-
bilities, incident to that relation.^ Where a bank charter pro-
vided that directors may be chosen " at any time," and a
subseqent act provides that, if they shall not be chosen on a day
designated, the president and directors shall notify an election to
be held within thirty days thereafter, the latter is not a repeal of
the former, and does not prevent an election being had after the
thirty days.^ It has been held no ground for postponing the
election, that the treasurer of the commissioners appointed by the
statute for the organization of the corporation, according to a
course in vogue during the period of special charters,^ withholds
the funds which have been received from the control of the com-
missioners, although they have a right to them.* It has been
held that the inspectors of an election for directors have a dis-
cretion to Tieep open the polls beyond the hour limited by the
board from which they derive their authority.^ The New York
statute relative to the observance of Sunday does not apply to
the proceedings of business meetings of societies held on that
day. The holding of business meetings of a benevolent society,
transacting its business, on Sunday^ is not forbidden as illegal.^
§ 702. Statutory Provisions as to Time of Meeting. — Most of
the statutes pro\'ide that directors shall be elected annually.'^ Others
contain the same provision, with the qualification that the time and place
of the meeting shall be fixed by by-laws.^ Others establish the date,
provided the by-laws do not fix it.^ One statute relating to special
1 Boston &c. Manuf. Co. v, Moring, ^ Gen. Stat. Colo. 1883, chap. 19, §
15 Gray (Mass.), 211. 86; Deer. Cal. Code, part 4, § 302; 2
2 M'Neely v. Woodruff, 13 N. J. L. Sayle Tex. Stat,, art. 4125 (railroad
352. companies).
3 Ante, § 44. 8 (jen. Stat. Colo. 1883, chap. 19, §
* Ilardeuburghv. Fanners &c.Bank, 86; Comp. Stat. Neb. 1887, chap. 16,
3 N. J. Eq. C8. 80.
s Matter of Mohawk &c. K. Co., 19 ^ As in California, the first Tues-
Wend. (N. Y.) 135. day in June. Deer. Cal. Code, part
8 People V. Young Men's &c. Soc, 4, § 302.
G5 Barb. (N. Y.) 357.
543
1 Tliomp. Corp. § 703.] coupokate elections.
meetings for the election of directors where the regular annual meeting
has not been held, provides that if the day falls on Sunday or a legal
holiday, the election shall be held on the next secular day.i By the
statute of Nebraska, the annual meetings of the stockholders shall be
held on the first Monday of January in each year, at which meeting
directors shall be elected, and such other lawful business transacted as
they shall deem necessary.^ In some States the whole subject is re_
mitted to the by-laios, — &s, in Oregon, where, after providing for the
first meeting, the statute provides that by-laws shall prescribe the time
and manner of holding the future meetings. =^ So, in CaUfornia, direct-
ors of a railroad corporation may be elected at a meeting of stockhold-
ers, other than the annual meeting, as a majority of the fixed capital
stock may determine, or as the by-laws may provide. Notice to be
given as provided for notices of meetings, by another part of the
statute, to adopt by-laws."^
§ 703. Statutory Provisions as to Place of Holding: Corpo-
rate Elections.— On principles stated in a former chapter,^ it may be
stated, as a general rule, that corporate elections can only beheld witJiin
the State under whose laws the corporation is organized, unless there be
a statute of the State permitting it to be held elsewhere. Several stat-
utory directions are met with as to the place of holding such elections.
Such place is generally fixed at the principal place of business of the cor-
poration,*5 or at its principal office.' In other States, both the time and
place of holding such elections are to be estabhshed by the corporation
by by-laws. « As already seen ^ constitutional provisions exist in some
of the new States, authorizing the holding of corporate meetings outside
the State. By statute in Minnesota both stockholders' and directors'
meetings may be held outside the State. ^^ In Indiana the election of
directors is to be held at the place provided for in the charter unless
there has been a change in the place of business of the corporation, in
which case it is to be held at the place to which such change shall have
been made.^i By the statute of Kentucky elections for directors and
officers must be held within the State.^^ The same statute provides that
1 Rev. Stat. Wis. 1878, § 1762. » 1 Gen. Stat. Kan., § 1174; Sayle
2 Comp. Stat. Neb. 1887, chap. 16, Tex. Civ. Stat. 1888, art. 679; Ark.
§ 38. Dig. Stat. 1884, § 964.
3 Hill Laws Ore., § 2236. ■ ^ Ante, § 696.
* Deer. Code Cal., part 4, § 464. i" Rev. Stat. Minn. 1881, p. 449, §
5 Ante, § 696. 404.
6 2 Rev. Stat. Ind. 1888, § 3021. " Rev. Stat. Ind. 1888, § 3021 .
'' Deer. Cal. Code, part 4, § 319. ^ Gen. Stat. Ky. 1887, chap. 767, § 1.
544
ASSEMBLING THE MEETING. [1 TllOmp. Coi'p. § 704.
meetings held out of the State shall be void, with the exception of
meetings of the Cincinnati Southern Railroad. ^
§ 704. Who may Call the Meeting. — It is, in general, essen-
tial to the validity of acts done at a special or called meeting of
a corporation, that the call shall be made by the person or per-
sons appointed by the governing statute to call such meetings ; ^
though, under some conditions, acts done at a meeting called by
unauthorized persons may be regarded as valid until called in
question by the State. ^ According to one view, the call for an
original meeting of corporators to elect directors need not be
made by a formal order of those authorized to make the call ;
but it is sufficient if it be made by their direction.^ A stricter
view has resulted in the conclusion, under a statute,^ that where
the meeting is to be called by the board of directors, or by any
number of stockholders holding, together, at least one-tenth of
the capital stock, — a call made by the secretary, on the authority
of stockholders holding one-tenth of the capital, is invalid and all
proceedings thereunder illegal.® A similar strictness has pre-
vailed in New Hampshire, in respect of a call made under a
1 Ibid.
2 Reilly v. Oglebay, 25 W. Va. 36 ;
Bethany v. Sperry, 10 Conn. 200. In
New Hampshire, where a corporation
has no officer by whom a new meeting
can be called, its powers are suspended
or dormant, till it is reorganized under
a new charter, or by a meeting called
under the statutes, by a justice of the
peace. Goulding v. Clark, Si N. H.
148.
3 Where one of three persons named
as corporators in an act of the legis-
lature, incorporating thtra and their
"associates," called a meeting of the
" subscribers to the capital stock,"
to meet " for the purpose of organiz-
ing and e'ecting the necessary offi-
cers," and the fioo other corporators
did not consent to the call, but upon
being requested refu-ed to join there-
in, and the organization of the meeting
was otherwise legal, — it was held to
35
be a valid corporation against all per-
sons but the commonwealth and the
two persons named as corporators
who refused to join, although there
were no subscribers to the capital
stock before the act of incorporation.
Walworth v. Brackett, 98 Mass. 98.
After the requisite amount of stock
has been subscribed to authorize the
stockholders to elect directors, it is
not Indispensable to an election that
the notice for it should be given by
the persons named in the certificate
of incorporation. The validity of the
acts of the directors cannot be ques-
tioned collaterally, on the ground of
irregularity in eiviug the notice.
Chamberlain v. Painsville &c. 11. Co.,
15 Oh. St. 225.
^ Hardeuburgh v. Farmers &c.
Bank, 3 N. J. Eq. G8.
5 W. Va. Code, chap. 53, § 41.
6 Reilly v. Oglebay, 25 W. Va. 36.
545
1 Tlioinp. Corp. § 705.] corporate elections.
statute by Sk justice of the peace. The court hold that the statu-
tory power must be strictly complied witli, and accordiiig;ly that
the justice cannot make the call unless on such a petition of
proprietors as is prescribed by the statute; and, proceeding by
analogy to the view that in such cases the jurisdiction must
affirmatively appear, it is also held that the petition to the justice
must be shown to be signed by requisite number of proprietors.^
But, as the act devolved upon the justice is merely ministerial,
the fact that he is a stockliolder does not disable him from issu-
ing the warning for the meeting, or even presiding thereat. ^ A
simihir strictness prevails under New England statutes relating
to the calling and warning of town meetings. Authority to the
clerk to call and warn the annual meetings has been held not to
authorize him to call and warn special meetings, and hence the
acts and doings at a special meeting thus called are void.^ Nor
does authority to " warn" future meetings authorize the clerk
to " call" such meetings.^ While these conclusions arise under
statutes, it is not perceived why they are not equally applicable
in the case where the persons who shall make the call are desig-
nated by a valid by-law. Nevertheless, it has been held that a
by-law of an insurance company, which provides that a special
meeting shall be called by the president, or, in his absence, by
the secretary, on application made to them in writing, by ten
members, does not preclude the directors from calling special
meetings without such application.^
§ 705. Statutory Provisions as to Who may Call. — By statute
in Missouri, every meeting of the shareholders of a corporation must
be convened b}'^ its pi^esident and secretary.'' If the president and sec-
retary fail to call any meeting required by law or by the by-laws of the
corporation, any two shareholders may call such meeting, and appoint
inspectors, even though on a later day than prescribed by statute or by-
law.'^ By a statute of New York, if the directors named in the act of
association neglect or refuse to adopt a by-law fixing and regulating
1 Gouldin? v. Clark, 34 N. H. 148. ^ Stone v. School District, 8 Cush.
2 Ashuelot R. Co. v. Eliot, 57 N. H. (Mass.) 592.
397. s Citizens Ins. Co. v. Sortwell, 8
3 School District v. Atherton, 12 Allen (Mass.), 217.
Mete. (Mass.) 105. ^ Rev. Stat. Mo. 1889, § 2484.
' Ibid.
546
ASSEMBLING THE MEETING. [1 Thoilip. Coi'p. § 705.
annual elections, by reason of which neglect the directors hold over, the
stockholder may elect directors sixty days after the expu-ation of the
first year, after giving fifteen days' wi'itten notice to aU stockholders of
a meeting for that purpose at the principal office of the company (or, if
the use of such office be denied, at some designated place in the town or
city where the principal office is located). i In some of the States whose
statutes are modeled after the theories which were in vogue under special
charters,^ provision is made that the commissioners charged with the pro-
motion of the corporation shall convene a meeting of subscribers for the
purpose of electing directors or managers and of transacting other
business. 2 In the statutes of Ai-kansas there is a provision relating to rail-
roads similar to that found in the statutes of Illinois, to the effect that,
after the capital stock is subscribed the commissioners appointed to
receive the subscriptions shall appoint a time and place for a meeting of
stockholders to choose not less than five nor more than thii'teen dii'ectors.*
In the same State stockholders owning two- thirds of the stock on which aU
assessments are paid, may call a meeting of the corporation, by signing
a call therefor irith their proper names, stating the number of shares
held by each, and filing the same with the president or secretary of the
corporation, and pubUshiug the same in some newspaper in the county
of the principal office of the corporation, for three successive weeks prior
to holding the meeting, and by mailing a copy to each du'ector at his
usual place of abode. ^ In Indiana the fii'st meeting of aU corporations
shall, unless otherwise provided for, be called by a notice signed by
three or more members, setting forth the time, place, and purpose
of the meeting, which notice shall, at least ten days befoi-e the
meeting, be delivered to each member, or be pubfished in some
newspaper in the county where the corporation may be established ;
or, if there be no such newspaper, then in some newspaper in
the State nearest thereto.^ By statute in Ohio, unless the regulations
of the corporation otherwise provide, an annual election for trustees
or directors shall be held on the first Monday of January of each
year. If trustees or directors are, for any cause, not elected at the
annual meeting, or other meeting called for that pui'pose, they may be
chosen at a members' or stockholders' meeting, at which all the mem-
bers or stockholders are present in person or by proxy ; or at a meet-
ing called by the trustees or directors, or any two members or stock-
holders, notice of which has been given in writing, to each stockholder,
1 3 Rev. Etat. N. Y. 1889 (Banks & ■" Ark. Dig. Stat. 1884, §5425.
Bros, ed.), §§ 1, 3, 4. ^ Starr & Curt. 111. Stat., p. 617, §22.
2 As to which see ante, § 44. e Kev. Stat. Ind, 1888, § 3004.
3 Starr & Curt. 111. Stat., p. GIO, § 3.
547
1 Thoinp. Corp. § 705.] coupoiiate elections.
or by publication in some newspaper printed in the county where the
corporation is situated, or has its priueii)al office, for ten days, and
trustees and directors shall continue in office until their successors are
elected and qualified. ^ In Michigan, the first meeting shall be called by
a twenty days' notice, signed by one or more members or persons
associating, setting forth the time, place and purpose of the meeting.
It shall be dehvered to members, or published in newspapers of the
county, or of a county adjacent to the county in which the corporation
is to be organized, or in Detroit, This notice may be dispensed
with in the articles of incorporation or in an enabling act.^ Meet-
ings for the annual election of directors are, in that State, provided
for by the by-laws established by the directors, and the directors call the
meeting. If they neglect to call it, it may be called by any number of
stockholders representing one-fourth of the stock. ^ In California, an
adjoui'ued election may be held on a day fixed by law or by the direct-
ors. If no such day is fixed, the holders of one-half of the votes may
call such an election in writing. Notice must be given by the secre-
tary, if there be one, but if there is none, or he refuses to act, it may
be served directly on the members, as provided by section 301 of the
Code of that State.* In Nebraska, promoters of railroad companies,
upon securing a subscription of one-tenth of the capital stock, may call
a meeting of stockholders to choose seven directors to hold office until
the annual election. ^ In Wisconsin, the directors, unless it is otherwise
dkected by law, or by the by-laws of the corporation, shall order
annual elections of officers of the company. If they fail to do so, the
corporation is not thereby dissolved, but a special meeting may be
called, by giving the same notice as for the annual meetings. If the
directors fail to call such special election within ten days after the time
for the annual election, it may be called by two or more stoclcholders,
at such time and place as they may appoint, by giving ten days' personal
notice in writing to each stockholder, or by two weeks' publication in a
newspaper nearest the location of such corporation.^ In Kentucky, if
the officer whose duty it is to call an election fails or refuses to do so,
he may be compelled by an order of court to call the same, if he reside
in the State. The court may so order, upon the application of any num-
ber of stockholders owning not less than ten shares in the corporation.'''
In Arkansas, two subscribers may call the first meeting, to be held at
such time and place as they may appoint, by giving notice in one or
1 Giauque Oh. Stat., § 3246. * Comp. Stat. Neb. 1887, chap. 16,
2 How. Mich. Stat., § 4862. § 80.
3 Ibid, § 3317. « Rev. Stat. Wis. 1878, § 1762.
* Deer. Code Cal., part 2, § 314. ' Gen. Stat. Ky. 1887, chap. 769.
548
ASSEMBLING THE MEETING. [1 TllOnip. Corp. § 706.
more newspapers iu the county in which the corporation is to be estab-
lished, or in an adjoining county, fifteen days prior to the meeting.i
In the same State general meetings of stockholders of railroad com-
panies must be held annually at the time and place appointed for the
election of directors. Special meetings may be called by the direct-
ors, or by any number of stockliolders owning one-third of the stock,
by giving thirty days' notice of the time and place in a newspaper in
each county thi'ough which the road runs, if it has a newspaper.^ In
Oregon, corporators, or any of them, after the stock is subscribed,
may call a meeting of stockholders to elect directors, stating the time
and place of such meeting, and it is lawful for the subscribers to elect
a board of dkectors as soon as one-half of the capital stock is sub-
scribed.^
§ 706. Necessity of having Meeting duly Assembled. — The
members of a corporation, public or private, can do no corpo-
rate act of a constituent character, such as must be done at a
general meeting of all the members or of a quorum of them, un-
less the meeting is duly assembled, in conformity with the law of
its organization.* The same rule applies in respect of corporate
business which is required to be done by the directors, and which can-
not be remitted to the mere ministerial agents of the corporation ; so
that the assent of a majority of the directors, at a meeting of the
board which has not been regularly called, as where notice of the
meeting has not been given, will not be sufficient to give validity
to an act as the act of the board .^ It has been well said that the
act of a majority of the corporators does not bind the minority,
if it has not been expressed in the form pointed out by law ; and
accordingly, that the act of a majority, expressed elsewhere than
at a meeting of the stockholders, is not binding on the corpora-
tion, — as where the assent of each one is given separately and
at different times. ^ The reason is that each member has the
1 Ark. Dig. Stat. 1884, § 963. ^ Dispatch Line v. Bellamy Man.
2 Ark. Dig. Stat. 1884, § 5429. Co., 12 N. H. 205, 224; s. c. 37 Am.
3 Hill An. Stat. Ore., § 3222. Dec. 203; Elliott v. Abbott, 12 N. H.
* Courts of justice cannot regard 549; s. c. 37 Am. Dec. 227, 230; Her-
the wishes of the majority of the rington v. Liston District Townsliip,
members of a corporation, unless ex- 47 Iowa, 11; post, § 3798.
pressed in a valid form, in conformity ^ pierce v. New Orleans Building
with the by-laws and charter. Ger- Co., 9 La. 397; s. c. 29 Am. Dec. 448.
man Ev. Cong. v. Pressler, 14 La. An.
799.
549
1 Thorap. Corp. § 707.] corporate elections.
rio'lit of consultation with the others, and that the minority-
have the right to be heard.^ In the line of authority
establishing the foregoing principles, no break has been dis-
covered ; though it should be added that an election, or other
proceedings had at a meeting irregularly assembled may be
valid if all attend and act or assent?
§ 707. Corporate Meetings Invalid unless duly Notified. —
This leads to the conclusion that corporate meetings are invalid,
and that the business transacted thereat is voidable, unless the
1 Herrington v. Listen District
Township, 47 la. 11.
2 Post, § 712. Tlie tliird section
of the New York statute relating
to the incorporation of religious
societies made it the duty of the
minister, if there were one, to no-
tify publicly the congregation, of the
time and place of holding an election.
The sixth section of the same statute
directed that the trustees first elected
should be divided into three classes,
so that one-third of the directors
might be elected annually. It made it
the duty of the trustees, or a majority
of them, at least one month before the
expiration of office of any of the
trustees, to notify the same to the
minister, or, in case of his death or
absence, to other officers of the church,
specifying the names of the trustees
whose terms would expire ; and it was
made the duty of such minister or
other officers, In the manner afore-
said, — which was held to mean in the
manner provided in the third section
already spoken of, — to notify the
members of the church of such vacan-
cies, and appoint the time and place
for the election of new trustees to fill
the same, which election was to be
held at least six days before such va-
cancies should happen; and all such
subsequent elections were directed to
be held and conducted by the same
pers' ns, and in the manner before
directed. It was held that the provis-
550
ion of the sixth section, requiring the
trustees to notify the minister of the
expiration of office of any of the
trustees, at least a month before such
expiration, was directory merely; and
accordingly, that an election of trust-
ees was not necessarily void because
such notice was given less than one
month prior to the expiration of the
offices of the trustees whose succes-
sors were to be elected, and did not
contain the names of such trustees,
and was not announced for two suc-
cessive Sabbaths; provided that the
election was fairly conducted, and that
all the members in fact had notice.
But if the omissions were fraudulently
made, or the election had thereby been
prejudiced, then it was conceded by
the court that the omission should in-
validate the election. " The object of
the notice," said Savage, C. J., " is
that the voters may be fully apprised
of the election, and may attend and
exercise their rights. There is no
pretense in this case that every voter
was not present, for they appear to
have come from a distance ; the time
was well understood, and had been
the same for many years. No evil re-
sulted from the omission, if there was
any; no fraud was imputed; and all
the parties attended and thereby ad-
mitted notice." People v. Peck, 11
Wend. (N. Y.) 604, Gil; s. c. 27 Am.
Dec. 104.
ASSEMBLING THE MEETING. [1 Thomp. Corp. § 708.
members have been duly notified of the meeting, in accordance
with the governing statute or by-laws/ except in the case of
stated meetings, at which every member is bound to take notice.
§ 708. If the Meeting is Special, All must be Summoned. —
Where a special meeting is called for the purpose of a corporate
election, all the members entitled to vote at such meeting must
be summoned, or the election will be void. This point has been
ruled again and again in the Eoglish King's Bench ; and it has
been held that where a single member was not summoned, by
reason of his supposed absence and the consequent inability to
summon him, the election was void.^
1 It was laid down in the Kings'
Bencli, in 1770, by Lord Mansfield and
two of his colleagues, '' that where
there is a usual method of notice, that
usual method cannot be dispensed with,
nor can the election be good without
complying with it, unless all the per-
sons who have a right to notice are
actually summoned and unanimously
agree." Rex v. May, 5 Burr. 2681.
2 The rules of law which are opera-
tive In this couutry in respect of
private corporations have been de-
rived from the principles of the com-
mon law of England applicable to the
municipal corporations of that coun-
try. Those principles have been sum-
marized by an eminent writer as fol-
lows: "Due notice of the time and
place of a corporate meeting is, by the
English law, essential to its validity,
or its power to do any act which shall
bind the corporation. Respecting
notice, the courts in England adopted
certain rules, which, since they form
the basis of much of the statute law
in this country upon the subject, and
have, in the main been followed by
our courts, and are founded on reason,
may advantageously be here men-
tioned. All corporators arc pre-
sumed to know of tlic days appointed
by the charter, statute, usage, or by-
laws, for the transaction of particuhir
business, and hence no notice of such
meeting for the transaction of such
business is necessary, or for the trans-
action of the mere ordinary affairs of
the corporation on such days ; yet if
it is intended to proceed to any other
act of importance, a notice is neces-
sary, the same as at any other time."
Dill. Mun. Corp. (4th ed.), § 262.
Where the meeting is held upon a
stated day, appointed by the charter
or a by-law, no notice of the meeting is
required, unless the giving of notice
is prescribed. Ang. & A. Corp., §
488; People v. Pecli, II Wend. (N.
Y.) 604; Rex v. Hill, 4 Barn. & Cress.
441. So, if a particular day in the
year is appointed for the transaction
of business, a notice of the particular
business to be done is not required.
Ang. & A. Corp., § 488; Warner v.
Mower, 11 Vt. 385; Sampson v. Bow-
doinham &c. Corp., 36 Me. 78; Peo-
ple V. Batchelor, 22 N. Y. 128, Nor is
itraatirial in what manner the stated
meetings of the corporation have been
fixed; if they are in fact regularly
held on stated days tliat is sufficient.
Atlantic Mutual Fire Ins. Co. v. San-
ders, 36 N. II. 252.
3 Kynastou v. Mayor of Shrews-
bury, 2 Strange, 1051 ; Rex v. Liver-
pool, 2 Burr. 734; Rex v. Doncaster,
2 Burr. 714; Rex v. Hill, 4 Barn. & C.
551
1 Thorn p. Corp. § 709. J corporate elections.
§ 700. Aud in the Statutory Mode. — Where the time or
manner of giving notice is prescribed by statute, by the charter,
or by the by-laws of a corporation, it is necessary, in order to the
validity of the acts done at the meeting, that the notice should
be given, as thus prescribed.^ In like manner, where the statute
prescribes what the notice shall set forth, a compliance wiih this
requirement is considered necessary, to the legality of any vote at
the corporate meeting. ^ Applying this principle to private corpo-
rations, it is held that acts done at a corporate meeting, of which
no notice has been given in the manner prescribed by the charter
and by-laws, are void ; and that where no mode of giving notice
is prescribed by the charter or by-laws, personal notice must be
given to the stockholders.^ But the rule prescribed by the by-laws
of a corporation, as to the manner of calling meetings, is not nec-
441; Res v. Theodorick, 8 East, 543;
Rex V. May, 5 Burr. 2682; Rex v.
Grimes, 5 Burr. 2601; Musgrove v.
Nevisou, 1 Str. 584; s. c. 2 Ld.
Raym. 1359; Rex v. Mayor of
Shrewsbury, Cases temp. Hardw.
147; Smyth v. Darley, 2 H. L.
Cas- 789; Rex v. Langhom, 4 Ad. &
EI. 538; Rex v. Faversham, 8 T. R. 352,
per Lord Kenyon with reference to
point whether all must be notified in
case of special meeting: Com. v.
Guardians, 6 Serg. & R. (Pa.) 469, 475;
Loubat V. Leroy, 15 Abb. N. C. (N.
Y.) 14; s. c. 65 How. Pr. (N. Y.) 138.
Compare People v. Batchelor, 22 N.
Y. 128. It was decided in the House
of Lords, in 1849, that where certain
acts of a corporation are to be per-
formed at a special meeting of the
members of that corporation, all the
persons entitled to be present thereat
must be summoned, if they are within
a reasonable summoning distance;
and that the omission to summon any
one entitled to be summoned, renders
the act done at such meeting, in his
absence, invalid. Thus, the election
of a treasurer for the county of the
Citj' of Dublin was vested by statute
(Stat. 49 Geo. 3, c. 20) in the " Board
552
of Magistrates of the County of said
City," and wjis directed to take place
at the Sessions Court of the city, by
vote of the magistrates there present.
It was held by the Lords that the
Recorder of Dublin was a member of
that board; that he ought to have been
summoned to a meeting of the magis-
trates summoned for that election, and
that the omission to summon him
rendered the election which took
place in his absence invalid. Smyth
V. Darley, 2 H. L. Cas. 789. A finding
in a special verdict that a person en-
titled to be present at a meeting of the
corporate boily was not summoned,
and that he was at the time within
summoning distance, throws on the
party supporting the validity of the
acts done at such meeting, the onus of
showing sufficient cause for his not
being summoned. Ibid.
1 Hunt V. School District No. 20,
14 Vt. 300 (1842) ; s. c. 39 Am. Dec.
225; Stockholders v. Louisville &c. R.
Co., 12 Bush (Ky.), 62. Compare
Cogswells. Bullock, 13 Allen (Mass.),
90.
2 Ibid.
3 Stow V. Wyse, 7 Conn. 214; s. c.
18 Am. Dec. 99.
ASSEMBLING THE MEETING. [1 TllOmp., Corp. § 711.
essarily exchif^ive of every other mode. Accordingly, it was held
that, where the by-laws of an insurance company provided that a
special meeting should be called by i\iQ president ^ or in his absence
by the secretary, on application made to them in writing by ten
members, this did not preclude the directors from calling a special
meeting without such application.^ Where the charter of an in-
corporated company declares that the election of directors shall
be conducted according to the by-laws of the company, which fix
the time and place of election, and require notice to be given,
but do not specify the length of notice, and the mode of giving
it, notice must be given in these respects according to the gen-
eral statute law relating to corporations.^
§ 710. Requisites of the Notice. — The requisites of the no-
tice may be enumerated as follows : 1. It must be issued by one
who has authority to issue it.^ 2. It must state the time of the
meeting, unless there is a regular time fixed in the charter or
by-laws, of which every member is presumed to have notice.*
3. The place where the meeting is to be held, unless the place
is settled and established by the charter or by-laws.^ 4. The
business to be transacted thereat.^
§ 711. Statutory Provisions as to Manner of Giving Notice,
Lengtli of Time, etc. — In many of the States provision is made by
statute for the giving of the notice in some newspaper for a stated length
of time. Thus, in Missouri, notice may be given in a daily or weekly
newspaper published in the place or county of the corporation, or by
written notice served on each shareholder in person, setting forth the
place, time and object of the meeting.'^ In New York, a by-law regu-
lating the election of directors or officers of a corporation must be pub-
Ushed for at least two weeks in some newspaper in the county in which
1 Citizens Mutual Ins. Co v. Sort- 128; Atlantic Mat. Ins. Co. v. Sanders,
well, 8 Allen (Mass.), 217, 36 N. H. 252.
2 Matter of Long Island R. Co., 19 ^ Ante, §697; Ang. & A. Corp.,
Wend. (N. Y.) 37. § 49C.
3 Ante. § 704; Ang. & A. Corp., <• Sampson v. Bowdoinham &c.
§491; Evans v. Osgood, 18 Maine, Corp., 3G Maine, 78; Warner w. Mower,
213; Stevens u. Eden Meeting House, 11 Vt. 385; Meriitt v. Farris, 22 111.
12 Vt. G88; Bethany v. Sperry, 10 303; Hunt v. School District, 14 Vt.
Conn. 200. 300; s. c. 39 Am. Dec. 225; Littler.
* Ante, § 701; Ang. &A. Corp., Merril, 10 Pick. (Mass.) 543.
§ 488; People v. Batchelor, 22 N. Y. ' Rev. Stat, Mo. 1889, § 2484.
553
1 Thomp. Corp. § 711.] corporate elections.
the election is held, at least thirty days before the election. i An elec-
tion for directors not held at the time designated by the act of incor-
poration, must be held within sixty days thereafter, of which due notice
must be given by the president and directors. ^ Other provisions of the
statutes of that State direct annual meetings to be held, at which direct-
ors and officers are elected, and prescribe the notice, time for which it
is to be given, the specification of the purpose of the meeting, — all of
which is to be fixed and governed by by-laws of the corporation, — but
with the reservation that such meetings shall be held at the same time
and place each year. ^ In Illinois, notice shall be given at least ten
days prior to the meeting, which notice shall be written or printed and
deposited in the post-office, properly addressed, stating the object, time
and place of the meeting.* Another statute of the same State, elsewhere
referred to, provides for the call of meetings by stockholders owning
two-thirds of the stock and provides that the secretary shall enter such
call on the records of the corporation, and that the records so made
shall \iQ prima facie evidence of the fact of pubhcation, maihng the no-
tice, name of the paper in which pubhshed, dates and place of publica-
tion, etc.^ The statute of Michigan provides for a notice of thirty days,
by publication in some newspaper published in the county where the
principal business of the corporation is carried on, or in some newspaper
published in the city of Detroit, where the object of the meeting is gen-
eral or public in its nature, or where its purpose is to authorize an ap-
plication to the legislature for a change of charter.^ In Michigan, there
must be thirty days' notice of annual or special meetings in some daily
paper printed in Detroit and in some newspaper printed in the county
where the principal office of the corporation is situated, such notice
stating the object of the meeting. Evidence of such notice is perpetu-
ated by affidavit.' In Minnesota, there must be twenty days' notice of
the first meeting of the corporation, setting forth the time, place and
purpose of the meeting. It must either be delivered to the members
personally, or be pubhshed in some newspaper of the county, or if there
is none, in some newspaper in the capital of the State. ^ In the same
State notice of a special meeting of a railroad company called to con-
sider the question of consolidation vfith another railroad must be given
for thirty days. It must state the object of the meeting and be ad-
dressed and mailed to each stockholder, or it must be given by
1 2 Rev. Stat. N. Y. 1882, p. 1535, * Starr & Curt. 111. Stat., p. 610, § 3.
§ 6. s Starr & Curt. III. Stat., p. 617, § 22.
2 2 Rev. Stat. N. Y. 1882, p. 1535, « How. Mich. Stat. 18S2, § 4902-3.
§ 6, 7 How. Mich. Stat. 1882, § 3317.
3 2 Rev. Stat. N. Y. 1882, p. 1639, « jjgy. gt^t. Minu. 1881, § 4005.
§6.
554
ASSEMBLING THE MEETING. [1 Thomp. Corp. § 711.
publication in a newspaper, or the holding of the meeting must be
authorized by the written consent of a majority of the stock. "^
In Texas, notice of a meeting to consider the question of increasing
the capital stock of a railroad company must be served personally, or
mailed to each member sixty days previously, and must be advertised
for sixty days in some newspaper in the county through which the rail-
road passes. 2 In Colorado, directors (except those named for the first
year) shall be annually elected by the stockholders, at such time and
place as shall be directed by the by-laws of the company, and public
notice of the time and place of the meeting shall be published ten days
previously in the newspaper nearest the place of the operations of the
company. ^ Another provision of the same statute as to annual meetings
of particular corporations is to the same effect, except that it omits the
clause as to notice, and makes the first Monday in January the time for
holding such meetings.^ In the same State there is a provision relating
to mining companies to the effect that assessments on the capital stock can
only be made by a vote of the stockholders, held at the principal office
thirty days or more after the date of the call for the meeting. The notice
•of the meeting is signed by the president or secretary ; must state the
object, time and place of the meeting, and be published in the county
where the operations of the company are carried on, once a week for
four consecutive weeks and in some newspaper of general circulation
where the principal office is located daily for thirty days, — the last
publication to be ten days before the meeting, — aud notice shall be
served personally on or mailed to each stockholder. ^ A provision of
the same statute relating to railroads requires special meetings of stock-
holders to be called by thirty days' personal or mailed notice,
stating the time and object of the meeting. ^ By a statute of Tennes-
see, relating to railroads, and applicable to the first election, it is pro-
vided that when a sufficient amount of stock is subscribed, a notice,
personal or by publication in a newspaper where the principal office is
to be kept, is to be given of the time and place for holding an election
of officers.''' By statute in Nebraska, if there is a failui*e to elect at the
regular annual meeting a special meeting subsequently held, after thirty
days' notice in a newspaper of general circulation in the county, may hold
the election.*^ A statute of Arkansas relating to the first meeting of rail-
road companies, provides for holding the meeting in one of tlie counties
through which the line passes, on publication of a notice in a newspaper
1 Kev. Stat, Minn. 1881, app. § GG6. ^ Ibid., § 86.
2 SayleTox. Stat. 1888, art. 4U(;. « jf^fd^^ § m.
"' Gen. Stat. Colo. 1883, chap. 19, ' Code Tcnn. 1884, § 1901.
§ 6. 8 Comp. Stat. Neb. 1887, chap. IG,
< Ibid., § 37. § 38.
555
1 Thomp. Corp. § 712,] coKroiiATE elections.
in each county through which it is to pass, for twenty days previously.^
Another statute of the same State authorizes corporations to fix the
time of holding their annual meetings and also their special meetings of
stockholders, but requires thirty days' notice of the time and place to
be given in a newspaper published in Little Rock.^ In Oregon, notice
of corporate meetings is to be given for thirty days by publication in
some weekly or daily newspaper, if published in the county where the
meeting is to be held, or having a general circulation therein. ^ By the
statute of Colorado, elections of directors shall be held annually at a
time and place fixed by the by-laws, and ten days' notice of the meet-
ing shall be given in a newspaper of the county of the principal oflSce,
or by personal notice.* By the statute of Kentucky, in case of railroad
and turnpike companies, the time and place of holding the election
shall be advertised by at least three insertions in a newspaper in some
county in which the road is situated.^
§ 712. Waiver of Notice by Appearance. — As in the case of
the appearance of a party defendant in a civil action, without
being regularly served with process, the appearance, for all the
purposes of the suit, is deemed to be a waiver of the necessity of
process and a submission to the jurisdiction of the court, so as to
preclude him from thereafter setting up the objection of want of
formal notice or service, — so, if all the members of a corpora-
tion appear at a corporate meeting, without being formally noti-
fied, and proceed without objection to the business of the meet-
ing, this will be a waiver by each member of the necessity of
notice, or of a want of formality in giving it.^ But if a single
person, having a right to be present and vote, is absent or re-
fuses his assent to the acts done at the meeting, its proceedings
will be illegal and void.^ This principle is qualified by an emi-
nent writer with the statement that " it is to be observed that the
foregoing rules are not applicable where they are in conflict with
the charter; and hence, if this imperatively requires a specm?
notice , it cannot be waived, even by the consent of all." ^
1 Ark. Dig. Stat. 1884, § 5425. Ind. 333; Jones v. Milton T. Co., 7 Id.
2 /6id., § 5430. 547. See also People v. Peck, 11
3 Hill Ann. Laws Ore., § 3226. Wend. (N. Y.) 604; s. c. 27 Am. Dec.
* Gen. Stat. Colo. 1883, chap. 19, 104.
§ 86. ' Ang. & A. Corp. 495; Rex v.
5 Gen. Stat. Ky. 1887, p. 767, § 1, Theodorick, 8 East, 543; Rex u. Gabo-
subsec. 2. rian, 11 East, 77.
fi Judah V. American &c. Ins. Co., 4 ^ 1 Dill. Mim. Corp. (4th ed.), § 264.
55(5
ASSEMBLING THE MEETING. [1 Thomp. Corp. § 713.
§ 713. Illustrations of the Foregoing Rule. — The defendants
were jirosecuted by an information in the nature of a quo warranto,
and, a verdict being found 8,gainst them, they moved for a new trial.
The only question was upon the validity of their election to some office
in the corporation, the report does not say what. The corporation was
originally a borough by prescription, but it afterwards obtained a
charter. The charter prescribed no particular place of election ; but
the usual place was at the guild hall ; and the usual notice was by the ring-
ing of a bell, which used to ring at 8 o'clock, at 9 o'clock, and then to
toll from 10 o'clock until the time of meeting. But the election now in
question was not made at the guild hall, but at an inn within the town ;
and was upon a by-day and without the usual notice; for no bell was
ever rung at all upon the occasion. But all the electors who were en-
titled to notice had personal notice of this meeting at the inn, and of the
business to be transacted at it ; and all the electors were present except
two, and were wianimous in the election. The two absent electors did
not live within reach of summons ; and therefore it was said they had
no right to notice, nor had anything to do in this matter. The court
seeing no reason for a new trial, discharged the rule. Lord Mansfield
said: "Nothing is more certain than that there cannot exist a vaUd
election upon a by-day and by surprise. Notice must be given to every
member who is within the fimits of summons. . . . Personal sum-
mons must allow reasonable time to the person summoned. But this is
only where no other method of summons or notice is established, as, for
instance, by a bell, a horn, etc. Here, by the usage, the notice must
be given by personal summons to those who are within the limits of the
borough. But that is only pari of the usual notice ; there must also be
a bell rung at eight and nine, and then to toll from ten to the time of
meeting. This cannot be dispensed with ; it is necessary to be com-
plied with, unless every single member be present, and consents to waive
it. The want of it vacates the election." i - - - - In another
case, " the corporation were all invited to a treat, when one of the alder-
men desired leave to resign, upon which his resignation was taken, and
the plaintiff at the same time chosen and sworn in. Upon a trial at bar
the jury found it a good election; but the court granted a new trial, it
being fraudulent, and it appearing that one of the members was not
there till after the election, and there was no summons to meet to do
such a corporate act, that the members might come prepared. The
meeting likewise was not in the moothall, but at a tavern, and it was a
plain surprise, and even all not present. " ^ _ - - _ The board of
' Rox t;. May, 5 Burr. 2G81. 584; s. c. 2 Ld. Raym. 1358, where
2 Musgrave v. Neviuson, 1 Strange, the report is fuller.
657
1 Thomp. Corp. § 715.] corporate elections.
aldermen of the city of New York appointed a day for the election of a
city officer. At a subsequent meeting of the board, the resolution appoint-
ing such day was rescinded, and it was delterminded to go at once into
the election. Some of the aldermen were absent at the former meeting,
and had no notice of the election. It was held that the election was
void.^
§ 714. Notice Dispensed with by Unanimous TVritten Con-
sent. — By statute in several of the States, it is provided that the writ-
ten assent of all the members, at a meeting illegally called, will validate
it.2 By the statute of Colorado a meeting of all the stockholders, how-
ever called, at which they all sign a written consent or record of such
meeting, is valid ; and they may act with the same power as at a regu-
lar meeting and their acts will bind the corporation. 3 By the statute of
Arkansas, the prescribed notice of the first meeting may be waived by
a writing signed by all the subscribers, which notice shall specify the
time and place of the meeting and be spread on the records thereof.*
By the statute of Oregon, if all the stockholders are present at a meet-
ing, however called, and in writing consent thereto, which consent shall
be filed with their secretary, then the prescribed notice is unnecessary
and the meeting is valid. ^
§ 715. When Personal Notice Required. — Where no mode
of giving notice is prescribed at all by the charter or by-laws, or
where no other mode than by personal notice is thus prescribed,
the rule is thui personal notice of the meeting must be given to
all the members, and that a vote passed at a meeting not so
notified is not binding.^ And where the meeting is of the board
of trustees of the corporation, in the absence of any provision in
the charter or by-laws prescribing the notice which shall be given,
each member of the board must have personal notice.^ It has
been held, on obvious grounds, that a vote of a corporation,
1 People V. Batchelor, 22 N. Y. 128 Bank, 9 R, I. 308, 333; Stow v. Wyse,
(Deuio, J., disseutiug.). 7 Conn. 214; s. c. 18 Am. Dec. 99;
2 Rev. Stat. Minn. 1881, § 4008; Savings Bank v. Davis, 8 Conn. 191.
Rev. Stat. Wis. 1878, § 1761. ' Harding v. Vandewater, 40 Cal.
3 Deer. Code Cal., part 4, § 317. 77; People v. Batchelor, 22 N. Y. 128;
4 Ark. Dig. Stat. 1884, § 963. State v. Ferguson, 31 N. J. L. 107,
6 Hill Laws Ore., § 3226. 124; Wiggin v. Freewill Baptist
«Wigginw. Free will Baptist Church, Church, 8 Met. (Mass.) 301; Rex. v.
in Lowell, 8 Mete. (Mass.) 301; Stev- Doncaster, 2 Burr. 738; Rex v. Liver-
ens V. Eden Meeting-House &c., 12 pool, Id. 723; Rex v. Theodorick, 8
Vt. C88; Lockwood v. Mechanic Nat. East, 543.
558
ASSEMBLING THE MEETING. [1 'ihomp. Corp. § 717.
which affects the liability of those of its members who are its
debtors, cannot be regarded as consented to by them, if they were
not present at the meeting at which the vote was passed, al-
though they had legal notice of the meeting.^
§ 716. Must be Given for the Statutory Time. — Where the
governing statute, or a valid by-law, prescribes the time which
shall elapse between the giving of the notice and the meeting,
the proceedings at the meeting will be voidable, unless the no-
tice is given for the prescribed time ; nor can a by-law reduce
the time prescribed by the charter.^
§ 717. When Notice Must State Objects of Meeting. — If a
particular day in each year is appointed for the transaction oiall
business, a notice of the particular business to be done is not re-
quired.^ It has been reasoned that, where the statutory pro-
vision in regard to annual meetings is general, such meetings are,
ex vi termini^ for the transaction of all business incident to the
corporate powers and interests.* Moreover, the notice of a
special meeting, when it is held for the transaction of ordinary
1 American Bank v. Baker, 4 Mete.
(Mass.) 1(54.
2 United States v. McKelden, Mac-
Arthur & Mackey (D. C), 162.
3 Ang. & A. Corp. § 488 ; Warner v.
Mower, 11 Vt. 385; Sampson v. Bow-
doiuliam &c. Corp., 36 Me. 78; People
V. Batchelor, 22 N. Y. 128. The Civil
Code of California, § 320, does not re-
quire that the notice of a special meet-
ing of the directors of a corporation
sliall specify the purpose of the meet-
ing. It is sufDcient that it states that
the meeting •will be held, naming the
time and place. In that State a mort-
gage was executed under a resolution
passed at a special meeting of the
directors. The resolution recited that
written notice of the meeting had been
served on each director. The pur-
pose of the meeting was not specifled
in the notices. Granger v. Original
Empire &c. Co., 59 Cal. 678; s. c. 9
Am. Corp. Cas. 27. It was held that
the meeting was regularly called, and
the mortgage valid.
* Warner v. Mower, 11 Vt. 385.
The by-laws of a corporation provided
that the business transacted once a
year at the annual meeting should be
the choice of officers; and also, in a
subsequent article, that "Jtofice for
meetings shall specify the business to
be transacted at said meetings." It
did not appear that it was stated in
the notice of any meeting that it was
called for the choice of officers. The
corporation objecting that the acts of
certain directors were not binding,
because they were chosen at a meet-
ing not notified to be held for that
purpose, it was held that the corpora*
tion could not be permitted, against
its creditors, to assert that it had no
directors capable of transacting busi-
ness. Sampson v. Bowdoinham &c.
Co., 36 Me. 78.
559
1 Thomp- Corp. § 718.] corporate elections.
business, need not state the object of the meeting.^ But where
the meeting is called for the purpose of transacting business of
special importance, not within the general routine of corporate
business, upon a day not expressly set apart for that particular
transaction, unless the notice of the meeting stated the nature of
such business, all acts done at the meeting will be illegal and
void. 2 Thus, the levying of an assessment upon the stockhold-
ers was held to be an act of such importance that it could not be
done at a special corporate meeting, unless the stockholders were
notified that such was the purpose of the meeting ; ^ and the same
was held in respect of the meeting of a religious corporation
called for the election of officers^ A notice of a second meeting,
made conditional upon the passage of certain resolutions to be
proposed to a prior meeting, has been held invalid, and not
made good by the fact that the shareholders have acquired in-
formation aliunde that such resolutions were passed at the first
meeting.^
§ 718. Meeting when Confined to Subjects Expressed in
Notice. — If the meeting is a special one, and if the objects of
assembling it are expressed in the notice, it is confined to these
objects, and the transaction of any other business will be void,
unless all the members are present and consent to the transaction
of such other business.^ This is a principle of such importance
that it has been embodied in the charters of many American
municipal corporations, in the form of a provision that whenever
the mayor calls a special meeting of the city council or municipal
assembly, he must '* specially state to them when assembled the
^ Savings Bank v. Davis, 8 Conn, meeting of shareholders, under the
191. English joint-stock companies' acts,
2 PotterCorp.,§323; Ang& A.Corp., has been held not invalidated by the
§489; Eex v. Liverpool, 2 Burr. 723; fact that the notice convening it did
Rex V. Doucaster, Id. 738; Rex v. not suggest any reason why the con-
Theodorick, 8 East, 543; People's Mu- tract could not be carried into eff ct
tual Ins. Co. v. Westcott, 14 Gray vrithout the sanction of a general
(Mass.), 440. meeting. Grant v. United Kingdom
3 Atlantic Delaine Co. v. Mason, 5 Switchback R. Co., 40 Ch. Div. 135.
R. I. 4G3. '^ Machell v. Nevinson, 2 Ld. Raym.
4 Smith V. Erb, 4 Gill (Md.), 437. 1355; People's Mut. Ins. Co. v. West-
s Alexander w. Simpson, 43 Ch. Div. cott, 14 Gray (Mass.), 440; ante, §
139. A resolution passed at a general 712.
5 GO
ASSEMBLING THE MEETING. [1 Thomp. Corp. § 719.
objects for which they have been convened, and their action shall
be confined to such objects." ^ With such a provision in force,
an ordinance passed at a meeting so called, having no reference
to anything alluded to in the mayor's message, is void.^ The
English municipal corporations act, as quoted by Judge Dillon
in his work on municipal corporations,^ embodies a similar
principle. The statutes of the New P^ngland States, governing
town meetings, quite generally prescribe that the matters to be
acted upon shall be specified or inserted in the notice or warn-
ing; and it is said by Judge Dillon that the courts of those
States concur in requiring a faithful observance of this statutory
provision ; and they deny the English doctrine, applied to indef-
inite corporate bodies, that if all are present, notice may he
waived by unanimous consent, and hold that a meeting not duly
notified, though attended by all the voters capable of attending,
is not a valid meeting, but its acts are void.*
§ 719. Illustrations. — In a corporation by a prescription, if the
right of electing common councilmenis in the common council, and they
have never in practice proceeded to an election without being sum-
moned for the purpose by the mayor, an election by some of tliem^ at a
corporate meeting for another purpose, is void, notwithstanding all the
common councilmen were present at the time, had notice of the election,
and might have concurred in it.^ _ _ _ _ A meeting of a mutual
fire insurance company, called ' ' for the purpose of making such altera-
tions in the by-laws of said company as may be deemed necessary, and
for the transaction of such other business as may come before them,"
cannot, after voting to increase the number of directors (which is not
limited by the by-laws), elect the additional directors ; and an assess-
1 Charter of St. Louis, art. 4, I 18. Salem, 6 Mete. (Mass.) 340; Bethany v.
2 St. Louis u. Withaus, 16 Mo. App. Sperry, 10 Cona. 200; Bloomtield v.
247; s. c. afnrraed, 90 Mo. 64G. Cliarter Oak Bank, 121 U. S. 121, 130;
3 1 Dill. Mun.Corp. (4thed.), § 265. Raud. i;. Wilder, 11 Cush. (Mass.)
* In support of these conclusions, 204; Stone v. School District, 8 Cush.
Judge Dillon cites the following (Mass.) 592; North wood v. Ilarring-
cases, all of which support his text: ton, 9 N. H. 369; Giles v. School Dis-
Hayward v. School District, 2 Cush. trict, 31 N. II. 304; Lander v. School
(Mass.) 419; Moor v. Ncwfield, 4 Me. District, 33 Me. 239; Jordan v. School
44; School District v. Atherton, 12 District, 33 Me. 164.
Mete. (Mass.) 105; Little v. Morrill, '^ Machell u. Nevinson, 2 Ld. Raym.
10 Pick. (Mass.) 543; Perry v. Dover, 1356. See a?jfe, § 713.
12 Pick. (Mass.) 206; Reynolds u. New
3G
561
1 Thomp. Corp. § 730.] corporate elections.
ment or call made at a meeting of the board of directors, at which only
the additional directors so chosen are present, is void.^
§ 720. Adjournment to a Subsequent Day. — Although the
members of the corporation have been convened to do certain
acts which are required to be done on a stated day and no other,
yet if the business cannot be completed upon that day, it is com-
petent for them to adjourn to a subsequent day, and no new
notice need be sent to the members; the general rule being that
a corporation may transact any business at an adjourned meet-
ing which they could have transacted at the original meeting,
without giving notice of such adjourned meeting. ^ Accordingly,
where the by-laws fixed slated days for the meeting of the di-
rectors, and provided that when less than a quorum but more
than three should be present, they might adjourn to any day
prior to the next regular meeting, it was held that the acts of a
majority of those present at a meeting so adjourned, were binding,
although the absentees had no special notice of the adjourned
meeting, other than such notice as they were chargeable with
from the by-laws.^ But this principle only applies where the
meeting has been duly convened, and at the time and place regu-
larly appointed, so that all the members have a fair opportunity
of being present, and hence acquire, by the fact of adjournment,
notice of the time and place of the adjourned meeting. Accord-
ingly, where the stockholders of a corporation were notified that
the annual meeting for the election of directors would be held
at a certain hour of the day fixed by the charter, and the cor-
poration was enjoined from holding an election on that day, in
consequence of which no meeting was held until several hours
after the time fixed in the notice, when a small number of stock-
holders, without the knowledge of the others, met, organized and
adjourned until the next day, at which time an election was held
by a minority of the stockholders, without notice to others, who
were in the vicinity for the purposes of the meeting, and might
have been readily notified, — it was held that such election was
1 People's Mut. Ins. Co. v. West- v. Law, 21 N. Y. 296; Scadding v.
cott, 14 Gray (Mass.), 440. Loraut, 3 H. L. Cas. 418.
2 Rex V. Carmarthen, 1 Maule & S. ^ Smith v. Law, 21 N. Y. 296. Com-
696; Warner V. Mower, 11 Vt. 385; pare People u. Batchelor, 22 N. Y. 128.
Schoff r. Bloomfleld, 8 Id. 472; Smith
562
ASSEMBLING THE MEETING. [1 Thomp. Corp. § 722.
invalid, whether the restraining order did or did not bind the
stockholders.^ Moreover, the power to adjourn resides in the
meeting, and not in the officials appointed by law to call the
meeting. When they have exercised their function of calling
the meeting, they become functus officio, and cannot adjourn it
to a future day.^
§ 721. Statutes Providing for Adjourned or Special Elec-
tions. — Some of the statutes provide that in case of the failure to hold
an election at the appointed time, the stockholders shall meet and hold
one in the manuer provided by the by-laws. ^ Some of the statutes pro-
vide that if a quorum does not assemble — usually a majority in value
of the stock, — the meeting may adjourn from day to day or from time
to time, a record of the adjournment and the reasons therefor being kept
in the journal.'* By the statute of Colorado, if the statutory quorum
does not attend, the meeting may adjourn for a period of not more than
sixty days.^
§ 722. Statutes under whicli Elections Fixed and Regulated
by By-Lavrs. — Many of the States commit the time, place and manner
of holding corporate elections to the regulations of by-laws. ^ Thus, by
statute in Cahfornia, a corporation may, in the absence of special pro-
visions, provide by by-laws for the time, place aud manner of calling
and conducting its meetings ; what shall constitute a quorum ; mode of
voting by proxy ; time of annual election of directors, and mode of
giving notice thereof.'^ In Texas, the by-laws shall prescribe the man-
ner and time of electing and the mode of filhng vacancies in the office
1 State V. Bonnell, 35 Ohio St. 10. tary of a private corporation to include
2 Accordingly, it has been held that a resolution in a communication to a
by the organization of the subscribers stocliholder who was represented by
for stock at such meeting, the power proxy at the meeting, — is held to be
of the commissioners appointed to no badge of fraud, nor ground of equit-
receive subscriptions ceases, and they able relief against the company,
cannot adjourn or postpone such meet- Thames v. Central City Ins. Co., 49
ing. And if such postponement be Ala. 577.
directed by the commissioners, but 3 2 Sayle Tex. Stat. 1888, art. 4129.
the subscribers nevertheless refuse to * Deer. Code Cal., part 4, § 312.
accede to the postponement, and pro- « Gen. Stat. Colo. 1883, chap. 19,
ceedwith the election of their ofTiccrs, § G.
the election will not be avoided, unless « Ark. Dig. Stat. 1884, § 5428 (rail-
itappears to the court that a postpone- roads after the first election); post,
meut was clearly necessary. Harden- §1050.
burg V. Farmers' &c. Bank, 3 N J. Eq. ' Deer. Code Cal., part 4, § 303.
68. The mere omission of the secre-
563
1 Thonip. Corp. § 725.] corporate elections.
of director, and such by-laws can onl}-- be changed at annual meetings
and by a majority vote of all the stock.^ In Minnesota, corporations
maj^, by by-laws, determine the manner of calling and conducting meet-
ings, the quorum, the number of shares that shall entitle a member to
one or more votes, and the mode of voting by proxy ; ^ and the statute
of Michigan is similar. ^ Another statute of the same State provides
that a corporation shall be empowered to elect, in such manner as it
deems proper, all necessary officers, and define their duties and obliga-
tions.* In Ohio corporations may, where no other provision is specially
made by statute, provide for the time, place and manner of calling and
conducting elections ; the number of stockholders constituting a quo-
rum ; the time of holding the annual election for trustees and directors,
and the mode and manner of gi\ing notice thereof ; and the manner of
electing all officers other than directors. ^
Article II. The Quorum.
Section Section
725. Quorum where body is composed 728. Election by a majority of those
of an indefinite number. who actually vote, though not
726. Where composed of definite num- a majority of the quorum.
ber. 729. Delegating power of selection to
727. Statutory provisons as to the a select body.
quorum.
§ 725. Quorum where Body is Composed of an Indefinite
Number. — In the United States, where the subject is not gov-
erned by a statute or by valid by-laws ® established by the cor-
poration, the analogy which applies in the case of elections in
municipal corporations and other public elections, is resorted to
for the purpose of determining what constitutes a quorum, where
the body entitled to elect consists of an indefinite number. In
such a case, if the meeting is regularly called, and if those en-
titled to participate are duly notified where notice is required —
but only on this condition, — those who actually assemble con-
stitute a quorum, and a majority of this quorum is competent to
J 2 Sayle Tex. Stat. 1888, art. 4127. ^ The power to establish by-laws,
2 Rev. Stat. Miun. 1881, §409. providing what shall be a quorum at
3 How. Mich. Stat. 1882, ch. 11)1, corporate meetings is conferred in
§ 4861. many States by statute, as hereafter
* Ibid. § 4860. seen. Post, § 965.
5 Giauque's Rev. Stat. Ohio, § 3252.
5G4
THE QUORUM. [1 Thomp. Corp. § 725.
elect directors, or to transact any other constituent business. ^
As the number of members in a joint-stock corporation is indef-
inite, — since, although the number of shares is definite, they
may be distributed among many or accumulated by a few, and
by this distribution or accumulation the number of members may
increase or decrease, — the rule applicable to other indefinite
bodies applies to elections in joint-stock corporations. If the
meeting is regularly assembled, a majority of those who assemble
may elect, unless there is a different regulation by statute or valid
by-law. 2 This rule is also applicable to religious societies, and
to all other indefinite bodies of the like character.^ There are
judicial expressions, ancient and modern, to the effect that a
majority of all the members, although in a meeting duly called,
is necessary to constitute a quorum. * And there are more gen-
eral expressions to the effect that the acts of a majority of a body
politic bind the whole corporation, when confined to its ordinary
transactions, and consistent with the original objects of its for-
mation.^ But these expressions must either be restrained to the
case of a corporation in wdiich the elective body is definite, as
where it consists of a municipal assembly or a board of trustees
or directors, a majority of whose members is necessary to a
quorum; or else to cases where the language has been influenced
by the terms of some statute ; or else they must be understood
as meaning no more than is meant by that indefinite American
expression, that " the majority shall rule," which means a ma-
jority of those who come out and vote. But it must be con-
stantly borne in mind that, whatever number may be necessary
to constitute a quorum, the mode of election, unless otherwise
fixed by statute, or by by-law, is that a majority of this quorum
is necessary to elect, and not a vnQve plurality .^ This principle
1 Craig w. First Presbyterian Churcli, * " Of common right there must be
88 Pa. St. 42; Everett v. Smith, 22 a majority of the whole present; and
Minn. 53; Field v. Field, 9 Wend. (N. the majority of them must make the
y.) 305. act." Dr. Harscot's Case, Comb. 202,
2 Brown v. Pacific Mail Steamship per Lord Holt, C. J. See also Pierce
Co., r> Bhitchf. (U. S.) 525; Columbia v. New Orleans Build. Co., 9 La. 397;
Bottom Co. V. Meier, 39 Mo. 53. s. c. 29 Am. Dec. 448.
3 Craig V. First Presbyterian Church, '^ Mowrey v. Indianapolis &c. K.
88 Pa. St. 42; Madison Avenue Baptist Co., 4 Biss. (U. S.) 78.
Church V. Baptist Church, 5 Rob. (N. ^ State v. Wilmington City Council,
Y.; 649. 3 Ilarr. (Del.) 294.
5(55
1 Tliomp. Corp. § 726. J corporate elections.
cures the effect of casting illegal votes to this extent, that al-
though IHegal votes may have been cast and legal votes rejected,
yet, if a majority of legal votes still appear for those who are
returned, their election is valid. ^
§ 726. Where Composed of a Definite ISTvimber. — In the
case of corporations or representative boards of corporations
composed of a definite number, the rule of the common law is
that a majority of this number must be present before any busi-
ness can be transacted, but that the votes of a majority of those
who are present will suffice to elect officers, or to carry any other
measure before the meeting.^ *' In all cases where an act is to
be done by a corporate body, or part of a corporate body,
and the number is definite, it has been held that a majority
of the whole number is necessary to constitute a legal
meeting; and that, if the actual number is reduced from
any cause, the number necessary to constitute a quorum re-
mains the same ; but that, at a legal meeting, a majority of
those present may act." ^ A corporation cannot be considered as
1 M'Neely w. Woodruff, 13 N. J. L.
352. To illustrate the text, take the
case where the by-laws of the corpo-
ration provide that the capital stock
shall consist of four hundred shares,
and that no business shall be trans-
acted at any meetini? of the stock-
holders unless a majority of the stock
is represented. In such a case a board
of directors elected at a meeting
where only 138 shares of the stock are
represented, are not legally elected,
and are not officers de facto, where
another board of directors, legally
elected at a previous meeting, and
holding over by virtue of a by-law,
claim the right to act. Ellsworth
Woolen Manuf. Co. v. Faunce, 79 Me.
440; 10 Atl. Rep. 250; 4 New Eng. Rep,
G79. There is one doubtful holding
that an election of directors of a cor-
poration by those holding less than one-
half of the shares, brought about by
the exclusion from voting of other
shareholders by an injunction issued
566
by a competent court, is legal. Brown
V. Pacific Mail Steamship Co., 5
Blatch. (U. S.) 525.
2 2 Kent Com. 293. That this is the
rule which governs meetings of direct-
ors, see post, § 3802, et seq.
3 Lockwood V. Mechanics' Nat.
Bank, 9 R. I. 308; 11 Am. Rep. 253,
269. See note to Ex parte Willcocks, 7
Cow. (N. Y.) 402, 410; s. c. 17 Am.
Dec. 525, 528; King v. Bellringer, 4
T. R. 810; King v. Miller, 6 Id.
268; Cahill v. Kalamazoo Ins. Co.,
2 Doug. (Mich.) 124, 137; s. c. 43 Am.
Dec. 457; Columbia &c. Co. v. Meier,
39 Mo. 53; Sargent v. Webster, 13
Mete. (Mass.) 497; Fosters. Mullau-
phy Planing Mill Co., 92 Mo. 79, 88.
Though an act of Parliament on au-
thorizing an act, names a quorum, it
is not ni.'cessary that the persons
mentioned in it should expressly con-
sent to it; but it is sufficient if they
are present when it is done. The rule
in such cases is that where those
THE QUORUM. [1 Thomp. Corp. § 726.
composed of distinct, definite, integral parts, unless the number of
the members of each class is definite ; but where it is so composed,
a majority of the members of each class is necessary to constitute
a corporate meeting or assembly.^ The quorum required by the
principles of the common law, or by the governing statute or by-
law, must not only be present at the commencement of the meet-
ing, but it must'he present when the act is done, the validity of
which is called in question. When, therefore, the governing
statute positively requires that a certain number of persons
shall be present at the consummation of an act, the act is not
valid, though it be begun while all are present, if one of the per-
sons depart, though wrongfully, before it is consummated.^ In
determining whether there is a quorum, all the members are en-
titled to be counted, whether they are candidates for the office
to be voted for or not. While no direct judicial authority is
found upon this question, yet such is known to be the universal
practice. Besides, it appears to be a matter of common right ;
might be present who ought to be
present, a majority can act and the
assent of the minority is presumed to
be included in the act of the majority:
" This must be understood like similar
clauses in commissions of Oyer and
Terminer, peace, etc., which require
the presence of the persons named
in the quorum; but it was never
thought, that their actual consent was
necessary to every act that was done,
and that if they dissented the majority
could not act; but their consent has
always been taken to be included in
the consent of the majority." Reg. v.
Bailifes of Ipswich, 2 Ld. Raym. 1232;
s. c. 2 Salk. 434; Holt, 443. Where a
power of election is vested in a given
number, of whom A. and B. are to be
two, the presence of A. and B. only is
requisite. The election is valid al-
though they do not consent. Thus,
where the charter of a borough pro-
vided — " If it happen any of the said
capital burgesses to die or be re-
moved, then it shall be lawful for the
Ijailiffs, aldermen and capital bur-
gesses for the time being, or the major
part of them, Quorum unum ballivo-
rum et unum aldermannorum duos esse
volumus, to elect another," — it was
held that, although the presence of a
bailiff and alderman was necessary, in
order to the validity of such an elec-
tion, yet it need not appear that they
assented to the choice which was
made. If their assent was required,
this would probably make them all
electors, and take away the power of
election from the body of the capital
burgesses. Lord Parker, C. J., said:
"This is like the case of the city of
London, where the mayor and common
council have power to do acts ; and yet
the act of the majority of the common
council is good, though the mayor
dissents. In this case there is nothing
required but the presence of one bail-
iff and one alderman at every election,
and they have no negative voices."
Cotton V. Davies, 1 Strange, 53.
1 University of Maryland v. Will-
iams, 9 Gill and J. (Md.) 3C5.
2 Ex parte Rogers, 7 Cow. (N. Y.)
526, 630, n,
567
1 I'homp. Cor}). § 727.] corporate elections.
for no good reason, sentimental or otherwise, is perceived by
which a person holding a majority of the shares of a corporation
should not be counted in mailing up a quorum for an election,
since he has a clear right to vote his stock for himself if he sees
lit, and thereby make himself one of the managers of his own
property.^
§ 727. Statutory Provisions as to the Quorum. — The statutes
are provokingly silent upon the question what number of the members,
or what value of the shareholders, shall constitute a quorum to elect
directors, or transact other constituent business. By the statutes of
Illinois, the vote necessar}^ to carry certain propositions varies from a
mere majority ~ to two-thirds of the capital stock. ^ By the statute of
Michigan, a majority of the stock must be voted, either in person or by
proxy, at a special meeting, called in default of a regular meeting, for
the election of directors.* In Texas, the consent of tivo-lJiirds is requi-
site to carry a proposition to increase the capital stock; ^ and a vote of a
majority of the stock \s necessary to elect each member of the board. ^
By the Colorado statute, elections shall be held by the stockholders in
attendance, if a majority of the stock is represented.'^ By the same stat-
utes a vote of two-thirds of all the stock, given either in person or by
proxy, is necessaiy for the adoption of a resolution changing the name,
the place of business, the number of directors, the amount of capital or
consolidating with another company.^ By the statute of Nebraska,
the directors are chosen by ballot, by the perso7is who attend for that
purpose in person, or by lawful proxy. Each share entitles the owner
to one vote, and a plurality of the votes cast at the election is necessary
to a choice.^ By the Tennessee statute, directors are elected by a ma-
jority of the votes cast, each share having one vote.i" By the Tennessee
1 There is, however, a holding to ' See Starr & Curt. 111. Stat., p. 627,
the effect that an invalid election of a § 61.
member of a board of directors cannot ^ /^jfL, p. 625, § 52, and p. 630, § 72.
be ratified by the board, where the * How. Mich. Stat. 1882, § 3317.
member whose title is in controversy ^ Sayle Tex. Stat. 1888, art. 4146.
is necessary to constitute a quorum in « 2 Sayle Tex. Stat. 1888, art. 4126.
the ratifying board. People v. N. Y. '' Gen. Stat. Colo. 1883, chap. 19,
Infant Asylum, 43 Hun (N. Y.), 640, § 86.
mem.; 7 N. Y. St. Rep. 277. But it is » Ibid., § 112.
not perceived how the board could » Comp. Stat. Neb. 1887, chap. 16,
ratify an invalid election for one of § 80.
the number, any more than they could i" Code of Tenn. 1804, § 1706.
elect him in the first instance, and the
case so intimates.
568
THE QUORUM. [1 Thomp. Corp, § 728.
statute relating to railroad companies, the result of all elections is to
be determined by a majority of all the votes cast, each share to represent
one vote.i By the statute of Arkansas, a majority of the stocldiolders
present at a legal meeting, are capable of transacting business, and each
share entitles its holder to one vote.^ By the same statutes, majority of
value of the stock must be present at a special meeting assembled for
electing directors, or else the meeting must adjourn from day to day for
thi'ee days ; and if a majority does not then appear, the meeting must
be dissolved. 3 Another provision of the same statutes, relating to rail-
road companies, is that a majority, in person or by proxy, shall choose
directors by ballot, each stockholder having one vote for each share
of the stock which he has owned for thirty daj^s.* The statute of Mis-
souri provides that directors shall be notified, who have received a ma-
jority of the votes cast.^ It has been held, apparently with reference
to the provisions of the civil code of Louisiana, that the acts of stock-
holders at a corporate meeting, whereat only a minority of the stock is
represented, are void, and, it has been held, cannot be ratified by the
subsequent assent of the holders of a majority of the stock, if this con-
sent be given elsewhere than at a meeting of the stockholders.^
§ 728. Election by a Majority of those who Actually Vote,
though not a Majority of the Quorum. — Authority is found
lor the proposition that, where the meeting is duly convened
and a quorum is present, a majority of those who actually vote
is sufficient to a valid choice ; but it is apprehended that this can
be affirmed only in cases of municipal corporations, or in other
cases where the elective body is indefinite^ and where a quorum
consists of those who actually assembled at the proper place and
time, in pursuance of a valid notice.^ In such a case a quorum
is deemed to consist of those who vote, and it is by their votes that
they are counted, unless some other method is prescribed by the
governing statute or by-law. The doctrine of " visible quorum,"
established by a recent innovation in the House of Representa-
tives of the United States, does not apply. The propriety of
this ruling will be instantly perceived, if we consider the case
of a municipal election. It would be quite unheard of to prove,
for the purpose of overturning such an election, that a number
1 Ibid., § 1901. s Rev. Stat. Mo. 1889, § 2484.
2 Ark. Dig. Stat. 1884, § 969. « Pierce v. New Orleans Building
3 Ibid., § 5429. Co., 9 La. 397; s. c. 29 Am. Dec. 448.
* Ibid., § 5425. ' Ante, § 725.
569
1 Thomp. Corp. § 729.] corporate elections.
of citizens went to the polls, and then went away without voting,
and that, if this number were counted, it would appear that
there was no election by a majority of the quorum. Accord-
insrly, where a meeting for a corporate election was duly
assembled, and those entitled to vote were duly notified, and a
majority of those entitled to vote assembled at the time and
place appointed, it being a time and place at which the election
mio-ht be held agreeably to law, and the election was regularly
begun, and a majority of those present who were entitled to vote,
conceivins: that there was no vacancv in the office, protested
against any election being held, and did not vote, and the votes
of the remaining minority were cast in favor of a particular
candidate, — it was held that if the office voted for were bona
Ude vacant, the candidate thus receiving the votes of the minor-
ity was duly elected. The case stated was adjudged in the
Kinor's Bench in 1 760. Lord Mansfield saw no doubt in the case.
" Here," said he, " was an assembly duly summoned; one can-
didate was named; no other was named; the poll was taken;
they had no right to stop in the middle of the election ; the
mayor did not put any question for adjournment, nor was there
any. . . . The protesting electors had no way to stop the
election, when once entered upon, but by voting for some other
person than Seagrave [the person put in nomination] or at least
against him; whereas they only protested against any election at
that time. . . . Whenever electors are present, and don't vote
at all (as they have done here), they virtually acquiesce in the
election made by those who do.'' ^ Stockholders who, at a
meeting, do not vote when they might, are bound by the result. ^
§ 729. Delegating Power of Selection to a Select Body. —
In England there was a difference of opinion among the judges
whether the general body of an ancient borough could delegate
the power to elect burgesses, to a select body of the corporation.
The question was finally decided in the affirmative in the House
of Lords, on the ground that " so many by-laws of this descrip-
tion have been held to be good, that now it may be considered as
settled that such by-laws may be made by the body at large." ^
J Oldknovv v. Wainwright, 2 Burr, 2 state v. Chute, 34 Minn. 135.
1017, 1020, 1021. ^ Rexv. Westwood, 2 Dow. &C1. 21.
570
RIGHT TO VOTE. [1 Thomp. Corp. § 730.
Article III. Right to Vote.
Section Sectiox
730. Right to vote at such elections. 737. Validity of by-law which pro-
731. Execution, surviving partners, vides for voting by proxy.
trustees, assignees, etc. 738. Statutes conferring the right to
732. Right to vote in respect of shares Vote by proxy.
pledged or mortgaged. 739. Further of the right to vote by
733. Further of this subject. proxy.
734. Right to vote in respect of shares 740. Right to vote how affected by
held or owned by the corpo- by-laws.
ration itself. 741. Injunction to restrain fraudulent
735. Right of pledgor to proxy from or ultra vires voting.
pledgee. 742. Statutory provisions as to who
736. No right to vote by proxy at com- entitled to vote.
mon law. 743. Non-residents and aliens.
§ 730. Right to Vote at Such Elections. — Where a charter is
granted to certain persons, " their associates, successors and as-
signs," the grantees can legally elect directors without having
made any associates, successors or assigns.^ Ordinarily, the
right to vote rests in the member in whose name the shares stand
on the corporate books, although in fact he may have transferred
them to another.^ It has been ruled in one case that any trans-
fer of stock sufficient to pass the property is sufficient to entitle
the transferee to vote in the election of directors, unless some
specific mode of transfer is made necessary by statute or the by-
laws of the company.^ But, as hereafter seen, the governing
statutes in some cases, and valid by-laws in others, provide that
the shares shall be transferred only on the booksof the company.
In such a case, where the shares are not so transferred, although
there may have been a sale of thetn such as will pass the right of
property as between transferor and transferee, yet, as to the
company, all rights in respect of them stand as though no such
sale had taken place until there has been a transfer on its
books. An unregistered transfer indeed passes the equitable title,
as between the parties to the transaction, but a registration of
the transfer on the corporate books is necessary to pass the
1 Hughes V. Parker, 19 N. H. 181; v. Buffum, 9 R. 1. 513; s. c. 11 Am.
ante, ^4:3. Rep. 291; State v. Pettinelli, 10 Nev.
2 People V. Robinson, 64 Cal. 373; 141.
State V. Ferris, 42 Conn. 560; Hop pin » People v. Devin, 17 111. 84.
571
1 Thomp. Corp. § 731.] corporate elections.
legal title; and unless otherwise provided by the governing stat-
ute or by a valid by-law, the right to vote follows the legal,
and not the equitable title. ^
§ 731. Executors, Surviving Partners, Trustees, Assignees^
etc. — An executor may vote on stock standing on the corporate
books in the name of the testator, on exhibiting an exem-
plified copy of his testamentary letters;^ and so may an ad-
ministrator, and this without any formal transfer of the shares
to him on the books of the corporation.^ A. surviving partner
has the right, while the partnership business remains unset-
tled, to vote upon corporation stock standing in the name of
the firm, or which, though standing in the name of the de-
ceased partner, it is shown actually to be firm property.* In
like manner, one is entitled to vote in respect of stock stand-
ing in his name as the trustee of others; ^ and for equally good
reasons, where the trust is not disclosed on the company's
books.® Stock standing on the corporate books in the name
of A. B., with the addition of ^^ cashier" subjoined, cannot
be voted on a proxy given by his successor in office.'' It is not
necessary, to entitle an owner of corporate stock to vote at a
corporation election, that he should be the sole owner. ^ Where
stock in a corporation is owned by tivo persons jointly , and they
disagree as to the vote to be cast upon the shares, at an elec-
tion for trustees, the vote upon such stock may be rejected.^
1 It has beenheld that, the require- * Ex parte Baker, 6 Wend. (N. Y.)
ment in a statute enacted to prevent 509.
fraudulent elections by incorporated * Wilson v. Proprietors of Central
companies, which directs that a list Bridge, 9 R. I. 590.
of the stocl<holders entitled to vote, ' Re Mohawk &c. R. Co., 19 Wend.
with the shares held by each, shall be (N. Y.) 135.
made out ten days prior to the election, « Ervin u. Philadelphia &c. R. Co.
is directory only, and non-compliance (C. P. Phila.), 7 Rail. & Corp. L.J.
with it does not of itself make void 87.
the election. Downing v. Potts, 23 ' Re Pioneer Paper Co., 36 How.
N. J. L. 66, Pr. (N. Y.) Ill, That stockholders
2 Matter of Cape May &c. Nav. Co., who acquire their stock a year after a
51 N. J, L. 78; 16 Atl, Rep. 191. previous election have no right to
' Re North Shore Ferry Co., 63 vote upon it, where there has beea an
Barb. (N. Y.) 556, omission to hold an annual election as
* Allen V. Hill, 16 Cal. 113, required by statute: Vandenburg v.
bl'2
RIGHT TO VOTE. [1 Thomp. Corp. § 732.
The provisions of the bankrupt act of 1867, which vest the
property of a bankrupt in the assignee, and require the bank-
rupt, at the request of the assignee, to execute all necessary con-
veyances and transfers, do not take away the right of the
bankrupt to vote in respect of shares of stock still standing in
his name ; and where the bankrupt does so vote in respect of
such shares, together with the assignee, the other stockholders
have no such interest in the question, whether the strict right
to vote is in the bankrupt or in the assignee, as will enable them
to object thereto.^
§ 732. Right to Vote in Respect of Shares Pledged or
Mortgaged. — In the absence of a contrary rule in the govern-
ing statute or by-laws authorized thereby, the 2)ledgor of shares
which have been hypothecated is entitled to vote, unless the
pledgee has been made a shareholder as between himself and the
corporation, by having the shares transferred to him on the cor-
porate books. 2 And it has been held without qualification, that
" in a clear case of hypothecation the pledgor may vote. The
possession may continue with him, consistently with the nature
of the contract, and the stock remain in his name. Till en-
forced, and the title made absolute in the pledgee, and the name
changed on the books, he should be received to vote. It is a
question between him and the pledgee, with which the corpora-
tion have nothing to do,^ On the other hand, if the stock has
Broadway Underground &c. R. Co., 2 Scholfield v. Union Bank, 2
29 Hun. rN. Y.), 348. Right to repre- Crancla C. C, (U. S.) 115.
sentatiou in boards of directors, as 3 e^ parte Willcociis, 7 Cow. (N.
between stockholders of a parent bank y.) 402; s. c. 17 Am. Dec. 525, 528.
and stockholders of a branch bank: This case has been cited in subsequent
State V. Thompson, 27 Mo. 305. Num- cases, to the principle that a corpora-
ber of votes possessed by the Stale as tion has no concern with private
a stockholder in a particular railway agreements between holders of its
company: State y. New Orleans &c. R. stock and third persons. Matter of
Co., 20 La. An. 489. Case of siichdif- Long Ishuid R. Co., 19 Wend. ("N. Y.)
Acuity that the court could not dociile 44; Matter of Mohawk &c. R. Co., Id.
the number of vole.y possessed by the 140. It has also been cited to the
Slate, but remitted it to the legislature : principle that the pledgor of hypothe-
Commonwealth u. Bank of Penusylva- cated stock may vole tliereon. New
nia, SWatls & S. (Pa.) 173. Compare Yor^c &c. R. Co. v. Schuyler, 38 Barb.
Van Dyke v. Stout, 8 N. J. Eq. 333. (N. Y.) 642, per Ingraham, J.
1 State V. Ferris, 42 Conn. 560.
573
1 Thomp. Corp. § 732.] corporate elections.
been transferred on the books* of the corporation to one to whom
it has been delivered under a contract of pledge, he is, prima
faciey entitled to vote in respect of the shares, and after he has
voted, the corporate election will not be set aside because of his
having voted, although his vote determined the result. The
corporation is not bound to inquire into the circumstances under
which he holds as trustee, but if those circumstances are such
that the pledgor has a right to a re-transfer, he may enforce
that right in equity. ^ The general rule is that the right to vote
remains in the pledgor or mortgagor until the pledge or mort-
gage has been foreclosed; and while, as elsewhere seen,^ the
inspectors of the election cannot inquire into the equities upon
which the shares are held, or look behind what appears on the
face of the transfer books, — yet the courts can ; and if it ap-
pears to them that a pledgee of corporate stock has, without
authority from the pledgor, caused it to be registered on the com-
pany's books in his name as trustee, they will restrain him from
voting thereon.^ Nor need the pledgor, in order to maintain an
action to restrain such voting, show that his rights would thereby
be injuriously affected.*
1 Hoppin V. Buffum, 9 R. I. 513;
s. c. 11 Am. Rep. 291. See also Vowell
V. Thompson, 3 Cranch C. C. (U. S.)
428. To illustrate: M., the pledgee
of stock which stood on the books as
"M. Trustee," had repeatedly voted
in respect of the shares without ob-
jection, and voted them at an election
of directors under such circumstances
that his vote determined the result.
In quo warranto against the ofBcers
declared elected, it was held, (1) that
M. was entitled to vote, in the ab-
sence of any claim by the pledgors to
do so; (2) that after the election it
was too late for the pledgors to ask
the court to disturb the result. Hop-
pin V. Buffum, 9 R. I. 513; s. c. 11
Am. Rep. 291. The case might better
have been put upon the naked ground
that those in whose name the stock is
registered are the only ones entitled
to vote, and that if the register is not
574
correct it should be rectified prior to
the election. Compare State v.
Lehre, 7 Rich. L. (S. C.) 234, 256.
Scholfield V. Union Bank, 2 Cranch
0. C. 115.
2 Post, § 748.
3 McHenry v. Jewett, 26 Hun (N.
Y.), 453.
* Ibid. The owner of corporate
shares pledged them. The pledgee,
before the debt became due, caused a
transfer to be made on the corporate
books. It was held, that the pledgor
was entitled, notwithstanding, to vote
on the shares, and that a by-law limit-
ing the right of voting to stockhold-
ers, requiring transfers to be made on
the corporate books only, and a certi-
fied transcript as evidence of the right
to vote, did not affect the case. State
V. Smith, 15 Or. 98 (Lord, C. J., dis-
senting) .
RIGHT TO VOTE. [1 Thomp. Coip. § 733.
§ 733. Further of this Subject. — Statutes have been enacted
in some jurisdictions confirming this right. Thus, a recent
statute of Arizona provides that persons holding shares of stock
of incorporated companies as security for money loaned thereon,
or as security for other indebtedness, shall be prohibited from
voting at any election, general, or special, of such companies.^
It has been held that the pledgor and pledgee may arrange by
contract, as between themselves, which one shall vote in respect
of the shares. 2 But, on the contrary, it has been held that
where the right to vote at corporate elections is, by the govern-
ing statute, vested in the stockholders, one to whom shares of
the corporate stock has been by the corporation transferred in
trust, under a contract of pledge for a third person who has ad-
vanced money to the corporation, cannot vote at corporate elec-
tions for directors in respect of the shares so held in pledge,
although it is provided in the contract of pledge that he shall
have the right to do so. The reason is plain; the governing
statute having prescribed who shall vote at corporate elections,
it is not competent for the corporation to make a different rule, ■ —
otherwise a corporation could make for itself a new charter, or
re-create itself.^ And again, it has been held that where stock
is held under a written contract with the corporation, as security
for advances made by the holders of it to the corporation, it is
not competent to show by parol evidence that there was a verbal
understanding that the holders of it were to have the privilege of
votin"- in respect of the stock.* It has been held that, where the
legal title, and with it the right to vote, is in the pledgor, and the
shares stand on the books in the name of the pledgee, the pledgor
has a remedy in equity against the pledgee to compel him to re-
i Ariz. Act March 21, 1889; Acts from this principle, that the pledgee
1889 No. 50, p. 76; and see post, § . is a shareholder and liable to crcdit-
2 Ervin v. Philadelphia &c. R. Co. ors as such, the California decision
(C. P. Phila.),7Rail. & Corp. L. J. 87. cannot be quoted as an authority.
3 Brew-ter ■;;. II;irlley, 37 Cal. 15;
s. c. 99 Am. Dec. 237. This case is * Griswold v. Seligman, 72 Mo. 110.
cited in Griswold v. Seligraan, 72 Mo. Compare Union Savings Association
122, to the point that a corporation «. Seligman, 92 Mo. 635; Fisher v.
cannot be its own stockholder; but Seligman, 75 Mo. 13; Bray v. Selig-
in respect of the conclusion which the man, 75 Mo. 40; Ersliine v. Lowen-
Supreme Court of Missouri deduced stine, 82 Mo. 301.
575
1 Thomp. Corp. § 734.] couroRATE elections.
transfer the shares or else to give him a proxy to vote in respect
of them.^
§ 734. Right to Vote in Respect of Shares Held or Owned by
the Corporation Itself. — Corporations have, as hereafter seen,^
a qualified power to deal in their own shares,^ They may acquire
them from defaulting shareholders, by forfeiture or by sale to
foreclose their lien upon them,* — as in the case of banking cor-
porations that have a lien upon them for a general balance due.^
But stock thus owned or held by the corporation cannot be voted
at corporate elections,^ although it is held by a trustee in pledge,
to secure a debt under a contract which allows him to vote it.''
The reason rises to the dignity of a rule of public policy.
It will not be permitted to a company to procure stock which
the officers may wield for the purposes of an election. s
As the right to vote in respect of stock transferred in pledge
ordinarily remains in the pledgor,^ for stronger reasons it so re-
mains where the pledge has been made to the corporation itself.^"
1 Vowell V. Thompson, 3 Cranch C.
C. (U, S.) 428. The right of a pledgee
to vote is discussed in a learned note
and decisions on the subject collected
in 19 Am. & Eug. Corp. Cas. 533 n.
2 Post, § 2054, et seq.
3 Monsseaux v. Urquhart, 19 La.
An. 482.
* Post, § 2068.
5 Post, § 2320.
« McNeely v. Woodruff, 13 N. J.
L. 352; Ex parte Holmes, 5 Cow. (N.
Y.) 435. By statute in Missouri stock
held or hypothecated to the corpora-
tion cannot be voted. Rev. Stat. Mo.
1889, § 2487.
' So held under the California stat-
ute in Brewster v. Hartley, 37 Cal.
15; s. c. 99 Am. Dec. 237; Ex parte
Holmes, 5 Cow. (N.Y.)426; American
Eailway Frog Co. v. Haven, 101
Mass. 398; s. c. 3 Am. Rep. 377,381;
Union Savings Association v. Selig-
man, 92 Mo. 635. This rule does not
extend to a case where the stock is
held m trust for a stockholder. Ex
parte Barker, 6 Wend. (N. Y.) 509.
.576
8 Ex parte Holmes, 5 Cow. (N. Y.)
435. See also Ex parte Desdoity, 1
Wend. (N. Y.) 98; McNeely v. Wood-
ruff, 13 N. J. L. 352. An agreement
among stockholders of a railroad com-
pany, vesting in trustees the right to
vote the stock at all meetings of the
corporation, has been held void, as
contrary to public policy, and as sub-
stantially amounting to a repeal of
the Pennsylvania statute in regard to
the right to vote incident to the own-
ership of railroad stock. Vanderbilt
V. Bennett, 6 Pa. County Ct. 193.
9 Ante, § 732.
10 Where the question was whether
certain shares could be voted at a cor-
porate election, and it appeared that
there was a by-law of the corporation
providing that when a director was
indebted to the corporation, eighty-
five per cent of his stock should be
considered as hypothecated and held
as security, and not transferred till the
debt was paid ; and it appeared that
some 450 shares of such stock were
voted on at an election, the validity of
RIGHT TO VOTE. [1 Thomp. Corp. § 736.
The rule which restrains the corporation, through its officers,
from voting in respect of shares held by it, or in trust for it,
has been held, under particular circumstances, to apply where
the corporate funds were not used in the transactions by which
the shares were deposited with its officers.-'
§ 735. Right of Pledgor to Proxy from Pledgee. — It has
been decided that a pledgor of stock, which stands on the books
of the corporation in the name of the pledgee, may, by a suit in
equity, compel a transfer to him, or oblige the pledgee to give
him a proxy to vote.^ It has also been held that the mortgagor
of stock is, until foreclosure and sale, entitled to vote as a stock-
holder, and accordingly a decree has been passed requiring the
mortgagee to give to the mortgagor a power of attorney to vote
in respect of the stock until the foreclosure of the mortgage.^
§ 736. No Right to Vote by Proxy at Common Law. — At
the common law all voting at every election is required to be
■which was in controversy, in favor
of the successful ticket, by the per-
sons in whose names it stood, — it
was held that this could not be called
hypothecated stock; that hypotheca-
tion is conventional and implies the
power of rendering the subject avail-
able by way of sale, to satisfy the
debt on default of payment; and that
as the stock stood on the transfer
books in the names of the voters,
this fact was conclusive upon the in-
spectors of tlie right of the voters to
vote in respect of it. Ex parte Will-
cocks, 7 Cow. (N. Y.) 402; s. c. 17
Am. Dec. 525.
1 WoodrufE V. Dubuque &c. R.
Co., 20 Fed. Rep. 91. Where the
charter of an incorporated company
has fixed tlie qualification of voters,
by declaring that each share of stock
shall be entitled to one vote, which may
be cast by the stockholder in person
or by proxy, any vote or votes cast by
a party at any election of the corpora-
tion without the qualification named.
is null and void, and the election will
be declared and enforced without
counting such votes. The right of
voting conferred by the charter, is
not to be tested by the mere owner-
ship of stock, but the transfer of it
must be patent on the stock-book,
and where the stock of the company
stands on the books in the name of
an individual, as president, and has
not been transferred by him on the
books of the company, he has no right
to vote on it, or for it, at any election.
Nor can stock or shares standing on
the books of the company, in the
name of the corporation itself, be
voted for by one of its oflScers.
Monsseaux v. Urquhart, 19 La. An.
482.
2 Iloppin V. Buffura, 9 R. I. 513;
Vowell V. Thompson, 3 Cranch C. Ct.
428.
3 Vowell V. Thompson, 3 Cranch C.
C. 428. Compare Amhurst v. Dawling,
2 Vern. 401; McKenzie v. R binsou, 3
Atk. 659; Ivory v. Cox, Pr. Ch. 71.
577
1 Thomp. Corp. § 737.] corporate elections.
done i)i propria persona. The only exception to this rule has
been in the case of the peers of Enj^lund, who have been, by
license obtained from the king, allowed to make other lords of
parliament their proxies to vote for them in their absence.^ It
has never been doubted that, in all elections in municipal or
other public corporations, every vote must be personally given ; '"*
and, in the absence of a statute or valid by-law otherwise pro-
viding, the same rule applies in the case of elections in pri»rate
corporations, even in those having a joint-stock.^
§ 737. Validity of a By-law which Provides for Voting by
Proxy. — There is a difference of opinion among the American
courts, as to whether a by-law of a private corporation, which
authorizes shareholders to vote by proxy, is valid, in the absence
of an express statutory authorization for the passage of such a
by-law. Those courts which follow the analogy of the common
law hold that such a by-law is invalid.* But other courts have
taken the view that such a by-law is valid. ^ There are two
reasons in support of the rule which denies the right to vote
by proxy, aside from the analogy of the common law. The
first is founded in the policy of requiring the personal attend-
ance of the shareholders, in order that each may have the
benefit of personal consultations with the others. The other is
founded in the policy of preventing voting by fraudulent proxies.
M Bla. Com. 168; Ang. & A. Corp., Int. 20 Pitts. L. J. (n. s.)
§128. 378; 18 Atl. Kep. 990. Where the
2 2 Kent Com. 294. charter of a corporation authorized
3 Phillips V. Wickham, 1 Paige (N. subscribers to vote in person or by
Y.), 590. proxy for directors at the original or-
* Taylor v. Griswold, 14 N. J. gauization of the corporation, and em-
L.) 222; s. c 27 Am. Dec. 33; People powered the directors " to adopt such
V. Twaddell, 18 Hun (N. Y.), 427; by-laws, rules, and regulations . . .
Brown u. Com., 3 Grant Cas. (Pa.) 209. as maybe deemed expedient to the
A charter provision that " each per- well-being of the corporation;" and a
son being present at an election " shall supplement to the charter provided
be entitled to vote, means an actual that the supplement should not go into
and not a constructive presence. Ibid. effect " until approved by a majority
5 State U.Tudor, 5 Day (Conn.), of the stockholders present, or repre-
329; s. c. 5 Am. Dec. 162; Peoples. sented by proxy," — it was held that a
Crossley, 69 111. 195; Com, v. Det- by-law permitting voting by proxy was
wilier, 131 Pa. St. 614; s. c. 7 L. R. valid. Wilson v. Am. Academy of
A. 357; 47 Phila. Leg. Int. 144; 20 Music, 2 Pa. County Ct. 280.
578
RIGHT TO VOTE. [1 Thomp. Corp. § 738.
^Neither has proved sufficient, in the case of joint-stock cor-
porations, to maintain the rule which exchides the use of
proxies. A view has been taken which restrains the right to
vote by proxy to mere routine matters, and which denies it in
case of a vote for a fundamental change in the corporation, or
a surrender of its* charter.^
§ 738. Statutes conferring the Right to Vote hy Proxy. —
The division of judicial opinion stated in the preceding section has ceased
to be of much practical importance, in view of the fact of statutes exist-
ing in nearly all the States and territories providing that stockholders
in private corporations may, at all meetings therefor, vote either in per-
son or by proxy appointed in writing. 2 Some of these statutes impose
restrictions upon the right. Thus, in New York, the right is granted
"subject to the provisions of the act of incorporation." ^ Another
Btatute of the same State enacts that ' ' no member of any mutual fire
insurance company, organized under the laws of this State, shall be al-
lowed to vote by proxy for a director or directors of any such com-
pany." * " No share shall confer the right to vote which shall not have
been holden three calendar months previous to the day of the election, nor
unless it be holden by the person in whose name it appears, absolutely
and bona fide, in his own right or that of liis wife, or as executor or ad-
ministrator, trustee or guardian, or in the right of some corporation,
copartnership or society of which he or she may be a member, and not
in trust for any other person : every person voting except females, shall
do so in their own proper person and not by proxy: Provided, that this
pro\asion shall not prevent any guardian of minor children, or any bona
fide trustee who holds stock in a fiduciary capacity, from voting upon
1 Smith V. Smith, 3 Desau. (S. C.) § 806; Gen. Laws N. H. 1878, p. 556,
557. § 21 ; Kev. Stat. N. J. 1877, p. 181, § 21 ;
2 Rev. Stat. Ariz. (1887), § 300; Comp. Laws N. M. 1884, § 196; 3 Rev.
2 Civ. Code Cal. 1885, § 312; Gen. Stat. N. Y. (BanliS & Brothers' 8th
Stat. Col., § 242; Gen. Stat. Conn, ed.), p. 1730, § 6; 1 Rev. Stat. Ohio,
1888, § 1925; Lawsof Del., p. 376, § 2; § 3245; Hill's Laves Ore., § 8223; 1
Const. 111., art. 6, § 3; 2 Rev. Stat. Brightly's Purd. Dig. Pa. St., p. 342,
Ind. 1888, § 3002; Gen. Stat. Kan. § 28; Pub. Stat. R. I. 1882, p. 368, § 3;
1889, I 1185; Rev. Stat. Me. 1883, p. Code Tenn. 1884, § 1706; Rev. Laws
401, § 13; Rev. Code Md. 1878, p. 321; Vt. 1880, §3313; CodeVa. 1887, §1116;
§ 52; Pub. Stat. Mass. 1882, p. 565, 1 Rev. Stat. W. Va., p. 316, § 44.
§ 5; 1 How. Mich. Stat. 1882, § 48G1; 3 3 j^gy. gt^t. N. Y. (Banks & Bros.
Gen. Stat. Minn. p. 450, § 160; Rev. 8th ed.), p. 1730, § 6.
Code Miss. 1871, p. 530, §2406; 1 Rev. 1 2 Rev. Stat. N. Y. 1875, p. 668,
St^t. Mo. 1889, §2484; Gen. Stat. Nev., § 70.
579
1 Thomp. Corp. § 740.] corporate elections.
such stock at any election." ^ A statute of New Hampshix-e provides
that, except in cases of railway corporations, " no stockholder shall act
as proxy for any other stockholder, nor shall any person act as proxy
for more than one stockholder, or vote as proxy for shares exceeding
one-eighth of the whole capital stock. ^ No proxy shall confer the right
to vote at more than one meeting, which shall be named therein. ' ' ^
§ 739. Further of the Right to Vote hy Proxy. — If the
governing statute requires stock to be voted in the name stand-
ing on the transfer book, either in person or by proxy, a proxy
from such person must be produced, although he is the cashier
of the corporation, and a proxy from his successor in office will
not be sufficient.* A proxy may be revoked, even though given
for a valuable consideration, where it is about to be used for a
fraudulent purpose;^ and an injunction y^'iW lie to restrain the
voting by proxy, in fraud and in violation of the charter of the
corporation.^
§ 740. Right to Vote how Affected by By-laws. — As hereaf-
ter seen,^ by-laws have been authorized by statute in some States
which so so far as to reo-ulate the right to vote at cornorate elec-
tions ; but it is scarcely necessary to say that if the right to vote
by proxy is given by the charter, it cannot be restrained by any
by-laws which the corporation may enact, at least against the
dissent of the stockholder claiming the right. Neither can such
a right, when given by the charter or by statute, be limited by a
mere resolution, passed by the members at the meeting.^ When,
therefore, the charter provided that life members should be
entitled " to vote at all elections for officers thereof by proxy,"
it was held that a resolution that no proxy should be voted on at
any meeting of the society unless showing, within itself, that it
was specifically intended to be used at such meeting, was repug-
nant to the charter and void, as an attempt to limit the power
1 Bright. Purd. Dig. Pa. Stat., p. ^ Reed v. Bank of Newburgh, C
162, § 32. Paige (N. Y.), 337.
2 Gen. Laws N. II. (1878), p. 356, ^ Campbell v. Poultney, 6 Gill & J.
§ 21. (Md.) 94; s. c. 26 Am. Dec. 559.
3 Gen. Laws N. H. 1878, p. 356, ^ Post, §§1050, 1052.
§ 22. * Re Lighthall Man. Co., 47 Hun
4 Re Mohawk &c. R. Co., 19 VTend. (N. Y.), 258.
(N. Y.) 135.
580
RIGHT TO VOTE. [1 Tliomp. Coip. § 742.
given by the member to his proxy .^ A regulation of a corporation
that stockholders shall have one vote for each share held by them
up to ten shares, and fixing the proportion which his votes shall
bear to his shares above that number, is a reasonable regulation,
uniform in its operation, conflicts with no law, and is binding on
all the shareholders.^
§ 741. Injunction to Restrain Fraudulent or Ultra Vires
Voting. — An injunction will be granted to restrain the voting
of stock of a corporation in violation of its charter.' Such an
injunction was allowed, where it appeared that certain shares
were transferred without consideration to divers persons, and
that powers of attorney were taken back by the real owners, to
enable them to cast a greater number of votes than the charter
would allow to the single holder of the shares.^ The bill was
not faulty for not joining the corporation by name as a party,
and also the transferees of the shares, it having alleged that
they were unknown.^ But an injunction will not be granted in
one State to restrain ofiicers of a corporation from voting upon
proxies of the stockholders at an approaching meeting 2?i another
State, upon an allegation that the statutes thereof do not pro-
vide for voting by proxy .^ Nor will an injunction be granted
at the suit of one who is a stockholder in two corporations, to
enjoin the owner of a controlling interest in one of the corpora-
tions from voting at a stockholders' meeting therein, in favor of
the proposition that such corporation shall engage in a certain
business, on the ground that, engaging in such business would be
an illegal interference with the rights of the other corporation.'
§ 742. Statutory Provisions as to who Entitled to Vote. —
The statutes which speak upon the question almost universally pre-
scribe that shareholders in whose names shares are standing upon the
1 Matter of White V. N. Y. Agricul- (Md.) 94; Webb v. Ridgely, 38 Md.
tural Soc, 45 Hun, 580; s. c. 10 N. Y. 3G5; Busey v. Hooper, 35 Md. 27.
St. Rep. 594. * Campbell v. Poultney, supra.
2 Com. V. Detwiller, 131 Pa. St. 614; ^ Ibid.
s. c. 7 L. R. A. 357; 25 W. N. C. « Woodruff v. Dubuque & Sioux
329; 47 Piiila. Leg. Int. 144; 20 Pitts. City R. Co., 30 Fed. Rep. 91.
L. J. (n. s.) 378; 18 At). Rep. 990. "> Converse v. Hood. 149 Mass. 471;
3 Campbell v. Poultney, G Gill & J. s. c. 21 Northeast. Rep. 878.
581
1 Thomp. Corp. § 7i2.] corporate elections.
corporate books, are entitled to vote.^ In Colorado, corporate elections
are by ballot, each person being entitled to as many votes as he has
stock.- In the same State, no member of a hariking company is entitled
to vote, while his paper held by the bank or liabilities to it are due and
unpaid. 3 In Kentucky, each stockholder is entitled to vote only in pro-
portion to the amount paid on his subscribed stock. ^ In Oregon, each
stockholder present in person or by written proxy, shall have one vote
for each share subscribed by him ; but after the first meeting no vote can
be cast on unpaid stock. ^ In Wisconsin, in elections of directors by
railroad companies, each stockholder is entitled to a vote, in person or
by proxy, for every share of stock owned by him, for thirty c?a?/s preced-
ing the election. A majority of the stockholders may compel the pro-
duction of books and papers to determine the qualifications of members
and candidates.^ In Michigan, each stockholder is entitled to cast, in
person or by proxy, one vote on each share of stock owned or held by
him ten days before election and a majority of the votes cast are requi-
site to an election, or for the determination of any question voted
upon.''' In Wisconsin, every stockholder is entitled to one vote for each
share of his stock at stockholders' meetings, and on election of direct-
ors, and votes in person or by proxy (if so provided by company's by-
laws) ; and guardians, executors, etc., may vote shares held by them.^
In Missouri, if the right of a shareholder to vote is questioned, the in-
spectors should require the transfer books of the corporation as evi-
dence of the stock held in it, and stock that has stood on those books in
the name of a person for thirty days may be voted directly by such person,
or by his proxy. Executors, guardians, trustees and pledgors, may vote
upon stock held by them or in their name.^ In mining companies in
Colorado, corporate elections are by ballot, each shareholder casting a
number of votes equal to his number of shares, and a majority of votes
cast elects.^" In the same State, shareholders vote in person or by proxy,
each voter casting one vote for each share owned by him for the adoption
of a change of name, place of business, number of directors, amount
of capital stock, consoKdation with another company — two-thirds of all
the stock being necessary to such adoption. ^^ In California, each per-
son acting in person or by proxy, must be a member or bona fide stock-
1 3 Rev. Stat. N. Y. 1889 (Banks & ' How. Mich. Stat. 1882, § 3315.
Bros. 8th ed.), p. 1730, § 6. « Rev. Stat. Wis. 1878, § 1760.
2 Gen. Stat. Colo. 1883, chap. 19, » Rev. Stat. Mo. 1889, § 2494.
§ 6. 1" Gen. Stat. Colo. 1883, chap. 19,
^ Ibid., I, 37. § 86.
4 Gen. Stat. Ky. 1887, p. 7G9, § 2. »' Gen. Stat. Colo. 1883, ch. 19,
5 Hill Laws Ore., § 22.33. §§ H 1, 1 12.
6 Rev. Stat. Wis. 1878, § 1822.
582
EIGHT TO VOTE, [1 Thomp. Corp. § 743.
holder, having stock in his name, at least ten days before the election. ^
In Nebraska, after the first election, no person may vote on unpaid
shares, or upon shares on which installments are due.^ In Arkansas,
in railroad companies, a majority by ballot, in person or by proxy, shall
choose directors, and each stockholder shall give one vote for each share
of his stock which he has owned 30 days.-*
§ 743. Non-Residents and Aliens. — In Pennsylvania, a non-
resident stockholder may vote in respect of his shares, and, where
no other qualification for a director is prescribed by the govern-
ing statute or by-laws than ownership of stock, he may become
a director,* An executor, to whom letters of administration have
been granted at the testator's domicile in another State, is a
stockholder within the meaning of a statute of New Jersey ; ^
and on producing before the inspectors of a corporate election
an exemplified copy of his letters, he is entitled, by the princi-
ples of comity, to vote in respect of the stock standing on the
company's book in the name of his testator.^ An alien domi-
ciled and holding property in Pennsylvania can vote as a stock-
holder and serve as a director in corporations created by the
laws of that State. ^ But an alien stockholder cannot vote by
proxy where, by the terms of the act of incorporation, the right
so to vote is given to citizen stockholders.**
to'
1 Deer.CodeCal.,part2, §312. < Detwiller v. Com., 131 Pa. St. 6U;
2 Comp. Stat. Neb. 1887, chap. 16, s. c. 7 L. R. A. 357; 25 W. N. C.
§ 80. 329 ; 47 Phila. Leg. Int. 144 ; 20 Pitts.
3 Ark. Dig. Stat. 1884, § 5425. An L. J. (n. s.) 378.
executory agreement to sell and de- * Rev. Stat. N. J. 184, §39.
liver to a railroad corporation reor- ^ Re Cape May &c. Co. (N. J.), 16
ganized under Swan & S. (Ohio) Stat. Atl. Rep. 191.
127, bonds of the original corporation, ' Com. v. Hemingway, 131 Pa. St.
to be assumed by the new one, does 614; s. c. 7 L. R. A. 360; 25 W. N. C.
not, without the ratification of the di- 337; 18 Atl. Rep. 992.
rectors and stockholders, divest tlie * Re Barker, 6 Wend. (N. Y.)
holder's title, or his voting privilege, 509.
by virtue thereof. State v. McDaniel,
22 Ohio Stat. 354.
583
1 Thomp. Corp. § 745.] corporate elections.
Article IV. Conduct of the Election.
Section Section
745. Appointment of inspectors. 752. Votes for ineligible candidates
746. Statutory provisions as to the thrown away.
appointment of inspectors. 753, Cumulative voting.
747. Instances of an election void be- 754. Constitutional provisions as to
cause inspectors illegally cumulative voting,
appointed. 755. Statutory provisions as to cumu-
748. Their duties in conducting the lative voting.
election. 756. Judicial decisions on the sub-
749. Cannot pass upon the validity of jtct of cumulative voting.
proxies. 757. Certificate of election.
750. Irregular ballots. 758. Statutory provisions as to con-
751. The count. duct of elections.
§ 745. Appointment of Inspectors. — Statutes exist in many
States providing for the manner in which corporate elections
shall be conducted. W^here these exist, their provisions must
be carefully attended to. Where there are no such statutes, the
subject may undoubtedly be regulated by the corporation by
by-laws, the same not being unreasonable or contrary to law; ^
and many statutes, as already seen, remit the whole subject of
corporate elections to the regulation of by-laws. ^ Decisions
upon such statutes are occasionally met with. A statute of New
York relating to moneyed corporations requires the election of
three inspectors of election, by the persons entitled to vote for
directors, to act at the next election, any two of whom are com-
petent to act, and also authorizes the directors to supply vacan-
cies among the inspectors, caused by death, removal of residence,
failure to serve or to attend, etc.^ Under this statute it has been
held sufficient if two inspectors act, whether of the class origi-
nally elected or of substitutes lawfully appointed.* Another
statute of New York, relating to religious corporations, provides
that, on the day of the election of trustees, two of the elders or
church wardens shall be chosen to preside as inspectors of election,
and that, if there be no such officers, then two members of the
» Fost, §1050; Com. v. Detwiller, 2 ^„^e, §722; post, §§
131 Pa. St. 614; s. c. 7 L. R. A. 357', 3 2 Rev. Stat. N. Y. (Banks & Bros.
«. c. 25 W. N. C. 329; 47 Phila. Leg. 8th ed.), p. 1556, §§ 195, 196.
Int. 144; 20 Pitts. L. J. (n. s.)378; ^ Ke Excelsior Fire Ins. Co., Ifr
18 Atl. Rep. 990. Abb. Pr. (N. Y.) 8.
584
CONDUCT OF THE ELECTION. [1 Thoiup. Corp. § 746.
church, to be nominated by a majority present, shall preside at
such election. With this statute in force, it has been held that
inspectors appointed by the pastor, not being elders of the church,
at a meeting at which there were elders present who might be
appointed, was such a violation of the statute as rendered the
election of no validity.^ By a statute of Ohio^ the right to choose
inspectors of elections is vested in the stockholders, and not in
the directors. 3 But where, as in New York, the appointment is
vested in certain officers, and an emergency arises from the fact
that the offices are vacated whose officers are vested with the
power, it has been held competent for the corporators themselves
to exercise the power of election, and provide for the appoint-
ment of inspectors for that purpose.* Bwt i\iQ president of the
corporation has no power to assume the office of inspector, and
to pass upon the right of a member to vote in respect of a proxy,
unless tlie charter or by-laws give him such power, — though the
member, hj acquiescing , may estop himself from claiming that he
was thereby deprived of the right to vote.^ The fact that a
shareholder is a candidate for the office of director has been
held not to disqualify him from acting as an inspector at an
election.^ But when the inspectors who acted at a corporate
election were selected at a meeting at which only the president
of the corporation and a director were present, who appointed
themselves and another director such inspectors, and the full
board was composed of nine directors, it was held that the elec-
tion was void.'' An election, otherwise valid, will not be set
aside on the ground that the inspectors were not sivorn in the
form prescribed by the statute; ^ or because the oath, actually
administered to the inspectors, was not subscribed by them.''
§ 746. Statutory Provisions as to Appointment of In-
spectors. — By statute in Missouri, corporatious with ten or less resi-
i People V. Peck, 11 Wend. (N. Y.) •= Ex parte Willcocks, 7 Cow. (N.
604; s. c. 27 Am. Dec. 104; more fully Y.) 402; s. c. 17 Am. Dec. 525.
stated, post § 747. '' Ex parte Willcocks, 7 Cow. (N.
2 Rev. Stat. Ohio, § 324.W. Y.) 402; s. c. 17 Am. Dec. 625.
s State V. Merchant, 37 Ohio St. » Chenango &c. lus. Co., 19 Wend.
251. (N. Y.) 635.
* Matter of Wheeler, 2 Abb. Pr. (n. » Matter of Wheeler, 2 Abb. Pr. (N.
8.) (N. Y.) 361. s.) (N.Y.)361.
5 State V. Chute, 34 Minn. 135.
585
1 Thomp. Corp. § 747.] couporate elections.
dent stockholders, ina_y, by by-laioti, regulate the appointment, number
and qualifications of inspectors of corporate elections.^ By the statute
of Oregon, the president of the corporation is the inspector and certifies
who are elected as directors. ^ By the statute of Missouri, if the ob-
ject of a corporate meeting be to elect directors or to take the vote of
the stockholders on any proposition, the j^Tesident shall appoint not less
than two shareholders, who are not directors, as inspectors, who shall
receive and canvass the votes cast at the meeting and certify to him the
result.^ B}^ the statute of Nebraska, relating to the first election held
by railroad companies, the persons named in the certificate of incorpo-
ration, or such of them as shall be present, shall be inspectors of the
election.* By the statute of New York, at a special election called in
default of a regular election to elect directors, the stockholders shall
elect two or more inspectors of the election.^ By the statute of Oregon,
relating to the first meetings of the stockholders of any private corpora-
tion, the incorporators present at the meeting shall be inspectors of the
election, and shall certify who are elected directors.^ By the statute o^
Wisconsin, relating to elections for directors of railroad companies, the
inspectors shall be appointed in the mode pointed out by the by-laws ;''
and the directors are elected at the time, in the manner, and for the
term fixed by the by-laws.^ By a statute of Ohio, within 15 days be-
fore meeting for election of directors, or determining any question by
the stockholders, or by subscribers to stock, or stockholders and credit-
ors of corporation for organization, any one entitled to vote at said
meeting owning one-tenth interest in corporate stock may apply to a
court of common pleas, or if the court is not in session to any judge
thereof, or if the judge is absent or under disability to probate
court of county in which the meeting is to be held, for the appoint-
ment of inspectors of such election. But notice must be served on
corporation, and court may require newspaper publication.^ If court
deems such appointment proper, it shall appoint three disinterested per-
sons as inspectors, retaining the right to vacate one or all such appoint-
ments and supply them with others. If any inspector fails to come, his
vacancy may be supplied by the stockholders. ^° By a statute of Ar-
kansas, relating to the first election of directors of a railroad company,
the commissioners for opening books of subscription named in the articles
1 1 Rev. Stat. Mo. 1889, § 2484. « Hill Laws Ore., § 3223.
2 Hil! Laws Ore., § 3227. ' Rev. Stat. Wis. 1878, § 1822.
3 1 Rev. Stat. Mo. 1889, § 2484. « Ihid.
* Comp. Stat. Neb. 1887, chap. 16, » Rev. Stat. Ohio (Giauque"), §
§ 80. 3245a.
5 3 Rev. Stat. N. Y. 1889 (Banks & ^ Rev. Stat. (Giauque), § 32456.
Bros, ed.), p. 1726, § 3.
58(5
CONDUCT OF THE ELECTION. [1 Thomp. Corp. § 747.
of association shall be inspectors of the election. i By statute in New
York and Missouri, inspectors must take and subscribe the following
oath : " I do solemnly swear that I will execute the duties of inspector
of the election now to be held with strict impartiality and according to
the best of my ability." ^
§ 747. Instance of an Election Void because Inspectors
Illegally Appointed. — The third section of the statute of New York,
for the incorporation of religious societies, proxides that on the day of
the election of trustees two of the elders or clmrch wardens shall be
chosen to proceed as inspectors of the election ; and if there are no such
officers, then two of the members of the church, to be nominated by a
majority present, shall preside at such election. In a case under this
statute it appeared that the church was di\aded into two factions, one
of which was attached to the clergyman and the other to a member
uamed Knapp, who acted in opposition to the clergyman. The Knapp
faction worshiped elsewhere from the regular meeting-house, but were
entitled to attend and participate in the election of trustees. Such an
election took place under the following circumstances : The pastor had
assembled the congregation for the purpose of delivering an address to
the scholars of the Sunday-school. Immediately after the conclusion of
the address, and before leaving the pulpit„he announced that the time
had arrived for the election of trustees, and he immediately nominated
two members of the church, lolio loere not elders, to preside as inspect-
ors. A number of the opposing faction, who had remained outside
the church, not expecting that such a coup d'etat as this would take
place, crowded into the church and objected to these persons acting as
inspectors, on the ground that they were not elders. Whilst the ques-
tion was under discussion, the pastor proposed that certain resolutions
should be read, which had been passed by the church on the morning
of that day, containing censures of certain members, and designating
those who had a right to vote. The question was put, and the reading
of the resolutions was ordered by a majority of the meeting, and one of
the inspectors commenced reading them. Thereupon a disturbance
arose, in the midst of which Mr. Knapp, the leader of the opposing
faction, who was a trustee of the church, nominated two deacons of the
-church (who it seems from the opinion of the court, were elders), as
inspectors of the election, and put the motion to vote. It was carried
by a number of voices, and not dissented to by any. Then there was a
scramble for the ballot box. The faction attached to Mr. Knapp suc-
1 Ark. Dig. Stat. 1884, § 5427. ^ Kev. Stat. Mo. 1889, § 2485; 2 Rev.
Stat. N. Y. 1882, p. 1536, § 6.
587
1 Thomp. Corp. § 74:8.] corporate elections.
ceeded in obtaining it. They held their election immediately in one
part of the church, while the faction attached to the pastor held their
election in another part. Thus there were two elections held, which
resulted in the election of two sets of trustees. The inspectors of the
faction adhering to Mr. Knapp issued certificates of the election to those
who had been chosen at the election held by them, and, for some reason
not disclosed, they issued new certificates six months later. On an in-
formation in the nature of a quo ivarranto brought, on the relation of
those who had been chosen trustees by the faction adhering to the pastor,
there was a verdict and judgment in favor of the defendants. It was
held that the verdict was well supported by the evidence, and that the
judgment was according to law. The conduct of the pastor, in proceed-
ing in the manner in which he did, was censured by the court; and it
was held that the inspectors appointed by him, not being elders of the
chm'ch and there being elders present who might be appointed, their
appointment was in \iolation of the statutes and illegal, and that the
pretended election held by them was of no validity. It was further
held that the election held by the opposing party under inspectors who
had been chosen by those present without any dissenting voices, which
inspectors were quahfied to act under the statute, was legal and valid,
and hence that the trustees chosen by them were entitled to their offices. ^
§ 748. Their Duties in Conducting the Election. — If the
charter or governing statute prescribes the mode of conducting
the election, that must be followed; if not, then the mode pre-
scribed by the by-laws, if there are such and if they are valid,
must of course be pursued; but an election which conforms
neither to the charter nor to the by-laws may be held void.^ In
the absence of a statute,^ it seems that the duties of the inspect-
1 People V. Peck, 11 Wend. (N. Y.) that the election was void, because it
604; s. c. 27 Am. Dec. 104. pursued neither the charter nor the
2 Thus, where there was a charter by-law. "It is not under the char-
provision requiring the mayor of the ter, for that says it must be out of the
borough to be choseu out of the capi- capital burgesses at large, and here
tal burgesses, twenty-four in number, they confined themselves to eight; nor
and there was also a custom founded is it according to the usage (founded
on a by-law, by which the burgesses on the by-law), because more than
at large first named five burgesses out five were nominated ; which brings in
of the whole numbei-, and from this all the confusion that was designed
five the mayor was elected; and in- to be avoided by that provision.",
stiad of pursuing this mode, the bur- Barber v. Boulton, 1 Strange, 314.
gesses at large nominated eight of 3 gy a recent statute of Pennsyl-
their number, out of which number vania, " the certificate of stock and
the mayor was elected, — it was held transfer books, or either, of any cor-
588
CONDUCT OF THE ELECTION. [1 TllOmi). Coi'p. § 749.
ors are ministerial merely, and that, in case the right of a
member to vote is challenged, they must determine the right by
what appears on the transfer books of the company, and cannot
look beyond them,i qj. inquire into the equities on which the
stock is held,2 or require the corporator to prove his rigid to
vote by his oath, as in the case of a public election, when such
right is challenged. 2 Under the statutes of New York, in the
case of an election in a religious corporation, after the ballots
have been received by the inspectors, without challenge or ob-
jection, their right to inquire into the character of the voter
ceases. The only duty which remains for them to perform is to
count the ballots, and return the number of votes received, and
the names of those having the greatest number.*
§ 749. Cannot Pass upon Validity of Proxies. — The in-
spectors of election have no power to try and determine the gen-
uineness of the proxies offered by the membeis present ; but if
a proxy is apparently the act of a stockholder, and regular on
its face, they must admit the right to vote in respect of it.s
poration . . . shall be prima facie
evidence of the right to vote thereon,
by the person named therein as the
ov?ner, either personally or by proxy."
But, on objection by a stockholder,
that the stock is not owned absolutely
and bona fide by such person, the
judges of election shall inquire into
and determine the question summarily,
and if found to be not so owned, his
votes shall be rejected; and in such a
case the beneficial owner thereof shall
be entitled to vote. Penn. Act May 7,
1889; Pub. Laws Penn. 1889, No. 108,
p. 102.
1 Matter of Long Island Railroad,
19 Wend. (N. Y.) 37.
2 People V. Kip, 4 Cow. (N. Y.) 382,
note.
3 People V. Tibbetts, 4 Cow. (N. Y.)
358; People v. Kip, 4 Cow. (N. Y.)
382, note. The act of incorporation
of a bank provided " that each stock-
holder shall be entitled to one vote for
each share of the st»ck of the bank,
which he shall have held in his own
name at least fourteen days previous
to the time of voting." It was held,
under this statute, that the inspectors
of an election of the corporation had
no right to inquire beyond the legal
ownership of the stock for the length
of days prior to the election men-
tioned; that it was not competent for
them to pass a by-law under which the
inspectors of the election might in-
quire upon the oath of persons offer-
ing to vote, into the equities upon
which they held the shares of stock in
respect of which they tendered their
votes. People v. Kip, 4 Cow. (N. Y.)
382, 384, note.
< People V. White, 11 Abb. Pr. (N.
Y.) 1G8; Hart v. Harvey, 32 Barb.
(N. Y.) 55; s. c. 10 Ab. Pr. CN. Y.)
321; 19 How. Pr. (N. Y.) 245.
5 Re Cecil, 3G How. Pr. (N. Y.) 477.
Thus in an election of officers of a cor-
poration, one stockholder claimed to
represent another as proxy, and
589
1 Thomp. Corp. § 750.] corporate elections.
They cannot reject a written proxy, reo;ular in form and appar-
ently the act of the stockholder, on the ground that it is not ac-
knowledged or proved by a subscribing loitness,^ But the mere
announcement by the president, that a proxy which has been pre-
sented cannot be voted upon, does not entitle the holder to com-
plain, if he acquiesces and refrains from offering the vote upon it
when the vote is taken ; for the action of the president being un-
authorized and nugatory, his vote has not been in fact excluded. ^
§ 750. Irregular Ballots. — The intention of the elector can-
not be inquired into, even in a proceeding in the nature of a quo
warranto, except in so far as it can be discovered in the ballot
which he has deposited in the box. It is not permissible to
prove that he intended to vote for one man, when he actually
cast his ballot for another man.^ Thus, if two ballots he folded
together, one for one candidate and the other for the opposing
candidate, it is inadmissible to allow the person who deposited
them to prove by his oath, for which candidate he intended to
vote.* So, it has been held that where, at an annual town meet-
hiff, the electors had limited the number of constables to be chosen
to four, ballots containing the names of more than four persons,
designated as voted for for the office of constable, could not be
canvassed, but must be rejected, since it could not be told which
ones were really the choice of the voter. ^ But a ballot cast for
a candidate for office, in which only the initial letters of his
Christian name are inserted, — as J. R. Eastman for John R.
showed a power of attorney. He also •'People v. Seaman, 5 Denio (N.
had a letter of Instructions, of which Y.), 409, 412.
he informed the inspectors, but they, ^ People v. Loorais, 8 Wend. (N.
without asking to see it, rejected the Y.) 396. A meeting of the directors
proxy, on the ground that the omis- of the branch bank was called to
sion of the date in the power of attor- choose three directors. At this meet-
ney excited their suspicions. It was Ing, a part of the stockholders voted
held that the proxy should have been a ticket having three names on it.
received. Re St. Lawrence Steamboat The number of tickets voted with five
Co., 44 N. J. L. 529. names was two hundred and twelve^
1 Matter of Cecil, 36 How. Pr. (N. of the tickets with three names eighty-
Y.) 477. eight. The three candidates were de-
2 State V. Chute, 34 Minn. 135; s. c. clared elected. Held, that they were
24 N. \V. Rep. 353. duly elected. State v. Thompson, 27
3 Loubat V. LeRoy, 15 Abb. Pr. (n. Mo. 365.
8.) (N. Y.) 14.
590
CONDUCT OF THE ELECTION. [1 Tliomp. Coip. § 753.
Eastman, — is a legal ballot for the person designated by such
initials, provided that it be found, in a proceeding in the nature
of a quo warranto^ by the verdict of a jury, that he was the per-
son whom the electors intended to designate by such name.^
§ 751. The Count. — Under the provisions of the New York
statute relating to religious corporations^ the judges of an election
for trustees of a religious corporation have no power to pass
upon the qualifications of voters, and reject votes after they
have been once received. The reason is, that the voter is en-
titled, when he is challenged, to be heard, and that the judges can-
not be presumed to know the contents of the ballot so as to sep-
arate the legal from the illegal.^
§ 752. Votes for Ineligible Candidates «* Thrown Away." —
Votes which the returning officers are clearly bound not to count,
stand precisely the same as no votes at all, and those who cast
them are deemed to have assented to the votes which were law-
fully cast. It was so held in an old unreported case of a corpo-
rate election, •' where ten voted for Roberts and ten for Bos-
cawen, a non-inhabitant: the votes given for the non-inhabitant
where inhabitancy was necessary, were holden to be thrown
away." ^ In another case, " where, out of eleven voters, five
voted and six refused, the court held that the six virtuall}' as-
sented." * This case is said, in a note, to have been a case con-
cerning " an election of a burgess of Westbury upon a single va-
cancy. Six voted for Withers singly ; six others voted for two
persons jointly, though it was upon a single vacancy. The court
held clearly that the double votes were absolutely thrown away,
and refused to grant an information against Withers." ^ A more
recent authority is to the effect that votes cast for a candidate
who is ineligible will not be discarded, so as to give the election
1 People V. Seaman, 5 Denio (N. been ruled in the case of Taylor v.
Y.), 409. See also People v. Ferguson, Mayor of Bath, temp. Ld. Ch. J. Lee,
8 Cow. (N. Y.) 102. B. R.
2 Ilartt V. Harvey, 10 Abb. Pr. (n. ^ Rex v. Withers, as quoted by Mr.
8.) (N. Y.) 331. Justice Wilmot in 2 Burr. 1020.
3 Reg. V. Boscawen, cited 2 Burr. ^ Ibid., 2 Burr. 1020, note.
1021, note. The same is said to have
591
1 Thomp. Corp. § 751.] couporate elections.
to a candidate having a minority of votes, unless the electors
knew of the ineligibility of the candidate voted for.^
§ 753. Cumulative Voting. — For the protection of the rights
of minorities in corporations, and in order to prevent a majority
of the shareholders from filling the board of directors with them-
selves or their nominees, the principle of cumulative voting at
elections for directors has been devised and established, in sev-
eral States by constitutional provisions, and in others by statutory
enactments. The theory of these provisions is that any share-
holder may, at hispleasure, vote for an entire ticket, so to speak,
that is, for as many persons as there are directors to be elected,
or he may cast for one particular director as many times the same
number of votes as there are directors to be elected. To illus-
trate : suppose that there are five directors to be elected, and a
particular shareholder is entitled to vote in respect of one-fifth
of the shares. He may cast one vote for five persons named on
his ballot, or he may cast five votes for one person, — and so in
that proportion.
§ 754. Constitutional Provisions as to Cumulative Voting. —
" In all elections for directors or managers of corporations, every stock-
holder shall have the right to vote, in person or by proxy, the number
of shares of stock owned by him for as many persons as there are di-
rectors or managers to be elected, or cumulate 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 ; and such
directors or managers shall not be elected in any other manner, except
that members of co-operative societies formed for agricultural, mercantile
and manufacturing purposes, may vote on all questions affecting such
societies in manner prescribed by law. " 2 - - . - " The general as-
sembly shall proWde by law that in all elections for directors or man-
agers of incorporated companies every stockholder shall have the right
to vote, in person or by proxy, for the number of shares of stock owned
by him, for as many persons as there are directors or managers to be
1 ReSt. Lawrence Steamboat Co., 44 only be raised in the courts. Re St.
N.J. L. 529. In>;pectors of an election Lawrence Steamboat Co., 44 N. J. L.
for directors have no power to pass 529.
upon the eligibility of the person for 2 cal. State Const. 1879, art. 12,
whom the votes are proposed to be § 12.
cast. The question of eligibility can
592
CONDUCT OF THE ELECTION. [1 Thomp. Coi'p. § 755.
■elected, or to cumulate said shares, and give one candidate as many votes
as the number of directors multipHed 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 ; and such directors or managers shall not
be elected in any other manner." 1 - - - - " In all elections for
directors or managers of any incorporated company, each shareholder
shall have the right to cast as many votes in the aggregate as shall equal
the number of shares so held by him or her in said company, multipUed
by the number of directors or managers to be elected at such election ;
and each shareholder may cast the whole number of votes, either in per-
son or by proxy, for one candidate, or distribute such votes among two
or more candidates ; and such directors or managers shall not be elected
in any other manner. "^ . . _ - A similar provision exists in the
present constitution of Pennsylvania. ^ It was held to be self-enforcing,
and not merely directory to the legislature.*
§ 755. Statutory Provisions as to Cumulative Voting. —The
right of cumulative voting is also provided for in many of the States by
statute. Thus, in IlUnois, following the constitution of that State, it is
provided that every subscriber shall have the right to vote, in person
or by proxy, for his number of shares, for as many persons as there are
directors or managers to be elected, or may consolidate his votes and
cast as many for one candidate as the number of his shares, multiplied
by the whole number to be elected or to distribute them on the same
principle among as many candidates as he shall think fit ; and that
directors or managers may not be elected in any other manner.^ A
similar pro\'ision exists in Kansas, but with the proviso that, in elec-
tions of directors for corporative associations, no stockholder shall be
allowed to cast more than one vote multiplied by the number of di-
rectors of the association.^ In Missouri, in elections for directors or
managers, each elector shall cast as many votes as he has shares of
stock, multiplied by the number of directors or managers to be elected,
and he may distribute said votes among two or more candidates, or cast
1 111, Const, of 1870, art. 11, § 3. Neb. Const. 1875, art. 11, § 5, with un-
2 Mo. Const, of 1875, art. 12, § 6. important verbal variations; W. Va.
Const. Idaho, 1889, art. 11, § 4 (ex- Const. 1872, art. 11, §4 (substituting
(cept the word " legislature " used the word " legislature " for " general
instead of "general assembly"); assembly").
Const. Montana, 1889, art. 15, § 4 (ex- ^ Const. Penn. 1874, art. IG, § 4.
cept that the words "legislative as- ■• Pierce v. Commonwealth, 104 Pa.
sembly " are used instead of " general St. 150.
assembly," and the words "directors ^ starr & Curt. 111. Stat., p. 010,
or trustees " are used instead of the § 3.
words "directors or managers"); " Gen. Stat. Kan. 1889, § 1185.
38 593
1 Thomp. Corp. § 756.] corporate elections.
all for one. This mode of election is exclusive.^ Similar provisions
exist in Texas. ^ In California, the statute provides that all elections
shall be by ballot, each person having the right to vote, in person or
by proxy, all the shares standing in his name at least ten days before
the election, for as many persons as there are directors to be elected,
or cumulate and give one candidate as many votes as his number of
shares multiplied by the number of directors to be elected, or dis-
tribute them on the same principle among the candidates, as he sees
fit. In corporations having no capital stock each member may give one
director as many votes as there are directors to be elected. ^
§ 756. Judicial Decisions on the Subject of Cumulative
Voting. — This right of cumulative voting does not exist, unless
it is expressly conferred by an operative constitutional provision
or statute.* Constitutional provisions of this kind are not retroac-
tive.^ They do not operate upon existing charters, unless such
charters are subject to the power of the legislature to modify or
repeal them, under principles elsewhere stated.^ Construing the
provision of the Missouri constitution, it has been reasoned
that, although the language is broad enough to include all cor-
porations, those previously in existence as well as those there-
after to be created, yet, on a familiar rule of interpretation, it
would not be regarded as applying to corporations previously
created with an express exemption in their charters from the
operation of the general law by which the legislature was author-
ized to repeal, alter, or suspend the charter of every corporation.
An intention thus to interfere with existing franchises would not
be imputable to the convention which framed the constitution,
unless their purpose had been couched in explicit language. If
such were the purpose of the constitutional provision, it would
be void under the Federal constitution, as interpreted in the
Dartmouth College Case,^ in respect of such prior corporations,
» 1 Rev. Stat. Mo. 1889, § 2490. State v. Greer, 78 Mo. 188; reversing
2 2 Sayle Tex. Civ. Stat. 1888, art. s. c. 9 Mo. App. 219.
4128. ^ Ante, § 89.
3 Deer. Code Cal.,vol. 2, § 307. '' Trustees of Dartmouth v. Wood-
* State r.Stockley, 45 Ohio St. 304; ward, 4 Wheat. (U. S.) 518. See
19 Am. & Eng. Corp. Cas. 143; 13 also Sloau v. Railroad Co., 61 Mo.
Nortlieast. Rep. 279 ; 11 West. Rep. 259; 24, 30; Scotland Co. v. Railroad Co.,.
2 Rail. & Corp. L. J. 474. 65 Mo. 123, 135.
5 Baker's Appeal, 109 Pa. St. 461
594
CONDUCT OF THE ELECTION. [1 Thomp. Coi'p. § 757.
as iinpairing the obligation of the contract subsisting in the
special charters granted them by the legislature and accepted by
them. Nor was it an answer to this position to say that the
right of voting, under the prior system, w^as not a right of sub-
stantial value, upon the faith of which corporators could be sup-
posed to have embarked their capital in corporate enterprises.^
Nor, in the opinion of the Supreme Court of Missouri, could such
a constitutional provision be upheld on the theory of beinga neces-
sary police regulation, and hence not within the doctrine of the
Dartmouth College Case.^ On principles elsewhere discussed,^ it
is not competent for the directors of a corporation, to accept for the
corporation such a constitutional provision ; since such an accept-
ance involves a constituent change in the corporation, which re-
quires unanimous consent,^ or according to one view, the concur-
rence of a majority in value, by a regular vote at a meeting duly
called for that purpose.^ An election held for seven directors of
a private corporation created under Pennsylvania general cor-
poration act of 1873, at which the cumulative system of voting
was employed, and five directors only received the necessary
pluralities, is valid as to the five so elected, and they have full
power to act as a board, even though two remaining directors
were not chosen.®
§ 757. Certificate of Election. — If the statute requires the
inspectors to make out and give to the successful candidates a
certificate of their election, it may become a question what force
and effect are to be ascribed to such a certificate ; and here, as
in other cases, the language of the applicatory statute must be
carefully considered. The subject is illustrated by several of
the earlier cases in New York, where such a statute was in ex-
istence. In one of them it was laid down that a certificate is not
essential to enable a person elected a trustee to take the office ;
and that if the inspectors neglect or refuse to give a certificate,
1 State V. Greer, 78 Mo. 188; re- Vt. 140; Sloan v. Pacific R. Co., 61
versing s. c. 9 Mo. App. 219. Com- Mo. 24; Broom Leg. Max. 394.
pare Hays ■». Com., 82 Pa. St. 518, 3 Ante, § 86,
523, cited by both of the Missouri * ylHfe, § 71, e« seg.
courts. 5 Baker's Appeal, 109 Pa. St. 461.
2 State V. Greer, supra; citing ^ Wright v. Commonwealth, 109 Pa.
Thorpe t?. Rutland &c. R. Co., 27 St. 560.
595
1 Thorn p. Corp. § 757.] corporate elections.
the party entitled to the office may have his ri^^ht to it declared
in a judicial proceeding.^ Again, it has been held, under the
same statute, that a certificate, under the hands and seals of the
inspectors of the election, that a person has been duly elected a
trustee, is prima facie evidence of his right to the ofBce. But
this applies only to certificates which have no vitiating quality on
their face. If a certificate recites facts which show that the per-
sons whom the inspectors have declared to be elected were not
elected, of course it is not evidence of their right to the office,
but, on the contrary, it demonstrates that no such right exists.
The reasoning is that the statute merely provides that the cer-
tificate shall entitle the party who has been elected to hold the
office. It is the fact of the election, sinA not the possession of
the certificate, which lies at the foundation of the right. Where
there is no election there i-4 no right, and the certificate cannot
create a right. The certificate being merely prima facie evi-
dence of the right, it is competent to go behind it and inquire
into the facts of the election.^ The established principle seems
to be that, in a proceeding in the nature of a quo warranto to try
the title to a public cr corporate office, it is competent to go be-
hind the certificate of election, which has been given by the
proper authority to the defendant, which certificate would other-
wise be conclusive, for the purpose of ascertaining the real facts
of the case.^
1 People V. Peck, 11 Weud. (N. Y.) down, on what they called a canvass
604, 611. sheet, the number of votes given to
2 Hartt V. Harvey, 10 Abb. Pr. (N. each of the candidates for the office
Y.) 321. contested, but in making their final
2 People V. Seaman, 5 Denio (N. statement, after stating the whole
Y.), 409; People u. Ferguson, 8 Cow. number of votes, they omitted, by
(N. Y.) 102; People v. Vail, 20 Wend, mistalie, to add how many were given
12; People v. Van Slyck, 4 Cow. to each of the persons voted for by
(N. Y.) 297. Thus, it is held In New the electors, — it was held competent
York that It is competent. In a pro- to hear evidence tending to show that
ceeding by an information, in the na- the relator, and not the defendant,
ture of a quo warranto, to go behind had been elected by the greater num-
thecert'flcate of the county canvassers ber of votes; and accordingly it was
as to the town canvass, and rectify an adjudged by the court, contrary to the
error in the statement of the inspect- certificate of the county canvassers in
ors; and it appearing that the votes the particular case, that the relator
in a part'cular town were regularly was duly elected. People v. Vail, 20
canvassed, and that the inspectors set Weud. (N. Y.) 12.
596
CONDUCT OF THE ELECTION. [1 Thomp. Corp. § 758.
§ 758. statutory Provisions as to Conduct of Elections. —
By the statute of Missouri, the meeting shall convene at 9 a. m. and
continue three hours, unless its object is sooner accomphshed. But if it
be convened for any other purpose than holding an electidn or voting on
a proposition, it shall be regulated by the by-laivs, as to the manner and
time of convening it and the manner of conducting it.^ By the statute
of New York, when the right of any person to vote is challenged,
the inspectors shall require the transfer books of the company, and
from those books shall decide the challenge ; and all shares standing
on such books in the name of any person shall be voted by him or
by his proxy, subject to other provisions of the statute.^ By a statute
of Ohio, an agent of the corporation, must make out a list of stock-
holders from the transfer book, showing number and class of shares of
each on date of closing transfers before the meeting, and if no such
time is fixed, ten days before the meeting. This shall be given to the
inspectors, and shall be prima facie evidence of the ownership of stock.
In case this is absent, inspectors shall ascertain the ownership by cor-
porate books, certificates of stock, or other satisfactory proof. They
shall receive and count the votes cast at such meeting, or at any
adjournment thereof, either upon an election, or for the decision of a
question, and determine the result, and their return shall be ^9rM?^a/ac^■e
evidence thereof. ^ By the statute of Arkansas, apphcable to railroad
companies, the inspectors appointed by the commissioners must openly
count the votes and declare the result, and within 10 days file a certi-
ficate, subscribed by a majority of them, with the Secretary of State,
and with county clerk in each county through which proposed line
passes.* By statute in New York, when the directors of any corporation
shall neglect to adopt a by-law providing for the annual election of
directors, for sixty days after the first year of corporate existence, the
stockholders may elect directors in the place of the directors holding over,
in the manner pointed out by such statute. If at the meeting held to elect
such directors, the books of the corporation, showing who were and are
stockholders of the association, are absent, each stockholder, in order to
be entitled to vote at such election, must make or present a statement in
writing signed and verified by him, setting forth the number of shares of
the stock of such corporation standing in his name on its books and upon
which he is entitled to vote, and file the same with the inspectors of elec-
tion. Thereupon he is entitled to vote on such stock, so appearing to be
owned by him, and standing on the books of the corporation in his name.^
1 1 Rev. Stat. Mo. 1889, § 2484. * Ark. Dig. Stat. 1884, § 5427.
2 2Kev. Stat. N. Y. 1882, p. 1535, § 6. « 3 Rev. Stat. N, Y. (Ranks & Bros.
3 Rev. Stat. Ohio (Giauque) 8th ed.), p. 1726, § 3.
§ 3245 (5).
597
1 Thomp. Corp. § 761.] corporate elections.
Article V. Right to the Office : Contesting the Election.
763
764
765.
Section
761. Inadequacy of the remedy by cer-
tiorari.
762. Inadequacy of the remedy by
mandamus.
Instances of the use of mandamus.
No remedy in equity except when
the question arises collater-
ally.
Statutory proceedings to contest
corporate elections.
766. Informatiou in the nature of quo
warranto.
767. A civil proceeding.
768. This remedy denied in the case
of ofBcers who are meie serv-
ants or employes and removable
at pleasure.
769. Any person interested may be re-
lator.
Information filed by the attorney-
general or prosecuting attor-
ney.
What the information must al-
lege.
The plea.
Misjoinder of parties.
774. Leave to file discretionary with
court.
775. When the relator bound to show
title.
776. Distinctions as to the burden of
proof.
770.
771.
772.
773.
781.
782.
Section
777. The rule in New York.
778. Remedy exists only against a
party in possession.
779. Matters of evidence.
780. Remedy does not extend to mere
irregularities, mistakes, etc.
Rules of decision in cases where
legal votes have been rejected
or illegal votes received.
Where two factions organize two
meetings.
783. Party receiving the next highest
number of votes, where suc-
cessful candidate disqualified.
784. Validity of election where whole
number not elected.
785. Judgment where term of office has
expired.
786. Proceeding against an incumbent
who is disqualified.
787. Estoppel to raise objection.
788. Title to corporate office not im-
peached collaterally.
Presumptions in favor of regu-
larity.
Eligibility for the office of di-
rector.
Classification of directors.
Holding over.
Statutory provisions that direct-
ors shall hold over.
Resignation of a corporate office.
789;
790.
791.
792.
793.
794,
§ 761. Inadequacy of the Remedy by Certiorari. — In case
of the illegal election or appointment of public officers or
the legal removal of such officers, a remedy frequently re-
sorted to is the common law certiorari. This remedy has
been considerably used in New York.^ But the inadequacy of
the remedy by certiorari has been perceived in that State,
1 As to the use of this remedy in
such cases, see Wood v. Peake, 8
.Johns, (N. Y.) 69; Wildy v. Wash-
burn, 16 Johns. (N. Y.) 49; Lawton ».
598
Commissioners, 2 Caines (N. Y.), 179;
People V. Van Slyck, 4 Cow. (N. Y.)
297.
CONTESTING THE ELECTION, ETC. [1 Thomp. Corp. § 762,
and it has been pointed out that an information in the na-
ture of quo warranto is specially adapted to such cases, and is
peculiarly appropriate to try the right to the office, and to give
the full measure of redress in case of success.^
§ 762. Inadequacy of the Remedy by Mandamus. — On
principle, it would seem that a mandamus cannot be made to
take the place of a quo warranto as to oust an usurper from a
corporate office.^ According to the practice of the Court of
King's Bench, the writ of mandamus was never used to vindicate
a mere private right ; its office was restricted to rights of a pub-
lic nature. It was therefore denied where it was applied for to
restore officers of strictly private corporations who had been
ousted from their offices.^ This restriction upon the use of the
writ of mandamus has disappeared for the most part in the
United States ; and it has been held in Massachusetts, upon a
learned review of the precedents, that a writ of mandamus may
be used, where a manufacturing corporation is in fact and theory
the petitioner, to compel a board of usurping corporate officers,
elected by the casting of illegal votes, to surrender their offices
to those having the highest number of votes, after rejecting the
illegal votes.* This remedy was, however, resorted to in numer-
ous cases, in respect of officers of boroughs and other municipal
corporations; and, as hereafter seen, this use of it is strictly
analogous to the common use of it in respect of officers of cor-
porations who have been improperly amoved, or in restoring
members who have been illegally suspended, expelled or other-
1 People V. Seaman, 5 Denio (N. In like manner " a mandamus to re-
Y.), 40i), 412. store a clerk of the dean and chapter
2 The question was discussed at was denied, for he hath nothing to do
length in an old case where it was with tiie public (his office being only
sought by mandamus to remove the to enter leases granted, etc.), and it
visitor of a college for not taking tlio don't lie for him any more than for the
oaths. The mandamus was denied, bailiff of a manor, the same law of a
but chiefly upon the ground that tlie register of a dean and chapter unless
fellows were not parties to the pro- there Is an affidavit that they have
ceeding. Rex v. St. John's College, ecclesiastical jurisdiction." Anon.,
Comb. 279. Comb. 133; Ilex and Middleton's Case,
3 " A mandamus to restore a surgeon 1 Keb. 625 and 029.
to an ho-<pital was denied, because it "^ American Railway Frog Co. v.
is not in the power of the court, nor is Haven, lOI Mass. 398; s.c. 3 Am. Rep.
it a public office." Anon., Comb. 41. 377.
599
1 Thomp. Corp. § 763.] corporate elections.
wise disfranchised. Some courts have denied the remedy by
mandamus: on the ground that the appropriate remedy is by quo
warranto.^
§ 763. Instances of the Use of Mandamus. — Writs of Man-
damus were constautly granted to corapel an oliicer of a corporation to
sivear in an officer who had been elected to an office in the corporation
according to the custom of the corporation or to its charter and by-
laws. Thns, it was granted in one case to compel the swearing in of the
clerk of a parish. 2 In another case it was admitted that it lay to restore
a school-master or parish clerk. ^ It was granted in another case to
compel the mayor of Bristol to restore a person to the office of sword-
bearer ; * to restore a fellow of a college who had been expelled from his
fellowship ; ^ but it was refused in a subsequent case on the ground that
the only remedy of the expelled fellow was an appeal to the officers of
the corporation.^ An instance is found in which the writ of mandamus
was granted to swear in a chui'ch warden. In one case excuse was
pleaded against being compelled to swear in a church warden, " in re-
gard that he should swear him, another being peacefully in, his superior
wiU punish him. But, per curiam, they cannot punish for obeying the
king's writ." '^ In an old case it is said that " Kelling prayed a manda-
mus to swear the party, being elect town clerk of Southampton, which
the court granted, they refusing to doe it without money. ' ' ^ So, where it
appeared that one Audley had a grant of the town clei'kship of Bedford
in reversion, and the present town clerk had died, and the corporation had
granted the town clerkship to one Joy, who was in possession, a writ of
restitution was granted Audley by Justice Dodridge ; ^ and considerable
discussion is had in what seems to be very good law French, of the
practice of issuing writs of restitution in such cases. Although, by
the principles of the common law of England, a, mandamus did not lie to
induct or restore an officer of an ecclesiastical corporation on the
ground that the courts of law had no conusance of such corporations, ^"^ —
yet this principle does not seem to have obtained in America. It
has been held that a mandamus lies to compel the trustees of a i-eligious
corporation to induct a pastor regularly appointed by the proper eccle-
siastical authority. The court proceeded upon the ground that where
1 Aikin v. Matterson, 17 111. 167; ^ Appleford's Case, 1 Mod. 82.
St. Louis County Court v. Sparks, 10 * Parkiuson's Case, Comb. 143.
Mo. 117. ' Dr. King's Case, 1 Keb. 517.
2 Anon., Comb. 105. ^ Rex v. Knopton, 2 Keb. 445.
3 Parkinson's Case, Comb. 143. ^ Audley's Case, Latch. 123.
4 Roe's Case, Comb. 145; s. c, 2 '" Fost, § 829.
Keb. 799.
600
CONTESTING THE ELECTION, ETC [1 Thoilip. Corp. § 764.
there is a right to execute an office, perform a service, or exercise a fran-
chise (more especially if it be in a matter of pubUc concern, or attended
with profit), and a person is kept out of possession, or dispossessed of
such right, and has no other specific legal remedy, the com't ought to
assist by a mandamus.^ Moreover, even in cases where the writ of
mandarmis cannot be used to contest the right to the office, it will be
granted to compel the doing of that which may be necessary to enable
the claimant of an office to make such a contest. Thus, it has been
held by one court that a mandamus will lie to a board of examiners to
compel them to give a ceHificate of his election to a county commissioner,
although he may likewise be compelled to resort to a quo warranto to
remove an incumbent chosen at a new election which the commissioners
ordered ; 2 and by another court that it will lie to compel a judge to
receive the bond, if found to be good, and sufficient, tendered by the
claimant of the office of clerk of the court of which the respondent is
judge, to the end that the claimant may contest his right to the office in
the mode provided by law, without meeting the objection in limine that
he is not qualified to hold it.^
§ 764. No Remedy in Equity except when the Question
Arises Collaterally. — A court of equity has no authority to
determine the validity of the election of the officers of a private
corporation, and pronounce judgment of amotion.^ The title
of directors, who are in office under color of an election, and
who are at most irregularly chosen, cannot be inquired into in a
suit in equity, instituted to restrain them from exercising the
functions of their offices, upon the ground of irregularity in their
election, — the theory of the courts being that this would be tan-
tamount to inquiring into their title collaterally.^ Again, it has
been held that an injunction cannot be granted in an action be-
tween individuals to try the right to an office in a religious cor-
poration, the remedy being by an action in the nature of quo
warranto.^ Nor can a bill in equity be maintained to test the
rights of a person claiming to be an officer of a borough, under
1 People V. Steele, 2 Barb. (N. Y.) Mozley v. Alston, 11 Jur. 315; IC Law
397, 41(i. But see People v. Dikeman, J. (n. s.) Ch. 217; 1 Phill. Rep. (Ch.)
7 How. Pr. {N. Y.) 124. 790; i Kailw. Cas. (Eng.) 636; post,
2 Strong, Petitioner, 20 Pick. § 788.
(Mass.) 484. ^ Hartt v. Ilarvey, 32 Barb. (N.
3 State V. Wear, 37 Mo. App. 325. Y.) 55; s. c. 10 Abb. Pr. (N. Y.) 321-
* Post, § 826. 19 How. Pr. (N. Y.) 245.
" Huglies V. Parker, 20 N. II. 58;
GOl
1 Thomp. Corp. § 765.] coRroRATE elections.
the appointment of the council, although, as alleged, the ap-
pointee has not entered upon or exercised, or attempted to exer-
cise the duties of the office. Here again the theory is that the
remedy is at law by a quo warranto^ to oust the appointee after
entering upon the duties of the office, in case it is found to be a
usurpation.^ In like manner, a court of equity will not grant an
injunction to restrain the president and directors of a banking
corporation from enforcing the payment of a stock subscription,
made to commissioners for the organization of the corporation,
when their election as directors was affected at moi^t,by mere
irregularities. To authorize it the court ought to be satisfied
that the election was entirely without authority and void.^ But
when the question of the validity of such an election necessarily
arises in the determination of a suit properly cognizable by a
court of equity, such court will determine it, as it would any
other question of law or fact necessary to be decided to settle
the rights of the parties.^ In Georgia, the view has been taken
that a bill in equity is the proper remedy in the case of a public
incorporated company, where the old board of trustees refused
to surrender the control of the corporation to a new board duly
constituted, — the court proceeding upon the view that the writ
of quo zvarranto tries the right only, but that this legal remedy
is inadequate to give relief, and that equity will step in and give
relief, where there are grave charges of a breach of trusts The
decision is entirely out of the current of authority.
§ 765. Statutory Proceedings to Contest Corporate Elec-
tions. — A statute of New York ^ authorizes any person who
" may be aggrieved by, or may complain of, any election " by
directors of a corporation, to make application to the Supreme
Court to compel a new election. No one but a person aggrieved
is entitled to be heard under this statute. A notice, given by
one as attorney for A. B. and others^ entitles only A. B. to be
heard. ^ A stockholder is a person aggrieved within the mean-
^ Updegraff v. Crans, 47 Pa. St. 103. * Dart v. Houston, 22 Ga. 506.
2 Hardenburgh v. Farmers' &c. « 1 N.Y. Rev. Stat. 603, § 5. ■
Bank, 3N. J. Eq. 68. ^ Matter of Mohawk &c. R. Co., 19
3 Mechanics' Bank v. Burnet Wend. (N. Y.) 135.
Mauf. Co., 32 N. J. Eq. 236.
602
CONTESTING THE ELECTION, ETC. [1 Tliomp. Corp. § 765.
ing of this statute, and the fact that the trustees in question
join in the application, forms no objection to granting the relief.^
This provision of law cannot be invoked by one who was not a
stockholder at the time of the election complained of, and who
received his stock from one of the authors of the wrong com-
plained of.2 This statute is not restricted to moneyed corpora-
tions.^ Where votes rejected by inspectors at an election of
directors, and which, if received, would have elected a certain
ticket, are adjudged to have been erroneously rejected, the only
remedy is to proceed under this statute to set aside the election.*
Under the California statute ^ a stockholder may maintain an
action to set aside an election of directors, although at the time
of the election no stock had stood in his name on the books of
the corporation sufficiently long to entitle him to vote.® A
State, when a stockholder in a corporation, may contest an elec-
tion of directors.^ A statute of New Jersey^ makes it the duty
of the Supreme Court, upon the application of persons com-
plaining regarding any election, to give a hearing, and "there-
upon establish the election so complained of, or to order a new
election, or to make such order and give such relief in the
premises as right and justice may appear to said Supreme Court
to require." It was held, that the statute applied to elections of
officers of private corporations, and that the court, having de-
termined who would have been elected if all the legal votes ten-
dered had been received, could put such persons in office and put
out intruders.®
1 Matter of Pioneer Paper Co., 36 23 Hun (N. Y.), 615. This exempting
How. Pr. (N. Y.) HI. was liowever repealed tlie nest year.
2 Re Syracuse &c. R. Co., 91 Laws N. Y. 1881, p. 161.
N. Y. 1. "^ Matter of Long Island Railroad,
3 Matter of Cecil, 36 How. Pr. 19 Wend. (N. Y.) 37; s. c. 32 Am.
(N. Y.) 477. By a later Statule(Law8 Dec. 429.
N. Y. 1880, p. 381), manufacturing « 2 Deer. Cal. Code, § 312.
companies exempted from the opera- ^ Wright v. Central &c. Water Co.,
tions of §§ 5, and 8 of this chapter, 67 Cal. 532.
and this exempting statute operated ' State v. New Orleans &c. R. Co.,
retrospectively, and preveuted further 20 La. An. 489.
prosecution of proceedings thereto- * N. J. Rev. Stat., p. 184, § 44.
fore commenced under the former ^ Re St. Lawrence Steamboat Co.,
statute. Re New York Express Co., 44 N. J. L. 529.
603
1 Thomp. Corp. § 766.] corpoeate elections.
§ 766. Information in tlie Nature of Quo Warranto. — By
the ancient couimon law, the writ of quo 2varranfo was the regu-
hir remedy resorted to on behalf of the crown to oust an intruder
from a public office. In the place of the ancient writ, the more
flexible remedy of an information in the nature of a quo warranto
was substituted, and this remedy is in ordinary use in the United
States, 1 with few exceptions.^ By analogy to the use of this
remedy in the case of public oflSces, it is very generally held that
the same remedy exists to oust persons who have usurped or in-
truded into the olfices of either public or private corporations.^
It lies to restrain the appointment of professors by an incorpo-
rated college not authorized by its charter to make such appoint-
ment.* It lies against individuals usurping the office of trustees
of an incorporated church.^ It has been held the proper remedy
where a cemetery association attempted by suit to collect of its
de facto treasurer money remaining in his hands, which he re-
fused to pay over to a newly elected treasurer on the ground
that the election was illegal.^ It has beeiji held the proper remedy
to oust bank directors who have come into their offices through
the forms of law, and are hence de facto officers, if they have
been in fact illegally elected.^ Some hokiings restrain the use
of this remedy to cases of persons claiming to exercise some
public office or authority.^ In England, until after a regular amo-
1 Respublica v. Wray, 3 Dall. (U . ^ Terry v. Stauffer, 17 La. An.
S.) 490; Palmer v. Woodbury, 14 Cal. 306.
43; Peoples. Scanoell, 7 Cal. 432; 3 peoples. Tibbets 4Cow. 358; Peo-
People V. Forquer, 1 111. 68; Sudbury pie v. Kip, 4 Cow. (N. Y.) 382, uote;
u. Stearns, 21 Pick. (Mass.) 148; Lind- State v. Buchauan, Wright (Ohio),
sey V. Attorney-General, 33 Miss. 508; 233; State v. Coffee, 59 Mo. 59.
Exp. Bellows, 1 Mo. 115; People v. ^ People v. Trustees of Geneva
Van Slyck, 4 Cow. (N. Y.) 297; Lewis College, 5 Wend. (N. Y.) 211.
V. Oliver, 4 Abb. Pr. (N. Y.) 121; ^ Commonwealth ?;. Graham, 64 Pa.
Mayor &c. of New York v. Conover, 5 St. 389.
Id. 171; Commonwealth v. Cullen, 13 « Hunt v. Pleasant Hill Cemetery
Pa. St. 133; Clark v. Commonwealth, Association, 27 Kan. 734.
2d Id. 129; Commonwealth v. Fowler, ' Smith v. State Bank, 18 Ind. 327;
10 Mass. 290; State i?. Deliesscline, 1 State v. Ashley, 1 Ark. 613; State v.
McCord (S. C), 52; Akin v. Matter- Harris, 3 Ark. 570.
son, 17 HI. 167; St. Louis County ^ Commonwealth v. Dearborn, 15
Court V. Sparks, 10 Mo. 117. Com- Mass. 125.
pare State v. Wadkins, 1 Rich. (S. C.)
42; State v. Evans, 3 Ark. 585.
604
CONTESTING THE ELECTION, ETC. [1 Thomp. Coip. § 768.
tion from ofl5ce by the corporation, the court will not grant a
quo warranto to oust an officer.^
§ 767. A Civil Proceeding. — An information in the nature
of a writ of quo warranto to try the right to a corporate office,
although partaking of the character of a criminal proceeding in
its origin and form, is essentially a civil proceeding. ^ The in-
formation, answer and reply, are in Missouri, subject to the rules
governing corresponding pleadings in strictly civil cases, — the
information answering to the petition in an ordinary civil suit.^
§ 768. This Remedy Denied in tlie Case of OflQcers who are
mere Servants or Employes and Removable at Pleasure. —
Although this remedy has, by a seeming aberration in Missouri,
been allowed to exist in the case of a contest over the office of
secretary of an insurance company,* yet the better view is that it
does notexistin the case of anoffi(;erof a private corporation, who
is the mere servant or agent of the company, and holds at the pleas-
ure and will of the directors. The reason is that a judgment
against the defendant would be merely nugatory, for the directors
might immediately reinstate him.^ In other words, this right
plainly does not exist in the case of a corporate officer whose
office is of such a nature that he is removable at the pleasure of
the corporation. Where an officer is thus removable, he has no
right to a notice of a proceeding to remove him, such as exists in
other cases.^ Although, as hereafter seen,^ mandamus is the
ordinary remedy to restore an officer of a corporation where,
under the principles of the common law, there is a right in the
office in the nature of property or in the nature of a franchise,
1 Rex 17. Heaven, 2 Durnf. & E. 772; « People v. Hills, 1 Lans. (N. Y.)
Rex V. Ponsonby, 2 Bro. P. C. 311; 202. And see States. Curtis, 36 Conn.
Rex V. Mayor &c. of Truro, 3 Bam. & 374; pos«, § 805.
Aid. 590. " Dighton v. Stratford-on-Avon, 2
2 State u. Kupferle, 44 Mo. 154; Keb.641. It lias been held in a modern
s.c. 100 Am. Dec. 205; State v. Lingo, case that stoclvholders in a joint stock
26 Mo. 490; Rtat(3 V. Stewart, 32 Mo. corporation, in which the general
379; State v. Lawrence, 38 Mo. 535. public has no interest, may depose the
3 State u. Kupferle, 44 Mo. 154; s.c. oOiccrs of the corporation without
100 Am. Dec. 205. notice or trial. Adamantine BricI^' Co.
* State V. Knpferle, 44 Mo. 154; .s.c. v. Woodward, 4 McArthur (D.C.), 318.
100 Am. Dec 205; ante, g 707. ' Post, § 829.
605
1 Thomp. Corp. § 770.] couporate elections.
yet it has been denied to restore an officer who holds his office
during pleasure.^ The power to set aside a corporate election has
been denied in New York even in the case of an election of
directors of a banking corporation, on the same ground, namely,
that such officer may be removed at the pleasure of the asso-
ciates ; 2 but this view does not seem to be in accordance with the
current of authority.
§ 769. Any Person Interested may be Relator. — As this
is regarded as a private remedy, and in the nature of a civil -pro-
ceeding, it naturally follows that any person interested in the
election or in the admission of the rightfully elected person into
the office, may rightfully file the information.^ And although a
private individual is not permitted, under the law of a particular
jurisdiction to prosecute an information in the nature of quo
warranto, to dissolve a corporation, yet he may be permitted to
prosecute such an information in the case of an intrusion into a
a corporate office.* The remedy is allowed on the relation of a
private individual against one illegally holding an office in a
municipal corporation;^ and in many States it is the ordinary
remedy of one claimant of a public office against the occupant
of such an office.^ It was observed by Mr. Justice Strong that
"doubtless, in England, when the information is against a bur-
gess or alderman of a borough, a corporator is held a fit relator.
He has an interest.^ " By analogy, any member of a corpora-
tion would ordinarily be a competent relator to dispute the
right of any person to hold an office in the corporation.
§ 770. Information Filed by the Attorney-General or Pro-
secuting- Attorney. — The existence of the remedy at the rela-
tion of a private person, who is interested in the determination of
the right to the office, does not, of course, in the case of a
public ofice, divest the State of its remedy by an information
1 Dighton V. Stratford-on-Avon, 2 ■• State v. Patersou &c. Co., 21 N.
Keb. 641. J. L. 9.
2 Matter of Bank of Dansville, 6 ^ Commonwealth v. Jones, 12 Pa.
Hill (N.Y.), 370. St. 365.
3 Commonwealth v. Union Ins. Co. ^ State v. Orvis, 20 Wis. 235.
Newburyport, 5 Mass. 230; Common- "< Com. v. Cluley, 56 Pa. St. 270; s.
wealth V. Fowler, 10 Id. 290. c. 34 Am. Dec. 75, 79.
606
CONTESTING THE ELECTION, ETC. [1 TllOmp. Corp. § 771.
filed by its attorney-general, or other proper law officer, to oust
an intruder into an office held under the State. ^ Under a statute,
it is held in New York that the attorney-general is authorized to
bring such an information in the name of the public. Such ac-
tion must be commenced and prosecuted like other civil actions,
and is governed, in respect to the pleadings and proceedings, by
the same rules. ^ Such an action is one of legal, not of equitable
cognizance, and the issues therein are strictly legal ones.^
§ 771. What the Information must Allege. — Where the
action is brought by the State against one for usurping a public
office, the same certainly is required in the information as in an
indictment. In such a case, it is not sufficient to charge that the
defendant was "unlawfully executing the duties and exercising
the powers " of the office described, without alleging the usur-
pation or specifying wherein such usurpation was unlawful.*
When the court is not judicially informed concerning the nature
of an alleged office in a corporation, it must be so described, as to
its nature and duties, as to show whether it is an office within the
purview of the law relative to the usurpation of franchises.^ Thus,
where such an information charged the defendants with intruding
1 Commonwealth v. Fowler, 10 (n. s.) 265; 5 Lans (N. Y.) 25. It
Mass. 295; Parker v. Smith, 3 Minn, also overruled the reasoning of the
240. same court to the effect that the at-
2 People V. Albany &c. R. Co., 1 torney-general is authorized by the
Lans. (N. Y.) 308; 55 Barb. (N. Y.) statute to bring, in the name of the
344; 38 How. Pr. (N. Y.) 228; 7 Abb. people, and upon his own information,
Pr. (N. Y.) (n. s.) 265. an action against several persons, con-
3 People V. Albany «&c.R. Co., 57 N. sisting of two distinct classes, each
Y. 161. This decision affirmed the chiiming, by virtue of separate elec-
judgment of the general term of the tions, to be the board of directors of
Supreme Court but overruled the rea- a corporation, for the purpose of try-
soning, to the effect that in such an ac- ing their respective rights to such
tion, the relief demanded consists in, office, and ascertaining whether either
andthenatureof the case requires, the of such elections was regular and
exercise of the equitable powers of legal, and if so, which of them; and
the court; and an injunction may be if neither of such boards shall be
issued, and a receiver be appointed, as declared duly elected, then that both
the usual and appropriate instrument- classes of defendants be removed from
alities of a court of equity. People office, and a new election ordered.
V. Albany &c. R. Co., 1 Lans. (N. Y.) Ibid.
308; 55 Barb. (N. Y.) 344; 38 How. * Lavalle v. People, 68 HI. 252.
Pr. (N. Y.) 228; 7 Abb. Pr. (N. Y.) ^ People u. DeMill, 15 Mich. 164.
607
1 Thorn p. Corp. § 772.] corporate elections.
into the offices of wardens and vestrymen of a certain chui-ch,
which was alleged to be a corporation created by the authority
of the State, it was held that, inasmuch as the court had no judi-
cial knowledge of the existence of any such corporation, the in-
formation was defective in not setting forth such facts as, in
connection with the public statutes, of which judicial notice can
be taken, would show such corporate existence.^
772. The Plea. — Where the remedy is used as at common
law, the plea must allege specifically the facts which go to show
the right of the respondent to hold the office. For instance, if
the office is that of a director of a banking corporation, it must
allege an election under which the respondent was chosen director,
and that this election was held in pursuance of the governing
statute or valid by-laws or regulations.^ Where this conception
of the remedy prevails, if the respondent suffers judgment to go
against him by default, the court will go no faither than to give
judgment of ouster : it will not determine the relator's right to the
office.^ But where the remedy exists in its enlarged form, as it does
in many American jurisdictions, so that it is regarded rather as a
civil remedy to determine a contest for the right to hold a cor-
porate office, the relator must not only show that the respondent
has entered into the office without lawful warrant, but he must
also show title to the office in himself.^ Where the averments
of an information in the nature of a quo warranto set out a con-
tinued usurpation of an office, by a loss of the qualifications
necessary to the holding of it, the plea of the officer must set
out expressly the continuance of every qualification down to the
filinof of the information, and it is not sufficient to state that the
incumbent was qualified at the time of his appointment, and to
1 People V. DeMill, 15 Mich. 164. plea must show that an election was
But an information to oust an officer held at which the respondent was
of a private corporation, alleging that chosen director, that it was held in
he was elected at an illegal meeting, pursuance of an ordinance or direction
and deceived the relators as to the time of the board of directors, fixing the
of such meeting, need not allege that time when the place where it should
the relator would have voted against be held, agreeably to the requirements
him if present. Armingtonu. State, 95 of the charter. State??. Ashley, 1 Ark.
Ind. 421. 513,552.
2 Speaking with reference to a par- ^ People v. Connor, 13 Mich. 238.
ticular case, it has been held that the * Miller v. English, 21 N. J. L. 317.
{)0«
CONTESTING THE ELECTION, ETC. [1 Thomp. Corp. § 773.
rely on the presumption of the continuance of the qualifications
until the loss of them is shown. ^ In quo warranto ^ for usurp-
ing the office of president of an incorporated bank, where the
ownership of real estate is, by law, a qualification for the office,
the party holding the office must, in his plea of justification, de-
scribe the real estate of which he is the owner and state how he
has derived title thereto, and exhibit the deeds and records by
which his ownership is evidenced. And where the ownership of
stock is a qualification for the office, such ownership must be
pleaded in such a manner as to show that the stock was origi-
nally awarded to the respondent after a compliance with the re-
quirements of the law; or if acquired by transfer, a transfer must
be set out. And moreover, in pleading his election by the stock-
holders, he must show that the election was held agreeablj'' to
law and in conformity with and in pursuance of the ordinances
and regulations of the governing board of the corporation ; and
that, at such an election he received a majority of the legal votes
cast. Or if his claim is by virtue of an election by the board of
directors, to supply a vacancy therein, he must show the exist-
ence of a board competent to elect, and that a vacancy existed
therein, and how such vacancy arose, and his subsequent elec-
tion. The defendant need not, however, in his defensive plead-
ing, state that the electors, by whom he was elected, were pos-
sessed of the proper qualification, for that is matter which must
be pleaded in avoidance by the State.'
§ 773. Misjoinder of Parties. — No mode of election or ap-
pointment can authorize persons claiming different offices to
unite their complaints and determine their title to both offices in
one proceeding, without a statute specially permitting such a
practice. Therefore, where persons claiming to be wardens
and vestrymen of a church, united as relators in the same quo
warranto proceeding, to test thereby their rights to the respective
offices against adverse parties, it was held, that the information
^ State V. Beecher, 15 Ohio, 723, in the defendant to an office set forth
2 Not an information in the nature of the plea as possessed by him, — see
of a quo warranto. Rex r. Brown, 4 Durnf. & E. 276; Rex
3 State V. Harris, 3 Ark. 570; s. c. v. Hill, 4 B. & C. 443. Instance of a
36 Am. Dec. 4G0. Thut tha replication plea had for duplicity : Commonwealth
may impeach a necessary qualification v. Gill, 3 Whart. (Pa.) 228.
600
1 Thomp. Corp. § 775.] corporate elections.
was bad for misjoinder.^ Nor will the court consolidate several
informations in the nature of quo warranto agnmst several persons
for distinct offices; there must be an information against each to
disclaim.'^
§ 774. lieave to File Discretionary with Court. — Where
the information is brought to oust a person alleged to be usurp-
ing an office under a private corporation, it is in the discretion of
the court to allow or not to allow it to be filed.^
§ 775. When the Relator Bound to Show Title. — As here-
after more fully pointed out,* the primary office of this remedy
at common law was to compel the subject to exhibit to the sov-
ereign the authority by which he assumed to exercise an office or
franchise under that sovereign. Where this conception of the
remedy prevails, it is limited merely to an inquiry into the right
of the respondent to hold the office, and the court does not go so
far as to inquire whether the relator is entitled to hold it or not.
Where the remedy is used as it existed at common law, the State
is not bound to show anything; for if the office was lawfully
granted, the defendant can show his warrant for exercising its
duties. He must disclaim or justify. If he disclaims, the State
has judgment. If he justifies, he must show his title specially,
and all the particulars ou which it is founded. When, therefore,
a writ of quo warranto^'' was directed against the defendant as
director of a banking corporation, it was held that his plea must
* People V. DeMill, 15 Mich. 164. 531. In Missouri, an information in
2 Rex V. Warloa, 2 Maule & S. 75. the nature of a quo warranto in the
In a quo warranto against three to name of the circuit attorney, at the
show why they held the ofBce of bank relation of a private individual, seek-
directors, one disclaimed, the rest ing the determination of a matter of
pleaded to issue. Held, that this was right between two private persons can
not a case under the act of April 13, be filed in the Supreme Court only on
1840, § 13, authorizing a decree in leave especially granted for that pur-
favor of the relators, in case judgment pose; and leave will not be granted
of ouster was given. Commonwealth except on an agreed case on the facts,
V. Sparks, G Whart. (Pa.) 416. or in an extraordinary case. State w.
3 Gunton v. Ingle, 4 Cranch C. Ct. Lawrence, 38 Mo. 535.
(U. S.) 438; People v. Tibbets, 4 < Pos«, § Ch. 167.
Cow. (N. Y.) 358; People v. Kipp, Id. ^ Not an information in the nature
382; Commonwealth v. Arrison, 15 of quo warranto.
Serg. & R. (Pa.) 127; s. c. 16 Am. Dec.
610
CO>TESTING THK ELECTION, ETC. [1 Thomp. Corp. § 776.
allege that he was a stockholder ; that the election, under which
he claimed to have been chosen, was held under and in pursuance
of an ordinance of direction of the board of directors, fixing the
time and place where the same should be lield, agreeably to the
provisions and requirements of the charter.^ And even in En-
gland, on a motion for an information in the nature of a quo
warranto against a corporator, to vacate his office on the ground
of his acceptance of a second and incompatible office, the
relator must show a legal appointment to the second office.^
§ 776. Distinctions as to the Burden of Proof. — This calls
up an important distinction also exist as to the burden of proof,
growing out of the theories upon which the remedy is used.
Where the remedy is pursued according to the theory of the
common law, the burden is upon the defendant. That theory, as
already suggested, is that the sovereign has a right to know by
what authority the subject assumes to discharge the duties of a
public office or to exercise a particular franchise. The sov-
ereign, therefore, need not show that the respondent is without
authority, but he is obliged, in answer to the demand of the
sovereign to show that he has authority.^ But where the con-
ception of the remedy is that it is a mere contest between pri-
vate litigants for the possession of a corporate office,* the bur-
den of i)roof is upon the moving party, that is to say upon the
relator. The reason is that, in such a case, the respondent, in
possession of the office and exercising its functions de faclOy is
presumed to be regularly and lawfully there until the contrary
appears, and it is for the relator to overcome this presumption
by evidence.^ The burden of proof is none the less on the re-
lator because the form of the issue requires the defendant to
show cause.® The reason of the rule is that the ordinary pre-
sumption of right-acting applies to the acts of corporations, as
well as to those of individuals.' " The defendants," says the
1 State V. Ashley, 1 Ark. 513, 552. « State v. Kupferle, 44 Mo. 154; s.c.
And sec People v. Utica Ins. Co., 15 100 Am. Dec. 265.
Johns. (N. Y.) 358. " State v. Hunton, 28 Vt. 594.
2. Rex V. Day, 9 Barn. & C. 702; s. ^ State v. Kupferle, 44 Mo. 154;
C. 4 Mann. & R. 541. McDaniels v. Flovt'cr &c. Co., 22 Vt.
3 Post, § Ch. 157. 274.
* Ante, § 767.
611
1 Thomp. Corp. § 777.] corporate elections.
Supreme Court of Vermont, " are in possession of the office in
question, and should be presumed rightly elected, and entitled
to hold until the contrary be shown. The plaintiffs, then, are
bound to make a case against them, and they shall go forward
in the proof and in the argument."^ "This," says the Su-
preme Court of Missouri, " puts the matter on clear and reason-
able ground, and there is nothing in our statute to require a
different and less reasonable practice."^ This is especially so,
where the incumbent of the office, against whom the proceeding is
instituted, holds a certificate of election or appointment, for this
is in the nature of a muniment of title. It has been well ob-
served, with reference to disputes for the possession of corpo-
rate offices, that where there has been an authorized election
for the office in controversy, the certificate of election which is
sanctioned by law or usage, is the prima facie written title to
the office, and can be set aside only by a contest in the forms
prescribed by law.''
§ 777. Tlie Rule in New York. — In an action in the na-
ture of a quo warranto, under the New York code of procedure, to
test the right of the respondent to hold an office into which he has been
inducted, and to establish the right of the i-elator to such office, the
burden is upon the respondent to show, by affirmative evidence, that
his possession of the office is rightful and legal ; but, as a failure on his
part to sustain this burden would not establish the right of the relator,
1 State exrel. v. Hunton, 28 Vt. 594. Under this rule the secretary was re-
To the same effect, see People v. La movable when the directors should
Coste, 37 N. Y. 192; State v. Brown, consider there was sufficient cause for
34 Miss. 688. it, and they were the judge of the suf-
2 State V. Kupferle, supra. Speak- flcieucy of the cause. No formal
ing with reference to the particular notice of charges or trial was requi-
case, it was further said by Currier, J. : site. A majority of 1 he de facto board
" The proceedings of the board of cZe of directors considered that a suffi-
facto directors are to be presumed cient cause of removal had arisen, and
regular until irregularity is shown, accordingly removed the secretary, as
They are not to be presumed irregular, the information shows, and put an-
The 22d by-law, set out in the infor- other man in his place. Until their
mation, provides that officers, except action is impeached by proof, it is to
the president and vice-president, shall be presumed that they acted oq suffi-
hold their offices until removed by the cient grounds." Ibid., 44 Mo., at p.
majority of the board of directors on 159; 100 Am. Dec, at p. 267.
a charge of disability, violation of ^ Kerr v. Trego, 47 Pa. St. 292,
duty, or any other sufficient cause.
612
CONTESTING THE ELECTION, ETC. [1 Thomp. Corp. § 777.
upon the issue of the relator's right, the burden is on him. The subject
was thus discussed in an important case in the New York Court of
Appeals, by Andrews, J.: "The ancient wait of qiio toarranto was a
wi'it of right for the king, against one who usurps any office, franchise
or liberty, to inquire by what authority he supports his claim, in order
to determine the right. ^ In theory the Mug was the fountain of
honor, of office and of pri\ilege. And, whenever a subject undertook
to exercise a public office of franchise, he was, when called upon by the
crown, thi'ough the wi'it of quo waiTanto, compelled to show his title,
and, if he failed to so, judgment passed against him. The foundation
of the rule may have been that, as all offices and francliishes are the
gift of the king, they were deemed to be possessed by him, and, until
his grant was shown, there could be no presumption that he had parted
with them, or invested a subject with the right to exercise, by delega-
tion, any part of the royal prerogative. But whatever may have been
the origin of the rule, it was well estabhshed, and was applied also in
cases where proceedings by information, in the nature of nqiio warranto^
were resorted to as a substitute for the writ.^ In this State, the rule
that, in proceedings by information to try the title to an office, the
bui'den is upon the defendant to show his right, and that, faihug to do
it, judgment must go against him, has been frequently recognized.*
The writ of quo warranto, and proceedings by information in the nature
of JUG warranto have been abolished, ^ and a remedy by action is given*
The action may be brought by the attornej^-general, in the name of the
people, upon his own information, or upon the complaint of any private
part}', against a person who shall usurp, intrude into or unlawfully
hold or exercise any public office ; and the pro\ision of the Eevised
Statutes ^ which extendsthe scope of the original proceeding by quo
warranto J and which allowed the attorney-general to set forth in his in-
formation the name of the person rightfully entitled to the office in
controversy, with an averment of his right thereto, and authorized judg-
ment to be rendered upon such right, as well as upon that of the
defendant, has been preserved.^ The forms of procedm-e have been
changed, but the position of the defendant, and the rules of evidence,
and the presumptions of law and fact are the same as in the proceed-
ing by writ or information, for which the remedy by action was substi-
1 Citing 3 Bla. Com. 2G2. 27 N. Y. 63; Kyd Corp. 399; Cole
2 Citiug Ilex V. Leigli, i Burr. Quo War. 221.
2148. 4 Citing N. Y. Code Civ. Proc,
3 Citing People v. Utica Insurance § 428.
Co., 15 Johns. (N. Y.) 358; People v. « Citing 2 R. S. N. Y. 582, § 35.
Thompson, 21 Wend. (N. Y.) 252; s. « Citing N. Y. Code Civ. Pro.,
c. 23 Id., 5G7, 589; People v. Pease, §§ 435, 436.
613
1 Thomp. Corp. § 779.] corporate elections.
tuted. The people are here the ultimate source of the right to hold a
public ofTice ; aud now, as heretofore, when the right of a person exer-
cisiufj an ollice is challenged in a direct proceeding by the attorney-
general, the defendant must establish his title, or judgment will be ren-
dered ao-ainst him. It results from tliese considerations that the
defendant, in order to have judgment in his favor, was required to
prove that he was elected to the office of mayor at the election held in
April, 1872. The possession of the office was not, in this action, evi-
dence of his right. The burden was upon him to show, by affirmative
evidence that his possession was a legal and rightful one. But a failure
on his part to prove his title to the office would not estabUsh that of the
relator. Upon the issue of the relator's title the plaintiffs held the af-
firmative, and the oiivs prohandi was upon them to maintain it. Judg-
ment in the action might have been rendered against the defendant,
without adjudging that the title to the office was in the relator.^
§ 778. Remedy Exists only against a Party in Possession. —
The remedy is analog'ous to aa action iu ejectment for the recov-
ery of land, in this respect, that it is exercised only against a party
in actual possession; and, as already seen,^ he may disclaim
title, just as a defendant may do in ejectment. It is, therefore,
a part of the case of the State or of the relator that the defend-
ant, against whom the writ is directed, is or has been in the actual
possession of the office. It is not sufficient that he has been
merely elected to it and has tendered himself to be sworn in.^
§ 779. Matters of Evidence. — Recurring to the proposition
that the plaintiff must prove, as a part of his case, that the de-
fendant was in actual possession at the time of the commence-
ment ot the action, it may be stated that proof of user of the
office may be made by any witness who has knowledge of the
fact.* Where it is material to prove who were elected directors
at an election, this, it seems,. may be proved by parol evidence,
unless there is a statute requiring a higher grade of evidence, —
as where there is a statute requiring a record to be kept, and a
record is in fact kept. Accordingly, it has been held competent
to prove who were elected directors of a company, by the testi-
1 People ex rel. v. Thatcher, 5r> N. » i^ex v. Whitwell, 5 Durnf . & E. 85.
Y. 525; s. c. U Am. Rep. 312. "• Facey v. Fuller, 13 Mich. 527.
2 Ante, § 775.
614
CONTESTING THE ELECTION, ETC. [1 Thomp. Corp. § 780.
mony of witnesses who were present at the election.^ So, it has
been held that, even where a corporation is required by law to
keep a record of its acts, it may lawfully act without doing so,
and parol evidence of its acts will be admissible.^ But where
such a record is kept, parol evidence cannot be admitted to vary,
control or explain a vote of the corporation as there recorded,
when the language of the vote as recorded contains no imperfec-
tion or ambiguity.^ So, the " warnmgs " and proceedings of
meetings of a corporation having a clerk, and whose by-laws
require the warnings to be in writing, cannot be proved by
parol.* It has been held that, on a trial of a quo warranto in-
formation against the wardens and vestrymen of a religious soci-
ety, in which the legality of the election is in issue, evidence may
be received of conversations and transactions previous to the
election, if they were connected with and might have an in-
fluence on, the election, although no previous notice thereof has
been given. ^
§ 780. Remedy does not Extend to Mere Irregularities,
Mistakes, etc. — The court will not allow an information in the
nature of a quo loarranto to try the title to an office to be filed,
merely because there has been an irregularity in the election, in
the absence of had fallh, and where the result of the election
has not been affected.^ In a case of merely holding an election
for city officers on a wrong day, by a general mistake, and
without any corrnpt motive, the court, in the exercise of its dis-
cretion, may well refuse a quo warranto to oust an elected
officer.^ This is tantamount to sayinir that a court will not set
aside a corporate election without substantial grounds founded
upon proper and sufficient evidence.® Mere irregularity in the
1 Partridge v. Badger, 25 Barb. (N. * Stevens v. Eden &c. Society, 12
Y.) 146. Vt. (i88.
2 Old Town V. Dooley, 81 111. 255. ^ Comraonwealtli v. Woelpcr, 3
The official character of persons who Serg. & R. (Pa.) 29; s. c. 8 Am. Dec
acted as defendant's ofTicers may be G28.
proved by parol, without producing •' Queen v. Ward, L. R. 8 Q. B. 210.
the records of the corporation, see ' State v. Tolan, 3:5 N. J. L. l'J5.
Pusey V. New .Jciscy &c. R. Co., 14 ^ Couant v. Millaudon, 5 La. An.
Abb. Pr. (N. s.) (N. Y.) 4.^4. 542.
3 Peterborough R. Co. v. Wood, 61
N. ri. 418.
615
1 Thomp. Corp. § 781.] corporate elections.
election, or the fact that the expenses of the commissioners were
not paid, will not, it has been held, authorize the court to set
t>uch an election aside; nor will an injunction to prevent the in-
stallment of the officers be granted, unless it appear that the
election was entirely without authority of law and void.^
§ 7S1. Rule of Decision in Cases where licgal Votes have
been Rejected or Illegal Votes Received. — Persons receiving
no more than a minority of the votes cast for directors cannot,
in this proceeding, even where it is enlarged to the scope of a
civil action to contest an election, be declared elected, although
it is made to appear that the judges improperly rejected enough
legal votes offered to give them a majority.^ It is no objection
that illegal votes were received, unless such votes were sufficient
in number to change the result; the mere fact that illegal votes
were cast will not avoid such an election.^ But where the per-
sons for whom the votes wrongfully rejected were tendered,
would, with such votes, have had the votes of a majority of all
the shares, the court will set aside the election, and order the
admission of those persons who would have been elected if such
votes had been received.* It has been reasoned that the mere
assertion, in such case, that the votes may be illegal, is not
sufficient to put the officers elected on proof of their legality.
The hypothesis presented assumes a fraud upon the charter;
and fraud is not to be presumed.^ The court also reasoned that
one who contests an election on the ground that votes given
by an elector acting as trustee were for the benefit of other
stockholders who had already voted up to the limit allowed
by the charter, must show it affirmatively. The bare pos-
sibility that the votes were held for such persons, is not to be
regarded. The contingency is too remote to deserve notice as a
1 Hardenburgh v. Farmers &c. Cow. (N. Y.) 153. Downing v. Potts,
Bank, 3N. J. Eq. 68. 23 N. J. L. 66.
2 State V. McDaniel, 22 Ohio St. * Re Cape May &c. Co., 51 N. J. L.
354. Downing v. Potts, 23 N. J. L. 78; s. c. 16 Atl. Rep. 191; Re St. Law-
66; Re St. Lawrence &c. Co., 44 N. J. rence &c. Co., 44 N. J. L. 529, 636.
L. 529. Re Long Island R. Co., 19 But see Re Long Isiand R. Co., 19
Wend. (N. Y.) 37. Wend. (N. Y.) 37, 45.
3 Sudbury v. Stearns, 21 Pick. ^ Conant v. Millaudon, 5 La. An.
(Mass.) 148; Ex parte Murphy, 7 542,
616
CONTESTING THE ELECTION, ETC. [1 Thoiup. Coip. § 783.
legal presumption.^ "Where it is sought to overthrow such an
election on the ground that the stock has been unlawfully in-
creased and that additional shares have been unlawfully voted,
the effort will fail if it appear that the directors received, not
only a majority of the stock as increased, but also a majority of
the stock as it stood prior to the increase.^ The governing prin-
ciple is that the election will not be held invalid, if those entitled
to vote have had a full and fair opportunity of expressing their
choice, and if the officers chosen are the choice of a majority of
the persons voting.^
§ 782. Where Two Factions Organize Two Meetings. — If at
the meetino; for an election, there are two factions and each assumes
to organize the meeting, and rival chairmen are elected, the first
regular and formal proceeding for organization will be recognized
by the law as valid. The redress of any persons aggrieved by
such organization is to be sought through the courts, not by dis-
order in attempting to carry on two elections at once; and those
who participate in such a course, refusing to vote in the regular
election, cannot have the election set aside on the ground that it
was made by a minority.*
§ 783. Party Receiving the next Highest Number of Votes,
where Successful Candidate Disqualified. — Ai)plying a principle
already stated,^ it has been held that the relator in a quo warranto
proceeding has no interest^ which will enable him to make a con-
test, where he is merely the next in vote at an election for public
office, although the person receiving the highest number of votes
and returned elected, is disqualified. The relator, in such a case,
has no more interest than any other inhabitant of the common-
wealth. The question of his right to the office is a public one ex-y
clusively, and can only be raised by the attorney-general. The
1 Ibid. appointmeut by resolution was a good
2 Byers w. Rollins (Colo.), 21 Pac. exercise of the power. Low u. Com-
Rep. 894. The word elect in a statute raissiouers, R. M. Charlt. (Ga.) 302.
is sometimes equivalent to the word ^ Philips v. Wickham, 1 Paige
«;)pom<, and where the statute author- (N. ¥.)> 590.
ized a city corporation to elect certain ^ Matter of Pioneer Paper Co., 36
officers, without prescribing the mode How. Pr. (N. Y.) Ill; a«<e, § 720.
of election, it was held that an ^ Ante, ^752. Compare post, ^o7 50.
617
1 Thomp. Corp. § 7 85. J corporate elections.
reason is that the fact that the majority candidate is disqualified
does not elect the minority candidate.^ But a minority candi-
date may acquire a sufficient title or interest, at a subsequent
electioUf to enable him to dispute the title of the opposing candi-
date in this way. 2
§ 784. Validity of Election where "Whole Number not
Elected. — It seems that an election of directors of a corporation
is not invalid, from the mere fact the whole number prescribed
by the governing statute are not elected, if enough are elected to
constitute such a quorum as the governing statute requires. Thus,
where the number prescribed by the governing statute was
twenty-three^ a majority of whom were competent to act, an
election of twenty-two only was held valid. ^ "Where an act, au-
thorizino; the election of trustees, is silent in regard to the num-
ber to be chosen, and ten were elected, six of whom, being a
majority, are recognized by the legislature as a competent board,
the org-anization is sufficient.* So, where a reduction of the num-
ber has been authorized by an amendatory statute, it is no ob-
jection that the reduced number have been elected before any
formal action of the corporation has been taken reducing the
number ; since, at most, the failure to elect the others leaves a
vacancy, which may be filled in accordance with the provision of
the charter.^
§ 785. Judgment where Term of OflSce has Expired. —
Where, in a proceeding in the nature of a quo ivarranto, the
cause is not finally determined until the term of the office con-
tested is expired, the court cannot, of course, render a judgment
of ouster; but if it is found that the relator was entitled to the
office, a general judgment will be entered in his favor and for
1 Com. V. Cluley, 56 Pa. St. 270; « Com. v. Small, 2G Pa, St. 31.
s. c. 94 Am. Dec. 75. See also Cole on ^ Matter of Union Ins. Co., 22
Quo Warranto, 141,142; Reg. r. Hiorns, Wend. (N. Y.) 591. See Wright v.
7 All. & El. 960 ; s.c.B Nev, & P. 148 ; Rex Commonwealth, 109 Pa. St. 560.
V. Bridge, 1 Maule & S. 76. Compare ■* Dart v. Houston, 22 Ga. 506.
Hcxv. Hawkins, 10 East, 211; Rex v. * Re Excelsior Ins. Co., 38 Barb.(N.
Parry, 14 East, 549. And see Com. v. 297. Y). Power of directors to fill
Cluley, 56 Pa. St. 270; s. c. 94 Am. vacancies under early Virgioia bank-
Dec. 75, where the forego ug cases ing law: Bank of Virginia v. Robinson,
are compared and di.stinguished. 5 Gratt. (Va.) 174.
618
CONTESTING THE ELECTION, ETC. [1 Thomp. Corp. § 786.
costs.^ Oq the same principle, the court may, in its discretion,
refuse to allow the attorney-general to file an information in the
nature of a quo warranto against an officer, when it appears that
the time for which he was elected will expire before ihe inquiry
can have any effect, but will leave the party to any other remedy
which he may have.^ In a subsequent case in the same court,
this view was somewhat modified, the court holding that it would
not deny leave to file an information in the nature of a quo war-
ranto against persons who had unlawfully intruded into corporate
offices, on the ground that the offices were merely annual, and
that it was therefore doubtful whether, according to the course of
the court, a trial could be had before the term of office would
expire: provided the application for leave to file the information
had been made at the earliest opportunity after the offense com-
plained of was committed. In so holding, Savage, C. J., said:
" Here the motion was brought before us at the term next after
the election. We cannot refuse it upon the mere chance that a
trial may fail. To do this would be equivalent to a refusal in all
cases where the office is annual — a length to which I presume
the court did not intend to go, and to which it was not necessary
to go in People v. Sweeting.^ On the whole we are clear, upon
the nature of the case, as to our right of allowing the informa-
tion to be filed ; and that the lapse of time is not such as to re-
quire us, in the exercise of a sound discretion, to deny it." ^ If
an election for managers of a corporation be not disputed during
their term of office by quo warranto, and they are permitted to
act throughout their term as managers tZe/acto, the /e(/a/^7?/ of
ihe next election cannot be questioned for any vice or irregularity
in the first.^
§ 786. Proceeding against an Incumbent who is Disquali-
fied. — It seems that the remedy extends to ousting an incum-
bent who does not possess the legal qualifications for the office,
1 People V. Loomis, 8 Wend. (N. wood, 19 Ga. 559; State v. Jacobs, 17
Y.) 31)0; .s, c. 24 Am. Dec. 33; People Ohio, 143.
V. Seaman, 6 Denio (N. Y.), 409, ^ 2 Johns. 184.
414. * People v. Tibbcts, 4 Cow. (N. Y.)
2 People V. Sweetins, 2 Johns. (N. 358, 381.
Y.) 184. See also Morris v. Under- ^ Cora. v. Smith, 45 Pa. St. 59.
619
1 Thomp. Corp. § 788.] corporate elections.
and is not restricted to inquiring into the regularity of the election
or other proceedings by wliieh he has obtained the office.^
§ 787. Estoppel to Raise Objection. — A corporator who,
with a full knowledge of the objections to the legality of a cer-
tain class of votes, attends a meeting of the corporation, partici-
pates in its deliberations, and acquiesces in its decisions, by can-
vassing and voting in the election of officers, cannot question the
title of the officers elected, on the ground that such class of votes
was illegal.^ In short, where the wrong complained of is the
result of his own misconduct or neglect, or he has acquiesced or
concurred in it, he will not be listened to. Accordingly, where
a member of a corporation, having knowledge of defects in the
preliminaries of organization of the corporation, took part in an
election for directors, and the officers so elected acted and con-
tracted as such, it was held, that having held the corporation out
to the world as being properly organized, he could not file au in-
formation in the nature of quo warranto against such directors.^
But where he concurs in an election in ignorance of some fact
making it invalid, and afterwards shows the objection, and that
it has come to his knowledge since the election, he should be
heard; for consent, induced by error, is not binding in the eye
of the law.* In like manner it has been held no objection to an
application for a quo warranto to oust the defendant from the
office of alderman, by a corporator who objected to his qualifica-
tion at the time of his election, that he afterwards made no ob-
jection to his election to the principal office of magistracy (which
required the defendant to be an alderman as a qualification), and
attended at and concurred in corporate meetings where the
defendant presided or attended in his official capacity.^
§ 788. Title to Corporate OflBce not Impeached Collater-
ally. — The principle, elsewhere discussed,^ which upholds the ex-
istence of corporations against collateral attack, applies equally
to the officers of a corporation, when their right to act as such
1 state V. Gastinell,20 La. An. 114; 3 Cole v. Dyer, 29 Ga. 434.
s. c. 18 Id. 517; post, § 790. * Wiltz v. Peters, 4 La. An. 339.
2 State V. Lehre, 7 Rich. Law (S. « Rex v. Clark, 1 East, 38.
C), 234. 6 ^nte, §501 ; post, Ch. 184.
620
CONTESTING THE ELECTION, ETC. [1 Thomp. Corp. § 788.
is questioned in collateral proceedings. The principle is strictly
analogous to that which validates the acts of de facto public
officers in respect of third persons. It is, that persons acting
publicly as the officers of a corporation are presumed to be rio-ht-
fully in the possession of their offices, and that their acts are
binding on the corporation, so far as is necessary to uphold the
rights of third persons.^ The particular officer maybe ineligible; ^
he may have been elected by a lefis number of votes than the
charter requires ; ^ he may be in office under a judicial decision
subsequently reversed; ^ or he may have been otherwise elected
irregularly or illegally,^ and yet the irregularity or illegality of
his election cannot be set up even as against the corporation, to
defeat the validity of his acts, provided he is in under color of
right. Conflicting claims to a corporate office cannot be deter-
1 Hall V. Carey, 5 Ga. 239 ; Susque-
hanna Bridge &c. Co. v. General Ins.
Co., 3 Md. 305; State v. Williams, 27
Vt. 755. And see Lemmgtou v. Blod-
gett, 37 Vt. 210; Durkin v. Exchange
Bank of Virginia, 2 Patt. & H. 277; St.
Luke's Church V. Matthews, 4Desauss.
(S. C.) 578; Riddle u. County of Bed-
ford, 7 Serg. & R. (Pa.) 392; York
County V. Small, 9 Watts & S. (Pa.)
320; Kingsbury v. Ledyard, 2 Id.
41; McGargell v, Hazleton Coal Co.,
4 Id. 425; Despatch Lino of Pack-
ets V. Bellamy Manuf. Co., 12 N.
H. 205; Smith v. Erb, 4 Gill (Md.),
437; Burr v. McDonald, 3 Gratt.
(Va.) 215; Matter of Mohawk &c. R.
Co., 19 Wend. (N. Y.) 135; Lovett v.
German Reformed Church, 12 Barb.
(N. Y.) 07. And see Merrill v. Farris,
22 111. 303; Schofield v. Watkins, 22
111. 66; Facey v. Fuller, 13 Mich. 527.
By statute in Indiana, no act of any
board of directors done, shall be In-
valid by reason of any informality or
irregularity in time, place, and manner
of their election. 2 Rev. Stat. Ind.
1888, § 3021. Definition of officer de
facto: Rex v. Corporation of Bedford
Level, 6 East, 356.
2 Knight V. Wells, Lutw. 508.
3 Baird v. Bank of Washington, 1 1
Serg. &R. (Pa.) 411.
^ Ebaugh V. German Reformed
Church, 3 E. D. Smith (N. Y.), 60. A
person who makes a contract with
church trustees who are in possession
of all the church property, witliout
his having knowledge of any Illegality
in their election, may enforce his claim
on the contract, though the election
should afterward be adjudged illegal.
And the fact that he was hiin-elf one
of the trustees de facto does not alter
the case, in the absence of bad faith.
So held, where the courts had decided
that the trustees were legally in office,
and the adverse claimants had sub-
mitted to this decision, and had given
no notice of any intent at that time to
continue the litigation. Ebaugh v.
German Reformed Church, 3 E. D.
Smith (N. Y.), 60.
* Balrd u. Bank of Washington, 11
Serg. &R. (Pa.) 411. See also Bland-
ford V. School District, 2 Cush.
(Mass.) 39; Delaware &c. Canal Co. v.
Penn.sylvania Coal Co., 21 Pa. St. 131 ;
Sampson v. Bowdoinham Steam Mill
Corp., 36 Me. 78; Penobscot &c. R. Co.
V. Dunn, 39 Me. 587; Smith v. Bank,
18 Ind. 327.
G21
1 Tliomp. Corp. § 788.] corporate elections.
mined in an action of ejectment^ brought in the name of the
corporation by persons claiming to be its legal trustees; ^ nor in
Enaction of replevin for personalty of the corporation; ^ nor
by liaheas corpus granted to a party who has been arrested on a
warrant issued by such officer;^ nor upon a motion to vacate
judicial proceedings as irregular, where summons was served
on persons claiming to be corpoi'ate officers, who were not in
possession of the offices, — though the court would vacate
the proceedings, because they were not officers de facto.*
But, of course, the rule does not extend so far as to validate,
even in respect of third persons, the acts of naked trespass-
ers or intruders.^ Thus, it has been held that, where an action
has been commenced in the name of a corporation, by direction
of its officers de facto, no other persons claiming a right to act as
the officers of the corporation, the defendant cannot be permitted
to show, for the purpose of defeating the action, that the officers
were illegally elected.^ It is a necessary consequence of this
doctrine, that the appointment and powers of corporate officers
may be inferred from the continued acquiescence of the corpora-
tion in their official acts, — for instance, in the case of an insur-
ance company, the recognition by the company of the fact that
.a certain person has openly and notoriously transacted its busi-
ness as its secretary, has had the custody of its books, and has
borrowed money and entered accounts of it therein.^ On the
other hand, the neglect to be sworn into an office for a great
length of time, e.g., above twenty years after the parly is
1 Parish of Bellport v. Tooker, 29 Ala. 253. The act of the proper of-
Barb. (N. Y.) 256. ficer, in making an appointment to aa
2 Desmond v. McCarthy, 17 Iowa, office ha^4 been said to be in tlie nature
525. of a judicial act, which is not
3 Exp. Strahl, 16 Iowa, 369. to be questioned in any collateral
* Berrian v. Methodist Society in action between individuals. Wood
New York, 4 Abb. Pr. (N. Y.) 424. v. Peake, 8 Johns. 69; Widely v.
'= A bare sivearing -in iindacling does Washburn, 16 Johns. 49; People v.
not make an officer de facto; there Seaman, 5 Denio (N. Y.), 409, 412. It
must be, at least, the form of an elec- is also held that this doctrine is
tion, though the election may be equally applicable to the decision of a
subsequently set aside. Hex t;. Lisle, board of canvassers declaring the re-
2 Strange, 1090. suit of an election for office. Their
6 Charitable Association u. Baldwin, decision cannot be called in question
.1 Mete. (Mass.) 359. collaterally, but only in a proceeding
' Talladega Ins. Co. v. Peacock, 67 instituted directly to try the right to
622
CONTESTING THE ELECTION, ETC. [1 Thomp. Coip. § 790.
elected, may be deemed a waiver or refusal to accept the elec-
tion by the party elected.^
§ 789. Presumptions in Favor of Regularity. — Every rea-
sonable intendment is to be made in favor of the regularity of
the proceedings of a private corporation in their corporate acts.^
This rule applies to corporate meetings and corporate elections ;
and also to the meetings of directors.^ A corporate meeting, or
a meeting of corporate directors, will be presumed to be regular
unless the contrary appears.*
§ 790. Eligibility for the Office of Director. — Under most
of the American statutes, no person is eligible for the office of
director who is not Si bona fide holder of shares in the corpora-
tion, and this is so under the English joint-stock companies act
of 1862, and its amendments. The question in that country
has frequently arisen, whether the mere transfer of the requisite
number of shares to a person, in order to qualify him to act as a
director, makes him liable as a contributory in the winding up of
the company in respect of such shares; in other words, whether
he can be a shareholder for the purpose of holding the office of
director, and not a shareholder for the purpose of answering to
creditors; and the courts of that country hold that he cannot be
a shareholder and not a shareholder, according to the end in
view.^ A few decisions are met with in this country on the
question of the qualifications necessary for the office of director.
Whether a person is a bona fide holder of shares so as to qualify
him, or whether his tenure of them is a sham, is of course
the oflScc. People v. Seaman, supra. ^ State v. Kupferle, 44 Mo. 154;
For further illustrations of the text, s. c. 100 Am. Dec. 205; Lane??. Braiu-
8ee Ellis v. North Carolina Institu- erd, 30 Conn. 5(J5, 577; McDaniels u.
tion &c., 68 N. C. 420 ; Waite v. Wind- Flower Brook Man. Co., 22 Vt. 271.
ham County Mining Co., 3G Vt. 18; * Sargent v. Webster, 13 Mete.
Hastings v. Bluchill Turni)ike Corp., (Mass ) 497; Lockwood v. Mechanics
9 Pick. (Mass.) 80; Ilud.son River &c. Nat. Bank, 9 R. L 308; s. c. 11 Am.
R. Co. V. Kay, 14 Abb. Pr. (n. s.) Rep. 253, 20(5; Peoples. Batchclor, 22
(N. Y.) 191. N. Y. 128. Compare Atlantic &c. Ins.
1 Rex V. Jordan, Cas. temp. Co. v. Fitzpatrick, 2 Gray (Mass.),
Hardw. 225. 279.
2 McDauitls v. Flower Brook Man. ^ Post, § 1260.
Co., 22 Vt. 274.
623
1 Thomp. Corp. § 791.] corporate elections.
a question of fact. Where shares were purchased by a married
woman and the certificate was accidentally made out to her hus-
band, who afterwards concluded to take the shares himself, and
transferred the account from his wife's name to his own, — it
was held that he was a bona fide holder of shares and eligible as
director.^ Under the statutes of Nevada, there is a doubtful
holding that a person who " holds " shares of stock issued in his
name is recoojnized as a stockholder, as well as one who " owns*'
them.^ The inspectors of election cannot decide the question
of eligibility for the office of director; it can only be decided
by the courts.^
§ 791. Classification of Directors. — In several States there are
statutes proAdding that the directors may be divided iuto three classes, —
one class holding office for one year, one for two years, and one for
three years, — the successors of each class being elected for three
years.* In Illinois, the provision is that, by resolution of the stock-
holders, the board of directors may be divided into three classes, the
first class re-elected at the nest annual election, the next class at the
second annual election, and the third class at the annual meeting held
1 Re St. Lawrence Steamboat Co.,
44 N.J. L. 529.
2 State V. Leete, 16 Nev. 242. In
this case, A. owning certain shares of
stock in a corporation organized for
the purpose of maintaining a ditch,
etc., gave them to his son, with the re-
quest that new certificates should be
issued in the son's name, and trans-
ferred upon the books of the com-
pany. This request was complied
with. The son paid nothing for the
shares, the transfer being made in
order that he might be eligible to the
office of trustee. It was held, on a
review of the statutes of Nevada, that
such transaction constituted the son
a stockholder, and made him eligible
to such office. (Belknap, J., dissent-
ing) . Ibid.
2 Ke St. Lawrence Steamboat Co.,
44 N. J. L. 529. The statute of Con-
necticut (Laws 1876, ch. 65), provid-
ing that a director of a corporation
024
owning stock in another corporation
may be elected a director of the latter
corporation, is not repealed by the
joint-stock act of 1880. Chase v.
Tuttle, 55 Conn. 455. That a by-law
which would render a class of per-
sons eligible to office Avho by the char-
ter, are ineligible, is bad, — see Kex
V. Bumstead, 2 Barn. & Ad. 699; Rex
V. Spencer, 3 Burr. 1827. Where a
person has a right to vote on stock as
a stockholder, he is also eligible to
any office to which a stockholder is
eligible. State v. Ferris, 42 Conn.
560. That courts will not add by con-
struction to the causes specified in a
statute as rendering a person in-
eligible to office in a municipal cor-
poration, — see Rex v. Chitty, 5 Ad. &
E. 609; s. c. 2 Har. & W. 399; 1 Nev.
& P. 78.
< Gen. Stat. Colo. 1883, chap. 19,
§ 126.
CONTESTING THE ELECTION, ETC. [1 Thomp. Coip. § 792.
three years after the first annual election ; each class therefore filled with
directors elected for three years. All other vacancies are to be filled
according to the by-laws. ^ So in Michigan, the directors may be
divided into three equal classes, one of which shall hold office for one
year, one for two years, and one for three years, and at subsequent
elections directors may be elected for three years to succeed them. 2
§ 792. Holding Over. — By the principles of the common
law, the failure to elect officers of a corporation, public or
private, does not dissolve the corporation, but the old officers
hold over until their successors are chosen and qualified.^ The
same principle has been declared by statute in several States, oiit
of abundant caution, as seen by the next section.* Accordino-ly,
where the cashier of a bank has been appointed for a definite
term, enters upon the duties of his office and gives bond, he con-
tinues in office until a new cashier is qualified by givino- a bond,
provided the State makes this qualification essential.^ Where,
however, the charter or governino; statute fixes the term of office
for a year, the directors cannot, against the will of the stock-
1 Starr & Curt. 111. Stat., p. 610,
chap. 32, § 3.
2 How. Mich. Stat. 1882, § 3317.
3 Foot V. Prowse, 1 Strange, 625;
Sparks v. Farmers' Bank, 3 Del. Ch.
274; Smith v. Natchez St amboat Co.,
IHow. (Miss.) 179; McCall t?. Bryam
Manuf. Co., 6 Conn. 428; Congrega-
tional Soc. of Beh.-iny v. Sperry, 10
Conn. 200; South Bay Meadow Dam
Co. V. Gray, 30 Me. 547; Nashville
Bank v. Petway, 3 Humph. (Tenn.)
522.
* People V. Jone.s, 17 "Wend. 81;
People V. Vail. 20 Wend. 12.
* Spa! ks V. Farmers' Bank, 3 Del. Ch.
274. The title of the person receiving
the necessary votes to ekct to a cer-
tiin office is comjilete the moment the
vote is di clared, and the right of the
former incumbent to hold over ceases.
Booker v. Young, 12 Gratt. (Va ) 303.
If the by-laws of a corporation pro-
vide that the clerk shall be chosen
yearly, and also that he shall continue
in office till another shall be chosen
and qualified, and the first person
chosen and qualified is re-elected the
next year, he continues to be clerk
under the first election, till he is quali-
fied under the second. Hastings v.
Blue Hill Turnpike Corporation, 9
Pick. (Mass.) 80. Under a statute
directing that the clerk chosen by a
school district should hold his office
until another should be chosen and
sworn in his stead, where the clerk of
a school district removed into an ad-
joining district, but within the same
town, and another was chosen in his
place, but not sioorn, — it was held that
the first continued competent to act as
clerk. Williams v. School District in
Lunenburg, 21 Pick. (Mass.) 75.
Where a charter speaks of "years "
with reference to an ofiice, years of
office, and not calendar years, are in-
tended. Rex V. Swyer, 10 Barn. & C.
48C.
G25
1 Thomp. Corp. § 791. J corporate elections.
holders, enlarge this term by changing the time of holding the
annual election, by a by-law or otherwise.^ The above rule has
no application to a deputy, whose term of office expires on the
death of his principal. ^
§ 793. Statutory Provisions tbat Directors shall Hold over. —
Statutes in several of the States provide that, in default of an election,
the directors shall hold over until their successors are elected and
quahtied.2 Some statutes pro\ide that a failure to elect otRcers shall
not dissolve the corporation, but that the incumbents shall hold over.^
The statute of Arkansas is still more explicit. Failure to hold an elec-
tion at the time appointed does not dissolve the corporation, but the
election may be held at any time during the year upon due notice given
by the directors.^ Another statute of Arkansas provides that corpora-
tions shall not be dissolved, if the election of directors, which has not
taken place at the appointed time, shall be held within ninety days after
such time, in the manner provided by the by-laws.^ In Texas, the pro-
vision is that if the election of directors fails to come off on an ap-
pointed day, this does not dissolve the corporation, but it may be held
on any other day in accordance with the mode prescribed by the by-
laws.'
§ 794. Resignation of a Corporate Office. — According to an
ancient strictnes>, where an office is granted by deed, the lesig-
nation or surrender ought also to be by deed; but, where an
officer is appointed by election, the corporation may accept a
resignation or surrender by parol. ^ Under provisions of a char-
ter, which direct that an alderman or other officer may resign by
giving written notice to the city clerk, and publishing a copy of
such notice in the corporation papers, — a simple communication
to the mayor and common council, tendering a resignation has
been held ineffectual.^ An intent to resign may be inferred from
the acceptance of an incompatible office.^" But the acceptance of
1 Curtis V. McCullough, 3 Nev. 202; * Code Tenn. 1884, § 1705.
Elkins V. Camden &c. R. Co., 36 N. J. ^ Arkansas Dig. Stat. 1884, § 965.
Eq 4<;7. ^ Ark. Dig. Stat. 1884, § 5432.
2 Rex V. Corporation of Bedford ^ Sayle Tex. Stat. 1888, art. 583.
Level, 6 East, 350. ^ Rex v. Mayor &c. of Rippon, 1
3 Deer. Code Cal., part 4, § 306; Ld. Raym. 563; 2 Salk. 433.
Comp. Stat. Neb. 1887, chap. 16, § 38; » Lewis v. Oliver, 4 Abb. Pr. (N.
Rev. Stat. Minn. 1881, § 404; 2 Sayle Y.) 121,
Tex. Stat. 1888, art. 4125. i" Verier v. Sandwich, 1 Sid. 305;
&2iS
CONTESTING THE ELECTION, ETC. [1 Thomp. Corp. § 794.
office by the members of one of the faculties of an old educa-
tional corporation, under a new corporation, does not in law
amount to a resignation of their offices under the former, nor to
a dissolution or suspension of its franchises.^ There is much
judicial authority to the effect that a public officer cannot at
pleasure lay aside his office, — otherwise the wheels of govern-
ment might be thereby stopped, which would be against public
policy ; ^ but it is assumed that this principle cannot apply in
the case of an officer of a private corporation. It has been
held that a person who has been elected to an office cannot
resign the same before the time has arrived when he is en-
titled by law to possess it, and has become invested with its
privileges by subscribing to the oaths, and giving the obligations
required by law. Hence, an attempt on the part of one elected
to an office to resign before he is made an incumbent, is abortive
and ineffectual.^
Rex V. Goodwin, Dougl. 397, note 22; notification of the fact that he resigns
Milward v. Thatcher, 2 Durnf . & E. is not sufficient to discharge him from
87; Rex V. Patemeu, 7d. 779. his office; but his resignation, to be
1 Regents of University of Mary- effectual, must be accepted by corn-
land V. Williams, 9 Gill & J. 365. petent authority. State v. Ferguson,
2 It has even been held that an 31 N. J. L. 107,
overseer of the highways cannot, at his ^ Miller v. Supervisors of Sacra-
pleasure, lay aside his office. A mere mento County, 25 Gal. 93.
627
1 Thomp. Corp.] a31otion of oiticers.
CHAPTEK XYI.
AMOTION OF OFFICERS.
Section
799. Distinction between amotion and
disfrancliisement.
800. Observations of Mr. Willcock on
this question.
801. These observations applicable to
corporations other than mu-
nicipal.
802. Power of amotion inherent in
corporations.
803. Power resides in corporation
alone.
804. Power resides in the body at
large, not in the trustees.
805. Removal of officers who hold at
will.
806. Lord Mansfield's classification of
grounds of amotion.
807. In what case there must be a
previous trial and conviction.
808. Misappropriating money: false
charges of money.
809. Bribery.
810. Misconduct in respect of duties
toward the corporation.
811. Offenses touching the corporate
record.
812. Neglect of duty.
813. Non-attendance at corporate
meetings.
814. Ineligibility: subsequent election
to another office.
815. Other grounds of removal.
816. Statutory or charter power of re-
moval.
817. What corporate action necessary.
818. Power must be exercised at a cor-
porate meeting.
628
Section
819. And by a majority vote.
820. Necessity of notice and a judicial
inquiry.
821. Exception in the case of con-
tinued desertion and non-resi-
dence.
822. Conduct of the trial: the evi-
dence.
Assembling the meeting for the
trial: notifying the mem-
bers.
Instances under the foregoing
rule.
Review of proceedings by cer-
tiorari.
Extent of relief in equity.
Illustration : dismissal of school-
master under English public
school act of 1868.
Where the power to remove is
discretionary in the due exer-
cise of the powers of the trust-
ees.
Mandamus to reinstate.
830. Several writs where there are
several officers.
831. Alleiialions of the writ.
832. What if directed to the indi-
viduals by name, and not to the
corporation.
833. The return to the mnndam-us.
834. Return may show any number of
causes.
835. When not necessary to aver
power of removal.
Instances of good returns in such
cases.
823.
824.
825.
826.
827.
828.
829.
836.
GROUNDS OF REMOVING. [1 Thomp. Corp. § 800.
Section Sectiox
837. Sufficient if made by proper offl- 840. Otlier points of practice in pro-
of r until falsified. ceediugs by mandamus.
838. Whether the return should be 841. Principlesupoa which the judicial
under corporate seal. courts review sentence of
839. Variance between writ and re- amotion.
turn.
§ 799. Distinction between Amotion and Disfranchise-
ment. — *' In a corporation," says Daly, F. J., " there is a dis-
tinction between what is called amotion, or the right to remove
an officer, which is a power inherent in every corporation, and
disfranchisement. The former may be exercised without inter-
fering with the franchise, — as the officer, when removed, still
continues a raeml)er ; but disfranchisement is an actual expul-
sion of the member from the body and the taking away of his
franchise, which cannot be done unless the power is given by
the charter creating the corporation ; or the member has been
guilty of crime, a conviction of which would work a forfeiture of
all civil rights, including the corporate franchise, or has com-
mitted acts which tend to the destruction of the corporation,
such as the defacing of its charter, the obliteration or alteration
of its records, or other acts tending to impair or destroy its title
to its rights or privileges; in which case, the expulsion of the
member is but the exercise of a power incident to the right of selt-
preservation." ^
§ 800. Observations of Mr. Willcock on this Question. — Al-
though in the leading case of Bagg,'^ much was said about amotion,
and the grievance of Bagg was that he had been disfranchised as
one of the twelve burgesses of Plymouth, Mr. Willcock, in his
treatise on corporations, which is regarded as a good work, de-
fines amotion as applicable only to officers, and says that it causes
a cessation of the particular offices from which they are amoved,
but in no manner affects their right to the freedom of the munic-
1 White V. Brownell, 4 Abb. Pr. s. c. 4 Am, Dec. 453; Fuller v. Trust-
(n. S.) (N. Y.) 1C2, 192; citing Evans ess, G Conn. 532; People v. Medical
t). Philadelphia Club, 50 Pa. St. 107; Society, 24 Barb. (N. Y.) 570.
Baggs' Case, 11 Co. Rep. 93; Earle's 2 il Co. Rep. 93; stated at length,
Case, Carth. 173; Com.u. St. Patrick's post, §§ 854, 855.
Benevolent Society, 2 Binn. (Pa.) 441 ;
629
1 Thomp. Corp. § 800.] amotion of officers.
ipality ; whilst disfranchisement is applicahle only to the freedom,
and cuts off the corporator from all rights and privileges of the
corporation. It appears, accordino: to that authority, that there
is not an incidental right in corporations to disfranchise their
members, but that it must be claimed by prescription or express
grant of the charter. ^ Mr. Willcock then makes the following
among other observations upon that celebrated case ; " At the
time when James Bagg's case was before the court, their attention
had been rarely attracted to the consideration of corporate causes,
and the distinction between the right to the offices and the right
to the freedom of a municipality htid been little considered. The
particular case was of amotion from office; the arguments were
in general more applicable to disfranchisement, but there is a
material difference in principle. The enjoyment of office is not
for the private benefit of the corporator, but an honorable dis-
tinction which he holds for the welfare of the corporation; and
therefore, though it be an office oi a freehold nature, it is entirely
conditional. . . . But the franchise of a freeman is wholly
for his own benefit, and a private right; a right in the munici-
pality similar to that of a natural subject in the State, of which
he ought not to be deprived for any minor offense against his
corporate fealty, any more than that for which, as a subject, he
ought to be deprived of his franchise as a liegeman. For this
reason, all minor corporate offenses, such as improper behavior
to his fellow corporators, where not punishable by the general
law of the land, as well as violations of his corporate duties,
ought to be pnnished by penalties imposed by the ordinances of
the municipality, and not by disfranchisement. But such of-
fenses against the general law as occasion a forfeiture of all civil
rights, import in themselves a forfeiture of the corporate fran-
chise; and offenses against the corporation which tend to its de-
struction, such as defacing the charters, altering the corporate
records so as to destroy the evidence of their title to privileges,
or that of the title of his fellow corporators to their franchises,
are of course causes of disfranchisement." ^
1 Willcock Corp. 270. 113; and it was said by tlie learned
2 Willcock Corp. 270; quoted with judge tiiat these observations are
approvalby Woodward, C. J., in Evans equally applicable to private corpo-
V. Philadelphia Club, 50 Pa. St. 107, rations. This observation is perhaps
630
GROUNDS OF REMOVING. [1 Thomp. Corp. § 803.
§ 801. These Observations Applicable to Corporations other
than Municipal. — "These observations," said AVoodward, C. J.,
quoting the language of Mr. "Willcockin the preceding section, " relate
to municipal corporations ; but why are they not equally applicable to
private corporations ? The interest or ' freedom ' which a member has
in a private corporation is as a rule a ' franchise ' as that which any of
the burgesses mentioned in Bagg's Case had in the borough of Ply-
mouth, and may often be a much more valuable franchise. Where it
has been obtained by the payment of a pecuniary consideration, and
property is held in connection with it, it is a vested estate, and certainly
ought not to be sacrificed on account of minor offenses, which would
not be permitted to forfeit indiddual interests in a municipal corpora-
tion. And if a power to disfranchise in a municipal corporation does
not exist unless expressly granted, it is very safe to conclude that it is
not inherent in a private coi'poration, and must have an express grant to
support it.^
§ 802. Power of Amotion Inherent in Corporations. — By
the principles of the common law, every corjionition has an im-
plied power, incident to its existence as a corporation, and inde-
pendent of charter provisions, to remove an officer for cause. 2
true, with the exception of private
corporations haviuj? a joint stock.
1 Evans v. Philadelphia Club, 50
Pa. St. 107, 113.
2 Fawcett V. Charles, 13 Wend. (N.
Y.) 473; State v. Trustees of Vin-
ceunes University, 5 Ind. 77; Lord
Hruce's Case, 2 Strange, 820; Rex v.
Doncaster, Barnard. 2G4; Rex v. Rich-
ardson, I Burr. 517, 530; People v.
Ilii^iins, 15111. 110; Adamantine Brick
Co. V. Woodruff, 4 MacArtliur (D. C),
318; Burr v. McDonald, 3 Gratt. (Va .)
LM5; Auburn Academy v. Strong,
Ilopk. (N. Y.) 278; ca-es cited, post,
§ 847. It was said in one ca-e, in the
King's Beiicli, that there are author-
ities (citinu; 11 Coke, 9i); 1 Roll. Rep.
224; Palm, 4.^1; Stiles, 477), that
the power of amotion is not inherent
in a corporation. Such a power must
exist by charter or prescription in or-
der to its exercise. Rex v. Mayor of
Doncaster, 2 Ld. Raym. 1564, 1566.
But the contrary is now established
as stated in the text. Where a corpo-
ration time out of mind had power to
remove an alderman for a reasonable
cause, it was held that, though the
corporation had taken a neto charter
wherein no such power was expressly
given, yet the power still remained;
since the new charter did not merge
or extinguish any of the ancient priv-
ileges, but the corporation might use
thorn as before. Haddock's Case, Sir
T. Raym. 435, 439. "The power of
amotion for adequate cause, is to he
an inherent incident of all corpora-
tions, whether municipal or private,
except, perhaps, such as are literary
or eleemosynary; but tlie exercise of
this power does not affect tlie private
rights of the corjjorator in the fran-
chise." Statement of Doctrine by
Woodward, C. J., at nisi pruts, in
Evans v. Philadelphia Club, 50 Pa. St.
107, 117, affirmed by an equal division
631
1 Thomp. Corp. § 803.] amotion of officers.
Speaking with reference to Enf^lish boroughs, which are a species
of municipal C()r[)oration, it has been hold that, although the
charter does not in terms authorize the removal of an officer, yet
the power of removal is implied; it is incidental for self-preserv-
ation, ^ It follows that a by-law authorizing the removal of
officers for cause may be good, although no power of amotion is
expressly given by the charter, or is possessed by prescription.^
On the other hand, a by-law restricting the discretionary power
of removing a master or usher of a grammar school vested in the
governors, as given by the charter has been held void.^ The
directors of a national bank have power to remove the president,
both under the act of Congress relative to national banks, and
under the articles of association, where such articles give express
authority to remove; and it makes no difference that the bank
has never adopted any by-laws.*
§ 803. Power Resides in Corporation alone, not in Judicial
Courts. — This power belongs to the corporation alone ; the
courts have no jurisdiction to order such removal.^ As the
courts have no jurisdiction to remove an officer of a corporati(>n
or to enjoin him from acting as an officer, a portion of a decree
depriving such an officer of his salary on the ground of having
violated the by-laws, no fraud being shown, was reversed as
erroneous.^ In New York a statute ^ formerly existed, author-
of the Supreme Court. Ibid., 127. Y.) 195; s. c. 18 Abb. Pr. (N. Y.)
There is a short article on the sub- 16.
ject of amotion, pointing out the dis- * Neall v. Hill, 16 Cal. 145.
tinction between amotion and dis- ^ Ibid.
franchisement; statmg what offenses ' 2 Rev. Stat. N. Y. (1st ed.), 462.
will justify an amotion; how the right This statute provided: «'The chan-
to amove is affected by provisions of cellor shall have jurisdiction over di-
the charter; and the rights and liabili- rectors, managers and other trustees
ties of the officer amoved, — by W. E. and officers of corporations, . . .
Talcott, Esq., in 24 Cent. L. J. 94. 3. To suspend any such trustee or
1 Lord Bruce's Case, 2 Str. 819; officer from exercising his office,
Rex V. Richardson, 1 Burr. 517, 538; whenever it shall appear, that he has
Rex V. Lyme Regis, Doug. 149. abused his trust: 4. To remove any
2 Rex V. Richardson, 1 Burr. 517, such trustee or officer from his office,
539; s. c. 2 Ld. Ken. 85. upon proof or conviction of gross
2 Reg. V. Governors of Darlington misconduct: 5. To direct new elec-
School, 6 Q. B. 682. tions to be held by the body or board
* Taylor v. Hutton, 43 Barb. (N. duly authorized for that purpose, to
632
GROUNDS OF REMOVING. [1 Thomp. Corp. § 804.
izing the judicial courts to suspend a director or officer of a
corporation for certain causes. This, it was held, did not au-
thorize an action by a stockholder to obtain such a removal or
suspension. It was also held that if, in any case a creditor could
maintain such an action under the statute, he must allese in his
complaint the nature of his claims, whea and how they arose,
and the amount due, and he should demand payment before
bringing his suit.^ The courts would not, under this statute, in-
terfere to suspend directors of a corporation on the ground of
their having made improper expenditures touching the business
of the corporation, nor on charges of personal immorality. ^
§ 804. Power Resides in the Body at Large, not in the
Trustees. — By the principles of the common law, the power of
amotion of an officer of a corporation is regarded as a constituent
act, — something which affects the organization of the corpora-
tion, — and therefore something which can only be done by the
corporation at large, and not by the trustees or other governing
body.^ In this respect it stands on the same footing as the
power to elect officers^ and the power to establish by-laws:^ it
must be exercised by the corporation at large, or by its most
numerous body or constituency, unless its charter or governing
statute vests it in a smaller body. But it may be very much
doubted to what extent this principle inheres in the modern law.
In the case of municipal corporations, many corporate officers
are elected by the votes of the qualified voters. But the trial of
an officer before this numerous constituency, with the view of re-
moving him from his office, is unheard of. It would be a re-
vival of the trial before the Athenian Areopagus. Below the
grade of director and such other officers as are elected by the
corporation at large, the general rule is that the officers of [)rivate
supply vacancies created by such re- eleemosynary corporation for rftsZo.va^/?/
moval." This statute vmsrepealed by for refusal to take a newly proscribed
N. Y. Laws of 1880, ch. 245, Kev. St. N. oath of allegiance: State v. Adams, 44
Y. (Banks & Bros. 8th ed.), p. 2G72. Mo. 570.
* Ramsey v. Erie R. Co., 7 Abb. Pr. ^ xiex v. Mayor &c. of Lyme Regis,
(N. 8.) (N. Y.) 15G, 184; s. c. 38 How. 1 Dougl. 149.
Pr. (N. Y.) 193. 4 Ante, § 729.
2 Ibid.y 190. The power of a State « Post, § 956.
legislature to remove trustees of an
633
1 Thomp. Corp. § 804. J amotion of officers.
corporations hold their offices durante bene placito , and are hence
removable by the directors without assigning any cause for the
removal, except so far as their power may be restrained by con-
tract with tlie particular officer, — just as any other employer
may discharge his employe. Speaking generally, it may be said
that the power to appoint carries with it the power to remove.
Thus, a power vested in the trustees of a corporation '* to ap-
point a superintendent, who shall be subject to removal only for "
certain causes, implies a power in the trustees to remove him
for the specified causes.^ On the other hand, the power to re-
move resides only in the body which has the power to ap[)oint,
unless it is vested, by the charter or by statute, in another body.
Accordingly, it has been held that the trustees of an eleemosyn-
ary corporation cannot remove one of their number, in the ab-
sence of an express grant of power so to do, because of the in-
congruity of their possessing the power to remove each other. '^
In this respect, the distinction already pointed out ^ between the
power of amotion and the power of expulsion becomes very
important,for the directors who appoint a ministerial officer may
undoubtedly remove him at pleasure, and he has no remedy
other than an action for damages against the corporation for a
breath of contract. But, on the otherhand, where the power of
expelling a member is vested in the corporation by general lan-
guage, as, for instance, by the words " such corporation shall
have the right to admit as members such persons as they may see
fit, and expel any members as they may see fit," — this power
cannot be delegated by the corporation to its directors.* More-
over, if the power of removal is vested in the trustees by
the governing statute, this power is in the nature of a trust
reposed by the law in them, to be exercised for the good
of the corporation, and they cannot surrender it, or disable
themselves from exercising it 6y a contract -with the officer or
employe.^
1 Ttople V. Hig^ins, 15 111. 110. ' Thus, itwasheld that the trustees
2 Fuller u. Trustees, fi Conn. 532, of the Auburn Acaileray have no power
545. But see State v. Viucennes Uni- to make a contract with a teacher,
versity, 5 Ind. 77. limiting their right •' to remove him
3 Ante, § 799, et seq. at pleasure." Auburn Academy v.
* State V. Chamber of Commerce, Strong, Hopk. (N. Y.) 278.
20 Wis. G3.
634
GROUNDS OF REMOVING. [1 Thomp. Coi'p. § 805.
§ 805. Removal of Officers who Hold at Will. — Before pass-
ing to the consideration of tlie causes for which corporate officers
may be removed, we must renew our attention to the fact that, in
private corporations, the ministerial officers who are not elected
by the corporators at large for stated terms, but who are ap-
pointed by the board of directors, and who therefore sustain
toward the corporation the relation of an employe toward an
employer, serving for a compensation, which in general the
directors do not receive, have no franchise in their office, and
hence are removable at the mere pleasure of the directors, with-
out the assignment of any cause, without the giving of any
notice, and without any trial or investigation into the grounds of
the removal. They are dischargeable, like any other employe,
subject only to their right of action against the corporation for
damages for a breach of the contract of employment. ^ A
mandamus will not be granted to restore such an officer,^
^ Adamantine Brick Co. v. Wood-
ruff, 4 MacArthur (D. C), 218; Burr
V. McDonald, 3 Gratt. (Va.)215. The
board of directors of Girard College
have power to remove an officer there-
of, created by an ordinance of the city
of Philadelphia, without assigning
cause; and may, therefore, di-place
the steward of the college at their
pleasure. See Field v. Directors of
Girard College, 54 Pa. St. 233.
2 Diiiliton V. Stratford-on-Avon, 2
Keb. 641; s. c. Sir T. Raym. 188. Fre-
quent judicial expressions are met
with on this subject in the old cases.
Thus: "Where a man is elected to
hold at will, in which ca-<e he may be
removed at pleasure, without cause
shown; yet if it doth not appear that
the corj)oration hath declai'cd their
will to remove him, this court (the
King's Bench) m:iy grant him restitu-
tion. Quaere: If the removal of the
corporation be not a declaration of
their will." Rex v. Slatford, Comb.
419. In an old case (Anno, 22 Car. 2)
in the King's Bench the question was
whether, where a corporation has an
officer who holds his office durante
bene plarito of the mayor and alder-
men, and they turn him out, and he
prays for a mandamus to be reinstated,
they are bound to show reasonable
cause for turninghimout. This ques-
tion was resolved in the negative, and
a writ of restitution was denied, al-
though the officer had been turned out
without notice. Digliton's Case, 2
Keb. 641 ; s. c. Sir T. Raym, 188. In
another .case, the plaintiff, being one of
the common council of Coventry, was
removed, and sued for a writ to re-
store him. The corporation returned
that they had a custom to elect any
one to be of the common council and
to remove him adlibUnm, and that the
plaintiff was removed, etc. The court
held that tlie return was good; and
this difference was taken: That where
a man is a freeman or alderman, etc.,
they cannot remove him from his free-
dom or place without cause; and in
such case such a custom is void, be-
cause the party hath a freehold there-
in; but to be of council is a thing
collateral to the corporation. Warren's
Case, Cro. Jac. 640. It was held in
another old case that wlicrc an officer
G35
1 Thomp. Corp. § 807.] amotion of officers.
§ 80G. Liord Mansfield's Classification of Grounds of
Amotion. — The grounds of amotion, as stated by Lord Mans-
field, were the I'oHowing: " 1. Such as have no immediate rela-
tion to his office, but are in themselves of so infamous a nature
as to render the offender unfit to exercise any public franchise.
2. Such as are oidy against his oath and the duty of his office as
a corporator, and amount to a breach of tiie tacit condition an-
nexed to his franchise or office. 3. Such as are of a mixed na-
ture, as being an offense, not only against the duty of his office,
but also a matter indictable at common law." ^
§ 807. In what Case there must be a Previous Trial and
Conviction. — In the first of the three cases above catalogued by
Lord Mansfield, offenses which have no immediate relation to the
office, but are in themselves infamous, the officer cannot be re-
moved unless there has been a previous indictment and convic-
tion of the offense; " for," as was said by that eminent judge,
*' though the corporation has the power of amotion by charter
of a corporation was a tenant of the
office at will, that is, was removable at
the will of the corporation, and the
corporation having removed him, and
he having proceeded by mandmmts to
be restored, and they did not rely upon
their mere power to remove him, but
in their return to the mandamus, al-
leged a misdemeanor, and that was
found to be insufficient, — a peremp-
tory mandamiis would issue, and this
fine distinction was taken: " We do
not determine whether there ought to
be a good cause or not for such re-
moval. But suppose it may be without
cause, yet s^till they must determine
their will. Now, they do not return a
determination of his office by their
will, as the reason why they do not
admit him, but the special matter of
his not taking the oaths; therefore,
since his office continues, and this ex-
cuse is insufficient, he ought to be re-
stored." Rex V. Mayor of Oxon, 2
Salk. 428.
^ Rex V. Richardson, 1 Burr. 517,
636
where Lord Mansfield discussed the
whole subject at great length and with
great learning. The same grounds of
amotion were restated by Loi-d Mans-
field in Rex v. Town of Liverpool, 2
Burr. 723, 732. Lord Mansfield's
statement has been approved in nu-
merous American cases: Evans v.
Philadelphia Club, 50 Pa. St. 107, 114,
per Woodward, C. J.; Commonwealth
V. St. Patrick's Benevolent Society, 2
Binn. (Pa.) 441; s. c. i Am, Dec. 453;
Commonwealth v. Guardians of the
Poor, 6 Serg. & R. (Pa.) 4C9; State v.
Chamber of Commerce, 20 Wis. 63.
In these and other American cases it
has been applied to the subject of the
expulsion of members. Post, § 856,
et seq. In Rex v. Tidderley, Siderfin,
14, it was decided that, as a corpora-
tion has power to accept the resigna-
tion of an officer, it for that reason has
power to remove liim from his office;
" et per consequence pur bone cause
potent amover.^^
CORPORATE PROCEEDINGS TO REMOVE. [1 Thomp. Coip. § 807.
or prescription, yet, as to the first kind of misbehaviours, which
have no immediate rehition to the duty of an office, but only
make the party infamous and unfit to execute any public fran-
chise, — these ought to be established by a previous conviction
by a jury, according to the law of the land; as in cases of gen-
eral perjury, forgery or libelling, etc."^ In the second and
third cases mentioned by Lord Mansfield, where the matter con-
cerns the relation of the officer or member to the corporation
itself, it is not necessary, in order to the power of amotion, that
there should first have been an indictment and conviction in the
ordinary course of law; because, in respect of these offenses,
the cor[)oration possesses the power of linal as well as the power
of amotion.^
1 Kex V. Richardson, 1 Burr. 517,
538, 539.
2 Ibid.; overruling on tliis point the
dicta in Bagg's Case, 11 Coke, 99. In
the second resolutiou in Bagg's Case,
11 Coke, 93, it was resolved : " That no
freeman of any corporation can be
disfranchised by the corporation, un-
less they have authority to do it, either
by the express words of the charter,
or by prescription, but if they have
not autliority, neither by charter nor by
prescription, then he ought to be con-
victed by course of law before he can
be removed, and it appears by Magna
Charta, cap. 29, NuVus liber homo
capiatur, vel imprisonetur aut disseisitur
de libero teneincnto sun, vel libertatibus,
vel liberis consnetudinVms siiis, etc.,
nisi per legale judicium pariiim suorum,
vel per Icgim terrcje; and if the corpo-
ration have power by charter or pre-
scription to remove him for a reason-
able cause, that will ha per legem terrce.
But if they have no such power, lie
ought to be orivicted per judicium
parium suorum, etc. ; as if a citizen, or
freeman, be attainted of forgery or per-
jury, orconsjiiracy, at the King's suit,
etc., or of any other crime whereby he
is become infamous, upon which at-
tainder they miy remove him. So if
ho become convicted of auy such of-
fense which is against the duty and
trust of his freedom and to the public
prejudice of the city or borougli wliere-
of he is free, and against his oath, as
if he burned or defaced the charters
or evidences of the city or borough, or
razed or corrupted them, and is there-
of convicted and attainted; these and
the like are good causes to remove
him." The above language, like mauy
of the other so-called resolutions in
the reports of Lord Coke, appears to
consist of the valuable dicta of the
reporter in his private capacity, rather
than of the deliberate resc^lutions of
the court upon the question before
them in judL^ment. So it was subse-
quently viewed by Lord Manstield,
when the question came before the
King's Bench whether a previous con-
viction of a criminal offense was nec-
essary to enable a corporation to re-
move the person guilty of such an
offense from a corporate office or
franchise. Lord Mansfield said:
" Previous conviction was not a cir-
cumstance at all necessary to the
juilginent in that case; for there was
no sufficient cause of amoval at all.
There, too, the actual removal was
by the select body (the m:iyor and
nine of the masters) whiL:h cannot be,
except by charter, by-law, or prescrip-
ts?
1 Thorap. Ci)rp. § 808.] amotion of officers.
§ 808. Misappi'opriating Money: False Charges of Money. —
The mere misemployment of the inoiiey of a corporation is no
tion. There are three sorts of of-
fenses for which an officer or corpora-
tor may be discharged: 1. Such as
liave uo immediate relation to his
office, but are in themselves of so in-
famous a nature, as to render the
offender unlit to execute any public
franchise. 2. Such as are only a'.'ainst
his oath and the duty of his office as
a corporator; and amount to breaches
of the tacit condition annexed to his
franchise or office. 3. The third sort
of offense for which an officer or cor-
porator may be displaced is of a mixed
nature; as being an offense not only
against the duty of his office, but also
a matter indictable at common law.
The distinction hei-e taken by My
Lord Coke's report of this second
resolution seems to go to the power
of trial, and not to the power of
amotion; and he seems to lay
down ' that where the corporation
has power, by charter or prescription,
they may try as well as remove; but
where tliey have no such power, there
must be a previous conviction upon
indictment.' So that, after an indict-
ment and conviction at common law
this authority admits 'that the power
of amotion is incident to every corpo-
ration.' But it is now established
* that, though a corporation has ex-
press power of amotion, yet, for the
first sort of offenses, there must be a
previous indictment and conviction.'
And there is no author! ly since Bagg's
Case which says tliat the power of
trial as well as amotion for the second
sort of offenses is not incident to
every corporation. In Lord Bruce's
Case (2 Strange, 819), the court says
'the modern opinion has been, that a
power of amotion is incident to the
corporation.' We all think this mod-
ern opinion is right. It is necessary
to the good order and government of
638
corporate bodies that there should be
such a power, as mucli as the power
to make by-laws. Lord Coke says
' there is a tacit condition annexed to
the franchise, which, if he breaks, he
may be disfranchised.' Bagg's Case,
11 Coke, 98a. But where the offense
is merely against his duty as a corpo-
rator, he can only be tried for it by
the corporation. Unless the power is
incident, franchises of offices might
be forfeited for offenses; and yet
there would be no means to carry the
law into execution. Suppose a by-
law made ' to give power of amotion
for just cause,' such by-law would be
good. If so a corporation, by virtue
of an incident power, may raise to
themselves authority to remove for
just cause, though not express'y
given by charter or prescription. The
law of corporations was not so well
understood and settled at the time of
Bagg's Ca-e as it has been since.
And 'whether a power of amotion
was incident to the corporation ' could
be no part of the question in judgment
in that case, or necessary to the de-
termination of it. The power ol
amotion was there exercised by the
select body, and the cause was insuf-
ficient; the offense not being any of
the three kinds for which a corpora-
tor could be disfranciiised. And the
distinction there taken as to the mode
of trial, is certa nly not law. For
though tlie corporation has a power
of amotion hy charter or prescription,
yet, as to the first kind of misbe-
haviors, which have no immediate re-
lation to the duty of an office, but
only make the party infamous and un-
fit to execute any public franchise;
these ought to be established by a
previous conviction by a jury accord-
ing to the law of the land ; as in cases
of general perjury, forgery or libeling,
CORPORATE PROCEEDINGS TO REMOVE. [1 Thomp. Corp. § 810.
cause of amotion, when it does not amount to a breach of trust}
But charging the corporati(m with money which the member
never had paid, is a good cause of disfranchisement. ^
§ 809. Bribery- — Bribing a corporator to vote for a par-
ticular candidate at the corporate election; ^ and receiving a bribe,
in the case of a common councilman under a charter conferrinir
power to remove for disorderly conduct,* have been held suffi-
cient to warrant an amotion.
§ 810. Misconduct in Respect of Duties toward the Cor-
poration. — Misconduct, in order to be a ground of removal,
must be specially connected with the execution of the office, and
the result of improper motives.^ Under this head, the act of
etc. We therefore think that the
court was well warranted in Lord
Bruce's Case, to controvert the
authority of the proposition, collected
from what is said in Bagg's Case
' that thera can be no power of
amotion, unless given by charter or
prescription;' and we think that, from
the reason of the thing, from the
nature of the corporations, and for the
sake of order and government, this
power is incident, as much as the
power of making by-laws." Rex v.
Rithardson, 1 Burr. 517, 538, 539. In
an old case, n^on a. mandamus tore-
store to the place of a burgess of
Winton, it was returned, that they
were a corporation by prescription,
and that power was in the mayor and
burgesses to remove any burgess that
shou d do au\ tiling contrary to his
oath, or to the detriment of the cor-
poration upon proof of the offense,
that ht; had put out several officers
contrary to tlie custom, and had razed
the corporation book, putting out one
name and putting in another. This
return was excei)ted to on the ground
that a corporation could not, without
special custom, disfranchise a mem-
ber without proof of the offense by a
trial at law, and this was insisted
upon, upon the authority of Bagg's
Case, 11 Coke, 93. But Lord Holt, C.
J., seemed not to be of this opinion.
He said: " If a man be guilty of per-
jury, forgery, etc., he is not to be re-
moved before conviction; but here
the razing the corporation book, etc.,
is not only an offense at common law,
but against the duty of his place."
But the case was adjourned without
a dt^^cision of the point. Hex v.
Chalk, Comb. 396.
1 Rex V. Chalke, 1 Ld. Raym. 226;
Com. V. Guardians of the Poor, 6 Serg.
&R. (Pa.) 469, 473.
2 Com. V. Guardians of the Poor,
supra. See also Rex v. Mayor &c of
London, 2 Durnf. & E. 177; post,
2 863.
3 Rex V. Mayor &c. of Tiverton, 8
Mod. 186;
* State V. Jersey City, 25 N. J. L.
536.
* Rcgina v. Mayor of Newbury, 1
Q. B. 751, 762; Bagg's Case, 11 Coke,
93. In an old case mandamus was
awarded to restore the relator to his
franchise as a capital burgess, from
which he had been removed for al-
leged failure to pay over moneys re-
ceived for the corporation, in his
capacity of chamberlain, etc. The
639
1 Thorap. Corp. § 810.] amotion of omcERS.
making a riotous disturbance at a corporate election has been
held a good ground of amotion.^ A mere threat or attempt to
do an improper act, no injury actually resulting, has been held
not sufficient.^ In numerous cases at common law, the using of
opprobrious or insulting language to a fellow-member or officer
of the corporation, has been held not ground of expulsion or
amotion.^ But an analysis of the cases shows a strong disincli-
nation on the part of the courts to hold the speaking of
slandef'ous ivords a ground of amotion. A custom of the cor-
poration of London to disfranchise merely for speaking disre-
spectful words to an alderman, at a meeting called a wardmote,
has been held void. It was so held with reference to the follow-
ing words, which were spoken to Sir Robert Jefferyes, one of
the aldermen of London, at a wardmote which was held in a
church : " If I am church warden next year, you shall ask my
leave to keep your wardmote here;" upon which Sir Robert
Jefferyes called the person uttering the words a rogue and a
rascal, to which the latter replied, " I have as much to do here
as you ; you think sure you are here among your Bridewell
birds ; you are mistaken." The point of the last remark lay in
the fact that Sir Robert Jefferyes was also governor of the
Bridewell prison. Lord Holt, C. J., said that,* " since no in-
formation or indictment will lie for these words at common law,
it was a great question, whether this custom, to proceed in an-
reason given was that the allegation Rex v. Mayor &c. of Derby, Cas. t.
of the offenses in the return was not Hardw. 153.
specific and that it did not appear that ^ Bagg's Case, 11 Coke, 93.
the power of amotion lay in the cor- ^ Bagg's Case, 11 Coke, 93, 98;
poration. Rex r. Mayor of Doncaster Clerk's Case, Cro. Jac. 506; Clark's
2 Ld. Raym. 1504; s. c. 1 Barn. 2G4, Case, 1 Ventr. 327; Rex v. Guilford, 1
It was held no ground for amoving the Lev. 162; Rex v. London, 2 Lev. 201;
recorder of an incorporated town that, Regina v. Rogers, 2 Ld. Raym. 777;
acting in his capacity of a voter and Inness v. Wylie, 1 Carr. & K. 257. In
not in his capacity as justice of the Inness v. Wylie, 1 Carr. & K. 257, it
peace, he had given an erroneous opin- was held that a member of a society
ion that it was not competent for the might be expelled for using improper
mayor to adjourn the poll without the language to a fellow-mcraber, though
consent of the candidate^, it clearly no such action is provided for in its
appearing that the opinion was sin- rules, if property rights are not in-
cerely given. Rex v. Corporation of volved.
Wells, 4 Burr, 1999. * Reg. v. Rogers, 2 Ld. Raym. 777.
^ Haddock's Case, T. Raym. 435;
640
CORPORATE PROCEEDINGS TO REMOVE. [1 Thomp. Corp. § 811.
other manner than the common law would allow for words,
would be good. For the common law has provided a particular
method for punishment of scandalous words, viz., binding to the
good behavior; such words being a breach of the peace." ^
There is other judicial authority for the proposition that, even
where the power of removal exists, a trustee cannot be removed
for disrespectful and contemptuous language toward his asso-
ciates, althouo;h the language is of such a character as to be
characterized as " highly indecorous and deserving of the cen-
sure of all honorable men;" and although the language is not
confined to a single occasion, but consists of numerous expressions
on various occasions, misrepresenting the doings of the board,
charging its members with being governed in their official acts
by a s[)irit of sycophancy, falsely charging them with holding
secret meetings, and calling them rascals, scoundrels and Turks?
§ 811. Offenses Touching tlie Corporate Record. — Alteration
of tlie corporate records, with Si fraudulent intent, is ground for
amotion; but the fraudulent intent is essential, and must be
averred; ^ but the refusal to deliver over the corporation books
1 A mandamus has been used to
restore a member of t le common
coimcil of ii borough, who was amoved
from his membersliip iu the common
council, though not disfranchised of
his freedom in rhe corporation, for
spealciug slanderou-^ words of one of
the aldermen, namely, for saying tliat
he was a knave and deserved to be
posted for a knave all over England.
In this case Twisden (who appears to
have been a judge) paid: "That his
place there could no more be forfeited
than his freedom; for he was chosen
thereunto by the custom of the place.
And magna charta is, that a man shall
not be disseized dp, libnris consnetudini-
bus. But he held that words might be
a cause to turn out a freeman, — as if
they were that the mayor or the like
did burn the charters of the town, or
other words that related to the duty
of his })lacc. But in the case at bar
the words do not appear to have been
in reference to the corporation; where-
fore it was ordered that he should be
restored." Jay's Case, 1 Veulris,
302. It has been held not a sufficient
cause of dit<franchuing a member of a
corporalion that he was charged with
" having assisted, as president of the
.society, in defrauding the society of
the sum of fifty cents," or with " de-
faming and injuring the same in pub-
lic taverns." Com. ex rel. v. German
Soc, 15 Pa. St. 251.
2 Fuller V. Trustees, 6 Conn. 532,
546. The court said: "What these
trustees might have done to one of
their number who had committed a
crime which would banish him from
society, it is not necessary to decide."
3 Re.K V. Chalke, 5 Mod. 257; 1 Ld.
Ravm. 225; Mayor &c. of Wigon v.
Pilkington, 1 Keb. 597.
41 041
1 Tliomp. Corp. § 813.] amotion of officers.
intrusted to his custody, as the proper officer, to a person applying
for them with an order from the corporation is not sufficient.^
§ 812. Neglect of Duty. — A ministerial officer of a corpora-
tion, Avho is under the immediate inspection of the trustees, is
removable by them from his office for gross neglect of duty.^
But where the neglect of duty on which it was sought to justify
the removal of a trustee of an eleemosynary corporation consisted
merely in not performing his duty as one of a committee of the
board, in relation to an award of prizes to school children for
declamations, it was said that it could not be seriously insisted
that such an omission should subject him to an amotion.^
§ 813. Non-attendance at Corporate Meetings. — It may
be regarded as settled at common law that a prolonged and
obstinate non-attendance by the officer of a corporation at the
corporate meetings will be good cause of amotion, though a
single or casual non-attendance will not be.* It has been held,
in the case of recorders of incorponited towns, that non-attend-
ance and failure to assist at the sessions to direct the corporation
in the proceedings of justice, was a good cause of forfeiture of
the office of recorder. But this decision rests on the ground that
the duties of recorder are of such a nature as to require his con-
stant presence.^ It was laid down by Lord Mansfield that, in
order to justify the amotion of a corporate officer for non-attend-
ance at corporate meetings which were appointed to be held upon
otJier than upon stated days, it was necessary to show that noticS
of the particular business for which the meeting had been called
had been given to them. An allegation that " due notice was
given of the holding thereof respectively," was not sufficient.^
The non-attendance of a single member of a corporate board is
not necessarily a cause of removal, although the office is of a
• Anon., 1 Barnard. 402; Regina w. •* Rex v. Wells, 4 Burr. 1999.
Bailiffs &c. of Ipswich, 2 Ld. Raym. « Rex v. Bailiffs of Ipswich, 2 Salk.
1232; Rex v. Ingram, 1 W. Bl. 60. 434, 435. See also Rex v. Harris, 1
2 Murdock v. Phillips' Academy, 12 Barn. & Ad. 936.
Pick. (Mass.) 244 (^ro/esso?- in a theo- ^ Rex v. Richardson, 1 Burr. 517,
logical seminary). 527. See also Rex v. Carlisle, 1
3 Fuller V. Trustees, G Conn. 532, Strange, 385.
540.
G42
CORPORATE PROCEEDINGS TO REMOVE. [1 Thomp. Corp. § 815.
public nature. This has been held in respect of the non-attend-
ance of an alderman at the court of sessions, since the non-at-
tendance of one member does not prevent the holding of the
court. ^
§ 814. Ineligibility: Subsequent Election to Another
Office It has been held that the cause for which an officer is
removed must be something which has arisen subsequently to the
admission to the exercise of his office, and that the power of
amotion cannot be exercised for a defect of original qualification.^
On the other hand, the election or appointment to a second office
and the acceptance thereof, the holding of which is inconsistent
with the holding of the former, operates as a removal from the
former. 3 A by-law providing that, " when any director shall
die, resign, neglect to serve, or remove out of the country, the
board may proceed to supply the vacancy," does not empower
the board to create a vacancy. They cannot oust a director be-
cause they differ from the stockholder as to his eligibility, nor
because he fails to attend a called meeting, nor because he is not
a citizen of the commonwealth. Legal questions must be set-
tled in the courts. Questions of fact, such as the existence of
an actual vacancy by removal after election or neglect.of duty
by a member of the board, may be settled by the directors, and
the resulting vacancies, if any, may be filled by them; but this
is the extent of their power in the premises.*
§ 815. Other Grounds of Removal. — Among the causes for
which the right of amotion has been upheld at common law, may
be mentioned the non-residence of aldermen of an incorporated
town,-'"' though a temporary non-attendance was held insufficient ; ^
1 Queen w. Mayor &c., of Pomfret, v. Mayor of Exeter, Comb. 197;
10 Mod. 107. Vauiihan v. Lewis, Garth. 227; Rex v.
2 Rex V. Mayor &c. of Lyme Regis, Mayor &c. of Lyme, Regis, 1 1) .ugl.
1 Dongl. 79. U4. That a change in the boundaries
3 Rex V. Pateman, 2 Durnf. & E. of wards, does not vacate the office of
777; Staniland v. Hopkins, 9 Mees. & a couucilmaii, see Scoville v. City of
W. 178. Clevohmd, 1 Ohio St. l_'(i.
* Detwiller v. Commonwealth, 131 ^ i^^x v. Leicester, 4 Burr. 2087,
Pa. St C14; s. c. 18 Atl. Rep. 990. 2089. Compare Ex parte Butler, 1
* Rex V. Truebody. 2 Ld. Raym. Atk. 215; Rex v. Harris, 1 Barn. & Ad.
1275; s. c. 11 Mod. 75; Holt, 449; Rex 936; Vaughan v. Lewis, Carth. 227;
043
1 Thomp. Corp. § 815.] amotion of officers.
the omission to take the oath of office; ^ in the case of an alder-
man, being too poor to pay his luunicipal taxes.^ But on the
other hand, the mere fact that the member of a common council
of an incorporated town became bankrupt^ was not ground of
removal, in the opinion of Lord Mausfiehl, since it did not dis-
able him from discharging his corporate duties.^ So, it has been
Rex V. Exeter, Comb. 197; i Mod. 33;
Rex V. Doucaster, Say. 37.
^ Where the return to a mandamus
showed that the ground of removal
was that the persoa entitled to hold
the oflice had failed to take the oath of
allegiance, the question was stirred
whether, under such circumstances,
the party must take the oaths at his
peril or whether the magistrate must
tender them to him. It was held that
he must take them at his peril, that the
magistrate nei-d not tender them to
him, biit he must tender hira-^elf to the
magistrate and demand them, and if
it be refused, must sue out a manda-
mus, and the magistrate is punishable.
Rex V. Miyor of Oxon, 2 Salk. 428.
Compare Rex v. Master &c. of St.
John's College, Skiuu. 546; Rex v.
Ellis, 2 Strange, 994. As to a retlued
distinction between swearing by and
before the mayor, see Rex v Ellis, su-
pra.
2 Rex V. Mayor &c. of Andover, 3
Salk. 229.
3 Rex V. Mayor &c. of Liverpool,
2 Burr. 723. " His mere being a bank-
rupt," said Lord Mansfield, " is no
objection to his continuing a corpora-
tor; it is no offense against the duty
of his office. He may become a bank-
rupt without his own fault. And
there is no census requisite as a quali-
fication to bi a corporator. Indeed
some one or more of the consequences
of bankruptcy m.iy eventually become
a cause of amotion: but the bank-
ruptcy itself is not so. A man may be
able to pay above twenty .shillings in
the pound, notwithstanding his being
in strictness a bankrupt; or he may
644
very soon obtain a certificate, after
the commission is issued. It is no
offense against the law of the land.
Bankrupts are not now considered
as criminals, whatever the old act
may intimate of this kind. A man
may certainly be a bankrupt, without
being guilty of any crime wha' soever,
and may really be worth a large sur-
plus on a balance. Sir Stephen Evans
and the Woodwards and many others
have been instances of this. And this
disfranchismg for becoming bankrupt
m-ght be made a very bad use of, by
juntoes in corporations, or under par-
ticular circumstances, and with par-
ticular views. A run upon a man of
great fortune and credit may be art-
fully managed so as to reduce him to
bankruptcy. And there is no differ-
ence between a common councilman's
becoming a bankrupt, and an ordinary
freeman's becoming so. As to the
trust and power over the revenues of
the corporation — this man is only one
member of the number of one and
forty, who have amongst them the
the power of voting corporate acts :
but he has nothing to do with the re-
ceipt, or trust, or management, or
fingering of the money; nor can have
anything to do with it, unless the rest
should, by a corporate act of their
own, trust him with it. Therefore
the having become a bankrupt, and not
having obtained his certificate under
the commiision awarded against him,
is not, of itself alone, sufficient to dis-
qualify him from being a member of
the common council of this town;
whatever might have been the case, if
certain eventual consequences had
CORPORATE PROCEEDINGS TO REMOVE. [1 Thomp. Corp. § 817.
held that old age is not a suflScient ground of removing an alder-
man ; 1 nor is intoxication^"^ unless it reaches the grade of habitual
drunkenness.^ The fact that a member of a city common coun-
cil has been expelled from office does not render him ineligible
for re-election, and if re-elected he cannot be again removed for
the same cause.* And in general, where there is ii franchise in the
office, so that it is in the nature of property, and hence under the
protection of the law, the officer cannot be removed on grounds
of mere expediency or convenience, or unless he has forfeited
his office for one of the causes mentioned in the statutes of the
institution.^
§ 816. Statutory or Charter Power of Removal. — As al-
ready'' stated, where the organic law is silent, the corporation
possesses the inherent power of removing its officers.® But where
the charter prescribes the terins under which the power is to be
exercised, they must be pursued.^ If the governing statute de-
fines the causes for which an officer may be removed, he cannot,
it has been held, be removed for any other cause, — the statute
being interpreted in conformity with the principle expressio unius
exclusio alterius? So, the power, conferred by the charter, of
expelling, has been held not to authorize a suspension.^ A pro-
vision in a governing statute, or in the foundation of a private
charity, that visitors " shall and may " remove officers, for speci-
fied causes, is imperative; in such a case " shall and may " are
equivalent to must.^°
§ 817. What Corporate Action Necessary. — Some corporate
action is of course necessary to remove a corporate officer —
happened to follow therefrom." Rex « Ante, § 802.
V. Tovvu of Liverpool, 2 Burr. 723, ' State v. Treasurer of Vincennes
7.32; s. c. 2 Esp. 3-'4. University, 5 lud. 77.
1 Hazard's Case, 2 Rolle, 11. ^ Shaw v. Mayor &c. of Macon, 19
2 Rex V. Taylor, 3 Salk. 231. Ga. 4(;8.
3 Taylor u. Gloucester, 1 Rolle, 409; ^ State v. Jersey City, 25 N. J. L.
s. c. 3 Bulst. 109. 536.
* State V. Jersey City, 25 N. J. L. i" Attorney- General v. Lock, 3 Atk.
536. 164.
* Murdock v. Phillips Academy, 12
Pick. (Mass.) 244.
645
1 Thomp. Corp. § 817.] amotion of officers.
something that distinctly signifies the corporate will that he sliall
no lon«"er be an officer.^ In those cases where ll)e office is in the
nature of a franchise, the officer cannot ho removed without the
agency of a tribu)ial, competent to investigate the cause, and pro-
nounce the sentence of the loss of right. The office is not ipso
facto vacant by neglect or abuse; wrongs do not thus execute
their own punishment ; but an act done, or the exercise of power,
is requisite to work the forfeiture, and determine the title to the
office.^ Provisions in the articles of an English banking com-
pany, that if any person chosen to act as the public registered
officer of the company should become bankrupt, he should be
disqualified and his office become vacant, have been construed to
mean that his office was to become vacant at the election of the
compaivj ; but if, after the bankruptcy, they treated and held him
out to the world as their public registered officer, they might sue
and be sued in his name.^ Under the conceptions of the old law,
an officer appointed under the common seal could only be dis-
charged by an instrument authenticated in the like manner.^
But, as we shall see hereafter, the necessity of a corporate seal
as an evidence of a corporate act, is no longer required by the
modern law, except in those cases where an individual, acting in
the same way, would be required to act under seal.^ Even under
old conceptions, it was not necessary that the removal of a mere
ministerial officer should be made by the corporation under its com-
mon seal.® An officer appointed by resolution only, and holding
during pleasure, might be removedbyamere resolution rescinding
the former one.^ Resolutions of a corporation suspending or re-
moving an officer, in a place at a distance, are not to be regarded
as taking effect^ so as to terminate the liability of h\'S, sureties , until
1 Murdock v. Pliillips' Academy, 12 655; 1 Dowl. & L.642; 13 Law J. (n. 8.)
Pick. 244; Doremusw.Dutcli Reformed Exch. 324; 8 Jur. 218.
Church, 3 N. J. Eq. 332; State •;;. ^ Rex u. Chalke, 1 Ld. Raym. 225;
Trustees of Vinceunes University, 5 Rex v. Mayor &c. Rippon, 1 Ld. Ra.\m.
Ind. 77; Rex v. Ponsonby, 2 Brown P. 5G3.
C. 311; Rex v. Heaven, 2 Durnf. & E. '-^ Post, § Ch. 106, Art. I.
772; Cora. u. Pennsylvania &c. Insti- ^ Dighton v. Stratford-on-Avon, 2
tute, 2 Serg. & R. (Pa.) 141. Keb. 641.
2 State V. Trustees of Vincennes ' Regina v. Thomas, 8 Ad. & E.
University, 5 Ind. 77. 183; 3 Nev. & P. 2S8; 2 Jur. 347; Rex
8 Steward v. Dunn, 12 Mees & W. v. Chalke, 1 Ld. Raym. 225.
646
COEPORATE PROCEEDINGS TO REMOVE. [1 Thomp. Coi'p. § 819.
the necessary time for communicating them has elapsed. ^ If an
officer be liable to removal at the pleasure of the corporation, the
choosing another person to fill the office is a declaration of the
pleasure of the corporation.^
§ 818. Power must be Exercised at a Corporate Meeting. —
The power to amove an officer, whether possessed as incident to
the corporation at large, or vested in a particular body, must ap-
pear to be exercised at a meeting duly assembled and holden in
the corporate character, or at least holden in the character by
virtue of which they are empowered to amove. Thus, where it
appeared, by tlie return to a mandamus that the common council
had the power of amotion, and it was alleged as a fact that the
party complaining v/as removed by thirty of the common council-
men, in the council chamber assembled, the court held this to he
insufficient, because it did not appear " that the thirty council-
men, in the council vv^ere then and there assembled as a common
council — as they might be there to feast, or for other purposes
not connected with their corporate character." ^
§ 819. And by a Majority Vote. — As already seen in re-
spect of corporate elections,* the general rule, in the absence of
different provisions in the charter, governing statute or valid
b^^-laws, is that, where a quorum is duly assembled, a majority
of the quorum may decide any question which comes before the
meeting. Accordingly, it has been held, under a charter which
requires corporate acts in general to be done by a majority of
the corporation, that an officer, if a member, can only be removed
by a majority of all members, counting Jtimsdf. Amotion being
an act of an odious nature, all clauses of the charter concern-
ing it must receive a strict interpretation. The officer is not ex-
cluded from voting, as a member, upon the question, by his
personal interest.^
i McGill V. Bank of UuiLed States, * Ante, § 725, et seq.
12 Wheat. (U. Sj 511. * Reg. v. Sutton, 10 Mod, 74. The
2 Rex V. Mayor of Canterbury, 1 1 return to a mandamus to restore an
Mod. 403; 1 Strange, 674; Attorney- alderman who had been amoved upon
General v. Corporation of Poole, 8 divers char<ies, alleged tiiat the power
Beav. 75. had been executed per majorem et
* Rex V. Taylor, 3 Salk. 231. bergenses (by the mayor and bur-
G47
1 Thomp. Corp. § 820.] amotion or officers.
§ 820. Necessity of Notice and a Judicial Inquiry. — If the
officer lias no francJilse in the office, — if, in other words, the
nature of the office is a mere employment, so that he is removable
ai 2)! ensure, — then, in conformity with principles already stated,^
he is not entitled to notice of any investigation into his conduct
with the view to his removal, or of any proceeding to remove
him.^ But the corporation may discharge him, as any other em-
ployer may discharge his employe, without assigning any cause,
but subject to the liability of an action for damages for breach
of contract, if by discharging him its contract with him is broken.
But where there is 2i franchise in the office — where the right to
hold it IS analoo;ous to the rijjht of a member to hold his mem-
bership, — then, by analogy to principles hereafter stated in re-
gard to the expulsion of members of corporations,^ the officer is
entitled to notice of any proceeding to investigate his conduct,
with a view to his removal, and of the grounds of complaint, and
to a fair opportunity to be heard in the defense ; otherwise hia
removal will be void.^ It is, in general, absolutely necessary,
not only that he should be summoned generally to attend, but
that he should have a particular summons to attend and answer
the particular charge alleged against him ; for it would be highly
unjust, upon a general summons, to remove a man for particular
offenses, which he may have had no opportunity of preparing to
answer.^ He is entitled to have the offense with which he is
charged " fully and plainly, substantially and formally, de-
scribed to him." ^ In a case carrying with it the great authority
of the name of Lord Coke, it is said ; " And although they have
gesses) generally, and It was held 723; Rex v. Mayor &c. of Doncaster,
that this was sufQcient; but the case Id. 738. Jarvis v. Mayor &c. of N. Y.,
is obscure and not of much value. 2 N. Y. Leo;. Qbs. 396.
Rex V. Brayfield, 2 Keb. 488. ^ Delacy v. Neuse Navigation Com-
i Ante, § 805. pany, 1 Hawks (N. C), 274:; s. c. 9
2 Rt:x V. Mayor &c. of Coventry, 1 Am. Dec. CSG ; Commonwealth i;. Penn-
Ld. Raym. 391; 2 Salk. 430; Rex v. sylvauia Beneficial Institution, 2 Serg.
Mayor &c. of Oson, 2 Salk. 428; Rex & R. 141; Black &c. Society u. Van-
V. Mayor &c. of Canterbury, Stra. 674; dyke, 2 Whart. (Pa.) 309 ; City of Exe-
Dighton V. Stratford-on-Avon, 2 Keb. ter ?7. Glide, 4 Mod. 33; Bagg's Case,
641; Rex v. Deighton, 2 Keb. 650. 11 Coke, 93.
» Post, § 881, et seq. ^ Murdock v. Phillips' Academy,
^ Rex V. Richardson, 1 Burr. 517; 12 Pick. (Mass.) 244; Murdock' s Ap-
Rex V. Mayor &c. of Liverpool, 2 Burr. peal, 7 Pick. (Mass.) 303.
648
CORPORATE PROCEEDINGS TO REMOVE. [1 ThoDip. Corp. § 820.
lawful authority, either by charter or prescription, to remove any
one from the freedom, and that they have just cause to remove
him ; yet if it appears by the return, that they liave proceeded
against him without hearing him answer to what was objected,
or that he was not reasonably warned, such removal is void and
shall not bind the yynviy ; quia quicwique aliquid staiuerit parfe
inaudita altera^ oequam licet statuerit, haud cequus fuerif, and
such removal is against justice and right," ^ In considering the
legality of the removal of a professor in an incorporated institu-
tion of learning, the Supreme Judicial Court of Massachusetts
held that the proceeding to remove such corporate officer is ixjudi-
cial proceeding , and that to render it legal, there should be: (1)
a monition or citation to him to appear; (2) a charge given to
him, which he is to answer; (3) a competent time assigned for
proofs and answers; (4) liberty of counsel to defend him, and
to except to proofs and witnesses; and (5) a solemn sentence
after a hearing of proofs and answers.^ The notice seems to be
in the nature of nn indictment, in so far that, if an officer, after
being notified that he will be tried upon a certain charge, is
tried upon a different charge and removed upon such charge, the
variance will be fatal, and he will be restored by mandamus.'^
Though the summons to the officer, against whom the proceeding
to remove him from the office is taken, be defective, as where
it fails to set a time when he should appear, yet if he did appear
^ Bagg's Case, 11 Coke Rep. 99. moned at a meeting, and that he was
' Murdock v. Phillips' Academy, 12 removed on the same day on which
Pick. 244. In an old case of mandamus this meeting took place, to wit, on the
to restore an alderman who had been 18th of December, 16G8. Eexu. Bray-
removed from his office on divers fie d, 2 Keb. 488.
charges, it was returned that the 3 jt was so held, where the notice
meeting to which the alderman had to the recorder of aa incorporated
beeu summoned and the amotion were town " was to answer as to his non-
on the same day, and it was argued attendance at a session of oyer and
that this was not reasonable notice. terminer, and therewith he was
For the corporation, the contention charged; whereas he was turned out
was that the notice was sufFicient, the for non-attendance at a sessions of
defendant being in town and notrequir- thepeace, audanswered tothat, though
inglongertime. Thecourtheldthatthe not charged therewith; which the
summons was sufficiently alleged, but court held incurable and fatal, and
the case is somewhat obscure upon ordered a peremptory mandamus.''^
this point. It would seem froui the Reg. i?. Bailiffs of Ipswich, 2 Salk. 434,
report that the alderman was sum- 435; s. c. 2 Ld. Raym. 1232.
649
1 Thomp. Corp. § 821.] amotion of officers.
and answer this will cure the informality of the notice; "for
though a man ought to be prepared and have convenient time for
that, yet he may waive its benefit if he will." ^ Courts of equity
proceed on the same principles, where they acquire jurisdiction
on the ground of trust. Where the power to remove is not ab-
solute, at the mere will and pleasure of the trustees, such as the
power which the master exercises over his servant, but is a dis-
cretionary power, to be exercised in the due execution of the
powers and trusts reposed in them, so th;it it is under the con-
trol of the court of chancery, a removal upon an ex parte hear-
ing, without giving the officer an oi)portunity of being heard or
of making: a defense, will be set aside. ^
§ 821. Exception in tlie Case of Continued Desertion and
K"on-Residence. — The old cases, or at least some of them, went
upon the doctrine that, where the officer of a corporation was
removed by reason of continued non-residence, no notice to show
cause why he should not be removed was necessary.^ In one
case it was strongly pressed upon the court, that the officer had
not received any such notice or summons to attend and show
cause, that it was contrary lo natural justice that a man should
be disfranchised without being heard what he had to say for him-
self; but the court disallowed this objection, saying: *' If a cap-
ital bui'gcss quite leaves the borough, and goes and resides alio-
gether in another place, there is no need of summoning him
before he is removed; and it is sufficient ground for turning him
out ; otherwise, if he only left the borough for a while for his
health's sake."*
1 Reg. V. Bailiffs of Ipswich, 2 Salk. 11 Modera Mr. Justice Powell is made
434, 435; Rex v. M;iyor &c. of Wilton, to doubt wlieiher it was necessary to
2 Salk. 428; Rex v. Chalke, 1 Ld. summon him. In another old case,
Raym. 225. three of the judizes held that, where an
2 Willis V. Child, 13 Beav. 11 7; posf, alderman liad been removed fr-im his
§ . office because he had left the city and
3 Rex V. Leicester, 4 Burr. 2087, coutinued to reside elsewhere, it was
2089. not necessary for the maudanms sued
•* Rex V. Truebody, 2 Ld. Raym. out to rest(n-e him, to show, in order
1275; s. c. II Mod. 75; Holt, 449. Ac- to be good, that he had been sura-
cording to the report in 11 Modern, moned to an? wer those matters which
and in Holt, Trueboily had been sum- were alleged against him in the return ;
moned to attend and did not; but in it was sufficient that it showed that
650
CORPORATE PROCEEDINGS TO REMOVE. [1 Thoilip. Coip. § 823.
§ 822. Conduct of the Trial : The Evidence. — It does not
follow from the preceding, thiit the corporate judicatory is
obliged to conduct the trial with all the formality and under the
rules prescribed for a trial in a court of law.^ For instance,
where the trial took place before the visitors of a charitable cor-
poration, it was held that they were not required to conduct it
with open doors, nor to admit more than one witness at a time.'^
Nor were they obliged to admit the declarationa of the a"cused
in explanation of his conduct, though they might do so if they
should think proper.^
§ 823. Assembling a Meeting for the Trial : Notifying the
Members. — As hereafter pointed out, when speaking of a
meeting assembled to try a member with the view to his expul-
sion, it must be kept in mind that, by the principles of the
common law, all who are entitled to participate in the trial must
be summoned. As already seen with reference to corporate
elections, if the body is not composed of any definite number, a
majority of those who actually attend may usually act; * where-
as if it is composed of a definite number, such as a lioard of
directors or trustees, or a defined corporate judicatory, it is not
only necessary that all should be summoned, but a vote of a
majority of all is necessary to pass the sentence.^ In respect of
the manner of notifying the members who are entitled to partici-
p.ite in the trial, in the absence of a rule prescribed by a govern-
ing statute or by-law, the customary method employed by the
corporation will be sufficient. Thus, where it had been for many
years the custom of an incorporated medical college to notify
the members of its board of trustees of meetings of the board, by
mailing to each rhember a postal card, it was held that such a
he was summoned generally. Lord other judges held that the general al-
Holt expressed the opiuiou that if his legation of a sumraous in the return
desertion be a cause of removal, yet was sufficient, and a mandamus was
if he returned before his removal and refused. Rex v. Mayor of Exeter,
resiiled in the city, then he ou^jht to Coinb. 197, 108.
be summoned; but he admitted that ^ Post, § 893, et seq.
the summons was not necessary where ^ Murdock's Appeal, 7 Pick. (Mass.)
the parly is always out of the city. 303.
" And here," said he, " certainty is ^ Ilnd.
required to every intent, because the * Ante, § 725.
party hath not answered." But the <> Ante, ^ T26.
651
1 Thomp. Corp. § 824.] amotion of opficers.
notice was suflScieiit, for the purpose of assembling the board to
remove a person who held the office of professor in the college,
and that it would he pi-e.mmed that notices so mailed had been
received.^
§ 824. Instances under tlie Foregoing Rules. — A committee
of the trustees of au incorporated institution of learning, appointed to
inquire into its affairs, examined the professor,"! and others, and made a
report respecting one of the professors, founded on statements made by
himself, and by others who were not examined in his presence. The
trustees, without notice to him, voted that, in view of the report, etc.,
his connection with the institution ought to be dissolved. After failing
to induce him to resign, a committee of the trustees made a report
recommending his removal, and sent a copy of it to him, informing him
that he might make any communication in regard to it, and might have
the aid of counsel in preparing testimony or arguments, but that he
could not be heard by counsel ; and did not offer to file specific charges
and maintain them by proof in his presence, and refused him access to
the documents on which their report was (in part, at least) founded,
and which related to the charges intended to be relied on ; and, upon
his refusing to appear before them, they voted on the reasons and facts
stated in the report, and without other evidence or hearing, that the
report be accepted, and that he be removed from oflfice. It was held
(independently of the first vote of the trustees, by which they disquali-
fied themselves to act judicially on the question of removal) that the
professor had not had the benefit of a ti'ial, and that the vote of the
trustees was ineffectual to remove him from his office. 2 _ _ _ _ An
act of the legislature of lUinois, estabhshing the " Illinois State Hos-
pital for the Insane," incorporated certain individuals and their suc-
cessors in office, as trustees, constituting them a body politic, and it
also created the office of medical superintendent of that institution, and
provided that the trustees should have charge of the general interests
thereof ; that they should appoint the superintendent, assistant physi-
cian and steward, and fix the amount of their salaries ; that the super-
intendent should be a skillful physician, and be appointed for the term
of ten years, and that he should be subject to removal only for infidel-
ity, or on account of incompetency. It was held that the trustees had
the right to remove the superintendent for the causes specified, when-
1 People V. Albany Medical College, ^ Murdock v. Phillips Academy, 12
26 Hun (N. Y.), 348; (reversing s. c. Pick. (Mass.) 244.
10 Abb. N. C. (N. Y.) 122; 62 How.
Pr. (N. Y.) 220.)
652
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Corp. § 825.
ever either of them existed ; that, had the law been silent as to the ten-
ure of the office, and on the subject of removal, the court would not
hesitate to hold that the power of amotion was incidental to that of ap-
pointment, and that the trustees might remove the superintendent with-
out assigning a specific cause, whenever, in their judgment, the best
interests of the institution should require it. The court took the view
that, in cases of this sort, where the law is silent as to the mode of pro-
ceeding, reference must be had to the nature of the case, to determine
what course justice requires the removing power to pursue in exercising
its jurisdiction. It is not necessary that the cause assigned for removal
should be stated in the precise language of the statute ; if it embraces
it, that is sufficient.! - - - - The distinction between these two
cases grows out of the different conceptions which the two courts en-
tertained of the rights of the corporate officer, under the principles of
the common law and the provisions of the charter. The Massachusetts
court proceeded upon the ancient common-law conception that such an
office is in the nature of property, and that the incumbent of it cannot
be deprived of the property right which he possesses in it without due
process of law. But the Illinois court regarded it as a mere employ ment,
under which the officer held under the trustees of the institution durante
be7ie placito, and was hence removable without notice or a trial.^
§ 825. Review of Proceedings by Certiorari. — In the case
of public municipal boards, the writ of certiorari, as itexi.sted at
common law, is used to review their proceedings. In strict-
ness, it is supposed that the office of this writ, when so used, is
limited to keeping the inferior board within its jurisdiction,
which it effects by quashing its proceedings, when they are had
in excess of its jurisdiction. But the reviewing courts proceed
on grounds so loose, that some of their decisions amount to an
affirmation of the view that whenever the board acts illegalhj, in
a sense violative of the rights of the petitioner, they act beyond
1 People V. Iliggins, 15 111. 110. the common law of England, as to the
2 The law of Massachusetts iu re- visitation of eleemosynary corpora-
gard to the particular institution tion<, was the law of Massachusetts,
seems to have been peculiar in this, except so far as it had been repealed,
that the visitors were empowered to as to the visitors of tlie particular in-
hcar appeals from the decisions of tlie stitution, by the statute of 1823, ch.
trustees, and to review and reverse 50, § 3, which gave an appeal to the
any censure pas'^ed by the trustees Supreme Court from tlieir decrees or
upon any professor, and to admoni-h sentences. Murdock's Appeal, 7 Pick,
or remove a professor f >r neglect of (Mass.) 303.
duty, etc. The court also held that
653
1 Thomp. Corp. § 826.] amotion of officers.
their juiisdiction. In New York it is said tliat only errors of
law affecting materially the rights of parties may be corrected in
this proceeding, and that the evidence may be examined, in order
to determine whether there is any competent proof io justify the
adjudication which has been made.^ On the other hand, it has
been decided that " if the inferior tribunal had jurisdiction, and if
there was evidence legitimately tending to support its decision, and
if no rule of law was violated, its adjudication was final." ^ It has
been added, in respect of a proceeding by certiorari to review the
act of aboard of police commissioners in dismissing the petitioner
from the police force: "As the board of commissioners do not con-
stitute a court, its proceedings are not to be controlled or decided
by the same degree of formality that would be required upon a
charge of a criminal offense before ordinary tribunals of justice.
A general charge made, such as is here presented [a charge of
neglect of duty, specifying it] would seem to be sufficient to
answer the purpose intended, and within the requirement of the
law under which the proceeding was conducted " ^ From the
foregoing ol>servations and quotations, it would seem that this
writ is used in New York as largely as a writ of error, on a
record containing a bill of exceptions, would be employe' I.* It
should be added that no precedent has come to the attention of
the writer for the use of the writ of ceriior iri for the pur-
pose of reviewing the proceedings of the judicatories of strictly
private corporations or societies, in removing their officers or
expelling their members.
§ 826. Extent of Relief in Equity. — The jurisdiction of
equity over corporations is generally confined to the two heads of
trust and fraud. It has no power to declare a forfeiture of a
1 People u. Board of Police, 69 N. Y. pie v. Police Commissioners, 20 Hun
408. (N. Y.), 402.
2 People V. Board of Fire Commis- * See generally as to the office of
sioneis, 82 N. Y. 358, These priuci- this writ, Jordan v. Ilayne, 36 Iowa,
pies were reaffirmed in People v. 9,15; Hannibal &c. R. Co. tj. Board of
Board of Police Commissioners, 93 N. Equalization, 64 Mo. 294; House v.
Y. 97. Clinton County Court, 67 Mo. 522;
3 People V. Board of Police, 93 N. State v. Chica'j;o &c. R. Co , 89 Mo.
Y. 97. See also People u. Police Cora- 34; Chicago &c. R. Co, y. Young, 96
missioners, 23 Hun (N. Y.), 353; Peo- Mo. 39.
654
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thoilip. Corp. § 826.
charter. 1 Nor can it wind up a corporation, except where the
power is given by statute, or where it comes to it as an incident
of some of the heads of its jurisdiction. It has no superintend-
ence over the officers of a corporation, except to hold them
answerable, and to restrain them, in cases of frauds and breaches
of trust, and to compel them to account as trustees. ^ It has no
power to award an injunction, indefinitely suspending an officer
of a corporation from the exercise of his functions; for this is
an indirect mode of removing him from ofiice, and the power of
amotion does not reside in the judicial courts, and especially not
ill the courts of equity.^ But, as hereafter seen, this jurisdiction
is constantly involved in the case of expulsions from unincorpo-
rated societies,^ m the case of schisms in religious corporations,^
and in even the case of other corporations.^ But it has been
refused, to reinstate directors who have been removed by a vote
of the shareholders.^ Where, under the statute or other instru-
ment which governs the execution of a </■Ms^ the trustees have
the power of removing an officer at will, an officer removed by
them will be reinstated by a court, if it appear that they have
exercised their power dishonestly or corruptly ; otherwise not.^
1 Post, I Cbs. 91, 155. trary lies upon those who object to
2 SeeNeal V. Hill, 16 Cal. 145. the manner in which the power has
3 Griffin v. St. Louis &c. Asso., 4 been exercised. No reasons need be
Mo. App. 595. given; but if they are given, the court
< Post, § 910. will looli at their sufficiency. . . .
6 Post, § 911. The real question is, whether this reso-
6 Post, § Ch. 89. lution [of dismissal] is valid; and it
T Inderwick v. Snell, 2 Hall & T. must be so if it is the result of the
412: 14Jur. 727; 19 Law J. Ch. 542; fair and honest opinion of the gov-
2 Macn. & G. 216. eruing body. . . . With them the
» " I think," said Sir R. Malins, V. legislature has left the decision of
C, "the clear result of the numerous that question; and so it must be
authorities cit^ d on both sides in the left by this court, unless I can see that
argument in this case, is, that all ar- a decision has been arrived at for
hitrary powers, such as the power of some corrupt, improper or collateral
dismissal, by exercising their pi as- object. ... It is impossible for
ure, which is given to this governing this court, when Parliament has put
body, may be exercised without as- it so absolutely in the power of the
signing any reason, provided thi y are governing body, to interfere. I re-
tairly and horn stly exercised, which peat that, according to the construc-
they all must be presumed to have tion of the act of Parliament, ray
oeen until the contrary is shown, and opinion is, that every head-master of
tnat the burthen of showing the con- a public school, that is of the great
655
1 Thomp. Corp. § 828.] amotion of officers.
§ 827. Illustration : Dismissal of Schoolmaster under En-
glish Public School Act of 18GS. — The plaintiff, who was appointed
head master of Rugby School, in November, 1869, by the old trustees of
the school, who were then the governing body, was dismissed by the new
governing body, appointed under the Pubhc School Act of 1868, in De-
cember, 1873. He filed his bill in equity against the governing body,al-
lesrinof that his dismissal was due to the influence of certain members of
the governing body who, prior to their election, had shown hostility to the
plaintiff's appointment, and had formed a scheme to procm-e its annid-
ment ; and prajang that the resolution of dismissal might be declared m-
vaUd. It was held, on demurrer, by Sir R. Malins, V. C, that the court
was not justified in interfering. It was also held that, although the
plaintiff was appointed by the old trustees in 1869, the new governing body
were not bound by the rules and regulations in force previously to their
appointment, but had a power of dismissal unfettered by those restric-
tions. The Vice Chancellor i^roceeded on the ground that, under section
13 of the above statute, the new governing body had power to dismiss the
plaintiff without notice and without assigning any reason ; and that, as
they had exercised their power of dismissal fairly and honestly and not
corruptly, or for the purpose of effecting some collateral object, their
decision was not subject to be re-tried by the court. ^
§ 828. ^Vliere the Power to Remove is Discretionary in the
Due Exercise of the Powers of the Trustees. — A conclusion
somewhat different from the foregoing was reached by Lord Romill}^
M. R. , in a case where the power was given to the trustees to remove
the schoolmaster, " upon such grounds as they should at their discre-
tion, in the due exercise and execution of the powers and trust reposed
in them, deem just." It was held that this was not a mere arbitrary
discretion of removal, but that it was a discretion subject to the control
of the Court of Chancery ; and further, that it was not competent, in the
exercise of such discretion, for the trustees to remove the schoolmaster
upon an ex parte examination of charges against him, without giving
him an opportunity of being heard and of making a defense.^ In so
public schools, — for I believe every that they exercise their discretion
one of them is subject to this act, — properly unless the contrary is
(rcferringto the Public Schools act of shown." Hayman v. Governors of
1868, 31 & .32 Vict. c. 118) — that every Rugby School, L. R. 18 Eq. 28, 68, 85,
heacl-mas'er is as much at the mercy 87; s. c. 30 L. T. (n. s.) 217. See
of the governing body as a coachman post, § 917.
is at the mercy of his master, and can ^ Hayman v. Governors of Rugby
be dismissed with or without reason; School, L. R. 18 Eq. 28; s. c. ."0 L.
they are not obliged to give a"y reason T. (x. s.) 217.
whatever, and the court must presume ^ Willis v. Child, 13 Beav. 117.
650
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Corp. § 839.
holding, Lord Romilly, M. R. said: " The powers which are given in
such a case as this, hke all powers to be exercised for the benefit of
others, or for purposes more or less public, must, in one sense, be deemed
to be held in trust. There are many powers, in that sense, held to be
trusts, which cannot be enforced or controlled in this court. But
here is a power defined by this court for the purpose of canying into
execution a charitable trust, and, it must, I think, be considered, that
the word ' trusts ' was added to the word ' powers ' for the purpose of
keeping in view that it was a trust for the execution of which the court
was providing ; and the emplo3-ment of the word ' trust,' especially when
considered with reference to the direction to preserve a statement of the
grounds of removal, appears to me to have the effect of restricting the
large meaning of the word ' discretion,' contained in the earher part
of the clause. I am, therefore, of opinion, that the regulation does not
confer upon the trustees an arbitrar}'^ power to dismiss the master, upon
any grounds which they may deem just, free from any control of this
court. Considering that the trustees are not the only and absolute judges
of the sufficiency of the grounds of removal upon which they have acted,
and that they are subject to the jurisdiction and control of this coui't in
the execution of the trusts reposed in them, it becomes necessary to in-
quire into the manner in which they have acted in the present case."
And being satisfied that they had acted improperly, his lordship granted
an injunction to restrain them from removing the schoolmaster.^
§ 829. Mandamus to Reinstate. — Mandamus is the ancient
remedy at common law to restore an officer of a corporation
who has been unlawfully amoved.^ The use of this writ in the
English King's Bench extended only to matters of public right,
and therefore it was not granted to restore an officer of a
strictly private corporation.^ But the ancient corporations in
1 Willis V. Child, 13 Beav. 117, 129, tion of Canterbury, though a fran-
2 Fuller V. riainfleld Academic chise for life, being ouly private; so
School, 6 Coun. 532. of solicitor; contra of town clerk."
3 Hence, an application for a writ Hurst's Case, 1 Keb. 349. Where
to be directed to a company of gun- the corporation was a private one,
makers, commanding ihem to restore such as the corporation of Lincoln
an approver of guns who had been de- College in Oxford, a maKdanius was
prived of his place, was refused. refused to restore a felloio who had
Vaughan v. Company of Gunmakers, been expelled, on the ground that his
Mod. 82; s. c. 2 Ld. Raym. 989. The remedy was an appeal to the visitors,
report of an old case runs thus: Lord Holt, C. J., said: "Here is a
"The court refused to grant a vian- visitor, to whom an appeal may be,
damiis to restore aUorney of corpora- the matter is ouly e.xamiuable before
42 ()57
1 Thomp. Corp. § 829 ] amotion of officers.
England, whether municipal or otherwise, were mostly regarded
as public in their character, and would be classed as public cor-
porations in our day ; the joint-slock corporation being a modern
invention. Running through the old precedents, we find that a
mandamus has been granted to restore n jurat, turned out upon
a claim that the corporation held power to amove him at pleas-
ure, — the court finding that no such power existed;^ to
admit a fellow to a scholarship, who had been nominated
by the City of Bristol, which city had, under the foundation,
the right to nominate two fellows ; ^ to restore a person to the
office of clerk of the com[)any of masons of London; ^ to restore
to his office the high bailif of Westminster ; ^ to restore common
councilmen;^ and to enfranchise an apprentice of a corpora-
tion at the end of his apprenticeship according to the custom; "
him, and no where else. Such a col-
lege is a lay corporation, and if no
particu'ar visitor be appointed, the
founder and his heirs are visitors.
If it be In case of an ecclesiastical or
spiritual corporation, and no visitor
appointed, the bishop of the diocese
is visitor. This is a private corpora-
tion; it in no way concerns the pub-
lick; and we wi 1 not grant any manda-
rmis, and so it was ruled iu this court
in Ailoff's Case, who was fellow of
All Souls." Dolben, J., also said:
" I remember Dr. Robert's Case, who
was a poor man, and the court was
very willing to have helped him, but
my Lord Hale said he could by no
means grant a mandamus, for that he
had taken his place subject to those
terms, and as it were secret condi-
tions ; and he could no more complain
of his ill usage, than a man could do
of an ill award, to which he had sub-
mitted." The court therefore re-
fused to put the college to the expense
of making return to an alternative
mandamus. Parkinson's Case, Comb.
143.
' Crips V. Mayor of Maidstone, 1
Keb. 812.
2 Rex V. St. John's College, Comb.
658
238. Lord Holt, C. J., said: "The
visitor shall determine all that relates
to persons who are of the foundation;
but here is a collateral interest in
Bistol; there is no part of the col-
lege ; the visitor hath no power before
a person be made a member." See
note, infra.
3 Stamp's Case, Comb. 348.
* Rex V. Westminster, Comb. 244.
s Breitand Johnson's Case, Comb.
214; Williams' Case, 2 Keb. 558; State
V. Common Council of Jersey City,
25 N. J. L. 536.
6 Weber v. Zimmerman, 22 Md. 156.
" Serjeant Holloway prayed a m,an-
damus to enfranchise an apprentice
presented by his master, according to
the custom, at the end of the seven
years at court day, before mayor and
bailiffs of Oxon, they having refused
to make him free, which the court con-
ceived without precedent; for hereby
they might engross the freedom; as
barrister, if the bench refuse to call
him, in Inn of Court, hath no remedy;
so there is norem. dy to elect mayor,
etc.; contra to swear one elected sec-
ondary to the clerk of the crown."
Tovvnsend's Case, 1 Keb. 458. On a
later day, " the court conceived that a
JUDICIAL PROCEEDINGS TO KEINSTATE. [1 Thoilip. Coip, § 829.
to restore a person to the office of sexton; ^ at the suit of a school
district to compel the committee of the district to reinstate a
mandamus ought to issue to swear him
according to the precedent 13 Car. 1.
in Norwich, where every one by cus-
tom is a lawful freeman, that hath
served seven years; andnotwitlistand-
ing they refused to swear him, for
which cause a mandamus was
granted." Townsend's Case, 1 Keb.
470; Rex v. Townsend, 1 Keb. 659.
It was laid down, as early as the year
]';70, by Lord Hale and his colleagues
triat a mandamus wouldnot lie to restore
the fellow of a college who had been
deprived of his fellowship by the sen-
tence of the visitor. The judgment in
this case is particularly valuable for
tl^e observations of Lord Hale. He
said: "There is a reason given in
Der -vihy a, mandamus will not lie in
the case there, namely, because it was
pr:iyed to be awarded to a temporal
c(jrporation." Further on he said:
" That a viandamns lies, I will not
positively deny; but whether it is fit
for us to pruceed after this return? It
must be taken for granted, that it is
not a spiritual corporation; if it were
you ought to appeal to the visitor, and
tlien to the delegates. It is a private
society, as an Inn of Court; and I
confess, that mandamuses do gener-
u ly respect matters of public concern.
I never he-xrd of a mandamus for a
monk. If there be a jurisdiction in
I'.ie visitor, and he hath determined
t le matter, how will you get over that
sentence? The chancellor is visitor
<jf all the king's free chapels, and 2
11.5 doth make him so of all colleges
of the king's foundation. Suppose a
temporal court, over which we have
jurisdiction, doth give judgment in
assize to recover an office ; so long as
that judgment stands in force, do you
think we will grant a mandamus to
restore him against whom the judg-
' lie's Case, Ventr. 143, L53; Hex
ment is given? ... At this rate
we should examine all deprivations,
suspensions, elections, etc., and by
the 13th of the queen, the laws of the
university are confirmed. We ought
not to grant a mandamus where there
is a visitor; but in this case the visitor
hath given sentence." Appleford's
Case, as reported in 1 Mod. 82, 84, 85;
s. c. 2 Keb. 799; 1 Lev. 23, 65; 2 Lev.
14; Sir T. Rayra. 56, 94, 100; Sid. 94,
152, 346. The report in Keble is
very brief and appears even less ac-
curate; it Is as follows: "Turner
showed cause against a mandamus to
restore to a fellowship in New Cobege
in Oxford, because he had appealed
to Evesque Winchester, the local
visitor, and thereof produced the
bishop's certificate. Hale, C, J., said
26 ed. 3. in chancery a mandamus was
granted, and so of latter time; and
albeitthese are no such public ofHcers,
for which a mandamus lieth ; yet hav-
ing been granted, this matter ought to
come in by return, and certificate is
not sufTicient; which the court granted,
notwithstanding Dr. Robert's Case,
and a mandamus was granted." In
Dr. Robert's Case, just cited, " Crooke
prayed a mandamus to restore him to
the fellowship in Jesus College in
Oxon ; on affidavit that he had applied
to the visitor, and he would not med-
dle. 1. Keeling, C. J., conceived a
mandamus ought to be granted, this
having been ruled an estate of free-
hold; and that such gave voice in
choosing tlu; knight of the shire; and
though the thing were spiritual, yet
the means are temporal to it, as quare
imp'dit of a church. 2. Windom op-
posed it because Evesque hath a free-
hold, yet no mandamus lieth to
consecrate; also the appeal to the
ordinary is the proper remedy, and he
V. Guardians of Thame, 1 Stra. 115.
G59
1 Thorap. Corp. § 829.] amotion of officers.
teacher removed by them ; ^ to compel the trustees of an endowerf
dissenting meeting house, to admit a minister who was duly
elected ; ^ to restore (?^rct•^07^s• of a hanlcing corporation, who have
been refused the exercise of their rights as directors by a major-
ity of the board ; ^ to restore ajjastor, constituted by the chiirter
of the church a corporator, who was rcmoyed ivithont notice being
given to the congregation, as prescribed by the constitution of the
society. But such a mandamus would not be granted where there
was any other plain legal remedy.* It was refused by the King's
Bench where it was applied for to restore one of the proctois of
doctor's commons, the court proceeding on the ground that con-
usance of such matters was vested in the ecclesiastical, and not
in the temporal courts.^ In an American case the idea has been
put forward that the right to the remedy by mandamus rests on
clearer grounds where the office from which the relator has been
is of right bound to act in it. And by
Twisden. 3. Tliere is no remedy, but
by assize, if lie be ousted; and action
sur case, if lie be not admitted; ■which
4. Moreton agreed, and the way of
restitution being chalked out, he can
have no other. Keeling, C. J., said, a
mandamus lieth to Evesque, to admit
a clerk, where two patrons differ, and
to consecrate, and to induct, eL-e there
would be a wrong without a remtdy;
and the act of purliameot that Car. 1.
establisheth the jurisdiction of the
Archbishop in several colleges in
Oxford, doth expressly di-tinguish
between his visitation in matters of
faith, and his visitation of colleges,
which are lay; and the court being
thus against the Chief Justice, there
was no mandamus granted ; but they
would advise." Dr. Robert's Case,
2 Keb. 102. Compare Rex v. Patrick,
1 Keb. CIO and 183; s. c. 2 Keb. 65, 68.
The same rule was made in a case de-
termined some years before, in the
14:th year of Charles II. The court
proceeded on the same ground,
namely, that the power of removal
lay in the visitor,— " Car le visitor est
fidei comraissiarius, etc. Nota que
(ino
coment plusors del coUedge sont lay le
corporation poit eslre spiritual, et ne
poit estre moustre que cest court unque
graunt restitution al monke ou prior
dat, etc., uncore plusors des monks
in Angleterre fueront lay, car com-
ent fueront notaries uucore ne fuer-
ont in orders." Witherington's Case,
Sid. 71. That a mandamus wouM not
lie to restore a fellow of a colleiie, see
also Parkinson's Case, Carth. 92; s. c.
3 Mod. 2C5; 1 Show. 74; IComb. U3;
Prohurst's Case, Carth. 168.
1 Oilman v. Bassett, 33 Conn. 298.
2 Rex V. Barker, 3 Burr. 1265; 1
Wm. Black. 300, 352.
3 Prieur v. Commercial Bank, 7 La.
509.
* High Etr. Rem., § 15.
^ " Because this was an ecclesias-
tical office, and a matter properly and
only cuguizuble in tliat court; and
that the temporal courts are not to in-
termeddle or inquire into this sen-
tence, or into the proceedings ia any
matter whereof they have a proper
jurisdiction, but are to give credit
thereunto." Lee's Case, Carth. 169;
s. c. 3 Mod. 382; 3 Lev. 309; Skin.
290; 1 Sliow. 217, 251, 261.
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Corp. § 831.
removed is not attended with pecuniary profit, — the reason being
that, having sustained no pecuniary loss, he cannot redress the
injury which has been put upon him by an action for damages.^
§ 830. Several Writs where there are Several Officers. — Where
several officers, standing in the same grade of office, have been
removed, and proceed by mandamus to be restored, each ought
to proceed separately.^ " Five persons cannot have one writ of
mandamus to be restored; for though the end of the writ is to
do justice, yet the foundation is the wrong in turning them out,
and the turning out of one is not the turning out of another;
nor can several persons join in an action on the case for a false
return . " ^
§ 831. Allegation of the Writ. — Where the writ of mandamus to
restore an officer, did not allege, in direct terms, that the corporation
was then in existence, but alleged that, in October, 1825, a year before
the commencement of the proceeding there was, and for more than thirtj
years antecedent thereto had been, abody poll tic and corporate, created
and established by the legislature of the State (naming it), — it was
held that this was a siilncieut allegation of the existence of the corpora-
tion; for, " as one of the attributes of a corporation aggregate is im-
mortality, it is a sufficient averment of its continuance. " ^ - - - -
Where the object of the proceeding by maniJamus was to restore the
petitioner, who had been removed from the office of trustee, it was ob-
jected that the writ did not show the existence of such an office, or that
if such an office existed, any rights, duties or privileges appertained to
it. The writ averred that the corporation or body politic was estab-
lished by the name of the Trustees of the Academic School, etc. ; that
the plaintiff was one of the trustees duly elected, and in the exercise of
tine office and enjojang the rights and privileges belonging to him as
trustees; that nine of the trustees, being a majority, were present at a
meeting, on the 14th of February, 1826, and removed and expelled the
plaintiff from the office of trustee. It was held that these allegations
were sufficient, on a trial on the writ and return. ^ _ _ _ _ Where
the writ of mandamus averred that the corporation was estabhshed by
J Fuller V. Trustees, 6 Conn. 532, 3 Andover's Case, 2 Salk. 433, per
646. Compare Rex v. Barker, 2 Burr. Holt, C. J. ; s. c. Holt 441.
1266. i P'ull'T V. Academic School, 6
^ Rex V. Mayor of Chester, Comb. Coun. 532, 543.
307. 4 Ibid.
661
1 Tlionip. Coil). § 83.'{.] AMOTION or officers.
the name of the Trustees, etc. ; tliat the plaintiff was one of the trustees,
duly elected and enjoying the rights and privileges belonging to him as
trustee ; and that he continued to hold and exercise such office, until
he was removed therefrom, — it was held that the q^ce of ti'ustee, its
tenure and duration, and the privileges pertaining thereto, were sulTi-
ciently alleged. ^
§ 832. What if Directed to the Individuals by Name, and
notto the Corporation. — It is not a fatal objection to the writ
of mandamus to restore an officer of a corporation who has been
removed from his office, that it is directed to the members of the
corporation by name, instead of being directed to the corporation
by its corporate name.^ The old practice seems to have been to
quash the writ, where it was directed to the corporation by a
wrong name. Thus, in one case, " the court held the writ
naught because it was directed to the corporation by a wrong
n:ime." But the writ of majidamus'^ need not be directed to the
whole corporation ; it will be sufficient if it is directed to those
members who are to do the act commanded. *' Though it should
be true," said Lord Holt, C. J, " that a mandatory writ might
be directed to the whole corporation, yet it could not be neces-
sary it should be directed to more than those, or that part of the
corpration that was summoned in the execution of the thing re-
quired ; for it is not in the power of others to put the command
of the writ in execution." *
§ S33. The Return to the Mandamus. — Mandamus was
never allowed to restore an officer, removed for adequate cause,
on the ground of mere irregularities in the mode of removal ; ^
and anciently the adequacy of the cause was judged of exclu-
sively by the return which the corporation made to the maii-
damus; for, as is well known, until the rule of the common law
was changed by statute,^ the return was conclusive and not
1 Ibid. ^ Rex V. Griffiths, 5 Barn. & Aid. 731.
' Fuller V. Academic School, G ^ Ey Stat. Auue, chap. 20, the per-
Conu. 533, 543. son suing out a writ of mandamus
3 Rex V. Mayor of Rippon, 2 Salk. might plead to or traverse all or auy
432. of the material facts contained in he
* Rex V. Mayor of Abingdon, 2 return, to which plea or traverse the
Salk. G99; s. c. 1 Ld. Raym. 559 person making the return may plead,
(overruling Holt's Case, 2 Jones, 52). take issue, or demur.
6(i2
JUDICIAL PROCEEDINGS TO REINSTATE, [1 Thomp. Corp. § 833,
traversable; but the only remedy of the party aggrieved, in
case the return falsified the facts, was an action for damages for
a false return,^ If the plaintiff was not satisfied with the re-
turn, it was the practice for him to bring an action on the case
for a false return, and if, in such action, the return should be
falsified by the verdict of a jury, the court would then award
him a peremptory mandamus? As the return could not be
traversed in the particular proceeding, the court fell into great
strictness in construing it, and in requiring it to set out the facts
with exactness and precision. It was held that it must be cer-
tain to every intent; and accordingly the old books abound in
decisions which now seem to us to involve an absurd strictness
in construing the words of such returns. This strictness con-
tinued long after the reason on which it was founded had ceased
to exist. Notwithstanding the statute of Anne already quoted,
Lord Mansfield in one case said that he took it to be settled that
the same certainty was still required in the return as before the
statute ; though at first it miijht have been otherwise deter-
mined, because the reason was not the same. But Duller, J,,
said that the certainty to a certain intent in general was all that
was requisite ; which meant what, upon a fair and reasonable
construction, might be called certain without regarding the
possible facts which did not appear.^ In the severity of the
old rule the relator had some advantages. If the return was in-
sufficient, it seems that it could not be amended. Where it was
held bad for repugnancy, a peremptory writ was granted.*
1 Audley's Case, Latch. 123, 124; election of the relator to the office,
Anon., 2 Salk. 428; s. c. 1 Ld. Raym. and then avoided the election by set-
126, sub nom. Green v. Pope. ting up that he had procured his elcc-
2 " When the action is brought for tiou by bribery, " et quod non fuit
a false return," said Lord Holt, C. J., electus,''^— it was held that here was a
"and if it is falsifled, we cannot re- repugnancy, and that a peremptory
fuse a peremptory mandamus.'''' writ ought to go. Reg. v. Mayor of
Buckley v. Palmer, 2 Salk. 430; Rex Norwich, Ilolt, 444. So also when
V. Mayor of Abingdon, 2 Salk. 431, the return stated that Ihi; relator was
per Lord Holt, C. J. on such a day electus etperfectns; then
3 Rex V. Lyme Regis, Doug. 148. showed for cause of removing hlni,
Compare Rex r. Mayor of Liverpool, 2 his non-attendance at the session;
Burr. 731 ; Rex v. Bailiffs of Morpeth, then stated that he had not taken the
1 Strange, .58. sacrament within a year before his
* Accordingly, whore the return at elect on, and that therefore his elec-
Vu-st admitted that there had been an tion was null and void,— the court
GG3
1 Tliomp. Corp. § 833.] amotion of officers.
That the prosecutor has in due manner resigned his oflSce, is, of
course, a good return to a mandamusio restore.^ So, it is good
ground for quashing a writ of mandamus, granted to restore a
person to the office and functions of pastor under the charter of
a religious society, that the petitioner was subsequently disquali-
fied from holding such office under the charter. ^ << JVon fuit
electus " is a good return to a maiidamusio induct into an office.^
The same consequence followed where it contained a negative
pregnant.^ Moreover, in order to be a good return, it was
necessary that it should traverse the fads alleged in the writ, and
not the conclusions.^ Where the relator founded his right to the
office upon an election, it was necessary for the return to set
forth the manner of the election, in order to support its allega-
tion that the relator was not duly elected.'' It was required to
traverse the essential allegations of the writ, concerning the
charter of the corporation, or else show that the defendants hud
complied with the provisions of the charter as described in the
writ. When, therefore, the writ described the constitution of the
corporation in certain terms, it was not a good return to de-
was of opinion that the return was bad,
by reason of the repugnant and con-
tradictory matter (citing Holt, 444);
and that the returns to mandamuses
were to be kept to the same strict-
ness, since the mandamus act, nono
anncB, as before; and a peremptory
writ was granted. Reg. v. Mayor of
Pomfret, 10 Mod. Rep. 107.
1 Rex V. Mayor of Rippon, 1 Ld.
Raym. 563; 2 Salk. 433.
2 Weber V. Zimmerman, 23 Md. 45.
3 Reg V. Twitty, 7 Mod. 83; Reg.
V. Corp. of Cornwall, 11 Mod. 174.
And see Reg. v. Aldborough, 10 Mod.
101, 199.
* Where the object of the mandamus
was to compel the defendants to
certify the election of a person as re-
corder of York, the writ saying that
the corporation being duly assembled
proceeded to the election of a recorder
and tlie return " that the corporation
were not duly assembled to pi-oceedto
6G4
the election of a recorder," — it was
held that this was bad, because it was
a negative pregnant. Rex v. Mayor of
York, 5T.R. 66,
5 Accordingly where the writ set
forth all the proceedings touching the
election to a corporation office and
concluded with the words " by reason
whereof, A. was elected;" it was held
a bad return to say that *' he was nc^t
elected." The defendants should
traverse one of the facts alleged
which went to show that he was
elected. Rex v. Mayor of York, 5 T.
R. 66.
6 The report of an old case runs
thus: *' Nota, that four several re-
torns on four several mandamus''s to
restore to places of aldermen, etc.,
within that corporation, were quasht,
per airiam, for sayiug they were not
duly elected generally, without setting
forth the manner, etc." Rex v. Mayor
of Stafford, 2 Keb. 264.
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Corp. § 834.
scribe the constitution in other terms and show compliance with
it as thus described.^ Where it set up the existence of a custom,
by which it was competent to the defendants to remove the
officer at will, it was necessary that the existence of the custom
should be positively alleged.^
§ 834. Return may Show any Number of Causes. — The re-
turn to a mandamus, sued out to admit a person to a corporate
franchise, may show any number of causes upon which his amo-
tion is justified, provided they be consistent with each other.'
But where the matters returned are repugnant, the rule is other-
wise, because then the court cannot tell what to believe.* So,
where the defendants first returned an election, and then re-
turned circumstances avoiding it, and finally returned that there
was no election at all, a peremptory mandamus was granted.^
But where several independent causes are returned, and although
not inconsistent with each other, some are good and others are
bad, the court may, it has been held, quash the bad and send
the good to the prosecutor to plead to or traverse the rest.^ So,
where the return was that the party was not duly elected, and
also that there was a custom to remove ad libitum, according to
which he was removed, it was held a good return ; for he might
be in possession de facto, and either ground would justify his
removal.^ Where it was returned that B. was not a burgess;
1 Rex V. BailifEs of Maiden, 2 Salk. not appear that the corporation had
431; s. c. 1 Ld. Raym. 481. any such power, but only by the re-
"^ Thna, to a, mandamus to restore cital; whereas they should have re-
J. S., to be one of the common coun- turned they had sucha power positive-
cil-house of the corporation of Coven- ly." Rex v. Mayor of Coventry, 2
try, it was returned that they were an Salk. 430; s. c. 1 LI. Raym. 391 .
ancient corporation, and that the king, ^ Wright v. Fawcett, 4 Burr. 2041,
by his letters-patent, reciting their 2045; R.-g. v. Norwich, 2 Salk. 436.
customs, amonist which was that of * Rex v. Mayor of Cambridge, 2 T.
electing persons to be of the common R. 456,461.
couucil-house, and removing them '* Reg. v. Norwich, 2 Salk. 436; s. c.
ad UhUunXy CC\(\. grant and permit all 2 Ld. Raym. 1244; Holt, 444.
their liberties, customs, etc., and that ^ Rex u. Mayor of Cambridge, 2 T.
they, by force of the said custom, R. 456; Compare Rex v. Mayor of
time out of mind, used at secundum York, 5 T. R. 66.
formanmeraruvipatentiumprcedict.,6\d ' Rex ». Church Wardens, Cowp.
remove him, — it was held that this 413.
return was nauu'ht, " because it did
6G5
1 Thomp. Corp. § 835.] amotion of officers.
that he was not eligible to the office of common councilman ; and
that he was not elected; — it was held that these were not in-
consistent returns.^ So, where it was returned, first, that tlie
person was not duly elected sexton ; and secondly, that there
was a custom to remove and that he was removed pursuant to
such custom, — these were not inconsistent returns, because the
person might have been elected in fact, and afterwards removed. ^
" Where," said Lord Mansfield, "is the repugnancy in this re-
turn? If he was not duly elected, he certainly has no right to be
restored. But whether duly elected or not, they show a right by
custom to remove him at pleasure, and they have done so. There
is no repugnancy in saying that he was 7iot duly elected, but that,
being in fact elected, they, according to an ancient custom, re-
moved him from the office. In either case they were equally
entitled to exercise that right." ^ But where the object of the
mandatnus was to compel the defendants to certify the election
of a person as recorder of York, which election was stated in the
writ to have taken place on the 15th of January, and it was re-
turned that the corporation were not then duly assembled, and
also that afterwards, to wit, on the 15th day of January, 1789,
the corporation did assemble, and elected another person, — it
was held that this was an inconsistent return. The day was ma-
terial, and therefore the laying it under a videlicet did not signify.^
§ 835. When not Necessary to Aver Power of Removal. —
It was held that, in a return to a mandamus to restore a corpora-
tor to his membership, where it was stated that the party was
removed by the corporate body at large, it was not necessary to
aver that the power of removal was vested in them, because that
was incidental to them, unless it had been given by their charter,
or by some by-law or regulation, to a select portion of them.^
"It is one of the first principles of pleading," said Buller, J.,
"that you have only occasion to state facts; which must be
done, for the purpose of informing the court, whose duty it is to
1 Rex V. Mayor of Cambridge, 2 T. * Rex v. Church Wardens, Cowp.
R. 45(). 413, 414.
2 Rex V. Church Wardens, Cowp. * Rex v. Mayor of York, 5 T. R. 66.
413. 5 ]^ex V. Mayor of Lyme Regis,
Doug. 144.
666
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Corp. § 836.
declare the law arising upon those facts, and to apprise the oppo-
site party of what is meant to be proved, in order to give him an
opportunity to answer or traverse it. It is now settled to be
matter of law, that, prima facie, the power of amotion is in the
body at large. Being matter of law, it is not traversable. But
the present prosecutor may now reply, that the power is not ac-
cordino' to the general law in this case, but in a select body, which
may then be tried by a jury. If the return be certain on the
face of it, (hat is sufficient, and the court cannot intend facts in-
consistent with it, for the purpose of making it bad. We must
consider the charter as truly stated, because nothing appears to
contradict it; and, y£ so, the law says, that, by such a charter,
the corporation at large have the power of amotion. If presump-
tions were to be allowed, certainty in every particular would be
necessary, and no man could draw a valid and sufficient return.
If the power of amotion is, in this place, in a select part, and the
present return is bad on that account, I am clear that an action
will lie. "^
§ 836. Instances of Good Returns in such Cases. — It is suffi-
cient, in the return to a mandamus which sets up a corporate act, that
it be averred that the act was done by the corporation, naming it ; it is not
necessary to be so explicit as to state that the act was done by the major
|9ari of the corporation.2 - - - - The power of holding a corporate
meeting for amotion being incident to the power of amotion, it need not
be set out in a return to a mandamus.^ _ . . - The nice distinc-
tions taken concerning the return to the writ of mandamus, as thus used,
are well illustrated by a case where it was returned nunquam futt debite
electus — that he never was duly elected. The return was held to be good,
though it would have been better to have made a general return, namely,
nunquam fait electus in officium, without saying debited . . - -
1 Ibid., 154. be intended to have been made by
2 Thus, where a mandamus was thera all. Rex v. Town of Rippon, 2
prayed for to restore an alderman who Keb. 15.
had been turned out of his place for ^ r^x v. Mayor &c. of Lyme Regis,
refusing payment of tlie tax assessed 1 Douiil. 14!).
by the burgesses and aldermen in his * Lambert's Case, Carth. 170. " On
presence, under a by-law, it was ob- mandamus to restore him to the town
jected that tiie asses-raent was not chirk's oflice, they retorn'd, tliat he
said to have been made by the major was never debite admissus, and so
I nrt; but the court said that it would they could not restore, which per
667
1 Thonip. Corp. § 837.] amotion of officers.
It is of course a sufficient return to a mandamus to restore an officer of a
corporation that lie has iiever been remooed by the corporation, or by anj'
of the corporation.! - - - It has been laid down that a return by a
corporation, in its right name, to a writ of mandamus directed to it in a
wrong name, is well enough.^
§ 837. Sufficient if Made by Proper Officer until Falsi-
fied. — Where the mandamus was directed to the mayor, bailiffs,
and burgesses of a municipal corporation, and the return was
made by the mayor alone, and a motion was made to stay the
filing of it, upon suggestion that it had been made by the mayor
and a minor part of the bailiffs and burgesses, and against the
consent of the greater number, who would have obeyed the writ,
wherefore the greater number prayed that they might falsify
this return and put in another, — the motion was overruled,
Lord Eldon, C. J., saying: "Where a writ is directed to a
single officer, as sheriff, and a return is made by a stranger,
without any privity, he may any time that term wherein the writ
is returned, come iu and disavow it, but not after the term.
But in this case, where the writ is directed to several, and the
mayor, who is the most principal and proper person, returns and
brings in the writ, it is not fit that we should examine, upon af-
fidavit, whether there was the consent of the majority. We
will take it, and leave you to punish the mayor for this misde-
meanor, if he be guilty; for it is a great crime which will not
only merit a heavy fine, but a peremptory mandamus will be
granted, if the return be falsified. If they are all equally
parties, this might ])e another case." The return was accord-
ingly filed, and at the same time leave was given to file an infor-
curiam is valid ground of action upon record being speiled, the town cannot
tlie case [for a false return] ; contra certainly show it. Also beins; said
if it hudheennunquam debito vioclo ad- contra cfficinm et ju7'amenticm, it shall
missns, by Twisden. But the rest be inteuded in a retorn to be volun-
agroed it also well enough." Res v. tary, and the retorn was confirmed;
Hereford, 1 Keb. 055. In one case, to although it's not said, that the de-
a mandamus to restore an alderman, fendaut was a resident within the pre-
it was returned " that, contrary to his cinct of the leet, to which he was
oath, spoliavit et dilaceravU quondam summoned." Town of Wigon v. Pil-
recorda of such a court, which was kingt )n, 1 Keb. 597.
after presented, without showing the ^ Rex v. Colchester, 2 Keb. 188.
presentment; which, per curiam, is ^ Rex v. Mills, 1 Keb. 623.
well enough on mandamus, in that the
668
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Tbomp. Corp. § 839.
mation against the mayor. ^ In another case, " the mandamus
was granted to the mayor, etc., of Norwich. It was moved that
the sense of the mayor differed from the majority of the cor-
poration, and that he would execute the writ, whereas the cor-
poration were for returning an excuse, etc., and they prayed
that the mayor might be ordered to deliver the writ to the rest
of the corporation. Sed non allocatur; for he is the head and
principal, and take your course against him." ^
§ 838. Whether the Return Should be Under Corporate
Seal. — It seems to have been held sufficient, in the case of a
mandamus to the mayor and burgesses of an incorporated bor-
ough, for the return to be under the AaucZ and sea? of the mayor,
without being under the common seal of the corporation.' " The
seal," said Lord Holt, C. J., referringto the common seal of the
corporation, " is not necessary to a record. In Bagg's Case the
mayor did subscribe. It is directed to Dr. Gower byname." *
In another case the corporation made a return to a mandamus,
which was neither signed nor under the common seal. It was
moved that it might be signed. Lord Holt, C. J., said: " It is
usual for the mayor to sign it, though not legally necessary;
therefore let him sign it." ^ In another case of the same nature,
there was neither hand nor seal to the return. Lord Holt, C. J.,
said : "It needs not ; it is received as a record ; it hath been so
ordered, but never by me; I know when it began, and when they
beo-an to put the common seal to it, which was not necessary.
Before the statute of York the sheriff needed not to have put his
name. You may bring an action for the false return, either
against the corporation or against the particular person that pro-
cured it." «
§ 839. Variance between Writ and Return, — An instance of
the absui-d strictness to which pleadings were carried in cases of nianda-
1 Rex V. Mayor of Abbingdon, 2 < Rex v. St. John's College, Comb.
Salk. 431; s. c. Carth. 499; Cases B. 279.
\l, 401. ^ Rex V. Mayor of Colchester,
2 Rex V. Mayor of Norwich, 2 Salk. Comb. 324.
432; s. c. Holt, 444. ^ Lidleston v. Mayor of Exeter,
3 Powell V. Price, Comb. 41. Comb. 422.
669
1 Thomp. Corp. § 840.] amotion of officers.
mus, before the statute of 9 Anne,^ will be found in a case of this kind
which arose in the Queen's Bench in the fourth year of Anne. At that
time legal proceedings were recorded in the Latin language. The writ was
intended to be directed to the baiUffs, burgesses, and commonalty of the
town of Ipswich. It was directed, ballivis, burgensibus, et communitat,
villce de Gippo. The return was, responsio ballivorum, burgensium, et
commun. villce de Gipioico, sive burgi Gipwicipatet, etc nos ballivi, etc.,
return the constitution so and so. After showing the ground upon which
they had turned Sergeant Whiteacre out of his office, they concluded
thus: ^'■Etulterius certificarmis quod inhabitantes villce prcedict. nunquam
nuncupati fuerunt per 7iomen ball ivorum, burgens., etcom. villce de Gippo,
etc." The report goes on to recite: " This case pended long, and was
often argued upon several objections ; and first the chief justice held,
that Gippus and Gipwicus were different names, so that the writ was
misdirected ; but then they should have returned the special matter ac-
cordingly, and rehed upon it ; for now they had admitted themselves to
be the coi'poration to whom the writ was directed, by returning executio,
etc. And a corporation may have several names ; ^ and here, it being
started, whether a corporation should lose its old name by a new
charter 2 the chief justice said, it would, where the new charter altered
the very constitution in the integral parts of it ; as if bailiffs and bur-
gesses are made mayor and aldermen, or mayor or burgesses, or where
an abbott and convent are translated into a dean and chapter ; but if the
bailiffs and burgesses villce de Gippo accept a charter, constituting them
baihffs and burgesses villce de Gipwici, and giving them further pri\i-
leges, and that they shall be so called ; this is a new name only, for the
old corporation remains in the integral parts of it. Powell (a justice),
being not satisfied in the first point, it finished without resolution, by
discovering that Gippo in the latter end of the return was with a dash,
and in the writ without, so that then it was not ad idem." The court,
after considering various other objections, " ordered a peremptory
mandamus, and that it should be directed according to the first writ,
\'iz., villce de Gippo, and must not differ." *
§ 840. Other Points of Practice in Proceedings by Manda-
mus. — In such a proceeding, objections to a writ of inandamus
which are merely technical, must be taken in limine on a motion
to quash, and cannot prevail after the return.^ The end of the
1 Ante, § 833. * Reg. v Bailiffs of Ipswich, 2 Salk.
2 Ante, § 291, et seq. 434; s.c. 2 Ld. Raym. 1233.
* Ante § 289. ^ Fuller v. Academic School, 6
670
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Corp. § 841.
su?nmons is that the pt^ty against whom the writ is directed may-
be heard for himself ; and therefore, as in other cases where he
has voluntarily ajjjjeared and has been heard upon the merits of
the controversy, the want of a summons is no objection. ^ An
action will lie for a suppressio veri, in a return to a mandamus,
as well as for an allegatio falsi.^
§ 841. Principles upon Which the Judicial Courts Review
Sentences of Amotion. — As already stated, and as hereafter
more fully stated when treating of the expulsion of members of
corporations and societies, the judicial courts do not, when applied
to to reinstate the member or to restrain the corporation, or
society, or its managers, from interfering with his rights of
membership, assume to retry the merits or to rejudge what has
passed in rem judicatam before the corporate judicatory.^ This
was the rule on which the Supreme Judicial Court of Massachu-
setts proceeded, when reviewing the sentence of amotion under
a statutory appeal, given to the court from the judgment of the
visitors of an educational corporation. The statutes of that cor-
poration (the Andover Theological Seminary) gave an appeal to
visitors from acts of the trustees, and made it the duty of the
vi-itors to hear the whole case anew. The trustees having re-
moved a professor, he appealed to the visitors, by whom the re-
moval was confirmed ; and he then, under a statute of the State,
appealed to the Supreme Court. The court held, that any irreg-
ularity or injustice in the proceedings before the trustees, could
not be taken into consideration ; their sentence being vacated by
the appeal to the visitors.* The court also intimated that if a
party would impeach the judgment of the visitors on the ground
of partiality or corruption, unlawful admission or rejection of
evidence, or any other decision not apparent on the record, he
should make seasonable demand that the evidence be reduced to
writing, so that it may come up to the court with the record ; or
tender a bill of exceptions.^ It was also ruled that the court has
Conn. 532, 544; Rex«. Mayor of York, » ^nte, § 825; post, §014.
5 T. 11. G6, 74. * Murdock's Appeal, 7 Pick. Mass.
1 Kex^j. Mayor of Wilton,2 Salk.428. 303, 327.
- Rex V. Mayor of Lyme Regis, * Ibid.
Dou:^. 144.
671
1 Thomp. Corp. § 811.] amotion of officers.
no authority, on such appeal, to examine the evidence by way
of a rehearing, but must determine the questions upon the re-
cord of the visitors; and therefore merely incorrect judgment of
the visitors was not a ground for the interference of the court.'
The court is restricted to the decision of the questions whether
the visitors have acted contrary to the statutes, and whether they
have exceeded their jurisdiction. ^ The court would not reverse
the decision of such a board of visitors removing such an officer
for cause, on the ground that they had refused to conduct the
trial with open doors, or to admit persons not engaged in the
proceeding, although their course in so doing may have been un-
wise ; but the reviewing court would presume that they had sat-
isfactory reasons for conducting the trial in this way; and al-
though the tenure of such an officer was during good behavior,
yet it was subject to forfeiture upon the honest judgment of the
proper tribunal that the officer had ceased to behave well, in the
sense attached to that phrase by the founders of the charity. "^
In Connecticut, the ruling of the court, in a leading case, was
that the courts of justice had a supervising jurisdiction over the
proceedings of the trustees of a charitable corporation, inde-
pendent of any power of visitation ; and that they would exercise
this jurisdiction by mandamus, to the end of reinstating an
officer removed by the other officers, where the cmises assigned
for the removal were insuffi^cient.^ The modern English doctrine
is that where it appears from the showing of an officer that the
corporation justly though irregularly removed him from his
office, a mandamus to restore will not be granted.^ Though a
coiporation may have, by statute, a power to remove an officer
holding a freehold office, yet the court of Queen's Bench will in-
terfere if the power is exercised in an unlawful manner ; but if
exercised in a lawful manner, the fact that it was not wisely or
discreetly put in force in the particular case, will not induce the
1 Ibid. ^ Rex v. Mayor &c. of Axbridge,
2 Ibid.; S. P., Murdock v. Phillips Cowp. 523; Rex u. Mayor &c. of Lou-
Academy, 12 Pick. (Mass.) 244. don, 2 T. R. 177; Rex v. Mayor &c. of
3 Murdock's Appeal, 7 Pick. (Mass.) Bristol,! Dowl. & R. 389; sub nom.
303. Rex V. Griffiths, 5 Barn. & Aid. 731.
•* Fuller V. Plainfield Academic
School, 6 Conn. 532.
672
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Corp. § 84:1.
court to interfere. Therefore, where, in a proceeding by a cor-
poration to remove an officer upon an accusation of inability or
neglect of duty, there has been such evidence given as, in an
ordinary trial, would justify the judge in leaving it to the jury^
as matter of fact, whether the accusation was made out, the
court will not interfere with the decision arrived at by the cor-
poration.^
1 Osgood V. Nelson, L. R. 5 H. L. 636.
43 673
1 Thomp. Corp.] expulsion of membeus.
CHAPTER XYII.
EXPULSION OF MEMBERS.
Art. I. Power to Expel: Grounds of Expulsion, §§846-876.
II. Corporate Proceedings to Expel, §§881-899.
III. Judicial Proceedings to Reinstate, §§904-930.
Article I. Power to Expel : Grounds of Expulsion.
Section
846. Preliminary observations: dis-
tinctions.
847. Power of expulsion incident to
corporation.
848. This power exercised by the cor-
poration — not by the direct-
ors.
849. By-laws authorizing the expul-
sion of members.
850. Illustrations of good and bad
by-laws providing for the ex-
pulsion of members.
851. Validity of by-laws providing
for expulsion for the non-ful-
fillment of commercial con-
tracts.
852. By-law prohibiting members
from gathering in public places
to buy and sell " futures " out-
side of the exchange room.
853. By-laws when not euforcible by
forfeiture of membership.
854. Grounds of expulsion at com-
mon law: Bagg's case.
855. Further of Bagg's case: how
and by whom and in whatman-
nt r disfranchised.
856. Grounds of disfranchisement
under rule of Lord Mansfield.
857. Cases within these principles.
674
Section
858. Cases not within these princi-
ples.
859. Expulsion for infamous crimes:
whether a previous conviction
necessary.
860. Offenses against the member's
duty as a corporator.
861. Acts injurious to the society or
to its reputation.
862. Illustrations: "conduct inju-
rious to the character and in-
terests of the club."
863. Frauds upon the society.
864. Expulsion from merchants' ex-
chauge for dishonest con-
duct
865. Suspension for bankruptcy or
insolvency.
866. Contempt against corporate offi-
cer.
Criticising the management.
Offenses against other mem-
bers.
Refusal to submit to arbitration
or to comply with award.
870. Illustration.
871. Appealing to the judicial courts.
872. "Negligence, mi-^conduct iu of-
fice, or any other reasonable
causes."
867
868
869.
POWER TO EXPEL. [1 Thomp. Corp. § 846.
Section Section
873. Expulsion of members of incor- 875. Enlistino; in the volunteer army
porated medical societies. in time of war.
874. Members of trades union worli- 876. Trial under an act of the legisla-
ing for parties against whom ture passed subsequently to the
a strike had been ordered. offense.
§ 84:6. Preliminary Observations — Distinctions. — The
subject of which it is intended to treat in this chapter relates ex-
clusively to corporations and associations not having a joint stock.
It is assumed that no such body, having a joint stock in which its
members are severally interested as proprietors, can deprive them
of their property rights by expelling them from the corpora-
tion or society unless such power has been expressly conferred
by the charter.^ Another distinction, which must be taken in
respect of this question, is the distinction between what is called
disfranchisement and what is called atnolion, in the books of the
common law. Disfranchisement is the term applied to the ex-
pulsion of a member of a corporation, whereby his franchise, or
freedom, to use the language of old books, employed chiefly with
reference to municipal corporations created by royal charter or
existing by prescription, — was taken away. The term amotion
is applied merely to the removal of an officer of a corporation,
and most of the old law upon this subject is an outgrowth of the
ancient common-law principle that an office was property.^ An-
other distinction, wiiich must be kept in mind in respect of this
question, is the distinction between rights in a corporation and
rights in an unincorporated society . In the former case the mem-
ber has rights granted by the legislature, which cannot be taken
1 Ang. & A. Corp., § 410; Wood- 2 gee as to these distinctions
ward, C. J., in Evans v. Philadelphia Bagg's Case, 11 Co. Rep. 93; Earle's
Club, 50 Pa. St. 107, 117; Pulford Case, Carthew, 173; White v. Brown-
V. Fire Dep't of Detroit, 31 Mich, ell, 4 Abb. Pr. (n. s.) (N. Y.) HV>,
458, 465. The statute of Wisconsin 1!)2; s. c. 2 Daly (N. Y), 32'.), 357;
(Wis. Rev. St. 1878, § 1772), re- Com. v. St. Patrick's Benevolent So-
quiring that the articles of asso- ciety, 2 Binn. (Pa.) 441; s. c. 4 Am.
elation by persons desiring to form Dec. 453; Fuller w. Trustees, 6 Conn,
a corporation shall state the mcth- 532; People v. Medical Society, 24
ods and conditions upon which Barb. (N. Y.) 570; Evans v. Philadcl-
members shall be accepted, dis- phia Club, 50 Pa. St. 107; Willcock
charged, or expelled, does not apply to Corp. 270.
a stock corporation. Eilgertoii To-
bacco Manf. Co. v. Croft, 69 Wis. 2j6.
675
1 Thomp. Corp. § 846.] kxpulsion of mk.mbeus.
away by the society unless authorized by the governing statute
or charter, or unless, under the principles of the common law,
in the extreme cases hereafter spoken of. But in the latter case
the member has no rights of a higher dignity than those springing-
out of a voluntary contract between himself and his fellow mem-
bers. Such contracts are upheld when not contrary to law or to
public policy, and the member may thereby voluntarily subject
himself to summary expulsion for causes and in modes which
would not be justified in the case of a corporation existing under
a charter or act of the legislature.*
^ See as to this distinction the
discussions In White v. Brownell,
i Abb. Pr. (n. s.) (N. Y.) 162, 192
s. c. 2 Daly (N. Y.), 329, 358; In-
nes V. Wylie, 1 Car. & K. 257, 262
Brancliert?. Roberts, 7 Jur. (n. s.) 1185
Hopliius V. Exeter, L. R. 5 Eq. 63
Blisset V. Daniel, 10 Hare, 493.
This distinction has been learnedly
pointed out by that exceptionally able
judge, Charles F. Daly, in a well con-
sidered case, in which he said: "A
member of a corporation, whether it
be municipal, eleemosynary or pri-
vate, is in the enjoyment of a franchise
the right to which is not derived from
the body, but is created by statute or
exists by prescription, and therefore
cannot be taiien away by the act of the
corporation, except, as I have said,
in certain extreme cases. As it is a
right conferred by statute, or de-
rived from immemorial custom
which implies the existence of a grant,
it can neither be taken away by the act
of the corporation, nor withheld by
the act of the corporation, from any one
eligible to the enjoyment of it. . . .
But in an unincorporated voluntary
association, lilse the one now under
consideration [an exchange called
the Open Board of Brokers], the privi-
lege of membership is not given by
statute, or derived through prescrip-
tion, as in a corporation, but is cre-
ated and conferred by the organization
676
itself. It is not a franchise — a fran-
chise being a particular privilege vest-
ed in individuals, wliicli is confeerrd
by a grant from a sovereign or gov-
ernment [citiug Finch Sura. C. L. 164 ;
3 Kent Com. 458]; while, on the con-
trary, the privilege of membership iu
a voluntary association is derived ex-
clusively from the body that bestows
it, aud may be conferred or withheld
at its pleasure. The law cannot com-
pel such an organization to admit an
individual to a membership, as may be
done in the case of a corporation, nor
can it interfere to restore a member
who has been deprived of the privi-
lege for not complying with the condi-
tions upon which the enjoyment of it
was made to depend, A. member of a
body of this description, has, as such,
undoubtedly rights which the law will
protect; but they do not rest upon the
same ground, and are by no means co-
extensive with tlie franchise enjoyed
by a member of a corporation. They
depend upon the nature of the organ-
izatiDU, upon the object for which it
was formed, and upon the rules, reg-
ulations, constitution or by-laws
which are explanatory of its pur-
pose, and which the body has adopt-
ed for its government. Individu-
als who form themselves into a vol-
untary association for a common
object may agree to be governed by
such rules as they think proper to
POWER TO EXPEL. [1 Thomp. Corp. § 847.
§ 847. Power of Expulsion Incident to Corporation. — The
power to disfranchise a member for sufficient cause, as hereafter
stated,^ existed and exists at common law, as an incident to every
corporation, except those having a joint stock. ^ The inherent
power of a corporation other than a joint-stock corporation to
expel a member for sufficient cause rests on substantially the
same ground as its powers to amove an officer,^ and the decisions
supporting the power in the two cases are often cited interchange-
ably. Reasoning on this subject, it has been said: '* There is a
adopt, if there is nothing in them in
conflict with the law of the land; and
those who become members of the
body are presumed to know them —
to have assented to them — and they
are bound by them. [Citing Innes v.
Wylie, 1 Car. & K. 262; Brancker v.
Roberts, 7 Jur. (n. s.) 1185; Hopkin-
son u. Exeter, L. R. 5 Eq, 63.] Such
an organization may prescribe the con-
ditions upon which persons will be
admitted to membership, as well as
the conditions upon which the contin-
uation of membership will depend ; and
where they have no regulation upon
the subject, they may expel a member
by a vote of the majority, if he has
been notified of the charge against
him, and afforded an opportunity of
being heard in his defense. [Citing
Innes v. Wylie, supra.'] Voluntary
bodies of this kmd will be held to the
fair and honest administration of the
rules which are in force when any pro-
ceeding is instituted against a member ;
but where a member is expelled in con-
formity with the rules, and the pro-
ceedings are regular and in good faith,
it is final, and no judicial tribunal can
interfere." Whiter. Brownell, 4 Abb.
Pr. (N. Y.) 162,192-4 s. c. 2 Daly
(X. Y.), 329, 358; citing to the last
point Com. v. Pike Beneficial Society,
8 Watts & S. (Pa.) 250.
1 Post, § 854.
2 Rex. V. Richardson, 1 Burr. 617;
Fawcett v. Charles, 13 Wend. (N. Y.)
473 ; Com. v. Guardian of the Poor, 6
Serg. & R. (Pa.) 4G9, 473, per Duncan,
J.; Smithy. Smith, 3Desau. (S.C.)557,
581. To this extent Bagg's Case (11
Co. Rep. 93) is overruled by the later
English decisions above cited. Bagg's
Case, although discussing largely the
power of disfranchisement, was really
a case of amotion, the relator in the
mandamus proceeding being one of the
twelve burgesses of Plymouth. That
the same principle applies to the amo-
tion of an officer, is equally clear of
doubt. Woodward, C. J., in Evans v.
Philadelphia Club, 50 Pa. St. 107, 117.
It was also reasoned by the same
learned judge in the same case that
" The power of disfranchisement
which does destroy the member'sfran-
chise, must; in general, be conferred
by statute, and is never sustained as
an incidental power, without statute
grant, except ia two cases : First, on
conviction of the member in a court of
justice of an infamous offense. And,
second, where he has committed some
act against the society which tends to
its destruction or injury." Statement
of doctrine by Woodward, C. J., at
7iisi prius, in Evans v. Philadelphia
Club, 50 Pa. St. 107, 117, aflirmed by
an equal division of the Supreme
Court. Ibid. 127. Contrary to the
doctrine of the text, see People v. New
York Cotton Exchange, 8 Hun (N. Y.),
216; more fully stated, pos«, g 851.
3 Ante, § 802.
fi77
1 Tlionii). Coip. § 849.] EXPULSION of members.
tacit condition annexed to this franchise, which, if the member
break, he may be disfranchised ; and where the offense is merely
against his duty as a corporator, he can be tried only for it by
the corporation. Unless this power were incident to the corpo-
ration, offices might be forfeited for offenses, and yet there would
be no means to carry the law into execution." ^
§ 848. This Power Exercised by the Corporation — Not by
the Directoi's. — The power of expelling a member from a cor-
poration exists only in the society at large, unless the charter,
governing statute, or some by-law thereby expressly authorized,
vests this power in a smaller number, as in the board of directors,
the trustees, or the managing committee.''^ The reason is, thai.
it is the ordinary office of such managing boards or committees
to conduct the business of the corporation, and not to determine
matters touching its constituent character. But expulsions of
members by the directors are, of course, upheld where there is
a statute vesting this power in them ;^ and in the case of volun-
tary associations, where this power is vested in the board of
managers or other judicatory, by the articles of association,
which form a contract among the members.*
§ 849. By-laws Authorizing the Expulsion of Members. —
It has been said: " When a corporation is duly organized, it has
power to make by-laws and expel members, though the charter
is silent upon the subject. If the power is expressly granted in
general terms, it is conferred to enable the corporation to accom-
plish the object of its creation, and is limited to such objects or
purposes." *" Where the authority to expel a member of a corpora-
' Duncan, J., in Com. v. Guardians lations, and by-laws thereof." A
of the Poor, 6 Serg. & R. (Pa.) 469, rule providing for expulsion by the
473. board of directors was held valid on
2 Hassler v. Philadelphia Musical the ground that it was not essential
Assoc, 14 Phila. (Pa.) 233; State u. that the power should be exercised by
Chamber of Commerce, 20 Wis. 63. the body of the corporators. Pitcher
* State V. Milwaukee Chamber of v. Chicago Board of Trade, 121 111.
Commerce, 47 Wis. 670, 686. The 412; 13 N. E. Rep. 187; 11 West. Rep.
charter of the Chicago Board of Trade 38 ; 2 R. & Corp. L. J. 89.
provided that the corporation "shall * Compare Peoples. New York Com-
have the power to admit or expel such mercial Assn., 18 Abb. Pr. (N. Y.) 271.
persons as they may see flt, in the '•• State ex rel. v. Chamber of Corn-
manner prescribed by the rules, regu- merce, 20 Wis. 63, 71; reaffirmed in
678
POWER TO EXPEL. [1 Tliomp. Corp. § 84:9?
tion is sought for in a by-law, certain prerequisites must exist.
Unless the power to enact by-laws is, by the charter or governing
statute or by immemorial usage, conferred on the directors, trust-
ees, or other body smaller than the corporation at large, a by-law
in order to be valid, must be enacted by the constituent body.-^
Moreover, the validity of such by-laws depends upon the well
known rule that they must be reasonable.'^ They must not be
contrary to law, to good morals or to public policy.^ They
must not operate as ex jiost facto laws; * they must not authorize
the expulsion of members for trivial or minor offenses; ^ they
must not impose excesdve fines ^ nor more than one fine for the
same delinquency." They may annex to their prohibitions vesi-
EonohXe penalties, in the form of pecuniary j^/ies; ^ but such fines
Dickenson v. Chamber of Commerce,
29 Wis. 45; s. c. 9 Am. Rep. 5U.
1 Post, §956; Carroll v. Mullanphy
Savings Banlv, 8 Mo. App. 249, 253;
State Savings Asso. v. Nixon-Jones
Printing Co., 25 Mo. App. 642 ; Morton
Gravel Koad v. Wysong, 51 Tnd. 4, 12;
Union Bauk v. Ridgley, 1 Harr. & G.
(Md.) 324; Rex v. Westwood, 2 Dow
& CI. 21, 36. Charters and governing
statutes exist in some cases conferring
this power on the directors. Meclian-
ics' Bank v. Merchants' Bank, 45 Mo.
513 ; posi, § 978. But where the power
is not so conferred, it is at common
law incident to the corporation (Rex v.
Westwood, 2 Dow. & CI. 21, 86), and
not to the directors.
2 That corjiorate by-laws and or-
dinances will be set aside by the judic-
ial courts when deemed unreasonable,
see posf, §1021; Morris &c. R. Co. v.
Ay res, 29 N. J. L. 393; State v. Over-
ton, 24 N. J. L. 435; s. c. 61 Am,
Dec. 671; Neier v. Missouri Pacitlc R.
Co., 12 Mo. App. 25; Merz v. Missouri
Pacific R. Co., 14 Mo. App. 459; St.
Louisu. Weber, 44Mo 547; St. Louis v.
St. Louis R. Co., 14 Mo. App. 221 ; Me-
chanics' Bank v. Merchants' Bank, 45
Mo. 513; s. c. 100 Am. Dec. 388; cited
and approved in Spurloc-k v. Pacific R.
Co., 61 Mo. 3'2G; Beronjohn v. Mo-
bile, 27 Ala. 58. A by-law authoriz-
ing the expulsion of a member of a
mercantile body for dishonest conduct
as a merchant is not unreasonable.
People V. New York Commercial Asso.,
18 Abb. Pr. (N. Y.) 271; Hurst w. New
York Produce Exchange, 100 N. Y.
605, mem. s. c. in full, 1 Cent. Rep.
260. Reasonableness of a by-law pro-
hibiting members of an exchange
from gathering and trading in public
places in the vicinity of tile exchange
room before or after excliange hours:
State V. Milwaukee Chamber of Com-
merce, 47 Wis. 670, 683.
3 Sayre v. Louisville &c. Asso., 1
Duv. (Ky.) 143; s. c. 85 Am. Dec. 613;
post, § 1010.
* People V. Fire Department, 31
Mich. 458, 465; post, § 1019.
^ Woodward, C. J., in Evans v.
Philadelphia Club, 50 Pa. St. 107, 117;
Com. V. St. Patrick's Benevolent Soci-
ety, 2 Binn. 441 ; s. c. 4 Am. Dec. 453.
" Ilagerman v. Ohio &c. Asso., 25
Oh. St. 186; Lynn v. Freeraansburg
&c. Asso., 117 Pa. St. 1 ; s. c.2 Am. St.
Roi). 039. See also Ocmulgee&c. Asso.
V. Thomson, 52 Ga. 427 ; Endlich Build.
Asso., § 413.
' Cahill V. Kalamazoo Mut. Ins. Co.,
2 Dong. (Mich.) 124; 8. c. 43 Am. Dec.
457; post, § 1036.
679
4 Thomp. Corp. § 850.] expulsion of members.
must be certain;^ though the modern doctrine is, contrary to
the cases just cited, that it is suflSciently certain if the by-law
names the highest limit of the fine, leaving to the corporation
the power of mitigation.^ They cannot be enforced by a for-
feiture of goods, for forfeitures are against magna cliarta; ^ nor
by itnpi'isonment, unless authorized by charter, statute or cus-
tom according to old views ; * and it ^vould seem not, according
' to modern conceptions, except in the cases of the by-laws or or-
dinances of municipal corporations.
§ 850. Illustrations of Good and Bad By-Laws Providing
for tlie Expulsion of Members. — A benevolent society incorporated
for the purpose of providing a fund for sick and indigent members, the
articles of association of which do not fix any qualification in respect of
religious opinions, cannot make a by-law which wiU authorize the expul-
sion of members on grounds of religious behef.^ - - - - A volun-
teer fire company, upon the creation of a paid fire department, ceased
to run to fires, and converted its effects into cash, and leased its engine
house. Some months afterwards it amended its by-laws, changing the
rate of dues from twelve and one-half cents to two dollars a month. A
member, did not assent to the increase of dues, and did not pay them,
for which reason his name was erased from the books. In a proceeding
by mandamus to restore him, it was held that the amendment to the
by-laws was unreasonable, and that, upon a dissolution of the company
1 Ang. & A Corp., § 360; Wood w. in a joint-stock company for non-
Sear]e, J. Bridg. 141; s, c. 3 Leon. 8; payment of calls, such measure not
Mobile V. Yuille, 3 Ala. 137; Master being authorized by the legislature.
Stevedore Asso. v. Walsh, 2 Daly, But, of course, this holding has no
1, 14; post, § 1010. application to the numerous cases
2 riper V. Chappell, 14 Mees. & W. where such a power or forfeiture is
624 (overruling to this extent Wood v. conferred by charter or statute.
Searle, supra) ; Huntsville v. Phelps, * See Chamberlain of London's
27 Ala. 58 (overruling to this extent Case, 5 Co. Eep. 63b, where it was
Mobile V. Yuille, 3 Ala. 137). held that the City of London might
* Master Stevedore Association u. imprison for a breach of its by-laws;
Walsh, 2Daly (N. Y.),l, 14. See Bos- also City of London's Case, 8 Co.
worth V.Bergen, 7 Mod. 459; s. c. Eep. 241, 253, where a similar doctrine
Lutw. 1324 ; Kirk v. Nowill, 1 T. R. 118. is laid down. Compare Rex v. Newdi-
See in illustration of the text, Hart v. gate, Comb. 10.
Mayor of Albany, 9 Wend. (N. Y.) 571. ^ People v. St. Franciscus Benevo-
In Re Long Island R. Co., 19 Wend. lent Soc, 24 How. Pr. (N. Y.) 216.
(N. Y.) 37; s. c. 32 Am. Dec. 429, it And see People u. Farrington, 22 Id.
was held that a by-law was void which 294.
forfeited the shares of the members
680
POWER TO EXPEL. [1 Thoiup. Corp. § 851.
and a distribution of its property among its members, the relator was
entitled to his share as a member.^ . . _ - By-laws which pre-
scribe a trial of the members of the corporation for any delinquencies
before a select number of members appointed by the president, and
presided over by him, without the right of appeal, and confine the
evidence to such as may be brought by members only, and prescribe
that members shall be dropped without trial, if fines imposed by said
by-laws are not paid, are not so unreasonable as to be declared null and
void by a court of equity, and the ofllcers restrained from enforcuig
them.2 - - - - The defendant was a member of a corporation,
created under the laws of New York,^ membership in which was re-
stricted to the members of certain "local assemblies " of the " Knights
of Labor " under the jurisdiction of " District Assembly 49." Section
three of the statute referred to pro^^ded for the termination of member-
ship in the corporation by death, voluntary withdi-awal, and expulsion.
It was held, that a by-law which declared that the removal of a local
assembly from the jnrisdictiou of District Assembly 49 should be
equivalent to a voluntary withdrawal of all membership in the corpora-
tion, was in conflict with the statute, and that the removal for insubor-
dination, in which defendant took no part, from the jurisdiction of
District Assembly 49, of the local assembly of which he was a member,
would not deprive him of his membership on that ground.* - - - -
§ 851. Validity of By-Laws Providing for Expulsion for
the Non-fulfillment of Commercial Contracts. — An incorpo-
rated merchant's exchange or chamber of commerce empowered by its
charter to expel its members in the manner to be prescribed by its rules
and by-laws, may make a by-law providing for the expulsion of a member
for the non-fulfillment of any contract, whether wi-itten or verbal, and
such a by-law will not be held um-easonable because it authorizes the
expulsion of a member for refusing to perform a contract which is void
by the statute of frauds, since there is no reason founded in moraUty or
commercial integrity why such a contract should not be performed, nor
will it be held unreasonable in its application to a contract such as passes
under the ordinary name of an " option deal," ^ It has been reasoned
upon this question that " one of the principal objects of the corporation
undoubtedly is ' to establish a high moral standard in conducting busi-
1 Ilibernia Fire Engine Co. v. Com- * New Yorli Protective Ass'n v.
monwealth, 03 Fa. St. 264. Compare McGrath, 6 N. Y. Supp. 8.
Diligunt Fire Co. v. Coramonwealth, '^ Dickenson v. Chamber of Com-
75 Pa. St. 291. merce, 29 Wis. 45; s. c. 9 Am. Rep.
2 Ilusscy V. Gallagher, fil Ga. 8G. 544.
» Laws N. Y. 1876, c. 2G7.
681
1 Thomp. Corp. § 851.] expulsion of members.
ness transactions, and to exercise somewhat of a control over those who
belonged to it in their trade with each other, and with strangers. It
reaches a little beyond the precise legal rights of its members in their
business condnct, subj-ecting them to a supervisory care, so far as fair
dealing is concerned, to which they would not be ordinarily amenable
in any tribunal known to the land.' " ^ Contrary to the generally under-
stood rule of the common law, we find an opinion in the Supreme Court
of New York by Brady, J.,^ which proceeds upon the view that the doc-
trine in regard to forfeitures, whereby forfeitures are not favored,
apphes to the question under consideration, so as to result in the con-
clusion that the power to forfeit the seat of a member does not exist,
unless it is conferred upon the corporation or upon the judicatory of the
corporation which attempts to make the forfeiture, in express terms.
The case was that of a member of the New York Cotton Exchange, and
the learned judge said: " There is neither in the charter of the appel-
lants, nor the by-laws, however, any express authority to consider and
determine who is the owner of a right of membership, which is in dispute.
Whatever may be their power over matters directly connected with the
business which prompted their organization, or with the adjustment of
controversies between its members, or the establishment of just and
equitable principles in the cotton trade, or acquired by voluntary
submission to them or their committees under the charter and by-laws,
there is no express authority conferred upon them to pass upon the title
to a seat among them ; nor is there anything in the by-laws to wliich
our attention has been called authorizing it incidentally or by imphcation.
They could not, therefore, usurp the power absolutely, to pass upon the
relator's claim, and when he resorted to the courts to prevent them from
disposing of his property, he was not only not guilty of improper con-
duct, but asserting a right secured to him by the fundamental law of
the land. It may be that a member would be bound by the decision of
the appellants in specified cases, which being properly the subject of
a reasonable by-law, duly authorized, would be recognized as lawful
within the principles governing them. The appellant, however, on such
subjects, can take nothing by implication. Forfeitures depend upon
clear and explicit language, and are even looked upon with disfavor.
Expulsions from a corporation should not be accomplished by hurried
and incomplete investigations. A meml^er of a corporation may so
hedge himself in by agreement as to yield the protection which one seeks in
1 Ibid., quoting from People ex rel. ^ Davis, P. J., and Daniels, J., con-
V. New YorkComraercial As.so.,18 Abb. curring in the result.
Pr. (N. Y.) 271, 279. See also People
V. Chicago Board of Trade, 40 III. 112.
682
POWER TO EXPEL. [1 Thomp. Corp. § 852.
the ordinary affairs of life, and enlarge the authority that may be used
against him, but when it is said he has done so, it should appear bej^ond
all reasonable doubt. The presumption should be against the power to
expel except for the causes recognized by the adjudged cases, because
it is in the nature of a forfeiture, which the law does not favor. The
right to appeal to another tribunal, if to be foreclosed, should be so
by contract or agreement, not by mere construction of language em-
ployed in a by-law, or by impUcation from something contained in it ;
when this power is assumed, and upon either of these elements, and
there is any doubt of its existence, it should be rejected in the adminis-
tration of the law. This seems to be a just doctrine. The power
should be unquestionable. ' ' i The by-laws of the New York Produce
Exchange, creating an " arbitration committee" to hear and decide
controversies between members, etc., and a " complaint committee " to
entertain accusations against any member of willful violation of the
charter or by-laws, of fraudulent breach of contract, of conduct incon-
sistent with just and equitable principles of trade, or of other miscon-
duct, and authorizing the further proceedings of summoning and
hearing a member so accused, before the complaint committee and again
before the board of managers and, if the accusation is finally substan-
tiated, of suspending or expelling him by a two-thirds vote of the
board, have been held just and reasonable, and fully authorized by the
charter. 2
§ 852. By-law Prohibiting Members from Gathering in Pub-
lic Places to Buy and Sell *'Fvitures" outside the Exchange
Room. — The Supreme Court of Wisconsin has upheld the following
by-law of the Milwaukee Chamber of Commerce : ' ' Members of the
Chamber of Commerce are hereby prohibited from gathering in any
public place, in the \'icinity of the exchange room, and forming a market
for the purpose of making any trade or contract for the future delivery
of grain or provisions, before the time fixed for opening the exchange
room for general trading, or after the time fixed for closing the same
daily ; and any member who shall make any trade or contract in the
1 People V. New York Cotton Ex- of Appeai.s three judges (Danforth,
change, 8 llun (N. Y.), 21G, 219. Rapallo and Finch, JJ.") dissented.
2 Ilurst V. New York Produce Ex- As the Common Pleas is composed of
change, 100 N. Y. 605, mem.; .s.o. in three judges, it would appear that a
full, 1 Central Rep. 2G0. This case minority succeeded in reversing an
reversed an order of the New York aggregate majority of judges on tlie
Common Pleas at general terra afTirra- question here decided, and that the
ing the orders of the special term case is therefore not of the best au-
granting an injunction. In the Court tliority.
683
1 Tliomp. Corp. § 853.] expulsion of members.
luauner herein prohibited, shall be deemed to have violated this rule,
and he may, therefor, be fined by the president in a sum not exceeding
$5.00 for each and eveiy such offense, and shall be Hable to such addi-
tional discipline as the board of directors may determine; and any
member refusing or neglecting to pay any such fine shall be suspended
by the board of directors from all privileges of the association during
the time that such fine shall remain unpaid." The court regarded the
rule as a mere police regulation, enacted for the purpose of affording
the members of the chaml:)er free and convenient insfress to and egress
from the chamber and to prevent confusion and disturbance in the public
places near its exchange room, which might result from the unlimited
right of the members to trade in those places. They therefore regarded
it as proper for the good government of the chamber, and did not see
that it imposed an unlawful restraint upon trade, or that it was unreason-
able or unnecessary. But the court saw in it another ground on which it
might be upheld : " It may be that experience had shown that the un-
restricted right of the members to form a market at the time and in the
places specified in the rule, for the purpose of making the class of con-
tracts therein mentioned, tended to promote irregular transactions by
persons not members of the chamber and not amenable to its rules."
The court further observed that if it was true as the relator had given
e^•ideuce tending to show, that nearly all of the time contracts men-
tioned in the rule were wagering or gambling contracts, and therefore
void, — "it would be difficult to hold that a rule which operates as a
restraint upon the making of such contracts is an unlawful restraint
upon trade. In that case, if it is a restraint, the rule and the statute
are in entire harmony." ^ It was further held that the above by-law
was not void for uncertainty in not defining what was meant by " a
public place in the vicinity of the exchange room ' ' or what acts should
constitute " forming a market " there. ^
§ 853. By-Laws when not Enforcible by Forfeiture of
Membership. — Unless authority to this end is granted by the
legislature, a corporation cannot establish a by-law and annex
thereto the sanction of a forfeiture of the membership of the
members Avho violate it. "There can be no power to impose
forfeitures unless granted by clear legislative enactment. No
such power is consistent with common law or ancient right, and
it cannot be obtained from anything but the sovereignty. The
1 State V. Milwaukee Chamber of 2 mn^ 687.
Coiaraercc, 47 Wis. G70, 683, 686.
684
POWER TO EXPEL. [1 Thomp. Corp. § 854.
only implied means for the enforcement of corporate charges and
penalties is by action. Summary means and methods unknown to
the common law must be authorized by express authority. And
it would not be reasonable to enforce a pecuniary obligation or
penalty by means disproportionate to its importance. The law
of the land is made the test for analogies in cases where it affords
analogies." ^
§ 854. Grounds of Expulsion at Common Law : Bagg's
Case. — The leading case on this branch of the law is that of
James Bagg,^ decided in the reign of James the First, anno 1616.
Bago- was one of the twelve chief burgesses of the borough of
Plymouth, in England, and having been guilty of the most
scandalous and disorderly speeches to the mayor and fellow
burgesses was expelled; but the King's Bench, then presided
over by Sir Edward Coke, restored him by mandamus. Ac-
cording to the report of Lord Coke, two questions were con-
sidered : 1. What were sufficient causes to disfranchise a
citizen, freeman or burgess of any city or borough incorporate,
and to discharge him of his freedom and liberty, and what not.
2. How and by whom, and in what manner such citizen or bur-
gess shall be disfranchised. ' ' As to the/r6-^ it was resolved that
the cause of disfranchisement ought to be grounded upon an act
which is against the duty of a citizen or burgess, and to the preju-
dice of the public good of the city or borough whereof he is a
citizen or burgess, and against his oath which he took when he was
sworn a freeman of the city or borough ; for, although one shall
not be charged in any judicial court for the breach of a general
oath, which he took when he became officer, minister, citizen,
burgess, &c.,yet if the act which he doth be against the said duty
and trust of his freedom and to the prejudice of the city or
borough, and also against his oath, it enforces much the cause
of his removal, and there is a condition in law taclle and an-
nexed to his freedom or liberty; which if he breaks, he may be
disfranchised; but words of contempt, or contra bonos mores^
1 People w. Fire Department, 31 Co., 23 Mich. 145; People u. New York
Mich. 458, 405, opinion ot tlie court by Cotton Exchange, 8 Ilun (N. Y.),
Cainpijcll, J. See also Matter of 2 It;, 211); more fully stated in the
Long Island R. Co., 19 Wend. (N. Y.) preceding section.
37; Westcott V. Minnesota Mining 2 gagg's Case, 11 Co. Rep. 93.
685
1 Thomp. Corp. § 854.] expulsion of members.
although they be against the chief officer, or his brethren, are
good causes to punish him, as to commit till he has found good
sureties of his good behavior, but not to disfranchise him. 80,
if he intends, or endeavors of himself, or conspires with others,
to do a thing against tlie duty or trust of his freedom, and to
the prejudice of the public good of the city or borough, but he
doth not execute it, it is a good cause to punish him, as is afore-
said, but not to disfranchise him ; for non officii conatus, nisi se-
quatur eff'ec'us; and non o-fficit afectus nisi sequatiir efectus. And
the reason and cause thereof is, that when a man is a freeman of
a city or borough, he has a freehold in his freedom for life, and
to others, in their politic capacity, has an inheritance in the lands
of the said corporation, an interest in their goods, and perhaps
it concerns his trade and means of living, and his credit and
estimation; and therefore the matter which shall be a cause of
his disfranchisement ought to be an act or deed, and not a co-
nation or an endeavor, which he may repent of before the execu-
tion of it, and from whence no prejudice ensues; and they who
have offices of trust and confidence shall not forfeit them by en-
deavors and intentions to do acts, although they declare them
by express words, unless the act itself shall ensue, — as if one
who has the keeping of a park should say that he will kill all the
game within his custody, or will cut down so many trees within
the park, but doth not kill any of the game, nor cut down any
trees, — it is not any forfeiture; and sic de siinilihus, for in all
such cases, either there ought to be an act, or such a negligence
as tantamounts, SC77. when destruction of the game &c., ensues.
If a bishop, archdeacon, parson &c., fells all the trees, it is a
good cause of deprivation.^ So, if a Prior aliens the land which
he has injure domus sum, it is a cause of deprivation, as appears
in 9 E. 4. 34. a. If a Prior makes dilapidation, it is a good cause
to deprive him, as it is held in 29 E. 3. 16. a., 28 H. 6. 46. a. But
if it be but a conation, or endeavor, without any act done, in none
of those cases is it any cause of deprivation ; for in those cases,
voluntas non repuintur pro facto. And if a contempt (^be it of
omission or commission ) should be a good cause to disfranchise,
the best citizen or burgess might be, at one time or other dis-
^ Ciliug Y. arb. 2 Ileury 4, 3b.
686
GROUNDS OF EXPULSION. [1 Thomp. Corp. § 856.
franchised, which would be a great cause of faction and contention
in cities and boroughs." '
§ 855. Further of Bagg's Case : How, by Whom and in What
Manner Disfranchised. — "As to the second^ it was resolved
that no freeman of any corporation can be disfranchised by the
corporation, unless they have authority to do it either by the ex-
press words of the charter or by prescription, but if they have
not authority, neither by charter nor by prescription, then he
ought to be convicted by course of law before he can be removed ;
and it appears by Magna Charta, cap. 2d, mdlus liber homo capia-
tur, vel imprisonetur, aut disseisitur de libera tenemenio suo vel
libertatibus, vel liberis consuetudinibus suis &o., nisi per legale
judicium parium suorum, vel per legeyn terrce, and if the corpo-
ration have power, by charter or prescription, to remove him for
a reasonable cause, that will be per legem terroe; but if they
have no such power, heoughtto he conY\c,ie({ per judicumjjorium
suorum, etc., as if a citizen, or freeman, be attainted of forgery or
perjury or conspiracy, at the King's suit, etc., or of any other
crime whereby he is become infamous, upon such attainder they
may remove him. So, if he be convictedof any such offense which
is against the duty and trust of his freedom, and to thepul)lic prej-
udice of the city or borough whereof he is free, and against his
oath, — as if he has l)urnt or defaced the charters, or evidences of
the city or borough or razed or corrupted them, and is thereof
convicted and attainted, these and the like are good causes to re-
move him." 2
§ 856. Grounds of Disfranchisement under Rule of Lord
Mansfield — The statement given by Lord Mansfield of the
three grounds upon which an officer of a corporation may be
amoved,^ has been adopted by several American courts, as fur-
nishing grounds on which alone a corporation has the inherent
1 Bagg's Case, II Co. Rep. 93, 98. 4G9, 473; People v. Medical Society,
2 Bagg's Case, 1 1 Co. Rep. 93, 99. 32 N. Y. 187, 1 94 ; Com. v. St. Patrick's
8 .4K«e, § 806. See Rex ?;. Richard- Benevoleut Society, 2 Binney (Pa.),
son, I Burr. 517; Lord Mansfield in 441, 448; s. c. 4 Am. Dec. 4 53. Com-
Rex V. Town of Liverpool, 2 Burr. pare Riddell v. Harmony Fire Co., 8
723, 732; reaffirmed in Com v. Guard- Phil. (Pa.) 310; Ilarmsteadu. Washing-
ians of the Poor, 6 Serg. & P. (Pa.) ton Fire Co., 8 Phil. (Pa.) 331.
687
1 Thomp. Corp. § 857.] expulsion of members.
power to expel one of its members.^ The fact that the charter
of an incorporated society enumerates certain grounds of ex-
pulsion does not necessarily exclude the right of the society to
create other grounds by by-laws, the same being consistent with
the law of the land and with the general purposes of the society.
*'In the nature of the thing," said Tilghman, C. J., *' it is per-
fectly consistent that expulsion should take place in the case
provided for, and also in such other cases as the good govern-
ment of the society might require." ^
§ 857. Cases within these Principles. — Stating conclusions
and not details, it has been held that a member of an incorpo-
rated mercantile body may be rightfully expelled for obtaining
goods under false pretenses;^ that a member of a benevolent
society may be expelled for fraudulently altering an account
against the society ; * that a member of a charitable society may
be expelled for feigning sickness in order to obtain relief from
the society; ^ that an inmate of a home for aged seamen may be
expelled for misbehavior at the table ; ^ that a member of an in-
corporated board of underwriters may be expelled for issuing
policies of insurance for smaller amounts than those established
by the rules of the corporation ; ' that a member of a mutual
benefit society may be expelled for receiving the fee of an ap-
1 People V. Medical Society, 24 conduct as clearly violates the funda-
Barb. (N. Y.) 571, 578; People v. New mental objects of the association and,
York Commercial Association, 18 Abb. if persisted in, and allowed, would
Pr. (N. Y.) 271, 278; Leech w. Harris, thwart those objects or bring the
2 Brewst. (Pa.) 571, 577 (unincorpo- association into disrepute." Otto v.
rated association) ; Cora. u. St. Patrick Tailors' &c. Union, 75 Cal. 308,314,
Benevolent Society, 2 Binn. (Pa.) 441, opinion by Searle, C. J.
448; Cora. v. Guardians of the Poor, 6 ^ Com. v. St. Patrick Benevolent
Serg.&R. (Pa.) 409,473; Downer, J., in Soc, 2 Binn. (Pa.) 441 448; s. c. 4
State ex rel. v. Chamber of Commerce, Am. Dec. 453.
20 Wis. 63, 71; reaffirraed in Dicken- ^ People v. New York Commercial
son V. Chamber of Commerce, 29 Wis. Association, 18 Abb. Pr. (N. Y.) 271.
45; s. c. 9 Ara. Rep. 544. In a recent ^ Cora. v. Philanthropic Society, 5
case the grounds of expulsion frora Binn. (,Pa.) 486.
voluntary societies were said to be: ^ Society of the Visitation u. Com.,
" 1. A violation of such of the estab- 52 Pa. St. 125.
lished rules of the association as have ^ People v. Sailors' Snug Harbor, 5
been subscribed to or assented to by Abb. Pr. (n. s.) (N. Y.) 119 (sem!'le).
the member, and as pi'ovide for expul- ' People v. Board of Fire Under-
sion for such violation; 2. For such writers, 14 N. Y. Supr. Ct. 248.
688
GROUNDS OP EXPULSION. [1 ThoQip. Corp. § 859.
plicant for admission and failing to pay it over, and for taking
from the chest the original roll of the society and refusing to
return it; ^ that a member of a medical society may be expelled
for violating a contract with another member, to whom he has
sold his practice, not to practice medicine within certain limits. ^
§ 858. Cases not within, these Principles. — On the other
hand, a member of an incorporated benevolent society cannot be
expelled under a by-law for " vilifying" another member ;^ and
generally the use of contemptuous, insulting or disrespectful
language by one member of a corporation to another member, or
even to an officer, is not sufficient ground of expuLsiou; * nor is
absence from its stated meetings; ^ nor insulting or striking an-
other member of an incorporated [club within the club-house, it
being a corporation possessing property ; ® nor for a member of
an incorporated mutual benefit society to enlist in a volunteer
army in time of war, the prohibition of its by-laws extending
only to entering a standing army ; ^ nor for refusing to submit
differences to arbitration.^ Again, in regard to unincorporated
clubs, there is English authority to the effect that it will be left
to the judicatories of such clubs to determine what conduct in a
member will justify his expulsion.'
§ 859. Expulsion for Infamous Crimes : Whether a Previous
Conviction Necessary. — Contrary to what was said in Bugg's
Case,^" it seems to be settled that where the expulsion is for an
'People V. St. George's Society, aflBrmed on appeal by an equally divid-
28 Mich. 2(>1. ed court. The learned Chief Justice
^ Barrow v. Massachusetts Medi- made the case turn on the ground stat-
cal Society, 12 Cush. (Mass.) 402, 409 ed in tlie text.
3 Cora. V. St. Patrick's Benevolent ^ Franlilin Benevolent Association
Society, 2 Biiiu. (Pa ) 441, 449; s. c. i?. Com., 10 Pa. St. 357. Itwasconced-
4 Ain. Dec. 4.53. ed that such a society has power to
•* Rex V. University of Cambridge withhold its benefits from members
(Dr. Bentley's Case), 1 Str, 557; s. c. who, contrary to its regulations, as-
2 Ld. Raym. 1334; Fort. 202; Earle's sume the perils of war.
Case, Carthew, 173. s Green v. African Metliodist Epis-
'' Rex V. Richardson, 1 Burr. 517, copal Society, 1 Serg. & 11. (Pa.) 254.
541. Lytllcton v. Blackburn, 83 L. T.
•' Evans v. Philadelphia Club, .50 Pa. (n. s.) G41 ; s. c. 45 L. J. (n. 8.) 219,
St. 107. Tlie decision in this case, of ^^ 11 Co. Rep. 93, 99.
Woodward, C. J., at nisi prius was
44 689
1 Thomp. Corp. § 860.] expulsion of members.
infamous offense not immediately connected with the duty of
the accused as a corporator, it is not necessary that there should
first have been a trial and conviction upon an indictment.^
§ 860. Offenses against the Member's Duty as a Corpora-
tor. — Within the meaning of the rule of Lord Mansfield and
other subsequent cases, offenses against the corporators' duty as a
corporator, consist of " things done that work the destruction of
the body corporate, or the destruction of the liberties or privi-
leges thereof." 2 In the case of corporations these grounds of
expulsion may be, of course, extended by the legislature, in the
charter or governing statute, subject only to constitutional limit-
ations; and in the case of voluntary associations, by compact
among the members in the form of their articles of association,
constitutions, or by-laws, subject only to the principle that
they shall not be contrary to law or public policy. It is said to
be a tacit condition of membership in an incorporated associa-
tion of underwriters formed for the purpose of establishing uni-
formity in insurance policies and contracts of the associates, that
a member will not oppose or injure the interests of the corpo-
rate body. Accordingly, it has been held that if a member in-
sures for a smaller amount than thus established by the rules of
1 Rex V. Richirclson, 1 Burr. 517, of. And of the same opinion was the
538, 539; overru.ing on this point whole court; whereupon Sir Thomas
Bagg's Case, 11 Co. Rep. 93. See, Earle had a peremptory mandamits to
however, Leech v. Harris, 2 Brewst, restore him, the causes returned being
(Pa.) 571; People ?». New York Com- altogether insufficient to remove him."
mercial Association, 18 Abb. Pr. (N. The causes In the particular case were
Y.) 271. writing a false and contumelious letter
2 Ang. & A. Corp., §§ 349, 358; 2 to the Secretary of State concerning
Kent Com. 297, 299; Earle's Case, the mayor of the town and certain
Carthew, 173. \J-pon mandamus to re- citizens thereof; riotously and in-
store Sir Thomas Earle to the office of solently threatening the mayor at a
common councilman of the city of meeting of the mayor and aldermen;
Bristol: " It was insisted that tliere causing the common council books to
cannot be any cause to disfranchise a be brought before the Lord Lieuten-
member of a corporation unless it be ant of the city, with the intention to
for such a thing done which works to make an accusation against the mayor
the destruction of the body corporate and to betray the secrets of the city,
or the destruction of the liberties etc. Sir Thomas Earle's Case, Carth.
and privileges thereof, and not any 173.
personal offense of one member there-
690
GROUNDS OF EXPULSION. [1 Tliomp. Corp. § 861.
the corporation, he breaks this tacit condition and may be ex-
pelled by the corporation on a due trial and conviction.^
§ 861. Acts Injurious to the Society or to its Reputation. —
Where the articles of association of a society authorized the ex-
pulsion of a member for being concerned in scandalous or im-
proper proceedings, which might injure the reputation of the
society, — it was held to be a good cause of expulsion under these
articles that a member had altered a physician'' s bill from $4 to
$40, and had presented that bill to the corporation as the ground
of his claim. 2 Under articles of association authorizino; the ex-
pulsion of members guilty of improper conduct calculated tohving
the society into disrepute, it has been held that it cannot be said
that charges of (1) receiving of an applicant for admission his
proposed initiation fee and failing to pay it over to the society
or to return it to the applicant, who had complained thereof to
various persons ; and ( 2) having been entrusted by the secretary
with the keys of the society chest to obtain a receipt book there-
from ; and of having, at the same time, and without leave, taken
from such chest the original roll of the society, and refused to
return it, — are insufficient to warrant an expulsion. The court
further observed that proceedings for the expulsion of a mem-
ber, under articles of association agreed to by all the members,
are to be considered without too much regard to technicalities,
and that substantial justice is to be kept in view, rather than
mere form,^ But where the members of an intended corpora-
tion presented their so-called charter to the Supreme Court of
Pennsylvania for approval, under the statute of that State,* and
it was found that it allowed the association tO expel any member
who should be " guilty of actions which may injure the associa-
tion," the court refused to approve this, for the reason that it
gave to the corporation an indefinite power of expulsi<m over its
meml)ers. Lowrie, C. J., said : " For any action which may in-
jure them, they may expel; and therefore, they may expel a
member for becoming insolvent. It is totally incompatible with
» People V. Board of Fire Under- s people v. St. George's Society, 28
writers, 5 Ilun (N. Y.), 248. Mich. 2G1.
2 Com. V. riiilanthropic Society, 6 * Ante, § 111, et seq.
Binn. (Pa.) 480.
G91
1 Thomp. Corp. § 863. j expulsion of members.
the whole spirit of our institutions, to clothe any body with such
indefinite power over its members; for it is equivalent to social-
ism, and is a rejection of all individual rights within the associa-
tion. It is common in such charters to found the right of
expulsion on the fact that the member has been found guilty
of some crime, on a trial in court ; and this is quite proper." ^
§ 862. Illixstrations : " Conduct Injurious to the Character
and Interests of the Club." — In several cases which have been be-
fore the courts, members were expelled, either by a general meeting of
the club, or by a quorum of its governing committee, under a by-law or
rule of the club providing for the expulsion of a member for " conduct
injurious to the interests of the club." It will now be considered under
what circumstances the com'ts have refused to interfere in behalf of the
expelled member, when expelled under the operation of such a rule.
The rules of the Conservative Club authorized the committee to call a
general meeting " in case any circumstances should occur likely to in-
jure the welfare and good order of the club," and provided that anj^
member might be removed by the votes of two- thirds of the persons
present at such meeting. One of the members of the club had given a
pledo-e to support certain " Liberal " candidates at an election. Upon
this a general meeting was called, under the rule in question, and he
was expelled by a vote of the requisite majority. It was held by Lord
Komilly, M. R., that as the club was a club of a pohtical character, a
court of justice could not say that the member had not been expelled
because of something " likely to injure the welfare and good order of
the club." He read the by-law by interjecting the words "likely in
their, the committee''s opinion, to injure," etc. " That rule," said he,
" amounts to this, that if such circumstances as are there referred to
should arise, it would be the duty of the committee to call a meeting and
submit the matter for the judicial decision of the members of the club
at that meeting, and then it would be for them to determine whether
any ' circumstances likely to endanger the welfare and good order of the
club ' had taken place. ' ' And he held that, where such a meeting had
been called and a vote of expulsion by the requisite majority had taken
place, there was no appeal from the decision thus arrived at, to the
judicial courts, so long as it appeared that the members of the club had
arrived at the result bona fide, and without any caprice or improper
motive. " None but the members of the club," said he, " can know
the little details which are essential to the social well-being of such a
1 Butchers' Beneficial Association. 35 Pa. St. 151.
692
GROUNDS OF EXPULSION. [1 Thoinp, Corp. § 863.
society of geutlemeu, and it must be a veiy strong case that would in-
duce this court to interfei-e." ^ - - - - In another case a member of
a club caused to be printed and circulated a pamphlet entitled, ' ' A Farce
and a Villany — Heads I win, Tails You Lose," — ia which the con-
duct of Lieutenant-General Stephenson, who was also a member of the
club, was severely reflected on. A copy of this pamphlet was enclosed
in a wrapper on the outside of which was printed ' ' Dishonorable con-
duct of Colonel (now Lieutenant-General) Stephenson," and was sent
by the plaintiff, by post, to Lieutenant-General Stephenson at his official
address, the Guards' orderlj^ room, at the Horse Guards. This having
been brought to the notice of the committee of the club, and the
member in question, not ha\iug disavowed the act upon being
charged therewith, was expelled from the club, at a meeting called
by the general committee in pui'suance of its rules, of which meet-
ing plaintiff was notified, by a vote of 108 in favor of expulsion
to 36 against expulsion. It was held by the Court of Appeal, affirm-
ing the decision of Jessel, M. R., that a judicial court could not
say that this expulsion had taken place malajides^ and consequently the
coui'trefused to reinstate the expelled member.- - . - - In another
case an old and gallant officer, a member of the Army and Navy Club,
while intoxicated, used the expression to the guest of a member of the
club " It is a d d lie. ' ' On becoming sober he apologized in writing,
both to the guest and to the member of the club whose guest he had in-
sulted. For this offense he was expelled vntJiout notice and tvilhoiot an
opportunity of being heard by the committee of the club. It was held by
LordRomiUy, M. R., that the resolution of the committee was voul^ be-
cause they had acted without notice and contrary to natural justice. He
disclaimed the power of sitting as court of appeal upon the action of the
club, in a case where the}^ proceeded upon notice, such as they were
bound to give in a ^was/- judicial proceeding. But, at the same time, he
took the liberty of tendering this advice to the committee of the club :
' ' I hope the}^ will carefully consider whether such an offense as this is
of so grave a character as, in the interests of the club, to warrant the
immediate expulsion of an old and gallant officer, who has been for
many 3'ears a member of the club. It is not for me to express any
opinion upon this part of the case, but I hope, when the committee come
to reconsider it, as they will undoubtedly, that they will consider it with
an impartial mind, and without any reference to the circumstances that
have since occurred. Be that as it may, in my opinion a committee,
acting under such a rule as this, are bound to act, as Lord Ilatherly
1 Hopkinson v. Marquis of Exeter, ^ Dawkins v. Antrobus, 17 Ch. Div.
L. R. 5 Eq. 63, 68. G15.
693
1 Tliomp. Coij). § 863.] expulsion of members.
said, according to the ordinary principles of justice, and are not to con-
vict a man of a grave offense, which shall warrant his expulsion from the
club, without fair, adequate and sufficient notice, and an opportunity'' of
meeting the accusations brought against him. They ought not, as I un-
derstand it, according to the ordinary rules by which justice should be
administered by committees of clubs, or by another body of persons who
decide upon the conduct of others, to blast a man's reputation forever —
perhaps to ruin his prospects for life, without giving him an oppor-
tunity of either defending or palliating his conduct.^" - - - -
It has been held that it is competent for the managing com-
mittee of a club, by the requisite majority under its rules, to expel
a member of the club for making disparaging remarks in criticism
of the action of the committee of the club and the character of
the committee. A rule empowered a majority of two- thirds of the
committee to expel any member, whose conduct they deemed injurious
to the character and interests of the club. The plaintiff, a member,
had at a club meeting protested against G.'s re-admission as a member
of the club, as being contrary to the rules, and designated the com-
mittee as a " pocket borough," and on another evening (November 30,
1881), he had used the same term in the club-house, stating also that
the " committee could pass and alter any rules they deemed fit." Some
of the plaintiff's remarks were made at the bar of the club. The com-
mittee, by a majority of two-thirds, passed a resolution that the
plaintiff's conduct November 30, 1881, and in the club generally, in
pubhcly disparaging the committee before strangers and the club serv-
ants, was injurious to the character and interests of the club, and that
the plaintiff be requested to resign. The majority included G. without
whose vote it would not have been complete. The plaintiff moved to
restrain the committee from expelling him, alleging that the resolution
was solely the result of malice towards him on the part of some of the
committee and particularly of G., and not of a bona fide regard for the
interests of the club. The court dechned to interfere, holding that
there was nothing to show that the resolution of the committee was not
bona fide, the reason given for demanding the resignation of the mem-
ber not being of itself evidence of malice. ^
§ 863. Frauds upon the Society. — As suggested by a pas-
sage in a previous section,^ frauds committed upon the society to
the prejudice of its funds, as by charging the society with
1 Fisher v. Kean, 11 Ch. Div. 353, i Lambert v. Addison, 46 L. T. (n.
362. 8.) 20.
3 Ante, § 861.
694
GROUNDS OF EXPULSION. [1 Thomp. Corp. § 864:.
money which the member has never paid, furnish good
grounds of expulsion. ^ If, therefore, a member of a mutual
benefit society "feigns himself sick without being so, or con-
tinues to draw relief after his recovery," he may be expelled. ^
§ 864. Expulsion from Merchants' Exchanges for Dishonest
Conduct. — An incorporated mercantile association, formed among
other things, "to inculcate just and equitable principles in trade,"
may, it has been held, expel a member for obtaining goods under
false pretenses, though the offense is not committed within the local
jurisdiction of the corporation, nor against any member thereof.
The theory of the court is that, when a member of a corporation
performs an act in direct contravention of the purposes for
which the charter was obtained, he may, under Lord Mansfield's
rule above stated,^ be expelled.* On like grounds, a by-law of a
chamber of commerce, providing for the expulsion of a member
for non-compliance with the terms of any contract, whether ver-
bal or written, has been held reasonable and valid, even though
the contract which was violated in the particular case was void
under the statute of frauds, and not made during a session of the
exchange.^ But it has been held that, where it appears from the
regulations of a board o/brokers that their rules are intended ex-
clusively to enforce compliance with contracts relating to deal-
ings in stocks, a member cannot be expelled by reason of his
non-compliance with a contract relating to oil leases, that being
a contract not relating to s^oc/js, but to lands. The court said:
" The purchase of a tract of land is not a stock contract. The
renting of a house, a store or an oil well or the privilege of tak-
ing oil from land is not a stock contract. To so hold would be
an utter perversion of terms; and, under the term stocJc contract,
would enable the board of brokers to assume jurisdiction over
their members in contracts tonching realty or personal property,
however remote they might be from shares, stocks, and loans
such as the board operates in. What the plaintiff really submit-
1 Com. V. Guardians of the Poor, * People v. N. Y. Commercial As-
G Sers. & R, (Pa.) 4C9. sociation, 18 Abb. Pr. (N. Y.) 271.
2 Society for Visitation of the Sick * Dickenson v. Chamber of Cora-
Scc.v. Commonwealth, .62 Pa. St. 125. merce, 29 Wis. 45.
■5 Ante, § 806.
695
1 Thomp. Corp. § 866.] expulsion of members.
ted to when he became a member of the board of brokers was
that the board should tiike jurisdiction if he should refuse to
comply with his stock contracts, not that they should have juris-
diction of his contracts touching lands, houses or leasehold es-
tates or farming interests." ^
§ 865. Suspension for Bankruptcy or Insolvency. — As al-
ready seen, we have the great authority of Lord Mansfield for
the proposition that bankruptcy, being in many cases a misfor-
tune rather than a crime, is not sufficient ground for removing a
member of the common council of a municipal corporation. This
rule obviously does not a[)ply in the case of incorporated mer-
chants' exchanges, or brokers' boards, which are established with
the primary object of affording a place where, and establishing
rules under which, its members may meet and trade with each
other. It is essential to the purpose of such a corporation, that
its members should keep the contracts thus made with each other,
and where a member becomes disabled from keeping his con-
tracts by reason of insolvency, there is no just ground why this
should not be made a cause of suspension from the society,
especially where this is in accordance with its rules by which he
agreed to be governed when he became a member.^
§ 866. Contempt against Corporate Officer. — The mere fact
that a member of a corporation has committed a gross contemx)t against
the judicial process of the corporation, it haAing power to issue such
process, and against an officer of the coriaoration possessing under such
process the power of a judge, has been thought an insufficient ground
of depriving him of his privileges in the corporation. This was the
opinion of the judges in the case of the celebrated Doctor Richard
Bentle}'.^ The university had issued against Dr. Bentley process in an
action of debt for the sum of four pounds and six shilHngs, and caused
it to be served upon him by its beadle, to appear at the next court of
the university. The beadle waited upon the learned Doctor, at his
lodgings within the jurisdiction, and showed him the process, and served
him with it. "And, uj^on discourse between them concerning the pro-
1 Leech v. Harris, 2 Brewst. (Pa.) ^ Rex v. University of Cambridge,
571,579. 5 Str. 157; s. c. 2 Ld. Raym. 1334;
2 Moxey v. Pliiladelpliia Stock Ex- Fort. 202.
change, 14 Phila. (Pa.) 185.
696
GROUNDS OF EXPULSION. [1 Thouip. Corp. § 866.
cess and the ^^ee-chancellor, Bentle}' contemptuously said, the process
was illegal and unstatutable, and he would not obey it." He also " took
the process out of the hands of the beadle, saying the vice-chancellor
was not his judge, et quod prced' procancellarius stulte egit.'' For
which contempt the university, at its next court, on the deposition of the
beadle, suspended Dr. Beutley ab omni gradu suscepto. The Doctor
applied to the King' Bench for a mandamics, and got his wi-it. The
chancellor, masters, and scholars of the university discovered that they
were not the highest judicatory in England, but that they could be com-
pelled to appear at Westminster Hall, according to the ancient formula,
•' before the King himself." They also discovered that, when they got
there, although the King himself was not on the bench. Sir Peter Parker
was there in his stead, vnth the puisne judges at his elbows. " The
university," said the Chief Justice, " ought not to think it any condem-
nation of their honour that their proceedings are examinable in a superior
court. I am sure that this court, which is superior to the university,
thinks it none. For my own part, I can say, it is a consideration of
great comfort to me, that if I do err, my judgment is not conclusive to
the party, but my mistake will be rectified, and so injustice not be
done." The learned Chief Justice then proceeded to belabor Dr.
Bentley as follows: "As to the proceedings against Dr. Beutley, it
must be agreed that the vice-chancellor had conusance of the cause, and
so the suit was well instituted against him. I must likewise take the
process to compel an appearance to be regular, being averred to be ac-
cording to the course of that court. As to Dr. Bentley' s behavior upon
being served with the process, I must say it was very indecent, and I
can tell him, if he had said as much of our process, we would have laid
him by the heels for it. He is not to arraign the justice of the pro-
ceedings out of court before an officer, who has no power to examine
it. "NVTien he said the \ace-chancellor ' stulte egit,' it was what he might
have been bound over to his good behavior for ; but I believe it is also
estabUshed that such a behavior will not warrant a suspension or depri-
vation. He said he would not obey, but non constat, but he thought
better of it afterwards and did appear. I cannot think the evidence of this
contempt was sufficient. It does not appear to have been on oath, as it
should have been." Powys, J., concurred in omnibus. Eyre, J., was
of the same opinion. He said: " But surely for a contempt they can
not deprive. We punish our officers, but we do not turn them out."
Fortescue, J., also said: " A deprivation can never be the proper pun-
ishment for a contempt, because it cannot hold in the case of under-
graduates." ^
1 Rex V. University of Cambridge, 1 Str. 557; 2Ld. Raym. 1334; Fort. 202.
697
1 Thorn p. Corp. § 868.] expulsion of mkmbers.
§ 867. Criticising the Management. — The rules of a proprie-
tary clnh provided " that if in the opinion of the committee, or twenty
members, who shall certify the same in writing, the conduct of a mem-
ber is injurious to the character and interests of t'le club, the commit-
tee by a majority of two-thirds present at a meeting summoned for that
purpose, may recommend such member to retire, or expel him." The
plaintiff wrote a long letter to the committee, calling their attention to
certain matters which, in his opinion, required explanation, and sug-
gested certain alterations in the administration of the club, and gave
notice that, unless one of the rules was at once altered by the commit-
tee, he should himself move for its alteration at the next annual general
meeting of the club. The committee simply acknowledged the receipt
of this letter, and informed the plaintiff that his proposals could be
made and attended to at the next annual general meeting. Wliereupon
the plaintiff wrote in a tone which the committee considered very dis-
courteous, and accordingly requested him to withdraw the objectionable
letter. On his refusing to do so, the committee, in the exercise of the
powers given them by the rules of the club, called a committee meeting
to consider the plaintiff's conduct, and expelled him from the club, on
the grounds that such conduct on the part of a member, if unchecked,
would weaken and paralyze their authority to maintain the discipline
of the club. The plaintiff filed his bill to restrain the committee from
expelling him, charging that the power vested in the committee had
been exercised capriciously and maliciously. It was held by Vice-Chan-
cellor Bacon that the court was not justified in interfering between mem-
bers and the committee, because the power given by the rules had been
exercised hona fide, for the welfare of the club, in the opinion of the
committee, and there had been no fraud or had faith in their ex-
ercise. ^
§ 868. Offenses against Other Members. — From what has
already been seen,^ it will be inferred that offenses against other
members of the society will afford no ground of suspension, un-
less they are of such a character as to amount to violation of the
duty of the member toward the society ; and this must, of course,
depend upon the nature of the society, the nature of the offense,
and the time when and place where it is committed. In a mutual
benefit society, the fact of one member making charges against
another, that he had " assisted as president of the soci-
1 Littleton v. Blackburn, 33 L. T. * Ante, § 862.
(N. 8.) 041; s. c. 45 L. J. (N. S.) 219.
698
GROUNDS OF EXPULSION. [1 Thomp. Coi'p. § 868.
ety in defrauding the society of the sum of fifty cents;"
and charging him with " defaming and injuring the same
in public taverns," have been held not a sufficient ground
of expulsion.^ In a leading case in Penus/lvania, the char-
ter of an incorporated benevolent society provided that, in
order to observe decorum in the society while sitting, there should
be no insulting or disrespectful behavior to any of the society ;
and any member so transgressing, should for the first offense, be
fined in the sum of one dollar, for the second, in double that sum,
and for the third, be expelled the society. A by-law of the
same society provided that *■'■ vilifying any of its members"
should be a crime against the society, for which the member
guilty of it should be punished by removal from office, fine, or
expulsion, etc. It was held that the by-law was not invalid, be-
cause of the existence of the charter provision, though it was in-
herently invalid. " My opinion," saidTilghman,C. J., " will be
founded on the great and single point on which the cause turns.
Is this by-law necessary for the good government and support of
the affairs of the corporation? I cannot think that it is. I have
considered the case with a mind strongly disposed to give a liberal
construction to the power of making by-laws. It is my wish to
give all necessary powers for carrying into effect the benevolent
purposes of this society, and many others which have lately
been incorporated on similar principles. But these powers must
not be constrained, or the societies, instead of being protected,
will be diitsolved. The right of membership is valuable, and not to
be taken away without an authority fairly derived either from the
charter, or the nature of corporate bodies. Every man who be-
comes a member looks to the charter ; in that he puts his faith, and
not in the uncertain willof a majority of the members. The offense
of vilifying a member, if in private quarrel, is totally uncon-
nected with the affairs of the society, and therefore' its punish-
ment cannot ])e necessary for the good government of the corpora-
tion. So far from it, that it appears to me that taking cognizance
of such offenses, will have the pernicious edect of introducing pri-
vate feuds into the bosom of the society and interrupting the
transaction of business. I consider it as a point of very great
' Cora. V. German Society, 15 Pa. St. 251.
GOO
1 Thornp. Corp. § 868.] expulsion of members.
importance, in which thousands of persons are, or very soon will
be, interested; for the members of these corporations are increas-
ing rapidly and daily. On mature reflection, it appears to me
that, without an express power in the charter, no man can be
disfranchised, unless he has been guilty of some offense, which
either affects the interests or good government of the corpo-
ration, or is indictableby thelawof the land." It was accordingly
held that the by-law was voidy and a peremptory mandamus was
issued to restore the member to his franchise.^ In another case
in the same State, it appeared that two members of an incorpo-
rated club were sitting; toixether in conversation in the bar-room
of the club-house ; that a third member came in and used insulting
language, understood by one of the two to be applied to himself,
who thereupon strncJc the offender; — yet the act was held not
such as would justify his expulsion from the club by the mem-
bers thereof.^ Mr. Justice Woodward made his decision in this
case turn upon the fact that the corporation was the oioner of
•property. He said: " But what is conclusive of this case is, that
the corporation possesses propert}'^, real and personal, and is at
liberty to accumulate more until an annual revenue of $3,000,
comes to be enjoyed ; and the relator has purchased and paid for
the right to participate in that franchise. It is not a joint-stock
company at present, for, under its by-laws, no pecuniary profits
are divisible among the members ; but it may become so, and
whether it does or not, the relator has a vested interest in its
estate, and cannot be deprived of it by the proceedings that were
had against him. On this point the authorities are clear, and
without conflict. Nothing but an express power in the charter
can authorize a money corporation to throw overboard one of its
members. I have shown that the act of incorporation contained
no such power. On the contrary, it excluded it; for the pro-
viso reads that ' nothins: herein contained shall be so construed
as to authorize said Philadelphia Association and Reading Room
to do any oilier act or acts in their corporate capacity than are
herein expressed."^ The decision is believed to be unsound.
Not only most incorporated clubs, but also religious, benevolent
1 Com. V. St. Patrick's Benevolent 2 Evans v. Philadelphia Club, 60
Soc, 2 Binn. (Pa.) 441, 449; s.c. 4 Am. Pa. St. 107.
Dec. 453. 8 Ibid. 118.
700
GROUNDS OF EXPULSION. [1 Thomp. Coi'p. § 869.
and other societies formed for ideal purposes, generally own more
or less property in which the rights of the members are usufruc-
tuary merely. Nevertheless, according to the entire current of
judicial authority, such corporations stand upon an -entirely dif-
ferent footing from joint-stock corporations, organized for mere
pecuniary gain, in respect of the power of expulsion over their
members. In the case of a club organized for social purposes,
one of the first duties of the member toward the club would seem
to be to keep the peace with his fellow-members. While the
club might not exercise the power of expulsion over him for a
breach of the peace against another member, committed, so to
speak, inpais, yet it should seem that it might clearly do so, for
a breach of the peace against such a member committed in the
club-house itself. It should further be ad Jed that upon an ap-
peal to the court in bank the judgment was affirmed by an equal
division of the court.
§ 869. Refusal to Submit to Arbitration or to Comply with
Award. — As suggested in the previous chapter, the judicial
courts have always been jealous of the establishment of private
rules or enjraorements by which persons surrender their ri^ht to
appeal for justice to the courts of their country; and, as here-
after been,i the Supreme Court of the United States has held that
a statute of a State requiring a foreign corporation, as a condi-
tion of doing business within the State, to enter into an agree-
ment not to remove suits against it from the State to the Federal
courts, has been held bad. Upon similar lines of reasoning,
courts have refused to uphold an expulsion of a member of a
corporation because of his refusal to comply with a regulation
requiring differences to be submitted to arbitration, and also be-
cause of his refusal to comply with an award made by arbitrators
appointed in conformity with the regulations of the corporation.
According to the discipline of the Methodist Episcopal Church,
by which a society of that church called the African Methodist
Episcopal Society was governed, disputes between members were
to be settled by arbitration, and any member, who should com-
mence an action at law against another member, was liable to
1 Post, § Ch. 195.
701
1 Thomp. Corp. § 870.] expulsion of members.
expulsion, " except the case be of such a nature as required'and
justilied a process at law." A member was tried upon a charge
of having, contrary to the rules and discipline of'tlie society,
entered a lawsuit against another member, was found guilty and
expelled. In a proceeding by mandamus to compel the society
to restore him to his membership, the return set forth that the
relator had brought suit against one Howell, a member of the so-
eiety, in violation of its rules, but did not aver that the case was
not of puch a nature as required and justified a process at law.
It was held that, because of this omission the case was not brought
within the exception to the rule, and that the return failed to
show lawful grounds for the expulsion of the member. A per-
emptory writ to restore him to his membership was accordingly
awarded.^ So, the mere fact ofa non-compliance with an award
made by arbitrators, appointed in conformity with the articles of
association of a mercantile exchange, has been held insufficient
ground to warrant the expulsion of the member, — the view of
the court being that " if the defendant [tiie corporation] has the
power and authority to act as an arbitration court under its
charter, in relation to all claims of one of its members against
another, arising from cotton transactions, its decisions and awards
are subject to be reviewed and examined, so far as the legal
rights of the parties are concerned, by the judicial tribunals of
the State, in the same manner as the awards to other arbitrators
are reviewed and examined.^
§ 870. Illustration. — The articles of association of a cotton ex-
change, contained the following provision: " Any member who shall be
accused of willfully violating the constitution and by-laws, or of
fraudulent breach of contract, or of any proceeding inconsistent with
the just and equitable principles of trade, or of other misconduct, may,
on complaint, be summoned before the full board of directors ; and if
the charges against him be, in the opinion of the board, substantiated,
be may, by a vote of not less than two-thirds of the members of the
board, be suspended or exi^elled fi'om the exchange." Another article
provided that all claims of one member against another, arising from
cotton transactions, should be subject to arbitration, specified the
manner in which the arbitration should be had, and estabhshed a board
1 Green v. African Methodist Epis- 2 Savannah Cotton Exchange v.
copal Soc, 1 Serg. & R. (Pa.) 254. State, 54 Ga. 668, 670.
702
GROUNDS OF EXPULSION. [1 Thomp. Corp. § 871.
of appeals. It was held that the failure of a member to comply with
an award rendered upon such an arbitration, against his protest that
the exchange had no jurisdiction of the matter in issue, was not such
misconduct as would authorize his expulsion.^ The opinion in this case
does not seem to rest upon any sound foundation. The articles of
association appear to have been the fundamental law of the corporation,
its charter. They constituted the compact between its members, into
which every member entered when he became a member, and the ex-
pulsion appeal's to have taken place strictly in accordance with that
compact. No sound reason is given by the court for its conclusion.
§ 871. Appealing to the Judicial Courts. — Where the char-
ter of a corporation declared its purpose, among other things,
to be " to adjust controversies between its members, and to es-
tablish just and equitable principles in the cotton trade;" and
gave it power to make all proper and needful by-laws, not con-
trary to the constitution and laws of the State of New York or
of the United States;" and "to admit new members and expel
any member, in such manner as may be provided by the by-
laws;" and the by-laws provided for the expulsion of members
for improper conduct, but did not state what should be considered
as such ; and there was m the charter or by-laws no express
authority to determine who was the owner of a right to a mem-
bership in dispute, — it was held that, in the case of a dispute
as to the right to a membership, one who had been a member
claiming the right to retain his membership against another party
claiming to have acquired it, was not guilty of improper con-
duct in appealing to the judicial courts for an injunction upon
the corporation to prevent a sale of his seat. The case was that
the relator was in default upon a contract, and the by-laws pro-
vided that in such a case his membership should be disposed of
by sale, and it was so disposed of, and lie sued out a writ of in-
junction restraining the sale, and because of his thus appealing
to the judicial courts his membership was declared forfeited ;
and it was held that he was entitled to be reinstated by man-
damus.'^
' Savannah Cotton Exchange v. change, 8 Hun (N. Y.), 216, 219.
State, 51 Ga. 6(58. Compare Belton v. Hatch, 109 N. Y.
2 People V. New York Cotton Ex- 193.
703
1 Thoiiip. Corp. § 873.] expulsion of members.
§ 872. jVejjligrence, Misconduct in Oflicc, or any Other Rea-
sonable Canse. — The foregoing decisions, with relation to social
clubs, are based upon the analogy of a decision rendered in 1850 by
Lord Langdale, M. R., in a case where the court was applied to to re-
instate certain directors of a joint-stock pctrtiiership, who had been ex-
pelled under the following circumstances : The expulsion took place at a
meeting of the company regularly convened. Resolutions were passed,
remoWng the directors in question for misconduct. The resolutions
were based upon a provision of a deed of settlement of the company, to
the effect that such a meeting might remove any director ' ' for negli-
gence, misconduct in office, or any other reasonable cause." It was
held, on a motion to set aside the proceedings of expulsion, and also for
the election of new directors and for an injunction to restrain the new
directoi's from acting, — that the expression "reasonable cause," in
the deed of settlement did not refer to such cause as, in a court of jus-
tice, would be held reasonable, but only to such a cause as should be
deemed reasonable to the shareholders assembled at a meeting duly con-
vened, and therefore that the court had no jurisdiction to interfere.
Nor, where no case of direct fi-aud was proved, to determine whether the
decision of the meeting had or had not been unduly influenced by un-
founded statements made by persons taking an active part in the pro-
ceedings. As this may be deemed in some sense a leading case by
reason of its being the foundation of the law relating to the expulsion
of the members of social clubs, it will be profitable to set out the rea-
soning of Lord Langdale in his opinion. He said: " Now the 27th
clause of the deed provides ' that an extraordinary general meeting
specially called for the purpose may remove from his office any director
or auditor for negligence, misconduct in office or any other reasonable
cause.' The argument for the plaintiffs rested on the allegation that
the general cause of removal referred to in the clause, being expressed
to be reasonable, prevents the power referred to from being a power to
remove at pleasure arbitrarily or capriciously, and made it requisite
that the proceedings for exercising the power should be in its nature
judicial, and that the reasonable cause should be such as a coui't of jus-
tice would consider good and sufficient. If this argument could be sus-
tained, all proceedings at such meeting would be subject to the review
of the courts of justice, which would have to inquire whether the cause
of removal which was charged was in their view reasonable, whether the
charges were bona fide brought forward, whether they were substan-
tiated by such evidence as the nature of the case required, and whether
the conclusion was come to upon a due consideration of the charge and
evidence. But the deed is silent as to these matters, and the question
is whether any such power of control in the courts of justice is to be
704
GROUNDS OF EXPULSION. [1 Thomp. Corp. § 872.
inferred from the words ' reasonable cause ' contained in the 27th
clause ; whether the expression ' reasonable cause ' contained in such
a deed of a trading partnership can be held to be such a cause, as
upon investigation in a court of justice must be held to be boyia fide
founded on sufficient evidence and just ; or whether it ought not to
be held to mean such cause as, in the opinion of the shareholders duly
assembled, shall be deemed reasonable. We think the latter is the true
construction and effect of the deed. In a moral point of view, no
doubt, every charge of a cause of removal ought to be made bona fide,
substantiated by sufficient evidence, and determined on a due consider-
ation of the charge and evidence ; and those who act on other principles
may be guilty of a moral offense ; they may be very unjust, and those
who (being present at the meeting) are innocently misled by the state-
ments made to them, have ho doubt a just right to complain that they
have been led to conciu- in an unjust act. But the question is, whether
by this deed the shareholders duly assembled at a general meeting might
not, or had not a right to, remove a director for a cause which they
thought reasonable, without its being incumbent upon them to prove
to this or any other court of justice that the charge was true and
the decision just, and that the case was substantiated after a due con-
sideration of the evidence and charge. We cannot take upon ourselves
to say that in the case of a trading partnership like this, this court has,
upon such a clause in the deed of partnership, jurisdiction or authority
to determine whether, by the unfounded speech of any supporter of the
charge, the shareholders present may not have been misled or unduly in-
fluenced. All such meetings are liable to be misled by false or eiToneous
statements, and the amount of error or injustice thereby occasioned
can rarely, if ever, be appreciated. This court might inquire whether the
meeting was regularly held, and in cases of fraud clearly proved, might
perhaps interfere with the acts done ; but supposing the meeting to be reg-
ularly convened and held, the shareholders assembled at such meeting may
exercise the powers given them by the deed. The effect of speeches and
representations cannot be estimated, and for those who think themselves
aggrieved by such representations, or think the conclusion unreasonable,
it would seem that the only remedy is present defence by stating the
truth and demanding time for investigation and proof, or the calling of
another meeting at which the whole matter may be reconsidered. The
plaintiffs objecting to this meeting and considering it illegal, protested
against it, but abstained from attending, and therefore made no answer
or defense to and required no proof of the charges made against them.
The adoption of this course was unfortunate, but docs not afford any
grounds for the interference of this court. We are far from thinking
that the chai-ges made l)y Mr. Snell against tlie plaintiffs and Mr. John-
•ir, 70.5
1 Tliomp. Corp. § 873.] expulsion of members.
son were well founded. He appears to have made a very exaggerated,
and in some respects an unfounded statement ; and in the present state
of the evidence, if the question were, whether the charges were well
founded, we might think it our duty to say that they are not. But as
the real question is whether the shareholders at the meeting had not a
right to remove directors for such causes as to them seemed reasonable,
and as we think that on the true construction of the deed, they had such
right, we are of opinion that the order granting an injunction ought to
be discharged." ^
§ 873. Expulsion of Members of Incorporated Medical
Societies. — Following the decision of Lord Mansfield in Rex v.
Mayor of Liverpool, ^ it has been held by the New York Court
of Appeals, that the only common law grounds of expulsion
on which a medical society, incorporated under the statutes of
that State, can expel a member, are these: 1. A violation of
duty to the society, as a member of the corporation. 2. Offenses
as a citizen against the laws of the country. 3. A breach of
duty in respect alike to the corporation and the laws. And that
the only statutory ground of expulsion was the presentment of
a formal charge by a two-thirds vote of the society, and a con-
viction by the county court " of gross ignorance or misconduct
in his profession, or of immoral conduct or habits." It was
farther held that the code of medical ethics, adopted by the by-
laws of a county society, is obligatory on the membei-s alone,
and its non-observance, previous to membership, furnishes no
legal cause for expulsion.^ A member of the Massachusetts
Medical Society was tried and unanimously expelled upon a
charge of " gross immorality,^' the grounds of the case being
that for IX large sum of money he had relinquished his practice to
another member of the society, had gone out of the State for a
year or more, and then had returned and brohen his contract with
such member by resuming his practice. This fact was substan-
tially admitted, and the accused had full opportunity of being
heard in his defense. The society, under its by-laws, the
validity of which were not challenged, had power to expel a
member for (among other things) " any gross and notorious im-
1 Inderwick v. Snell, 2 Mac. & G. ^ People v. Medical Soc, 32 N. Y.
21<;, 221. 187, li)4.
-' 2 Burr. 732.
706
GROUNDS OF EXPULSION. [1 Tliomp. Corp. § 873.
morality." The court refused to restore him by mandamus^
proceeding upon the view that such a case had not been shown
as to warrant the exercise of that extraordinary power. Mr.
Chief Justice Shaw said: "The medical society, both by its
charter and by-laws, had jurisdiction to inquire into and pass
judgment upon the conduct of its members, and, in a proper
case, to expel a member; and, 'gross immorality' in a pro-
fessional transaction, having a tendency to bring the profession
into dishonor before the community, if distinctly charged and
proved, may be of such character as to justify the exercise of
their power. The proceedings appear to have been conducted
with deliberation, and several opportunities were given to the
petitioner to be heard before the committee and the counsel-
ors, and the vote of expulsion was unanimous. Without saying
that the cnurt would in no case afford its authority by writ of
mandamus to restore a member wrongfully expelled from such
society, we cannot perceive, upon examination of the i)roceed-
ings, any evidence of haste or prejudice against the petitioner,
or that the society came to a wrong decision, or acted in vio-
hition of the petitioner's rights." ^ It seems that the doctrine
of tivice-in-jeopardy does not apply to a proceeding to expel
a member from a medical society. Accordingly, it has been
held that such a society is not precluded from prei'errino^
charges against one of its members by the fact of having
once refused to prefer the same charges. ^ The mere fact
that the member has been tried upon an indictment for the
charge in a court of criminal jurisdiction and acquitted, does
not deprive the medical society of jurisdiction to try him upon
a chariie of having committed the same offense, in so far as
it affects his right of membership in the society, and affords
no bar to an inquiry under the statute for the purpose (»f
depriving him of his right to practice physic and surgery.^ A
statute whirh undertakes I o reguUite, by some general provision,
the practice of physic and surgery within the State, and which,
with a view to the moral character as well as the learning and
skill of the members, gives to county medical societies the right
1 BaiTow V. Massfichusetts Med, ^ -Re Smith, 10 Wend. (N. Y) 449.
«oc., 12 Cusli. (Mass.) 402, 409. 3 jftj^^.
707
1 Thomp. Corp. § 873.] expulsion of members.
to try any of their members against whom specific charges of
gross ignorance or professional misconduct or of immoral con-
duct or liabits may be brought, — has been hold not unconniilu-
tional, as being prohibited by that clause of the bill of rights of
the constitution of the State which declares that no person shall
be held to answer for a capital or otherwise infamous crime,
with certain exceptions, unless on presentment or indictment by
a grand jury. Nor does it conflict with those provisions of the
State and Federal constitution which secure to the citizen the
right of trial by jury; nor to a provision of the State constitu-
tion prohibiting the establishment of any now court, except such
as shall proceed according to the course of the common law.^ The
court reasoned thus: *' When the constitution speaks of a person
not being held to answer for a capital or otherwise infamous crime,
unless on presentment or indictment, etc., it means, to answer in
a course of criminal proceedings ; to answer criminaliter ^ with
a view to punishment under the criminal laws, and has no refer-
ence whatever to those collateral or incidental proceedings Avhich
are disciplinary in their character or have exclusive regard to
some special character or relation which belongs to the individual.
The provision in the constitution of the United States in relation
to the trial by jury, applies only to the Federal courts; and our
State constitution secures the rio-ht in all cases in which it has
heretofore been used. Now, it never was in use, before or since
the adoption of the constitution, in cases like this. It applies only
to cases of trials of issues of fact in civil and criminal proceed-
ings in courts of justice. The proceedings under this statute are
not a trial as for an offense with a view to punishment, but a
mere summary inquiry to ascertain facts for a collateral pur-
pose. Nor is this a cou7't proceeding differently from the course
of the common law. The provision of our constitution which
forbids the creation of such courts, refers, as was correctly
urged in argument, to courts exercising the usual jurisdiction of
courts of law, but proceeding by modes unknown to the common
law; but it does not prohibit, and never has been considered as
prohibiting the organization of various tribunals, as commis-
sioners, etc., for other purposes than the administration of civil
1 Ibid, 449, 456.
708
GROUNDS OF EXPULSION. [1 Thomp. Corp. § 875.
or criminal justice. The power conferred by this statute is
similar in its character and consequences to that which is pos-
sessed by the courts of record of this State over counsellors,
solicitors and attorneys." ^
§ 874. 3Ieniber of Trades Union Workinj? for Parties
against Wboiu a Strike had been Ordered. — Where an unin-
corporated trades union consisting of journeymen tailors had a
constitution which provided for no othe'r ground of expulsion
than that " if any member defrauds this union, he shall be dealt
with as the central body may decide," — it was held that a mem-
ber of an association having a benefit fund could not bo lawfully
exioelled when he was guilty of no other offense than that of
working for parties against whom a strike had been ordered;
such an offense under the laws being punishable by a fine only;
that an expulsion for such a cause was not in good faith, was
not fair, and was contrary to natural justice ; and that the charge
that " conspiracy to injure and destroy the union " was in sub-
stance but a pretext to punish him for an offense subjecting him
to a fine only, iu a manner Avholly different from the imposition
of the penalty provided therefor. The trial and conviction of
the member was described as " a travesty upon justice, and lack-
ing in the essential elements of fairness, good faith and candor,
which should chiiracterize the actions of men in passing upon the
rights of their fellowraen." ^
§ 875. Enlisting- in the Volunteer Army in Time of War. —
The by-laws of an incorporated beneficial association provided
that "no soldier of a standing army, seaman, or mariner shall
be capable of admission; and any member who shall voluntarily
enlist as a soldier, or enter on board of any vessel as a seaman
or mariner shall thenceforth lose his membership." A member
joined a volunteer corps, raised in another State, who tendered
their services to the United States under the act of 184G, and
were accepted and mustered into the service. The relator con-
tinued in such service in the war with Mexico, until the expiration
1 Ihid., 457. Mutual Protective Uuion, 8 N. Y, Supp.
2 Otto V. Tailors' &c. Union, 75 Cal. 702.
308,315,316. Compare Merscheim u.
709
1 Thoinp. Corp. § 876.] expulsion of members.
of his term. It was held that this act did not autliorize his ex-
pulsion from the association, and he was restored by mandamus.
As he joined a volunteer corps and as the prohibition was against
becoming a soldier of " a standing army," the act which lie had
done was not strictly within the prohibition. The court con-
ceded to such a society the power of limiting its benefits, so as
to exclude members who should become sick or disabled in con-
sequence of the perils of war, leaving such to be provided for
by the government. The court also suggested that it might
have been the duty of the court in the first instance, to withhold
its certificate to a society having such a constitution, on the
ground that the provision deterred its members from serving
their country in time of peril. ^
§ 876. Trial Under an Act of the Legislature Passed Sub-
sequently to the Offense. — It has been held that where rights
are conferred by an act of the legislature subject to determina-
tion in a certain manner, and the power to modify, alter or re-
peal such act is reserved, the legislature may prescribe a new
and different mode in which the rights may be put an end to;
and that under such modification of the law a forfeiture of rights
may be declared although the acts which are the cause of the
forfeiture, happened previous to such modification. It was so
held where the subject of the inquiry was the validity of the ex-
pulsion by a medical society of one of its members under an act
of the legislature changing the mode of procedure, which act
was passed subsequently to the commission of the offense
charged.'^
1 Franklin Ben. Asso. v. Com., 10 « Rg Smith, 10 Wend. (N. Y.) 449.
Pa. St. 357.
710
CORPORATE PROCEEDINGS TO EXPEL. [1 Thoinp. Coip. § 881.
Article II. Corporate Peoceedixgs to Expel.
Section
881. Must proceed upon notice, in-
quiry and hearing.
882. What this principle includes.
883. Right to notice exists although
the evidence against the ac-
cused may be very cogent.
884. Instances showing the right to
. notice.
885. Analogous principle that a public
officer is not removable with-
out notice.
886. Deny ng the privilege of cross-
examiuatiou.
887. Right to an opportunity to be
heard on an ecclesia-tical
appeal.
888. Expulsion after an acquittal and
without a second trial.
889. Expulsion after first trial which
is a nullity.
Section
890. When second notice not neces-
sary.
891. Incidents of the notice and its
service.
892. Effect of change of residence in
connection with by law re-
quiring members to notify
their residence, to the so-
ciety.
Of the corporate tribunal and its
constitution.
Illustrations: expulsion by a
two thirds vote.
Jurisdiction of standing com-
mittee of brokers' board.
Illustration.
Of the trial and the evidence.
Necessity of a sentence of expul-
sion.
899. Right of appeal.
893.
894.
896.
897.
898.
§ 881. Must Proceed upon Ifotice, Inquiry and Hearing. —
It is absolutely essential to the validity of the amotion of an of-
ficer of a corporation,^ or of the suspension or expulsion of a
member of an incorporated or unincorporated 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 piocecd upon inquiry, and consequently upon evidence;
and that the accused should have a fair opportunity of being
heard in his defense. ^ This rule, it is said, is not confined to
1 Ante, § 820.
2 Bagg's Case, 11 Co. Rep. 93, 99;
Fisher «. Keanc, 11 Ch. Div. 35o; llop-
kinson v. Marqui.s of Exeter, L. li. 5
Eq. C3; Labouchere v. Earl of Wharn-
Cliffe, 13 Ch. Dlv. 340; Wood v.
Woud, E. U. 9. Exch. 190; Iiiness u.
Wylie, 1 Car. & K. 257; Willis v.
Childe, 13 Beav. 117; Murdock v.
rhillip.s Academy, 12 Pick. (Mass.)
244; Hutchinson v. Lawrence, G7
JIow. Pr. (N. Y.) 38; R- Ilammor.smith,
4 Exch. 87, 97; Capell v. Child, 2
Cromp. & J. 558, 579; People v. Fire
Department, 31 Mich. 458,465; Roehler
V. Mechanics' Aid S(jciety, 22 Mich. 86 ;
Cora. V. German Society, 15 Pa. St. 251 ;
Reg. V. Saddler's Company, 10 H. L.
Cas. 404 ; Com. v. Pennsylvania Asso. 2
Serg. & R. era.) 14 1 ; Wiiite v. Brownell,
4 Abb. Pr. (n. s.) (N. Y.) 152, 199; s.
c. 2 Daly (N. Y.), 3-'9; Loubat v. Leroy,
40 Hun (N. Y.), 646, 552; Fritz v. Muck,
62 How. Pr. (N. Y.) G9; Rex v. Univer-
711
I Thomp. Corp. § 881.] expulsion of members.
the conduct of strictly legal tribunals, but is applicable to every
tribunal or body of persons invested with authority to adjudicate
upon matters involving civil consequences to individuals. ^ So
far as the writer knows, there are but two exceptions to this
rule: 1. In cases of amotion from corporations, where the
member becomes a non-resident, so that it is impracticable to give
him notice. 2 2. In cases of certain mutual benefit societies,
who've rules provide that the non-payment of an assessment after
notice shall, ipso facto^ work a forfeiture of membership, or of
the member's benefit certificate. These rules are upheld, on the
principle that the right to notice and a hearing is not a right of
so high a nature that it may not be waived by a person who is
sui juris, and that a member of such a society may therefore
part with it by contract, in agreeing to become a member of the
society, subject to its rules and regulations, among which is the
regulation in question.^ But where there is no rule providing for
an ipso facto forfeiture, the general principle obtains that the
member's right of membership is not forfeited, unless an adjudi-
cation of forfeiture has been made by the society or its prescribed
judicatory, in a proceeding which has taken place upon inquiry,
sity of Cambridge (Dr. Bentley's Case), Seneca has been quoted in several judi-
1 Str. 557; s. c. 2 Lil. Raym. 1334; Fort, cial opinions as an expression of this
202; Ex parte Rarashay, 18 Ad. & El. rule: ^^ Qui statuit aliquid parte
(n. s.) 173, 189; Rex u. Town of Liver- inaudita altera, cequtim licet stat-
pool, 2 Burr. 723, 731 ; Wachtel v. Noah uerit, hand cequus fuit." Sen. Med.
Widows' &c. Society, 84 N. Y. 28; s. 199, 200; Bang's Case, II Co. Rep.
c. 38 Am. Rep. 478; Southern Plank 93, 99; Wood v. Woad, L. R. 9
Road Company v. Hixon, 5 Ind. 165; Exch. 190, 196, per Kelley, C. B. ; Re
People V. St. Franciscus Benevolent Hammersmith, 4 Exch. 87, 97; Reg.
Society, 24 How. Pr. (N. Y.) 216; De- v. Archbishop of Canterbury, 1 El. &
lacy V. Neuse River Nav. Co., 1 Hawks El. 545, 569, per Ld. Campbell, C. J.
(N. C), 274; Bartlett v. Medical So- i Wood v. Woad, L. R. 9 Exch. 190,
ciety, 32 N. Y. 187; Washington Be- 196, per Kelley, C. B.
nevolent Society v. Bacher, 20 Pa. St. ^ ^^te, §821.
425; State v. Milwaukee Chamber of ^ For a striking illustration of this
Commerce, 47 Wis. 670; People v. see Blisset v. Daniel, 10 Hare, 493,
Young Men's Society, 65 Barb. (N. Y.) where a member of a numerous
357; Reg. v. Archbishop of Canter- partnership was expelled without
bury, 1 El. & El. 545, 559 ; Beaurain a formal meeting, and without having
V. Scott, 3 Camp. 388. Medical & Sur- an opportunity of making his defense,
gical Society v. Weatherly, 75 Ala. 248; there being no fraud or want of good
Lambert v. Addison, 46 L. T. (x. s.) faith.
20, 24. The following language of
712
CORPORATE PROCEEDINGS TO EXPEL. [1 Thomp. Corp. § 882.
in accordance with the provisions of its statutes.^ This right to
be heard is not at all affected by the strength or cogency of the
evidence against the accused.^ Unless the accused has voluntarily
parted with it, there is no discretion to deny it, either in the cor-
porate judicatory, or in the judicial courts, in a proceeding for
reinstatement.^ The right does not depend upon the circumstance
of the accused being able to present evidence in his defense ; he has
a right to appear before the tribunal which tries him for the
mere purpose of arguing in his own behalf.* Where, however,
an appeal to a higher judicatory is taken in writing and the ap-
peal is answered by the persons appealed against, and the ap-
pellant replies in writing to that answer, and makes no request
for a further hearing, it will be presumed, in a proceeding for
his reinstatement, that the appeal has been sufficiently heard. ^
§ 883. What this Principle Includes. — What this principle
includes has already been discussed in respect of the amotion of
officers.^ It may be doubted whether the five distinct elements
of such a proceeding, which were held necessary in a leading
case^ are in strictness required, in order to the validity of a sen-
tence of expulsion, according to the current of modern authority.
But it has been held that the return to an alternate mandamus
sued out to restore a member who has been expelled from a
corporation, must show that the relator had notice to appear and
defend himself at the meeting at which the charges against him
were appointed to be investigated; that an asxembhj of the
proper persons was duly held; what proceedings took place
before them ; that the relator was convicted, of the offense
charged ; and that there was an actual a^notion by the assembly.^
The right to notice and an opportunity to defend necessarily
implies that the accused is entitled to be informed of the
1 See Illinois &c. Soc. v. Baldwin, 475, as exrf)lained in Reg. v. Arch-
86 111. 479; Olmstead v. Fanners' bishop of Canterbury, I El. & El. 545,
Mutual Fire Ins. Co., 50 Mich. 200. 560, 661. See also Reg. v. Archbishop
2 Loubat V. Leroy, 40 Hun (N. Y.), of Canterbury, 6 El. & Bl. 546.
646, 551. c Ante, §§ 820, 821.
•" Reg, V. Archbishop of Canter- ' Murdock v. Phillips' Academy, 12
bury, 1 El. & El. 645, 559. Pick. (Mass.) 224; stated ante, § 820.
^ Ibid. 545, 559. * Cora. v. German Soc, 15 Pa. St.
* Rex V. Bishop of Ely, 5 T. R. 251.
713
1 Thorap. Corp. § 882.] expulsion of members.
charges against him. Accordingly, a formal complaint is, in
general, necessary to the validity of a sentence of expulsion;^
but this may be dispensed with in the case of a voluntary
association or partnership, by the regulations of the society,
which are in the nature of a contract among the members. ^
Moreover, the statement that the society, or its judicial body,
which passes the sentence of expulsion, must proceed upon in-
quiry, necessarily implies that it cannot expel the member in
case of his failure to appear after notice, by a mere sentence in
the nature of a judgment by default, without hearing any evidence
in substantiation of the charges against him.^ It has been further
held, on grounds which are undoubtedly sound, that this right in-
cludes a fair opportunity to the accused to cross-examine the wit-
nesses which are adduced against him.* It is scarcely necessary
to add that, where this principle governs, there can be no suspen-
sion or expulsion by the mere ministerial act of an ofBcerof the so-
ciety, — as, for instance, its secretary ;^ nor by the society itself,
upon the mere report of a committee of investigation, for this is
not evidence, and in a proceeding thereupon the society does not
proceed upon inquiry ;^ and finally that a corporate by-law which
authorizes a suspension or expulsion without notice and a hearing,
is void.^ It also follows from the foregoing, that, where there
has been one trial and a vote of expulsion has failed to carry by
reason of not receiving the two-thirds majority required by the
bv-laws, the accused member cannot be expelled at a subsequent
meeting, even by a two-thirds majority, without anew notice and
a new hearing, if he can be expelled at all. The reason is that
the first trial operates as an acquittal.^ But if the first trial is,
1 State V. Milwaukee Chamber of * Hutchinson v. Lawrence, 67 Huw.
Commerce, 47 Wis. G70. Pr. (N. Y.) 38.
2 See, for illustration, Blisset v. ^ People v. Fire Department, 31
Danifl, 10 Hare, 493, which was the Mich. 458, 466.
case of a numerous partueuship. ^ Com. v. German Society, 15 Pa.
3 People V. Young Men's &c. So- St. 251.
ciety, 65 Barb. (N. Y.) 357. In every ' People v. Fire Department, 31
case of judgment by default, before a Mich. 458; Fritz v. Mucl<, 62 How.
final jiulgmeut can be rendered, there Pr. QN. Y.) 69.
must be an inquiry of damages, or, ac- ^ Com. v. Guardians of the Poor, 6
cording to the old common-law form of Serg. & R. (Pa.) 469, 473.
speech, a writ of inquiry, and this neces-
sarily implies the hearing of evidence.
714
CORPORATE PROCEEDINGS TO EXl'KL. [1 Thoilip. Coi'p. § 883.
for any reason, a mere nullity, — as where it has taken place
without notice, without a formal complaint, and in the absence
of the accused, — the judicatory of the society may, when ad-
vised of that fact, treut it as a nullity, restore the accused to
membership, and proceed to try and expel him in the regular
way, in which case his expulsion will be valid. ^ Moreover,
where the accused has had one hearing before the judicatory
vested with power to remove him, and the evidence raises a fair
inference that the inquiry was known to all parties to be finally
closed, he will not bo reinstated by a judicial court because there
was not a second notice before the sentence of removal was passed
upon him, where the judicial officer merely took time after the
hearing to consider of his judgment.'^
§ 883. Right to Notice Exists Although the Evidence against
the Accused may he very Cogent. — The fact that the evidence
agaiust the accused member may be very cogent, does not take the case
out of the rule, aud excuse the committee or judicatory of the society or
club from giving him notice of the proceedings by which it intends to take
action. Speaking of such a case, it was said by Daniel, J, : " He had no
opportunity to appear before the governing committee, or to be heard con-
cerning the action which it might be considered proper to take. If he
had been, notwithstanding the cogency of the evidence against him, he
might have submitted some reasons, or some considerations, which
would liave mitigated the action of the members of the committee in at-
tendance, and resulted in a punishment short of that which was provided
for by the resolution. This probability, or even though it may only be
possibility, has, in all investigations of this description, been considered
sufficient to require, as a demand of justice, that the part}'' proceeded
against shall, in all cases, have notice of the hearing intended to be had,
and an opportunity to exculpate himself as far as that may be done,
either in the vindication or palliation of the misconduct forming the
foundation of the complaint. The legal principle is a general one, af-
fecting all proceedings which may result in loss of property, position or
character, or any disaster to another, — that he shall be first heard by
the board or tribunal considering his case before that body will be le-
gally permitted to pronounce his condemnation." ^
* State V. Milwaukee Chamber of ^ Loubat v. Le Roy, 40 Him(N. Y.),
Commerce, 47 Wis. G70, G83. 540, 551. Reversing s. c. 15 Abb. N.
2 Ex parte Rarasliay, 18 Ad. & El. C. (n. s.) p. 1.
(N. 8.) 172.
715
1 Thomp. Corp. § 884.] expulsion of members.
§ 884. Instance Showing the Right to Notice. — Where by
the bj'-laws personal notice was required to be given in February of each
year to defaulting members, without which notice there could be no for-
feiture of their membership, it was held that an amendment leaving the
declaration of the forfeiture to the secretary, who acts as witness and
judge on his own assertion, and without either hearing or appeal, and in
a matter made to depend on his own performance of a prior duty, — is
void.^ _ _ _ _ The constitution of a voluntary medical society pro-
vided that if the annual dues were not paid by a certain time " the de-
faulter shall forfeit his membership, . . . and of this he shall be
duly notified by the secretary," and that notice of the requirement
should be served each year, and that on reading the roll of members
any such defaulter " shall be inmaediately stricken from the roll." It
was held, that the non-pa^-ment of the dues at the specified time was
not, ipso facto, a forfeiture of membership. ^ - - _ _ When the
statute requires that charges shall be preferred before a member of an
incorporated association can be expelled, this is not done by serving a
notice to appear to show cause against expulsion ' ' for disobedience of
the order of the boai'd of directors." Nor does appearance in response
to such a notice confer jurisdiction, the member denying the power to
proceed.^ _ _ - _ An expulsion of a member without notice to him,
and without a vote of the corporation, — has been held unlawful, though
the charter provided that if any member should neglect, for three
months, to pay his arrearages, he should be expelled.* - - - - A
leading case on this subject is Bentley's Case, more properly cited as
Rex V. The University of Cambridge,^ which was a mandamus by the cele-
brated Doctor Bentley to restore him to his degrees in the University of
Cambridge, of which he had been deprived b}' a court of that University
called the Congregation. The return showed that the University was, by
certain ancient statutes, a court of record, and had conusance of certain
matters where one of its members was a party ; that Dr. Bentley had been
served with a summons in debt for the small sum of four pounds six
shillings ; that he had thereupon acted contemptuously by saying that
the process was illegal ; that the vice-chancellor was not his judge ; that
the vice-chancellor had acted rashly, — stulte egit; and that he had taken
away the process from the beadle. The court of King's Bench held,
' People V. Fire Department, 31 * Commonwealth v. Pennsylvania
Mich. 458, 466. Benf. Inst., 2 Serg. & R. (Pa.) 141.
2 Medical & Surgical Society v. ^ 1 Str. 557; s. c. 2 Ld. Raym. 1334;
Weatherly, 75 Ala. 248 (Brickell, C. Fort. 202. Stated at large under an-
J. dissenting). other head, ante, § 8G6.
" People V. Musical &c. Union, 47
Hun (N. Y.), 273.
716
CORPORATE PROCEEDINGS TO EXPEL. [1 Thomp. Coip, § 885.
after two arguments, that Doctor Bentley was entitled to be restored,
because it did not appear from tlie return that the Congregation had
given the relator notice that it had met for the purpose of considering
the question of depriving him of his degrees, or that he had had any
opportunity to make defense before that court. All the judges con-
curred in this, and Mr. Justice Fortescue used the following remarkable
language : ' ' The laws of God and man both give the party an oppor-
tunity to make defense, if he has any. I remember to have heard it
observed by a very learned man upon such an action, that even God
himself did not pass sentence upon Adam before he was called upon to
make his defense. ' Adam,' says God, ' where art thou? Hast thou not
eaten of the tree whereof I commanded thee that thou shouldst not eat?'
And the same question was put to Eve also. " - - - - The rules of
the Beef Steak Club provided that in case the conduct of any member
should, in the opinion of the committee, after inquiry, be injurious to
the welfare and interests of the club, the committee should call upon him
to resign, and in the event of his refusal to do so, should call a general
meeting, which was to be called on giving a fortnight's notice, at which it
should be competent for the votes of two-thirds of those present to ex-
pel such member. The committee ha\'ing called on the plaintiff, a
member of the club, to resign on the alleged ground that his conduct
was injurious to its interests, and the plaintiff having refused to do so, a
general meeting was summoned by notices issued on the first of Novem-
ber for the 14th of November. Only 117 members were present, of whom
115 voted — 77 in favor of a resolution for expelling the plaintiff, and 38
against it. The resolution was declared carried. On a motion to re-
strain the committee from interfering with the enjoyment by the plaintiff
of the benefit and use of the club, it was held on the facts of the case
that the committee had acted without full inquiry and without giving the
plaintiff notice of any definite charge; that the general meeting was
summoned without proper notice ; that the resolution was carried by an
insufficient majority ; and that the plaintiff was entitled to an injunction.^
§ 885. Analogous Principle that a Public Officer is not Re-
movable Avithout Notice. — la Lord Campbell's time the Queen's
Bench had occasion to consider the legality of the act of the chancellor
of the Duchy of Lancaster, in removing a county judge under a statute
which provided that " it shall be lawful for the said Lord Chancel-
lor, ... if he shall think fit, to remove, for inability or misbe-
havior, any such judge." ^ It appeared that, on a memorial addressed
1 Labouchere v. Eurl of Wharu- ^ Stat. 9 & 10 Vict., chap. Of., § IS.
clifife, 13 Ch. Div. 346.
717
1 Thomp. Corp. § 886.] expulsion of members.
to the chancellor, charging the relator with general misbehavior, and
particularizing one instance more strongly, and praying for his dis-
missal, — the chancellor had held an inquiry which had been attended
by the relator and his counsel, and had heard evidence on the charges,
not on oath or affirmation, and, within a few days after the close of the
inquir}^, had dismissed the relator, by an instrument finding inability
and misbehavior, but not specifying any particular instances. Affida-
vits denying the inability and misbehavior in the cases adduced on the
inquiry, and generall}', were put in. The court refused the rule, on the
ground that it did not appear that the relator had not been fully heard,
or that the charges, if true, did not show inabiUty and misbehavior, and
on the further ground that the decision of the chancellor was final, no
appeal therefrom having been provided for. On the subject of the
right to notice and an opportunity of being heard, Lord Campbell reaf-
firmed the rule of many other cases in the following strong language :
" We think that it would have been open to Mr. Ramshay to show that he
was removed without notice of any charges against him, or without an
opportunity of being heard in his defense, or that no evidence was ad-
duced to support the charges, or that the complaints against him were
not for inability or misbehavior in his office, and were of such a nature
that, if proved or admitted, they could not disqualify him for his office,
or amount to inability or mlslx havi'ir, within the meaning of the Act of
Parliament. Upon such affidavits, we think that we should have been
bound to grant a rule to show cause for a quo warranto, with a view to
his being afterwards restored to his office, from which he had been il-
legally removed. We are to see that judges and functionaries vested
with judicial authority do not exceed their jurisdiction. The chancel-
lor has authority to remove a judge of a county court only on the
imphed condition prescribed by the principle of eternal justice, that he
hears the party accused ; he cannot legally act upon such an occasion
without some evidence being adduced to support the charges ; and he
has no authority to remove for matters unconnected with inability or
misbehavior in the office of county court judge. Where the party com-
plained against has had a fair opportunity of being heard ; where the
charges, if true, amount to inability or misbehavior, and where evidence
has been given in support of them, we think we cannot inquire into the
amount of evidence or the balance of evidence, the chancellor, acting
within his jurisdiction, being the constituted judge upon this subject." ^
§ 886. Denying the Privilege of Cross-Examination. — The
plaintiff, a member of the New York Stock Exchange, an uuincorpo-
1 Ex parte Kaaishay, 18 Ad. & El. (x. s.) 172, 189.
718
CORPORATE PROCEEDINGS TO EXPEL. [1 Thomp. Corp. § 887.
rated voluntary association, having been charged by a sub-committee
of investigation, after taking voluminous testimony, with being guilty of
improper practices, — the governing committee of the Exchange, who
were empowered by its constitution to expel members adjudged to have
been guilty of ob\dous fraud, pi'eferred charges against him based upon
the testimony thus taken. He was permitted to make statements and
explanations before the investigating committee, and to cross-examine
the witnesses produced. He then appeared before the governing com-
mittee and read his defense at great length. At a subsequent meeting,
which took place in his absence, two accusing witnesses were examined
by the governing committee. The accused member thereafter applied
to have these witnesses again brought before the committee, to the end
that they might be cross-examined by him, which application the com-
mittee denied. It was held that the action of the committee, in allow-
ing witnesses to testify without giving the accused an opportunity of
cross-examination, was not just or fair to him, either in a legal or an
equitable sense, and that the defendants should be restrained, pending
the action, from asserting against the plaintiff the resolution of expul-
sion which they had passed upon him.^
§ 887. Right to an Opportunity to he Heard on an Ec-
clesiastical Appeal^ — The Court of Queen's Bench has aflfirmed in
strong language, the four judges being unanimous on the question, the
proposition that, on an appeal to the Archbishop of Canterbur}^ from a
sentence of an ecclesiastical court, revoking the license of a curate, the
appellant has a right to a fresh hearing, to the opportunity of tendering
evidence in his own behalf, and of arguing the question of the propriety
of the sentence which has been passed upon him. The judges concurred
in the opinion that the archbishop might regulate the mode in which
the proceeding at the hearing was to be taken ; but they held that he
could not, if so«requestcd to hear, affirm or annul the revocation, merely
upon the statements made by the curate in his petition of appeal, and
the written documents referred to in such petition, — and they directed
a manrlamus to him, "to hear the said ai)peal and decide the merits
thereof." Thus, the man of God found himself obliged to bow to the
men of the law. Lord Campbell, C. J., said : " We have no discretion.
No douljt the archT)ishop acted most conscientiously, and with a sincere
desire to promote the interests of the church. But we all think that he
has taken an erroneous view of the law. He was bound to hear the ap-
pellant, and he has not heard him. It is one of the first principles of
justice, that no man shall be condemned without being heard. We do
1 Ilutchiuson i?. Lawrence, 07 IIow. Tr. (N. Y.) 38.
719
1 Thomp. Corp. § 888.] expulsion of members.
not say whether the archbishop's decision was right or wrong. We
say only that he has not heard the petitioner. ' Qui statuit aliquid parte
inaudita altera, mquum licit statuerit, cequus hand fuit.' The legisla-
ture here gives an appeal from the bishop to the archbishop : that im-
plies that the appellant is entitled to an opportunity of being heard.
The appellant here has not been heard. In his petition he denies almost
ever3i;hing charged against him, specifically, and asks the archbishop to
appoint a time and place at which he may be heard and adduce evidence
in his behalf. Without any communication with him, his judge decides
against him. There was not a hearmg. The appellant should have had
an opportunity of arguing, before the archbishop, that the bishop's de-
cision was not correct upon the facts." The other judges expressed
the same opinion, in language equally strong.^ Where, however, in
such a case, the appeal is in writing, and it is answered in writing by
the persons appealed against, and the appellant replies in writing to
that answer, and makes no request for a further hearing, it will be pre-
sumed that the appeal has been sufficiently heard. ^
§888. Expulsion after an Acquittal and Without a Second
Trial. — In an early case in Pennsylvania, it was provided by one of
the by-laws of a corporation known as the Guardians of the Poor of the
City of Philadelphia, that ' ' no member to be expelled by a less number
than two-thirds of the members present, the vote to be by ballot ; pro-
vided, however, that no expulsion shall take place without giving the
accused person notice in writing to attend the board, and answer the
charges preferred against him, a copy of which shall be transmitted to
him, which notice must be at least six days before the time appointed
for the hearing." A number of charges, some of which, if made out,
were sufficient to authorize an expulsion, were preferred against a mem-
ber of the board. He was furnished with a copy of them, and was fully
heard in his defense, at a special meeting called at his own request.
Thereupon, a resolution, declaring that he had violated his duty as a
guardian of the poor, was adopted by a less number than two-thirds of
the members present. This, it was held, amounted to an acquittal, under
this by-law ; and the board having afterwards, at a stated meeting,
passed a vote of expulsion by the constitutional majority, but without
any new accusation or further hearing, — it was held to be illegal, and
the expelled member was restored by mandamus. " There was no new
1 Reg. u. Archbishop of Canterbury, On the question of notice in other
1 El. & El. 545, 559. special cases, see Re Hammersmith
2 Rex u. Bishop of Ely, 5 T. R. 475, Rent-Charge, i Exch. 87; Reg. v.
as explained in Reg. v. Archbishop of Archbishop of Canterbury, (5 El. & Bl.
Canterbury, 1 El. & El. 545, 560, 561. 546.
720
CORPORATE PROCEEDINGS TO EXPEL. [1 Thomp. Corp. § 889.
charge," said Duncan, J., "no new specification; agreeable to the
specifications preferred against him, no hearing of the cause de novo;
no new defense, nor was the accused called in to make one. Thus he
was twice put in jeopard}' for the same offenses ; condemned after he had
been acquitted. It is very evident that new members attended and
pronounced sentence, who had neither heard the evidence to support
the charges, nor the defense of the accused, and whose votes produced
a conviction. The accused was not apprised that he was again to be
put on his trial. An opportunity might have been taken of a thin meet-
ing, when his friends were absent, who would, perhaps, have been
present had any notice been given of an intention to renew the inquiry.
His enemies might have been notified, and attended with aU their force,
while his friends remained in total ignorance of so extraordinary and
unprecedented a procedure. . . . Fairness and justice, due to all
men, would have required, if he had been legally subject to a future
trial, that, as he been acquitted of every violation of duty, at an
assembly to which aU the members of the corporation had been sum-
moned, and a reconsideration was to take place, that all should have
had an opportunity of attending and of voting. ' ' ^
§ 889. Expulsion after Fii-st Trial Which is a Nullity. — But
where the accused has been expelled by a judicature of a society, but
under such circumstances as to make the expulsion a nulHty, as where
they proceeded against him without notice, without a formal complaint,
without a trial, and in his absence, and when advised of the fact that
it was a nullity, they annulled the proceeding and restored him to mem-
bership, — it was held that the first expulsion did not stand in the way
of a second trial and expulsion for the same offense. The court, speak-
ing through Lyon, J., reasoned thus: " Should a magistrate, on being
told that a person had committed an assault and battery, enter in his
docket a judgment convicting such person of that offense, and imposing
a fine upon him therefor, without formal complaint, process, arrest, ap-
pearance or trial, such judgment would be a nuUity, and would con-
stitute no bar to a regular prosecution for the offense. The same
principle applies here. The first void proceeding against the relator is no
bar to a subseciuent regular proceeding for the same offense. ' ' The court
summarized what would be necessary to support the second conviction
in such a case, thus: " If it appears from the relation that the relator
was duly notified of the charge preferred against him, and had a fair
trial before the board of directors ; if the testimony tended to prove the
charge ; if the former proceeding against him for the same offense is a
' Cora. V. Guardians of the Poor, G Serg. & R. (Pa.) 409, 475.
46 721
1 Thomp. Corp. § 891.] expulsion of members.
nullit}' ; and if the rule or by-law under which he was prosecuted, con-
victed and suspended from membership, is a valid regulation of the
chamber, — then the relation fails to show that the relator is entitled to
be reinstated." ^
§ 890. When Second Notice not Necessary. — Where a com-
plaint had been made against a county court judge, to the chancellor of
the Duchy of Lancaster by whom the judge had been appointed, and
who, under a statute, possessed the power of removing him, and the
complaint had been heard at a place appointed, and the judge had ap-
peared personally by counsel, and had had an opportunity to make his
defense, and did make a defense by affidavits, it was held that he was
not entitled to a second notice before the sentence of removal was passed
upon him. The fair inference which the court drew from the affidavits
was that the inquiry was known to all parties to be finally closed, and
that the chancellor only took time to deliberately review the evidence,
and to consider of his judgment. ^
§ 891. Incidents of the Notice and Its Service. — If the
rules of the society require notice for a given number of days, a
notice for a less number will not support the sentence, — as where
the rules required fourteen days' notice and the notice was posted
on the first of November, for a trial to be held on the fourteenth
of November.^ In the absence of any agreement by the mem-
ber, or of any provision in the charter or by-laws, for a different
mode of service, the notice should be served personally^ or, if
that can be dispensed with, then in such other mode as will be
most likely to effect its object.* Where there is no statute pro-
hibiting the business meetings of a society from being held on
Sunday, a notice served on Sunday, warning the accused mem-
ber to attend a trial appointed for the succeeding Sunday, is a
good notice ; for the rule of the common law which makes Sun-
day (lies lion in respect of judicial proceedings does not apply,
and he cannot complain that he is cited and tried in conformity
with rules by which he has agreed to abide. ^
1 State V. Milwaukee Chamber of * Wachtel v. Noah Widows' &c.
Commerce, 47 Wis. 670, CS2. Society, 84 N. Y. 28, 31; s. c. 38 Am.
2 Ex parte Rarashay, 18 Ad. & El. Rep. 478.
(n. s.) 172. ^ People v. Young Men's &c. So-
•' Labouchere v. Earl of Wharn- ciety, 65 Barb. (N. Y.^ 357. At com-
cliffe, 13 Ch. Div. 346, 356. mou law, judicial proceedings only,
722
CORPORATE PROCEEDINGS TO EXPEL. [1 Thomp. Corp. § 893.
§ 892. Effect of Change of Residence in Connection with
By-Law Requiring Members to Notify their Residence to the
Society. — One of the by-laws of a benevolent society provided for
giving written notice to any member in arrears six months for dues,
calling his attention to the fact that he would be stricken from the roll,
in case he did not pay his dues. Another by-law imposed a fine for an
omission, by a member, to give notice to the association of a change of
residence. At the time of joining, plaintiff's intestate gave notice of
his then place of residence ; he subsequently changed his residence, but
did not give notice of the change. Because of failure to pay his dues,
ke was stricken from the rolls. No notice was given to him of an inten-
tion to strike him from the rolls, as provided by the by-laws. After-
wards the member died, and an action was brought by his administra-
trix to recover the sum provided by the defendant's by-laws to be paid
on the death of a member. It was held that the plaintiff was entitled
to recover ; that the omission of the deceased to give notice of change of
residence was no excuse for a failure to give him the prescribed notice. '
The court said: " There is nothing to show that the object of the in-
formation as to residence was to enable the defendant to serve its notice
at that place, or that the deceased agreed that they might leave it at his
house. There are many other reasons why it would be well for siich an
association to know the residence of its members ; but however that
may be, the defendant, by another by-law, defined the penalty for
neglect in giving notice of a change of residence. It declares that, for
such omission, the member in default shall incur a fine of twenty-five cents.
It would lead to a most unjust result, if there should be added a for-
feiture of the whole benefit to which his representatives are, in case of
his death, entitled. Such consequence is not declared, and cannot be
implied for any legal construction. ' ' ^
§ 893. Of the Corporate Tribunal and its Constitution. —
As already seen with reference to corporations and to proceed-
ings for the amotion of officers,-^ where the trial takes place be-
fore the corporation in its constituent character, or before a
numerous tribunal, in the absence of a valid regulation otherwise
were prohibited on Sunday. Hence, ^ Waclitel v. Noah Widows' &c.
jadicial proceedings on Sunday are Soc, 84N. Y. 28; s. c. 38 Am. Rep. 478.
void, at common law. But all other 2 Wachtel v. Noah Widows' &c.
business transactions are valid, except Soc, 84 N. Y. 28, 30; s. c. 38 Am. Rep.
so far as prohibited by statute. Emott, 478.
J., in Merritt r, Earle, 81 Barb. (N. Y.) 3 Ante, § 725 et seq.
38, 41.
723
1 Thomp. Corp. § 893.] expulsion of members.
prescribing, all the members of the corporation, or the tribunal,
must be notified to attend the meeting at which the trial is to be
had.^ It is therefore a good objection to the validity of the sus-
pension, that a single member was not summoned and did not at-
tend.- It is not necessary that all the members of the judicial body
which hears the accusation should be legales homines, as in the case
of a jm'y. It is not a good objection to a resolution of expulsion
that one of them was related to a party to the controversy, nor
that he had become familiar with the matter to b.e investigated,
through conversations with the members or otherwise ; since the
rules of the common and statute law relating to judicial proceed-
ings have but a limited application to voluntary societies.^ It
has been held that, while the body in its constituent capacity
can not delegate the power of expelling a member to the board
of directors, unless the power is conferred by charter or statute,*
yet such power may be well exercised by the directors where
there is a statute reposing it in them.^ But this should, it seems,
^ Rex V. Town of Liverpool, 2 Burr.
723, 731 ; Com. v. Guardians of the
Poor, 6 Serg. & E. (Pa.) 4G9, 475;
Loubat V. Le Roy, 15 Abb. N. C. (N.
Y.) 14; Smyth v. Darley, 2 H. L. Cas.
789, See also People v. Batchelor,
22 N. L. 128.
2 Loubat V. LeRoy, 15 Abb. N. C.
(N. Y.) 14. In the same case, Van
Vorst, J., at special term of the Su-
preme Court, rendered a very long
opinion, in which he held that when
the constitution of a voluntary asso-
ciation provides that expulsion or
suspension must be by a two-thirds
vote of its governing committee, the
provision is satisfied by a two-third
vote of a qxiorum as it existed at the
time of the vote, although several of
its members were not present. From
this decision an appeal was taken to
the general term. In rendering an
opinion reversing the decision of the
special term, Danivjl, J., held, amongst
other things, that as the governing
committee was to consist of twenty-
four members it would take sixteen
724
affirmative votes to make the required
two-thirds, and this although there
were four vacancies on the commit-
tee. Davis, P. J., concurred in the
reversal for other reasons, and did
not express himself on this point.
Brady, J., concurred in the result.
40 Hun (N. Y.), 646. And it has
been said in a case where a mem-
ber was tried and acquitted for want
of a rulable two-thirds vote against
him, that "a decent respect for the
members who had voted for his ac-
quittal, as well as a regard to
impartial justice, required a general
summons " to another meeting to re-
consider the matter, even if a recon-
sideration could be lawfully had
except on his motion or petition.
Com. v. Guardians of the Poor, 6
Serg. & R. (Pa.) 469, 475.
3 Loubat v. Le Roy, supra.
4 State V. Chamber of Commerce, 20
Wis. 63, 73; Hassler v. Philadelphia &c.
Assoc, 14 Phila. (Pa.) 233. Ante, § 803.
5 State v. Milwaukee Chamber of
Commerce, 47 Wis. 670, G86.
CORPORATE PROCEEDINGS TO EXPEL. [1 Thomp. Corp. § 893.
be confined to business corporations, in which the directors are
merely a committee of members elected for the transaction of
the corporate business. It is plain that in many corporations
members may be expelled without a trial before the whole cor-
poration, but upon a trial before some judicatory to which cog-
nizance of offenses by members is committed. This will be seen
especially in the case of religious corporations^ — the well set-
tled doctrine in respect of such corporations being, that where
the judicatory appointed in accordance with the laws and usages
of the corporation have acted upon a case within their jurisdic-
tion, the judicial courts will not interfere. ^ The same rule ap-
plies in the case of social clubs, as seen from several instances in
this chapter, and also in the case of mei'chanC's exchanges.^ Thus,
in a case in New York, which has been frequently cited, a member
of an incorporated body of merchants, organized, among other
things, "to inculcate just and equitable principles in trade,"
was expelled, in pursuance of a by-law, by the board of man-
agers, for obtaining goods of a person not a member of the
corporation under false pretenses; and it was held that he
was rightly expelled.^ It is not a good objection in a col-
lateral attack, that two of the directors, by whom the mem-
ber was tried, were not citizens of the United States, or
that two of them were prejudiced and not impartial triers.*
Where the society has no rules prescribing by what judi-
catory or by what vote an accused member may be tried
and expelled, the rule is, that he may be tried upon notice
by the society at large, and expelled by the vote of a ma-
jority of all the members of the society.^ Where the rules
of the society require a two-thirds vote of the members present,
in order to an expulsion, this means a two-thirds vote of the
visible quorum, that is, two-thirds of all present, including those
who do not vote. Those who do not vote may, therefore, by
1 Watson V. Jones, 13 Wall. (U. S.) 121 111. 412; s. c. 13 North East. Rep.
679; State v. Hebrew Conjiregation, 30 187; 11 West. Eep. 38; 2 Rail. & Corp.
La. An. 205; s. c. 33 Am. Rtp. 217. L. . J89.
2 Pitcher v. Cliicago Board of ^ Inness v. Wylie, 1 Car. & K. 257,
Trade, 121 111. 412. per Lord Denman C. J.; White v.
3 People V. New York Commercial Brownell, 2 Daly (N. Y.),329, 369, per
Asso., 18 Abb. Pr. (N. Y ) 271. Daly, J.
* Pitcher V. Chicago Board of Trade,
725
1 ThoiDp. Corp. § 804:.] expulsion of members.
their silence, turn the scale iu f.ivor of the accused. Thus,
where there were present at the meeting 117 members, and 77
voted for exi)ulsion and 38 against expulsion, and 2 did not vote
at all, it was held that the resolution of oxpulsion had not been
adopted by the requisite two-thirds majority.^ It should be
added that the return to a mandamus to restore the expelled
member will be fatally defective, where it shows that he was
tried by a select body less than the whole number of corporators,
and does not show the source from which the select body derived
their power or jurisdiction.^ From what has already been said,
that a conviction upon a trial by a jury under an indictment is not
necessary to warrant an expulsion for an infamous offense,^ it
follows that the mere fact that the charge against the member is
undergoing an investigation in a judicial tribunal, does not oust
the corporate judicatory of their jurisdiction to try him upon the
question of his expulsion; since, although he maybe acquitted in
the judicial court, he may be expelled by the corporate judi-
catory.* From the same consideration, it also follows that the
constitutional guaranty of the right of trial by jury does not ap-
ply to proceedings taken by a corporation for the removal of a
member for offenses against the corporation.^
§ 894. Illustrations : Expulsion by a Two-Third Vote. — Ar-
ticles of partnership provided that it should be lawful for the holders of
two-thirds or more of the partnership shares, for the time being, to ex-
pel any partner, by giving him notice thereof, under their hands, in the
form thereby prescribed ; and that, immediately after giving such no-
tice, a notice of the dissolution as to the expelled partner should be
signed by the partners and published, with power to any other of the
expelling partners to sign the name of the expelled partner. It was
provided that if a partner became bankrupt, insolvent or was expelled,
his interest should cease as to profit and loss, as if he had died on the
1 Labouchere ». Earlof Wharncliffe, Association, 18 Abb. Pr. (N. Y.) 271.
13 Ch. Div. 346, 353. Manner of appoiutment of committee
2 Green u. African Methodist Epis- of investigation: appointment by
copal Society, 1 Serg. & R. (Pa.) 254. second vice-president and subsequent
3.4nie, §859. appointments by ttie first vice-presi-
* Hurst V. New York Produce Ex- deut, in the place of members decliu-
change, 100 N. Y. 605, Mem.; s. c. in ing to act, upheld as valid: People v.
full 1 Cent. Rep. 206. St. George's Society, 28 Mich. 261.
* People V. New York Commercial
7 -if)
CORPORATE PROCEEDINGS TO EXPEL. [1 Thomp. Corp. § 894.
day of such bankruptcy, insolvency, or expulsion ; and that the amount
of his share should be ascertained and payment secured, by the same
arrangement as would have been applicable in case of his decease. It
was also provided that the shares of retired, deceased, bankrupt, insolvent
or expelled partners should be disposed of in such way, either to or be-
tween some or all of the continuing partners, or by the admission of a new
partner or new partners, as the holders of a majority of the shares should
determine. The articles provided that, in the case of making certain
arrangements, there should previously be a meeting of the partners in
committee ; but did not express that any such meeting should be neces-
sary previous to the exercise of the power to expel. The article also
provided for the adjustment of all the partnership accounts, within sixty
days after the thirtieth of June in each year, when an inventory of all
the stock, debts, etc., should be made, with proper allowances, so as to
ascertain the partnership property, profit and loss, and the shares of
the respective partners, which shares were to be carried to their respect-
ive accounts ; and it was provided that the share of any partner who
might wish to retire, if his retirement were consented to by the majority
of the others, was to be taken by the continuing partners, at the
amount at which the same stood at the time for making the yearly rest
or statement next preceding; and that the surviving partners were,
also, to take the shares of a deceased partner at the amount at which
the same stood at such next preceding yearly rest or settlement. It
was held that the power of expulsion by a partner might be exercised
by two-thirds of the partners, loithout any previous meeting of the part-
ners in committee upon the question, and without any cause being as-
signed for such expulsion ; but that the power must be exercised tvith
good faith, and not against the truth and honor of the contract ; but
that the power was not properly exercised at the exclusive instance of
one partner, and in consequence of his representations to the other
partners, made without the knowledge and behind the back of the part-
ner who was to be expelled, and without giving to such partner the op-
portunity of stating his case and of removing any misunderstanding on
the part of his copartners.^ In giving his judgment on this case, the
Vice-Chancellor (Sir W. Page Wood, afterward Lord Hatherley) said:
" I have said before that I hold with the defendants, that they were
competent to give a notice to dissolve, without assigning any reason ;
that they were competent to exercise that power, without holding any
meeting with their copartners ; but then the power must be exercised
bona fide. Good faith is unquestionably of the essence of all contracts.
Sir Fitzroy Kelly has said that I could not introduce any new words
1 Blisset V. Daniel, 10 Hare, 493.
727
1 Thomp. Corp. § 895.] expulsion of members.
iuto this contract. The court does not do so, but the court pronounces
in every contract, and, if there can be any difference, more especially in
every contract of partnership, a basis of good faith, upon which all the
stipulations contained in the deed must rest. This power would never
be allowed to be exercised, by this court, in a manner against what I
ma}^ call the truth and honor of these articles, borrowing an expression
which has been applied to another description of contract. It is quite
clear that this power was never intended to be exercised by any two-
thirds of the partners merely and solely for their own exclusive benefit.
If cause be shown, of course it removes all difficulty with reference to
fraud, using that word according to the sense in which the court uses
it ; but if cause be not shown and proved, then it must be very clearly
made out that the exercise of the power has been in good faith. " "^ _ _ _ _
Where the rules of a club require the vote in regard to the expulsion of
a member to consist of two-thirds of those present, and there were pres-
ent at the meeting 117 members, two of whom did not vote, and the
vote stood 77 for expulsion and 38 against it, — it was held that the res-
olution of expulsion had not been adopted by two-thirds of those pres-
ent, 77 not being two-thirds of 117. In giving his judgment to this ef-
fect, Jessel, M. R. , said: " When a resolution is put to a meeting, the
persons present may take one of three courses. They may vote for or
against it ; or not wishing to express a positive opinion on the question,
refrain from voting at all. This being so, those who do not vote may,
by not doing so, turn the scale in favor of the accused member of the
club. It was, therefore, the duty of the secretarj^^, or scrutineer, to as-
certain, fi^rst, how many persons were present when the question was
put, and, secondly, how many of those persons had voted for the reso-
lution ; but no such course has been adopted in this instance. It ap-
pears to me, then, that this also is a fatal objection." ^
§ 895. Jurisdiction of Standing Committee of Brokers'
Board. — Where the constitution and by-laws of a voluntary
society, called "The Open Board of Brokers," provided for a
standing committee, who were to take cognizance of and exercise
jurisdiction over all claims and matters in difference between mem-
bers, and whose decision was to be binding upon them, — it was
held that this committee was the proper tribunal to investigate
and decide whether a member w'as or was not in defuuit upon a
contract, within the meaning of a by-law which made such a de-
fault a ground for suspension. It was further said: " When a
1 Ibid. 522. « Laboucliere v. Earl of Wharucliffe, 13 Ch. Div. 34G, 354.
728
CORPORATE PROCEEDINGS TO EXPEL. [1 TllOmp. Coip. § 896.
claim, therefore, is iiitide by one member upon another, and he
brings the matter in difference before this arbitration committee,
and they, after having notified the other, and afforded him the op-
portunity of being heard, investigate the claim, and decide that the
other party is in default, — that is . . . a 'due investigation,'
within the meaning of the law. It never could have been the
design of the by-law that the committee on membership are also
to sit in deliberation upon the matter, and investigate it over
again, before they are authorized to report to the president that
the member is in default. It is due iuvestigation on their part,
when they inquire and ascertain that the arbitration committee,
whose decision is binding and subject to review, have decided, in
a matter legitimately before them, that a member is in default.
A second investigation would be superfluous and was not .
contemplated by the by-law." ^
§ 896. Illustration. — A claim was made by a fii'm of brokers, who
were members of a voluntary association called the " Open Board of
Brokers," upon another member, charging him with default upon a con-
tract which he had made with them. He denied the vaUdity of their
claim, and they cited him to appear before the arbitration committee of
the board, to have the matter in dispute adjusted under the rules of the
society. This he decHned to do, protesting against the jurisdiction of
the committee. They, thereupon, heard e\idence, and found that he was
in default upon the contract. The prosecuting member then made
known to the committee on membership the decision of the committee on
arbitration, and this latter committee, upon due investigation, reported
to the president of the board that the piaiiitiff was in default upon his
contract in question, upon which the president declared him suspended
from his pri\ileges as a member of the board. The plaintiff appealed
from tliis act of the president to the executive committee, as he had a
right to do under the by-laws, but before any decision upon his appeal,
he brought an action to restrain the president and members of the board,
by injunction, from interfering with him, " in the full and free exercise
and enjoyment of all his rights, privileges and franchises," as a mem-
ber of the body. Having thus appealed to the judicial courts, he re-
fused to prosecute his appeal before the executive committee, and pro-
tested against the committee taking any action in the matter. On this
1 White V. Browuell, 4 Abb. Pr. (n. s.) (N. Y.) 1G2, 200; s. c. 2 Daly (N.
Y.) 320.
729
1 Thoiiip. Corp. § 897.] expulsion of members.
state of facts, it was held that he was not entitled to an injunction to re-
strain the society from interfering with his rights as a member, i
§ S97. Of the Trial and the Evidence. — The obligation to
proceed upon inquiry, stated in a preceding section, ^ implies
that no formal suspension or expulsion can take place without
the bearing of evidence in support of the accusation.^ But it is
not necessary that the evidence should be of such a character as
would be necessary to its admission in the judicial courts : it is
sufficient if it be of that character on which men ordinarily act
in their private affairs, so that nothing takes place which violates
the principle of natural justice already stated. Unless the rules
of the society otherwise provide, the witnesses need not be under
oath.* The evidence may, it seems, be taken before one mem-
ber of the court by a stenographer in the form of a deposition,
and read before the whole court, at the trial, provided the ac-
cused have a fair opportunity of presenting his defense.^ The
facts on which the committee which constitutes the judicial body
acts, may be collected by a sub-committee, and afterwards re-
ported to the full committee, witji whom the final decision rests.^
Nor is it necessary that the accused should have notice of the
time of the presentation of this report to the full committee, pro-
vided that he is afforded a fair opportunity of being heard before
the full committee in his defense.' One case has condemned an
expulsion which took place upon the testimony of a witness who
would have been incompetent to testify according to the rules of
evidence which obtain in the judicial courts ; but its authority is
doubtful, as the expulsion also took place in the absence of the
accused and without notice to him,^ — which was a more conclu-
1 White V. Brownell, 4 Abb. Pr. (n. 172. It is hence no objection that a
s.) (N. Y.) 162; aflSrming s. c. 3 Id. witness was not properly sxoorn:
318. Pitcher v. Chicago Board of Trade, 121
2 Ante, § 881. 111. 412; 13 Northeast. Rep. 187; 11
3 See in illustration of this, the case West. Rep. 38 ; 2 R. & Corp. L. J. 89.
of Labouchere v. Earl of Wharncliffe, ^ People v. Board of Police Com-
13 Ch. Div. 346, 350, where the rules missioners, 20 Hun (N. Y.), 402.
of the club required the committee to <' Loubat v. Leroy, 15 Abb. N. C.
proceed after " inquiry," aud the ob- (N. Y.) 1. S. P. Pitcher v. Chicago
servations of Jessel, M. R., thereon. Board of Trade, supra.
* People V. New York Commercial ' Ibid.
Association, 18 Abb. Pr. (N. Y.) 271; ^ Washington &c. Soc. v. Bacber, 20
Ex parte Ramshay, 18 Ad. & El. (n. s.) Pa. St. 426.
730
COKPORATE PROCEEDINGS TO EXPEL. [1 Thomp. Corp. § 899.
sive ground in support of the decision of the court. And finally,
it should be said that in all proceedings for the expulsion of
members of such an organization, the provisions of the constitu-
tion relating thereto must be strictly followed out, otherwise the
expelled member will be entitled to relief in the judicial courts.^
§ 898. Necessitj' of a Sentence of Expulsion. — Except in
those cases, chiefly in mutual benefit societies, which proceed on a
principle analogous to mutual insurance, where the non-payment
of dues after notice, ipso factOy works a forfeiture of member-
ship,^ the trial of the charges against the member is nugatory,
except as an acquittal, unless it results in a formal sentence of
expulsion. It is not meant, by this statement, to convey the
idea that any particular form of sentence is required by the law.
The idea is that there must be an actual expulsion, which must
take place in form of a corporate act^ declaring the member to
be expelled.^
§ 899. Right of Appeal. — Where, by the laws governing the
society, a right of appeal exists from the judicatory passing the
sentence of suspension to a higher judicial body, or to the society
at large, it will be a good ground of reinstatement that this right
has been denied to the accused. And where a right of appeal
was given by the constitution of the society, it was held that he
was entitled to be reinstated, because this right had been denied
him, although there was a by-law providing that the decision of
the committee by which he had been suspended should be final.
The reason was that where there is a by-law conflicting with the
constitution of the society, the constitution and not the by-law,
must prevail, and further, that the member ought not to lose his
right of membership on a question of doubtful construction, es-
pecially as property rights were involved.* It has been held,
but upon grounds which are certainly not obvious, that the pro-
testing member of a mercantile exchange is entitled to an appeal
1 Loubat V. Leroy, 15 Abb. N. C. Com. v. German Society, 15 Pa. St.
(N. Y.) 1, 45 note. 251 ; ante, § 817.
2 Ante,% 881. * Powell v. Abbott, 9 "Week. Notes
3 Cora. V. Pennsylvania Beneficial Cas. 231 (Philadelphia Court of Corn-
Institution, 2 Serg. & R. (Pa.) 141; mon Pleas).
731
1 Thomp. Corp. § 904.] expulsion or members.
from its board of arbitrators to its board of appeals, on the mere
question of jurisdiction, without submitting the whole merits of
the controversy to the board of appeals, as he was required by
the board to do, in order to have his appeal allowed. ^
Article III. Judicial Proceedings to Beinstate.
Section
904. Mandamus to restore member.
905. Mandamus to compel corporation
to admit a member.
906. The return.
907. Practice under the writ.
908. Visitorial powers exercised by
the courts.
909. Eemedy by injunction.
910. Injunction in case of unincor-
porated societies.
911. Injunction in case of religious
societies.
912. Member must first exhaust his
remedy within the society.
913. Injunction not granted to re-
strain proceedings before cor-
porate judicatories.
914. Principles on which courts pro-
ceed.
915. Further of this subject.
916. Contract to exercise judgment
bona fide.
917. Another statement of the princi-
ple : corporation not permitted
to exercise trust corruptly.
918. Courts do not sit as courts of ap-
peal from decisions of com-
mittee or club in such cases.
Section
919. Not sufficient that the decision
contrary to reason.
920. Regularity of suspension pre-
sumed until contrary ap-
pears.
921. Effect of acquiescence.
922. Jurisdiction of corporate com-
mittee not ousted by fact of
judicial investigation.
923. Doctrine that courts will not in-
terfere except where property
rights are involved.
924. Courts will not enforce decisions
of judicatories of unincorpo-
rated societies.
925. Suspension of a lodge, when
void and wlien voidable.
926. Action for damages for the ex-
pulsion.
927. Action for damages against re-
ligious corporation.
928. Criminal information for dis-
franchisement of mem-
bers.
929. Articles of the peace by one part-
ner against another.
930. Action against judge for con-
demning without notice.
§ 904. Mandamus to Restore Member. — Ever since the de-
cision of the Court of King's Bench in Bagg's Case,^ and
possibly long before, the writ of mandamus has been the usual
and undoubted remedy to restore an officer of a corporation who
has been unlawfully amoved,^ or a member of a corpo-
ration who has been unlawfully suspended, expelled or
1 Savannah Cotton Exchange v.
State, 54 Ga. 668.
732
2 11 Co. Rep. 93, 99 (anno 1616).
8 Ante, § 829.
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Coi'p. § 904:.
otherwise disfranchised.^ As already seen,^ by the principles of
the common law of England, the writ of mandamus extends only
to the vindication of rights of a public nature ; but as there
pointed out, it is used in the United States to vindicate rights in
private corporations. Accordingly, we shall hereafter see that it
is constantly used to compel tlie directors or managers of such
corporations to accord to their stockholders the privilege of in-
specting the corporate bool's, at reasonable times and under reason-
able conditions.^ So, mandamus lies to restore a subscriber to
the capital stock of a joint-stock corporation^ who has been struck
from the subscription list without notice; * to compel an incor-
porated j^?*e company to readmit a member who has been unlaw-
fully excluded from membership ; ^ to restore a member of an
incorporated merchants' exchange^ or of an incorporated benevo-
lent ^ social,^ scientific society.^ According to a recent case in Cali-
1 Res V. Mayor &c. of Doncaster,
Sayer, 37 ; Rex v. Mayor &c. Doucaster
(a different case), 2 Ld. Raym. 1566;
Prohurst's Case,Carthew, 1G8; Delacy
V. Neuse River Nav. Co., 1 Hawks (N.
C), 274; People v. Fire Department,
31 Mich. 458; Savannah Cotton Ex-
change V. State, 54 Ga. 668; Fuller
V. Trustees, 6 Coun. 532; People v.
Medical Society, 32 N. Y. 187, 192;
People V. Medical Society, 24
Barb. fN. Y.) 572; Com. v. St.
Patrick's Benevolent Society, 2
Biun. (Pa.) 441; s. c. 4 Am. Dec.
453; Green v. African Methodist
Episcopal Society, 1 Serg. &. R.
(Pa.) 254; Com. v. Pike Beneficial So-
ciety, 8 Watts & S. (Pa.) 247; Com. v.
German Society, 15 Pa. St. 251; Black
& White Smith's Society v. Van Dyke,
2 Whart. (Pa.) 309, 312; s. c. 30 Am.
Dec. 263; P<;ople v. St. Franciscus
Benevolent Society, 24 How. Pr. (N.
Y.) 216; Sleeper v. Franklin Ly-
ceum, 7 R. I. 523; Sibley w. Carteret
Club, 40 N. J. L. 295. In Otto v. Tai-
lors' &c. Uuiou, 75 Cal. 308, 313, the
remedy by mandamus, called in the
code of procedure of that State " man-
date," was held proper to restore a
member of a voluntary unincorporated
association who had been expelled
without a proper trial; but this de-
cision is quite out of line with the
judicial authorities.
2 Ante, § 829.
3 Post, Ch. 87.
* Delacy v. Meuse River Nav. Co.,
1 Hawks (N. C), 274.
* People V. Fire Department, 31
Mich. 458.
6 Savannah Cotton Exchange v. The
State, 54 Ga. 668.
' People V. St. Franciscus Benevo-
lent Soc, 24 How. Pr. (N. Y.) 216;
Cora. V. St. Patrick Benevolent Soc,
2 Biun. (Pa.) 441; s. c. 4 Am. Dec. 453;
Green v. African Methodist Episco-
pal Soc, 1 Serg. & R. (Pa.) 254. See
also Com. v. German Soc, 15 Pa. St.
251; Society &c. v. Commonwealth, 52
Pa. St. 125; Black & White Smiths'
Soc. V. Vandyke, 2 Whart, (Pa.) 309;
s. c. 30 Am. Dec. 263; Com. v. Pike
Beneficial Soc, 8 Watts. & S. (Pa.) 247.
8 Sibley v. Carteret Club, 40 N. J.
L. 295.
3 People V. Medical Society, 24
Barb. (N. Y.) 570; People tj. Medical
Society, 32 N. Y. 187.
733
1 Thomp. Corp. § 905.] expulsion of members.
fornia, " courts will interfere [by " 'mandale'''\ for the purpose
of protecting property rights of members of unincorporated asso-
ciations, in all proper cases, and when they take jurisdiction, will
follow and force, so far as applicable, the rules applying to in-
corporate bodies of the same character." ^
§ 905. Mandamus to Compel Corporation to Admit a Mem-
ber. — As already pointed out,^ the writ of mandamus was used
at common law to compel a corporation io swear in an officer who
had been duly elected or appointed to a corporate office. On
analogous principles, if the charter of a corporation is such that
a person possessing a given qualification has a rigid to become a
member of it, he may have a mandamus to compel the corpora-
tion to admit him in ease they refuse. Thus, where a licensed
physician, having the qualifications which, under a statute of New
York, entitled him to become a member of a certain medical so-
ciety, was refused membership, on the alleged ground that he
had at some time been guilty of acts of empiricism, by advertis-
ing in the public journals, etc., — it was held that the code of
medical ethics, adopted by the society, applied to members only;
that it could have no application to one who had not been a party
to it, and consequently, that the society should be compelled by
mandamus to admit the relator.^ Speaking upon this question,
Porter, J., used the following language : " When a party, having
a clear presumptive title, applies to be admitted to the exercise
of a corporate franchise, the application should not be denied,
unless the right of immediate expulsion be plain and unquestioned.
The general policy of the law is opposed to sharp and summary
judgments, where the party whose rights are in jeopardy has no
opportunity to be heard in his own defense." * On the other
hand, it has been held that the jurisdiction of a representative
body, composed of members selected by, and delegated to it by
other bodies, to judge of the qualification and election of its
members, is a power necessarily incident to bodies of such com-
1 Otto V. Tailors' &c. Union, 75 187. Compare People v. Medical So-
Cal. 308, 313, opinion by Searls, ciety, 24 Barb. (N. Y.) 570.
C. J. •* People V. Medical Soc, 32 N. Y.
2 Ante, § 829. 187, 190; citing Bagg's Case, 11 Co.
3 People V. Med. Society, 32 N. Y. Rep. Dii.
734
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Corp. § 906.
position. In most instances, the investigation must be summary
in its proceedings, and in the absence of statutory provisions, or
regulations by by-laws, is discretionary in the mode of procedure.
Thus, the Medical Society of New Jersey, incorporated by act of
the legislature, was composed of delegates chosen by and from
each of the district or county societies, instituted by its authority.
In the county of H., two separate organizations were maintained,
each claiming to be District Medical Society of the county of H.
Two sets of delegates, chosen by their organizations, appeared
and claimed admission as members of the State Society. It was
held that it was competent for the State Society, in determining
the election of its members, to ascertain and decide which of the
organizations was the district society, and that the facts might be
ascertained through the medium of a committee.^
§ 906. The Return. — What has been said in a former chap-
ter concerning the use of the writ of mandamus to restore an
officer who has been unlawfully amoved,^ may be usefully read
in connection with what is said in this chapter on the same
subject; and perhaps the use of this writ in both con-
nections might better have been treated together. As there
pointed out, by the ancient common law, the rule in re-
spect of the return to the writ of mandamus was the same as
in the case of a sheriff's retnrn ; it could not be contradicted, and,
if it were false, the only remedy of the relator lay in an action
for damages for a false return.^ This fact of the conclusiveness
of the return led the conrts to great strictness in requiring the
return to set out all the facts on which the respondents justified
their action, and this rule has been continued, with little deviation,
to the present time, even in those courts where, as now in En-
gland, the ancient rule is abolished, and the return may be
1 State V. Medical Society &c., 38 jection. State v. Sibley, 25 Minn.
N. J. L. 377. A merely iuadvertent 387.
omission to sign the by-laws and con- 2 ^^^c^ § 829, et seq.
stitution adopted by a corporation, 3 Bass's Case, 11 Co. Rep. 93, 99.
will not invalidate a raembership that This rule continued in Pennsylvania
has been asserted by a party claiming down to the time of the decision of
it, and distinctly recognized and ac- Green v. African Methodist Episcopal
quiesced in by the corporation, for a Society, 1 Serg. & li. (Pa.) 254, and
long period of time, without any ob- perhaps later.
735
1 Thomp. Corp. § 906.] expulsion of members.
traversed in the same proceeding. " It is certainly true," said
Lord Mansfield, ** that, where an amotion is concerned, the re-
turn must set out all the necessary facts precisely, to show that
the person is removed in a legal and proper manner, and for a
legal and proper cause. It is not sufficient to set out conclusions
only; they must set the facts themselves out precisely, that the
court may be able to judge of the matter. And so it is also, as
to the cause of amotion. This must be set out in the same man-
ner, that the court may judge of it." ^ Although, as already
pointed out,^ this rule was changed by statute in the reign of
Queen Anne, — this doctrine, that the return must set forth dis-
tinctly the fact and also the cause of the amotion, suspension,
expulsion, or other disfranchisement, of the relator, is reiter-
ated in several modern cases. ^ The rule still obtains under
the modern practice, to the extent that the return to such a
mandamus must distinctly set forth all the facts authorizing
the amotion, in order that the court may judge of its suffi-
ciency, both as to the cause and the form of the proceed-
ings. Thus, where the charter of a corporation provided
that, on the conviction of a member upon certain charges
"on the deposition of two or more credible witnesses " he
should be expelled, the return to a mandamus to restore such
member was held insufficient for not stating that at least two
witnesses were heard in support of the charge, and that the same
was either proved or confessed.* In an old case where the man-
damus was sought to restore the relator to the office of capital
burgess, from which he had been amoved, tlie return was that, as
a chamberlain of the borough, he obstinately and voluntarily re-
fused to obey several orders and laws made for the good of the
borough, contrary to the duties of his office. This was held in-
1 Eex V. Town of Liverpool, 2 Burr. C. J., in a case decided in the year
723, 731; s. c. 2 Esp. 324. 1815, "Those who make a return
2 Ante, § 833. to a mandamus, have this great ad-
2 Green v. African Methodist Epis- vantage that their proceedings cannot
copal Society, 1 Serg. & II. (Pa.) 254; be contradicted in the proceedings
Cora. V, German Society, 15 Pa. St. on the mandamus, although if it be
251,255; Sleeper w. Franklin Lyceum, false they are liable to an action."
7 R. I. 523. The ancient rule con- Green v. Mrican Methodist Episcopal
tinued in Pennsylvania long after Soc, 1 Serg. & 11. (Pa.) 254.
it had been abolished in England. < Cora. v. German Soc. 15, Pa. St.
Thus it was said by Tilghman, 251.
736
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Corp. § 908.
sufficient, as the several orders and la\c-s should have been set
forth specifically. 1 In another case it was held that a general
charge, in such a return, of neglect and omission of duty in the
officer who had been removed from his office was insufficient. ^
§ 907. Practice under the Writ. — What has already been
said under this head in the preceding chapter,' may be usefully
referred to here; and it should be borne in mind that questions
of i)ractice are to be referred to rules which obtain in each local
jurisdiction. It has been held, in respect of the use of the writ
of mandamus in this connection, that, in order to enable the cor-
poration to set out specifically in its return the ground of its
action, the writ may be ordered to issue in the alternative, com-
manding the corporation either to restore the applicant to his
rights of membership, or to show good cause to the contrary; *
and this is believed to be the usual practice.
§ 90S. Visitorial Powers Exercised by the Courts. — It is
said in Wisconsin, by Mr. Justice Lyon, speaking for the court :
" The visitorial or superintending power of the State over corpo-
rations, created by the legislature, will always be exercised, in
proper cases, through the medium of the courts of the State,
to keep those corporations within the limits of their lawful pow-
ers, and to correct and punish abuses of their franchises. To
this end, the courts will issue writs of quo loarranto, mandamus,
or injunction, as the exigencies of the particular case may
require; will inquire into the grievance complained of, and, if
the same is found to exist, will apply such remedy as the law
prescribes. Every corporation of the State, whether public or
private, civil or municipal, is subject to its superintending con-
trol, although in its exercise, different rules may be applied to
different classes of corporations." ^
1 Rex 17. Mayor &c. of Doncaster, 2 Commerce, 47 Wis. 671, 679. The
Ld. Raym. 15()C. court referred to State v. Chamber of
2 Rex V. Mayor &c. of Doncaster, Commerce, 20 Wis. 63, and Dickenson
Sayer, 37. v. Chamber of Commerce, 29 Wis. 45,
3 Ante, §§ 839, 840. as instances of the exercise of this
* Sleeper v. Franklin Lyceum, 7 R. jurisdiction in the case of members
!• 623. expelled or threatened with expul-
* State V. Milwaukee Chamber of sion. The court also took occasion
47 737
1 Thomp. Corp. § 909.] expulsion of members.
§ 909. Remedy by Injunction. — Where the rule in respect
of injunction, which denies a resort to this remedy where the
coini)laiuaut has an adequate remedy at Imv, has not been modi-
lied by statute or by judicial decisions, it logically follows that
as an officer or member of a corporation who has been unlaw-
fully removed, suspended, expelled, or otherwise disfranchised,
has a remedy by mandamus to effect his restoration, that is, a
remedy at law, he cannot resort to the equitable remedy by in-
junction. But the strictness of this rule is considerably broken
into in several American jurisdictions, either by force of statute
or by the course of judicial decisions, so that now it frequently
happens that relief by injunction is awarded, even when applied
for by an officer or a member of a corporation.^ In one Ameri-
can jurisdiction the remedy by injunction has been denied, on
the doubtful ground that an injunction does not issue to undo
what has been done, but only to avert threatened injuries, and
that it therefore will not issue to restore a member of a cor-
poration who has been expelled, — proceeding upon the view that
the remedy of the complainant, if any, is at law.^ In Pennsyl-
vania a remedy by injunction is accorded, on the ground that,
" a writ of mandamus would not secure to the plaintiff the pro-
tection which he seeks. The object of that writ would be to
to deny the doctrine of People v. cases, in whicli tlie respective corn-
Board of Trade, 80 111. 134, where the plainants sought to restrain the board
Supreme Court of Illinois substantially from expelling them, or to compel it
decided that the power of the Chicago to restore them after expulsion; yet
Board of Trade to enact by-laws for the doctrine of the People v. Board of
its own government was unlimited, Trade, 80 111. 134, is referred to hypo-
and that the court would not interfere thetically in the opinions of the court,
with any by-law thus enacted, or re- and no mention whatever is made of
vise any proceeding thereunder. The that case. Whether that learned and
court said: "The case seems in con- able court adhere to that doctrine or
liict with earlier decisions of that not, we are unable, as at present
court, and we are not aware that the advised, to adopt it as the law of this
court has re-asserted any such doc- court."
trine, although it has since considered ^ Dickenson v. Chamber of Corn-
several cases involving the legality of merce, 29 Wis. 45. See also Tipton
the proceedings of the same Board of Fire Co. v. Barnheisel, 92 Ind. 88.
Trade. See Fisher v. Chicago Board ^ Baxter v. Chicago Board of Trade,
of Trade, 80 111. 84; Sturges v. 83 111.146; Sturges i?. Chicago Board
Same, 86 111. 441; Baxters. Same, of Trade, 86 111. 441; Pitcher v.
83111.146. True, these were equity Chicago Board of Trade, 121111.412.
738
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Corp. § 910.
restore him to his rights as a member, if he had been improp-
erly suspended. In the meanwhile there might be a threatened
sacrifice of his property, as complained of by him." ^ This was
well said ; and in considering whether the remedy at law is in
such a case adequate, it should be remembered that a prelimin-
ary injunction operates as an immediate restoration of the com-
plainant to his rights of membership, which restoration con-
tinues 2?enc?en^e lite; whereas, if he is driven to a mandamus, he
is not restored until the final judgment, which may not take
place until years have elapsed, in an appellate court of last re-
sort. In the meantime, if the corporation from which he has
been expelled is a chamber of commerce, merchants' exchange,
brokers' board, or other like society, he is deprived, pending the
litigation, of the privilege of trading on its floor as a member,
which, as is well known, is in many cases a privilege of great
value — indeed indispensable to some merchants and brokers.
Nor does the view of the Illinois court seem to be sound, in so
far as it proceeds upon the ground that it is not the office of an
injunction to undo what has already been done. For the theory
of the law is that if the member has been unlawfully suspended
or removed, the sentence of suspension or expulsion is void, and
he is still a member. In such a case, the true office of the injunc-
tion is to restrain the corporation, its officers, agents and servants,
from iuterfeiino; in the future with his rights as a member.'''
§ 910. Injunction in Case of Unincorporated Socie-
ties. — In certain subordinate courts of New York, the an-
cient distinction is taken that, while mandamus is the proper
remedy where the party aggrieved seeks a restoration to mem-
ber-hip in a corporation,^ yet wiiere the society is not incor-
porated, the remedy is by suit, that is, by an action for an order
of restoration, tantamount to a proceeding by injunction.^ And
1 Powell V. Abbott, 9 Week. Notes member Tvho had been suspended for
Cas. (Pa.) 2.51 (Philadelphia Court of the non-payment of a fine i legally im-
Coinmon Pleas). posed, Aibers v. Merchants Ex-
2 Upon this ground the St. Louis change, March, 1800, not yet reported.
Court of Appeals afllrraed a decree ^ People v. New York Benevolent
against the Chamber of Commerce of Society, 3 Ilun (N. Y.), 3G1.
St. Louis and its directors, in a pro- ^ Fritz u. Muck, C2 How. Pr. (N.
ceediug by injunction instituted by a Y.) 09.
1 Thomp. Corp. § 911.] expulsion of members.
this brings us to the statement that the usual relief, where mem-
bers of unincorjoorated clubs or other societies are unlawfully
suspended or expelled, is by an injunction in a court of equity.^
In Pennsylvania, injunctions are granted to restore members who
have been illegidly expelled from voluntary associations, because
chancery jurisdiction to control unincorporated societies or asso-
ciations has been created in that State by statute. ^
§ 911. Injunction in Case of Religious Societies. — It
should also be observed that, in the case of religions societies,
where a church or other religious congregation breaks into
factions, owing to differences of doctrine or other causes, and
there is a struggle between the factions for the possession of the
church edifice or other temporalities, the usual and regular
remedy is in a court of equity, whose procedure alone is suffi-
ciently flexible to deal with such an extraordinary matter.^
The wrongful and violent seizure of the edifice and property be-
longing to a church of a congregational form of government,
by a minority of the members, contrary to the wishes of the
majority, the deposition of the officers of the church and the
trustees who hold the property, and the retention and use
thereof by the minority to the exclusion of the majoiity, furnish
good grounds for equitable relief.* In such a case a court of
1 Fishery. Keane, 11 Ch. Div. 353; their power illegally, then the court
Labouchere v. Earl of Wharncliffe, 13 has jurisdiction to interfere."
Ch. Div. 346; Dawkins «. Antrobus, ^ Pennsylvania Act of June 16th,
17 Ch. Div. 615; Lambert v. Addison, 1836; Leech v. Harris, 2Brewst. (Pa.)
46 L. T. (N. s.) 20, 24; Leech u. Har- 671, 576.
ris, 2 Brewst. (Pa.) 571, 576 (juris- ^ Bouldin v. Alexander, 15 Wall,
diction created by statute). In Daw- (U. S.) 131; Bates v. Houston, 66 Ga.
kins 17. Antrobus, s?<75ra, the propriety 198; Brunnenmeyer v. Buhre, 32 111,
of the remedy by injunction in such 183; Eoshi's Appeal, 69 Pa. St. 462;
cases is conceded. In Lambert v. Kerr v. Trego, 47 Pa. St. 295; Lu-
Addison, swpra, Kay, J., said: "The theran Evangelical Church u. Gristgau,
jurisdiction of the court in cases of 34 Wis. 328, 336; Gable v. Miller, 10
this kind is undoubted, and I think Paige (N. Y.), 627. But see Lu-
the limit of that jurisdiction has been theran Church w.Maschop, 10 N. J. Eq.
carefully defined. If the committee 67; Baptist Church v. Witherell,
of a club having the power to expel a 3 Paige (N. Y.), 296, (overruled, it
member, exercise their power in good seems, by Gable v. M Her, supra).
faith and legally, the court has no * Bates u. Houston, 66 Ga. 198; s.c.
power to interfere by an injunction 9 Am. Corp. Cas. 47. See also Bouldin
to restrain them. If they exercise v. Alexander, 15 Wall. (U. S.) 131.
740
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Coi'p. § 912.
equity will determine, upon the proofs, who are the trustees of
the church, entitled to the possession of its temporalities. ^ The
trustees are those who have been regularly constituted such : per-
sons elected by a portion of the congregation at a meeting other
than a regular meeting are not such trustees. Where a person
conveys land in fee to trustees for the use of such a religious
society, the trustees named in the deed are not removable at the
will of the members of the society, and without cause shown. ^
Acquiescence of the society or club in the resolution of expul-
sion passed by its governing committee, affords no reason, it has
been said, for the approval of the proceeding, or for the accept-
ance of the result by a judicial court when appealed to by the
expelled member. Nor is he to suffer disadvantage because his
fellow members do not call a special meeting to reconsider the
resolution of expulsion. He was not bound to ask for such a
meeting.^ Where the society is a, partneiship, so that the ex-
l^elled member has, in the strict sense, property rights therein, he
is entitled to the protection of a court of equity in respect of
those rights. If he is expelled from the society, it is witliin the
power of such a court to inquire into the reasonableiiess and pro-
priety of the action of the association, and to grant appropriate
relief in the premises.*
§ 912. Member must first Exhaust his Remedy Within the
Society. — Courts of equity uniformly deny their relief, in the
cases spoken of in the preceding section, unless the complaining
member has first exhausted his remedies within the society.^
Thus, if an appeal is given from the judicatory which has pass-
ed the sentence of suspension or expulsion, either to a higher
judicatory or to the association at large, he cannot appeal to
a court of equity until he has prosecuted such appeal, unless it
has been denied him ; ^ or unless, by evasions, intentional delays,
1 Bouldin v. Alexander, 15 Wall. Y.) 92; White v. Brownell, 2 Daly
(U. S.) 131. (N. Y.), 329, per Daly, J. ; s.c.i. Abb.
2 Bouldin v. Alexander, swpm. Pr. (n. s.) (N. Y.) 162.
3 Loubat V. Leroy, 15 Abb. N. C. e Carleii v. Drury, 1 Ves. & B. 154;
(N, Y.) 1, 41. White v. Brownell, 4 Abb. Pr. (n. s.)
< Olery v. Brown, 51 How. Pr. (N. Y.) 1G2, 199; s. c. 2 Daly (N. Y.),
(N. Y.) 92. 329; Lafond v. Deems, 81 N. Y. 507;
* Olery v. Brown, 51 How. Pr. (N. Loubat v. Leroy, 40 Hun fN. Y.), 546,
741
1 Thomp. Corp. § 913.] expulsion of members.
or other unjust procedure, he is deprived of the benefit of any
further remedy given him by the constitution and by-hiws of the
society.^ He must, it seems, first petition the governing body to
reconsider its action, and to reinstate him before he can ap[)eal
to the judicial courts.^ If tlie society is a subordinate lodge of
a benevolent organization, and the suspended member fails to
take an appeal to the grand lodge, which the laws of the order
give him, the validity of his sus[)ension cannot be collaterally in-
quired into in the judicial courts.^ So, if he die during the sus-
pension under such circumstances, his benefit certificate being for-
feited by the suspension, the beneficiary cannot sustain an action
thereon.* So, a contest between two factions of a subordinate
lodge, touching the property of the lodge and the use of the name
of the lodge, cannot be determined by the judicial courts, on a
bill in equity or otherwise, until the complaining parties have ex-
hausted their remedy by appealing to the grand lodge. ^ But
where the laws of the society provide for no tribunal to pass
upon the question of the liability of the society to a member,
he may appeal directly to the judicial courts.®
§ 913. Injunction not Granted to Restrain Proceedings be-
fore Corporate Judicatory. — It follows from what has been said that
a court of equity will not restrain such a bocl}^, — here the New York Pro-
duce Exchange, — or its managers and committees, from proveedlng with
the investigation of a complaint against a member of a nature to be within
their jurisdiction, in advance of any action of theirs violating the rights
of the accused member, and merely because he apprehends that they
will act oppressively, or are intending to force him to arbitrate a con-
troversy on which he desires the judgment of a court, or to suspend or
expel him without cause. The presumption is that they will proceed
reasonably and justly. Upon this question it is said : " It matters not
whether this court or any other court is of the opinion that the eom-
549; s. c. 15 Abb. N. C. (N. Y.) 1, 42; - Loubat v. Leroy, 40 Hun (N. Y.),
Karcher u. Supreme Lodge, 137 Mass. 546; s. c. 15 Abb. N. C. (N. Y.) 1, 42.
368. ^ Karcher v. Supreme Lodge, 137
1 White V. Brownell, 4 Abb. Pr. (n. Mass. 3G8.
s.) (N. Y.), 162, 199; s. c. 2 Daly (N. ^ Ibid.
Y.), 329. Circumstances where an ap- ^ Chamberlain v. Lincoln, 129 Mass.
peal was not required: Loubat v. 70.
Leroy, 40 Hun (N. Y.), 546; s. c. 15 ^ Dolan u. Court Good Samaritan,
Abb. N. C. (N. Y.) 1, 42. 128 Mass. 437.
742
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Corp. § 913.
plaint was well or ill founded. It may have been entirely trivial and
causeless, but it was one which Cathcart [the accusing member] could
make, and which the complaint committee and the board of managers
had the right to entertain and examine. It cannot be assumed that
they would make an unjust, arbitrarj^ or wrong decision. The presump-
tion is that the board of managers, composed of impartial men, ac-
quainted with business practices and the standards of commercial
honor, would decide the question fairly and dismiss the complaint if it
was made from improper motives and without sufficient cause. ' ' ^ When,
therefore, the committee had the power of expulsion "in case the con-
duct of auy member, either in or out of the club house, shall, in the
opinion of the committee, be injurious to the character and interests of the
club, the committee shall be empowered to recommend such member to
resign," etc., it was held by the same eminent equity judge, that the
question for decision was not whether the conduct of the member was
realy injurious, bat whether it was injurious in the opinion of the com-
mittee ; for " then all that the court requires is that the committee
should form their opinion in a bona fide way. There is no power in
this court to control the judgment or opinion of the committee." 2
Another statement of the rule was made by Brett, L. J. , in a more re-
cent case involving the question. He said: "The only question
which a court can properly consider is whether the members of the club,
under such circumstances, have acted ultra vires or not, and it seems to
me the only questions which the court can properly entertain for that
purpose are, whether anytliing has been done which is contrary to nat-
ural justice, although it is within the rules of a club, — in other words,
whether the rules of the club are contrary to natural justice ; secondly,
whether a person who has not condoned the departure from them has
acted contrary to the rules of the club, and thirdly, whether the decis-
ion of the club has been come to bona fide or not. Unless one of these
charges can be made out by those who come before the court, the court
has no power to interfere with what has been done." ^ It has been rea-
soned in the same strain, that the judicial courts are no places to review
routine questions as to the regularity of a committee appointed to investi-
gate charges against an expelled member. The relator having been before
a committee claiming to be regular, and not shown to be otherwise, should
have made his formal objections there ; and it will be presumed that,
if the proceedings before the committee were notaccordiug to the usages
1 Hurst u. New York Produce Ex- 2 Richardson-Gardner?;. Freraantle,
change, 100 N. Y. G05, mem ; s. c. in 24 L. T. (n. s.) 81.
full, I Cent. Rep. 260, opinion by Earl, » Duwkins v. Antrobus, 17 Ch. Div.
J- 615, 630.
743
1 Thomp. Corp. § 913.] expulsion of members.
of the society, they would uot have been sauctioned by the society.^
In Wisconsin, it has been regarded as doubtful, to say the least, whether
in such a case the court will look into the testimony for such a purpose,
though the question was uot decided.'- In like manner, it has been
said by an eminent American judge: " Voluntary bodies of this kind
will be held to the fair and honest administration of the rules which are
in force when any proceeding is instituted against a member ; but
where the member is expelled in conformity with the rules, and proceed-
ings are regular and in good faith, it is final, and no judicial tribunal
can interfere."^ " We have to consider," said Cotton, L. J., "first,
whether the action of the committee and of the general board was au-
thorized by any rule, that is to say, whether it was within the terms of
the rule, and whether it was regular ; and, secondly, if these questions
are answered adversely to the appellant, whether it has been made out
to the court that the proceedings were not in the hona fide, honest exer-
cise of the powers given by the rule, but maliciously and fraudulently. ' ' *
In a case in New York, the court reason that, in the case of an unin-
corporated mining stock board, not a joint-stock company within the
statutes of the State, but to be regarded as a mere voluntary associa-
tion, a membership cannot be regarded as a franchise ; and that, this
being so, in order to enable a member threatened with suspension to
appeal to equity for an injunction, he must show that the proceedings
of the board, or of the quorum of the board of which he complains, were
fraudulent or corrupt, or the result of a,fraudident conspiracy to deprive
him of his rights in the board. ^ It is believed that there is no sub-
stantial difference — at least in the conception of American courts —
between the case where the remedy is sought in equity by an injunction,
and the case where it sought at law by a mayidamus, in respect of the
principles upon which relief is accorded or denied ; though the judicial
expressions of the principle differ somewhat. It is said in Pennsylvania,
in a proceeding by mandamus, that " the courts entertain a jurisdiction
to preserve these tribunals [meaning corporations or the judicatories of
corporations] in the line of order, and to correct abuses ; but they do not
inquire into the merits of what has passed in rem judicatam, in a regu-
lar course of proceedings." ^
1 People V. St. George's Society, ^ Rorke v. Russell, 2 Lans. (N. Y.)
28 Mich. 2G1. 244, lugraliara, J., dissentiug.
2 State V. Milwaukee Chamber of ^ Com. v. German See, 15 Pa. St.
Commerce, 47 Wis. 670, 682. 251, 255; Com. v. Pike Beneficial See,
3 White V. Brownell, 2 Daly (N. Y.), 8 Watts & S. (Pa.) 247, 260. See also
329, 359, per Daly, J. Black & White Smiths' Soc. v. Van
4 Dawkins v. Antrobus, 17 Ch. Div. Dyke, 2 Whart. (Pa.) 309; s. c. 30 Am.
615, 633. Dec. 263. Leech v. Harris, 2 Brews.
744
(Pa.) 571.
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Corp. § 914.
§ 914. Principles on which Courts Proceed. — Courts of
equity entertain a jurisdiction in the case of voluntary unincor-
porated societies, to hold such societies or their judicatories, in
dealing with their members, within the lines of their constitu-
tions, by-laws or other regulations, and to see that they exercise
their powers fairlt/ and in good faith ; but they do not inquire
into the merits of what has passed in rem judicata7n^ in the reg-
ular course of their proceedings.^ It is but another statement of
this principle to say that courts of equity do not sit as courts of
ajopeal from such societies or their judicatories in such cases. ^
Nor will they interfere with their decisions on the mere ground
that they are deemed unreasonable J^ On the other hand, the
courts will not interfere to enforce the decrees of the judicato-
ries of self-constituted societies,* even where property rights
are involved.^ Courts of law have frequently applied the same
1 Leech v. Harris, 2 Brewst. (Pa.)
571, 676; Cora. v. Pike Beneficial So-
ciety, 8 Watts & S. 247; Black & Wliite
Smiths' Society v. Vandyke, 2 Whart.
(Pa.)309 ; s. c. 30. Am. Dec. 263 ; Society
for tlie Visitation of the Sick v. Com.,
52 Pa. St. 125 ; Rorke v. Russell, 2 Lans.
(N. Y.) 244; Powell v, Abbott, 9
Week. Notes of Cas. (Pa.) 231 (Phil-
adelphia Court of Common Pleas) ;
Hutchinson v. Lawrence, 67 How. Pr.
(N. Y.) 30, 41; Richardson-Gardner v.
Fremantle, 24 L. T. (n. s.) 81 ; Hop-
kiuson V. Marquis of Exeter, L. R. 5
Eq. 63; Burtu. Grand Lodge, 44 Mich.
208; White v. Brownell, 2 Daly (N.
Y.), 229, 359; Manby v. Gresham Life
Assurance Society, 29 Beav. 439,
445; Blisset v. Daniel, 10 Hare, 493;
Dawkinsv. Antrobns, 17 Ch. Div. 615.
See also People v. New York Cotton
Exchange, 8 llun (N. Y.), 216; State
V. Milwaukee Chamber of Commerce,
47 Wis. 670, 082 (doubted whether the
court will look into the evidence on
which the society acted). In Otto v.
Tailors' &c. Union, 75 Cal. 308, 314,
which was a proceeding by "man-
date " corresponding to mandamus, it
was laid down that courts have no
right to interfere with the decisions of
voluntary societies except in the fol-
lowing cases: 1. If the decision arrived
at was contrary to natural justice,
such as the member not having an op-
portunity to explain his conduct. 2.
If the rules of the society have not
been observed. 3. If the action of the
society was malicious and not bona,
fide. These conclusions ai*e well sup-
ported by several of the preceding
cases. The same principle is pursued
by courts of equity, in exercising their
visitorial power over charitable cor-
porations. Thus, Lord Eldon restored
a schoolmaster who had been removed
by a corporation through what was an
abuse of their discretion, if not a cor-
rupt exercise of it. Dummer v. Cor-
poration of Chippenham, 14 Ves. 245,
252, 253.
2 Dawkins v. Antrobus, 17 Ch. Div.
615, 634.
3 Ibid.
■• Lloyd V. Loaring, 6 Ves. 773.
'^ Austin V. Searing, 16 N. Y. 112.
There are cases wliich go to the length
of holding that the judicial courts will
not interfere under any circumstances.
People V. Board of Trade, 80 111. 136
745
1 Thomp. Corp. § 916.] expulsion of members.
principle, in dealing with incorporated societies. If a member
has been expelled according to the regular course of the pro-
ceedings of the society, as laid down by its rules, and without a
deprivation of any of the rights stated in preceding sections, the
courts will not, in a proceeding by mandamus, inquire into the
merits of the sentence of expulsion. ^ Tlie same principle is
applied in courts of law, where an expelled member of a benev-
olent society brings an action to recover allowances granted to
disabled members,^ or where the member has died during the
period of suspension, and the beneficinry named in his benefit
certificate brings an action thereon against the society.^ On the
same principle, it has been reasoned that the judicial courts will
not review the routine questions which may arise in proceedings
to investigate charges against a member, — as, for instance, the
regularity of the appointment of a committee.*
§ 915. Further of this Subject. — In such proceedings, the
courts condusivelf/ presume that the member knows the obliga-
tions resulting from the charter,^ the by-laws,^ or other rules of
the society.' They will not, therefore, grant equitable relief on
the ground of the mistake of both parties, as to the construction
of the charter.^
§ 916. Contract to Exercise Judgment Bona Fide. — The
principle of all these decisions is, that when a man joins a club
he enters into a contract with other members of the club, to be gov-
erned by certain existing rules of the club and by rules estabhshed in a
certain prescribed manner ; and where a rule of the club exists, allow-
ino- a given majority of the members, or of the governing board of the
club, to expel him upon a conclusion arrived at by them that his expul-
(denied in State v. Milwaukee Cliara- ^ Karcher v. Supreme Lodge, 137
ber of Commerce, 47 Wis. 670) ; State Mass. 3G8.
V. Grand Lodge, 8 Mo. App. 148, 153. ■* People v. St. George's Society, 28
But the weight of authority is as Mich, 261.
stated in the text. * Chesapeake &c. Canal Co. v.
1 Com. V. Pike Beneficial Society, 8 Dulany, 4 Cranch C. C. (U. S.) 85.
Watts & S. (Pa.) 247, 250; Com. v. « Palmyra v. Morton, 25 Mo. 593;
German Society, 15 Pa. St. 251, 255 post, § 941.
(recotrnized). ' Raggett v. Musgrave, 5 Car. &
2 Black & White Smiths' Society v. P. 556.
Van Dyke, 2 Whart. (Pa.) 309; s. c. ^ Chesapeake &c. Canal Co. v.
30 Am. Dec. 263. Dulaney, supra.
746
JUDICIAL PKOCEEDINCS TO REIX8TATK. [1 Thomp. Coip. § 916.
sion is reqmred by the interest of the club, this amounts to nothing
more than a contract with him, on the part of the other members of the
club, that the club or the governmg committee, in deciding upon the
question of his expulsion, may exercise their judgment bona fide; and
where they exercise their judgment bona fide, a court of justice cannot
interfere, although they may plainly exercise it wronybj. The reason
is plain. They, by their contract, have appointed a certain tribunal,
whose judgment is to be exercised and is to be conclusive. If a court
of justice substitutes in the place of the judgment of this tribunal its
own judgment, does it not make a new and different contract for the
parties from the one which they have made for themselves ? A very apt
illustration of the principle is found in a case decided by that learned
and experienced judge. Sir John Romilly, M. R., in 1861. A bill in
equity alleged that the plaintiff effected a life policy in the office of the
defendant company, at an extra premium, and that by the prospectus,
the life might, from time to time, be re-examined, and the "society
being satisfied ' ' of the removal of the cause for charging the extra
premium would reduce it. The directors ha\'ing bona fide exercised
their discretion, refused to revise the premium. It was held, on de-
murrer to a bill, that the court could not interfere in favor of the plaint-
iff, although the assured had become " thoroughly healthy and sound."
The Master of the Rolls said : "If the defendants have erroneously
exercised their judgment in this case, I regret that the plaintiff can
have no redress ; but I think it is impossible for this court to interfere
with the judgment of the directors, bona fide exercised. According to
the contract alleged, the society contract that they will, in a certain
event, namely, of the improvement of the life of the assured, exercise
their judgment bona fide; and if they should be of opinion that it is
proper, they will reduce the premium to that on an ordinary life. The
plaintiff says, that he has furnished the directors with e\'idence that the
assured is now in perfect health, but they are not satisfied of the fact.
The defendant's case is, that they had, bona fide exercised their judg-
ment, and are of opinion that the plaintiff has not fulfilled the condi-
tion. Thus the plaintiff says he has, while they say he has not. It is
impossible for this court to hold that the directors have exercised their
judgment en-oneously, and to exercise it in their place. The contract
being that the directors will, bona fide, do what is right between the
insurer and the shareholders, it is clear this court cannot interfere ; if it
did it would be making a new contract for the parties^ and subjecting
them to stipulations which they never entered into, and never intended
to enter into." ^
^ Manby v. Gresham Life Ass. Soc, 29 Beav. 439, 445.
747
1 Thomp. Corp. § 918.] expulsion or members.
§ 917. Another Statement of the Principle : Corporation
not Permitted to Exercise Trust Corruptly. — The principle
may be stated in another form, which will bring it into line with
another class of cases, namely, those cases in which courts of
chancery exercise their power over corporations which are charged
with the administration of charitable and other trusts. Here, the
principle is that the court will not interfere with the discretion oi
the corporation in respect of the management of the trust, ex-
cept in so far as to prevent them from acting corruptly in its
execution. This was well stated by LordEldon, in a case where
a school-master had brought a bill in equity against a corpora-
tion, to which had been committed the management of a school
and the nomination and rejection of a school-master. Lord El-
don said : " This is the case of a corporation, not called upon to
give any account of corporation property or revenue, as such,
but happening, in their corporate capacity, to be trustees for a
charitable purpose, entrusted in that corporate capacity with
the management of certain property, clothed with a trust for the
maintenance of a school-master, and for this purpose I repre-
sent the case thus : that the corporation have the power of nom-
inating the master, and of dismissing him, at their will and
pleasure. A corporation, as an individual, with such a power
over an estate, devoted to charitable purposes, would in this
court be compelled to exercise that power, not according to the
discretion of this court, but not corruptly. A trustee of either
descri[)tion, a corporation, or an individual, cannot be permitted
to act corruptly in the execution of the trust." ^
§ 918. Courts do not Sit as Courts of Appeal from Decisions
of Committee or Club in Such Cases. — Whether the most limited
view embraced in the first of the three foregoing paragraphs, or the most
extensive, embraced hi the second of the same, or the middle view em-
braced in the third, be adopted, it is equally apparent that courts do not,
in such cases, sit as courts of appeal to revise the action of the majority
of the club or of the governing body, in expelUng the complaining mem-
ber. They will not substitute their discretion for the discretion exer-
cised by the club or its governing body. They will not reverse the
decision of the club or of its governing body, although they may believe
1 Dummer v. Corporation of Chippenham, 14 Ves. 245, 252.
748
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Coi'p. § 919.
it to be unjust, in the sense that the}^ under the same circumstances,
would not have come to the same conclusion. They will treat it much
as the Court of Bang's Bench has been in the habit of treating the de-
cisions of inferior magistrates in summary proceedings, though exercis-
ing, it is confessed, a somewhat larger jurisdiction. They will inquire
first, whether the expulsion was within the jurisdiction of the club or of
the governing body, — that is, whether it was intra vires — whether it
was authorized by any rule of the club which was binding upon all the
members. Passing this jurisdictional inquiry, they will, it seems, in-
quire into the reasonableness of the rule in much the same manner as a
court will inquire into the reasonableness of an appeal by a corporation ;
but they will not hold it to be unreasonable, unless it is contrary to the
laws of the land, or plainly violative of natural justice. Beyond this,
there remains but one further inquiry, namely, whether under the cir-
cumstances of the particular case, the majority of the governing body
which voted for the expulsion acted reasonably and in good faith, or
whether they acted unreasonably and capriciously, corruptly, oppress-
ively or maliciously. And when the word reasonable is here used, it is
not used in the sense that permits the court to substitute its reason for
the reason of the mc-mbers of the club, but it is used in a sense so re-
strictive that the court will not relieve the expelled member unless the
occurrences on which his expulsion took place were such that no man
could pronounce them reasonable. " We are not," said Cotton, L. J.,
" here to sit as a coui't of appeal from the decision of the committee of
the general meeting. We are not here to say whether we should have
am ved at such a conclusion or not ; and the question whether the decis-
ion was erroneous or not can only be taken into consideration in deter-
mining whether that decision is so absurd or evidently wrong as to afford
evidence that the action was not bonaJHe^ but was malicious or capri-
cious, or proceeding from something other than a fair and honest exer-
cise of the powers given by the rule." ^
§ 919. Not Sufficient that the Decision was Contrary to
Reason. — " The court," said Brett, L. J., m the same case, "has no
right, in my opinion, to consider whether what was done was right or
not, or, even as a substantive question, whether what was decided Avas
reasonable or not. The only question is, whether it was done bonajide.
Now, it is true that an element, in considering whether a matter has
been done in good faith, is the question whether what has been done is
really beyond all reason. If that were so, it would be evidence of want
of good faith ; but even where that exists, it is not a necessary conclusion
1 Dawkins v. Antrobus, 17 Ch. Div. 615, 634.
749
1 Thomp. Corp. § 920.] expulsion of members.
that there has been want of good faith, for, even after having come to the
conchision that a decision was wholly unreasonable, one might be con-
vinced aliunde that nevertheless there was no malice — that what was
done was done in good faith. Therefore the mere proof that it was con-
trar}^ to reason is no sufficient ground for the interference of the court.
It is like the case of a malicious prosecution, where, if there is a want
of reasonable and probable cause, that is evidence to go to the jury to
support the other necessary allegation that there was malice in fact ;
but then the jury are told, ' even though there was a want of reasonable
and probable cause, you must consider and decide for yourselves
whether, besides that, there was malice in fact.' Unless they find there
was also malice in fact in such cases, the propositions necessary for them
to affirm are not made out. So, in this case, I wish to repeat, even
though one were of opinion that the decision was wholly beyond reason,
yet in such a case as this, considering the circumstances which are in
evidence, and the persons against whom the charge is made, and the
absolute absence of indirect motive — even if I thought the decisions
were absolutely unreasonable — I should have declined to find the de-
cision was contrary to good faith, and should therefore have been of
opinion, even though the decision were unreasonable, that there was no
ground for the interference of the court. ' ' ^ The observations of that
■very able judge, Jessel, M. R., whose decision was appealed from and
affirmed in the same case, ought not to be overlooked. " I am not,"
said he, " able to say that I ought to impute to these gentlemen legal
malice. I do not think it impossible that reasonable men could come to
the conclusion, on some grounds not known to me, that the mere writ-
ing of that letter and the direction of it to Gen. Stephenson, was in
itself an act which was injurious to the character and interests of the
club. That being so, I am compelled by the exigencies of the case to
act entirely on the opinion of the committee. I do not feel that it would
•be right to say that the committee were so unreasonable as to act entirely
without reasonable and probable cause, or so corruptly biased and un-
fair as to knowingly state that to be their opinion which was not their
opinion, fairly arrived at so far as their light and information enabled
them to arrive at an opinion adverse to Colonel Dawkins." ^
§ 920. Regularity of Suspension Presumed until the Con-
trary Appears. — Another rule which has been applied in these
cases is that, where the power of suspension is vested in a certain
tribunal or authority, as in the subordinate lodge, and is exer-
cised by such tribunal or authority, the regularity of its exercise
1 Dawkins v. Antrobus, 17 Ch. Div. 615, 630. ^ j^jj^. g24.
750
JUDICIAL PROCEEDINGS TO REINSTATE. [1 ThoiUp. Corp. § 922.
will be presumed until the contrary appear, and the contrary
must be made to appear by showing that the suspension was con-
trary to the constitution and laws of the order, which can only
be shown by putting the constitution and laws of the order in
evidence.^
§ 921. Effect of Acquiescence On the one hand, the mem-
ber must first exhaust his remedy within the corporation or
societ}^'^ and on the other, he must not wait too long, before
he applies to the courts. On principles of frequent appli-
cation in courts of equity in dealing with corporations, he may
lose by laches and acquiescence, his claim upon a court of equity
for relief. Thus, it has been held that one who for nineteen
years has acquiesced in his expulsion from the membership of a
corporation for non-payment of corporate dues, will not be rein-
stated by the court. ^ But, on the other hand, it has been held,
in an action brought against a suspended member by a corporate
lodge of Odd Fellows, for arrears due by him, where it ap-
peared that such member, on his admission to the lodge, had
signed the constitution and by-laws, and therebj'- agreed to sup-
port the same, and to pay all legal demands against him, so long
as he should contiime a member of the lodge, — that by the fact
of suspension the defendant did not cease to be a member; and
that, while a member he continued liable by law, and by his ex-
press undertaking, to pay the contributions which the by-laws
required.*
§ 922. Jurisdiction of Corporate Committee not Ousted by
Fact of Judicial Investigation. — The jurisdiction of the com-
plaint committee or board of managers of the New York Produce
Exchange over a complaint against a member, is not ousted by
the fact that the case is also under judicial investigation; since
cases may arise in which the committees would be justified in
fining a member charged with " conduct inconsistent with just
and equitable principles of trade, or other misconduct," when a
1 Karchor v. Supreme Lodge, 137 ^ Bostwick v. Detroit Fire Dcpart-
Mass. 3G8. ment, 49 Mich. 513.
2 Ante, § 912. ♦ Palmetto Lodge v. Ilubbell, 2
Strobh.L. (S. C.) 457.
751
1 Thomp. Corp. § 924.] expulsion of members.
court of justice would not adjudge that he had incurred a legal
liability.^
§ 923. Doctrine that Courts will not Interfere Except
where Property Rights are Involved. — Cases are found which
go so far as to hold that, in the cases of religious, charitable and
social organizations the judicial court will not interfere, in a case
of expulsion of members, to reinstate them, and will not exer-
cise jurisdiction to decide questions relating to the rights of mem-
bership, except where pecuniary interests are mvolved. Upon
these questions the Supreme Courtoflllinoishas said : " Churches,
Masonic bodies, Odd Fellows and temperance lodges are organized
under a statutory charter; but we presume no one would imagine
that a court could take cognizance of cases, so as in either of these
organizations to compel them to restore to membership a person
suspended or expelled from the privileges of the organization.
They being organized by voluntary association, and not for the
transaction of business, but for the purpose of inculcating their
precepts and truths, not for pecuniary gain, but for the advance-
ment of morals and for the improvement of their members, they
are left to adopt their own constitutions, by-laws and regulations
for admitting, suspending or expelling their members." ^ Where
the expulsion has taken place, in conformity with the rules of
the particular society, the expelled members are deemed to have
assented to it, and to have subjected themselves to the application
of the maxim volenti nonfit injuria.^
§ 924. Courts will not Enforce Decisions of Judicatories of
Unincorporated Societies. — The courts of justice will not, it has
been held, enforce the decrees of the self-constituted judicatories
of such voluntary associations as the Freemasons and Odd Fel-
lows, where no rights of property are involved.* The only ex-
ception to the rule that courts will not enforce decrees
of tribunals selected by the purely voluntary act of the
contending parties, is said to exist in the case of submis-
1 Ilurst V. New York Produce Ex- 3 state v. Grand Lodge, 8 Mo. App.
change, 100 N. Y. 605, mem.; s. c. in 148, 153, opinion by Bakewell, J.
full, 1 Cent. Rep. 2G0. ^ j^loyd v. Loariu'j:, 6 Ves. 773;
2 Peoples. Board of Trade, 80 111. Austin i?. Searing, IG N. Y. 112.
134, opinion by Walker, J.
752
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Tliomp. Corp. § 924.
sions to arbitrators, which submissions and proceedings before
the arbitrators, as well as their award, are matters which are
carefully guarded by the law. Thus, upon a bill filed by three
persons on behalf of themselves and all other members of a cer-
tain lodge of Freemasons except the defendant, for a discovery
and injunction to compel the delivering up of the paraphernalia
of the lodge, — Lord Eldon in passing upon a demurrer for want
of parties, is reported to have said : " That this court will hold
jurisdiction to have a chattel delivered up, I have no doubt; but
I am alarmed at the notion, that these voluntary societies are to
be permitted to state all their laws, forms, and constitutions,
upon the record, and then to tell the court, they are individuals.
Then what sort of a partnership is this ; for it is now admitted to
be a partnership? The bill states, that they subsist under a
charter, granted by persons who are now dead; and therefore,
if this charter cannot be produced, the society is gone. Upon
principles of policy, the courts of this country do not sit to de-
termine upon charters granted by persons who have not the pre-
rogative to grant charters. I desire my ground to be understood
distinctly. I do not think, the court ought to permit persons,
who can only sue as partners, to sue in a corporate character;
and that is the effect of this bill." Further on he said: " I had
great doubt, whether a voluntary association for the best pur-
pose is to meet without the authority of a corporation, and make
laws and statutes, which have no authority, and then call upon
this court to administer all the moral justice that may arise up-
on the disputes among these, in a sense unauthorized bodies. It
is singular that this court should sit upon the concerns of an as-
sociation, which in law has no existence ; and in that case, that
this court should be ancillary to their agreement as to their toasts,"
etc.i In an unreported case of this kind,2 Lord Thurlow is re-
ported to have said that he would convince the parties that they
had no laws or constitution.^ Jn like manner, where the treas-
urer of a lodge of the Independent Order of Odd Fellows brought
an action to recover personal property, which had been coiifis-
1 Lloyd V. Loaring, 6 Ves. 773, 777, 3 Cullen v. Duke of Queensberry,
778. sometiine.s called the case of the La-
2 Referred to by Lord Eldon in 6 dies Coterie, referred to by Lord Eldon,
Ves. 777. as stated iu the text.
48 753
1 Thomp. Corp. § 934.] expulsion of members.
cated from iiiiother lodge of the same name by the grand lodge
because of some alleged contumacious conduct of the latter lodge,
the New York court held that the judicial tribunals did not sit to
enforce the decrees of the judicatories of those voluntary associa-
tions, and therefore that the action did not lie. In so holding,
Selden, J., said : *' The effect of some of the provisions of these
constitutions is to create a tribunal having power to adjudicate
upon the rights of property of all the members of the subordi-
nate lodges, and to transfer the property to others; the members
of this tribunal being liable to constant fluctuations, and not sub-
ject in any case to the selection and control of the parties upon
whose rights they sit in judgment. To create a judicial tribunal
is one of the functions of the sovereign power ; and although
parties may always make such tribunal for themselves, in a
specific case, by submission to arbitration, yet the power is guard-
ed by the most cautious rules. A contract that the parties will
submit, confers no power upon the arbitrators; and even where
there is an actual submission, it may be revoked at any time.
The law allows the party up to the last moment to ascertain
whether there is not some covert bias or prejudice on the part
of the arbitrator chosen. It would hardly accord with this scru-
pulous care to secure fairness, in such cases, that parties should
be held legally bound by the sort of engagement that exists here,
by which the most extensive judicial powers are conferred upon
bodies of men whose individual members are subject to continual
fluctuations." ^ In the same case. Brown, J., also said: " The
by-laws and regulations of these voluntary associations may all
be very well in their place and sphere, and may command gen-
erally the obedience and submission of those upon whom they
are designed to act ; they cannot, however, have the force of law,
nor impair or affect the rights of property, against the will of its
real owners. So long as the members of these bodies yield their
assent or concurrence, it is all very well ; the law interposes no
obstacle or objection. But when orders and decrees, of the
character of those referred to, are resisted, and the owners of
property refuse to be deprived of it, then it will be found that
property has rights, and the courts of justice have duties, of
1 Austin V. Searing, IG N. Y. 112, 123, s. c. 69 Am. Dec. 665.
754
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Corp. § 925.
which the plaintiff in this action seems to have an indifferent
conception. The courts of justice cannot be called upon to aid in
enforcing decrees of these self-created judicatories. The confis-
cation and forfeiture of property is an act of sovereign power;
and the aid of this or any other court will not be rendered to en-
force such proceedings, or to recognize legal or supposed legal
rights founded upon them." ^
§ 925. Suspension of a Lodge, When Void and When Void-
able. — The principle upon which the validity of the suspension of a
lodge of a benevolent order, by a superior judicatory, is to be tested,
has been held the same as that which governs the validity of a judgment
of the judicial courts. If the court has jurisdiction of the subject mat-
ter and of the parties, its judgment, however erroneous in law and upon
the fact, concludes the parties, unless appealed from, and pronounces the
law of the case. It is therefore binding, not only upon the court itself,
but upon every other court, so far as it settles the rights in controversy
between the particular parties. But if jurisdiction over the subject-
matter and over the person is wanting, the judgment is a mere nullity.
Being a nulUty, there is no obKgation to appeal from it. It is void in
all courts and in all places. Applying these principles, it was held that
the suspension of a subordinate lodge of an association called the
Knights of Honor, by an official of the gi-and lodge called the supreme
reporter, was not merely irregular, but was a nulhty. Caldwell, J.,
said: "The constitution and by-laws then in force conferred no juris-
diction upon the supreme reporter to suspend subordinate lodges in
any case, or for any offense ; and his mandate suspending Harrisburgh
lodge had no more effect, inside or outside the order, than if it had
been made by one who did not belong to the order. Moreover, it was
made without giving the lodge an opportunity to be heard, and for an
alleged ground that had no existence in fact. If the supreme reporter
had been vested with jurisdiction to try and suspend lodges, and he
had given Harrisburgh lodge due notice of the proceedings, the fact
that he en-ed in judgment, in the application of the law of the case, or
in his finding of fact, would have been a mere irregularity, which might
have been corrected on appeal, or in such a mode as the constitution
provided ; but until his judgment was reversed by the appropriate
^ P)id. 124. Solden, J., also placed constitution of tlie grand lodge of
his judgment upon anotlier grouml, Nortlieru New York, as set forth in tlie
namely, that it hud not been ghowu complaint, by which lodge the con-
that the defendants had ever assented flscation of their property had been
to be bound by the provisions of the attempted.
755
1 Thomp. Corp. § 926.] expulsion of members.
supervisory power, it would be conclusive on the parties, and not sub-
ject to collateral attack in any tribunal. This is nothing more than the
application to the decrees of these organizations affecting their members,
of the familiar principles that obtain in relation to the vaUdity and effect
of judicial determinations of controversies between citizens in the
courts. . . . None of the prerequisites here laid down as necessary
to the validity and conclusiveness of the decrees of one of these tri-
bunals exists in the case at bar. By the laws of the order in force at
the time of this transaction, neither Harrisbiirgh lodge nor Hall (the de-
ceased member) consented that the supreme reporter should have juris-
diction to try and suspend lodges, with or without notice. The action
of the supreme reporter in suspending Harrisburgh lodge, was not taken
according to the laws of the organization ; it was not a question which
that officer had authority to decide, and it was, moreover, taken with-
out notice. It was not merely an erroneous proceeding on the part of
that officer, but a usurpation which cannot affect the legal rights or
change the legal status of any one." ^
§ 926. Action for Damages for the Expulsion. — Authority
is found in an English case, for the proposition that no action
for damages will lie against the committee of the society which
decrees the unlawful expulsion. A genius for refinement has
discovered a reason for this conclusion in the consideration that,
the act of expulsion being void, the plaintiff has sustained no in-
jury; since, notwithstanding the expulsion, he is still a member.^
If this holding is to be accepted as the law, it results that the
expelled member must either resort to the expensive remedies
above pointed out, or else he must attempt to assert his rights
in the society b>/ force, and, if he is forcibly ejected, bring an
action for the assault. The former course entails delay, ex-
pense and vexation; the latter entails danger and annoyance,
and a rule ought not to be adopted which will drive the member
to it, since it tends to breaches of the peace, and should hence
be regarded as opposed to public policy. One case is found
where the expelled member took the latter course, endeavored to
enter the society's room, but was kept out by a policeman.
1 Hall V. Supreme Lodge, 24 Fed. White, 2 Ld. Raym. 938, but that de-
Bep. 450, 453, per Caldwell, J. cisioa is placed upon several reasons,
2 Wood V. Woad, 9 Exch. 190. some of which go to show that the
Some support for this conclusion is judges did not desire to do justice,
found in the old case of Ashley v.
756
JUDICIAL PROCEEDINGS TO REINSTATE. [1 Thomp. Corp. § 926.
He, thereupon, brought an action against the defendants, who
had stationed the policeman therefor the purpose, and recovered
a verdict of forty pounds, which Lord Denman refused to set
aside.^ American decisions may be found which sustain this
view, and support actions for damages by the expelled member,
without his previously resorting to force to assert his rights of
membership. 2 So, it has been held that a member of a trades-
union, unlawfully expelled therefrom, may maintain an action
for the damages which he has thereby sustained, and, on the
question of such damages, may prove a rule of the union that no
member shall permit himself to be employed with an expelled
member, and may also prove the fact that a " blacklist " con-
taining the names of expelled members, was kept posted in the
office of the union. It was further held that he might prove, as
bearino"on the amount of his damages, that, after his expulsion,
he had been discharged from employment and informed that he
was not wanted, but that the men belonging to the union were
the ones to be employed. It was also held competent for him to
prove what his earnings were, while a member of the union, and
how much they had been diminished in consequence of his ex-
pulsion ; and further that he might show his inability to obtain
continuous employment after his expulsion, for the purpose of
showing the extent of his damages.^ But where the expulsion is
within the powers of the corporation or society, which powers
1 Inness v. Wylie, 1 Car. & K. 257. the doorway passive and not move
A humorous turn is given to this case at all."
by the manuer in which Lord Denman ^ Ludowiski v. Benevolent Society,
directed the jury on the question 29 Mo. App. 337, where it was held that
whether the policeman had committed the expelled member was entitled to
an assault upon the plaintiff, or was recover at least nominal damages, and
merely passive: "If the policeman where a judgment of $5 was affirmed,
was entirely passive, like a door or wall In Washington Beneficial Society v.
put to prevent the plaintiff from enter- Bacher, 20 Pa. St. 425, it was held
ing the room, and simply obstructing that a member of a mutual benefit so-
the entrance of the plaintiff, no assault ciety, expelled without the notice
lias been committed on the plaintiff, prescribed by the constitution and by-
and your verdict will be for the de- laws, might recover damages to the
fendant. The question is, did the extent of the injury,
policeman take any active measures ^ Merscheim v. Musical Mutual
to prevent the plaintiff from enter- Protective Union, 8 N. Y. Supp. 702.
ing the room, or did he stand in s. c. 20 N. Y. St. Kep. 235.
757
1 Thomp. Corp. § 927.] expulsion of members.
are exercised in good faith, under principles already explained,
the expelled member must, of course, submit to whatever dam-
ages the expulsion entails under those rules, which are in the na-
ture of a contract by which the members agree to abide. Thus,
where a member of the New York Stock Exchange was expelled
for insolvency caused by doing business recklessly, and his seat
was sold by the Exchange, as provided by its constitution and by-
laws, — it was held that he could not recover the proceeds of the
sale from the exchange. ^
§ 927. Action for Damages against Religious Corpora-
tions. — An action for damages will not lie against a religious
corporation on the ground that the church represented by it has
expelled the plaintitf from membership. The corporation has
no control over and is not responsible for the action of the
church body.^ In delivering the opinion of the court upon this
question, Cooley, J., said: *' Connected with tlie corporation
the statute contemplates that there will be a church, though pos-
sibly this may not be essential. In this case there is one. The
church has its members, who are supposed to hold certain beliefs
and subscribe some covenant with each other, if such is the
usage of the denomination to which the church is attached.
The church is not incorporated, and has nothing whatever to do
with the temporalities. It does not control the property or the
trustees; it can receive nobody into the society and can expel
nobody from it. On the other hand, the corporation has noth-
ing to do with the church except as it provides for the church
1 Belton V. Hatch, 109 N. Y. 593. Miller v. Gable, 2 Den. (N. Y.) 492;
2 Hardin -y. Trustees, 51 Mich. 137; Ferraria v. Vasconcellos, 31 111. 25;
s. c. 12 Am. L. Reg. 288. Tliedistinc- Calkins v. Clieney, 92 HI. 463; Keyser
tion between a cliurch and a church v. Stausifer, 6 Oliio, 3G3; Shannon??,
corporation, is explained in the follow- Frost, 3 B. Mon. (Ky.) 253; German
ingcases: Baptist Church t?. Witherell, &c. Cong. v. Pressler, 17 La. An. 127;
3 Paige (N. Y.), 29G; s. c. 24 American O'Hara v. Stack, 90 Pa. St. 477; Sohier
Decisions, 223; Lawyer v. Chipperley, v. Trinity Church, 109 Mass. 1 ; Wal-
7 Paige (N. Y.), 281; Robertson rath v. Campbell, 28 Mich. 111. See
V. Bullions, 11 N. Y. 243; Bellport also Hale ??. Everett, 53 N. H. 9; Case
u.Tooker, 29 Barb. (N.Y.) 256; s.c. 21 of St. Mary's Church, 7 Serg. & R.
N. Y. 2(57; Burrell v. Associate Re- (Pa.) 517.
formed Cliurch, 44 Barb. (N. Y.) 282;
758
JUDICIAL PEOCEEDINGS TO REINSTATE. [1 Thomp. Corp. § 928.
wants. It cannot alter the church faith or covenant, it cannot
receive members, it cannot expel members, it cannot prevent the
church receiving or expelling whomsoever that body shall see fit
to receive or expel. This concise statement is amply sufficient to
show that this suit has no foundation. The corporation is sued
for a tort which it neither committed nor had the power to pre-
vent, and which has occurred in a proceeding where the interfer-
ence of the corporation would have been an impertinence. But
it is said that the church is an integral part of the corporation;
or rather that it is the corporation in a spiritual capacity. Its
being an integral part of the corporation proves nothing; coun-
ties, towns and school districts are integral parts of the State,
but the State is not for that reason liable for their torts. And,
as to spiritual capacity, the corporation has none ; it is given
capacity in respect to temporalities only. If the corporation had
assumed to expel this plaintiff from the church, she might treat
its action with contempt. But as she makes no complaint of
wrongful corporate action, we must assume that the corporation
has never invaded her rights. If the church has done so, the
church alone is culprit." ^
§ 928. Criminal Information for Disfranchisement of
Members. — Cases are found in the English books where the King's
Bench has granted criminal information against magistrates, who have
exercised a discretionary authority with corrupt motives, as for instance
in refusing license to publicans ; ^ and it was said by Lord Mansfield,
that where magistrates proceed from corrupt motives in order to serve
election purposes, such an information might be granted. ^ At the same
time it was held that the court would not grant such an information
against the magistrates of a borough, for having disfranchised persons
entitled to their freedom, although it was sworn that they had done it to
serve election purposes, where the defendants denied that motive, and
swore that they thought there was a legal ground for the disfranchise-
ment, and where the ground on which the disfranchisement went had
1 Hardin V. Trustees, 51 Mich. 137; lis, 3 Burr. 1318; Rex v. Young, 1
a, c. 12 Am. L. Reg. 288; s. c. 47 Am. Burr. 556.
Kep. 556. ^ Rex v. Davie, Doug. 567, 568,
2 Ilex u. Hann, 3 Burr. 1716; Rex whereuuder the circumstauces such au
w. Williams, 3 Burr. 1317; Rex «. Bay- information was denied. Compare
Rex. V. Athay, 2 Burr. 653.
759
1 Thomp. Corp. § 939.] expulsion of members.
not been decided. Lord Mansfield said: "There is great tenderness
in granting informations in matters of election. How many instances
do we recollect of mayors acting as returning officers after there has
been judgment of ouster against the mayor under whom they derive
their title, as at Wiggan, Marlow, Carmarthen, etc.? Yet no informa-
tion has ever been granted in such a case. For the civil injury, when a
corporator has been improperly removed, there is a specific remedy by
a mandamus, and an action for a false return. Where a person, not
entitled, intrudes, he maj^ be removed by an information in the nature
of quo warranto, and fined for his usm-pation. If you would proceed
criminally, prefer an indictment. That is more proper for a precedent.
But how is the corruption proved? For the appUcation, the belief of
corrupt motives is sworn to, but the defendants positively deny the mo-
tives so imputed to them. The former restorations did not go upon the
merits. The question whether non-residence is a cause for disfranchis-
ing a capital burgess (which was the ground of the amotions complained
of), has never yet been tried. It is now clear that all the capital
burgesses are of the council, yet, on the returns to the different
mandamuses, that was disputed, and the contrary maintained on the
part of the prosecutors ; though they, being possessed of the charter,
knew it to be so." Buller J., also said : " When corporators combine,
and corruptly prostitute their offices to election purposes, I agree that
such a case is a proper subject for an information. But the corruption
should be made out. The defendants here positively deny the particu-
lars of the charge, and the question concerning non-residence has never
yet been decided. The defendants swear they believe it to be a solid
ground of amotion ; that they have used every means to bring it to a
determination, but hitherto without success. As that point is yet unde-
termined, I should think it would be improper to suffer an information
to go. ' ' ^
§ 929. Articles of tlie Peace by one Partner Against An-
other. — Where one partner, by violence, forces his copartner out of
the business premises of the firm, and threatens such partner with \ao-
lence and danger to his life, if the latter should venture again to enter
and use the premises, and it is necessary for such copartner to enter
and use the premises for the purpose of carrying on his ordinary busi-
ness as partner, the Court of Queen's Bench will permit the latter to
exhibit articles of the peace against the former. ^
1 Rex V. Uavie, Doug. 567. ^ Reg v. Mallinson, 20 L. J. (M. C.)
33; s. c. 1 Eng. L. & Eq. 289.
760
JUDICIAL PROCEEDINGS TO REINSTATE. [I TllOmp. Corp. § 930.
§ 930. Action against Jvidge for Condemning without No-
tice. — It was held by Lord Ellenborough, at nisi prius, that an action
on the case may be maintained against a judge of an ecclesiastical
court, who excommunicates a party for refusing to obey an order which
the coui't has not authority to make, or where the party has not previ-
ously been served with a citation or monition, nor had due notice of the
order ; and further, that the 2J''ac^^ce of the ecclesiastical court is matter
of fact to be proved by evidence, and left to the jury.^
1 Beaureiu v. Scott, 3 Camp. 388.
761
1 Thorap. Corp. § 935.] by-laws.
CHAPTER XYIII.
BY-LAWS.
Art. I. Nature and Interpretation, §§93,5-950.
II. Power to Enact and Mode of Enacting, §§955-1053.
SUBDIV. I. At Common Law, §§955-960.
SUBDIV. II. Statutes Vesting Power in Corporation or Members, §§962-
976.
SUBDIV. III. Statutes Vesting Power in the Directors or Other Officers,
§§978-1008.
Art. III. Requisites and Validity, §§1010-1053.
Article I. Nature and Interpretation.
Section Section
935. What is a by-law. Oii. Not noticed judicially but must
936. Distinguished from a resolution. be proved.
937. Distinguished from a regulation. 945. Waiver of.
938. Municipal ordinances. 946. Not retroactive.
939. To wliat extent a law. 947. Where enacted: no extra-terri-
940. May operate as a contract among torial force.
the members. 948. Interpretation of by-laws.
941. Members charged with knowledge 949. Actions upon by-laws.
of by-laws. 950. Action on by law making mem-
942. To what extent binding on third bers liable for debts of corpo-
persons. ration.
943. Formalities required in enacting.
§ 935. What is a By-Law. — A by-law is a rule or law of a
corporation for its governraeut, or for the government of its
members and officers, in the management of its affairs. It is a
legislative act of the corporation, so to speak, and in enacting
it, the solemnities and sanctions imposed by the charter must be
observed. 1 It is said that the term " by-laws " has a peculiar
and limited signification, and that it is used to designate *'the
orders and regulations which a corporation, as one of its legal
incidents, has power to make, and which is usually exercised to
1 Drake v. Hudson River R. Co., 7 Barb. (N. Y.) 508, 53S.
762
NATURE AND INTERPRETATION. [1 Thomp. Corp. § 937.
regulate its own actions and concerns, and the rights and duties
of its members among themselves." ^
§ 936. Distinguished from a Resolution. — It is distin-
guished from a resolution, which is directed to the attainment of
a particular object in a given case. A resolution, it has been
said, is not necessarily a by-law, though a by-law may be in the
form of a resolution. ^ Where the governing statute prescribes
that a corporation shall act in a given particular through a by-
law, it cannot act through a mere resolution of its board of
directors directed against a particular person, — as a resolution
forfeiting the shares of a particular member for the non-payment
of an assessment; ^ or directing the officers of a corporation to
exclude a director of the corporation from the enjoyment of his
rights.*
§ 937. Distinguished from a Regulation. — Agiiin, a corpo-
rate by-law is distinguished from those rules and regulations
which a corporation may establish for the government of the
public, or of those doing business with it, in the prosecution of
their intercourse or business with it, — of which pertinent ex-
amples are afforded by the regulations of common carriers in
respect of the conduct of passengers, designed, on the one hand,
to maintain the rights of the carrier, and on the other hand, to
promote the safety and comfort of the passenger.^ A distinc-
tion has been taken between a by-law and a regulation of a cor-
poration, to the effect that the validity of the former is a judicial
question, while the latter is regarded as a matter in pais,^ Thus,
the regulations of a railroad company which operate upon and
affect the rights of its passengers, are not, it has been said,
properly speaking, by-laws of the corporation ; and accordingly
1 Com. V. Turner, 1 Cush. (Mass.) * Instances of such regulations are
493, 496. See also Flint v. Pierce, 99 found in the following, among many
Mass. G8, 70. other cases: Harris u. Stevens, 31 Vt.
2 Dralce v. Hudson River R. Co., 7 79; Hadencamp v. Second Avenue R.
Barb. (N. Y.) 508. Co., 1 Sweeny (N. Y.), 490; Baltimore
3 Budd V. Multnomah St. R. Co., &c. R. Co. v. Wilkinson, 30 Md. 224.
15 Ore. 413; s. c. 3 Am. St. Rep. 169, <> Comptonu. Van Volkeuburgh &c.
173, R. Co., 34 N.J. L. 134.
< People V. Throop, 12 Wend. (N.
Y.) 183.
^ 763
1 Thomp. Corp. § 938.] by-laws.
their validity depends upon the fact of their being reasonable^
and their reasonableness depends upon particular circumstances
or matters in pais, and is therefore a question for a jury. ^ The
soundness of this distinction is doubted. It is believed that the
only sound distinction is that the by-law is more usually estab-
lished for the government of the internal affairs of the corpo-
ration, while the regulation is established for the government of
those concerned with it in its business, or rather for the govern-
ment of its business with the public. In either case the sound
rule is believed to be that the reasonableness of the rule is a
question for the court. ^
§ 938. Municipal Ordinances. — The word '* ordinance " is
generally employed to denote those laws, adopted by public or
municipal corporations, not only for the conduct of the internal
affairs of the corporation, but also for the regulation of its citi-
zens and strangers dwelling within its gates, in respect of certain
matters of police. The word " by-law " was originally synony-
mous with what we now designate as an ordinance. The word
*' by" was the Scandinavian word for town, and a by-law was
hence a town law.^ The analogy between what is called a by-
law and a town ordinance has been often pointed out.*
1 State V. Overton, 24 N. J. L. 433, dinances, 34 Am. Dec. 627, et sequitur;
440; s. G. 61 Am. Dec. 671. See also Dillon Mun. Corp. (4th ed.), § 807,
Morris &c. R. Co. v. Ayres, 29 N. J. L. et seq. Two definitions are given in a
393, recent work of great value: 1. A law
2 Post, § 1022. affecting a single village or township;
3 Scan. Byr, — a town or village; a rule governing the inhabitants of a
Anglo-Saxon Bijlage, a private law. locality. 2. A rule or a law of a cor-
Some form of this word has been poration for its own government,
used to designate a town or city in And. Law Diet., verb, by-law. This
many languages of Europe and Asia, writer also adds: "By-laws are the
and is found in the word Balkh, which orders and regulations which a cor-
is the present name of an Oriental city, poration, as one of its legal incidents,
and in the corrupted word Cambalu has power to make, and which is usu-
(Khan-balkh) the city of the khan, ally exercised to regulate its own
which was the Tartar name of Pekin action and concerns and the rights
during the reigns in China of the sue- and duties of its members among
cessors of Gengis Khan. — Vdmbenj. themselves." Ibid. In an old work, a
* Kobinson v. Mayor, 1 Humph, by-law is defined to be "a law made
(Tenn ) 156; s. c. 34 Am. Dec. 625; obiter, or by the by." Terras de la
Blanchard v. Bissell, 11 Oh. St. 96. Ley, ed. 1721. But this definition
See the learned note on municipal or- seems to be a mere aberration.
764
NATURE AND INTERPRETATION. [1 Thomp. Corp. § 940,
§ 939. To what Extent a Law. — Although a by-law is, from
its nature, applicable to the particular corporate body, yet it is
still in a certain sense a law, and is to be applied in the govern-
ment of such body whenever the circumstances arise for which
it was intended to provide.^ If made in conformity with the
charter or governing statute, it is as binding upon the individual
members of the corporation as any public law of the State,
though of course its sanctions may be different ; ^ and according
to views of some, they may be equally binding upon third persons
acquainted with the method of business of the corporation ; '
though this is doubtful.
§ 940. May Operate as a Contract among the Members. —
As will be more fully shown hereafter, when treating of the reg-
ulations of mutual benefit societies, a corporate by-law may also
be regarded as a contract among the members, by which to de-
termine their rights inter sese^ and where the society has features
resembling those of a life insurance company, by which to deter-
mine the rights of the beneficiaries named in its benefit certifi-
cates. Speaking with reference to this office of a by-law, it
has been said: "The office of a by-law is to regulate the con-
duct and define the duties of the members towards the corpor-
ation and between themselves. So far as its provisions are
in the nature of a contract, the parties thereto are the mem-
bers of the association, as between themselves; or the corpor-
ation upon the one side, and its individual members upon the
other." *
1 Gosling V. Veley, 7 Ad. & El. (n. 456; Union Bank v. Guice, 2 La. An.
s. I 40G, 451; s. c. 19 L. J. (Q. B.) 135. 249; Anacosta Tribe v. Murbach, 13
And see Hopkins v. Mayor, 4 Mees. & Md. 91; Brick Presbyterian Church v.
W. 620, 640. Mayor &c., 5 Cow. (N. Y.) 538; McDer-
2 Cummings v. Webster, 43 Me. mott v. Board of Police, 5 Abb. Pr.
192; Weatherly w. Medical &c. Society, (N. Y.) 422.
76 Ala. 567; Kent w. Quicksilver Min- ^ Cmmningg ^ Webster, 43 Me.
ingCo., 78 N. Y. 159, 179; Came v. 192,197. How far binding on the di-
Brigham, 39 Me. 35; German &c. Con- rectors: Samuel v. HoUiday, Mc-
gregation v. Pressler, 17 La. An. Cahon (Kan.), 224; Woolw. (U. S.)
127; Harrington v. Workingmen's 400.
Benevolent Asso., 70 Ga. 340; Poult- * Flint v. Pierce, 99 Mass. 68; s. c.
neyv. Bacliman, 31 Hun (N. Y.), 49; 96 Am. Dec. 691.
Security Loan Asso. v. Lake, 69 Ala.
765
1 Thomp. Corp. § 942.] by-laws.
§ Oil. Members Charged with Knowledge of By-laws. — All
the members of the corporation or society are presumed in law to
have notice of its by-laws. This is. a legal pre sumption ^ conclu-
sive in its nature ; and accordingly, direct proof of such notice is
not required. 1 A better statement of this rule is that, when a
person becomes a member of a corporation or society, he as-
sumes the duty of knowing the internal laws of that society, and
agrees to be governed by those laws, whether he knows them or
not. If, therefore, an obligation arises against him under those
laws, he can no more escape that obligation on the plea of
ignorance, than he can be heard to plead ignorance of the law of
the land, in order to escape a civil or criminal liability. ^
§ 942. To what Extent Binding on Third Persons. — There
are cases to the effect that a corporate by-luw is binding on third
persons doing business with the corporation, who have knowledge
of the by-law.' But it is suggested that this principle can oper-
ate no further than this: Where the third person who deals with
the corporation knows of its course of business, and follows a
prescribed regulation which it has enacted for the conduct of its
business, it will be presumed, in the silence of his contract with
the corporation, that it was made with reference to such known
course of business, exactly as, in the silence of a contract, a
known custom may be presumed to enter into it and to form a
part of it. This principle is also operative in respect of those
public regulations of corporations which assume public duties to
be performed toward the members of the public distril)utively,
such as incorporated common carriers. In these cases, as al-
1 Buffalo V. Webster, 10 Wend. (N. len, 106 Ind. 593; Mitchell v. Lycom-
Y.) 99; Susquehanna Ins. Co. ■?;. Per- ing Mutual Ins. Co., 51 Pa. St. 402;
rine, 7 Watts & S, (Pa.) 348; Palmyra Siraeral v. Dubuque &c. Ins. Co., 18
V. Morton, 25 Mo. 593; McLellan Iowa, 319; Cole u. Iowa State Mutual
V. Board of Pub. Schools, 15 Mo. Ins. Co., 18 Iowa 425. For a view
App. 362; Cummings v. Webster, that the by-laws of a corporation are
43 Me. 192; Arapahoe Cattle &c. Co. v. evidence against its officers, although
Stevens, 13 Colo. 634. they be not corporators, see Bank v.
2 As enforcing and illustrating this WoUaston, 3 Harr. (Del.) 90.
principle, see Bauer v. Samson Lodge, ^ Cummings v. Webster, 43 Me. 192,
102 Ind. 262; s. c. 13 Am. & P^ng. Corp. 197. Contra, State v. Overton, 24 N.
Cas. 618; Presbyterian &c. Fund v. Al- J. L. 435, 440.
766
XATURE AND INTERPRETATION. [1 Thomp. Corp. § 942.
ready suggested,^ the incorporated carrier may make and enforce
as against the members of the public who deal with it, reason-
able regulations and those regulations, when known to such
third persons will be binding upon them. For example, a
regulation of a railway company touching the carriage of
passengers, when known to a passenger, will be binding
upon him. This principle may also operate in respect of the
by-laws, called ordinances, of municipal corporations, which,
within the incorporated territory, have the effect of laws gov-
erning all persons upon whom they operate by their terms,
provided they are valid and legal, in conformity with the princi-
ples hereafter stated. But with the exception of these cases, it
must be constantly kept in mind that the primary conception of
a by-law of a private corporation is that it is a mere rule for the
determination of the rights of the members inter sese, and for
the government of the officers of the corporation in conducting
the corporate business ; and that it can have no effect as a law
upon other persons,^ and can have no influence upon contracts
between the corporation and other parties, except as above stated.^
A third party can enforce them only when he shows some priv-
ity, — as where he has advanced money, or other value, upon the
credit of a corporate by-law, or the like.* Accordingly, a by-
law of a bank, that all payments made and received must be ex-
amined at the time, does not prevent a party dealing with the
bank from showing afterwards that there was a mistake in his ac-
count, or deposits and receipts. ^ The fact that the by-laws of a
corporation express an individual liability of members for com-
pany debts, and that each member subscribed the by-laws merely
to become a member, are not enough to sustain an action l)y a
creditor of the company against a member for the amount due.
He must at least show that he gave credit, or parted with value,
on the faith of the by-laws having been so drawn up and signed
by the members.''
1 Ante, § 937. ^ Flint v. Pierce, supra.
2 Meciianics' &c. Bank v. Smith, 19 ^ Mechanics &c. Bank v. Smith, 19
Johns. (N. Y.) 115, 124; Flint v. Pierce, Johns. (N. Y.) 115, 124.
99 Mass. 68; s. c. 9G Am. Dec. 691. ® Flint v. Pierce, 99 Mass. 68; s. c.
" Samuels v. Central &c. Ex. Co., 96 Am. Dec. 691.
McCahon (Kan.), 214.
767
1 Thomp. Corp. § 945.] by-laws.
§ 943. Formalities Required in Enacting. — If the char-
ter prescribes any formality to be observed in the adoption of
by-laws, of course it must be observed.^ But if the charter is
silent as to the formalities to be observed, a by-law may bo
adopted by ads as well as by words; by the uniform course of pro-
ceedings of a corporation, as well as by an express vote mani-
fested in writing? It has been said, speaking with reference to
the question whether a certain by-law had been enacted, "even if
there was no record, or the record was deficient, we consider it
settled by the authorities that the enactment of a by-law need
not necessarily be in writing, but may be inferred from facts
proved." ^
§ 944. Not Noticed Judicially but must be Proved. — Like
the special charters of corporations, where they consist of pri-
vate statutes, the by-laws and ordinances of such bodies are not
noticed judicially, but must be proved as facts.*
§ 945. Waiver of. — So far as a by-law operates as a regu-
lation of the conduct of the business of a corporation as between
itself and the public, it may be waived by all the m,embers so
that the company will be bound by the doing of an act, contrary
to its rules, provided it has received the assent of all its mem-
bers.^ The by-laws of a mutual insurance company are in the
nature of a contract adopted among the members.® This being
their character, it would seem to follow, on principle, that the
officers of such a company, in dealing with the members, have no
authority to waive the provisions of the by-laws, unless express
power to do so has been conferred upon them ; because the by-
laws are private statutes by which the members have agreed
to be governed.^ Contrary to the above, it has been held
1 Dunston v. Imperial Gaslight Co., & G. (Md.) 324, 413; Reuter v. Tele-
3 Barn. & Ad. 125. ^ graph Co., 6 El. & Bl. 341.
^ Ibid.; Fairfield Turnpike Co. v. ' ^ Haven r. New Hampshire Asylum,
Thorp, 13 Conn. 175; Langsdale v. 13 N. H. 532; s, c. 38 Am. Dec. 512;
Bonton, 12 Ind. 467. Lucas v. San Francisco, 7 Cal. 463, 474.
SLockwoodu. Mechanics Nat. Bank, ^ Pennsylvania Ins. Co. v. Murphy,
9 R. I. 308, 335; s. c. 11 Am. Rep* 253, 5 Minn. 36.
267; citing Anjr. & A. Corp., §§ 238, « ^^^g^ § 94c.
328; Union Bank w. Ridgely, 1 Harr. » ' Mulrey v. Shawmut Mutual Fire
768
NATURE AND INTERPRETATION. [1 Thomp. Coi'p. § 946.
that, where the by-laws and conditions of a mutual insurance
company provided that all general or local agents shall be
appointed by the secretary, and furnished with a certificate
of appointment under seal, setting forth their powers, and that
no insurance, whether original or continued, shall be considered
binding unless the premium shall have been actually paid to some
duly authorized and commissioned agent, — such by-laws and
conditions are solely for the benefit of the insurer, and may be
waived; and are waived, when he authorized his agent to deliver
a policy and receive the premium, though such agent has not
been duly authorized and commissioned, as provided in the by-
laws. Such a course of dealing, adopted between the insurer
and his agent, though wholly inconsistent with the provisions of
the policy, cannot be set up by the insurer to defeat a recovery
thereon.^ But it is conceived that the doctrine of waiver has
been so much enlarged, and the rules respecting the powers of
agents so much varied by the courts, when dealing with contracts
of insurance^ that this subject cannot be profitably pursued, for
the purpose of illustrating the extent to which the officers of
other corporations may waive the provisions of their by-laws
when dealing with third persons.
§ 946. Not retroactive. — By-laws cannot be made to operate
retrospectively.^ It has been said; "A by-law or regulation
means a rule ioY future action. Ex post facto laws are no more
lawful for corporations than for States; and all by-laws, con-
trary to the general principles of the common law, or the policy
of the State, are void." A by-law, therefore, enacting that
from and after a given day, all members who are in default in
the payment of their dues shall cease absolutely to be members,
Ins. Co., 4 Allen (Mass.), 116; s. c. 81 Chester Fire Ins. Co. v. Earle, 33 Mich.
Am. Dec. G89 ; Murphy v. People's Ins. 143, 150 ; Clark v. New England Mutual
Co., 7 Allen (Muss."), 239; Evans v. Fire Ins. Co., 6 Cush. (Mass) 342;
Tri-Mountainlns. Co.,9Allen (Mass.), s. c. 53 Am. Dec. 44; Union Mutual
329; Hale v. Mechanics' Mutual Fire Ins. Co. v. Keyser, 32 N. H. 313; s. c.
Ins. Co., 6 Gray (Mass.), 169; s. c. G6 64 Am, Dec. 44.
Am. Dec. 411; Brewer u. Chelsea &c. i Susquehanna Mut. Fire Ins. Co.
Ins. Co., 14 Gray (Mass.), 203, 209; v. Elkins, 124 Pa. St. 484; s. c. 10 Am.
Priest V Citizens' &c. Ins. Co., 3 Allen St. Rep. 608.
CMass.), 602, 604; Behler v. German 2 Howard v. Savannah, T. U. P.
&c. Ins. Co., 68 Ind. .".17, 3.->4; West- Charll. (Ga.) 173.
^9 769
1 Thomp. Corp. § 948.] by-laws.
and without any further action whatever on the part of the cor-
poration or its board of trustees ; that the failure to pay all dues
remaining unpaid on a given day in each year thereafter, shall
work the same forfeiture of membership ; and that in each case
the secretary shall drop the names of all such delinquent persons
from the rolls of members, — has been held void^ as an ex post
facto law, in so far as it was an adjudication upon existing de-
faults. It was regarded as analogous to a foreclosure decree
fixing a short term of payment. It enforced a new penalty be-
yond those existing at the time of default.^
§ 947. "Where Enacted; No Extra-Territorial Force. — It
has been held that a corporation cannot enact a by-law, or any
rule or resolution for its government, except W27Az/j tlie State
under whose laws it is organized, and where it has a corporate
existence. 2 But this can only mean that the corporation has no
such power, considered as mere power. It does not mean that
the by-laws of a corporation may not, in like manner as its char-
ter, have force in a foreign State or country, if allowed to have
force there by the comity of that State or country.
§ 948. Interpretation of By-laws. — In the interpretation of
by-laws the same principles obtain which govern in the interpre-
tation of statutes, contracts and other private instruments.^ As
in the case of statutes, so in the case of by-laws, the courts will,
in construing them where two interpretations are possible, one
of which will save them and make them valid and the other of
which will render them invalid, so interpret them as to make
them valid ; since the purpose of violating the law of the land
will not be imputed to their authors except where necessary.*
The by-laws of a corporation, voluntary association, or other
private society, when proved, are to be interpreted. 6y t/ie court,
the same as apubliclaw,anditis error to submit the interpretation
of them to a jury. They should have a reasonable construction.^
1 People V. Fire Department, 31 30; Re Dunkerson, 4 Biss. (U. S.)
Mich. 458, 465. 227.
- llitchell «. Vermont Copper Min- •• Poiilters' Co. v. Phillips, 6 Bing.
ing Co., 40 N. Y. Superior Ct. 400; New Cas. 314; Ilibernia Fire Engine
antr, § (;;)4. Co. v. Com , 93 Pa. St. 2G4.
" State V. Conklin, 34 Wis. 1, ^ Osceola Tribe v. Rest, 15 Md.
770
NATURE AND INTERPRETATION. [1 Thomp. Coip. § 949.
A court will not construe them so strictly as to make them void,
" if every particular reason for making them does not appear." ^
But where they establish a penalty for the non-performance of a
duty, they will be strictly construed, the same as a penal statute ;
and if their validity is doubtful, they will be rather so construed
as to make them void, than so as to make them valid for the
purpose of upholding the penalty .^
§ 949. Actions upon By-Laws. — Actions are constantly
brought upon by-laws by corporations against their members,
and, in the case of municipal corporations, against other persons,
to enforce penalties therein given. On the other hand, actions
may be brought upon a by-law by a member against the corpo-
ration, on the theory, applicable to some by-laws, that it is a
contract between the corporation and its members.^ Altliough
a custom of a particular corporation, especially of a municipal
corporation, may be of such universality within the corporation,
that courts there sitting will notice it judicially, yet tliey will
not so notice a corporate by-law.* It must, therefore, he pleaded.
295; Hi.scgins v. McCrea, 116 U. S. 671;
Boogher v. Maryland Life Ins. Co., 6
Mo. App. 592; 1 Thomp. Trials, §1057,
et seq.
1 Vintner's Co. v. Passey, 1 Bun.
235.
2 Mayor of Oxford v. Wildgoose, 3
Lev. 2'.)i (penalty for refusing to take
tlie ofTice of chamberlain of the corpo-
ration). As to the construction of
by-laws giving penalties for refusing
to take the office of sheriff under the
charter of London, see Rex v. Lar-
wood, Carth. 306; City of London v.
Vanacker, Carth. 480.
3 Ante, §940. A member of a cor-
poration whose by-1 iws are subject to
amendm'^nt, cannot maintain an action
a'^ainst the corporation under one of
the by-luvs wlii'-h h:is been repealed
by an amendment during his mem-
bership and before the bringing of his
action. Schrick v. St. Louis Mut.
House Building Co., 34 Mo. 423.
* There was a distinction in former
times in regard to actions on customs,
and actions upon by-laws of corpora-
tions. The court would take judicial
notice of the customs of London; and
therefore where an action was founded
on a custom of London, it was not
necessary to return the custom. But
it seems that the court wou'd not take
judicial notice oi the by-laws of Lon-
don; and accordingly where an action
was founded on such a by-law, it was
necessary to return the by-law. This
must be understood to refer to actions
in the courts of the city of London,
possibly in the Lord Mayor's court;
and the expression returning the by-
law, had reference to the return re-
quired to be made to a writ of habeas
corpus cum causa, sued out in the
King's Bench, to remove the cause
thither. Watson v. Clerk, Comb. 138.
771
1 Thorn p. Corp. § 950,] by-laws.
Id counting upon it in a declaration, complaint or petition, the
pleader proceeds in the same way Avhich he would pursue in the
case where any other private instrument was the foundation of
the action. He may, of course, set out the instrument in his
pleading, in liodc verba, or he may state it in substance and ac-
cording to its legal effect, without reciting its exact language,
and introduce the by-law itself as evidence under the pleading.^
§ 950. Action on By-Law Making Members Liable for Debts
of Corporation. — An action will not lie by a creditor of a cor-
poration against a member thereof, for a debt due the plaintiff
by the corporation, upon a by-law making the members liable
for the debts of the corporation, unless the defendant signed the
by-law, or unless the plaintiff lent his money upon tiie faith of
it. 2 A corporation cannot, by a mere by-law, in the absence of
any statutory authority, bind its non-assenting stockholders for
the payment of the debts of the corporation.^ Nor can a bank
make its stockholders liable for its bills by printing a notice
thereon that they are so liable.*
1 Kehlenbeck v. Logeman, 10 Daly
(N. Y.), 447.
2 Flint V. Pierce, 99 Mass. 68; s. c.
96 Am. Dec. 691. The court say:
" The right of any third party, stranger
to the association, to establish a legal
claim through such a by-law, must
depend upon the general principles
applicable to express contracts, as
laid down in Mellen v. Whipple, 1
Gray (Mass.), 317, and the subsequent
decisions in Field v. Crawford, 6 Id.
lie, and Dow v. Clark, 7 Id. 198. No
action can be maintained by such
third party, unless he can bring his
case within some recognized excep-
tions to that general rule. A pledge
like the one in question, if made for
the purpose of enabling the corpora-
tion to obtain a loan upon the faith of
it, and used for that purpose, may
perhaps give a right of action against
the subscribers in favor of a party
who has been induced to advance
772
money upon its credit. This seems to
be implied strongly by the decision in
the case of Trustees of Free Schools
in Andover v. Flint, 13 Met. (Mass.)
539, 543; inasmuch as the plaintiff in
that case appears to have failed to re-
cover upon a similar claim, merely
for the reason that the defendant had
not signed the by-law. But no such
facts are shown to exist in the present
case. The plaintiff not only is no
party to the contract contained in
the by-law, but he fails to show any
privity between himself and the de-
fendant in relation to the subject
matter, or to the consideration, of his
demand."
^ Reid V. Eatonton Man. Co., 40
Ga. 98 ; s. c. 2 Am. Rep. 563 ; Trustees
V. Flint, 13 Met. (Mass.) 539; Flint v.
Pierce, 99 Mass. 69; s.e. 96 Am. Dec.
691.
■• Lowry v. Inman, 46 N. Y. 119.
POWER AND MODE OF ENACTIxNG. [1 TllOmp. Coi'p. § 955.
ARTICLE II.
Power to Enact akd Mode of Enacting.
SUBDIVISION I. At Common Law.
Sectiox
955. Inherent power to make.
956. Must be made by the cor-
porators, not by the direct-
ors.
957. Charters conferring this power
on the directors.
Section
958. What quorum of a select body
may adopt.
959. Delegation of power to select
body does not necessarily di-
vest power of general body.
960. Amendment and repeal of by-laws.
§ 955. Inherent Power to Make. — By the principles of the
common law, every corporation aggregate possesses the inherent
power to make all necessary rules and regulations for its gov-
ernment and operation, although such power may not be ex-
pressly conferred in its charter, in the statute of its creation, or
in any other statute.^ It is regarded as a power that is included
in the izrant of the capacity of being a corporation. It is gener-
ally said to be " an incident to a corporation." ^ But if the char-
ter or governing statute contains an express grant of power to
enact by-laws, and the grant is by its terms limited to specified
cases or specified purposes, the grant will operate as a restriction
upon the power of legislation possessed by the corporation in this
respect, and will exclude all other objects by implication, on the
principle expressio luiius exclusio alterius.^
1 Drake v. Hudson River R. Co., 7
Barb. (N. Y.) 508; Martin v. Nashville
Building Asso., 2 Cold. (Tenn.) 418;
People V. Medical Society, 24 Barb.
(N. Y.) 574.
2 Rex V. Westwood, 2 Dow. & CI.
21, 37 (House of Lords). "Thepower
of making rules and regulations is
necessarily incident to a corporation;
and it is generally inserted in the act
of incorporation, to define its nature
and limit its extent." Mechanics &c.
Bankw Smith, 19 Johns. (N. Y.) 115,
124, per Woodworth, J. "The mak-
ing of by-laws is incident to every
corporation aggregate ; for that power
is included in the incorporation."
London City v. Vanacker, Carth. 480,
per Lord Holt, C. J. Cases are found
where the proposition is put forward
that corporations must show their
power to pass by-laws (Dunham v.
Trustees of Rochester, 5 Cow. (N. Y.)
462), and bring themselves by proof
within that power. Taylor v. Gris-
wold, 14 N. J. L. 222.
3 Aug. & A. Corp., § 325; Child u.
Hudson's Bay Co., 2 P. Williams, 207;
State V. Ferguson, 33 N. H. 424, 430;
State V. Mayor &c., 33 N. J. L. 57.
773
1 Thonip. Corp. § 957.] by-laws.
§ 956. Must be Made by the Corporators, not by the Direct-
ors. — Law^ governing the internal operations and business of a
corporation are necessarily matters of such a constituent char-
acter that, in the absence of a statute otherwise providing,^
they can only be made by the corporation at large, that is to
say, by the members in their constituent character at a general
meeting of the corporation. Without such statutory authoriza-
tion, they can only be made by the most numerous body or con-
stituency, and cannot be made by the directors, trustees or
other managers.^
§ 957. Charters Conferring this Power on the Directors. —
Many charters and statutes no doubt exist, conferring this
power upon the directors. In one case which has come under
observation, the charter gave the board of directors express
authority to adopt a by-law prohibiting the transfer of stock
where the owner was in default.^ In another case, it was held
1 As hereafter seen such statutes
exist in many States: 1 Rev. Stat.
Mo. 1890, § 2506; post, § 978. et seq.
2 Rex V. Westwood, 2 Dow. & CI.
21, 36; Morton Gravel Roid Co. v.
Wysons, 51 Ind. 4; Carroll v. Mul-
lanphy Savings Bank, 8 Mo. App. 249;
State Savings Asso. v. Nixon-Jones
Printing Co., 25 Mo. App. 642; Union
Bank v. Ridgely 1 Harr. & G. (Md.)
324; Salem Bank ?;. Gloucester Bank,
17 Mass. 1; Martin y. Nashville Build-
ing Asso., 2 Cold. (Tenn.) 418; Bank
of Holly Springs v. Pinson, 58 Miss.
421; Slate u. Curtis, 9 Nev. 325. In
Indiana it has been said that the
power to make by-laws resides in the
members of the corporation at large,
where tht-re is no law or valid usage to
the contrary. Morton Gravel Road v.
Wysong, 51 Ind. 4, 12. What the
court meant by " valid usage " in this
passage is probably explained by tiie
quotation which follows in the opin-
ion from a work of reputation: "Un-
less by the charter or some general
statute to which the charter is made
subject, or by immemorial usage, this
774
power is delegated to particular of-
ficers or members of the corporation,
like every other incidental power, it
resides in the members of the corpo-
ration at large, to be exerci ed by
them in the same manner in which the
charter may direct them to exer-
cise other powers or transact their
general business; and if the charter
contain no such direction, to be exer-
cised according to the rules of the
common law," etc. Ang. & A. Corp.,
§ 327; citing Union Bank v. Ridgely, I
Harr. & G. (Md.) 324; Rex v. West-
wood, 2 Dow. & CI. 21. It is said in
an English work: «' In all corpora-
tions, to which the power of making
by-laws is incident, it is to be exer-
cised by the entire body of corporators,
as distinguished from select bodies,
unless the constitution of the corpo-
ration have vested the whole power of
making by-laws in some particular
part or body of the corporation."
Grant Corp. 77; citing Rex v. West-
wood, 2 Dow. & CI. 21.
3 Mechanics Bank v. Merchants'
Bank, 45 Mo. 513.
POWER AND MODE OF EXACTING. [1 Thomp. Corp. § 959.
that a provision of the charter, making the stock of the corpo-
ration personal property, and authorizing the board of di-
rectors to make rules and reijulatious concernins: its transfer,
subject to the general law of the State, authorized the board to
adopt a rule prohibiting the transfer of such sstock until all debts
due by the owner thereof to the corporation should be paid, al-
though such rule was inconsistent with the general law of the
State governing the transfer of personal poperty.^
§ 958. What Quorum of a Select Body may Adopt. — Where
a statute autliorizes a select body, e.^., directors of a corporation,
to make by-laws, a majority of that body, at least, is necessary
to constitute a quorum? Where the charter of a corporation
authorizes the president and directors to adopt by-laws, it is held
that by-laws may be adopted by a meeting at which the president
Sin([ixq}iorum of the directors are present ; and where the quorum
consists of a majority the assent of a majority is sufficient in
order to make the by-laws valid. ^
§ 959. Delegation of Power to Select Body does not
Necessarily Divest Power of General Body. — A. statutory
delegation to a select body of the corporation, of the power to
make by-laws, does not divest the inherent power of the general
body, so to do, unless the statute so declares in express terms.
Thus, although the power of making by-laws is vested in the
managers of the corporation, and not in the stockholders, a by-
law passed at a meeting called as a stockholder's meeting will be
valid, if the stockholders and managers were the same persons,
and all were present and participated.* This principle is also
well illustrated by a leading English case, where a charter vested
the right to elect burgesses in the general body of an ancient
corporation, and gave a power to make by-laws to a select body.
The general body made a l)y-lavv delegating the power to elect
1 Perpetual Ins. Co. v. Goodfollow, ^ Cahill v. Kalamazoo Mutual Ins.
9 Mo. 14!). Compare Carroll v. Mul- Co., 2 Don-;. (Mich.) 124; s. c. 43 Am.
lanphy Saviui^s Hank, 8 Mo. App. 24!t, Dec. 4;"i7, 461.
253, where the.se two cases are dis- •* People v. Sterling Manf. Co., 82
tinguislierl. 111. 4.57.
2 Ex parte Willcocks, 7 Cow. (N.
Y.) 402; ojit^., « 7'_'rj.
775
1 Thomp. Corp. § 963.] by-laws.
burgesses to the select body. It was held by the House of
Lords, that this was a good by-law; for the power given by the
charter to the select body to make by-laws did not divest the
general body of the right to make such laws, which was inci-
dent to it at common law.^
§ 960. Amendment and Repeal of By-Laws. — It is scarcely
necessary to say that a corporation which is authorized by its
charter to make such by-laws as may be necessary to attain the
objects for which it is created, has power to change such by-laws
from time to time, when necessary to carry out such objects.^
But it is scarcely necessary to say that the power to amend or
repeal by-laws, even when expressly conferred by the charter,
cannot be so exercised as to impair any rights that have been
given and vested by virtue of the by-law.^
SUBDIVISION II. Statutes Vesting Power in the Corporation or Members.
Section Section
962. General statutory power to make 969. Same as preceding: also number
by-laws not inconsistent with of directors, penalties, liens
law, etc. upon shares, etc.
963. For management of property and ^j^^ Provisions applicable to benevo-
regulation of affairs. ^^^^.^ religious, educational,
964. For the regulation of its property, literary, social, and other so-
managemeut of its affairs, and cieties.
965. And as to corporate meetings. ^71. Provisions applicable to railroad
966. Corporate meetings and voting: companies.
forfeiture of shares : penalties, 972. Provisions applicable to boom
etc. and navigation companies.
967. Concerning officers, meetings, __„ „ . ,,
. ° ' " ' 973. Various other provisions.
968. Management of property, regula- 9^*- ^« *« forfeiting shares.
tion of affairs, transfer of 975. How enacted.
stocls, duties of officers. 976. How amended, repealed, etc.
§ 902. General Statutory Power to make By-Laws not In-
consistent with. Law, etc. — Incorporated bureaus of immigration
» Rex V. Westwood, 2 Dow. & CI. 78 N. Y. 159; when a stockholder will
21, 36. not be estopped from objecting:
2 Schrick v. St. Louis Mut. House Bergman v. St. Paul Mut. Bldg. Assc,
Building Co., 34 Mo. 423. 20 Miuu. 275.
2 Kent V. Quicksilver Mining Co.,
776
POWER AND MODE OF ENACTING. [1 Thomp. Corp. § 962.
"shall make by-laws in accordance with their objects: Provided, that
such by-laws be not in contravention of the laws of this State or the laws
and constitution of the United States." ^ . - - - Incorporated
institutions of learning have power " to make such laws for their own
government as may deemed proper: Provided, that the same shall not
conflict with the constitution and laws of the United States or the con-
stitution and laws of the State of Arkansas." 2 _ _ . _ " All cor-
porations have the right ... to make by-laws, binding on their
own members, not inconsistent with the laws of this State and of the
United States." ^ _ _ _ - 'Each, co-operatiue association ^'^ may make
its own by-laws, provided they be not repugnant to this act, nor to the
laws of the State." A copy of such by-laws must be filed in the clerk's
office of the place where it transacts business.* - - - - Corpora-
tions for the purpose of engaging in any species of trade, business, or
commerce, " may make by-laws not inconsistent with the constitution
of this State or constitution of the United States. " ^ _ _ . - "Every
corporation may adopt a code of regulations for its government, not
inconsistent with the constitution and laws of the State." ^ _ _ _ _
Horticidtural corporations "may adopt such by-laws for their protection
and good order as it [they] may deem necessary, not inconsistent with the
laws of this State." ' Certain associations, such as labor, agricultural,
rehgious, charitable, fire, hook and ladder companies, academies, jockey,
yacht, sporting and other clubs may be incorporated and when so or-
ganized " ever}^ such corporation, and its officers and stockholders, may
make by-laws not repugnant to the laws of the State." ^ _ _ _ _
Private business corporations ' ' may establish by-laws for the govern-
ment of their affairs and may alter or repeal the same." ^ - - - -
' ' Savings banks and savings institutions may adopt by-laws for their
government, not inconsistent with law. " ^"^ - - - - Corporations
for literary, scientiflc, religious and charitable purposes have power
" to make rules, by-laws and ordinances, and do every thing needful for
their good government and support not repugnant to the constitution
and laws of the United States, to the constitution and laws of this State,
or to the instrument upon which the corporations respectively are formed
and estabHshed." " _ . . - Corporations other than joint-stock
companies " may make and adopt for their government, and to enable
1 Ark. Dig. Stat. (1884), § 1016. « Rev. Stat. Ohio (1890), § 3249.
» Ark. Dig. Stat. (1884), § 1006. ' Rev. Stat. Ind. (1888), § 3492.
3 Ga. Code (1882), § 1079. » Gen. Stat. S. C. (1881), § 1372.
< Rev. Stat. Mian. (1881), p. 402, § » Rev. Laws Vt. (1880), § 3281.
158. *° Rev. Laws Vt. (1880), I 35G2.
' Gen. Stat. Nev. (1885), § 805. " Voor. Rev. Stat. La., p. 183, § 680.
777
1 Thomp. Corp. § 963.] by-laws.
them to conduct and pursue their business and purpose, all necessary
bjMaws and regulations not inconsistent with the constitution and laws
of the United States and of this State. ' ' ^
§ 963. For Management of Property and Regulation of
Affairs. — Another class of statutes is a little more specific : granting
the power either to corporations generally, or else to various named
corporations, to make by-laws for the regulation of their affairs and the
management of their property, or both, thus : In South Carolina, by gen-
eral provision, "corporations shall have power . . . to make by-
laws and regulations, consistent with the constitution and laws of this
State, for their own government and the due and orderly conduct of
their affairs, and the management of their property."^ _ _ _ -
"All corporations may, whenever no other provision specially
made . . . make by-laws and regulations, consistent with law, for
their government and for the due and orderly conducting of their affairs
and the management of their property. " ^ - - - - " All corpora-
tions shall, when no other provision is specially made, be capable, . . .
to make by-laws and regulations, consistent with the laws of the State,
for their own government, and for the due and orderly conducting of their
affairs, and the management of their property." * _ _ - - "Every
corporation, where no other provision is specially made, may in its
corporate name sue and be sued . . . and make by-laws and reg-
ulations consistent with law, for its own government, the due and
orderly conducting of its affairs, and the management of its prop-
erty."^ _ _ _ - " All corporations shall, when no other provis-
ion is specially made, be capable in their corporate name .
to make by-laws and regulations consistent with the laws of
the State, for their own government, and for the due and orderly
conducting of their affairs, and the management of their prop-
erty." ^ - _ . - Among the powers of corporations for pecuniary
profit are the following: "To establish by-laws, and make all rules
and regulations deemed expedient for the management of their affairs in
accordance with law. " ' - - - - " All corporations shall, when no
other provision is specially made, be "capable ... to make by-
laws, consistent with the laws of the State, for their own government
and the management of their property." ^ - . - - " Every corpo-
1 Kev. Stat. W. Va. (1879), vol. 1, « Stat. Mass. 1882, p. 565, § 4.
p. 327, § 8. fi How. Mich. Stat. 1882, § 4860.
2 Gen. Stat. S. C. (1881), § 1350. ' Rev. Stat. Iowa, 1888, § 1(;09.
3 Pub. Stat. R. I. (1882), p. 3(18, § 1. » Rev. Code Del. (1874), p. 376, § 1.
* Code N. C. (1883), vol. 1, § 663.
778
POWER AND MODE OF ENACTIXG. [1 Thomp. Corp. § 963.
ration as such, has power : ... 7. To make by-laws, not inconsistent
with any existing law, for the management of its affairs." i - - - -
" The powers enumerated in the preceding section [§ 124] , shall vest in
every corporation in this State, whether the same be formed without, or
by legislative enactment, although they may not be specified in its charter
or articles of association. " 2 _ . . _ Church, religious, benevolent,
literary, agricultural or mechanical corporations have power " to make
by-laws, not inconsistent with any existing law, for the government of
its affairs and the management of its property." 3 _ _ - . " Every
private corporation may, when no other provision is specially
made . . . make by-laws consistent with law, for its government,
the regulation of its affairs, and the management of its prop-
ert3\"* _ _ _ - " Among the powers of such bodies corporate," —
corporations in general, — " shall be the following: ... 7. To
establish bj^-laws and make all rules and regulations deemed expedient
for the management of their affairs not inconsistent with the
constitution and laws of the United States and laws of this ter-
ritory." 5 - - - - Manufacturing and other lawful business
corporations have power "to ordain and establish by-laws for the
government and regulation of their affairs, and to alter and repeal the
same." 6 - . - _ A benevolent, charitable, scientific or missionary
corporation shall have power ' ' to make by-laws for the management of
its affairs, not inconsistent with the constitution and laws of this State
or of the United States." ' - - - - A Young Men's Christian As-
socia'ion, upon being incorporated " shall have power to make by-laws
for the management of the affairs of the association not inconsistent
with the constitution and laws of this State." 8 _ _ - - A driving-
park, park, or agricultural corporation can " make by-laws for the
management of its affairs not inconsistent with the laws of this State or
of the United States." 9 - - - - A corporation to prevent cruelty
to animalti " shall have power . . . 5. To make by-laws not
inconsistent -n-ith the laws of this State or of the United States, for the
management of its property and the regulation of its affairs. " i" - - - -
A coiporation for agricultural or horticultural purposes can " make by-
laws for the management of its affairs, not inconsistent with the laws
1 Comp. Stat. Neb. (1887), p. 255, ' 3 Rev. Stat. N. Y. (Banks & Bros.
§ 124. 8th ed.), p. l'J22, § 2.
2 Corap. Stat. Neb. (1887), p. 25G, » 3 Rev. Stat. N. Y. (Banks &Bros.
§ 125. 8th ed.), p. 1934, § 2.
3 Hill's Laws Ore. (1887), § 3299. » 3 Rev. Stat. N. Y. (Banks & Bros.
•* Gen. Stat. Conn. (1888), § 1006. 8th ed.), p. 2007, § 2.
« Rev. Stat. Ariz. (1887), § 233. i" 3 Rev. Stat. N. Y. (Banks & Bros.
« Ark. Dig. Stat. (1884), § 072. 8th ed.), p. 1933, § 2.
779
1 Thomp. Corp. § 963.] by-laws.
of this State or of the United States." i - - - - Business corpora-
tions, other than banking, insurance and railroad, have power " to
estabhsh by-laws, and make all rules and regulations deemed expedient
for the management of their affairs not inconsistent with the consti-
tution or laws of this State or of the United States."^ . - - _
Coi'ijorations for works of jiuhlic improvement, huve 'power "to make
and establish such by-laws for the proper management and regula-
tion of the affairs of the corporation as may be necessary and
proper."-^ _ . _ _ Corporations such as raiZroads, canaZs and the
Mke can " establish by-laws, and make all rules and regulations deemed
expedient for the management of its [their] affairs, in accordance with
law, and not incompatible with an honest purpose." ■* > _ _ _ Man-
vfacturing corporations have power " to ordain and establish by-laws, for
the government and regulation of their affairs, and to alter and repeal the
same."^ - - - - " The general powers of all corporations, chartered
for purposes of indi^adual profit, shall be — . . . 4. To estabhsh
bj'-laws aud make all rules and regulations not inconsistent with the
laws and the constitution, deemed expedient for the management of cor-
porate affairs."^ _ _ _ _ A corporation formed for the recovery
of stolen animals and to insure against the loss of the same by being
stolen ' ' may adopt such by-laws for its regulation as are not incon-
sistent with the provisions of this act, and may therein prescribe the
compensaiio?!, of its o^ce?'s." ' - - - - C/iari7a6Ze corporations may
" adopt such articles of association as may be necessary, declaring the
objects and purposes thereof (which shall not be in conllict with the
laws), the duties and liabihties of its members and officers, fixing the
names of the officers of the association, the time and places of its meet-
ings, -the names of the persons elected to fill the several offices, the
terms of its officers, and the time and manner of electing their succes-
sors, and such other matters as may be necessary to carry out its legiti-
mate objects."^ - - _ _ " Every corporation as such shall have
power ... to make ordinances, by-laws, and regulations for the
government of its council, board, officers and agents, and the manage-
ment and regulation of its projDerty and business."^ _ _ _ -
" Every corporation, in respect to which it is not otherwise
1 3 Rev. Stat. N. Y. (Banks & Bros. 6 Tenn. Code (1884), § 1704.
8th ed ), p. 2015, § 2. '3 Rev. Stat. N. Y. (Banks & Bros.
2 Gen. Slat. Ky. (1888), p. 763, § 2. 8tli ed.), p. 2072, § 13.
3 Voor. Rev. Stat La., p. 184, § G84. « Florida Dig. Laws (1881), p. 2*2,
■» Rev. Stat. Minn. (1881), p. 3C9, § 2.
§4. » Rev. Stat. W. Va. (1879), vol. 1,
=■ Rev. Stat. Minn. (1881), p. 398, p. 304, § 1.
§ 132.
780
POWER AND MODE OF ENACTING. [1 Thomp. Corp. § 965.
provided, may . . . make ordinances, by-laws and regulations,
consistent with the laws of this State and of the United States, for the
government of all under its authority, for the management of its es-
tates, and the due and orderly conducting of its affairs." ^ - - - -
' ' When the certificate of the auditor ... the persons who shall have
sio-ned and acknowledged the same, and such persons as thereafter be-
come their associates, or successors shall be a body politic and corpo-
rate and by their corporate name shall have succession . . . and
power . . . Sixth. To make by-laws, not inconsistent with the
law of this State, for the organization of the company, the management
etc. , and for carrying on all kinds of business within the objects and
pm-poses of the company." ^
§ 964. For the Regulation of its Property, Management of
its Affairs, and Transfer of its Stock. — To the foregoing cata-
logue some statutes add, — "and for the transfer of its stock," —
thus: " Every corporation, as such, has power : ... 6. To make
by-laws, not inconsistent with any existing law, for the management of
its property, the regulation of its affairs, and for the transfer of its
stock." 3 _ . _ _ " Every corporation, as such, shall have
power : . . . Sixth, to make by-laws not inconsistent with the laws
of the State, for the management of its property, the regulation of its
affairs, and for the transfer of its stock." 4 - - - - " Every cor-
poration, as such, has power . . . Sixth, to make by-laws not in-
consistent with existing law, for the management of its property, the
regulation of its affairs and for the transfer of its stock," 5 _ _ _ _
" Every private corporation, as such, has power — ... 6. To make
by-laws not inconsistent with existing laws for the management of
its property, the regulation of its affairs and the transfer of its
stock. " ^ - - - - The persons who subscribe the articles of as-
sociation and persons who become stockholders "shall be a corpora-
tion and as such may make by-laws, not inconsistent with law, for the
management of the property of the corporation, the regulation of its
affairs, and the transfer of its stock." "^
§ 965. And as to Corporate Meetings. — Others add provisions
as to corporate meetings and elections, and as to voting thereat, and
especially as to voting by proxy, — thus : An educational and religious
1 Code Va. (1887), §1008. ■• Florida Dig. Laws (1881), p. 228,
2 Rev. Stat. Iowa (18S8), § 1792. §3.
This provision relates to savings » Rev. Stat. Mo. (1889), § 2508.
banks. ^ Sayle's Tex. Civ. Stat., art. 575.
8 2 Deer. Cal. Code, § 35-t. ' Rev. Laws Vt. (1880), § 3309.
781
1 Thonip. Corp. § 1)06.] uv-laws.
corporation ''may establish such rules and by-laws as may be neces-
sary or proper for its government, and may determine how many
members shall constitute a quorum for the transaction of busi-
ness." ^ _ _ - _ The corporation "may determine the manner of
calling and conducting meetings ; the number of members [shares]
that shall entitle a member of a joint-stock company to a vote, and the
mode of voting by proxy; it may make all necessary by-laws, not in-
consistent "svith the laws of this State, and impose all necessary
duties."^ _ - _ _ " The number, function, qualilication and com-
pensation of the officers of any" — building, loan or savings —
" association, their terms of office, the times of their election, as well
as the quahfication of the electors, and the votes and manner of voting,
and the periodical meetings of such corporation, shall be determined
by the by-laws of such association, when not provided by this
act. " ^ - - - - All corporations may make by-laws consistent
with the laws of the State and their charter,* and " may determine by
their by-laws the manner of calling and conducting meetings ; the num-
ber of members that constitute a quorum ; the number of votes to be
given by shareholders ; the tenure of the several officers ; the mode of
voting by proxy ; and of selling shares for neglect to pay assessments ;
and may enforce such by-laws by penalties not exceeding twenty dol-
lars."^ _ _ _ - "Every company may determine, by its by-laws,
the manner of calling and condncting all meetings, wiiat number of
shares shall entitle the stockholders to one or more votes, what number
of stockholders shall attend, either in person or by proxy, or what
number of shares or amount of interest shall be represented at any
meeting, in order to constitute a quorum." *^
§ 966. Corporate Meetings and Voting : Forfeiture of
Shares : Penalties, etc. — " All corporations may by their by-laws,
where no other provision is specially made, determine the manner of
calling and conducting all meetings ; the number of members that shall
constitute a quorum ; the number of shares that shall entitle a member
to one or more votes ; the mode of voting by proxy ; the mode of sell-
ing shares for non-payment of assessments ; and the tenure of office of
the several officers ; and the manner in which vacancies in any of the
offices shall be filled till a regular election, and they may annex suitable
penalties to such by-laws, not exceeding in any case the sum of twenty
1 Rev. Stat. Ind, (1888), § 34G0, « Rev. Stat. Me. (1883), p. 400, § 6.
2 Rev. Code Miss. (18S0;, § 1031. « Rev. Stat. N. J. (1877), p. 181,
8 Rev. Stut. Ind. (1888), § ;;411. § 21.
-* Rcv. Stat. Me. 1883, p. 3'jy, §2.
782
POWER AND MODE OF ENACTING. [1 Thomp. Corp. § 966.
dollars for any one offense : Provided, that no such by-law shall be made
by any corporation repugnant to its charter."^ _ _ - - "Cor-
porations may, by their by-laws, where no other provision is specially
made, determine the manner of calling and conducting meetings, the
number of shares that shall constitute a quorum, the number of shares
that shall entitle the members to one or more votes, the mode of voting
by proxy, the mode of selling shares for the non-payment of assessments
and the tenure of office of the several officers, and they may annex
suitable penalties to such by-laws, not exceeding in any case the sum
of twenty dollars for any one offense, but no such by-law shall be
made by any corporation repugnant to the provision of its char-
ter." 2 _ _ _ _ " Corporations shall, when no other provision is
specially made, be capable . . . to make necessary by-laws ; deter-
mine the manner of calling and conducting meetings, the number that
shall constitute a quorum, the number of shares that shall entitle a mem-
ber to one or more votes (Provided, each stockholder shall have one
vote for each share owned and held by him for ten days previous to the
meetings of the association) : the mode of voting by proxy, the pa^^ment
of assessments, and the mode of selling shares for the non-pay-
ment of assessments ; and the tenure of office of the several offi-
cers."^ _ _ - _ "AH corporations may, if no other provision is
specially made, determine by their by-laws, how meetings shall be
called and conducted ; how many shall be a quorum ; the number of
shares that shall entitle the members to one or more votes ; the mode of
voting by proxy ; when and how many shares shall be sold for non-
payment of assessments, and may annex suitable penalties to such
by-laws, not exceeding, in any case, twenty-five dollars, for au}?^ of-
fence." 4 _ _ _ _ " Corporations may, by their by-laws, where no
other provision is specially made, determine the manner of calling and
conducting their meetings, the number of members that shall constitute
a quorum, the member of shares that shall entitle the members to one
or more votes, the mode of voting by proxy, the mode of selling shares
for the non-payment of assessments, and the tenure of office of the
several officers. They may annex suitable penalties to such by-laws,
not executing twenty dollars for one offense." ^ _ _ _ _ " Everj-^
corporation organized under any general or special law, unless other
provision is specially made, may make, amend and repeal by-laws and
» Code N. C. (1883), vol. 1, § 004. contrary. Morton G. R. Co, v. Wj-
3 Pub. Stat. R. I. (1882), p. 308, § 3. Bow^, FA Ind. 4.
2 Rev. Stat. Ind. (1888), § 3002. ■* Rev. Code I)il. (1874), p. 370, § 2.
The power to make by-laws is in the ^ Rev. Stat. Minn. (1881), p. 450,
members at large of a corporation, § 409.
when there is no law or usage to the
783
1 Thomp. Corp. § 967.] by-laws.
regulations, not iuconsistcnt with law or its articles of organization for
its own government, for the orderly conducting of its affairs, and the
management of its property, for determining the manner of calling and
conducting its meetings the manner of appointing and mode of voting
by proxy, and the tenure of office of its several officers, and such
others as shall be necessary or convenient for the accomplishment of
its purposes, and may prescribe suitable penalties for the violation of
its by-laws, not exceeding in any one case twenty dollars for any one
offense. ' ' ^
§ 967. Concerning Officers, Meetings, Elections, etc. — "The
by-laws of every corporation created under the provisions of this act ' ' —
an ' ' act to provide for the organization and regulation of certain busi-
ness corporations " — " shall be deemed and taken to be its law, and
shall provide : 1. The number of directors of the corporation. 2. The
term of office of such directors, which shall not exceed one year. 3.
The manner of filling vacancies among directors and officers. 4. The
time and place of the annual meeting. 5. The manner of calling and
holding special meetings of the stockholders. 6. The number of stock-
holders who shall attend either in person or by proxy, at every meeting
in order to constitute a quorum. 7. The officers of the corporation,
the manner of their election by and among the directors, and their pow-
ers and duties. But such officers shall always include a president, a
secretary and a treasurer. 8. The manner of electing or appointing in-
spectors of election. 9. The manner of amending the by-laws." ^ "A
corporation may, by its by-laws, when no other provision is specially
made, provide, among other things for : 1. The time place and manner
of calling and conducting its meetings. 2. The number of stockholders
or members constituting a quorum. 3. The mode of voting by proxy.
4. The time of the annual election for directors, and the mode and
manner of giving notice thereof. 5. The compensation and duties of
officers. 6. The manner of election and the tenure of office of all officers
other than directors. 7. Suitable penalties for violation of by-laws
not exceeding, in any case, one hundred dollars for any one offense." ^
" A corporation by its regulations, when no other provision is specially
made in this title, may provide for : 1. The time, place and manner of
* Rev. Stat. Wis. (1878), § 1748. antee the same, and bonds and
2 3 Rev. Stat. N. Y. (Banks & Bros. mortgages. The 7th subsection adds
8th ed.), p. 1980, § 6. Substantially after the word " treasurer," the words
the same provision is found in a law "and general manager."
of New York relating specially "to ^2 Deer. Cal. Cork. (1885), § 303.
provide for the incorporation of com- The same provision is found literally
paniesto examine titles, and to guar- in Rev. Stat. Idalio (1887), § 2980.
784
POWER AND MODE OF ENACTING. [1 Thomp. Coi'Pc § 969.
calling and conducting its meetings. 2. The number of stockholders
or members constitating a quorum. 3. The time of the annual election
for trustees or directors, and mode and manner of giving notice thereof.
4. The duties and compensations of officers. 5. The manner of election
or appointment, and the tenure of office, of all officers other than the
trustees or directors. 6. The qualification of members, when the cor-
poration is not for profit." ^
§ 968. Management of Property, Regulation of Affairs,
Transfer of Stock, Duties of Officers. — " When so organized
every such corporation " — certain business corporations — " shaU pos-
sess the following powers : . . . . 5. To make by-laws for the man-
agement of its property, the regulation of its affairs, for the transfer of
its stock, and defining the duties of its officers, and, from time to
time, to amend the same." ^ _ _ _ _ "When organized every cor-
poration " — to examine titles and to guaranty the same, and bonds and
mortgages — "shall possess the following general powers : . . . 5.
To make by-laws for the management of its property, the regulation of its
affairs, for the transfer of its stock, and defining the duties of its oficers,
and from time to time to amend the same." ^ _ _ _ . Corpoi'ations
for mining, manufacturing, or other industrial pursuits, or the construc-
tion or operation of railroads, wagon roads, irrigating ditches, colleges,
seminaries, churches, libraries or any benevolent, charitable or scientific
association, " shall have power to make by-laws not inconsistent with
the laws of this territory, for the organization of the company, the man-
agement of its property, the regulation of its affairs, the transfer of its
stock, and for carrying on all kinds of business within the objects and
purposes of the company."* _ _ _ _ "The stockholders of such
corporation," — manufactm-iug, railroads, and other business corpora-
tions — " or the trustees, if the certificate of incorporation so provides,
shall have power to make by-laws as they shall deem proper for the man-
agement and disposition of the stock and business affairs of such com-
pany, not inconsistent with the laws of this territory, and prescribing
the duties of officers, artificers and servants that may be emploj^ed, for
the appointment of all officers, and for carrying on all kinds of business
within the objects and purposes of such company." ^
§ 969. Same as Preceding : Also IVumber of Directors, Penal-
ties, Liens upon Shares, etc. — " Every corporation, as such, shall
1 Rev. Stat. Ohio (1890), § 3252. 3 3 Rev. Stat. N. Y. (Banks & Bros.
2 3 Rev. Stat. N. Y. (Banks & Bros. 8th cd.), p. 1712, § 2.
8th ed.), p. I'JTD, § 2. * Coinp. Laws N. M. (1884), § 195.
'■> Rev. Stat. Wy. (1887), § 509.
50 785
1 Thomp. Corp. § 970.] by-laws.
be deemed to have power ... 6. To make by-laws not incon-
sistent vnih the constitution or laws of the United States or of this State,
fixing and altering the number of its directors for the management of
its property, the regulation and government of its affairs, and for the
transfer of its stock, with penalties for the breach thereof not exceeding
twenty dollars. " ^ _ _ _ _ " Such corporation " — mining, quarry-
ing or manufacturing — " has power . . . 5. To make all need-
ful by-laws, rules and regulations for the transaction of its business,
the management and control of its affairs, and the uses and disposition
of its property, and for the transfer of its stock, and for the creation
and preservation of a Hen upon the shares of its stockholders for the
payment of any debt or liability they may incur to the corporation." ^
§ 970. Provisions Applicable to Benevolent, Religious,
Educational, Literary, Social and Other Societies. — Any incor-
porated benevolent, religious, scientific, fraternal, beneficial, or educa-
tional association ' ' shall make by-laws for its government and support
and the management of its property, and therein provide, unless such
provision is already made in its charter, for the admission of new mem-
bers and how they shall be admitted, and prescribe their quahfications.
Provision may also be made in such by-laws for the removal of officers
for cause and for the expulsion of members guilty of any offense which
affects the interests or good government of the corporation, or is indict-
able by the laws of the land : Provided, always, that such by-laws shall
be conformable to the charter of such corporation, and shall not im-
pair or limit any pro^asion thereof or enlarge its scope, and shall not
be contrary to the provisions of the constitution or laws of this
State." ^ _ _ - _ "Any association formed under the preceding
section" — voluntary association without capital stock — "may make
by-laws imposing fines and penalties, and lay assessments to further
the objects of such association, but such by-laws shall be adopted by
two-thirds of the members of the association." * - - - - A
corporation for social, literary, aesthetic, political or recreative pur-
poses has power " to make and adopt a constitution, by-laws, rules and
regulations for the government of said corporation, and for the admis-
sion, voluntary withdrawal, censure, suspension and expulsion of its
members, for the establishing and collection of fees and dues of its
1 Rev. Stat. N. J. (1877), p. 175, § 1. on lawful enterprises not otherwise
2 Code of Ala. (1886), § 15G2. By specially provided for, when duly or-
§ 1664 of the same sta'ute the same gauized."
provision is extended to "all private ^ Rev. Stat. Mo. (1889), § 2831.
corporations organized for carrying * Gea. Stat. Conn. (1888), § 1908.
786
POWER AND MODE OF ENACTING. [1 ThoiUp. Corp. § 970.
members, the number and election of its officers, and to define their
duties and compensation, and for the safe-keeping of its property, and
from time to time to alter, modify or change such constitution, rules and
regulations ; provided, however, that no constitution, by-laws, rules or
regulations shall be made or adopted by said corporation which shall be
inconsistent with the constitution and laws of the United States or of
this State."! _ _ _ _ A. political club may be incorporated with
power " to make and adopt a constitution, by-laws, rules and regula-
tions for the government of such corporation, and for the admission,
voluntary withdrawal, censure, suspension and expulsion of its mem-
bers, for the establishing and collection of the fees and dues of its
members, the number and election of its officers, and to define their
duties and compensation, and for the safe-keeping of its property, and
the general conduct of its affairs, and from time to time to alter, modify
or change such constitution, by-laws, rules and regulations ; provided,
however, that no constitution, by-laws, rules or regulations, shall be
made or adopted by said corporation which shall be inconsistent with
the constitution or laws of the United States or this State." 2 _ _ _ _
An alumni association may be incorporated with power " to adopt such
a constitution and by-laws and rules and regulations as may be
necessary or proper for its government and regulation, and for
the accomplishment of the objects of its incorporation, not incon-
sistent with the laws of their State." ^ - - - - A bar asso-
ciation may be incorporated with power "to make by-laws, rules
a,nd regulations for the government of said association, and for
admission, voluntary withdrawal, censure, suspension and expulsion of
its members ; for the establishing and collection of the fees and dues of
its members, the number and election of its officers, and to define their
duties and compensation, and for the safe-keeping of its property, and
from time to time, to alter, modify or change such by-laws, rules and reg-
ulations, provided, however, that no by-laws, rules or regulations shall
be made or adopted by said association which shall be inconsistent with
theconstitutionorlawsof the United States or of this State." ■* - - - -
A library society may be incorporated with power to " prescribe by its
by-laws what persons may thereafter become its members and have the
right to vote at its meetings." ^ _ _ _ . Any debating society,
literary, scientific, industrial or benevolent association (other than col-
1 3 Rev. Stat. N. Y. (Banks & Bros. * 3 Rev. Stat. N. Y. (Banks & Bros.
8th ed), p. 2022, § 2. 8th cd.), p. 2032, § 2.
» 3 Rev. Stat. N. Y. (Banks & Bros. & 3 Rev. Stat. N. Y. (Banks & Bros.
8th ed.), p. 2028, § 2. 8th ed.), p. 2041, § 3.
3 3 Rev. Stat. N. Y. (Banks & Bros.
8th ed.), p. 2030, § 4.
787
1 Thomp. Corp. § 971.] by-laws.
leges, universities, academies or seminaries) may be incorporated, and
when incorporated may elect such officers and make such by-laws, rules,
and regulations, as may be necessary and expedient for its own govern-
ment, and the management of its fiscal and other affairs to effect their
respective objects. A copy of such by-laws and all amendments thereto
shall be filed in the office of the secretary of the territory, and no by-law
shall be valid until so filed. 1 - - - - " Incorporated boards of trade
may adopt and prescribe rules and by-laws for the government of its
officers, directors, agents and members. ' ' ^ The law of Illinois governing
co-operative associations for profit provides in section 6 : " All by-laws
of the associatiou shall be adopted by the shareholders of the associa-
tion," and in section 23: "No by-law shall be adopted, amended or
repealed except by an affirmative vote of a majority of all the share-
holders entitled to vote. ' ' ^
§ 971. Provisions Applicable to Railroad Companies. —
" Where no other provision is especially made by this act " — of railroad
corporations — " a corporation formed under it, may by its by-laws,
provide for: First. The time, place, and manner of calling and con-
ducting the meeting of its directors and stocldiolders. Second. The
number of stockholders constituting a quorum at meetings of stock-
holders. Third. The mode of voting by proxy at meetings of stockholders.
Fourth. The time for holding annual elections for directors and the
mode and manner of giving notice thereof. Fifth. The compensation
and duties of officers. Sixth — The manner of election and the tenure of
office of all officers other than directors. Seventh — Suitable fines for
violations of by-laws, not exceeding in any case one hundred dollars for
one offense ; and Eighth — The mode and manner of collecting assess-
ments, except as otherwise pro\aded in this act." ^ - - - - " Every
corporation formed under this act " — railroad corporations — "must
within thi'ee months after filing articles of incorporation, adopt a code of
by-laws for its government, not inconsistent with the laws of this territory.
By-laws may be adopted by the stockholders representing a majority of all
the subscribed capital stock, at a meeting of the stoclcholders called for
that pui'pose by order of the acting president, served upon them person-
ally in writing, or by advertisement in some newspaper published in the
county in which the principal place of business of the corporation is lo-
cated, if there be one published therein, but if not, then in some paper
pubUshed in some adjoining county. The time specified in said order
1 Comp. Laws N. M. (1884), §§ 235, ^ Acts of 111. 1887, p. 135.
240. * Comp. Laws, New Mex. (1884),
2 Rev. Stat. Incl. (1888), § 3523. § 2631.
788
POWER AND MODE OF ENACTING. [1 Thomp. Corp. § 972.
for such meeting shall not be less than two weeks from the date there-
of : Prodded, that the written assent of the holders of two-thirds of
the subscribed capital stock shall be effectual to adopt a code of by-laws
without a meeting of the stockholders for that purpose." i - - - -
" The corporation " — raikoad — " has power ... 6. To provide for
the transfer of its stock and to make such by-laws as may be deemed
necessary for the creation and preservation of a lien upon the stock of
the shareholders for all indebtedness or Kabihty they may incur to or with
the corporation. " 2 - _ - - Raih'oad corporations " shall establish
by-laws, and make all rules and regulations deemed necessary for the man-
agement of its affairs in accordance with law. " ^ - - - - "A copy of
the by-laws of the corporation ' ' — railroad — ' ' when formed and adapted
by the stockholders, duly certified, shall be recorded " in the office of
county clerk of each county through or into which such railroad is pro-
posed to be run and in the office of the Secretary of State, " and all
amendments and additions thereto, duly certified, shall also be recorded
as herein provided, within ninety days after the adoption there-
of." ^ " The corporation " — [street railways] — " has power
to make such by-laws and rules as are necessary for the regulation of
the business, and the management of the property of the corporation ;
and for the transfer of its stock ; and for the creation and preservation
of the hen on the shares of stockholders, for any debt or liability in-
curred by them to the corporation." ^
§ 972. Provisions Applicable to Boom and I^avigation
Companies. — Corporations for the erection of booms and dams in
cei'tain counties "may establish by-laws, and make all rules and regu-
lations deemed necessary for the management of its affairs in accordance
with law."^ - = - ■ A copy of the by-laws when formed and
adopted by the stockholders, shall, within thirty days, and all amend-
ments and additions thereto within ninety days after their adoption, be
recorded in the office of the county clerk of the county in which the
boom may be constructed and in the office of the Secretary of State.'''
"The company" — navigation corporations — -"may adopt such by-
laws for the management of its business, not inconsistent with law, as it
)aay see fit ; but no company organized hereunder shall have banking
^ Comp. Laws New Mex. (1884), ' Code of Ala. (1886), 1 1G08.
§ 2630. 8 Hev. Stat. W. Va. (1879), vol. 1,
2 Code of Ala. (188G), § 1580. p. 279, § 4.
3 Rev. Slat. W. Va. (1879); vol, 2, ' Rev. Stat. W. Va. (1879), vol. 1,
p. 943, § 4. p. 279, § 5.
■« Rev. Stat. W. Va. (1879), vol, 2,
p. 943 § 5.
789
1 Thomp. Corp. § ?)7^{.] by-laws.
privileges, or powers not necessary for managing aline of vessels carry-
ing freight and passengers." ^
§ 973. Various Other Provisions. — " Such corporation " —
banking corporations — "when organized has power ... 5. To
make such by-laws as may be necessary for the management of its
property, the regulation of its affairs, the creation and a preservation of
a lien on the shares of any stockholder for any indebtedness or liability
he may incur to the corporation, and such regulations as are deemed
proper for the transfer of its stock." ^ _ . . . "Such corpora-
tion" — insurance — " has the power ... 5. To make such by-
laws for the management of the property, the regulation of the affairs,
the transfer of the stock of the corporation and the creation and preserv-
ation of a lien on the shares of stockholders for any indebtedness con-
tracted with, or liabiUty incurred to it, as may be deemed neces-
sary." ^ . . - - Macadamized, graded and plank road companies
' ' may make and publish such by-laws as they may deem proper, not
inconsistent with any law of this State, in order to regulate travel upon
such road, and the rules to be observed by persons in meeting or pass-
ing with teams or vehicles, and all other matters which may be deemed
for the welfare of such company. " 4 _ _ _ _ " The by-laws of every
corporation created under the provisions of this statute " — the general
incorporation act — "or accepting the same shall be deemed and taken
to be its law, subordinate to this statute, the charter of the same, the
constitution and laws of this commonwealth, and the constitution of the
United States. They shall be made by the stockholders or mem-
bers of the corporation, at a general meeting called for that pur-
pose, unless the charter prescribes another body or a different mode.
They shall prescribe the time and place of meeting of the corporation,
the powers and duties of its officials, and such other matters as shall be
pertinent and necessai-y for the business to be transacted, and may
contain penalties for the breach thereof, not exceeding twenty dol-
lars."^ - - - - Corporations have power " to make by-laws not
inconsistent with law for the management of its property, the regula-
tion of its affairs, and for the transfer of its stock, if any such stock
there be ; for the forfeiture of stock not paid for and for disposition of
the proceeds thereof ; for the calling of regular, special and general
meetings of the directors, managers and trustees of such corporation, and
fixing the place or places where the same shall be held, and to provide
1 Code of Ala. (1886), § 1657. * Eev. Stat. Mo. (1889), § 2710.
2 Code of Ala. (1880), § 1525. » Brightly's Pur. Dig, Peun. Stat.
3 Code of Ala. (1886), § 1.535. 1885, p. 341, § 22.
7P0
POWER AND MODE OF ENACTING. [1 Thomp. Corp. § 975.
for all other matters, which may be regulated by by-laws, and may from
time to time, repeal, amend, or re-enact the same ; but every such by-
law, and every repeal, amendment, or re-enactment thereof, unless in
the meantime confirmed at a general meeting of the company duly
called for that purpose, shall only have force until the next annual
meeting of the company, and in default of confirmation thereof, shall,
from that time only, cease to have force. The stoclvholders or mem-
bers of a corporation may, at any general meeting, make by-laws,
which shall not be rescinded by the directors, managers or trus-
tees." 1
§ 974. As to Forfeiting Shares. — ■ A corporation formed under
the general incorporation act of Oregon is by statute declared to have
power ' ' to make by-laws not inconsistent with any existing law for the
sale of any portion of its stock for delinquent or unpaid assessments due
thereon, which sale may be made without judgment or execution : pro-
vided, that no such sale shall be made without thirty days' notice of time
and place of sale in some newspaper in circulation in the neighborhood
of such company, for the transfer of its stock, for the management of
its property, and for the general regulation of its affairs." ^
§ 975. How Enacted. — In enactment of by-laws, the stockholder
shall be allowed one vote for each share of stock owned by him, and that
in person or by proxy. And such by-law cannot be enacted, altered,
or amended, added to, repealed, or suspended, except at a regular an-
nual meeting of the stockholders, and by a majority vote of two-thirds
in value of all the stoekof the corporation. ^ - - - - "At the
first meeting " — of joint-stock corporations — " by-laws for the regu-
lation of the affairs of the corporation may be adopted. At any subse-
quent meeting of the stockholders specially called for that purpose,
by-laws may be adopted, or the by-laws previously adopted may be
altered or repealed."^ _ . _ - "Regulations maybe adopted or
changed by the assent thereto, in writing, of two-thirds of the stock-
holders, or, if there is no capital stock, of the members, or by a majority
of the stockholders or members, at a meeting held for that purpose, no-
tice of which has been given by the acting president personally to each
member or stockholder, or by publication in some newspaper of general
circulation in the county in which the corporation is located, or in the
counties through which its improvement does or will pass. " ^ . - _ _
1 Rev. Code Md. (1878), p. 320, § 50. * Gen. Stat. Conn. (1888), § 1946.
2 Hills' Laws Ore. (1887), §3221. » ll^^y^ gtat. Ohio (1800), § 3251.
3 Sayle's Tex. Civ. Stat. 1888, vol. This is a general provision.
2, art. 4136.
791
1 Tiiomp. Corp. § 976.] by-laws.
" Eveiy corporation formed under this title" — concerning corpora-
tions, general provisions — " must, within one month after filing articles
of incorporation, adopt a code of by-laws for its government not incon-
sistent with the laws of Congress or of this territory. The assent of
stockholders representing a majority of all the subscribed capital stock,
is necessary to adopt by-laws, if thc}^ are adopted at a meeting called
for that purpose ; and if such meeting be called, two weeks' notice of
the same by advertisement in some newspaper published in the county
in which the principal place of business of the corporation is located, or,
if none be published therein, then in a paper published at the capital of
the territor}', must be given by order of the actuig president. The
written assent of the holders of two-thirds of the stock subscribed, or of
two- thirds of the members, if there be no capital stock, shall be effectual
to adopt a code of by-laws without a meeting for that pur-
pose."^ _ _ _ _ " Every corporation formed under this title " —
general provisions applicable to all corporations — "must, within
one month after filing articles of incorporation, adopt a code of by-laws
for its government not inconsistent with the laws and constitution of this
State. The assent of stockholders representing a majority of all the
subscribed capital stock, or of a majority of the members, if there be
no capital stock, is necessary to adopt by-laws, if they are adopted at a
meeting called for that purpose. ' ' After providing how that meeting may
be called, the statute provides: that " the written assent of the holders
of two-thirds of the stock, or of two-thirds of the members if there be
no stock, shall be effectual to adopt a code of by-laws without a meeting
for that purpose. " 2 _ - _ _ The stockholdeTs ot banks oi civcnla.-
tion, discount and deposit, "shall adopt by-laws for the government
thereof and of the board of directors." 3 _ _ « _ " When the word
' by-law ' is used in this chapter " — a chapter to pro\ide for the incor-
poration of joint-stock companies — " it is to be understood as if imme-
diately followed by the word ' adopted by the stockholders in general
meeting assembled.' " ^
§ 976. How Amended, Repealed, etc. — "By-laws may be
repealed or amended, or new by-laws may be adopted, at the annual
meeting, or at any other meeting of the stockholders or members,
called for that purpose by the directors, by vote representing two-
thirds of the subscribed stock, or by two-thirds of the members.
The written assent of the holders of two-thirds of the stock, or
of two-thirds of the members, if there be no capital, shall be effec-
1 Rev. Stat. Idaho (1887), § 2588. * Rev. Stat. W. Va. (1879), p. 312,
2 2 Deer. Cal. Code (1885), § 301. §2.
3 Rev. Laws Vt. (1880), § 3495.
792
POWER AND MODE OF ENACTING. [1 Thomp. Corp. § 978.
tual to repeal or amend any bj^-law, or to adopt additional by-laws. The
power to repeal and amend the by-laws, and adopt new by-laws, may, by a
similar vote at any such meeting, or similar written assent, be delegated
to the board of du*ectors. The power, when delegated, may be revoked
by a similar vote, at any regular meeting of the stockholders or mem-
bers." ^ _ > - _ The by-laws may be repealed or amended, or new
b3'-laws may be adopted, at the annual meeting of the stockholders or
members called for that purpose by the directors, by a vote represent-
ing two-thirds of the subscribed stock, or two-thirds of the members
when there is no capital stock, or the power to repeal and amend the
by-laws, and adopt new by-laws, may, by a similar vote at any such
meeting, be delegated to the hoard of directors. This power, when so
delegated, may be revoked by a similar vote at any regular meeting of
the stockholders or members. ^ - - - - "By-laws" of railroad
companies — "may be amended or repealed, or new by-laws may be
adopted at an annual meeting, or any other meeting of the stockholders
called by the directors for that purpose, by a vote representing two-
tliirds of the subscribed capital stock, or the power to amend or repeal
or adopt new by-laws, may by a similar vote, at any such meeting, be
delegated to the board of directors. Such powers, when delegated, may be
removed by a similar vote at any regular meeting of the stockholders." ^
SUBDIVISION III. Statutes Vesting Power in the Directors or Other Officers.
Section Section.
978. Enacted by the directors, etc. 991. luiand navigation companies.
979. Academies, colleges, seminaries, 992. Insurance companies.
uuiversities. 993. Library companies.
980. Banks of discount. 994. Manufacturing companies.
981. Breeding associations. 995. Mining and smeltmg compa-
982. Bridge companies. ujgg_
983. Building and construction com- 990. Navigation improvement com-
P^"'^'^- panics.
984. Canal companies. 997. Piank-road and turnpike com-
985. Gaslight companies. panies.
986. Guano companies. 998, Railroad companies.
987. Guaranty companies. 999. Religious corporations.
988. Homestead companies. 1000. Safe deposit companies.
989. Hotel companies. lOoi. Savings banks.
990. Industrial, co-operative and mu- 1002. Telegraph companies.
tual benefit societies. 1003. Trust companies.
§ 978. Enacted by the Directors, etc. — Directors or trustees
may adopt by-laws for the corporation, but such may be amended
1 2 Deer. Gal. Code (1885), § 304. ■■> Comp. Laws N. M. (1884), § 2692.
2 Rev. Stat. Idaho (1887), § 2591.
79P>
IThoiup. Corp. § 978.] by-laws.
or altered or changed by a vote of stockholders at an election ordered
for that purpose by the directors, on written application of a majority
of the stoclvholders or members.^ _ _ _ _ " Any company formed
under this act' ' — an act to provide for the organization of town and
county co-operative fire and lightning insurance companies — ' ' may
make and enforce such by-laws for its regulation as two-thirds of all the
directors of such company may adopt, and any amendment of such by-
laws may be adopted by being presented to the president at least three
months previous to any meeting of such directors ; but said proposed
amendments shall be voted for at a regular meeting only, and two-
thirds of the votes of all the directors shall be required to adopt them.
No by-laws shall be of any effect which are inconsistent with this act or
the laws of the State." 2 . _ _ _ " By-laws to direct the manner of
taking the votes of stockholders on the question of increasing or dimin-
ishing the number of directors or trustees, of changing the corporate
name, may be made by the directors of the corporation for the time
being." 3 _ _ _ _ " The directors or managers may adopt by-laws for
the government of the officers and affairs of the company ; provided they
are not inconsistent with the laws of this State." ^ _ _ _ _ "The
stocldiolders of any corporation formed under this act' ' — a general act
for the formation of corporations — " or the directors or trustees, if the
certificate of incorporation so provide, shall have power to make such
prudential by-laws as they deem proper for the management of the af-
fairs of the company, not inconsistent with the laws of this State, for the
purpose of carrying on all kinds of business within the objects and pur-
poses of such company." 5 _ - - _ "The trustees or directors of
a corporation may adopt a code of by-laws for their government, not
inconsistent with the regulations of the corporation, or the constitu-
tion and laws of the State, and may change the same at pleas-
ure." ^ _ - . _ "The directors or trustees" — of every private
corpoi'ation — ' ' may adopt by-laws for the government of the corpora-
tion ; but such by-laws may be altered, changed or amended by a
majority vote of the stockholders at any election or special meeting or-
dered for that purpose by the directors or trustees, on a written applica-
tion of a majority of the stoclcholders or members." 7 _ _ _ _ Cor-
porations, either business, literary, scientific or charitable, " may make
all such by-laws, rules and regulations, not inconsistent with the laws in
1 Gen. Stat. Kau., vol. 1, § 1176. governing corporations when no
^ 3 Rev. Stat. N. Y. (Banks & Bros, special provision is made.
8th ed.), p. 1701, § 17. 5 Qen. Stat. Col. (1883), § 245.
3 Rev. Stat. Mo. (1889), § 2506. 6 Rev. Stat. Ohio (1890), § 3250.
* Starr & Curt. 111. Stat., p. 612, ^ Sayle's Tex. Cir. Stat., art. 581.
§ 6. This is the general provision
794
POWER AND MODE OF ENACTING. [1 Thotup. Coip. § 981.
force, or which may be in force in this territory, and not inconsistent
with other corporate rights and vested privileges, as may be necessary to
carry into effect the object of the association ; and such by-laws, rules
and regulations may be made in a general meeting of the stockholders,
or by a board of officers elected by them." ^
§ 979. Academies, Colleges, Seminaries, Universities. — The
board of trustees of colleges, academies, high schools or other semi-
naries of learning, " may make and adopt all necessary by-laws, rules
and regulations not inconsistent with the laws of the United States or of
this State, for the governing of such college, etc., and to enable the said
board to properly discharge its duties as such." 2 _ _ _ _ The
trustees of any incorporated college or university " may enact such by-
laws not inconsistent with the laws of this State or of the United States,
for the government of the institution, and for conducting the affairs of
the corporation, as they may deem necessary." 3 _ . - - Trustees
of colleges and seminaries have power " to make all ordinances and by-
laws necessary and proper to carry into effect the foregoing powers." *
»
§ 980. Banks of Discount.— " Every such bank" — incorpo-
rated banks of discount and deposit — " shall have power to prescribe
by its board of directors, bj'^-laws not inconsistent with law, regulating
the manner in which its stock shall be transferred, its general business
conducted, and the privileges granted it by law exercised and en-
joyed." ^ _ - - - "The directors" — of incorporated banks of
discount and deposit — " are authorized to adopt such by-laws, not in
conflict with this act, as may be necessary. ' ' ^
§ 981. Breeding Associations. — " The corporators, or trustees,
or directors, as the case may be, of any company organized under this
act" — an act for the incorporation of associations for mpro«t>ij the
breed of horses — " shall have power to make such by-laws, not incon-
sistent with the laws of this State, as may be deemed necessary for the
government of its officers and the conducting of its affairs, and the
same to alter or amend at pleasure ; they may also prescribe such rules
and regulations for the sale and transfer of the stock of the company as
they may deem just and expedient." '
' Corap. Laws Utah (1876), § 534. ^ Code Va. (1887), § 1156.
2 Rev. Stat. W. Va. (1879), vol. 1, " Comp. Stat. Mont. (1888), p. 750
p. 291, §11. §518.
3 Comp. vStat. Neb. (1887), p. 233, ' 3 Rev. Stat. N. Y. (Banks & Bros.
§ 17. 8th ed.), p. 2068, § 6. Also, Ibid., p.
* Rev. Stat. Minn. (1881), p. 405, 2074, § 6.
§175.
795
1 Thomp. Corp. § 985. J by-laws.
§ 982. Bridge Companies. — "The said company " — bridge cor-
poration — " shall have power from time to time, at any regular meet-
ing of the board of directors, to make, alter, and change such by-laws
and rules for the government of said company. " 1 - - - - "The
directors first elected " — of bridge corporations — ' ' shall immediately
provide a code of by-laws for the government of the corporation and
management of its prudential concerns, and present the same to the
company for adoption ; which by-laws if not repugnant to the laws of
the State, when approved by a vote of a majority of the stock represented,
shall become a law and be binding on all parties concerned until altered
or amended by a similar vote, at any meeting of the stockholders." ^
§ 983. Building and Construction Companies. — " The trust-
ees of such company" — corporations for erecting buildings, docks,
and tvharves, buying and selling lands, erecting and using elevators, and
making and dealing in building material — " shall have power to make
such prudential by-laws as they shall deem proper, for the management
and disposition of the stock and business affairs of such company, not
inconsistent with the laws of this St&te, and prescribing the duties of
officers, artificers and servants that may be employed, for the appoint-
ment of all officers, and for carrying on all kinds of business within the
objects and purposes of such company." ^
§ 984. Canal Companies. — " The officers so elected " — of canal
corporations — " shall provide a code of by-laws for the government of
the corporation, regulating the use and navigation of the canal, and the
tariff of tolls and water rents on the same ; which by-laws when ap-
proved by a majority of the stockholders shall become law, and bind-
ing, until altered or amended by a vote of an annual or called meeting
of the stockholders." ^
§ 985. Gaslight Companies. — "The directors of such com-
pany " — gaslight corporations — " shall have power to make such pru-
dential by-laws as they shall deem proper for the management and
disposition of the stock and business affairs of such company, not incon-
sistent with the laws of this State, and prescribing the duties of officers,
artificers, and servants that may be employed ; for the appointment of
all officers and for carrying on the business aforesaid." ^
1 Conip. Stat. Neb. (1887), p. 237, ^ 3 Rev. Stat. N. Y. (Banks & Bros.
§ 34. 8th ed.), p. 1992, § 7.
2 Rev. Stat. Ind. (1888), §§ 3533 and ^ Rev. Stat. Ind. (1888), § 3572.
3550. * 3 Rev. Stat. N. Y, (Banks & Bros .
796
8th. ed.;, p. 2077 § 7.
POWER AND MODE OF ENACTING. [1 Thomp. Coi'p. § 989.
§ 986. Guano Companies. — ' ' The trustees of such company ' ' —
corporations to procure and traffic in guano — ' ' shall have power to make
such prudential by-laws as they shall deem proper for the management
and disposition of the stock and business affairs of such company, not
inconsistent with the laws of this State, and prescribing the duties of
officers, artificers and servants that may be employed, for the appoint-
ment of all officers, and for carrying on all kinds of business within the
object and purposes of such company." ^
§ 987. Guaranty Companies. — " The corporators, or the trustees
or directors, as the case ma}^ be, of any company organized under this
act" — an act to pro\ade for the organization of credit guaranty com-
panies — "shall have power to make such by-laws, not inconsistent
with the constitution or the laws of this State, as may be deemed neces-
sary for the government of its officers and conduct of its affairs, and
the same, when necessary, to alter and amend. " ^
§ 988. Homestead Companies. — "The directors of such cor-
poration " — associations to provide members with homesteads — " shall
have power to make such prudential by-laws as they shall deem proper
for the management and disposition of the stock and business affairs of
such company, not inconsistent with the laws of this State, or of the
articles of the association ; and prescribing the duties of directors, offi-
cers and servants that may be emploj-ed ; for the appointment of officers
and agents ; for the security of the funds of the corporation, and for
carrying out the objects and purposes of such corporation." ^
§ 989. Hotel Companies. — "The trustees of such company " —
corporations for erecting and keeping hotels — ' ' shall have power to
make such prudential b^^-laws as they shall deem proper for the man-
agement and disposition of the stock and business affairs of such com-
pany, not inconsistent with the laws of this State, and prescribing the
duties of officers, artificers and servants that may be emploj'cd, for the
appointment of all officers, and for carrying on all kinds of business
within the objects and purposes of such company." *
1 3 Rev. Stat. N. Y. (Banks & Bros, make by-laws. 3 Rev. Stat. N. Y.
8th ed.), p. 2085, § 7. (Banks & Bros. 8th ed.), p. 1G43, § 11.
2 3 Rev. Stat. N. Y. (Banks & Bros. a 3 Rev. Stat. N. Y. (Banks & Bros.
8th ed.), p. 1721, § 9. The same Ian- 8th ed.), p. 2012, § 18.
guage, precisely, is used as to the right ^ 3 Rev. Stat. N. Y. (Banks & Bros,
of fire and inland navigation and trans- 8th ed.), p. 2002, § 7.
portatiou insurance compauies to
797
1 Thomp. Corp. § 1)92.] by-laws.
§ 990. Industrial Co-operative and Mutual Benefit So-
cieties. — " The trustees of such company" — corporation for indus-
trial or productive purposes — "shall have power to make such pruden-
tial by-laws as they shall deem proper for the management and disposition
of the stock and business affairs of such company, not inconsistent with
the laws of the United States and of this territory, and prescribing the
duties of officers, artificers, and servants that may be employed ; for the
appointment of all officers, and for carrying on all kinds of business
within the objects and purposes of such company."! . _ - _ "The
corporators, or trustees or directors, as the case may be, of any corpo-
ration organized under this act" — co-operative and working-men's
unions — "shall have power to make such by-laws, not inconsistent with
the laws of this State, as may be deemed necessary for the government
of its officers and conducting of its affairs, and the same to alter and
amend at pleasure." 2 _ _ _ _ "A majority of the trustees" — of
co-operative and mutual benefit associations — ' ' duly convened accord-
ing to the by-laws, shall constitute a quorum for the transaction of busi-
ness. The trustees shall adopt by-laws and regulations not inconsistent
with the articles of association or the provisions of this act." ^
§ 991. Inland Navigation Companies. — "The directors" —
of inland navigation companies — " shall have power to make such rea-
sonable by-laws, not inconsistent with the laws of this State or of the
United States, as they shall deem proper for the management and dis-
position of the property, affairs and concerns of such company ; for pre-
scribing the power and duties of the officers of such company ; for the
appointment of such officers, and for the transaction and carrying on all
kinds of business within the objects and purposes of such corpora-
tions."^ _ - - - "The officers so elected" — of steam-packet
companies — ' ' shall provide a code of by-laws for the government of the
corporation ; which by-laws, when approved by a majority of the stock-
holders, shall become law and binding until altered or amended by a vote
of a meeting of the stockholders." ^
§ 992. Insurance Companies. — "The directors of any such
company " — of insurance companies — ' ' shall have power to appoint a
secretary . . . ; they may ordain and establish such by-laws and
regulations, not inconsistent with this chapter ... as shall appear
1 Comp. Stat. Mont. (1888), p. 727, 3 Acts Mich. 1887, p. 195, § 10.
§ 454. * 3 Rev. Stat. N. Y. (Banks & Bros.
2 3 Rev. Stat. N. Y. (Banks &Bro8. 8th ed.), p. 1855, § 7.
8th ed.), p. 2046, § 6. * Rev. Stat. Ind. (1888), § 4137.
798
POWER AND MODE OF ENACTING. [1 Thomp. Corp. § 994.
to them necessary for regulating and conducting the business of the com-
pany." ^ _ . _ - " The corporators, or the trustees or directors,
as the case may be, of any company organized under the provisions of
this act " — an act to provide for the organization of marine insurance
companies — " shall have power to make such by-laws, not inconsistent
with the constitution or laws of this State, as may be deemed neces-
sary for the government of its officers and the conduct of its af-
fairs." ^ . _ _ _ "The corporators, trustees, directors, members
or representatives, as the case may be, of any association, corporation
or society organized under this act " — an act to provide for the organ-
ization of co-operative or assessment life and causualty insurance.com-
panies — "shall have power to make such by-laws, not inconsistent
with the constitution or laws of this State, or of the United States, as
may be deemed necessary for the government of its officers and
conduct of its affairs, and the same, when necessary, to alter and
amend," 3 - - - _ " The corporators, or the trustees, or dii'ectors,
as the case may be, of any company " — life, health and casualty in-
surance companies — ' ' organized under this act shall have power to
adopt a seal, and to make such by-laws, not inconsistent with this actor
the constitution and laws of this State, as may be deemed necessary for
the management of its affairs." * - - - - A mutual fire insurance
corporation, " may make by-laws and regulations for the government of
its board of directors and other officers and agents, and the management
and regulation of its property and business. . . . All bj'-laws shall
be adopted by the directors of the company in a general meeting assem-
bled, and shall be void if not consistent with the laws of this State." ^
§ 993. Library Companies. — " The trustees " — of any library
corporation — ' ' shall establish by-laws and rules for the regulation of
such library. ' * ^
§994. Manufacturing Companies. — "The trustees of such
company" — manufacturing company — "for the time being, shall
have power to make and prescribe such by-laws, rules and regulations
as they shall deem proper respecting the management and disposition of
the stock, property and estate of such company, the duties of the
officers, artificers and servants by them to be employed, the election of
trustees, and all such matters as appertain to the concerns of the said
1 Rev. Stat. Iowa, 1888, § 1692. * 3 Rev. Stat. N. Y. (Banks & Bros.
23 Rev. Stat. N. Y. (Banks & 8th ed.), p. 1007, § 10.
Brothers 8th ed.), p. 1631, § 12. 6 Rev. Stat. W. Va. (1879), vol. 1,
3 3 Rev. Stat. N. Y. (Banks & Bros. p. 328, §§ 1, 5.
8th ed,), p. 1704, § 4. « Rev. Stat. Ind. (1888), § 3786.
799
1 Thoiup. Corp. § 990.] by-laws.
company, to appoint such and so many officers, clerks and servants for
caiTying on the business of the said company, and with such wages as
to them shall seem reasonable : Provided, That such by-laws be not in-
consistent with the constitution and laws of this State or of the United
States."^
§ 995. Mining and Smelting Companies. — A mining and
s^nelting corporation " may prescribe by-laws for the management of its
business and affairs by a board of directors, trustees, committee or
other officers or agents, and provide for their election or appointments,
and prescribe their duties, and may require bond from any officer for
the faithful discharge of duties, and may by such by-laws prescribe in
respect to all matters appertaining to the business and affairs of
said corporation, not inconsistent with the provisions of this act, nor
the constitution or laws of this State. Such by-laws may be made,
altered or amended by the directors, trustees or committee clothed with
the general management of the affairs of such corporation ; but the
stockholders, at any regular meeting, may repeal or alter any by-law, or
adopt new ones, and such action shall remain binding until repealed or
changed by the stocldiolders themselves at some regular meeting." ^
§ 996. TfaTigation Improvement Companies. — Corporations
for the improvement of the navigation of navigable rivers — called
slack water navigation companies, have by "the directors of such com-
pany power to make by-laws for the management of the stock, property
and business affairs of the company, not inconsistent with the laws of
this State, and to prescribe the duties of officers and all other persons
that may be employed by them, and for the appointment of the officers
for carrying on all business within the object and purpose of the com-
pany." ^ _ _ - - " The officei's so elected " — of corporations for
building dams across streams so as to afford slack-water navigation —
" shall provide a code of by-laws for the government of the corpora-
tion, regulating the use and navigation of such part of said water-
com'se as lies within the Minits of said corporation, and the tariff of
tolls and water rent on the same ; which by-laws, when approved by a
majority of the stockholders, shall become law and binding until altered
or amended by a vote of an annual or called meeting of the stock-
holders." ^
1 3 Rev. Stat. N. Y. (Banks & Bros. 3 Rev. Stat. Ind. (1888), § 4106.
8th ed.), p. 1949, § 6. * Rev. Stat. Ind. (1888), § 4123.
2 Rev. Stat. Minn. (1881), p. 400,
§148.
800
POWER AND MODE OF ENACTING. [1 Thomp. Corp. § 998.
§ 997. Plank-Road and Turnpike Companies. — " The presi-
dent and dii'ectors" — of plank road companies — " shall have power
to make and prescribe such by-laws, rules and regulations ... as
they may deem proper, not inconsistent with the constitution and laws
of the United States or of this State." ^ _ - _ _ " The president
and directors" — of turnpike companies — "shall have power and it
shall be their duty. . . . 2nd. To make such by-laws, rules and
regulations as in their judgment the affairs of the corporation shall re-
quire." 2
§ 998. Railroad Companies. — " The directors of a railroad coT'
poration shall have the power to make b3'-laws for the management
and disposition of the stock, property and business affau's of such com-
pany not inconsistent with the laws of this State, and prescribing the
duties of officers, artificers and servants that may be employed, and for
the appointment of all the officers for carrj^ ing on all the business with-
in the object and purposes of such company." ^ _ . _ . "The
board of directors" — oi railroad companies — "shall have power to
make, and from time to time to amend the b3^-laws of the compan}^,
and may, by such by- laws pro\dde that less than a majority of
the board shall constitute a quorum, and may delegate any and
all of the powers of the board of directors to an executive committee
during the interval between the meetings of the board." * _ _ - _
" The directors of any j'az'ZroacZ corporation shall have power to make
such by-laws as they may think proper, and alter the same from time to
time, for the transfer of the stock, and the management of the prop-
erty and business of the company, of every description whatsoever,
within the objects and purposes of such company, and for the prescrib-
ing the duties of officers, artificers, and employes of said company, and
for the appointment of all officers, and all else that by them may be
deemed needful and proper, within the scope and power of said
company; provided, that such by-laws shall be approved by a majority
of the stocldioklers and shall not be inconsistent or in conflict with the
laws of this State, or with the articles of association." ^ _ _ . _
"■ The directors of such company " — street railway companies — "shall
have power to make by-laws for the management and disposition of the
stock, property and business affairs of the company not inconsistent with
the laws of this State; to prescribe tlic duties of officers, artificers, and
servants that may be employed, for the appointment of aU officers for
1 How. Mich. Stat. 1882, § 3G05. ■• 3 Rev. Stat. N. Y. (Banks & Bros.
2 2 Rev. Stat. N. Y. (Banks & Bro.s. 8th ed.), p. 17(;8, § 4.
8th ed.), p. 14K5, § 14. * Gun. Stat. Nev. (1885), § 843.
3 Rev. Stat. lud. (1888), § 3897.
51 801
1 Tliomp. Corp. § 1001. J uv-lavvs.
carrying on all business within the objects and purposes of such com-
pany; and for regulating the running- time, fare, etc., of said road or
roads." ^
§ 999. Religious Corporations. — " The board of trustees " —
of any church or religious corporation — "is empowered to make such
by-laws and rules as are necessary to carry out the objects of the
trust." 2
§ 1000. Safe Deposit Companies. — " The trustees of such corpo-
rations " — safe-keeping companies — " shall have power to make such
by-laws as they shall deem proper for the management and disposition
of the stock, property and business affairs of such company, not incon-
sistent with the laws of this State and of the United States, and pre-
scribing the duties of officers and servants that may be employed, the
manner of appointment and election of all officers, and for carrying on
all kinds of business within the objects and purposes of said corpora-
tion." 3
§ 1001. Savings Banks. — " The board " — of incorporated sav-
ings banks, — "may make by-laws and regulations for managing the
property of the institution, conducting its business and paying its ex-
penses ; subject always to the power of the members in general meeting
to repeal or modify such by-laws and regulations, and make
others."^ _ _ _ - "The board of trustees" — of saving banks,
trust deposits and security associations, incorporated — "shall have
power from time to time to make, constitute, ordain and establish such
by-laws, rules and regulations, as they shall deem proper for the election
of their officers, and the appointment of agents, servants, and employes;
for prescribing their respective functions, and the mode and manner of
discharging the same ; for the regulation of time of meeting of the offi-
cers and trustees ; and generally for transacting, managing, and dis-
charging the affairs of the association : Provided such by-laws, rules,
and regulations, are not repugnant to this act, to the laws of this terri-
tory, or the constitution and laws of the United States."^ _ - . _
", The board of directors of any such corporation " — savings banks —
" shall have power, from time to time, to make such by-laws, rules and
regulations as they may think proper, for the election of officers .
1 Rev. Stat. Ind. (1888), § 4151. * Code Va. (1887), § 1177.
2 Rev. Stat. Tnd. (1888), § 3(323. -^ Comp. Stat. Mout. (1888), p. 763,
=> 2 Rev. Stat. N. Y. (Bank & Bros. § 557.
8th ed.), p. 1605, § 7.
802
REQUISITES AND VALIDITY. [1 ThoiUp. Coi'p. § 1003.
and generally for transacting, managing and directing the affairs of the
corporation ; provided such b^^-laws, rules and regulations are not re-
pugnant to, nor inconsistent with the provisions of this act, the constitu-
tion and laws of this State or of the United States." i
§ 1002. Telegrrapli Companies. —" The board of directors" —
of telegraph companies — " shall provide a code of by-laws for the gov-
ernment of the corporation and the management of its business." 2
§ 1003. Trust Companies. — " The trustees " — of trust com-
panies — ' ' shall have power to make and use a common seal . . .
and shall have power, from time to time, to make and establish such by-
laws, rules and regulations, not inconsistent with the laws of this State
or of the United States, as they shall deem expedient for the conduct
and management of the business affairs and property of said company ;
for the issue and transfer of the stock of said company ; for determin-
ing the time and manner of holding elections and meetings of the com-
pany and of the trustees, for the filling of vacancies in the board of
trustees, and for the conduct, management and regulation of all other
matters that may appertain to the concerns of said corporation." ^
Article III. Requisites and Validity.
Section
1010. General statements of the requi-
sites of good by-laws.
1011. Mu-t not be contrary to the
cliartei".
1012. Illustrations.
1013. Must not be contrary to law.
1014. Limit itions of the foregoing
rule.
1015. Must not be contrary to the ar-
tic es of mcorjioration.
1016. Mustuotbe coutrary to common
right.
1017. Illustrations of municipal or-
dinances coutrary to com-
mon right.
1018. Mu>t operate equally.
lOM). Must not disturb vested rights.
1020. Must not be unreasonable, op-
pressive or extoriiouate.
1 2 Rev. Stat. N. Y. (Banks & Bros.
8th ed.), p. I5(J6, § 251.
* Rev. Stat. Ind. (1S88), § 4107.
Section
1021. Must be reasonable.
1022. Reasonableness of corporate by-
laws a question of law.
1023. Illustrations of by-laws held
void because unreas.mable.
1024. Instances of municipal by-laws
held unreasonable and hence
void.
1025. Illustrations of municipal by-
laws held not unreasouable.
1026. By-laws touchinii the admission
of persons to the freedom of a
place.
1027. By-law compelling elected mem-
ber to wear livery, and pay
initiation fee or a forfeiture.
1028. Must notbe in restraint of trade.
1029. The ancieut law on this sub-
ject.
3 2 Rev. Stat. N. Y. CBanks &Bro8.
8th ed.;, p. 1699, § 18.
803
IThomp. Corp. § 1010.] by-laws.
Section
1030. By-laws establishing combina-
tions among workmen to
maintain prices.
1031. Regulating or restraining trans-
fers of shares.
1032. Creating a lien upon shares.
1033. Releasing shtireholders from
their obligation of payment.
1084. Restricting the right to sue in
the courts.
1035. Corapelliug members to submit
their disputes to arbitration.
1036. Power to enforce by pecuniary
fines.
1037. Cannot be enforced by a forfeit-
ure of property.
1038. Nor by a forfeiture of shares.
1039. Otherwise where power ex-
pressly conferred by charter.
1040. The flue or penalty must be cer-
tain.
1041. Making the corporation a judge
in its own case.
Section
1042. Views as to the proper measure
of such fines.
1043. Illustrations: by-laws of build-
ing associations imposing ex-
cessive fines.
1044. Imposing fine for non-accept-
ance of a corporate office.
1045. Imposing fines for non-attend-
ance at corporate meetings.
By-laws regulating the conduct
of corporate members.
Disiuclination of the courts to
interfere with the by-laws of
societies.
Valid in part and void in part.
Establishing a quorum of the
board of directors.
Regulating corporate elections.
Forbidding secret societies in
colleges.
1052. Instances of by-laws which have
been held valid.
1053. Conclusion of title one.
1046.
1047.
1048.
1049.
1050.
1051.
§ 1010. General Statements of the Requisites of Good
By-Laws. — Collecting certain general statements of the requi-
sites of good by-laws which are to be met with in the decis-
ions, — it may be said that a by-law must be certain;'^ must
be directed to all within the sphere of its operation,^ and must
operate equally upon all to whom it applies.^ To these it may
be added that it must not be contrary to the charter,* or articles
of association of the corporation,^ or to the constitution or com-
mon or statute law of the State, ^ nor retroactive,' nor violative
of vested rights,^ nor in restraint of trade,^ nor unreasonable, ^°
nor contrary to good morals or public policy .^^
1 Goddard v. Merchants' Exchange,
9 Mo. App. 290, 295.
2 Post, § 1018.
3 Goddard v. Merchants' Exchange,
9 Mo. App. 290, 295; Stewart v. Father
Matthew Society, 41 Mich. 67 ; Cartan
V. Father Matthew Society, 3 Daly (N.
Y.),20; People v. Medical Society, 24
Barb. (N. Y.) 570.
4 Fust, 21011.
804
* Post, § 1015.
« Post, § 1013.
' Post, § 1019.
8 Post, § 1019.
9 Post, § 1028.
10 Post, § 1021.
11 <' The power of a corporation to
make by-laws for the government of
its members does not authorize it to
violate law, nor to require its mem-
REQUISITES AND VALIDITY. [1 Thomp. Corp. § 1011.
§ 1011. Must not be Contrary to the Cliarter. — By-laws
which are contrary to the charter or governing statute of the
corporation are of course void.^ Stated in general terms, no
by-law is valid which either enlarges or restricts the rights and
powers conferred by the charter or governing statute ;2 for, as
already seen, a body of co-adventurers cannot make themselves
a corporation, or take to themselves corporate franchises without
the authorization of the State. ^ So, by a parity of reasoning,
they cannot enlarge, by the mere passage of by-laws, the powers
and franchises which the State has seen fit to confer upon them;
nor can the majority of them curtail or diminish those powers
and franchises to the injury of a dissenting minority.* A com-
mon illustration of this principle is found in the proposition,
supported by decisions almost without number, that the power
given to a municipal corporation, by its charter or governing
statute, to establish ordinances in certain cases and for certain
bers to do so. The power is limited
by the uature of the corporation and
the laws of the country. It can make
no rule which is contrary to law, good
morals, or public policy." Sayre v.
Louisville &c. Asso., IDuv. (Ky.) 143;
s. c. 85 Am. Dec, 613; citing Aug. & A.
Corp., § 335. " Every by-law by which
the benefit of the corporation is ad-
vanced is a good by-law for that very
reason; that being the true touch-
stone of all by-laws." London City w.
Vanaclcer, Carth. 480, 482, per Lord
Holt, C. J.
^ Kent V. Quicksilver Mining Co.,
78 N. Y. 157, 182; Bergman v. St. Paul
&c. Building Asso., 29 Minn. 275;
State V. Curtis, 9 Nev. 325; Presby-
terian &c. Fund V. Allen, 106 Ind. 593;
America!! Legion of Honor v. Perry,
140 Mass. 580; State v. Curtis, 9 Nev.
i{25; Kearney v. Andrews, 10 N. J. Eq.
70; Brewster v. Hartley, 37 Cal. 15,
24; s. c. 99 Am. Dec. 237; Andrews v.
Union &c. Ins. Co., 37 Me. 256; Uexv.
Weymouth, 7 Mod. 373; Hex v. Berm-
stead, 2 Barn. & Ad. 699; Rex v.
Spencer, 3 Burr. 1827. "A by-law
may subject persons to penalties, but
cannot make an act void which is war-
ranted by the original constitution."
Dr. Harscot's Case, Comb. 202, 203,
per Holt, C. J. " They ought," said
Lord Mansfield, *•' (as being the crea-
ture of the charter) , to be restrained
from making any by-laws inconsistent
with it, or counteracting the end, in-
tention, and directions of it; though
it may not be unreasonable to allow a
greater latitude in making by-laws,
for the good of the corporation, to the
common council cf a corporation by
prescription, where the common coun-
cil is by prescription, and such pre-
scription authorizes them to make by-
laws for the good of the corporation."
Rex V. Cutbush, 4 Burr. 2204.
2 Brewster v. Hartley, 37 Cal. 15;
s. c. 99 Am. Dec. 237; Great Falls &c.
Ins. Co. V. Harvey, 45 N. II. 292; Kent
V. Quicksilver Mining Co., 78 N. Y.
159; Railway Co. v. Allerton, 18 Wall.
(U. S.) 233.
3 Ante, § 35.
* Brewster v. Hartley, 37 Cal. 16,
24; s. c. 99 Am. Dec. 237.
805
1 Thomp. Corp. § 1012 ] by-laws.
purposes, is a delegation of legislative power for those cases and
those purposes only, and all others are excluded by implication.^
Where there are general provisions for the enactment of ordi-
nances or by-laws, and in the same charter there are specific
provisions for special subject-matters, the general provisions do
not enlarge or restrict the special provisions ; nor do the specific
provisions, for special subject-matters, curtail the power under
the general provision^:, any further than necessarily results from
the nature of the special provisions, unless a contrary intent is
apparent.^ But it seems that a by-law is not necessarily void
because it still further restricts a. provision of the cliarter,
unless the provision of the charter is couched in such terms
as to show that the power to restrict was intended to be ex-
cluded.^
§ 1012. Illustrations. — Thus, where the charter gives to the stock-
holders the power to elect the directors, the corporation cannot, by a
by-law, take away this power.* So, where the charter of an insurance
company authorizes it to insure against fire only, a by-law referred to
in a poUcy recognizing damages by lightning as one of the risks
assumed, imposes no obligation upon a company to pay for losses
other than by fire,^^ a decision which puts the public deaUng with cor-
porations at the peril of knowing the powers conferred by every special
charter. So, where the salaries of some of the officers of a corpora-
tion are fixed by the charter, the corporation have no authority to
change such salaries by the by-laws, although the charter contains a
clause authorizing them to fix salaries. This can apply only to salaries
not fixed by the charter.^
* New Orleans v. Philippi, 9 La. choose one to be mayor. This was
An. 44; Dill. Mun. Corp. (4th ed.), held to be but a usage, its object being
§ 316. merely to avoid popular confusion.
2 Huesing v. City of Eock Island, Barber v. Boulton, 1 Strange, 314.
128 III. 4G5. But it is obvious ihat in this case the
3 The charter of a borough pro- by-law was not at all restrictive of
vided that the mayor was to be chosen the charter provision, which simply
by the capital burgesses, out of the regulated the mode of selection,
capital burgesses who should number * Brewster v. Hartley, 37 Cal. 15,
24; but a iisagi', founded on a by-law, 24; s. c. 99 Am. Dec. 237.
was 1o the effect that th ; common bur- ^ Andrews v. Union &c. Ins. Co.,
gesses should put five of the capital 37 Me. 256.
burgesses in nomination, out of wliich ^ Carr v. City of St. Louis, 9 Mo.
five the capital burgesses should 191.
800
REQUISITES AND VALIDITY. [1 Thomp. Corp. § 1014.
§ 1013. Must not be Contrary to Law — Generally speaking,
a by-law which is contrary to tiie law of the land, common or
statutory, is void.^ For stronger reasons, it is void if it is con-
trary to the constitution of the State, for an act of the legisla-
ture in such a case is void.^ As the legislative power cannot be
delegated, it has been reasoned that the legislature cannot confer
on a monej^ed corporation power to enact by-laws contravening,
repealing or in any wise changing, the statutory or common law
of the land.^
§ 1014. Limitations of the Foregoing Rule. — But this is to
be understood rather of by-laws which violate the positive in-
junctions of the statute law of the State, which are intended to
operate universally and of those cases where no power has been
conferred upon the corporation to make a different rule for the
pariicular corporation or particular case. And, in its relation to
the common law, it is to be understood of by-laws which violate
those fand(f mental principles of right which are embodied in the
common law. Obviously, the mere fact that a by-law makes a
different ride for the government of the paiticular class of per-
sons upon whom it operates, from the general rule of the common
law, is no obiection to its validity; for otherwise by-laws would
be of no value, because unnecessary. As they could not dis-
1 Bullard v. Bank, 18 Wall. (U. S.) 59; Livingston v. Albany, 41 Ga. 22;
589; People v. Benevolent Society, 3 Wood v. Brooklyn, U Barb. (N. Y.)
Hun (N. Y.), 361; People V. Fire De- 425; State v. Hardy, 7 Neb. 377;
partmeiit, 31 Mich. 458; People v. Cullinan v. New Orleans, 28 La. An.
Crockett, 9 Cal. 112; Kennebec &c. R. 102; Illinois Central R. Co. v. Bloom-
Co. •«. Kendall, 31 Me. 470; Haydcn u. ingtou, 76 111. 447; Shreveport v.
Noyes 5 Conn. 391 ; Peoples. Medical Levy, 26 La. An. 671 ; s. c. 21 Am. Rep.
Soc, 24 Barb. (N. Y.) 570; New Or- 553; Judson y. Reardon, 16 Minn. 431,
leans v. Philippi, 9 La. An. 44. So a 435; New Orleans v. Savings Bank,
mnnicipnl ordinance \y\\ic\\\fi repugnant. 31 La. An. 637; Wa'ker y. New Or-
either to the constitution of the leans, 31 La. An. 828; State u. C'a Id-
United States, the constitution of the well, 3 La. An. 435; Vance v. Little
particular State, or its general law, Rock, 30 Ark. 435; Mayor d. Hussey,
whether statute or common, is ipso 21 Ga. 80; Haywood y. Mayor, 12 Ga.
facto void. Burlington v. Kellar, 18 404.
Iowa, 65; Peslerfleld v. Vickers, 3 2 state v. City of Cincinnati, 23
Coldw. (Tenn.) 205; Indianapolis v. Ohio St. 445.
Gaslight Co., 66 Ind. 3:)6; Wilkesbarre " Seneca County Bank v. Lamb, 26
City Hospital v. Luzerne, 84 Pa. St. Barb. (N. Y.) 595.
807
1 Xhomp. Corp. § 1010.] by-laws.
place or supplement rules of the common law, they would in all
cases be nugatory. The mere suggestion of the case of the ordi-
nances of municipal corporations will give point to this. By the
principles of the common law, every man may lawfidly engage
in trade without restriction or without paying a tax for the priv-
ilege. By municipal ordinances, license taxes are imposed upon
merchants doing business within the limits of the particular
municipality, to which citizens outside the municipality are not
subject by the ordinary law of the State. Such ordinances are
therefore in a sense contrary to the law of the State, and yet they
are not for this reason invalid, although they are enforced by the
sanction of fine and imprisonment. So, the by-laws of munici-
pal corporations frequently define and punish offenses of a petty
character, of which the general statute law of the State and the
common law take no notice ; but they are not for this reason to
be regarded as void, because contrary to the general law. It is
therefore a sound conclusion that if a by-hnv of a corporation is
not unreasonable, or contrary to the general policy of the law,
the mere fact that it introduces a new rule which is not the
rule of the common law does not render it invalid.^
§ 1015. 3Iust not be Contrary to the Articles of Incorpora-
tion. — As already pointed out^,the articles of incorporation,
where the corporation is organized under a general law, occupy,
when conformable to the governing statute, the place of a charter
for the corporation, and in some States the word " charter" is
used with reference to such articles. They are the constitution
of the company, as distinguished from its b;/-laws, which in their
relation to the former are in the nature of subordinate regula-
tions. It follows that a by-law, by which a corporation under-
takes to deprive a dissenting stockholder of a right secured to
him by the articles of association, is void. Thus, it has been
held that a buildins; association cannot retire and cancel shares of
stock against the will of the holder thereof.^
§ 1016. Must not be Contrary to Common Right. — The
proposition that a corporate by-law must not be contrary to the
1 Goddardr. Merchant's Exchange, " Ante, §216.
9 Mo. App. 290; s. c. affirmed, 78 Mo. ^ Bergman v. St, Paul Mut. Building
609. Assoc. 29 Minn. 275.
808
REQUISITES AND VALIDITY. [1 Thomp. Corp. § 1017.
common law, is, as has been suggested,^ to be understood as
meaning that it must not contravene those principles of common
rigid which are imbedded in the common law. When, there-
fore, a by-lawr is contrary to common right, it will be declared
void by the judicial courts, unless express legislative authority
can be found for its enactment. This is very nearly the legal
equivalent of the pioposition, discussed hereafter, that by-laws
are void when unreasonable ; ^ since anything is unreasonable in
a legal sense when it is contrary to a common right.
§ 1017. Illustrations of Municipal Ordinances Contrary to
Common Riglit. — The author is indebted to a learned note of Mr.
Freeman in the American Decisions, ^ for a collection of cases in which
municipal by-laws have been held void, on the ground of being contraiy
to common right. This has been held of a by-law prohibiting all per-
sons, except the inhabitants of a town, from taking j^s/i from a navigable
river within the town limits ; ^ conferring a right to obstruct the high-
ivay, or the approaches to a bridge, so as to interfere with public
travel ; ^ under a power to regulate loharves, defining the line of high
water mark and declaring the erection of buildings below that line a
nuisance ; ^ authorizing the sale without notice to the owner, of property
left on the levee beyond a certain time ; "^ imposing a tux on wagons of
outside residents engaged in hauling into and out of the city ; ^ assum-
1 Ante, § 1014. tax called an octroi, which is levied
2 Post, § 1023. upon articles of farm produce, wines
3 38 Am. Dec. 636. and other things consumed within the
* Ha\ den v. Noyes, 5 Conn. 391 ; city by its inhabitants, and brought in
Willard ». Killingworth, 8 Conn. 2i7. by producers from the outside. Trav-
fi Stack V. East St. Louis, 85 111. elers who have carried their luncheon
377; Pettis v. Johnson, 56 Ind. 139. with them in a basket have had amus-
fi Evansville v. Martin, 41 Ind. 145. ing experiences in Italian cities, with
' Laufear v. Mayor, 4 La. 97; s. c. the collectors of this local tax, over
23 Am. D. c. 477. the question of payhig duty on their
* St. Charles v. Nolle, 51 Mo. 122. dinner. The American principle does
In numerous other cases municipal not, it has been held, ext nd sofar as
by-laws have been set aside which to render a municipal ordinance void
impose restrictions upon the free which exacts a license of a person
vending within the city limits of the whose business is that of manufactur-
producers of farm produce. In this ing and whose manufacturing estab-
respect the American municipal regu- lishment is outsiilethe city, but whose
lationsareeutirely diffeientfromthose goods are delivered inside in his own
which obtain on the continent of wagons. Memphis v. Battaile, 8
Europe. In France it is permitted to IleisL'i. (Tenn.) 524; Edonton v. Cape-
municipalities to establish a local hart, 71 N. C. 156.
809
IThomp. Corp. § 1018.] by-laws.
ing to regulate or prohibit hurt/ in'j grounds outside the corporate limits,^
though within the corporate Umits this is a proper subject of municipal
regulation. 2 The proposition of the preceding section is also well illus-
trated by judicial holdings to the effect that a municipal ordinance
authorizing the arrest of persons without warrant is void because in con-
travention of those principles of common right secured by the general
law of the land.^
§ 1018. Must Operate Equally. — Another principle, which
is perhaps a mere paraphrase of the princij)le that by-laws must
be reasonable and of the principle that they must not be contrary
to common right, is that they must operate equally upon all per-
sons of the class which thoy are intended to govern. On this
ground, a municipal ordinance which is flagrantly unequal and
partial will be set aside as void. It has been so held of an ordi-
nance exacting; a license for selling o-oods, and fixing one rate of
license to be paid for selling goods within the corporate limits
or in transitu to the city, and another and much larger
rate for selling goods not within the city or iii transitu to it.*
The same has been held of a municipal ordinance imposing a
license fee, and discriminating between merchants and manu-
facturers residing outside the city limits, and other persons of
the same class residing within the city limits. Not only was this
void because it operated unequally and [martially, but it was held
to be beyond the authority of the city council.^ Another court
1 Begein v. Anderson, 28 Ind. 79. private hospital witliin the city Umits
2 City Council v. Baptist Church, 4 is not invalid. Milne v. Davidson, 5
Strobh. L. (S. C.) SOO; Coates v. Mart. (n. s.) (La.) 409; s. c. 16 Am.
Mayor, 7 Cow. (N. Y.) 585; Com. v. Dec. 189. So, an ordinance has been
Fahey, 5 Cush. (Mass.) 408; Bogert upheld, forbidding the purchase of
V. Indianapolis, 13 Ind. 134; New the carcasses of dead animals for
Orleans v. St. Louis Church, 11 La. the purpose of boiling, steaming and
An. 244; Brick Presbyterian Church rendering them, and prohibiting them
V. Mayor, 5 Cow. (N. Y.) 538; Com. from being boiled, steamed and ren-
V. Goodrich, 13 Allen (Mass.), 546; dered within certain limits. State v.
Musgrove v. Catholic Church, 10 La. Fisher, 52 Mo. 174, 177.
An. 431. But such restiaints must be 3 petersfleld v. Vickers, 3 Coldw.
r.asonable; and an oidin ince forbid- (Tenn.) 205; Judson v. Keardon, 16
ding burials within the corporate Minn. 431; Pinkerton v. Verberg, 30
limits but not in a populous section Cent. L. J. 352.
has been held void, Austin v. Murray, ■* Ex parte Frank, 52 Cal. 606.
16 Pick. (Mass.) 121. So, au ordi- ^ Nashville v. Altliorp, 5 Coldw.
nance prohi luting the erection of a (Tenn.) 554. Accordingly, it has been
810
REQUISITES AND VALIDITY. [1 Thomp. Coi'p. § 1019.
has said: "All corporation by-laws must stand on their own
validity, and not on any dispensation granted to members. 1 hey
cannot be subjected to any conditions which do not apply to all
alike, and cannot be compelled to receive, as matter of grace,
anything which is a matter of right; neither, on the one hand,
should there be personal exemptions of a general nature from
any valid regulations that bind the mass of corporators." ^ So,
it has been held that, under the power of a corporation to make
by-laws, a resolution directed against the stock of a certain share-
holder is unlawful.^
§ 1019. Must not Disturb Vested Rights. — As statutes
which impair the obligation of contracts and disturb vested
rights are unconstitutional and hence void,^ so, for stronger
leasons, the by-laws of a corporation will be held void, where
they operate todi-^turb the vested rights of the members.* And,
although the power is reserved to a corporation, by its charter,
to alter, amend, or repeal its by-laws, it cannot repeal a by-law
so as to impair rights which have become vested thereunder.^
A striking illustration of this is found in the principle that where
neither the charter nor the governing statute imposes on the
members a personal liability to pay the debts of the corporation,
such a liability cannot be created by any by-law or vote of the
corporation so as to be bindmg on dissenting members.^ So,
where a city has giantcd to a street railway company a fram-hise
to operate a railway with a double track, it cannot, after the com-
pany has expended money under the grant, restrict it to a single
track, by an amendment to the ordinance conferring the franchise.^
said that "by-laws must be certain, < People v. Fire Department, 31
must be directed to all within the Mich. 458; People v. Crockeit, 9 Cal.
Sphere of their operation, and must 112; Gray V.Portland Bank, 3 Mass.
operate equally." Goddard v. Mer- 363.
chants Exchange, 9 Mo. App.290, 295; ^ Kent w. Quicksilver Minin.ir; Co.,
op n on by Hnyden, .1., quotedwith ap- 78 N. Y. 159, affirming s. c. 12 Hun (N.
proval in Budd v. Multnomah St. R. Y.), 53.
Co., 15 Ore. 413; s. c. 3 Am. St. Rep. « Trustees v. Flint, 13 Mete.
169, 174, (Mass.) 539; Kennebec &c. R. Co. v.
1 People V. Young Men &c. Society, Kendall, 31 Me. 470; Reid v. Eatonton
41 Mich. 07. Manufacturing Co., 40 Ga. 98.
2 Budd V. Multnomah Street Ry. ' Burlington v. Burlington Street
Co., 15 Ore. 413. Railway Co., 49 Iowa, 144.
* Post, Ch. 117, Art. I.
811
1 Thomp. Corp. § )02l.] by-laws.
§ 1020. Must not be Unreasonable, Oppressive or Extor-
tionate. — It may be stated, as a general rule, that, in the ab-
sence of any statutory restraint, and considering the question
solely as a question between the corporation and its meujbers, a
by-law of a corporation, in order to be valid, must not be un-
reasonable, oppressive or extortionate. ^
§ 1021. Must be Reasonable. — Corporations have none of
the elements of sovereignty; they cannot go beyond the powers
granted to them; they must exercise those powers in a reasona-
ble manner ; and whether they have, in a given instance, exer-
cised them reasonably or unreasonably, is a question which it is
competent for the judicial courts to decide. ^ It is therefore
a principle of the common law, running back so far that its origin
cannot be found, that the by-laws of a corporation will be set
aside by the judicial courts when deemed unreasonable.^ The
principle applies equally to private and public corporations.
No doubt it had its origin when nearly all corporations were
municipal in character, and in the earliest cases it was asserted
and applied in respect of municipal by-laws, called in modern
times ordinances.* In other words, the judge, enlightened by
1 Hagerman v. Ohio &c. Asso., 25 v. Eichardson, 1 Burr. 539; Com. v. St.
Ohio St. 186; Forest City &c. Asso. v. Patrick's Society, 2 Binn. (Pa.) 441;
Gallagher, 25 Oh. St. 208; Citizens' 4 Am. Dec. 453; Com. w. Cain, 5 Serg,
&c. As-o. V. Webster, 25 Barb. (N. Y.) & R. (Pa.) 512; St. Luke's Church v.
263; Shannon v. Howard Building Mathews, 4 Desau. (S. C.) 578, 585;
Asso., 36 Md. 383; State v. Overton, s. c. 6 Am. Dec. 619; Gray v. Medical
24 N. J. L. 435 ; s. c. 61 Am. Dec. 671 ; Soc, 24 Barb. (N. Y.) 570, 574 ; citing
Peoples. Throop, 12 Wend. (N. Y.) 2 KentCom. 29G. " A by-law must be
183, 186 ; Buffalo v. Webster, 10 Wend, reasonable, and for tlie comm')n ben-
(N. Y.) 99. eflt; it must not be in restraint of
2 Com V. Worcester, 3 Pick, trade, nor ought it to impose a burden
(Ma-s.) 461, 473; St. Louis v. Weber, without an apparent benefit." Com-
44 Mo. 547. missioners v. Gas Co., 12 Pa. St. 318;
3 Com. Dig., tit. Franch., F. 10; Budd v. Multnomah Street R. Co., 15
Bac.Abr., tit. By-law; 2 Kyd Corp. 95; Ore. 413; s. c. 3 Am. St. Rep. 169, 174.
Sutton's Hospital Case, 10 Coke Rep. See on this subject: Buffalo v. Web-
1, 31a; Louden v. Vanacker, 1 Ld. ster, 10 Wend. (N. Y.) 99; Hudson «.
Raym. 498; Rex v. Spencer, 3 Burr. Thorne, 7 Paige (N. Y.), 261; Stokes
1828; Norris v. Staps, Hob. 211; Felt- v. City of New York, 14 Wend. (N.
makers v. Davis, 1 Bos. & P. 98, 100; Y.) 87.
Palmetto Lodge v. Hubbell, 2 Strobh. ■* The following cases assert and
L. (S, C.) 457; 49 Am Dec. 604; Rex illustrate the principle that municipal
812
REQUISITES AND VALIDITY. [1 Thomp. Corp. § 1021.
his knowledire of the principles of the law of the land, will as-
sume the office of determining what is reasonable, contrary to
the opinion of the corporators or of a majority of them. But
this principle has its limits. If, in a strictly private association,
the members agree among themselves that a particular rule is
reasonable, the same not being opposed to the law in the
sense of being immoral or criminal, the courts will give
effect to it as a private contract, and will not set it aside
because they may deem it unreasonable.^ Neither can a
by-lavv be set aside as unreasonable by the judicial courts,
when it is within the powers expressly conferred upon the
corporation; for, where the legislature, by a valid and constitu-
tional law, have declared that a certain thing is reasonable, the
courts cannot say that it is unreasonable. ^ Moreover, before a
court will declare a corporate by-law or ordinance unreasonable,
its unreasonableness must clearly appear. The courts will not
look closely into mere matters of judgment, where there may be a
reasonable difference of opinion.^ It has been judicially stated,
in respect of municipal ordinances, that *' an ordinance, general
in its scope, may be adjudged reasonable as applicable to one
state of facts, and unreasonable when applied to circumstances of
or5i»ia«ces will be set aside by the ju- 77; Commissioners r. Gas Co., 12 Pa.
dicial courts wiieu deemed uureasou- St. 318; Fislier t;. llarrisburg, 2 Grant
able: Cape Girardi-au v. Kiley, 72 Mo. Cas. (Pa.) 291; Com. v. Robertson, 5
220; TugmaQ u. Chicago, 78 111.405; Cush. (Mass.) 438; Waters v. Leech,
Atkinson v. Goodrich Transportation 3 Ark. 110; Mayor v. Wiufield, 8
Co., 60 Wis. 141; Kirkham u. Russell, Humph. (Tenn.) 707; Davis v. Anita,
76 Va. 'JoG ; Omaley v. Freeport, 96 73 Iowa, 325. See further as to the
Pa. St. 24; Meyers v. Chicago &c. R. validity of by-laws of municipal cor-
Cc, 67 Iowa, 555; Gillhara v. "Wells, porations: Floyd v. Commissioners,
64 Ga. 192 ; Ex parte Chin Yan, 60 Cal. 14 Ga. 354 ; s. c. 58 Am. Dec. 559 ; Tanner
78; Clayson v. Milwaukee, 30 Wis. t?. Trustees, 5 Hill (N. Y.), 121; s.c. 40
316; Dunham v. Rochester, 5 Cow. Am. Dec. 337; Mobile u. Yuille, 3 Ala.
(N. Y.) 462; Com. v. Steffee, 7 Bush 137; s. c. 36 Am. Dec. 441; Robinson
(Ky.), 161; People v. Throop, 12 v. Mayor &c. of Franklin, I Humph.
Wend. (N. Y.) 18:5; Mayor v. Beasley, (Tenn.) 156; s.c. 34 Am. Dec. 625; and
1 Humph. (Tenn.) 232; s. c. 34 Am. see note 34 Am. Dec. 627, eif seg'.
Dec. 646; State v. Fre'raan, 38 N. II. ^ Kehlenbeck u. Logeman, 10 Daly
26; AVhyte v. Nashville, 2 Swan (N. Y.), 447.
(Tenn.), 364; Pedrick v. Bailey, 12 2 jjaynes u. Cape May, 50 N. J. L.
Gray (Mass.), 161; Ex parte Frank, 52 55; Di>trict of Columbia v. Wagge-
Cal. 606; Kip v. l'ater.«on, 26 N. J. L. man, 4 Mackey (D. C), 328.
298; Dayton v. Quiglcy, 29 N. J. Eq. ^ gt. Louis v. Weber, 44 Mo. 547.
813
1 Thomp. Corp. § 1032.] by-la-vvs.
SL diffcrcut character. ^^ ^ But whether this principle can be ap-
pealed to in detex'mining the validity of the by-law of a private
corporation, is a question on which we are not enlightened by
judicial authority.
§ 1022. Reasonableness of Corporate By-Laws a Question
of Law. — The validity of a corporate bj'-hiw, as depending
upon its reasonablent'ss or otherwise, is a pure question of law,
and is not to be submitted to a juiy. Su('h by-laws may be set
aside when, in the opinion of the courts tliey are unrea-sonahle.'^
The same rule ap[)lies to the ref/vlatious of railway companies or
other ^;((6/2c' carriers; and, although such a regulation is not
strictly a corporate by-law, yet whether it is reasonable and
hence valid, or uni'easonable and hence void, is a question of
law, .and not of fact.^ But whether a certain regulation of a
railway company is sufficient for the prevention of collisions,
has been held a question for a jury.* It has been held that the
question of the rea-ouaI)leness of a rule established by a railway
company , is a question of law for the court, where ihe facts are
undi-puted; ^ but when the question depends upon the exi-tence
of particular facts and circumstances, it is said to bo a question
for the jury, under proper instructions from the court. ^ It will
be observed that this rule involves nothing more than the sub-
stitution of the op'nion ot" the judge for th it of the governing
body of the corporation, in determining whether a corporate by-
law is to stand or fall. The rule applies to the by-laws, more
1 Knapp, J., in Nicoulin v. Lowery, Central R. Co. v. Whittemore, 43 TU.
49 N. J. L. 391. See also Penusylvauia 420, 423; Vedder v. Fellows, '10 N. Y.
E. Co. V. Jersey City, 47 N. J. L. 286. 126. At the same time, it has been
2 Morris &o. R. Co. v. Ayres, 20 N. held proper to admit testimony in re-
J. L. 39.'.; s. c. 80 Am. Dec. 215; State gard to the npcessUy of sucli a rule.
V. Overton, 24 N. J. L. 435; s. c 61 Illiuiis Central R. Co. v. Whittemore,
Am. Dec. 671; Neier v. Missouri supra.
raciflc R. Co., 12 Mo. App. 26; Merz * Chicago &c. R. Co. w. McLallen,
V. Mi-souri Pacific R. Co , 14 Mo. App. 84 II. lUJ. 116.
459; .St, Louis i;. Weber, 44 Mo. 547; * Old Colony R. Co. v. Tripp, 33
St. Louis V. St. Louis R. Co , 14 Mo. Am. & Eng. R. Cas. 488, 4;t6; Vedder
App. 2i'l; Commonwealth v. Worces- v. Fellows. 20 N. Y. 126, 131.
ter, 3 Pick. (Mass.) 4G1, 473. « Pittsburgh &c. R. Co. v. Lyon,
3 State V. Overton, 24 N. J. L. 123 Pa. St. 140; s. c. 10 Am. St. Kep.
435; s. c. 01 Am. Dec. G71; Illinois 517.
814
KEQUISITES AND VALIDITY. [1 Thomp. Corp. § 1023.
usually called ordinances, of municipal corporations, which im-
pose penalties for prescribed oifenses; the question of their
reasonableness is a question of law.^
§ 1023. Illustrations of By-laws Held Void because Unrea-
sonable. — A b3'-law of the merchants' exchange, which compels mem-
bers to submit their business controversies to arbitration, on pain of
suspension or expulsion, is unreasonable and void.^ - - - - It has
been held that a by-law of an mcorj)orated association of carriers by-
water, declaring that no member ' ' shall go into any river or trade and
work for less than the wages, nor take, bargain for, or carry any freight
for less than the estabhshcd rate in the trade," and imposing a fine for
a violation of such by-law, and prohibiting the members from employing
agents who do not belong to the association, or to some association
acting in concert with it, and prohibiting them from advertising or
working for any boat not represented in that or in some other association
acting in concert with it, is unreasonable and void, because it imposes
an obligation ou the members not to carry freight for less than the rate
fixed by the association, without reference to the question whether the
rate was reasonable or not.^ - - - - It was held that a by-law of
the city of London compelling dancing masters to accept the freedom
of the company of minstrels was a bad bj'-law. " The court held the
by-law to be naught to obhge dancing masters to be of the company of
musitioners." Lord Holt said: " The musitioners were no corporation,
they are a brotherhood or club to meet and drink and talk together,
that's all. The city might make a guild or fraternity of dancing masters
(though they cannot make a corporation), and then it were reasonable
to oblige the dancing masters to be of that company, but not of a
foreign company. A dancing master might be of another company be-
fore, which tho' it were not this case, yet if any such case may happen,
the by-law is not good. The by-law should be mended throughout ; the
city hath nothing to do to set rates and prices for dancing. " * - - - -
A by-law imposing a duty upon a member of a corporation and affixing
a penalty to the non-performance of it unless there be reasonable excuse
for not performing it, which reasonable excuse is to be approved by a
court of the corporation, was held void because it had the effect of
1 Kneedler v. Norristown, 100 Pa. ^ state v. Merchants' Exchange, 2
St. 3G8; s. c. 45 Am. Kep. 38:5; Com- Mo. App. 96.
missioner t;. Northern Liberties Gas ^ Sayre v. Louisville &c. Asso., 1
Co., 12 Pa. St. 318; Fisher v. Harris- Duv. (Ky.) 143; s. c. 85 Am. Dec. G13.
burg, 2 Grant Cas. (Pa.) 291 ; Dayton ^ Robinson v. Groscot, Comb. 872,
V. Quigley, 29 N. J. Eq. 77; 1 Dill. 373.
Mun. Corp , §§ 319, 320, 321.
815
1 Thomp. Corp. § 1024.] by-laws.
making tlie corporation a judge in its own case. " Here," said Lord
Holt, C. J., " the cause of excuse is to be approved by them, so that
if it were reasonable and not approved, the party would be without
remedy." It was so held concerning a by-law of the community of
stationers of London, which provided that the master wardens and
assistants or a major part of them should from time to time elect such
members as they should think fit, into the livery of the society, and that
if any person so elected should refuse to accept the office without a rea-
sonable excuse, to be approved of by the court of assistants, he should
forfeit £40.1
§ 1024. Instances of Municipal By-laws held Unreasonable
and hence Void. — As the holdings of the courts in passing upon the
reasonableness of munvij)al ordinances may afford some analogy upon
the corresponding question in its relation to the by-laws of private cor-
porations, a number of instances in which municipal ordinances have
been held invalid because unreasonable are here given. Some of them
are taken from a »note to the admirable treatise of Judge Dillon on
Municipal Corporations, ^ and for others the writer is indebted to a learned
note of Mr. Freeman, the editor of the American Decisions.^ The fol-
lowing municipal ordinances have been held void because unreasonable :
Requiring steamboats to have spark arresters; ^ requiring druggists to fur-
nish verified statements of the sales of intoxicating liquors, to whom sold,
etc. ; ^ exacting a license from peddlers of " not less than one nor more
than twenty-five dollars for a fixed time, in the discretion of the
mayor." ^ Requiring cotton merchants to keep a record oi the names of
those who sell to them loose cotton, the quantity of each purchase,
etc. , — the same being against the principles of personal liberty and
common right ; "^ absolutelj' prohibiting street processions with music,
banners, torches, singing, shouting, etc., under a severe fine and im-
prisonment, without express legislative authority ; ^ a public school regu-
lation denjang admission to a candidate who could not pass a satisfactory
examination in grammar; ^ expelling a child from school for refusing un-
1 Stationers of London t). Salisbury, ' Long v. Taxing District, 7 Lea
Comb. 221. (Tenn.), 13i.
2 1 Din. Mnn. Corp., § 319, note. ^ jje Frazee, 63 Mich. 39G; s. c. 30
3 U Am. Dec. C33. N. W. Rep. 72; 35 Alb. L. J. 6. Com-
4 Atkinson t;. Goodrich Transporta- pare People v. Rochester, 44 Hun (N.
tion Co., 60 Wis. 141. Y.), 166 (Salvation Army parading
^ Clinton v. Phillips, 58 III. 102; s. with banners).
c. 11 Am. Rep. 52. » Trustees v. People, 87 111. 303.
^ State Center v. Barenstein, 66
Iowa, 249.
816
REQUISITES AND VALIDITY. [1 Thomp. Corp. § 1024.
der the direction of her parents to study book-keeping ; ^ requiring the
poUce to arrest all/ree negroes found on the street after ten o'clock at
night and to place them in confinement until morning ; ^ levying a tax
for a sidewalk in an uninhabited portion of the city, disconnected with
any other street or sidewalk,^ prohibiting licensed retailers of intoxicants
from selling between six o'clock p. m. and 6 o'clock a. m. ; ^ compelling
the removal from within city limits of a steam engine which is not in it-
self a nuisance ; ^ requiring a railroad company to keep a.Jiagman by day
and a red lantern by night at a particular street crossing, which was not
necessarily dangerous ; ° prohibiting the sale without license at temporary
stands in the pubhc street, of lemonade, ice cream, cake, cheese, nuts,
pies and fruits ; '^ imposing a fee or tax of five cents on every sale of hay
or country produce ; ^ prohibiting a gas company from opening a paved
street in order to connect a main pipe with the opposite side of the street ; ^
requiring owners and exhibitors at theaters to pay the city constable a
fee for attendance ; i*^ prohibiting producers from vending vegetables upon
the streets without an annual license costing twenty-five dollars ; ^^ for-
bidding sales of goods by store keepers on Sunday, and exempting
Hebrews from its provisions ; ^^ imposing a license fee onhucksters; ^^ for-
bidding porters, hackmen and hotel runners from approaching within
twenty feet of depot, unless so requested by a passenger, — the regula-
tion being in contravention of arrangements made by the railroad com-
pany for the delivery of baggage ; ^'^ refusing to supply water to premises
on apphcation of the owner, on the ground that the tenant was in ar-
rears for water furnished him while occupying premises of another land-
lord ;i^ prohibiting auctioneers from selhng, except to the highest bidder ;!•'
prohibiting one person from carrying on dangerous business, and permit-
ting another to do so ; ^^ prohibiting the use of Babcock jive extinguishers
under any and all circumstances at fires, and providing that the chief
1 Rulison V. Post, 70 111. 567. '" Waters v. Leech, 3 Ark. 110.
2 Mayor v. Wiufield, 8 Humph. " St. Paul v. Traeger, 25 Minu. 248;
(Tenn ) 707. s. c. 33 Ana. Rep. 402.
3 CorrlganiJ. Gage, 68 Mo. 541. ^^ Shreveport v. Levy, 26 La. An.
* Ward V. Greenville, 8 Baxt. 671 ; s. c. 21 Am. Rep. 553,
(Tenn ) 228; s. c. 35 Am. Rep. 700. i3 Dunham v. Trustees, 5 Cow. (N.
6 Baltimore v. Radecke, 49 Md. 217; Y.) 462.
s. c. 33 Am. Rep. 239. ^^ Napman v. People, 19 Mich. 352.
6 Toledo &c. R. Co. v. Jacksonville, is Dayton v. Quigley, 29 N. J. Eq.
67 111. 38; s. c. 16 Am. Rep. 611. 77.
' Barling v. West, 29 Wis. 307; s. c. is p^x parte Martin, 27 Ark. 467.
9 Am. Rep. 576. J' Mayor v. Thorn, 7 Paige (N. Y.),
8 Kip V. I'aterson, 26 N. L. L. 208. 261.
' Commissioners v. Northern Liber-
ties Gas Co., 12 Pa. St. 318.
52 817
1 Thomp. Corp. § 1025.] by-laws.
engineer shall send to jail persons found working them ; ^ prohibiting the
slaughtering of animals on one's own premises unless the building is de-
voted to that purpose ; ^ providing that the city sexton, whose fees are
paid out of the estates of deceased persons, shall expend five hundred
dollars on the pubhc burying ground, and bury paupers free of charge ; ^
compelling the owner of property to destroy or remove it, the same not
shown to be a mmance ; "* prescribing a penalty of not less than one nor
more than five hundred dollars for every hour that a person shall keep
his ivagon within the limits of the market.^
§ 1025. Illustrations of Municipal By-laws Held not Un-
reasonable. — The subject may also be illustrated by a collection of
cases in which municipal by-laws have been challenged as being unrea-
sonable, but in which the courts have disallowed the challenge, and held
them reasonable. For some of these the writer is indebted to a learned
note of Judge Dillon,*^ but for a greater number of them to the learned
and extensive note of Mr. Freeman in 34 American Decisions, 634. The
following municipal by-laws have been held not unreasonable: For-
bidding the placing or carrying of signboards on the sidewalks ; ' for-
bidding preac/io^g^, lecturing, etc., on a public common ; ^ imposing an
annual license of $500 on express companies, whose business extends
beyond the limits of the State, and $100 on companies whose business is
conducted within the State ; ^ prohibiting railroad trains from standing
across a public street for more than two minutes at a time ; ^^^ forbidding
wagons loaded with perishable produce to stand in the market place for
more than twenty minutes between certain hours ; ^^ prohibiting persons
from driving wagons and carts on a trot or gallop in the streets ;12 prohibit-
ing persons who are not lessees of butchers' stalls from offering for sale
fresh meat in less quantities than one quarter ; ^^ prohibiting the owners of
lots on the lake front from removing sand therefrom ; ^* prohibiting the
building of awnings; ^^ prohibiting res^aitmwfe from being kept open after
^ Teutonia Ins. Co. v. O'Connor, 27 eral constitution, as being a regula-
La. An. 371. tion of commerce among the States.
2 Wreford v. People, 14 Mich. 41. See Weltou v. Missouri, 91 U. S. 275.
3 Beroujohn v. Mobile, 27 Ala. 58. ^" State v. Jersey City, 37 N. J. L.
* Fieri v. Mayor, 42 Miss. 493. 348.
5 Com. V. Wilkins, 121 Mass. 356. " Com. v. Brooks, 109 Mass. 355.
« Dill. Mun. Corp. (4th ed.), § 319, ^^ cora. v. Worcester, 3 Pick,
note. (Mass.) 461.
' Com.??. McCafferty, 145 Mass. 384. i^ st. Louis v. Weber, 44 Mo. 547.
Com. V. Davis, 140 Mass. 485. " Clasoa v. Milwaukee, 30 Wis.
9 Southern Express Co. v. Mobile, 316.
49 Ala. 404. It is thought that this ^^ Pedricki?. Bailey, 12 Gray (Mass.),
by-law would be void, under the Fed- 161.
818
REQUISITES AND VALIDITY. [1 Thomp. Corp. § 1025.
ten o'clock p. m. ; ^ imposing a fine on the owner of s, ferocious dog^ which
shall bite any person, etc. \^ prohibiting drivers of liackney coaches from
standing their carriages within thirtj'-five feet of the front doors of places
of public amusement ; ^ fixing the price at which private persons may
, be permitted to tap a ^mhlic sewer ; ^ fixing market hours at from dawn
to 9 o'clock a. m., and providing that fresh beef shall not be sold at
any other than the market place during such hours, in quantities or por-
tions smaller than a quarter ; ^ requiring railroad companies to station
Jlagmen at street crossings and to use lighted lanterns at night ; ^ pro-
hibiting cattle from being allowed to run at large within the corporate
limits ; ' prohibiting the keeping of swine within such limits ; ^ levj'ing
a tax of $150 on every retailer of spirituous liquors; ^ compelling boats
loaded with vegetables or putrid substances, coming from places infected
with malignant or contagious diseases, to anchor in the river until ex-
amined by the cit}' physician ; ^*^ forbidding the keeping of gunpoivder^
except in certain quantities, within the corporate limits, and pro\idiug
that it shall be kept in copper canisters, and imposing a fine of not less
than fifty nor more than five hundred dollars for the violation of the or-
dinance ; ^^ requiring a license fee of $500 from retailers of ardent spirits; ^^
punishing 'yaf/m«fs; ^^ forbidding sales of merchandise after 9 o'clock a.
m, on Sundatj ; ^'^ requiring saloons to close at 9 o'clock p. m. ; ^^ imposing
a penalty on retail grocers for having spirituous liquors on their premises
without a license ; ^^ authorizing the mayor to grant licenses to sell and
dehver milk, and declaring the act of selling milk without such license a
misdemeanor ; i" preventing the establishment of new burial grounds
within the city ; ^^ requiring all places where intoxicants are sold to be
closed at half-past ten p. m. ; ^^ authorizing commissioners to vacate or
discontinue leasing or hiring marAei stalls; ^^ prescribing streets as routes
1 State V. Freeman, 38 N. H. 426. " Williams v. Augusta, 4 Ga. 509.
2 Com. V. Steffee, 7 Bush (Ky.), 12 perdue u. Ellis, 18 Ga. 586.
161. 13 St. Louis V. Bentz, 11 Mo. 61.
3 Cora. V. Robertson, 5 Cush. " St. Louis v. Cafferata, 24 Mo. 94.
(Mass.) 438. i« Smith v. Mayor, 3 Head (Teun.),
* Fisher «. Harrisburg, 2 Grant Cas. 245.
(Pa.) 291. 16 Council v. Ahrens, 4 Strobh. L.
fi Bowling Green V. Carson, 10 Bush (S. C.) 211.
(Ky.), 04. 17 People v. MulhoUand, 82 N. Y.
6 Delaware &c. R. Co. v. East 324.
Orange, 41 N. J. L. 127. i^ Charleston v. Baptist Church, 4
' Com.u. Bean, 14 Gray (Mass.), 52. Strobh. L. (S. C.) 306.
8 Com. V. Patch, 97 Mass. 22 L i* State v. Welch, 36 Conn. 215.
» Mayor v. Bcasley, 1 Humph. 20 Charleston v. Goldsmith, 2 Speer
(Tenn.) 232; s. c. 34 Am. Dec. 646. (S. C), 428.
1" Dubois V. Augusta, Dudley (Ga.),
30.
819
1 Thomp. Corp. § 1026.] by-laws.
of travel for omnibusses, and providing for their exclusion from other
streets ; ^ requiring drawbridges crossing a river to be closed every ten
minutes for the passage of persons and vehicles, and making it unlawful
for navigators to attempt to pass after the signal has been displayed that
the bridge is being closed ; ^ providing that any person who shall un-
necessaril}'' obstruct or impede the running of street cars, by standing
his team across the track, or otherwise shall be liable to a fine ; ^ re-
quiring Jiackmen standing their hacks at or near a railway station to
obey the directions of police officers ; * prohibiting persons without a li-
cense from carrying offal or Jiouse dirt through any of the streets.^
§ 1026. By-laws Touching the Admission of Persons to the
Freedom of a Place. — It will be necessary, at the outset, for the
reader to have some idea of what is understood to be the meaning
of admitting a person to the freedom of a corporation. Many
of the corporations spoken of in the early English books of re-
ports were trade -guilds, which had come down from the middle ages,
or which had been modeled after the guilds of those periods.
These guilds enjoyed certain powers, either by royal charter or by pre-
scription which presumed the existence of a charter. Among these
powers was the power of admitting members to their /reedom, that is to
the enjo}Tnent of their franchises or privileges. The chief pri\alege of
one of these trade corporations appears to have been the privilege of pur-
suing the particular art, craft or trade with which the company was
concerned. In many cases the prerequisite to the right to be admitted
to such freedom was a service for the period of seven years as an ap-
prentice, under a freeman of the particular company, to learn the trade,
art or mystery of the company. Thus, in the case of the tailors of Ips-
wich, there was a by-law that " none should work at his trade until he
had presented himself to the company of tailors," and " should prove that
he had served seven years at the least, as an apprentice, and before he
should be admitted b}^ them to be a sufficient workman." This by-law
was held to be void, as being against law. It was against the statute of 5
Eliz. relating to apprenticeships, and was a further restraint of trade than
had been created by that statute.^ In the case of the company or frater-
nity of freemasons, rough masons, wallers, paviours, plaisterers, platers,
and brick-layers, of the city of Durham, there was a by-law to the gen-
eral effect that no person should be admitted a freeman of the company
1 Com. V. Stodder, 2 Cush. (Mass.) * St. Paul v. Smith, 27 Minn. 364.
662. 5 Re Vandine, 6 Picii. (Mass.) 187;
2 Chicago V. McGinn, 51 111. 266. s. c. 17 Am. Dec. 351.
3 State V. Foley, 31 Iowa, 627; s. c. ^ Case of the Tailors of Ipswich, 11
7 Am. Kep. 166. Coke, 53.
820
REQUISITES AND VALIDITY. [1 Thomp. Corp. § 1028.
until he should have beeu called, at three several meetings of the mayor
and certain aldermen of the city, and the wardens and stewards of the
several companies within the city, before his admittance, and that he
be approved of by them and b}^ the majority of them. This was held,
in a judgment given b}'- Lord Mansfield, in which a great many objec-
tions were stated and answered, to be a good by-law.^
§ 1027. By-Law Compelling Elected Members to Wear Liv-
ery and Pay Initiation Fee or a Forfeiture. — A by-law of the
Vintner's Company was, in substance, that the company might elect
such of the yeomanry of then- members as should seem most meet and
convenient to them into the livery of then- company, and that every
person so elected should pay to the company for his admission into the
livery, the sum of £31 13s., 4(1., and on his refusal to accept the same
and to pay the fee, should forfeit the sum of £25. This by-law was, in
several cases adjudged to be reasonable and valid. ^ To the answer
that this by-law was grievous to the subject, the court resolved:
*' Was the same more or less, it could not make the by-law void, for it
is to bind only the members of the corporation ; and when a man will
agi-ee to be of a company, he doth thereby submit himself to the laws
thereof, and we are not to take notice of the extravagancy of the charges
they lay upon themselves. And it is convenient that the company have
such power to keep up their reputation and the honor of the city of
London; and so allowed the retm-n to be good." ^ Lord Mansfield,
however, was of opinion that a plea of nil debit might be supported by
evidence, if the defendant was really unfit to take the livery, and this
he said "holds as to any reasonable excuse," but the judges were agreed
that the court would not intend, for the purpose of defeating the by-law,
that the defendant was an improper person to receive the livery. Mr.
Justice Dennisonsaid: " It is objected that a person elected may be a
beggar. But we can never intend that they would choose persons not
meet and convenient ; and if this be done nil debit will bring that ques-
tion before the court. . . . This is an ancient by-law, and nothing
urureasonable appears upon the face of it. " ^
§ 1028. Must not be in Restraint of Trade. — As a general
rule, by-laws which operate in restraint of trade are void, as
1 Green v. Mayor of Durham, 1 ^ Taverner's Case, Sir T. Raym.
Burr. 127. 446.
2 Vintner's Co. v. Passey, 1 Burr. * Vintner's Co. v. Passey, 1 Burr.
235; Taverner's Case, Sir T. Raym. 235, 239, 240.
446.
821
1 Thorn p. Corp. § 1028. J by-laws.
against public policy ; ^ uud this is true of mtinicipal ordinances^
which, as already seen, stand on the same general footing as the
by-laws of private corporations.^ Ou the same principle, munic-
ipal by-laws tending to create monopolies, or to vest in particu-
lar persons the sale and exclusive right to carry on particular
kinds of business, are void.-^ By-laws prohibiting an inhabitant
1 Sayre v. Louisville &c. Asso., 1
Duv. (Ky.) 143; s. c. 85 Am. Dec.
613; Re Butchers' Beueflcial Asso., 35
Pa. St. 151 ; Moore v. Bauk of Com-
merce, 52 Mo. 377; Clark v. Le
Cren, 9 Barn. & Ores. 52; Chouteau
Spring Co. v. Harris, 20 Mo. 383;
Quinier v. Marblehead &c. Co., 10
Mass. 476.
2 St. Paulw. Traeger, 25 Minn. 248;
State V. Fisher, 52 Mo. 174; St. Louis
V. Grone, 40 Mo. 574; Hayes v. Apple-
ton, 24 Wis. 543. It has been so held
of anordinance restraining a dealer in
groceries from selling vegetables at
his place of business during market
hours. Caldwell v. Alton, 33 111. 410.
It is upon this ground that the Ameri-
can courts proceed, which deny the
right to municipal councils to estab-
lish that species of tax known in
Europe as an octroi, that is, a tax laid
upon the producers of country pro-
duce who bring it into the city for
sale, — instances of which have been
already given. Ante, § 1017. The
principle does not extend so far as to
invalidate an ordinance requiring the
taking out of a license by persons en-
gaged in transporting coal in wagons
from point to point within a city
(Gartside v. East St. Louis, 43 111.
47); nor an ordinance prohibiting all
hawking and peddling about the street
of meat, game and poultry (Shelton v.
Mobile, 30 Ala. 540) ; nor an ordi-
nance providing that no person should
keep a butcher''s stall or vend fresh
meats in less quantities than the quar-
ter, without paying a license tax of
$200. St. Paul V. Colter, 12 Minn.
822
41. And so, the keeping of markets
within certain prescribed limits may
be forbidden. State v. Gisch, 31 La.
An. 544.
3 Gale V. Kalamazoo, 23 Mich. 344;
s. c. 9 Am. Rep. 80; Logan v. Pyne, 43
Iowa, 524; s. c. 22 Am. Rep. 261 ; Chi-
cago V. Rumpff, 45 111. 90: Tugman v.
Chicago, 78 111. 45. It has been said,
but the conclusion must be doubted,
that the power to grant or refuse
licenseSf will enable the corporation
to grant an exclusive license. Bur-
lington Ferry v. Davis, 48 Iowa, 133.
See Norwich Gaslight Co. v. Norwich
City Gas Co., 21 Conn. 19; ante, § 647.
In the case of ferries, gaslight com-
panies, street car companies and the
like, where the undertaking involves
a large expenditure of money and the
chances of pecuniary success are
doubtful, there may be gi'eat propriety
in conferring upon the adventurers,
who are willing to risk their capital in
the enterprise, an exclusive franchise
for a limited period of time ; but it is
believed that the power to make the
franchise exclusive does not exist in a
municipal corporation, unless it is ex-
pressly granted by the State ; and, as
already seen, in some of the States
the legislatures are prohibited by the
constitution from granting such fran-
chises. Ante, § 647. The better opin-
ion is that a power to license is not a
power to prohibit, but merely a power
to reyulate and to tax. Youngblood v.
Sexton, 32 Mich. 406 ; s. c. 20 Am. Rep.
654; Kip v. Paterson, 26 N. J. L.
298; Leavenworth v. Booth, 15 K.tu.
627; East St. Louis v. Wehrung,
REQUISITES AND VALIDITY. [1 Thomp. Corp. § 1029.
of the city not offering for sale the produce of his own farm,
from occupying designated market stands for the sale of such
produce, are valid. ^
§ 1029. The Ancient Law on tliis Subject. — The leading case
upon this subject appears to be the case of the Tailors of Ipswich, ^
where, upon the facts which seem not necessary to be stated, it was
held that a bj^-law of a corporation preventing a person from working
at his trade of tailor, who had not served an apprenticeship of seven
years, was void. The report recites that: " This case, upon argument
at the bar and bench, divers points were resolved: 1. That at the com-
mon law no man could be prohibited from working in any lawful trade,
for the law abhors idleness, the mother of aU evil, otium omnium
vitiorum mater, especially in young men, who ought in their youth
(which is their seed time), to learn lawful sciences and trades, which
are profitable to the commonwealth, and whereof they might reap the
fruit in their old age, for idle in youth, poor in age ; and therefore the
common law abhors all monopolies which prohibit any from working in
a lawful trade ; and that appears in 2 H. 5. 5 6. A dyer was bound
that he should not use the dyer's craft for two years, and there Hull
(a judge) held, that the bond was against the common law, and by
G — d if the plaintiff was here he would go to prison till he paid a fine
to the King. So, and for the same reason, if any husbandman is bound
that he shall not sow his land, the bond is against the common law.
And vide 7 Ed. 3 65 6. And if he who takes upon him to work is un-
skiUful, his ignorance is a sufficient punishment to him ; for imperitia
46 111. 392; Addison v. Saulnier, 19 able ordinances prohibiting sales of
Cal. 82; Carters. Dow, 16 Wis. 298; marketable articles elsewhere than in
Welch u. Hotchkiss, 39 Conn. 140; s. c. the public markets during market
12 Am. Hep. 38:^.; State v. Hoboken, 33 hours. Buffalo v. Webster, 10 Wend.
N. J. L. 280; North Hudson K. Co. v. (N. Y.) 100; Bush v. Seabury, 8 Johns.
Hoboken, 41 N. J. L. 71; Jolmston v. (N. Y.) 418; Dunhan v. Rochester, 5
Macon, 62 Ga. 645; Johnson u. Phila- Cow. (N. Y.) 462; Bowling Green v.
delphia, 60 Pa. St. 445; Goshen v. Carson, 10 Bush (Ky.), 64; St. Louis
Kern, 63 Ind. 468; Ash u. People, 11 v. Jackson, 25 Mo. 37; St. Louis v.
Mich. 347; Chilvers w. People, Id. 43; Weber, 44 Mo. 547; Le Claire v. Daven-
People ». Mayor, 7 How. Pr. (N. Y.) port, 13 Iowa, 210; Davenport v.
81 ; St. Louis v. Bircher, 7 Mo. App. Kelly, 7 Iowa, 102. Contra: Caldwell
169; St. Louis V. Boatmen's Insurance v. Alton, 33 111. 416; Bloomington w.
Co., 47 Mo. 150; St. Louis v. Marine Wahl, 46 111. 489; Bethune v. Hughes,
Ins. Co., 47 Mo. 163 ; New York v. Sec- 28 Ga. 560.
ond Avenue K. Co., 32 N. Y. 261. The i Re Nightingale, 11 Pick. (Mass.)
power conferred upon a corporation 168. And see Com. v. Rice, 9 Mete,
by its charter to regulate markets, car- (Mass.) 253.
ries with it the power to enact reason- ^ n Coke, 53.
823
1 Thomp. Corp. § 1029.] by-laws.
est maxima meclianicorum poena, et quiUbet qucerit in qualibet arte
peritos : And if any one takes upon him to worlc, and spoils it, an
action on the case lies against him. And the statute of 5 Eliz. 4, which
prohibits every person from using or exercising any craft, mystery or
occupation, unless he has been an apprentice by the space of seven
years, was not enacted only to the intent that workmen should be skill-
ful, but also that youth should not be nourished in idleness, but
brought up and educated in lawful sciences and trades. And thereby
it appears that without an act of parliament, none can be in any manner
restrained from working in any lawful trade. Also the common law
doth not prohibit any person from using several arts or mysteries at his
pleasure, nevio j^^'oJubetur plures negotiationen sive artes ezercere, until it
was prohibited by act of parliament of 37 Ed. 3 cap. 6. scil. That
the artificers and people of mystery hold themselves every one to one
mystery, and that none use other mystery than that which he has
chosen ; but this restraint of trade and traffic was immediately found
prejudicial to the commonwealth, and therefore at the next parliament
it was enacted, that the people should be as free as they were at any
time before the said ordinance. 2. That the said restraint of the de-
fendant, for more than the said act of 5 Eliz. has made, was against
law, and therefore for as much as the statute has not restrained him
who has served as an apprentice for seven years from exercising the trade
of a tailor, the said ordinance cannot prohibit him from exercising his
trade, till he has presented himself before them, or till they allow him
to be a workman ; for these are against the liberty and freedom of the
subject, and are a means of extortion in drawing money from them,
either by delay or some other subtle device, or of oppression of
young tradesmen, by the old and rich of the same trade, not permitting
them to work in their trade freely, and all this is against the common
law, and the commonwealth ; but ordinances for the good order and
government of men of trades and mysteries are good, but not to restrain
any one in his lawful mystery. 3. It was resolved that the said branch
of the act of 5 Eliz. is intended of a public use and exercise of a trade
to all who will come, and not of him who is a private cook, tailor,
brewer, baker, etc. , in the house of any for the use of a family ; and
therefore if the said ordinance had been good and consonant to law,
such a private exercise and use had not been within it, for every one
may work in such a private manner, although he has never been an ap-
prentice in the trade. 4. It was resolved that the statute of 19 H. 7. 7.
doth not corroborate any of the ordinances made by any corporation
which are so allowed and approved as the statute speaks, but leaves
them to be affirmed as good, or disaffirmed as unlawful by the law, the
sole benefit which the incorporation obtains by such allowance is, that
824
REQUISITES AND VALIDITY. [1 Thomp. Coip. § 1030.
they shall not incur the penalty of £40 mentioned in the act, if they put in
use any ordinances which are against the king's prerogative, or the com-
mon profit of the people, etc. And judgment was given quod querentes
nihil caperent per billam." - - - - A good many cases are found
touchino- the vahdity of the by-laws of ancient trade corporations, which
restrained, to a greater or less degree, the right of their members or
others to pursue the trade, art, or craft of the corporation. Thus, in
an action of debt upon a by-law of a corporation, known as master
wardens and assistants of silk throusters, which provided that no man
should exceed 160 spindles that was no assistant, and that no man who
was an assistant should have more than 240 spindles under pain of
3£ 10s, the by-law was held not to be bad, as being unreasonable or in
restraint of trade. ^ But the case does not seem to have clearly pre-
sented the question.
§ 1030. By-Laws Establishing Combinations among Work-
men to Maintain Prices. — It seems that a by-law of an incor-
porated association of workmen, having the effect of maintaining
reasonable prices for the work performed by the members of the
association, but without interfering with the freedom of contract
of the individual members, or interposing the mere will of the
association for the views of the individual in determining what
price is reasonable, — would be unobjectionable, and would not
be set aside as unreasonable, or opposed to sound morals or pub-
lic policy.^
1 Silk Throusters e. Fremantee, 2 of injuring another is a combination
Keb. 309. of a different nature, directed person-
2 See the reasoning oif Bullitt, J., ally against the party to be injured;
in Sayre u. Louisville &c. Assc, 1 and the law allowing them to combine
Duv. (Ky) 143; s. c. 85 Am. Dec. 613. for the purpose of obtaining a lawful
The learned judge quoted, with seem- benefit to themselves, gives no sauc-
ing approval, the following observa- tion to combinations which have for
tions of Mr. Justice Erie to a jury: their immediate purpose the hurt of
" The law is clear that workmen have another. The rights of workmen are
a right to combine for their own pro- conceded; but the exercise of free
tection, and to obtain such wages will and freedom of action, within the
as they choose to agree to de- limits of the law, is also secured
niand, . . . but I consider the law equally to the masters. The intention
to be clear so far only as, while the of the law is at present to allow either
purpose of the combination is to ob- of them to follow the dictates of their
tain a benefit for tiie parties who com- own will, with respect to their own
baie,— a benefit which, by law, they actions and their own property ; and
can claim. I make that remark be- either, I believe, has a right to study
cause a combination for the purpose to promote his own advantage, or to
825
IThomp. Corp. § 1031] by-laws.
§ 1031. Regulating or Restraining Transfers of Shares. —
Closely allied to the foregoing is a class of by-laws established
by joint stock corporations, regulating and sometimes restraining,
transfers of shares of the corporate stock. As such shares are
personal property, and as the right to sell property is a necessary
incident of its ownership, a by-law which should absolutely re-
strain the right of a shareholder to dispose of and transfer his
shares would be void as against common right, as being opposed
to the law of the land, and also as being in restraint of trade.
But by-laws which merely ?'ep'M?«<e such transfers, ov even restrain
them, so far as necessary to secure the rights of the corporation,
and which do not otherwise operate unreasonably or in restraint
of trade, are generally upheld. Where the charter of a bank
authorizes its board of directors to make rules regulating trans-
combine with others to promote their
mutual advantage." Reg. v. Row-
lands, 17 Q. B. 671, 686, note a; s. c.
79 Eng. Com. L. 685, note a. Mr.
Justice Bullitt understood the doctrine
of this case to be that, as a workman
who is bound by no contract may law-
fully demand any wages that he may
choose, any number of workmen may
lawfully combine for the same pur-
pose ; and he regarded the reasoning
of Chief Justice Shaw in Com. v.
Hunt, 4: Met. (Mass.) HI ; s. c. 38 Am.
Dec. 346, as leading to the same con-
clusion, though the precise point was
not decided. That long and tedious
decision holds, among other things,
that the purpose of a society, organ-
ized under an agreement not to work
for any person who should employ
any journeyman or other person not a
member of such society, after notice
given him to discharge such workman,
is not necessarily unlawful. In Bo wen
V. Matheson, 14 Allen (Mass.), 499,
503, this last case is cited in support
of the conclusion that an agreement
between members of a society not to
ship sailors at less than a specified rate
of wages, is not criminal. The case
of People V. Fisher, 14 Wend. (N. Y.)
826
19; s. c. 28 Am. Dec. 501, holding,
under a statute of that State, that all
combinations of workmen to raise
wages are necessarily injurious to
ti'ade and indictable as misdemeanors,
has generally been regarded as de-
pending for its support alone on the
statute and as expounding a doctrine
which is not to be transplanted into
other jurisdictions except by legisla-
tion. The sound view seems to be
that such a combination is not unlaw-
ful or opposed to public policy, unless
its effect is to enhance prices to anun-
reasonable extent (Sayre v. Louis-
ville &c. Asso., supra) ; or unless it is
attempted to accomplish such results
by unlawful means. Com. v. Hunt,
supra; Snowu. Wheeler, 113 Mass. 179,
186. Moreover, where an association
Is formed for such a purpose, and its
powers are afterwards abused by its
members, only those so abusing them
are responsible. Com. v. Hunt, supra;
Carew v. Rutherford. 106 Mass. 1, 10.
As to conspiracies to control work-
men, see People v. Fisher, 14 Wend.
(N. Y.) 1; s. c. 28 Am. Dec. 501, and
especially note 28 Am. Dec. 507, where
the subject is discussed at length.
REQUISITES AND VALIDITY. ]1 ThoiUp. Coip. § 1033.
fers of its stock, a by-law adopted by them, forbidding the
transfer of stock so long as the owner is indebted to the bank, is
valid, although inconsistent with the general law of the State
governing the transfer of property.^ On the other hand, a by-
law of a company, the shares of the stock of which are personal
and assignable property, requiring transfers to be made only at
its office personally, or by attorney with consent of the president
thereof, has been held contrary to the general laws of INIassa-
chusetts respecting the transfer of the right of personal property.^
Accordingly, an assignment of shares by the vendor's deed, ac-
companied by a delivery of the certificates to the vendee, with-
out any transfer on the books of the corporation, was valid, not
only between vendor and vendee, but against a creditor of the
vendor, who attached the shares before he or the treasurer had
notice of the transfer.^
§ 1032. Creating a Lieu upon Shares. — According to the
weight of authority, a by-law creating a lien on the shares of a
member, for debts due by him to the corporation, is valid and
binding,* though not as against innocent purchasers for value.''
§ 1033. Releasing Shareholders from their Ohligation of
Payment. — The capital stock of a corporation being a trust fund
1 Mechanics' Bank v. Merchants' 61 Mo. 319; Farmers' &c. Bank v.
Bank, 45 Mo. 513; s. c. 100 Am. Dec, Wasson, 48 la. 339; Planters' &c. Ins.
388; cited and approved in Spurlock Co. v. Selma Savings Bank, 63 Ala. 585;
V. Pacific 11. Co., 61 Mo. 326; distin- Lockwood v. Mechanics' National
guished in Carroll v. Mullanphy Sav- Bank, 9 R. I. 308; Young v. Vough, 23
ings Bank, 8 Mo. App. 253. Farmers' N. J. Eq. 325; Bank of Holly Springs
&c. Bank v. Wasson, 48 Iowa, 339; v. Pinson, 58 Miss. 421; Pendergast ».
Chout'au Spring Co.u. Harris, 20 Mo. Bank of Stockton, 2 Sawyer (U. S.),
383; Moore v. Bank of Commerce, 52 108; Knight v. Old National Bank, 3
Mo. 377; Quiner v. Marblehead &c. Cliff. (U. S.) 429.
Co. 10 Mass. 476. ^ Anglo-California Bank v. Grang-
2 Sargent v. Franklin Ins. Co., 8 ers' Bank, 63 Cal. 359; Driscoll v.
Pick. (Mass.) 90; s. c. 19 Am. Dec. West Bradley »S;c. Co., 59 N. Y. 96;
30(5, Conklin v. Second National Bank, 45
3 Sargent v. Essex Corp., 9 Pick. N. Y. 655; Merciiants' Banku. Shouse,
(Mass.) 202; Sargent v. Franklin Ins. 102 Pa. St. 488; Carroll v. Mullanphy
Co., 8 Pick. (Mass.) 90; s. c. 19 Am. Savings Bank, 8 Mo. App. 249; Pilot
Dec. 306. u. Johnson, 33 La. An. 1286; Bullard
* People V. Crockett, 9 Cal. 112; v. Bank, 18 Wall. (U. S.) 589; Bank
Mechanics' Bank v. Merchants' Bank, v. Lanier, 11 Wall. (U. S.) 369.
45 Mo. 513; Spurlock v, Pacihc R. Co.,
827
1 Thomp. Corp. § 1034.] by-laws.
for the security of its creditors, and the suras remaining un-
paid by the holders of the shares of such stock in respect of their
shares being a part of such trust fund, — it follows that a by-
law of a manufacturing corporation, allowing the stockholders,
on paying 30 per cent, of their shares, to forfeit their stock is
void as against creditors.^ Where a creditor, who was a trustee
of the corporation, openly protested against such by-law, though
he accepted money raised under it, and was present at a subse-
quent meeting of the trustees, when the application of the money
was directed, and to which he assented, — it was held that this
was not a ratificalion by him of the by-law.^ A by-law of such
a corporation, that any stockholder paying 50 per cent, of his
shares shall be discharged frotu all future calls on his subscrip-
tion, except by way of forfeiture, has been held valid ; and those
who had complied with the terms of such by-law, before the dis-
solution of the corporation, were held to be discharged from all
responsibility to creditors.^
§ 1034. Restricting the Right to Sue in the Courts. — The
right to appeal to the courts of justice for the redress of injuries
is a right which is open to all persons by the principles of the
common law, and it is an established principle of that law that
parties cannot, by a mere agreement, either confer jurisdiction
upon the courts, or oust them of their jurisdiction over the sub-
ject-matter of particular actions.* Accordingly, it has been held
that a by-law of an insurance company, providing that any suit
on the policy should be brought in a certain countij is not bind-
ing on the assured,^ though it is held otherwise in respect of a
by-law creating, so to speak, a statute of limitation in respect of
the particular demand, that is, prescribing that suits to enforce
it must be brought within a certain time, the time not being
^ Slee V. Bloom, 19 Johns. (N. Y.) ciple, a custom that a party having
450; s. c. 10 Am. Dec. 273. a chiira due upon contract may not
2 IJnd. pursue the remedies provided by law to
3 Slee ». Bloom, 19 Johns. (N. Y.) collect it is not a good custom. Spears
456; s. c. 10 Am. Dec. 273. v. Ward, 48 Ind. 641 ; Manson v. Grand
< Insurance Company v. Morse, 20 Lodge, 30 Miun. 509.
Wall. (U. S.) 445; Scott v. Avery, 5 * Nute v. Hamilton &c. Ins. Co., 6
II. L. Cas. 811. On the same prin- Gray (Mass.), 174.
828
REQUISITES AND VALIDITY. [1 Thomp. Corp. § 1034.
unreasonably short} For like reasons, it has been held that the
holder of a relief fund certificate in a mutual benefit society is
not bound to exhaust, within the society, the remedies provided
by its constitution and by-laws, before resorting to the judicial
courts to assert the rights given him by such certificate. ^ But
the power is generally conceded to mutual benefit societies to
provide, by by-laws, for the redress of grievances ; and the de-
cision of controversies arising in respect of rights in the
particular society before the judicatories of the society,
and by prescribed methods of procedure, before invok-
ing the power of the courts.^ Indeed, as ah-eady seen, this
principle extends so far, not only in respect of these societies,
but in respect of religious societies, merchants' exchanges, and
all other corporations established for mutual benefit or for merely
ideal purposes, and not merely for the carrying on of business
by means of a joint stock, as to require members of such socie-
ties, who have grievances in respect of their rights therein, to
exhaust the remedies provided by the rules of the society before
the corporate judicatories, before the judicial courts will open
their doors to them.* Some courts have gone so far as to hold,
but upon grounds which must be regarded as doubtful, that such
a society may prohibit actions at law altogether, by their mem-
bers in respect of rights in the society, and may make its own
decisions conclusive.^ But it will appear that these decisions,
when analyzed, assert no other principle than that, where such a
society, proceeding without fraud, within the limits of its charter,
by the methods prescribed by its rules of procedure, the same
beinof consistent with the principles of the common law, adjudi-
cates in respect of the rights of a member within the society, —
such adjudication is final, and not subject to review by the judi-
1 Amesbury v. Bowditch &c. Ins. man, 31 Hun (N. Y.), 49; Bauer v.
Co., 6 Gray (Mass.), 590; Wilson v. Samson Lodge, 102 Ind. 262; s. c. 13
iEtna Ins. Co., 27 Vt. 98; Gray v. Am. & Eng. Corp. Cas. 618.
Hartford Fire Ins. Co., 1 Blatchf . (U. " Ante, §§8il, 912.
S.) 280. ^ Anacosta Tribe v. Murbach, 13
3 Supreme Council v. Garrigus, 104 Md. 91 ; s. c. 71 Am. Dec. 625; Osceola
Ind. 133. Tribe v. Schmidt, 57 Md. 98; Black
3 Lafond v. Deems, 81 N. Y. 508; and White Srai I lis' Society ?;. Vandyke,
White V. Brownell, 2 Daly (N. Y.), 2 Whart. (Pa.) 309; s. c 30 Am. Dec.
329; Harrington V. Workingmeu's &c. 263.
Asso , 70 Ga. 340; Poultney v. Bach-
829
1 Thomp. Corp. § 1036.] by-laws.
cial courts.^ If, however, the by-laws of the society make no
provision for a tribunal to decide controversies arising between
the society and its members, and a member is injured by the fail-
ure of the society lo fulfill its contract to pay benefits, he may
maintain an action at law against it for a redress of the injury. *
§ 1035. Compelling Members to Submit their Disputes to
Arbitration. — Upon the foregoing grounds, it has been held that
a by-law of an incorporated merchants' exchange, which com-
pelled its members to submit their disputes to arbitration, is
unreasonable and void ; since it has the effect of contracting
aAvay the right which every person has of seeking redress of
grievances in the judicial courts, according to the law of the
land.^ Upon the same principle, it has been held in early cases
that by-laws prohibiting members' of municipal corporations
from pursuing their legal remedies beyond the jurisdiction of
the corporation are void; since no power less than that of the
legislature can deprive the subject or citizen of his right to legal
redress.* In an old case in Dyer^ the facts were that Middleton,
a citizen and haberdasher of London, sued Osborne, another
citizen and lately his journeyman, in debt on a bond, and was
condemned, for which suit and costs he would not stand to arbi-
tration and by order of Sir Lionel Ducat and Sir Rowland Hardy,
Knights, aldermen of said city, he was disfranchised, upon which
he sued for restoration to his freedom in the Queen's Bench, and
was restored. Somewhat in line with these decisions, it has
been held that a clause in the constitution of an unincorporated
association requiring the members to submit their controversies
to arbitration, has oidy the force and effect of a private agree-
ment and like such an agreement is revocable.^
§ 1036. Power to Enforce by Pecuniary Fines. — In general,
it may be said that corporations have the power to enforce their
1 Ante, § 914, et seq. ^ Middleton's Case, Dyer, 333a.
2 Dolan V. Court Good Samaritan, ^ Heath v. New York Gold Ex-
128 Mass. 437. change, 7 Abb. Pr. (N. Y.) (n. s.) 251 ;
3 State V. Merchants' Exchange, 2 s. c. 38 How. Pr. (N. Y.) 168; and see
Mo. App. 96, 99. Savannah Cotton Exchange v. State,
* Player v. Archer, 1 Sid. 121; Bal- 54 Ga. C68.
lardv. Bennett, 2 Burr. 778.
830
REQUISITES AND VALIDITY. [1 Thomp. Corp. § 1036.
by-laws by pecuniary fines, provided the fines are certain and not
unreasonable in amount, and do not amount to a forfeiture of
property.^ It is observed in an English work of reputation:
*' With respect to the mode of enforcing by-laws of corporations it
has already been observed, that the power of enforcing hy penalties
is part of the power of making by-laws, which is incidental to
all corporations, to the development of the objects of whose con-
stitution such power is necessary; and in general the rule is,
that a by-law, without an express act of parliament, can onhj be
enforced by a pecuniary penalty, which must be certain ; ^ the
exception to the generality of the rule being the cases where by-
laws have been allowed as being authorized by a custom, ex gratia
in the city of London, although they purport to give power of
imprisonment by way of enforcing them." ^ In an authoritative
American work it is said ; " The power to make by-laws necessa-
rily supposes the power to enforce them by pecuniary penalties,
competent and proportionable to the offense."* An old case,
which questioned the validity of a by-law of the city of London
in respect of trade in woolen goods, states the rule and the reason
of it, thus : " Also the penalty inflicted on the offender be he
citizen or stranger, was lawful, the offense being committed
within the city, the same being competent and proportionable to
the offense; and without a penalty the ordinance would be in
vain: oderunt peccare 7nali formidine poenoe .^ ' ^ It has always
been understood in this country to be the law, that a corporation
may make a reasonable and valid by-law, and annex a fine or
1 Cahill r?. Kalamazoo Mut. Ina. and Austen, that a constitution cannot
Co., 2 Doug. (Micli.) 1^4^; s. c. 43 Am. be made on pain of forfeiture of
Dec. 457, 462. goods, therefore it ought to be on a
2 Citing Bosworth v. Burgcn, 7 reasonable pecuniary pain or not at
Mod. 459; s. c. Lutw. 1324; Leathly t). all." s. c. 3 Leon. 2(J5. To the same
Webster, Sayer, 252. effect see Mobile v. v. Yuille, 3 Ala.
3 Grant Corp. 84. 137; s. c. 36 Am. Dec. 441. In Rex v.
< Ang. & A. Corp., § 360. Newdigate, Comb. 10, it was " re-
* The Chamberlain of London's solved that the city of London cannot
Case, 5 Co. Hep. 636. In the City of set a fine, etc., for the non-perforra-
London's Case, 8 Co. Rep. 241, 253, a ance of a by-law." But this seems
similar doctrine is laid down. "Aeon- clearly not to be law. But this doc-
stitution cannot be made on pain of trine was overthrown, as above seen,
imprisonment; and tlie case cited and has never been the law in this
before, of Trin. 41 Eliz. inter Waltliam country.
831
IThomp. Corp. § 1037.] by-laws.
penalty to its non-performance, which fine or penalty may be
recovered by an action of debt. Indeed, this is the foundation
of all recoveries of fines in the police courts of American towns
and cities. Although the preceding has some of the incidents of
a criminal proceeding, yet for many purposes it is regarded
merely as an action for debt at common law, to recover a penalty
annexed by a by-law to the doing or omitting of a particular act.
§ 1037. Cannot be Enforced by a Forfeiture of Property. —
An exception to the foregoing rule is that a corporate by-law
cannot be enforced by a forfeiture of the property of a default-
ing member.^ Accordingly, it was said that a municipal corpo-
ration cannot ordain the seizure and sale of a falling warehouse,
constituting an obstruction in a public river, in case the owner
refuses to remove it, under a clause in its charter giving it power
to pass by-laws to remove such obstructions, and to enforce the
same by penalties not exceeding a certain sum.^ But this prin-
ciple, when stated with reference to municipal corporations, must
be understood with the qualification that it has been found
necessary for the preservation of the public health from the ca-
lamities which would spring from epidemics, to vest in boards of
health or other municipal or quasi-iwumci^aX bodies, the power
to condemn as nuisances and to remove or destroy property
the existence of which is plainly dangerous to the public health.
This power rests on the footing of the abatement of public nui-
sances, and not on the footing of imposing forfeitures for the
non-performance of corporate laws. A by-law of an incorpo-
rated society of tradesmen to the effect that every freeman using
or not using said art, mystery or trade, should pay yearly to the
company eight shillings, to be paid quarterly, and that every
journeyman of the company should pay to the company four
shillings, to bo paid quarterly, and that every person refusing so
to pay should forfeit twice the sum named, has been held bad,
inasmuch as it did not appear that any rightful expenditure of
1 Kirk V. Nowill, 1 T. R. 118. Com- Stuyvesant v. Mayor &c. of New York,
pare Mayor &c. of New York v. Orel- 7 Cow. (N. Y.) 588.
renan,12 Johns. (N. Y.) 122; Dunham 2 jiart v. Albany, 9 Wend. (N. Y.)
V. Rochester, 5 Cow. (N. Y.) 462; 571; s. c. 24 Am. Dec. 165, per
Edmonds, senator.
832
REQUISITES AND VALIDITY. [1 TllOmp. Coip. § 1037.
the company required such a contribution. ^ But this principle
does not extend so far as to involve a provision in a policy of
mutual insurance^ that it shall become void, in case default is
made in the payment of assessments on the premium owned for
the period of thirty days. This is a good condition, because it
derives its force from the mutual consent of the parties, and is
not in invitum? Nor does it extend so far as to invalidate those
by-laws of niutual benefit societies, which provide for a suspen-
sion from membership, or a forfeiture of membership and of the
benefit certificate of the member, upon the non-payment of
dues.'^ The reason is that members may contract among them-
selves for a forfeiture, the same not being opposed to express
law or to public policy ; and that in schemes of mutual insur-
ance the integrity of the fund and the safety of the scheme de-
pend upon each member complying with the rules by making;
the prescribed i^ayments. Upon like grounds, the following by-
law by a mutual insurance company was held valid: "Every
member of this company shall be and hereby is bound and
obliged to pay his portion of all losses and expenses happenino-
and accruing in said company. And if any member shall, for
the space of thirty days after the publication of notice as hereto-
fore directed, neglect or refuse to pay the sura assessed upon
him, her, or them, as his, her, or their, proportion of any loss
as aforesaid, in such case the directors may sue for and recover
the whole amount of his, her or their, deposit note or notes,
with costs of suit ; and the money thus collected shall remain in
the treasury of said company, subject to the payment of such
losses and expenses as have accrued or may thereafter accrue ;
and the balance, if any remain, shall be returned to the party
from whom it was collected, on demand, after ninety days from
the expiration of the term for which assurance was made."
The court reasoned that it could not be deemed a forfeiture that
a party was compelled to pay his note sooner than he would oth-
erwise be liable to pay it, or to pay a larger amount than would
otherwise be required. "The by-law," said Felch, J., "does
not purport to compel him to pay more than the amount; but
1 London Tobacco Pipe Makers Co. 2 Beadle v. Chenango &c. Ins. Co.,
V. Woodroffe, 7 Burn. & Cress. 838, 3 Hill (N. Y.), 161.
853. 3 pfj.^1^ Title 21.
53 833
1 Thomp. Corp. § 1038.] by-laws.
to enforce the collection of the whole, to be held in the treasury,
for the piwment of assessments due and to be thereafter made, ^^
the balance, if any remain after the payment of such assess-
ments, to be returned to him after the policy shall have expired.
But when was the note payable? By its very terms it was pay-
able in such portions and at such times as the directors of the
company, agreeably to their act of incorporation, might require.
Under the charter the whole premium might have been required
in advance. If the directors require the whole amount to be
paid at once, in case of delinquency in the payment of any in-
stallment, it seems to me to be precisely in accordance with the
terms of the contract ; and surely that cannot be deemed a for-
feiture which provides for the collection of the sum agreed to be
paid precisely according to the terms of that agreement." ^
§ 1038. Nor by a Forfeiture of Shares. — On the same prin-
ciple, it is not competent for a corporation, unless the power is
expressly given in its charter, to enforce a by-law by the penalty
of a forfeiture of the shares of a member.^ Thus, under a char-
ter provision giving a corporation power " to make by-laws, not
inconsistent with any existing law, for the management of its
property, the regulation of its affairs, and the ti^nsfer of its
stock," it is not competent for the corporation to enact a by-law
declaring that the stock of its members shall be forfeited for
default in the payment of calls.^ In this last case the doctrine
was thus stated by Nelson, C. J.: "The corporation possesses
the power to make by-laws not inconsistent with any existing law,
for the management of its property, the regulation of its affairs,
and the transfer of its stock. 4 This is the broadest general power
conferred upon it; but it is not new, and would have existed as
incidental. When taken as incidental it mu^t be exercised in con-
1 Cahill V. Kalamazoo Mut. Ins. back v. Salt Springs National Bank,
Co., 2 Doug. (Mich.) 124, 126; a. c. 53 Barb. (N. Y.) 495, 500, Re Long Ls-
43 Am. Dec. 457, 4C2. land 11. Co., 19 Wend. (N. Y.) 37; s.
2 That a by-hiw of a corporation c. 32 Am. Dec. 429.
cannot impose a forfeiture of shares » Re Long Island R. Co., 19 Wend,
of stock or of goods, or of any cor- (N. Y.) 37; s. c. 32 Am. Dec. 429.
porate interests as a penalty for its ^ Citing the statute, 1 Rey. Stats,
breach was held in Master Stevedore's N. Y. 602; § 1, sub-sec. G.
Assoc. V. Walsh, 2 Daly, 1, 14; Rosen-
834
REQUISITES AND VALIDITY. [1 TllOmp. Coip. § 1039.
formity to the general law of the land, that being the rule to
regulate the proceedings of artificial bodies, as well as the con-
duct of natural persons, independently of express provisions of
the charters of those companies to the contrary. This general
law has ascertained the rights of person and of property of the
<jitizen, and established modes of proceeding in case of a viola-
tion of them; and corporate bodies must conform to them, in
seeking redress, the same as individuals. The former can no
more take the remedy into their own hands than can the latter.
So strict has this salutary principle of subjection been held in
England, that even a by-law in pursuance of an express power in
a charter granted hy the king, is void, if contrary to the common
law or act of parliament.^ Thus, a by-law imposing a forfeiture
of goods is void, though the letters-patent authorized it; and a
power granted to a corporation of dyers to search, and if they
ibuiid cloth dyed with logwood to seize it as forfeited, was ad-
judged void as contrary to Magna Charta. On this same princi-
ple, by-laws in restraint of trade are adjudged void.^ " So, a by-
law that may be lawful cannot be enforced by an extraordinary
penalty, such as imprisonment or forfeiture of goods, or by dis-
tress and sale of goods ; for, by the general hiw of the kingdom,
no man is to be imprisoned, or dispossessed of his goods and
chattels nisi per legale judicium jiarium suorum, vel per legem
ierrcE ; and if such penalties were allowed, corporations would be
enabled to set up private particular laws in contravention of the
law of the land, which is against the nature and essence of a by-
law. "^
§ 1039. Otherwise where Power Expressly Conferred by
Charter The power of a corporation to declare a forfeiture of
its stock for the non-payment of calls or assessments, is upheld
where the power is expressly given by charter. No decision, so
1 Citing 1 Kyd Corp. 109; Will. Compton, 7 Dowl. & Ry. 601; 1 B ic.
Corp. 95; Ang. & A. Corp. 180; City of Abr. 547; Ang. & A. Corp. 184; Will.
London's Case, 8 Coke Rep, 241; 2 Corp. 142.
Inst. 47; Kirk v. Nowill, 1 T. R. 118. 3 Re Long Island R. Co., 19 Wend.
2 Citing Tailors of Ipswich Case, (N. Y ) 37; s. c. 32 Am. Dec. 429, 433;
11 Coke Rep. 63, Harrisons. Godman, citing to the last observation, Clark's
IBurr. 12; Woo'ley v. Idle, 4 Burr. Case, .5 Coke Rop. 04; Will. Corp. 98;
1951; Chamberhiiu of London r. 1 Bac. Ahr. 551.
885
IThomp. Corp. § 1040.] by-laws.
far as the writer is aware, goes to the length of holding that an
act of the legislature, conferring upon a corporation such a power,
is unconstitutional, as being in conflict with any provisions of our
American constitutions which have been drawn from Magna
Charta.i
§ 1040. The Fine or Penalty Must be Certain. — " The
penalty must be a sum certain, and not left to the arbitrary as-
sessment of the governing board of the company under the cir-
cumstances of the particular case, even though the utmost limit
of the same be fixed ; for this would be allowing a party to as-
sess his own damages." ^ Thus, where the City of Mobile passed
an ordinance providing for the licensing of the business of bak-
ers, prescribing the character of the bread and the price of the
loaves, etc., and annexed to its violation a fine not exceeding ^50^
it was said : " The by-law in this case being not for a sura cer-
tain, but for such sum, not exceeding $50, as the corporation
court might think proper to impose as a fine, cannot be sup-
ported." ^ But in a subsequent case in the same State, a by-law
imposing a fine not exceeding $50 for quarreling, wrestling,
fighting, etc., was held good, the court saying: " A reasonable
discretion is given, to be exercised within certain limits ; and we
can see no objection which could be urged to such a by-law,
which could not, with equal propriety, be made to any law in-
vesting courts or juries with discretion in apportioning the fine
to the offense, being restricted within reasonable bounds. The
power of making just discriminations, so as to advance the ends
of justice, and mete out to every violation of the law a punish-
ment proportioned to its demerits, should reside somewhere ; and
since the charter invests the corporation with the power to pass
such by-law, and to create proper sanctions, we do not conceive
that the law in question is at all unreasonable, or uncertain, in
1 Cases construing this power where 80; lustone v. Frankfort Bridge Co.,
conferred by statute: Jenkins v. Union 2 Bibb (Ky.),576; s. c. 5 Am. Dec. 638.
Turnp. Co., 1 Caines Cas. (N. Y.) 86; 2 Ang. & A. Corp., § 360; Wood v.
Union Turnp. Co. r. Jenkins, 1 Caines Searl, J. Bridg. 139, 141; Scarniug's
Rep. 381; Goshen &c. Turnp. v. Hur- Case, 3 Leon. 8; Mobile v. Yuille, 3
tin, 9 Johns. (N. Y.) 218; s. c. 6 Am. Ala. 137; s. c. 36 Am. Dec. 441.
Dec. 273; Andover &c. Turnp. Co. v. ^ Mobile v. Yuille, supra.
Gould, 6 Mass. 40; s. c. 4 Am. Dec.
836
REQUISITES AND VALIDITY. [1 Thomp. Coi'p, § 1041.
that sense which renders it void. " ^ This must be accepted as
the previiihng view, especially as regards the by-laws of munici-
pal corporations. It is believed that no very recent case can be
found which has held a corporate by-law void for uncertainty,
where it goes no further than to fix the maximum of the penalty,
^uch a by-law should be construed as fixing the penalty at the
maximum, and committing to the corporate judicatory the power
of mitigation, according to circumstances. On this principle a
by-law with a penalty oi five pounds or less, at the discretion and
pleasure of the master and wardens, so that it be not less than
forty shillings, has been held not void for uncertainty in respect
of the amount of the penalty.^ Baron Parke said: " In the ab-
sence of any other authority to the contrary, we do not see any
objection to this mode of fixing the penalty. It is a certain pen-
alty of five pounds, with a, poiaer of mitigation not below two
pounds; and we do not think this is unreasonable." ^
§ 1041. Making the Corporation a Judge in its Own Case. —
Nor is the view thrown out in one or two ancient cases * tliat the
fixing of the penalty at a maximum with the power of makinsr it
less according to circumstances, has the effect of making the cor-
poration a judge in its own case, in the sense which is opposed to
the principles of the common law. Every corporation in the en-
forcement of its by-laws, must necessarily be in the first instance
a judge in its own case, in the sense of these old cases; because
it must necessarily determine, by some sort of a proceeding judi-
cial in its nature, whether or not the by-law has been infringed,
before it can impose the penalty thereby given. Such a princi-
ple would deny, not only to municipal corporations, but also to
mutual benefit societies, religious societies, merchants' exchanges,
social clubs, and many other private corporations and societies,
the power to enforce through their constituted judicatories, their
1 Huntsville v. riiclps, 27 Ala. 55, a sum not exceeding forty shillings,
58; overruling on this point Mobile v. and it was held to be had; but Baron
Yuille, 3 Ala. 137; s. c. 36 Am. Dec. Parke pointed out, in Piper u. Chappell,
441. that it might have been held bad apon
2 Piper V. Chappell, 14 Mees. & W. other objections.
€24 (explaining Wood v. Searl, J. ^ Piper v. Cliappell, 14 Mees. & W".
Bridg. 141). In the case in .J. Bridg. 624,649.
the penalty assessed by the by-law was ^ See the preceding section.
837
1 Thomp, Cor[). § 10-1:2.] by-laws.
valid rules and regulations, subject to the superintendence of the
judicial courts. The view thrown out in the passage from
Angcll and Ames and other works on corporations that the by-law
ffivinfi" a discretion to tlie cori)oratioa as to the amount of the fine,
makes the corporation a judge in its own case, was tlius disposed
of by the Supreme Court of Alabama: " That the corporation
is made the judge in its own case is no objection, since it applies
equally whether the penalty is for a specific sum, or fixed within
certain limits. The question whether the ordinance has been
violated, is to be determined, in either case, by the corpora-
tion." ^ In a case in the Court of Common Pleas of the City of
New York, in which Daly, F. J., wrote the opinion of the court
with his customary learning and discrimination, these principles
were recognized, and a by-law of a corporation of which the de-
fendant was a member called *' The Master Stevedores' Associa-
tion," to the effect that if any member, after an investigation by
a committee, should be found guilty of working for less than
the prices fixed, he should forfeit to the association twenty-five
per cent, of the amount of such bill as fixed by the association,
which penalty might be collected in the name of the corporation
by due process of law, — was held not void for uncertainty, with-
in the foregoing rule. While the court recognized the principle
that a by-law of a corporation cannot be enforced by a forfeiture
of goods, that being contrary to Magna Charla^ they nevertheless
regarded this by-law as not establishing a forfeiture but a pecu-
niary penalty merely, which was sufficiently certain.^
§ 1043. Views as to the Proper Measure of such Fines. —
In a recent excellent work on the subject of building associa-
tions the following suggestions occur: " The proper measure of
fines is the real damage the building association sustains from the
failure of a member to pay his dues, which damage is really
equal to the interest on the amount, together with the proportion
coming to it from the then attainable premiums upon the sale of
money. The fine should be slightly in excess of this, so as to
make it more profitable to the member to pay promptly than to
1 Huntsville v. Phelps, supra. ^ Master Stevedores' Association r.
Walsh, 2 Daly (N. Y.), 1, 14.
838
REQUISITES AND VALIDITY. [1 TllOmp. Coip. § 1043.
lag behind. ... A fine of from one to two per cent, per
month would, in nearly all cases, be sufficient and just." ^
§ 1043. Illustrations: By-Laws of Building Associations Im-
posing Excessive Fines. — This prijaciple has been appUed to build-
ing associations, so as to invahdate by-laws of such associations which
impose excessive fines upon their members for the non-payment of their
monttily dues. Treating of this subject, in view of a statute of that
State, the Supreme Court of Ohio have said: "It is to be regretted
that the legislature was not more specific in making the grant of power
thus intended to be conferred. . . . That there are hmits, however,
beyond which the corporation by its by-laws cannot go, is undoubted :
1. The amount of the fine must be reasonable. 2. It can be imposed
only by way of punishment for some delinquency in the performance of
a duty which the member may owe to the corporation by reason of his
membership. 3. It is unreasonable, and therefore we assume that the
legislature did not intend that more than one fine should be imposed for
the same delinquency." ^ - - - - A by-law of a building associa-
tion in Pennsylvania prescribed that " each and every stockholder or
trustee who shall neglect or refuse to pay his monthly dues or interest
as often as the same shall become due and payable, shall forfeit and pay
the additional sum of ten cents monthly on each and every dollar due
by him." It was held that this by-law was unreasonable and extor-
tionate, and thereby void. The court, speaking through Green, J.,
said: "It is clear the ten cents penalty or forfeiture is to be paid
monthly. This being so, it is to be repeated every month during which
the amount due remains unpaid. The effect of this would be that, if,
at the end of December in any year, the member was indebted fifty dol-
lars to the association, and remained so throughout the year following,
he would then owe as a fine twelve times the original penalty on that one
default ; in other words, one hundred and twenty per cent, upon the
principal sum for wliich default was made. In addition to this, he
would also owe the full interest he might be paying on the amount ex-
pressed in his obUgation, no matter how usurious that interest might be.
Still further, as the balance is to be struck at the end of each month,
the member would owe at that time all that he owed at the end of the
1 Endlich Build. Asso.,§ 413; citing ^ Hageraan v. Ohio &c. Asso., 25
Ocmulgee &c. Asso., v. Tliomson, 52 Oh. St. 186, 202; quoted with ap-
Ga. 427. The above lauguage \v<as ap- proval in Lynn v. Freemansburg &c.
proved by the Supreme Court of Asso., 117 Pa. St. 1 ; s. c. 2 Am. St.
Pennsylvania in Lynn v. Freemans- Rep. G39.
burg &c. Asso.. 117 Pa. St. 1 ; s. c. 2
Am. St. Kcp. (;39, (;43.
839
1 Thomp. Coi'i). § 1044:.] by-laws.
preceding month, and, in addition thereto, the interest and penalty for
the cuiTt'nt mouth, besides the dues ; and the account would be made
up by charging him witli ten per cent, upon the principal, the interest
and the line due at the end of the preceding month, and adding them
to the dues and interest of the current month. If another default was
then made, the same process would be repeated at the end of each suc-
ceeding month during the continuance of the defaults. It is needless
to enter into a detailed computation to show what the aggregate result
of such a process would be in any given case. That it is um-easonable,
extortionate, and oppressive to the last degree, must be at once con-
ceded. If the monthl}^ penalty were a hundred per cent. Instead of ten,
it would only be a difference in degree not in character. Of course, if
there is an unlimited right to impose, by means of a by-law, any amount
of fine or penalty which the association may please to ordain, and the
law is powerless to interfere, the results must be accepted, no matter
how unjust or oppressive they may be. But we do not so understand
the law upon this subject." ^
§ 1044. Imposing Fine for IS'on-Acceptance of a Corporate
Office. — A bj'-law "that if any person who shall be chosen to be
warden shall refuse to accept the office and take the oath, he shall for-
feit 6Z. lo.s. 4cZ.," has been held a good by-law. The words any person,
are understood to mean any person eligible by the tex*ms of the charter
to the office of warden. It is therefore not a good objection to such a
by-law that the word persons is indefinite. ^ The propriety of such a
fine was upheld by strong reasoning in an earlier case, in which the validity
of a by-law of the corporation of London imposing a penalty for refus-
ing to take the office of sheriff without reasonable excuse was held good.
It was reasoned that, as the corporation was bound to nominate such
officers every year under penalty of a forfeiture of its charter, some
member must of necessity take the office ; and it is manifestly a thing
necessary, of common right, that there should be a coercive power in
every corporation to compel their own members to submit to their con-
stitution ; and it will be a forfeiture of that charter, if the office of sheriff
is not yearly supphed ; and therefore, to prevent this mischief, it is of
necessity that they should make by-laws concerning it ; and now, the
sheriffwick of Middlesex being, by the King's grant, annexed to the
corporation, it must be executed by the members thereof, and be sub-
ject to their by-laws. . . . The excuse which this b3'-law gives is for
1 Lynn v. Freemansburg &c. Asso., v. Woodroiife, 7 Barn. & Cress. 838,
117 Pa. St. 1; s. c. 2 Am. St. Kep. G39. 852 (overruling Mayor of Oxford v.
2 London Tobacco Pipe Makers Co. Wildgoose, 3 Lev. 293).
840
REQUISITES AND VALIDITY. [1 Thomp. Corp. § 1047.
the ease of the members of this corporation ; otherwise nothing but an in-
vincible incapacity could have excused a citizen who was elected sheriff .1
§ 1045. Imposing Fines for Non- Attendance at Corporate
Meetings. — A by-law of an incorporated guild of tradesmen which
ipaposed a fine on every master woi'kman or assistant who should not
attend the courts to be holden, has been held to be a valid by-law, —
Lord Tenterden, C. J., saying: "To the subject-matter of these by-
laws no legal exception can be made. Attendance at corporate assem-
blies, and acceptance of a coi-porate office, is a duty each member owes
to the corporation to which he belongs." '^
§ 1046. By-laws Regulating the Conduct of Members. —
By-laws pegulating the conduct of members of the corporation or
society, and providing for trial, suspension and expulsion for
misconduct are upheld by the court, when they do not violate
any of the fundamental rules of right imbedded in the common
law, or the constitutional or statute law of the State. Indeed it
is the primary office and conception of a corporate by-law that
it is a rule for the conduct of the members among themselves ;
a subject which has been considered in the next preceding chap-
ter.-^
§ 1047. Disinclination of the Courts to Interfere with the
By-laws of Societies. — The by-laws of those corporations which
might be classed under the general designation of private societies,
to distinguish them from municipal or other public corporations
on the one hand, and from strictly joint stock or pecuniary cor-
porations on the other, are regarded as standing in the nature of
contracts among the members, — engagements which they have
voluntarily entered into for their own government. When these
engagements are not opposed to express legal prohibition, or
contrary to public policy, the courts manifest the same disinclina-
tion to interfere with them which they manifest toward interfering
with other contracts. This is especially true of societies organ-
ized for ideal purposes, for the advancement of religion, morals,
^ Rex V. Larwood, Carth. 306. v. Woodroffe, 7 Barn. & Cress. 838,
See also London City v, Vanacker, 852.
Carth. 480, 48;j. 3 piint v. Pierce, 99 Mass. 68, 70; a.
2 London Tobacco Pipe Makers Co. c. 96 Am. Dec. 691 ; ante, § 849, et seq.
841
1 Thomp. Corp. § 1018.] uy-laws.
or for social purposes, or for the amusement of their members.
It reaches, on the one hand, as far as chambers of commerce and
merchants' exchanges, and on the other, takes in merely social
clubs, incorporated or unincorporated,^ If such by-laws prove
to be inconvenient or embarrassing, this, it has been said, fur-
nishes no excuse to the members for disobeying them, although it
may suggest the expediency of altering them.^
§ 1048. Valid in Part and Void in Part. — As in the case
of a statute of the State, and in conformity with a rule elsewhere
explained,^ if a by-law consists of several distinct and severable
parts, some of which are unauthorized and void, this does not affect
the validity of the other parts. In other words, a by-law, like a
statute, may be valid in part and void in part, and the bad may be
rejected, where it is so far disassociated from the good as to lead
to the conclusion that the good might have been enacted without
the bad.* But where the bad and the good are so connected as
to lead to the conclusion that the good portion would not have
been enacted without the bad, the bad portion vitiates the whole
and the whole must fall.^ " Where a parcel of by-laws come
before us together, some good and some bad, they may be
severed; but not so where the sense is entire."^ "Where a
by-law is entire, each part having a general influence over
the rest, if one part is void, the whole is void; but where
a by-law consists of several distinct and independent parts,
thoush one or more of them is void, the rest are valid. And
this rule is applicable to the different clauses of the same by-
1 See Loubat v. Leroy, 15 Abb. of the General Term seems not to be
New Cas. (N. Y.) 1, and note, p. 44; reported).
Olery v. Brown, 51 How. Pr. (N. Y.) ^ Weatherly v. Medical &c. Society,
92; People v. St. George's Society, 76 Ala. 567.
28 Mich. 261; Savannah Cotton Ex- ^ Ante, §658.
change v. State, 54 Ga. 668; Dawkins * Shelton v. Mobile, 30 Ala. 540;
u. Antrobus, 17 Ch. Div. 615; Hussey s. c. 68 Am. Dec. 143; Amesbury v.
V. Gallagher, 61 Ga. 86; People v. Bowditch Mutual Ins. Co., 6 Gray
Board of Trade, 80 111. 134; Lafond v. (Mass.), 596; Cleve v. Financial Corp.,
Deems, 81 N. Y. 507, affirming judg- L. R. 16 Eq. 363; Rogers v. Jones, 1
mentof General Term reversing the V^i'end. (N. Y.) 237, 260.
judgment of the Special Term, re- ^ Ante, § 658.
ported in 1 Abb. N. C. (N. Y.) 318 and ^ Stationers of London v. Salisbury,
52 How Pr. (N. Y.) 41 (the decision Comb. 221, 222, per Lord Holt, C. J.
842
REQUISITES AND VALIDITY. [1 TllOmp. Coup. § 1048.
law; for where it consists of several particulars, it is, to all pur-
poses, as several by-laws, though the provisions are thrown
together under the form of one." ^ As already seen,^ a corporate
by-law sustains the dual character of a law, for the government
of the members and the corporate concerns, and of a contract
into which the members have voluntarily entered. The princi-
ple that it may be void in part and valid in part, has not only an
analogy in respect of the constitutionality of acts of the legis-
lature, but also an analogy in respect of the validity of private
contracts.^
1 Amesbury v. Bowditch Mutual
Fire Ins. Co., 6 Gray (Mass.), 596,
607.
2 Ante, §§ 930, 940.
3 In Page v. Monks, 5 Gray
(Mass.), 492, 495, it is said: "A con-
tract is not necessarily void, or
wliolly inoperative, because it consists
in part of promises and engagements
for tlie breach and disregarding of
whicli the statute neither affords nor
allows any remedy by an action at
law. In such cases, whether any of
those promises or engagements can be
enforced, must depend on the manner
and extent of their connection and
combination with the rest. If the
contract is in its nature entire, and its
parts are incapable of separation or
division, then, though some of its
stipulations are not, if others of them
are affected by the statute, no action
can be brought or maintained upon it.
But it is otherwise if the parts are
severable." In like manner, in Rand
0. Mather, 11 Cush. (Mass.) 1 ; s. c. 59
Am. Dec. \?A, 131, it is said by Met-
calf, J. : "On principle, and according
to numerous modern adjudications,
the true doctrine is this: if any part
of an agreement is valid, it will avail
pro tanto, though another part of it
may be prohibited by statute; pro-
vided the statute does not, either ex-
pressly or by necessary im|)lication,
render the whole void-, and provided
furthermore, that the sound part can
be separated from the unsound, and
be enforced without injustice to the
defendant." Eastern E. Co. v. Bene-
dict, 15 Gray (Mass.), 289, 292; Allen
V. Leonard, 16 Gray (Mass.), 202;
Haynes v. Nice, 100 Mass. 327, 329;
Friend v. Pettingill, 116 Mass. 515,
517. See cases overruled in Loomis
V. Newhall, 15 Pick. (Mass.) 159,
where the contrary was decided on the
authority of Lexington v. Clark, 2
Ventr. 223, and Chater v. Becket, 7 T.
R. 201. Further cases expounding
and illustrating this doctrine: Wood
V. Benson, 2 Cromp. & J. 94; s. c. 2
Tyrw. 93; Newmm v. Newman, 4
Maule & S. 66; Bank of Australasia
V. Breilat, 6 Moore P. C. 152; Bishop
of Chester v. Freeland, Ley, 71, 79;
Norton v. Simmes, Hob. 14; Kerrison
V. Cole, 8 East, 231, 236 ; Doe v. Pitch-
er, 6 Taunt. 359,369; Mouys v. Leake,
8 T. R. 411; Gaslvell v. King, II East,
165; Wiggs V. Shuttleworth, 13 Id.
87; Howe v. Synge, 15 Id. 440; Green-
wood V. Bishop of London, 5 Taunt.
727. Application of the doctrine to
ca.'^cs affected by the statute of frauds :
Rand u. Mather, 11 Cash. (Mass.) 1;
59 Am. Dec. 131; Page v. Monks, 5
Gray (Mass.), 492; Mayfleld v. Wads-
ley, 3 Barn. & Cres. 357; Ex parte
Littlejohn, 3 Mont. D. & De G. 182;
Wood V. Benson, 2 Cromp. & J. 94;
s. c. 2 Tyrwh. 93. In the following
843
1 Thomp, Corp. § 1050. J uv-laws.
§ 1049. Establishing- a Quorum of the Board of Directoi-s.—
In New York, wliei-e the charter of a canal corporation with banking
powers, provided that " the corporate powers of the company shall be
exercised by a board of directors, to consist of twenty-three persons,
who shall elect a president annually from their body, and possess the
other privileges and powers conferred by law;" and among the other
powers expressly enumerated, was the power ' ' to adopt, establish and
carry into execution such by-laws, etc., as shall by its president and
du-ectors, be judged necessary or convenient for the said corporation in
respect to its canal and banking operations ; ' ' and the charter was silent
on the question what number of directors should constitute a quorum
for the transaction of business, — a by-law which enacted that " five di-
rectors, of whom the president shall always be one, or in his absence
seven directors, shall form a quorum for the transaction of the ordinary
business of the compan}'," was held valid.'
§ 1050. Regulating Corporate Elections. — No reason is per-
ceived why a corporation may not make reasonable by-laws
regulating the conduct of corporate elections, where the mode
of conducting such elections is not pointed out in the charter or
in any other applicatory statute, and many statutes expressly
confer the power to make such laws.^ Accordingly, it has been
held that a corporation empowered by charter " to make laws,
etc., and to do all things needful for the good government and
support of the congregation," may make a by-law giving the
president thereof the power of appointing inspectors of the elec-
tion of corporate officers.^ It has also been held that a by-law
that no tickets shall be counted, " if, besides the names,
cases, proceeding with reference to 197; s. c. 32 Am. Dec. 348; Woodruflf
the statute of frauds, it was held that v. Hinraan, 11 Vt. 592; s. c. 34 Am. Dec.
the different parts of the agreement 712. Upon a similar principle, a con-
could not be separated: Cook v. veyance in part to hinder, delay or
Toombs, 2 Anstr. 420; Mechelen v. defraud creditors, is void in toto.
Wallace, 7 Ad. & El. 49; Vaughn v. McNichol -y. Richter, 13 Mo. App.515;
Hancock, 3 C. B. 766; Irvine ». Stone, Cordes v. Straszer, 8 Mo. App. 61; St.
6 Cush. (Mass.) 508. This principle Louis Coffin Co. v. Rubelman, 15 Mo.
does not apply in the case of a con- App. 280.
tract founded upon an indivisible con- i Hoyt v. Shelden, 3 Bosw. (N. Y.)
sideration, a part of which is illegal: 267; Hoyt v. Thompson, 19 N. Y. 207;
in such a case the entire contract is aw^e, § 3811.
void. Filson v. Heimes, 5 Pa. St. 452; 2 ^^te, §§737, 740, 745.
s.c. 47 Am. Dec. 422; Bredin's Appeal, " Com. v. Woelper, 3 Serg. & R.
92Pa.St.247; Shawu. Spooner, 9 N.H. (Pa.) 29; s. c. 8 Am. Dec. 628.
844
REQUISITES AND VALIDITY. [1 ThoiUp. Coi'p. § 1053.
there are other things upon the tickets," is valid, the charter
directing that all elections shall be by ballot. And under such
a by-law, tickets on which an eagle was engraved were held not
to be legally admissible ; ^ and, though the question is subject to
doubt and conflict in the absence of statutory directions, ^ it has
been held that a corporation, whose object is to acquire property,
may legally make a by-law authorizing the stockholders to vote
by proxy at their meetings.^
§ 1051. Forbidding Secret Societies in Colleges. — An in-
corporated college has authority to forbid its students from
joining secret societies, although such societies are incorporated
by the legislature.*
§ 1052. Instances of By-Laws which, have been Held
Valid. — By-laws of corporations containing various provisions not
deemed unreasonable or contrary to law and under various charters,
o^overning statutes, circumstances and limitations which cannot be fully
entered into in this paragraph, — have been upheld, regulating the man-
ner of holding meetings and electing corporate officers ; ^ requiring the
officer or agent having charge of the corporate funds to give bond for
the faithful performance of his duties ; ^ by an incorporated hoard of
underwriters, binding the members to uniformity in rates of insurance ;'
by an incorporated board of trade, providing for the payment of storage
by the buyer of grain in bulk ; ^ requiring the clerk of the corporation
to be sworn ;^ of a banking company, requiring its cashier to give bond
1 JMd. ham, I Paige (N. Y.). 590; Peoples.
* Ante, ^722. Twaddell, 18 Hun (N. Y.), 427,—
3 State V. Tudor, 5 Day (Conn.), which last cases hold that the right
329; s. c. 5 Am. Dec. 162. to vote by proxy must be autliorized
* People V. Wheaton College, 40 111. by the legislature.
180. ^ Savings Bank v. Hunt, 72 Mo.
5 Re Long Island R. Co., 19 Wend. 597; s. c. 37 Am. Rep. 449.
(N. Y.) 37; s. c. 32 Am. Dec. 429; ' People v. Board of Fire Under-
Kearney v. Andrews, 10 N. J. Eq. 70; writers, 54 How. Pr. (N. Y.) 228, 2<0.
Taylor v. Griswold, 14 N. J. L. 222, * Goddard u. Merchants' Exchange,
226; 8. c. 27 Am. Dec. 33. Authoriz- 9 Mo. App. 290; s. c. affirmed, 78 Mo.
ing the members to vote at corporate 609.
elections by proxy: State v. Tudor, 5 » Hastings v. Blue Hill Turnp., 9
Day (Conn.), 329; s. c. 5 Am. Dec. Pick. (Mass.) 80. But the corpora-
162; People v. Crossley, 69 111. 195; tion cannot avail themselves of his
ante, §722. But see Taylor u. Oris- omission to take the oath in defense
wold 14 N J L. 222; Philips u. Wick- of an action against them; and if such
845
1 Thonip. Corp. § 1053.] by-laws.
■mth security in the sum of $20,000 ; ^ of an incorporafed asylum, re-
quiring the inmates not to leave the premises without permission from
the governor or one of his assistants, and prohibiting them from indulg-
ing in contentious, boisterous or disorderly conversation at the table, on
pain of expulsion, has been held reasonable and valid ; 2 of a benevo-
lent association, providing, as a penalty for the non-payment of dues,
that the dehnquent should forfeit his rights to any benefits while in
arrears, and for a period of three months after the payment of arrears ; ^
of an incorporated city passenger railway company, prohibiting pas-
sengers from getting on and off the cars by the front platform ; * and,
generally, the regulations of carriers of passengers intended to protect
the company from fraud and to promote the safety of the passengers,
are upheld when reasonable.^
§ 1053. Conclusion of Title One. — We have in this title
considered the manner in which corporate charters and fran-
chises are conferred by the legislature, and the constitutional
restraints under which the legislatures act in making such grants.
We have considered the usual modes of organizing corporations
under special charters and under general laws. We have gone
forward and examined the methods by which corporations are
consolidated with each other, and by which they are reorganized
after mortgage foreclosures or after the expiration of their char-
ters. We have conducted the process of organizing a corporation
down to the election of its officers and the establishment of its
by-laws. In treating of these subjects, we have considered many
incidental questions which seemed appropriate to be considered
by-law provide that the clerk shall be i Savings Bank v. Hunt, 72 Mo.
chosen yearly, and also that he shall 597; s. c. 37 Am. Rep. 449.
continue in office till another shall be 2 people v. Sailor's Snug Harbor,
choseu and qualified, aod the person 54 Barb. (N. Y.) 532.
first chosen and qualified is re-elected 3 Cartan w. Father Matthew &c.
the next year, he bontinues to be clerk Soc, 3 Daly (N. Y.), 20.
under the first election, till he is •* Baltimore &c. R. Co. v. Wllkin-
qualifled under the second. Ibid. A son, 30 Md. 224.
by-law requiring the proceedings of ^ Commonwealth v. Power, 7 Mete.
each day to bo drawn up by the secre- (Mass.) 59G; Walker v. Dry Dock &c.
tary is satisfied where they are drawn R. Co., 33 How. (N. Y.) Pr. 327 (that
up by a secretary pro tem., acting in coupon tickets are not good unless
the absence of the regular secretary, torn off by the conductor).
Price V. Grand Rapids &c. R. Co., 18
Ind. 137.
846
REQUISITES AND VALIDITY. [1 Thomp. Corp. § 1053.
in connection with the leading subjects under consideration.
This discussion closes the first title, according to the plan on
which this work has been projected. Although we have consid-
ered in this title the rights of members of corporations in
many relations, yet we have scarcely touched upon those rights
ih respect of members oi joint-stock corporations. That subject
stands alone in the law of corporations — peculiar to itself; and
it will be considered in the next three title.
847
TITLE TWO. CAPITAL STOCK AND SUBSCRIP-
TIONS THERETO.
Chapter
19. Nature of Capital Stock and Shares in
General §§1059-1085
20. Who May Become Shareholders in Cor-
porations §§1090-1133
Article I. Natural Persons §§1090-1098
II. Private Corporations .... §§1102-1111
III. Municipal Corporations . . . §§1115-1133
21. The Contract of Subscription .... §§1136-12()2
Article I. Theories as to the Nature and
Formation of the Contract . . §§1136 - 1195
II. Theories as to the Consideration. §§1200 - 1213
III. Theories as to the Necessity of
Paying the Statutory Deposit. §§1216- 1232
IV. Theory that the Full Amount of
the Capital must be Subscribed. §§1235 - 1242
V. Other Theories and Holdings . §§1245-1262
22. Alteration of the Contract §§1267-1299
23. Conditional Stock Subscriptions . . . §§1305-1356
Article I. Validity of Conditional Subscrip-
tions §§1305 - 1328
II. Effect of Conditions in Subscrip-
tions §§1332 - 1345
III. Interpretation of l^articular Con-
ditions §§1349 - 1356
24. Effect of Fraud on Stock Subscriptions . §§1360-1506
Article I. General Principles .... §§1360-1379
II. What Frauds M'ill and what will
not Avoid the Contract . . §§1382 - 1418
III. Remedies of the Defrauded Share-
holder Agiunst the Company . §§1424 - 1434
849
1 Thomp. Corp.] titlu: two.
Article IV. Time witliin wliicli a Rescission
must be Churned .... §§1438-1456
V. Remedies Against tlic Persons
Guilty of the Fraud . . . §§1460 - 1487
VI. Fraudulent Issues and Over-Issues §§1490 - 1506
25. The Surrender of Shares and Eelease of
Shareholders §§1511-1557
26. Payment of Shares §§1562-1697
Article I. In General §§1562-1600
II. In Property §§1604-1638
III. In what Kind of Property . . §§1642-1661
IV. New Doctrine that a Corporation
can Give Away its Unissued
Shares §§1665 - 1676
V. Rights of Bona Fide Purchasers of
Unpaid Shares §§1680-1687
VI. Miscellaneous Holdings . . . §§1691-1697
27. Assessments and Calls §§1700-1757
Article I. In General §§1700-1721
II. Conditions Precedent : Full Sub-
scription — Organization . . §§1724-1743
III. Sufficiency and Notification of the
Assessment §§1746 - 1757
850
SHARES liV GENERAL. [1 Thomp. Corp. § 1060.
CHAPTER XIX.
NATURE OF CAPITAL STOCK AND SHARES IN GENERAL.
Section
1059. Scope of this chapter.
1060. Definitions of '< capital stock."
1061. Difference between actual stock
and potential stock.
Distinction between capital
stock and tangible property.
What is capital stock, viewed
as a trust fund for credit-
ors.
When capital includes profits
and surplus.
Shares sometimes inappropri-
ately called " stock."
Shares are personal prop-
erty.
So are shares in unincorporated
joiut-stock companies.
Not goods, wares and merchan-
dise.
1069. Not " moneys."
1070. Are choses in action.
1071. Shareholders not co-owners.
1072. Execution against interest in
corporate property.
1062.
1063.
1064.
1065.
1066.
1067.
1068.
Section
1073. Shareholders cannot convey
corporate property though all
join in the deed.
1074. Incorporating a partnership:
mode of succeeding to the
partnership assets.
1075. Cannot act for the corporation,
or bind it by admissions.
1076. Not in a trust relation towards
the corporation.
1077. Cannot sue the directors at law.
1078. Not responsible for its torts.
1079. Not in privity with each other.
1080. Not necessary parties to suits in
respect of corporate rights.
1081. Not affected with notice, etc.
1082. To what extent in privity with
the corpoi-ation.
1083. No distinction in these respects
between incorporxted and un-
incorporated companies.
1084. A comparison between shares in
a partnership and shares in a
company.
1085. Capital stock a liability of the
corporation.
§ 1059. Scope of this Chapter. — In commencing an exten-
sive di.scu.ssion of the subject of corporate stock and stockhold-
ers, it will be useful to give, in a preliminary chapter, an outline
sketch of the nature of corporate stock and shares,. and the re-
lation of the holders of such shares to the corporation and to
each other.
§ 1060. Definitions of " Capital Stock." — It has been said:
* The word ' capital ' applied to corporations, is often used inter-
851
1 Thump. Corp. § 1061.] nature of capital stock.
changeubly with the words ' capittil stock,' and both are fre-
quently used to express the same thing — the property and
assets of the corporation. Strictly, the capital stock of a corpo-
ration is the money contributed by the corporators to the capital,
and is usually represented by shares, issued to subscribers to the
stock on the initiation of the corporate enterprise." ^ Another
court has said: *' It is a mistake to suppose that the stock of an
individual consists of so much money owned by him, in the bank ;
the money in the bank is the property of the institution, and to
the ownership of which the stockholder has no more claim than
a person who is not at all connected with the bank. The stock-
holder has an entire and perfect ownership over his own stock,
and may sell and transfer it to whomsoever he pleases, and from
doing which the bank has no power to restrain him." ^
§ 1061. Differeace between Actual Stock and Potential
Stock. — It has been pointed out in a well reasoned opinion by
Mr. Justice McLean, that mere authorized or potential stock is
improperly called stoclc or capital stock, until it is actually sub-
scribed for by individuals. He said : " The corporate powers of
the company were conferred for the express })urpose of creating
stock as a means of constructino- the railroad. As well might
the route for the road designated be called a railroad, as to call
the corporate means of creating the stock, stock. In a legal
point of view, it is important to call things by their right names.
This is especially necessary when the effect of the exercise of
corporate powers is to be determined. Stock can be created
only by contract, whether it be in the simple form of a sub-
scription, or in any other mode. There must be an agree-
ment to take the stock, and nothing short of this can create
it. This imparts to the stock the quality of property, which
before it did not possess. It is called capital stock in ths
charter, because the corporate capacity to create it is given.
The term stock, as used in the charter, before it is taken by
^ Andrews,.!., in Christensenw.Eno, 2 Bj-jgiitwellu. Mallory, MS. Cited
106 N. Y. 97, 100; s. c. 60 Am. Rep. 429, 9 Yerg. (Tenn.) 501 ; Union Bank of
431. See also Burrall v. Bushwick R. Tennessee v. State, 9 Yerg. (Tenn.)
Co., 75 N. Y. 211, 212, and cases 501.
cited.
852
SHARES IN GENERAL. [1 Thomp. Corp. § 1063.
subscription, menus nothing more than a power in the directors
to receive subscription for stock." ^ Whether the legislature in
a particular statute means the one kind or the other, must, of
course, depend upon the sense in which the words are used, as
shown by the context and determined by other canons of inter-
pretation. In a statute relating to the foreclosure of railway
mortgages,^ which authorizes a stockholder to acquire the same
relative interest in the road, sold on foreclosure, as he had be-
fore, on paying a sum equal to such proportion of the price and
costs as his stock bears to "the whole capital stock," — the
words "the whole capital stock," mean the capital stock ac-
tually subscribed for and issued, and not the amount named in
the articles of association.^ So, in an act incorporating a rail-
way company,* and providing in section 3, that the company
*' shall have the power and authority to borrow money in any
sum or sums not exceeding in amount one-half of the par value
of the capital stock," the par value of the capital stock is the
amount of paid up capital only, and not the fuU amount of
authorized capital.^
§ 1063. Distmction between Capital Stock and Tangible
Property. — The term "capital stock," in an act of incorpo-
ration, is said to mean the amount contributed or advanced by
the stockholders as members of the company, and does not refer
to the tangible property of the corporation.^ In a case in the
Supreme Court of Missouri, where the subject was .considered
with reference to an exemption from, taxation^ this distinction
seems to have been wholly lost sight of, and the conception
completely reversed. There, the tangible property of a corpo-
ration is said to be its stock, within the meaning of the language
of a charter which exempts the stock of a company which it
creates from State and county taxes; and lands of such comi)any,
thereafter acquired by donation from the State, fall into the
1 Sturgesu. Stetson, IBiss. (U. S.) ^ Appeal of Lehigh Ave. R. Co.
246,248; s. c.lO Myer Fed. Dec, §142. (Pa.), 24 Week. Notes Cas. 530 ; 18Atl.
2 N. Y. Laws of 1853, ch. 502, § 2. Hepr. 498.
3 Pratt V. Munson, 17 IIuu (N. Y.), ^ State v. Morristown Fire Assoc.,
476. 23 N. J. L. 195. See also BaiTy v.
■• Penn. Laws 1874, p. 458, iucor- Merchant's Exchange Co., I Sandf.
porating the Lehigh Avenue R. Co. Ch. (N. Y.) 280.
853
1 Thomp. Corp. § 1062.] nature of capital stock.
general volume of the company's stock and merely enhance its
value. Such lands are therefore not taxable, under a general
revenue law which provides for the taxation of " all property
owned by incor[)orated companies over and above their capital
stock." Such property is not deemed to be owned by the com-
pany over and above its capital stock. ^ It is obvious that this
ruling entirely ignores the clause in the revenue law above quoted.
It proceeds upon the general view that the legislature is not to
be deemed to have intended to impose a double taxation upon the
same property without having said so in express words ; in other
words, that it could not have intended to tax the property first
through its representative credit, the certificates of stock, in the
hands of the several shareholders, and to tax it again, en masse,
as so much tangible property, in the hands of the artificial be-
ing, the corporation; but, notwithstanding these decisions, it is
plain beyond question that this is precisely what the legislature
did intend. No other possible meaning can be given to the lan-
guage in the revenue law thus quoted. That language supposes
that there may be corporate stock, and that there may be prop-
erty other than corporate stock; and, however unjust the policy
of double taxation may be, it scarcely admits of doubt that that
is what the legislature intended. The court, however, were jus-
tified in saying that the clause was obscure ; and one can quite
agree with Holmes, J., in the following language : " It is pretty
evident that the framor of that act did not have present in his
mind any clear and definite ideas of the subject of which he was
speaking. It is not easy to see how, in any legal sense, a cor-
poration could own other property than that which would be
represented by the stock in the hands of the shareholders. The
shares of the stock might be above or below par value, accord-
ing to the amount and value of the property owned by the cor-
poration ; and it is to be presumed that shares of stock would be
taxed, if subject to taxation, in proportion to their value, like
other kinds ot" property. In this way the whole property would
be once taxed against the natural persons who are at last the only
real owners of the property held by the corporation in which
they are the stockholders. It would seem to be clear that, in con-
1 State V. Hannibal &c. R. Co., 37 Mo. 265.
854
SHARES IN GENERAL. [1 Thomp. Corp. § 1063.
templatioa of law, there cannot be any other property of this
corporation, over and above the stock held by the shareholders.
This conclusion necessarrily results from the very nature and con-
stitution of the corporation. We are of opinion, therefore, that
these lands were not taxable in the county of Livingston as such
other property."^ It is perceived that this decision amounts to
this : that whereas a corporation can have no property over and
above its capital stock, a clause of a revenue law providing for the
taxing of property of corporations, " over and above their cap-
ital stock," is nonsense and hence inoperative. This seems
equivalent to holding that a law is void because there is no sense
in it, — a rule which might, with equal propriety, be applied to
some judicial decisions.
§ 1063. What is Capital Stock, Viewed as a Trust Fund
for Creditors. — We shall hereafter have occasion to examine
the doctrine that the capital stock of a corporation is, in the
theory of courts of equity, a trust fund for its creditors. ^ The
capital stock of a corporation, which is subject to the operation
of this rule, consists of all the stock for which the members
have subscribed.^ Treating this stock as money, it is capable
of subdivision into three funds: 1. Money which has been sub-
scribed as a part of the capital stock, and paid in. 2. Money
thus subscribed, but not paid in.* 3. Money thus subscribed,
and paid in, but afterwards divided among the members before
all the debts of the corporation are paid.^ The reason why the
1 Ibid. 2G9. Ward v. Griswoldville Mfg. Co., 16
2 Post, §2841,e«seg. Conn. 597; Manu v. Pentz, 3 N. Y.
3 Adler v. Milwaukee Patent Brick 422; Allen v. Montgomery R. Co., II
Co., 13 Wis. 57; Hightower v. Thorn- Ala. 437; Spear v. Grant, 16 Mass. 9;
ton, 8 Ga. 480; s. c. 52 Am. Dec. 412; Ilightower v. Thornton, 8 Ga. 48(5;
Briggs V. Penniman, 8 Cow. (N. Y.) s. c. 52 Am. Dec. 412; Bassett v. St.
387; Allen v. Montgomery R. Co., 11 Albans Hotel Co., 47 Vt. 314; Henry
Ala. 437; Slee v. Bloom, 19 Johns, u. Vermilion &c. R. Co., 17 Ohio, 187;
(N. Y.) 45G; s. c. 10 Am. Dec. 273; Payne u. BuUard, 23 Miss. 90; Sanger
Wood V. Dummer, 3 Mason, 308; v. Upton, 91 U. S. 60.
Mann v. Pentz, 3 N. Y. 422; Payne v. * Wood v. Dummer, 3 Mason (U.
Bullard. 23 Miss. 90. S.), 308 ; Curran v. Arkansas, 15 How.
-• Slee V. Bloom, 19 Johns. (N. (U. S.) 304; Reid v. Eatonton Man.
Y.) 45G; s. c. 10 Am. Dec. 273; Briggs Co., 40 Ga. 98, 104; Lewis v. Robert-
V. Penniman, 8 Cow. (N. Y.;387; sou, 13 Sined. & M. (Miss.) 5.58.
855
i Thomp. Corp. § 10G5.] nature of capital stock.
capital stock of a corporation is deemed to embrace all the stock
for which the members have subscribed, whether paid ia or not,
is that, since the members are not, in general, personally liable
for the debts of the corporation, this fund is the stake held out
to the public, upon the faith of which the company obtains
credit.^ Speaking with reference to this relation of the subject,
it has been said : " The capital stock of a corporation is the fund
which has accumulated in its coffers from the contributions
of its members. It may be practically identified in the money,
notes, bonds, securities or even land titles wherein the contribu-
tions have been invested. It includes all claims against share-
holders for their unpaid subscriptions. All these elements, or
their value, to the authorized extent, represent the capital stock
or working capital of the corporation, in like manner as the
goods upon the merchant's shelves represent his stock in trade.
They constitute the trust fund — the stock. Regarded in this
character, as first subject to the claims of creditors, the share-
holder owns not a dollar of it. He owns no stock. What he
owns is simply a right or share in the proceeds or profits of the
stock proportioned to the amount of his contribution, together
with an ultimate right to receive back his contribution, or so much
as may remain thereof, upon the dissolution or closing up of the
corporation." ^
§ 1064. When Capital Includes Profits and Surplus. — The
profits and surplus fund of a bank, whenever they may have ac-
crued, are, until separated from the capital by the declaration of
a dividend, a part of the stock itself, and will pass with the
stock under that name in a transfer or bequest. ^
§ 1065. Shares Sometimes Inappropriately Called *' Stock."
— Correctly speaking, the aliquot parts of the capital stock
of a corporation qualified as hereafter stated, are termed shares;
1 See the reasoning of Dixon, C villa Mfg. Co., IG Conn. 599; post,
J., in Adler v. Milwaukee Patent Brick § 2841 et seq.
Co., 13 AVis. GO; see also Hightower agent v. Hart, 10 Mo. App. 143,
V. Thornton, 8 Ga. 495; s. c. 52 Am. 146, opinion by Lewis, P. J.
Dec. 412; Allen v. Montgomery 11. ^ phelps v. Farmers' &c. Bank, 26
Co., 11 Ala. 437; Ward v. Griswold- Conn. 269; post, §2174
856
SHAKES IK GENERAL. [1 Tbomp. Corp. § 1066.
and this is the expression used in the English books. American
judges and writers, however, loosely designate the interest of
each shareholder in the capital of the company as his stock; and
one court has thought this designation not inappropriate.^
§ 1066. Shares are Personal Property. — Contrary to early
opinion,^ it is now generally agreed that shares of stock in corpora-
tions are personal property, whether they are declared to be such
by statute or not, and whether the property of the corporation
itself is real or personal.^ The reason is that shares in an in-
^ People V. Commissioners of
Taxes, 23 N. Y. 192, 220.
2 Drybutter v. Bartholomew, 2 P.
Wms. 127; Townsend v. Ash, 3 Atk.
336; Buckeridge v. Ingram, 2 Ves. Jr.
G52; Welles u. Cowles, 2 Conn. 567;
Welles V. Cowles, 2d case, 4 Conn.
182; Rex V. Chipping Norton, 5 East,
239; Habergham v. Vincent, 2 Ves.
Jr. 232 ; Hurst v. Meason's Estate, 4
Watts (Pa.), 346 ; Price v. Price, 6 Dana
(Kj'.), 107; Copeland v. Copeland, 7
Bush (Ky.), 349. In some of these
cases it does not appear that the com-
panies by which the shares were issued
were any more ihnw joint-stock partner-
ships, in which case, according to the
early English theory, the members
would be partners^ and each member
would therefore have a direct propri-
etary interest in the land of the com-
pany; and all these rulings were made
with reference to companies owning
lands. Others related to companies
which owned lands and had the fran-
chise of receiving tolls, such as navi-
gation companies, turnpiiie compa-
nies and tlie like, and the reasoning
wastliat the rigiit to tolls was a right
issuing out of laud, and hence an in-
corporeal hereditament and therefore
realty. The doctrine thus came to be
extended insensibly, as in the Ken-
lucky and Connecticut cases just cited,
to shares in incorporated compa-
nies — owning lauds — such as a turn-
pike company, as in Welles v. Cowles,
supra, or a railroad company, as in
Price V. Price, supra. In his edition
of Cruise, Prof. Greenleaf supposed
that shares in a corporation m ght be
real or personal property accordingly
as the property of the corporation
was real or personal property. But
all these authorities overlook an ob-
vious distinction, which later decis-
ions have recognized, which will be
hereafter stated. In Kentucky and
Connecticut the rule laid down in the
cases already cited is said to have
been subsequently repealed by statute.
3 Russell V. Temple, 3 Dane Abr. 108;
Bligh V. Brent, 2 Younge & C. (Exch.)
268, 294; Bradley v. Holdsworth, 3
Mees. & W. 422; Tregear ??. Etiwanda
Water Co., 76 Cal. 537; s. c. 9 Am.
St. Rep. 245; Seward v. Rising Sun,
79 lud. 351. Duncuft v. Albrecht, 12
Sim. 189; Johns v. Johns, I Oh.
St. 350; Southwestern R. Co. v.
Thomason, 40 Ga., 408; Arnolds. Rug-
gles, 1 R. I. 165; Tippets v. Walker,
4 Mass. 595, 596, per Parsons, C. J.;
Allen V. Pegram, 16 la. 163, 173; Ed-
wards V. Hall, 6 De Gex M. & G. 74, 91 ;
following Myers v. Perigul, 2 De Gex
M. & G. 599, where the same was
held in respect of shares of an unin-
corporated joint-stock company, and
overruling Ware v. Cumberlege, 20
Beav. 503; s. c. 24 L. J. Chan. 630; I
Jur. (n. s.) 745.
857
1 Thomp. Corp. § IOCS.] ^ATUKE of capital stock.
corporated coinpuny do not give to their owner any right in the
property itself of the company. That remains in the artificial
body called the cori)oration. It merely gives him a right to his
share of the profits of the corporation while it is a going con-
cern, and to a share of the proceeds of its assets when sold for
distribution in case of its dissolution and winding up. The
shareholders are neither joint tenants, tenants-in-common, nor
coparceners, in respect of the corporate property. Their
shares are merely choses in action — a right to profits and divi-
dends.^
§ 10G7. So arc Shares in Unincorporated Joint-Stock Com-
panies. — It is now settled in England that shares in joint-stock com-
panies, whether incorporated or unincorporated, are, like shares
in a partnership, personal property. Thus, it has been held that
shares in railroad companies,'^ canal companies,^ cost-book min-
ing companies,* foreign mining companies,^ insurance companies,^
are not interests in land within the mortmain acts. So, it has
been held that shares in water-works companies,' cost-book
mining companies,^ banking companies,^ and railway companies,^"
are not interests in land within the meaning of the fourth section
of the statute of frauds.
§ 1068. Not Goods, Wares and Merchandise.. — Neither are
shares of joint-stock companies goods, wares, or merchandise
within the seventeenth section of the English statute of frauds.^^
It has been so held in respect of banking companies, ^^ railway com-
1 As hereafter seen, shares of cor- ^ powell v. Jessopp, 18 C. B. 336;
porate stock are subject to execution Walker u. Bartlett, /cL 8, 45; Watson w.
and attachment (post, § 2765), as per- Spratley, lOExch. 222; contra and over-
sonal property. i-uled, Vice v. Anson, 7 Barn. & Cres.
2 Linley v. Taylor, 1 Giff. 67; s. c. 409; Boyce v. Greene, Batty, 608.
2 De Gex F. & J. 84. ^ Humble v. Mitchell, 11 Ad. & El.
3 Edwards v. Hall, 6 De Gex M. & 205.
G. 74. 1" Duncuftv. Albrecht, 12 Sim. 189;
* Hayter v. Tucker, 4 Kay & J. 243. Bradley v. Holdsworth, 3 Mees. & W.
5 Baker v. Sutton, 1 Keen, 234. 422.
s March v. Atty.-Gen., 5 Beav. 433. " Watson v. Spratley, 10 Exch. 222.
" Bligh V. Brent, 2 Younge & C. See Colt v. Nettervill, 2 P. Wms. 304.
Exch. 268; Weekley v. AVeekley, Id. ^ Humble u. Mitchell, 11 Ad. & El.
281, note. 205.
858
SHAKES IN GENERAL. [1 Thomp. Corp. § 1070.
panies,^ and cost-book mining companies. ^ Nor are such shares
within the exception in the English stamp acts, exempting agree-
ments relating to the sale of goods, wares and merchandise from
stamp duty.^ One modern American case is met with, which
holds, but without citing any authority, that shares of corporate
stock are goods, wares and merchandise, within the meaning of
the statute of frauds, so as to require a note or memorandum in
writing to validate a sale thereof.* The court accordingly held
that a verbal contract by which A. purchases of B. a one-fourtli
interest in an existing corporation is void.^ This decision does
not of course impugn the well-known rule that shares of cor-
porate stock may be transferred hy the delivery of the stock
certificate, which is the symbolical representative of the sharehold-
er's interest, accompanied with a power of attorney in blank,
authorizing the attorney in fact whose name shall be inserted
therein to make the proper transfer upon the books of the
company.
§ 1069. Not " Moneys." — Shares or stock are not ' ' moneys ' '
within the meaning of a clause in a will creating a specific be-
quest.^
§ 1070. Are Choses in Action. — Judicial opinion has char-
acterized corporate shares as choses in action.^ This will appear
to be a sound conception when it is reflected that corporate
shares are merely contract rights, namely, the right to partici-
pate in the election of the corporate officers, to be eligible to the
office of director therein, to receive dividends of its profits, and,
after its debts have been satisfied, to receive a proportional share
of its assets on its being wound up.^
1 Tempest v. Kilner, 2 C. B. 300; ' Stanwood v. Stanwood, 17 Mass-
Bowlby u. Bell, 3 /d. 284; Duncuf t v. 57; Denton v. Livingston, 9 Johns.
Albrecht, 12 Sim. 189. (N. Y.) 96; Planters &c. Bank v.
2 Watson u. Spratley, 10 Exch. 222. Leavens, 4 Ala. 753; Slaymaker v.
» Knight U.Barber, 1 GMees. & W. Bank of Gettysburg, 10 Pa. St. 373;
66. Arnold v. Ruggles, 1 R. I. 1G5.
* Fine i;. Hornsby, 2 Mo. App. 61; » " Shares," says a recent writer of
Bernhardt f. Walls, 29 Md. App. 206. reputation, "are not in fact chattels,
5 Fine V. IIonisl>v, svpra. vrhile the certificates are; the shares
« Collins V. Collins, L. R. 12 Eq. are merely contract rights." 1 Mor.
455. 859
1 Thomp. Corp. § 1073.] jsatlke of capital stock..
§ 1071. Shareholders not Co-Owners. — Shareholders are
not joint tenants, or in any other sense co-owners of the corpo-
rate property, either before or after its dissolution. The title
to it rests exclusively in the legal entity called the corporation.!
A share of the capital stock merely gives the right to partake,
according to the amount put into the fund, of the surplus profits
of the corporation, and ultimately, on the dissolution of it, of
so much of the fund thus created as remains unimpaired and is
not liable for debts of the corporation. A subscriber to such
capital stock does not become the owner of a given number of
the shares, in such a sense as takes the shares out of the corpo-
rate fund ; the fund becomes the property of the aggregate body
only. It can only issue a certificate as evidence of the existence
of the share and ownership.^ From this principle several im-
portant consequences follow, which will be separately noted.
§ 1072. Execution against Interest in Corporate Prop-
erty. — His interest in the corporate property cannot therefore
be seized and sold under judicial process, as can the interest of
a partner or tenant-in-common ; ^ though, as hereafter pointed
out, his shares, considered in themselves as chattels, can be taken
and sold under execution or attachment.*
§ 1073. Shareholders cannot Convey Corporate Property
though All Join in the Deed. — As the shareholders are in no
direct sense proprietors of the corporate property they cannot
convey the real estate of the corporation though all join in the
deed,^ though effect may be given to such a conveyance in
equity.**
Priv. Corp.,? 200. See also the obser- 3 Williamson v. Smoot, 7 Mart.
vations of the same writer at §§ 193 (La.) 31.
and 225. " Post, § 2765.
1 Mickles V. Rochester City Bank, ^ Wheelock v. Moulton, 15 Vt. 519.
11 Paige (N. Y.), 118; s. c. 42 Am. Dec. The same has been held in England in
103; Spurlock v. Missouri Pacific R. respect of the shares of an unincor-
Co., 90 Mo. 200, 207; Williamson V. porated joint-stock company. Myers
Smoot, 7 Mart. (La.) 31. v. Perigal, 2 De Gex M. & G. 599 (ap-
2 Burrall v. Bushwick R. Co., 75 proved in Edwards v. Hall, 6 De Gex
N. Y. 211. M. &G. 74, 92).
G Ante, § 18.
860
SHARES IN GENERAi.. [1 Tliomp. Corp. § 1077.
§ 1074. Incorporating a Partnership : 3Iode of Succeeding
to the Partnership Assets. — From what has preceded it will be
understood that the mere fact of incorporating a partnership
although under the same name, does not invest the corporation
with the property of the firm ; but there must be a conveyance
by the partners to the new artificial entity.^
§ 1075. Cannot Act for the Corporation, or Bind it by Ad-
missions, etc. — A shareholder cannot bind his corporation by
his acts or admissions, in the mere character of shareholder,^ —
though he can if an officer, and if the acts or admissions are
within the scope of his agency.-^ He cannot, therefore, release
a debt due to the corporation.*
§ 1076. Not in a Trust Relation towards the Corpora-
tion. — The relation of trustee and cestui que trust, or of debtor
and creditor, or of partnership, does not exist between the
stockholders of an incorporated company and the corporation
itself.^ But the corporation and the individual shareholder may
deal with each other at arm's length the same as two strangers
may, and a shareholder may contract with his corporation, and
sue or be sued on his contracts.^ A shareholder may become a
creditor of the corporation by entering into a contract with it; ^
and, on the other hand, the corporation is regarded as a trustee
for the shareholder for the limited purpose of registering a trans-
fer of his shares on the corporate books. ^ But, as hereafter
seen,*' the directors and other managing officers stand in a fiduciary
relation not only to the corporation, but also to the shareholders.
§ 1077. Cannot Sue the Directors at Law. — The entire
body of siiareholders are therefore not, in the intendment of the
A Carothers v. Alexander, 74 Tex. * Verplanck r. Mercantile Ins. Co.,
3095 «• c. 12 S. W. Rep. 4. 1 Edw. (N. Y.) 84.
2 Shay V. Tuolumne Water Co., 6 « Culbertson v. Wabash Nav. Co.,
Gal. 73. 4 McLean (U. S.), 544.
» Post, § 3740. ' Borland v. Haven, 37 Fed. Rep.
* Harris v. Muskingum Mfg. Co., 394.
4 Blackf. Cliid) 207. Compare Ber- » Pos<, § 2486.
ford V. New York Iron Mine, 4 N. Y. » Post, § 3899, ct seq.
Supp. 83(5 ; 5C N. Y. Super. Ct. (24
Jones & S.) 236.
861
1 Thomp. Corp. § 1080. J nature of capital stock.
law, the corporation, though they are often regarded as such in
the eye of courts of equity, which look through the forms to the
substance of things. From this it follows that the directors of
the corporation are not the agents of the aggregate body of
stockholders, in the theory of courts of the common law, though
they are trustees for them in the theory of courts of equity. Not
being such agents, a stockholder cannot maintain an action
against them for their negligence or malfeasance in the conduct
of the affairs of the corporation whereby its assets have been
wasted and his shares have been rendered worthless.^
§ 1078. Not Responsible for Its Torts. — The shareholder is
neither responsible for the debtSj^nor for the torts of the corpo-
ration.^ Nor is the agept of the corporation his agent, and be
will not therefore be bound by the fraudulent representations of
the latter.*
§ 1079. Not in Privity with Each Other. — Nor are stock-
holders in privity with each other ; nor do they, in the absence
of special engagements, occupy any trust relation towards each
other ; but they may deal with each other at arm's length just
as they may so deal with the corporation.^ Therefore, the un-
authorized acts of one shareholder will not, in the absence of
special circumstances, be imputed to the others, or bind them
in any manner to their detriment.*
§ 1080. Not Necessary Parties to Suits in Respect of Cor-
porate Rights. — In the absence of special circumstances here-
1 Smith V. Hurd, 12 Mete. (Mass.) tion of its road. Atchison &c. R. Co.
371; post, §3980. v. Cochran, 43 Kan. 225; s. c. 23 Pac.
2 Post, §2815. Rep. 151.
3 Thus, a complaint under a mill act * The fraudulent representations of
(Mass. Pub. Stat. 1882, ch. 190), for an agent of the corporation concern-
Uoioage, etc., against the individuals ing the value of the stock vpill not
of a corporation, cannot be sustained vitiate a sale of stock by a stockhold-
where the charter subjects them to no er, who has no notice of the fraud.
personal liability. Norton u. Hodges, Moffat u. Winslow, 7 Paige (N. Y.),
100 Mass. 241. So, a stockholder of a 124.
railroad company is not liable for the ^ Gillettu. Bowen, 23 Fed. Rep. 625.
negligence of the officers, agents, or * Western Mining &c. Co. v. Pey-
employes of the company in the opera- tona Canal Coal Co., 8 W. Va. 406.
862
SHARES I\ GENERAL. [1 Thoilip. Corp. § 1082.
after considered/ shareholders cannot be parties, either plaintiff
or <lefendant, in actions respecting corporate rights. That
is to say, in those actions where the corporation itself must
regularly prosecute or defend. They cannot sue individually for
the conversion of corporate property. ^ Nor can a shareholder
have an injunction to restrain a slander of the title of the cor
poration to its property.^ Nor, in the absence of statutes, can
they be defendants in actions at law against the corporation.* It
has been held in one jurisdiction that a shareholder cannot sue
in the corporate name to recover his individual rights, without
the assent of a majority of the corporation, nor carry on such a
suit b}' certiorari.^
§ 1081. Not Affected with Notice, etc — A stockholder is
not, simply as such, bound to know the rules and regulations
which the directors may prescribe for the transaction of the
business of the corporation, with the public generally, merely
because they appear recorded on the minute books of the cor-
poration.^ Nor is notice to an officer of the corporation notice
to a shareholder in such a sense as to affect his rights.^ But it
has been held that subscribers for stock in a corporation must
be presumed to know the provisions of its charter.^
§ 1082. To What Extent in Privity with the Corporation. —
But for certain purposes, he is in privity with the corporation,
1 Post, Ch. 89. ' Thus, it has been held that where
2 To.nlinson v. Bricklayer's Union, several persons, acting together as a
87 Ind. 308 ; Langdou v. Hillside Coal society under the name of a certain
&c. Co., 41 Fed. Rep. 609. " grange," subscribe for stock in a
3 Post, Ch. 89. corporation, a notice by a creditor of
■* Post, Ch. 89. A stockholder in a an insolvent corporation, for the
corporation is no party in a suit against purpose of charging the mem-
it, although his individual property is bers of the grange as stockhold-
attached in the suit, and a copy of the ers, given to the master or pre-
writ is left with him; and he may im- siding officer of the grange, is not
peach the judgment recovered therein, notice under Kan. Gen. Stat. 1889,
when introduced against him. Whit- § 1 192, to the members of the grange,
man v. Cox, 26 Me. 335. Wells v. Robb, 43 Kan. 201; s. c, 23
s Silk Mfg. Co. V. Campbell, 27 N. Pac. Rep. 148.
J. L. 539. » Wight v. Shelby R. Co., 16 B.
« Pearsall v. Western Uu. Tel. Co., Mon. (Ky.) 4.
44 Hun (N. Y.), 532; ». c. 9 N. Y. St.
Rep. 132.
863
I Thomp. Corp. § 1083.] nature of capital stock.
as much as though it were a partnership, and he were a member
of it. Thus, as respects his h'ability to answer ultimately for
the debts of the corporation, a judgment against the corpora-
tion, in the view taken by several of the courts, concludes him
as much as though he were a party to the record ; ^ though the
rule seems to be otherwise in New York.^ It has been held that
the immunity which attends the acts of de facto officers, does not
apply to the acts of a pretended board of directors of a corpo-
ration which has never been organized in accordance with the
law of its creation, as respects stockholders of the pretended
corporation who participate actively in its proceedings.^
§ 1083. T^o Distinction in these Respects between Incorpo-
rated and Unincorporated Companies. — There is no distinction
in substance between the rights of a shareholder in an incorpo-
rated and an unincorporated joint-stock company, so far as the na-
ture of his interest in the property is concerned. " It would be
unfortunate," said Mr. Baron Martin, " if it were found to be so.
It would, as already observed, of necessity introduce a new course
of dealing from what has hitherto been in use in regard to this
species of property, which would be inconvenient; and it would
make a distinction between shares in one species of joint-stock
companies and another, which persons not acquainted with the law
would not readily appreciate or understand. I think, however,
1 Merrill w. Suffolk Bank, 31 Me. Iowa, 13. The Kansas court, in Grund
57; Came v. Brigham, 39 Me. 35; v. Tucker, 5 Kan. 70, hold that the
Milliken y. Whitehouse, 49 Me. 529; judgment against the corporation is
Slee V. Bloom, 20 Johns. (N. Y.) 669; prima facie evidence against thestock-
s. c. 10 Am. Dec. 273; Moss v. Oak- holder. It was not necessary to go
ley, 2 Hill (N. Y.), 265; Belmont beyond this, for there was no rebut-
V. Coleman, 1 Bosw. (N. Y.) 188; ting evidence offered. But in its
Donworth v. Coolbaugh, 5 Iowa, reasoning the court follows that ia
300; Wilson v. Pittsburgh &c. Coal Slee v. Bloom, 20 Johns. (N. Y.) 669,
Co., 43 Pa. St. 424; Grund v. Tucker, which is to the effect that such ajudg-
5 Kan. 70. Contra, Moss v. McCul- ment is conclusive. Hawes v. Anglo-
lough, 5 Hill (N. Y.), 131; Strong u. Saxon Co., 101 Mass. 385,397; Milli-
Wheaton, 38 Barb (N. Y.) 616; Miller ken v. Whitehouse, 49 Me. 527; Don-
V. White, 50 N. Y. 137; McMahon v. worth v. Coolbaugh, 5 Iowa, 300. See
Macy, 51 N. Y. 155. See Moss v. post, § S282,et seq.
Averell, 10 N. Y. 449; Belmont v. - McMalion v. Macy, 51 N. Y. 155.
Coleman, 21 N. Y. 96; s. c. 1 Bosw. ^ Miller v. Ewer, 27 Me. 509, 634.
(N. Y.) 188; Hampson v. Weare, 4
864
SHARES IX gent:ral. [1 Thomp. Corp. § 1084.
there is no such difference. In substance and reality, the inter-
est of the shareholder in a mining unincorporated company, and
in an incorporated joint-stock company, is exactly the same. In
both it is an interest in the ultimate profits. In neither can the
shareholder directly intermeddle or deal with the land; and
although apparently in a mining company the interest of a share-
holder in laud seems to be greater than in ordinary trading Joint-
stock companies, nevertheless almost all trading companies have
houses or land, and without them their business could not in
general be carried on, as was observed by the vice-chancellor
in Hilton v. Giraud.^ The share in a mining company consists
of an interest in the machinery, the capital, the skill and labor
employed upon the mine, as well as in the mine itself. The em-
ployment of land, may be, or may be supposed to be, greater
in degree in raining companies, but the nature of the property
in the share is the same as in the shares of other trading part-
nerships into the capital of which land or the use of it does not
so largely enter." ^
§ 1084. A Comparison between Shares in a Partnership and
Shares in a ** Company." — Sir Nathaniel Lindley, in his work
on Partnership,^ points out a close resemblance between shares
in a simple partnership and shares in what in England is called a
company, which is understood to mean a joint-stock company,
which may be either incorporated or unincorporated. He says :
*' What is meant by the share of a partner is his proportion of
the partnership assets after they have all been realized upon and
converted into money, and all the debts and liabilities have been
paid and discharged.* This it is, and this only, which, on the
1 1 De Gex & S. 187. Featherstonhaugh v. Fenwick, 17 Ves.
2 Watson V. Spratlcy, 10 Exch. 222, 298; Darby v. Darby, 3 Drew. 495,
238; ante, §1007. 503. To which the learned American
8 2 Lind. Part. (4th ed.) 661, 662. editor. Dr. Ewell, has added the fol-
* In support of this proposition he lowing citations of American cases
cites the following cases, all of which which seem equally applicable: Smith
support his text: Doddlngton w. Hal- w. Evans, 37 Ind. 526; Carter v. Brad-
let, 1 Ves. Sr. 497; Croft d. Pyke, 3 P. ley, 58 111. 101; Hill v. Beach, 12 N.
Wms. 180; West v. Skip, 1 Ves. Sr. J. Eq. 31; Douglas v. Winslow, 20
239; Taylor v. Fields, 4 Ves. 396; Me. 89; Perry v. Holloway, 6 La. Ann.
Crawshayv. Collins, 15 Ves. 218, 229; 265; Simpsons. Leech, 86 111. 286;
865
1 Thomp. Corp. § 1084.] nature of capital stock.
death of a jDartner, passes to his representatives or to a legatee
of his share; ^ which under the old law was considered as bona
notahilia;'^ which on his bankruptcy passes to his trustee; ^ and
which the sheriff can dispose of under a Ji. fa. issued at the
suit of a separate creditor,* or under an extent at the suit of the
crown. ^ * * * Speaking generally, a share in a company
signifies a definite portion of its capital. When a company is
formed, a sum of money is fixed upon and is called its capital ;
this sum is divided into a number of equal portions ; each of
these portions is a share, and whether the sum fixed upon is ever
all subscribed or not, and whether what is subscribed is employed
profitably or the contrary, a share retains its original meaning.
A share in a company, like a share in a partnership, is in truth a
Filley v. Phelps, 18 Conn. 294; Staats
V. Bristow, 73 N. Y. 264; Schalck u,
/ Harmon, 6 Minn. 265, 269; Re Cor-
bett, 5 Sawyer (U. S.), 206; Hallu.
Clagett, 48 Md. 223; Coukling v.
Washington University, 2 Md. Chan.
497; Menagh v. Whitwell, 52 N. Y.
146; Mayer v. Garber, 53 Iowa, 689;
»■. c. 6 N. W. Rep. 63. See also Taft
V. Schwamb, 80 III. 289 ^ Chase v.
Scott, 33 Iowa, 309.
1 Citing Farquhar v. Hadden, L. R.
7 Chan. 1.
2 Citing Ekins v. Brown, 1 Eccl. &
Adm. Rep. (Spink) 400; Atty.-Gen. v.
Higgins, 2 Hurl. & N. 339.
3 Citing Smith v. Stokes, 1 East^
363.
•* Skipp V. Harwood, 2 Swanst. 586 ;
Re "Wait, 1 Jac. & W. 585 ; Johnson
V. Evans, 7 Man. & G. 240; Menagh u.
Whitwell, 52 N. Y. 146; Holmes v.
Mentze, 4 Ad. &E1. 127; s. c. 5 Nev.
& M. 563; 4 Dowl. 300; Sitler v.
Walker, 1 Freem. Ch. (Miss.) 77;
Place V. Sweetzer, 16 Oh. 142; James
V. Stratton, 32 111. 202; Newhall
?;. Buckingham, 14 111. 405; White
V. Jones, 38 Hi. 159; Dow v. Say-
word, 14 N. H. 9; s.c. 12 N. H.271;
Marston v. Dewberry, 21 La. An. 518;
Nixon V. Nash, 12 Oh. St. 647; Choppin
866
V. Wilson, 27 La. An. 444; Saunders
V. Bartlett, 12 Heisk. (Tenn.) 316;
Wilson V. Strobach, 59 Ala. 488;
Weaver v. Ashcroft, 50 Tex. 428; Peo-
ple's Bank v. Shryock, 48 Md. 427;
Morgan v. Watmough, 5 Whart. (Pa.)
125; Wiles v. Maddox, 26 Mo. 77;
Thomas v. Lusk, 13 La. An. 277;
Nelson v. Conner, 3 La. An. 456; Lee
V. BuUard, Id. 462; Phillips w. Cook,
24 Wend. (N. Y.) 389; U. S. v. Will-
iams, 4 McLean (U. S.), 236; Will-
iams V. Gage, 49 Miss. 777; Brewster
V. Hammet, 4 Conn. 540; Gibson v.
Stevens, 7 N. H. 352; Filley v. Phelps,
18 Conn. 294 ; Witter v. Richards, 10
Conn. 37; Jones v. Thompson, 12 Cal.
191; Fisk V. Herrick, 6 Mass. 271;
Pierce v. Jackson, 6 Mass. 242; Tap-
pan V. Blaisdell, 5 N. H. 190; Knox v.
Summers, 4 Yeates (Pa.), 477; Mc-
Carty ■;;. Emlen, 2 Yeates (Pa.), 190;
Knox V. Schepler, 2 Hill (S. C),
595; White v. Dougherty, Mart. & Y.
(Tenn.) 309; Lyndon v. Gorham, 1
Gall. (U. S.) 367; Merrill v. Rinker,
1 Bald. (U. S.) 528.
5 Citing Rex-y. Sanderson, Wightw.
50; Rex v. Rock, 2 Price, 198; Rex
V. Hodge, 12 Price, 537; Spears v.
Atty.-Gen., 6 Clark & F. 180.
SHARES IN GENERAL. [1 Thomp. Coi'p. § 1085.
definite proportion of a joint estate after it has been turned into
money and applied as far as may be necessary in payment of the
joint debts." ^
^ § 1085. Capital Stock a Liability of the Corporation. — The
capital stock of a corporation is not a debt due by the shareholders
to the corporation; on the contrary, the shares of such stock
represent a liability of the corporation to the shareholders. It
follows that if the shareholder, at a time when the corporation
is insolvent sell his shares for value to another person or corpo-
ration, and the transfer is properly executed, neither the former
corporation nor its receiver, or other representative of it or its
creditors, can maintain a suit against the shareholder for the
money which he has so received for his shares. An apology
would be due for discussing a question so absurd, if it had not
been contested in an important case by able counsel. The case
was, that a life insurance com[)any, which we will call A, being
in difficulties and insolvent, transferred its assets and its risks to
another company which we will call B, upon a contract, the con-
sideration of which was twofold : 1 . That Company B should re-
insure the risks of Company A. 2. That Company B should issue
its paid-up shares of stock, dollar for dollar, to all the share-
holders of Company A who should ai)ply for the same within
twenty days, and that it should also redeem its stock so issued
by paying to the holders of it its par value, if demanded by them
within twelve months. At the time when this contract was made
and executed as between the two companies, Company B was
also insolvent, though it was at the time a going concern. One of
the shareholders of Company A owned shares of such company of
the par value of $5500. For this he received, under the terms of
the contract, paid-up shares of Company B of like value, and after-
ward, upon his request, Company B redeemed the same by pnying
him $5500 therefor. Subsequently a receiver in charge of the
' Citing "Watson v. Spratley, 10 bciua; whether such ownership was
Exch. 222; Sparling u. Parker, 9 Beav. capable of conferring the elective
450. The question of the nature of franchise. The case is valuable for
the ownership of shareholders in un- the observations of two of the judges
incorporated joint-stock companies upon tlie nature of such ownership,
came before the Court of Session of Dove v. Young, 7 Macpherson, 304,
Scotland in 18(18, the precise question 30G. See also ante, §§ 3, 4, 5, 6, 1067.
867
1 Thomp. Corp. § 1085.] natuue of capital stock.
affairs of Company A brought an action against this shareholder
to recover the money which he had thus received from Company
B, alleging that this exchange and redemption of stock was
merely a contrivance whereby the shareholders of Company A
appropriated to their own use and in redemption of the capital
stock of Company A, a portion of the assets of such company, in
fraud of its creditors, and that the payments made by Company
B in redeeming the shares of stock which, in pursuance of the
contract, it hud issued to the shareholders of Company A, were
made out of the funds received by it from Company A. The
validity of the transfer of assets had been conclusively established
in another proceeding, and was not controverted. It was held
that the receiver could not recover, and this upon several obvi-
ous grounds. The contract between the two companies could
not be avoided in part ; it must stand or fall as an entirety. As
its validity was not drawn in question, it followed that there was
no privity between the plaintiff and the defendant, siuce the lat-
ter had ceased to be a shareholder of the corporation of which
the plaintiff was receiver. The receiver, as the representative
of Company A, had no right to recover on the theory that the
money thus paid to the defendant by Company B was a part of
the assets of Company A ; since, by the terms of a valid contract,
Company A had sold and tranferred all its assets, these in-
cluded, to Company B. If, therefore, the defendant was liable
to any one to restore the money he had thus received, he was
liable, not to the receiver of Company A, but to the receiver of
Company B.^
1 Bent V. Hart, 73 Mo. 641 ; affirming s. c. 10 Mo. App. 143. Sherwood, CT
J., dissented.
868
WHO MAY BECOME SHAREHOLDERS. [1 Thomp. Corp. § 1090.
CHAPTER XX.
WHO MAY BECOME SHAREHOLDERS IN CORPORATIONS.
Art. I. Natural Persons, §§ 1090-1098.
II. Private Corporations, §§ 1102-1111.
III. Municipal Corporations, §§ 1115-1133.
Article I. Natural Persons.
Section Section
1090. Persons capable of contracting. 1095. Infants.
1091. By what law the subject gov- 1096. Married women.
erned. 1097. Where the married woman has
1092. Alien friends. an equitable separate estate.
1093. Ambassadors of foreign coun- 1098. Husband's liability for calls in
tries. respect of wife's shares.
1094. Alien enemies.
§ 1090. Persons Capable of Contracting. — A subscription
to the stock of a corporation being a contract, the general rule
13 that no one can become a subscriber who is incapable of
contracting.^ The legislature may, and in some cases American
legislatures have, in granting special charters changed this rule
as to particular corporations, by enacting that married women,
for example, may become subscribers to their capital stock, es-
tablishing a special enabling act for the benefit of the particu-
lar company .2 Where there is no such exception to the general
rule, a subscription, valid and effective for all purposes, can be
made by a person under disability, only through the intervention
of a trustee who is not under a disability ; and then the trustee
becomes in legal effect the shareholder, and answerable per-
sonally as such, subject of course to the obligations of his trust
as between himself and the beneficiary therein.^ It should be
i Lind. Comp. L. 5th ed., p. 36. » Post, §3084.
2 Post, §1096.
869
1 Thomp. Corp. § 1094.] who may become shareholders.
borno in mind that the incapacity of persons under disability
to subscribe for shares does not amount to a disability to oivn
shares, where the title to shares is devolved upon them in any
mode permitted by lavv.^
§ 1091. By what Lavv the Subject Governed. — The ques-
tion whether a person in any given case is competent to becorao
a subscriber to the shares of a corporation, is governed by tho
general law of the State or country creating the corporation;
and if the charter or governing statute of the corporation con-
tains a special enabling act, such as that S[)oken of in the last
section, that of course governs. So tliat, it may be affirmed
with confidence that the question is governed exclusively by the
law of the domicil of the corporation.
§ 1092. Alien Friends. — No principle of the common law
exists which prevents an alien friend from becoming a share-
holder in a corporation ; and as hereafter seen,^ such share-
holder has the same right to vote at a corporate election as a
citizen shareholder.^
§ 1093. Ambassadors of Foreign Countries. — An ambas-
sador of a foreign country undoubtedly has the same capacity to
become a shareholder that is possessed by any other alien friend ;
though while accredited and received as such ambassador,
he is privileged from all civil actions, and he consequently
cannot be sued for assessments.*
§ 1094. Alien Enemies. — Alien enemies, domiciled in their
own country, cannot become shareholders in a domestic corpora-
1 Post, §§ 1095, 2307, 3161,3162. the British navigation laws and the
2 Post, § 2936- British flag, and were yet owned by
3 It has been held that a ship may an American corporation; and so the
have an English register, though some steamship China, belonging to the
of the members of the company which Pacific Mail Steamship Company
owns it are aliens (Reg. v. Arnaud, 9 (shame to our navigation laws!)
Ad. & El. (n. s.) 80G) ; and it is well sails under the British flag,
known that the steamships City of * Magdalena Steam Nav. Co. v.
New York and City of Paris originally Martin, 2 El. & El. 94.
had British registers and sailed under
870
NATURAL PERSONS. [1 Tliomp. Corp. § 1095.
tion, while the war lasts; because, on a principle of public law,
no contract can take place between them and citizens of the
domestic country, since such a contract involves the making of
communications across lines of belligerent occupancy, which
is contrary to the policy of war and hence unlawful. Such being
the reason of the rule, it extends not only to all citizens of the en-
emy country residing therein, but also to all other persons therein
resident: all the people of the opposing states are regarded
as enemies without regard to their citizenship or disposition.^
Executory contracts which are of such a nature that they can-
not be carried on without intercourse across the belligerent lines,
are dissolved by the fact of war, and this principle works disso-
lutions of partnerships, since partners are agents for the firm
and for each other. "^ But as a shareholder is not in privity with
the corporation within the principles of the common law — is a
distinct person from it and from the other shareholders, with
whom he may deal even in respect of corporate rights as with
stranofers,^ — it would seem to follow that a declaration of war
will not have the effect of severing the relation of a shareholder,
where the corporation is domiciled within one of the belligerent
countries and the shareholder in the other; though it will sns-
pend any legal remedies which either may have against the other. ^
§ 1095. Infants. — An infant may become a shareholder,
either by an original subscription or by a purchase, but subject
to his right to repudiate the relation either during his infancy or
within a reasonable time after coming of age ; ^ but so long as he
elects to hold on to the shares, he must pay calls like other share-
holders : he cannot keep the benefit and repudiate the burden.^
1 The Peterhoff, 5 Wall. (U. S.) 2 Hanger t;. Abbott, 6 Wall. (U. S.)
28; Jecker v. Montgomery, 18 How. 532.
(U. S.) 110; Lamar v. Browne, 92 U. ^ ^^ite, §1071.
S. 187; The Flying Scud, G Wall. (U. * Liud. Comp. L. 5th ed., p. 37;
S.) 263; Mrs. Alexander's Cotton, 2 Ex parte Boussmaker, 13 Ves. 71.
WaU. (U. S.) 404; Albrecht v. Suss- * Lind. Comp. L. 5th ed. p. 39; Co.
man, Vcs. & B. 323; Willison v. Lit. 3806; Dublin &c. R. Co. v. Black,
Patteson, 7 Taunt. 440 : Ex parte 8 Exch. 181 ; London &c. E. Co. v. Mc-
Boussmaker, 13 Vcs. 71; Potts V.Bell, Michael, 5 Plxch. 114; Newry &c. R.
ST. R. 548; Houriet v. Morris, 3 Co. v. Coombe, 3 Exch. 5(!5.
Camp. 303; Bell v. Reid, 1 Maule & « Lind. Comp. L. 5th ed., p. 39;
S. 72G. Cork &c. R. Co. v. Cazenove, 10 Ad. &
871
1 Thomp. Corp. § 1097.] who may become shareholders.
If he signs the memorandum of association in England, he there-
by becomes a member until he elects to disaffirm ;^ and while,
in case of a transfer being made to him, the directors have the
power to reject him as a shareholder by reason of his infancy,^
yet the transfer being voidable only, and not ipso facto void,
unless they do this, it will be good.^
§ 1096. Married Women So many statutory changes have
taken place within recent years in respect of the contractual
powers and property rights of married women that it is difficult
to affirm with much confidence what her power of becoming a
shareholder in a corporation is, except in those jurisdictions
where the legislature has substantially removed her common-law
disabilities, as has been done in Missouri, Mississippi, New York
and several other States. By the principles of the common law
she cannot contract as a principal, with a few limited exceptions.
Where she still rests under the common-law disabilities, she can-
not therefore be a party to an original subscription to shares or
to a transfer of them, so as to be answerable as a shareholder.*
She therefore cannot be one of the five subscribers required to
join in an application for an incorporation under a statute of
Pennsylvania, as the statute contemplates only persons not under
disability.^ But in England the incorporation of a company is
not affected by the fact that one of the signers of the memo-
randum of association is an infant.''
§ 1097. Where tbe Married Woman has an Equitable
Separate Estate. — Where the married woman has an equitable
separate estate, she may make contracts with respect to that
estate as if she were sole, to the extent that a court of equity
will give effect to such contracts by making them a charge upon
El. (n. 8.) 935; Leeds &c. R. Co. v. to other persons under disability is
Fearuley, 4 Exch, 2G; Loudon &c. R. reserved for future treatment: post,
Co. V. McMichael, 5 Exch. 114. §3160, et seg.
'Re Nassau Phosptiate Co., 2 Ch. * Lind. Comp. 5th ed., p. 41; Wit-
Div. 610. ters v. Sowles, 38 Fed. Rep. 700.
2 Symons' case, L. R. 5 Ch. 298; ^ Re Application for Charter (Pa.
post, § . Exec. Dept.), 27 W. N. C. 399.
3 Lumsden's case, L. R. 4 Ch. 31. '^ Re Nassau Phosphate Co., 2 Ch.
The effect of transfers to infants and Div. 610.
872
NATURAL PERSONS. [I Thomp. Corp. § 1097.
her separate estate, provided that was the intent of the parties
to the contract.^ The separate estate here spoken of is care-
fully to be distinguished from that species of statutory separate
estate which is often held to be a legal estate; though the
difference between the two estates relates rather to the mode
of enforcing her engagements in respect of them than other-
wise. Where she has an equitable separate estate she can
charge it with a debt created in writing, and therefore there
would seem to be no doubt that she can charge it by her written
contract of subscription to the shares of a joint-stock corpora-
tion. Equity would give effect to such a contract, as meaning-
less and illusory unless it should be treated as a charge upon her
separate estate. Where the estate is a statutory legal estate,
she may, it has been held, become a stockholder in every sense
of the term. 2 Such is understood to be the estate created by
the English Married Woman's Property Act, 1882. ^ Here,
unless restrained by the terms of the instrument creating the
estate, she can deal with it in all respects as Sifeme sole. " She
can," says Sir N. Lindley, *' invest it in shares and make her-
self liable to pay for them and to pay calls upon them to the
extent of her separate estate, and on the winding up of the com-
pany she will be a contributory in respect of her shares to the like
extent.* Her husband is not liable in respect of such shares." ^
This act contains distinct provisions as to the rights of a married
woman as a shareholder, — enabling her to compel the company
to register fully paid up shares in her name ; ^ providing that
shares standing in her sole name shall be deemed to belong to
her for her separate use until the contrary is proved; ' and
leaving her alone liable after marriage for calls in respect of
shares held before marriage, but subject to the qualification stated
in the next section.^
1 Whitesides V.Cannon, 23 Mo. 457; ^Citing §§ 6 and 7 of the act;
Lincoln v. Rowe, 51 Mo. 575; Sharpe also Matthewman's case, L. R. 3 Eq.
V, McPikc, G2 Mo. 308; Davis v. 781 ; Re London &c. Bank, 18 Ch. Div.
Smith, 75 Mo. 225; Bauk v. Collins, 581.
Id. 281; Martin v. Colburu, 88 Mo. ^ Lind. Comp. L. 5th ed., p. 41.
231, 237. 6 i^^ §§ 6, 7; see Reg. v. Carnatic
2 Witters v. Sowles, 38 Fed. Rep. R. Co., L. R. 8 Q. B. 299.
700. ' Ibid.
3 45 & 4G Vict., ch. 75. s jg^ ^ § 14
873
1 Thomp. Corp. § llO'i.] who may become shareholders.
§ 109S. Husband's Liability for Calls in Respect of
Wife's Shares. — By the principles of the common hiw the
husband is liable for calls in respect of shares held by his wife
before marriage.^ The reason is, roughly speaking, that he gets
the shares, — at least he has the power of reducing them into his
possession, as choses in action belonging to her, which power he
exercises, unless there is a marriage settlement providnig other-
wise. Statutes seem to have modified this rule so as to make him
liable to calls made on his wife's shares, whether before or after
marriage, if he has in fact obtained by the marriage property of
the wife to the value of such calls. ^
Akticle II. Private Couporations.
Section
1102. One corporation cannot become
a stockholder in anotlier.
1103. Keason of the rule.
1104. Illustrations: railroad compa-
nies.
1105. Further illustrations: banking
companies.
1106. Other illustrations.
1107. Cannot subscribe for its own
stock.
Section
1108. Limited view that one corpora-
tion can invest in the shares
of another.
1109. Illustrations.
1110. Consequences which flow from
this view.
1111. Undoing such transaction: es-
toppel — laches.
§ 1102. One Corporation cannot Become a Stockholder in
Another. — It may perhaps be laid down, as a general rule, that
a corporation, unless expressly empowered to do so by its gov-
ernino- statute, cannot subscribe for shares of stock in another
corporation.^
1 Liud. Comp. L. 5th ed., p. 42;
citing Luard's case, 1 DeGex F. & J.
533; Burlinson's case, 3 DeGex & Sm.
18; Sadler's case, Id. 36; Khlut's
case. Id. 210; "White's case, Jrf. 157;
Ex parte Hatcher, 12 Ch. Div. 284.
^ Lind. Comp. L. 5th ed., p. 42; Ex
parte Hatcher, 12 Ch. Div. 284; Bell's
case, 4 App. Cas. 550.
3 Berry v. Yates, 24 Barb. (N. Y.)
199, 210; Mutual Savings Bank v.
Meriden Agency Co., 24 Conn. 159;
874
Zabriskie v. Railroad Co., 23 How.
(U. S.) 381; Hodges u. New England
Screw Co., 1 R. I. 322; s. c. Thomp.
Off. Corp. 260; White v. Syracuse
&c. R. Co., 14 Barb. (N. Y.) 559;
Connecticut &c. Ins. Co. v. Railroad
Co., 41 Barb. (N. Y.) 9; Talmage
V. Pell, 7 N. Y. 348; New York Ex-
change Co. V. De Wolf, 5 Bosw. (N.
Y.) 593; Central R. Co. v. Collins,
40 Ga. 582; Hazlehurst v. Savan-
nah R. Co., 43 Ga. 13; Sumner v.
PRIVATE CORPORATIONS. [1 Thomp. Coi'p. § 1104.
§ 1103. Reason of the Rule. — The reason of the rule is that
if a corporation could, by buying up the majority of the stock
of another corporation, be admitted to vote as a shareholder in
the meetings of such other corporation, the purchasmg corpora-
tion could take the entire management of the business of the
latter, however foreign such business might be to that which the
purchasing corporation was created to carry on. A banking
corporation could thus become the operator of a railroad or of a
manufacturing business, and any other corporation could engage in
banking by obtaining the control of the stock of an incorporated
bank. " 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, provided the shares were transferred on
the books of the company to the name of the pledgee." ^
The reason of the rule was well stated by Mr. Justice
Walton: «' If a corporation can purchase any portion of the
capital stock of another corporation, it can purchase the whole,
and invest all its funds in that way, and thus be enabled to
engage exclusively in a business entirely foreign to the purposes
for which it was created. A banking corporation could become
a manufacturing corporation, and a manufacturing corporation
could become a banking corporation. This the law will not
allow." 2
§ 1104. Illustrations: Railroad Companies.— In conformity
with the general principles thus stated ,it has been held, that though a rail-
road corporation may take the stock of another railroad corporation by
way of security for a debt, it has no power to invest its corporate funds in
Marcy, 3 Woodb. & M. (U. S.) 105; sylvania R. Co., 31 N. J. Eq. 475.
Franklin Co. v. Lewiston Inst., 68 Compare the following English cases:
Me. 43; s. c. 28 Am. Rep. 9; Franklin Great Western R. Co. v. Metropolitan
Bank v. Commercial Bunk, 3(> Oh. St. R. Co., 23 L. J. Ch. 382; s. c. 9 Jur.
350; Coppin v. Greenlees, 38 Oh. St. (n. s.) 562; Ex parte Contract Corp.
375; s. c. 43 Am. Rep. 425; McMillan L. R., 3 Ch. 105; Royal Bank of India's
c. Carson Hill Union Mining Co., 12 Case, L. R. 4 Ch. 252,257; Mayor v.
Phila. (I'a.) 404; Valley R. Co. v. Baltimore &c. R. Co., 21 Md. 50.
Lake Erie Iron Co., 46 Oh. St. 44; s- ^ Franklin Bank v. Commercial
c. 1 L. R. A. 412; People v. Chicago Bank, 36 Oh. St, 350; s. c. 38 Am.
Gas Trust Co., 130 III. 268; s. c. 8 Rep. 594, opinion by Boynton, J.
L, R. A. 497; 17 Am. St. Rep. 319; ^ Franklin Co. v. Lewiston Inst.,
Central R. Co., of New Jersey v. Penn- 08 Me. 43; s. c. 28 Am. Rep. 9.
875
1 Thoiiip. Corp. § 1105.] who may become shareholders.
the purchase of such stock. 1 - - - - A railroad company, chartered
for the pui'pose of building and maintaining a railroad from Savannah
to Macon, with general powers to purchase and hold personal estate,
of any character whatever, was not authorized to become a stockholder
in a railroad from Savannah to Bainbridge. Such purchase was wholly
beyond the purpose of its charter. ^ . - - - A railroad company
organized under the general railroad law of Missouri has no power to
purchase the notes given by subscribers to the stock of any other rail-
road company on account of their subscriptions and enforce them
against such subscribers. Nor does the fact that the former railroad
company has purchased the road-bed of the latter with the intention of
completing its road confer upon it such power. ^
§ 1105. Further Illustrations: Banking Companies. — A
banking corporation, through its president, subscribed to a creamery,
but before any act was done or expenditure made on the faith of such
subscription, it was withdrawn. It was held that it was simply an
executory contract, and that the subscription could at the time be with-
drawn, and that the bank was not liable.^ _ _ - _ One banking
corporation received a certificate of two hundred shares of the capital
stock of another banking corporation, from the president of the latter
corporation, as security for a loan made to him individually. Subse-
quently the bank making the loan presented the certificate for the shares
to the corporation whose shares they were, and demanded a transfer
of them to it, on tlie defendant's books. This transfer was refused,
and the lending bank sued the other for a conversion of the shares.
The governing statute prohibited any bank from holding or purchasing
stock in another corporation, except to prevent a loss upon a debt
previously contracted in good faith. It was held that the action was
not maintainable.^ _ . . . The trustees of a savings institution in
Maine subscribed for fifty thousand dollars of the capital stock of the
Continental Mills, a manufacturing company. Having no money to pay
for the shares, the savings institution procured another corporation to
advance the money and to take the notes of the savings institution
therefor, with a certificate of the stock thus subscribed for in the name
of the savings institution, assigned as collateral security for the payment
1 Millbank ?;. New York&c. R. Co., ^ Holt v. Winficld Bank, 25 Fed.
64 How. Pr. (N. Y.) 20. Rep. 812.
2 Central K. R. Co. v. Collins, 40 * Franklin Bank v. Commercial
Ga. 582. Bank, 36 Oh. St. 350; s. c. 38 Am.
3 West End Narrow Guago R. Co. v. Rep. 594.
Dameron, 4 Mo. App. 414.
876
PRIVATE CORPORATIONS. [1 Thomp. Corp. § 1107.
of the notes. In an action by the corporation which had thus advanced
the money, against the savings institution, it was held that the action of
the trustees of the savings institution was ultra vires; that it is not
<;ompetent for such an institution, at a time when it has no funds for
investment, to purchase stocks, or other property not needed for imme-
diate use, on ci-edit, and thus create a debt binding upon the institu-
tion; that the corporation making the advance of money, having
participated in the illegal transaction, could not claim the privileges of
a bona fide holder of commercial paper ; and that the savings institu-
tion, having received no benefit from the transaction, was not estopped
to set up the defense of ultra vires.^
§ 1106. Other Illustrations. — A joint-stock corporation,
organized, as expressed in their articles of association, "to do a
general insurance agency, commission and brokerage business, and such
other things as are incidental to, and necessary in, the management of
that business," has no power to subscribe to the stock of a savings bank
and building association. ^ - - - . A corporation formed under the
general incorporation act of Illinois, for a purpose other than deahng in
stocks, cannot exercise the power of purchasnig corporate shares, except
where such a power is necessarily implied from some power specifically
granted by the statute. Therefore a gaslight company cannot purchase
and hold or sell the shares of another gaslight company, although the
adventurers who have organized it have assumed to take to themselves
such a power in their articles of association. ^
§ 1107. Cannot Subscribe for or Purchase its Own Stock. —
A corporation has no general power to subscribe for or to
purchase sbiires of its own stock. The principle that an execu-
tory contract which is ultra vires will not be enforced has been
held with reference to an executory agreement by a manufactuing
corporation to buy shares of its own stock.* This is well illus-
trated by a case where, under the general incorporation law of
Oregon, articles wore filid to incorporate the Oregon Central
Railroad Co., with a capital stock of $7,250,000, divided into
72,500 shares of $100 each. Six persons subscribed one share
each, and the seventh subscription was as follows: "Oregon
'Frauklin Co. v. Lewiston Inst. 130 III. 2G8; s. c. 8 L. R. A. 497; 17
68 Me. 43; s. c. 28 Am. Kcp. 9. Am. St. Rep. 319.
2 Meclumlcs &c. Bank v. Meriden ^ Coppin v. Greenloes &c. Co., 38
Agency Co., 24 Conn. 159. Oh. St. 275; s. c. 43 Am. Rep. 425.
•■' People V. Chicago Gas Trust Co.,
877
1 Thomp. Corp. § 1108.] who may become shareholders.
Central Railroad Company, by G. L. Woods, chairman, seventy
thousand shares — seven million dollars." It was held that this
subscription was a nullity, and that a board of directors elected
by the six pcrsous could not lawfully transact business for the
corporation.^
§ 1108. Limited View that One Corporation can Invest in
tlie Shares of Another. — A few decisions are met with where
the view is taken that a corporation may invest in the stock of
other corporations, as well as in any other funds, provided it be
done bona Jide, and with no sinister or unlawful purpose, and
there be nothing in its charter, or in the nature of its business,
that forbids it.^ The theory of these cases seems to be that
such a purchase is not necessarily void ; ^ and it has been held
that there is no presumption that a corporation is incapable of
purchasing and holding shares of the stock of another corpora-
tion, it not appearing under what circumstances it was acquired
or held.^ Sir Nathaniel Lindley thinks that *' there is no
general principle of law which prevents a corporation from
holding shares in a company, except the principle that a
corporation cannot lawfully employ its funds for purposes not
authorized by its constitution." And he adds, citing the author-
ities in the margin: "It has been assumed by the legislature,
in many of the statutes relating to companies, that corpo-
rations may lawfully be shareholders,^ and at common law
one corporation may be a member of another.*' Accordingly
it has held that, where the above principle does not apply, one
company may hold shares in another ;^ although not in a benefit
1 Holliday v. Elliott, 8 Or. 84. ^ gee for example the Companies
2 Booth V. Robinson, 55 Md. 419, act 1862, § 23, and the interpretation
^yn put on it in the cases cited in note (t) ;
3 Hill V. Nisbet, 100 Ind. 341. the Industrial and Prov. Soc. act, 39
4 Evans v. Bailey, G6 Cal. 112. In and 40 Vict., c. 45, § 12 (4) ; 7 Wra. IV.
Mutual Savings' Bank v. Meriden and 1 Vict., ch. 73, §§ 6 and 10; 7 and
Agency, 24 Conn. 159, the court went 8 Vict., ch. 110, §§ 3 and 7 (8), and §50.
no further than to declare that a sub- « Grant on Corporations, p. 6.
scription by a corporation to the stock ^ Ex parte Contract Corp., 3 Ch.
of another corporation, whose objects 105; Royal Bank of India's case, 4
were in no wise connected with those Ch. 252, and 7 Eq. 91.
of the subscribing corporation, is
void.
878
PRIVATE CORPORATIONS. [1 TllOIup. Coi'p. § 1110.
building society.^ Practically, however, it may be said to be
prima facie ultra vires for one company to hold shares in
'another: i. e., power to do so must be shown to be expressly
or impliedly given to it." ^
§ 1109. Illustrations. — For instance, the Supreme Court of Ten-
nessee has taken the view that there is no legal objection to the holders
of the stock of an insurance corporation purchasing the stock and
franchises of ixhanh. This is not regarded as an absorption of the bank
francliises by the insurance corporation. ^ _ _ _ _ Under statutes
of Kansas, a railroad company has the power to purchase and hold the
stock of any other railroad company, the line of whose railroad, con-
structed or being constructed, connects with its own.^ - _ - -
A company organized for the purpose of owning, developing and
disposing of a large quantity of wild and inaccessible land, with power
to build a railroad not more than twenty miles in length, has power,
it seems, to subscribe to the stock of a railroad, the building of
which is necessary to afford access to the subscribing company's
lands. 5 _ _ - - The West Virginia statute which forbids one
corporation to subscribe for or purchase the bonds or stock of
another corporation except in payment of a bona fide debt, is held not
to preclude advances made on bonds and stock as collateral security.^
§ 1110. Consequences which Flow from this View. — Where
the view obtains that one corporation may rightfully purchase
and hold the shares of stock of another, the ordinary liabilities
of a stockholder attach to the corporation which so acts.
Thus, where a banking firm purchased in their own name shares
1 Dobison v. Hawks, 16 Sim. 407. by a life insurance company of the
A corporation cannot be treasurer of a stock of a fire insurance company
friendly society. Ex parte Swansea will not be set aside because fully
Friendly Society, 11 Ch. D. 7G8. executed. Alexander w. Jones, 8 Mo.
'^ See Great W. Rail. Co. v. Metrop. App. 589, 591.
Rail. Co., 9 Jnr. (n. s.) 502; Ex parte ^ Atchison &c. R. Co. v. Fletcher, 35
Contract Corp., 3 Ch. 105; Ex parte Kan. 236; Atchison &c. R. Co. w. Coch-
British Nation &c. Ass., 8 Ch. Div. ran, 43 Kan. 225; s. c. 7 L. R. A. 414;
679, where it was held that a society 23 Pac. Rep., 151; Atchison &c. R.
to whicn shares in another society had Co. v. Davis, 34 Kan. 209. Compare
been transferred by an act ultra vires, Pullman Palace Car Co. v. Missouri
could not be placed on the list of con- Pacific R. Co., 115 U. S. 587.
tributories of that society. Lind. » "Watts' Appeal, 78 Pa. St. 370, 392.
Comp. 5th ed. p. 43. " Tavlor County Court v. Baltimore
estate V. Butler, 86 Tenn. 614. &c. R. Co., 35 Fed. Rep. 161.
Circumstances under which a purchase
871)
1 Thonip. Corp. § 1111.] who may become shareholdeks.
of stock for a customer, which they treated as their own, ami so
made it appear on the books of the corporation issuing the stock,
it was held that they assumed the liability of stockholders as
between themselves and the corporation.^ But it seems that a
corporation cannot, by merely purchasing the shares of another
corporation, and thereby acquiring control of it, succeed to its
special francJiises. Thus, it isheld in Massachusetts that the fact
that one corporation has purchased the property and most of the
capital stock of another corporation does not necessarily
authorize the purchasing corporation to do that which, under a
special act, the other corporation is authorized to do, but which
the general law prohibits.^
§ 1111. Undoing Sucli Transactions: Estoppel — Laches. —
Although a corporation may not possess the power to deal in
the shares of another corporation, yet one who has purchased
from a corporation the shares of another corporation, will not be
allowed to escape the payment of the purchase money by setting
up such want of power. ^ The estoppel works also against
the corporation so assuming to act. Thus, a railroad company
was held estopped to deny its liability under a contract by which
it loaned the sum of $150,000 to another railroad company,
whose road it had leased, taking as security 1,500 shares of the
stock of the lessor company. The court found, however, that
the contract was within the scope of the powers of the lessee
corporation ; that it had been entered into by the proper officers
and had been recognized by corporate acts; and the holding was
that the lessee company was estopped from setting up that its
officers were not authorized to make the contract.* In short, it
seems that a defense of want of power so to act will not avail
where there has been laches,^ or were the other party to the
contract cannot be put in statu quo.^
1 McKim V. Glenn, 66 Md. 479; ^ Peterborough K. Co., v. Nashua
s. c. 8 Atl. Rep. 130; 5 Cent. Rep. &c. R. Co. 59 N. H. 385.
776; 9 East. Rep. 901. <^ Boston &c. R. Co. v. New York
2 French v. Connecticut River Lum- &c. R. Co., 13 R. I. 260.
ber Co., 145 Mass. 261. 6 Terry v. Eagle Lock Co., 47 Conn.
3 Holmes & Griggs Man. Co. v. 141,
Holmes & Wessel Metal Co., 53 Hun
(N. Y.), 52 ; s. c. 5 N. Y. Sup. p. 937.
880
WHO MAY BECOME SHAREHOLDERS. [1 Thomp. Corp. § 1115,
Article III. Municipal Corporations.
Skction
1115. Validity of municipal sub"
scriptions to private corpora-
tions.
1116. Illustrations of the principle:
aid to railroad companies val-
id — to manufacturing com-
panies not.
1117. Rule in the absence of direct
constitutional restraints.
1118. Validity of statutes authorizing
municipal subscriptions to
corporations.
1119. Power to grant such aid by way
of subscription settled.
1120. Whether power exists to make
donations to such companies.
1121. Eight to municipal aid not
created by general words.
1122. Right to municipal aid passes
to new company on consoli-
dation.
1123. Statute repealed before right
vested.
1124. An illustration of this principle.
Section
1125. Another illustration of the same
principle.
1126. Invalidity of State statutes at-
tempting to take away the
remedy on such subscrip-
tions.
1127. Validity of statutes transferring
benefit of subscription from
the county to the tax-payers .
1128. Instances of such statutes
impairing the obligation of
contracts.
1129. Invalidity of statute compelling
town to subscribe to a rail-
road.
1130. Injunction to prevent issue of
bonds where terras of sub-
scription not complied with.
1131. Release of subscription by
abandonment of the work.
1132. Petitions "representing a ma-
jority of the tax-payers," etc.
1133. Subscriptions by a sovereign
State.
§ 1115. Validity of Municipal Subscriptions to Private Cor-
porations Whether the legislature of a State has the power
to authorize cities, towns or counties to subscribe for the shares
of private corporations, and to exert the taxing power to raise
money to pay such subscriptions, depends for the most part on
the question whether the object, as far as it affects the public,
which the corporation is organized to promote, is a public object
as distinguished from a merely private enterprise. As presently
seen,^ nearly all American courts hold that municipal aid may be
extended in this form to corporations organized for the building
and operating of railroads, turnpike roads,^ and pla^ik roads.^
But it is equally clear that, under our American State constitu-
tions, such aid cannot be extended to corporations which are
^ Post, §1118.
2 Com. V. McWilliams, 11 Pa. St.C2.
3 Weturapka v.
051.
Winter, 29 Ala.
881
1 Thomp. Corp. § 1116.] who may become shareholders.
organized to promote merely private enterprises, because of
some supposed collateral benefit which may thereby accrue to
the public.!
§ 1116. Illustrations of the Principle: Aid to Railroad
Companies Valid — to Manufacturing Companies not. — To
illustrate this principle let us take a case which arose under the consti-
tution of Alabama, which provided that private property shall not be
taken " for public use, or for the use of corporations other than
municipal, without the consent of the owner," and that "the State
shaU not engage in works of internal improvement, but its credit, in
aid of such, may be pledged by the General Assembly on undoubted
security." Construing these provisions, it has been held that the
legislature has power to authorize a county, as a body corporate, on a
popular vote of the county, to subscribe for stock in a railway
company ; and that, for the payment of the stock so subscribed, the
county may be compelled by mandamus to issue its bonds and deliver
them to the railway company. ^ Let us throw into contrast with this a
ease where a statute authorized a municipal corporation, with the con-
sent of a majority of the owners of taxable property, to subscribe for
the stock of a private manufacturing corporation and to issue bonds in
paj^ment thereof. Here it was held (1) that the statute was unconsti-
tutional and void, inasmuch as it attempted to authorize taxation for
other than public purposes; (2) that the fact that the estabhshmeut
of the business of the corporation would tend to increase the business
prosperity of the town did not render its purpose a pubhc use ; and, (3)
that the town was not estopped from denying the vahdity of the
bonds by the fact that it had previously voted a special tax to pay the
interest thereon. ^
1 Weismer V. Douglas, 64 N. Y. 91; Wall. (IT. S.) 349. This decision falls
s. c. 21 Am. Rep. 586; Loan Asso. v. in the wake of Loan Association v.
Topeka, 20 Wall. (U. S.) 655; Olcott Topeka, 20 Wall. (U. S.) 655, where
V. Supervisors, 16 Wall. (U. S.) 689; it was held that an act authorizing a
People V. Salem, 20 Mich. 452; Jen- municipal corporation to use the
kins V. Andover, 103 Mass. 94 ; Whiting power of taxation iu aid of a private
V. Fond du Lac, 25 Wis. 188; Allen v. manufacturing company was void, as
Jay, 60 Me. 124. exceeding those implied reservations
2 Ex parte Selma &c. R. Co., 45 of power which exist in every free
Ala. 696 ; s. c. 6 Am. Rep. 722. government. The power of a munici-
3 Weismer v, Douglas, 64 N. Y. 91 ; pal corporation to lend its credit
s. c. 21 Am. Rep. 586; denying Alle- to a private manufacturing corpo-
ghenyCity y. McClunkan, 14Pa. St.81; ration to enable it to erect its
commending Thomas v. Richmond, 12 works in the town was denied by
882
MUNICIPAL CORPORATION. [1 Thomp. Corp. § 1117.
§ 1117. Rule in the Absence of Direct Constitutional
Restraints. — Nor does it appear necessary that there should be
any direct constitutional restraint upon the power of the legis-
lature of a State to authorize taxation for merely private objects,
in order to render void municipal aid to corporatiodis organized
to promote such objects. The Supreme Court of the United
States has declared that the power of taxation can only be
exerted for public purposes, and has laid down the broad rule that
in free governments there is an implied reservation of power
which prevents the legislature from passing an act whereby,
through the forms of taxation and under the guise of promoting
the public benefit, the property of A. is taken away from him
and given to B. <' It must be conceded," said Mr. Justice
Miller, speaking for the court, " that there are such rights
in every free government beyond the control of the State. A
government which recognized no such rights, which held the
lives, the liberty, and the property of its citizens subject at all
times to the absolute disposition and unlimited control of even
the most democratic depository of power, is after all but a des-
potism. It is true it is a despotism of the many, of the majority,
if you choose to call it so, but it is none the less a despotism. It
may well be doubted if a man is to hold all that he is accustomed
to call his own, all in which he has placed his happiness, and the
security of which is essential to that happiness, under the unlim-
ited dominion of others, whether it is not wiser that this power
should be exercised by one man than by many. The theory of
our governments. State and national, is opposed to the deposit
of unlimited power anywhere. The executive, the legislative,
and the judicial branches of these governments are all of limited
and defined powers. There are limitations on such power which
grow out of the essential nature of all free governments ; implied
reservations of individual rights, without which the social com-
pact could not exist, and which are respected by all governments
entitled to the name. No court, for instance, would hesitate to
declare void a statute which enacted that A. and B., who were
the Supreme Judicial Court of Maine vate school not under the control of
in Allen v. Jay, CO Me. 124. On like the town authorities lias been denied,
grounds the power of a municipal Jenkins u. Anderson, 103 Mass. 74;
corporation to aid by taxation a i)ri- Curtis v. Whipple, 24 Wis. 350.
883
1 Thomp. Corp. § 1117.] who may become shareholders.
husband and wife to each other, should be so no longer, but that
A. should thereafter be the husband of C, and B. the wife of
D. ; or which should enact that the homestead now owned by A.
should be no longer his, but should henceforth be the property
of B.i
" Of all the powers conferred upon government that of
taxation is most liable to abuse. Given a purpose or object for
which taxation may be lawfully used and the extent of its exer-
cise is in its very nature unlimited. It is true that express
limitation on the amount of tax to be levied or the things to be
taxed may be imposed by constitution or statute; but in most
instances for which taxes are levied, as the support of govern-
ment, the prosecution of war, the national defense, any limitation
is unsafe. The entire resources of the people should in some
instances be at the disposal of the government. The power to
tax is, therefore, the strongest, the most pervading of all the
powers of government, reaching directly or indirectly to all
classes of the people. It was said by Chief Justice Marshall,
in the case of McCulloch v. The State of Maryland, ^ that the
power to tax is the power to destroy. A striking instance of the
truth of the proposition is seen in the fact that the existing tax
of ten per cent, imposed by the United States on the circulation
of all other banks than the national banks drove out of existence
every State bank of circulation within a year or two after its
passage. This power can as readily be employed against one
class of individuals and in favor of another, so as to ruin the one
class and give unlimited wealth and prosperity to the other, if
there is no implied limitation of the uses for which the power
may be exercised. To lay with one hand the power of the
government on the property of the citizens, and with the other
to bestow it upon favored individuals to aid private enterprises
and build up private fortunes, is none the less a robbery because
it is done under the forms of law and is called taxation. Tiiis
is not legislation. It is a decree under legislative forms. Nor
is it taxation. A 'tax' says Webster's Dictionary, * is a rate
or sum of money assessed on the person or property of a citizen
J Citing Whi ting r. Fond du Lac, 25 Limitations, 129, 175, 487; Dillon on
Wis. 188; Cooley on Constitutional Municipal Corporations, 587.
2 4 Wheat. (U. S.) 431.
884
MUNICIPAL CORPORATIONS. [1 Thomp. Corp. § 1117.
by goverument for the use of the nation or State. Taxes are
burdens or charges imposed by the legishiture upon persons or
property to raise money for public purposes.' ^
*' Coulter, J., in Northern Liberties v. St. John's Church,^
says, very forcibly, «I think the common mind has everywhere
taken in the understanding that taxes are a public imposition,
levied by authority of the government for the purpose of carry-
ing on the government in all its machinery and operations — that
they are imposed for a public purpose.'
"We have established, we think, beyond cavil that there
can be no lawful tax which is not laid for a public purpose. It
may not be easy to draw the line in all cases so as to decide
what is a public purpose in this sense and what is not. It
is undoubtedly the duty of the legislature, which imposes or
authorizes municipalities to impose a tax, to see that it is
not to be used for purposes of private interest instead of a
public use ; and the courts can only be Justified in interposing
when a violation of this principle is clear and the reason for
interference cogent. And in deciding whether, in the given
case, the object for which the taxes are assessed falls upon
the one side or the other of this line, they must be governed
mainly by the course and usage of the government, the objects
for which taxes have been customarily and by long course
of legislation levied, what objects or purposes have been con-
sidered necessary to the support and for the proper use of the
government, whether State or municipal. Whatever lawfully
pertains to this and is sanctioned by time and the acquiescence
of the people may well be held to belong to the public use, and
proper for the maintenance of good government, though this may
not be the only criterion of rightful taxation. But in the case
before us, in which the towns are authorized to contribute aid by
way of taxation to any class of manufacturers, there is no difficulty
in holding that this is not such a public purpose as we have been
considering;. If it be said that a benefit results to the local
1 Citing Cooley Const. Lira. 479. Dutcii. (N. J.) 398; Sharpless v.
2 31 Pa. St. 104. See also Pray v. Mayor of Pliiladelphia, 21 Pa. St. 147,
Northern Liberties, 31 Id. C9; Matter 1G7; Hanson v. Vernon, 27 Iowa, 47;
of Mayor of New York, 11 Joiins. Whiting v. Fond du Lac, 26 Wis.
(N. Y.) 77; Camden v. Allen, 2 188.
885
1 Thonip. Corp. § 1118.] who may become shareholders.
public of a town by establishing manufactures, the same may be
said of any other business or pursuit which employs capital or
labor. The merchant, the mechanic, the innkeeper, tlie banker,
the builder, the steamboat owner are equally promoters of the
public good, and equally deserving the aid of the citizens by
forced contributions. No line can be drawn in favor of the
manufacturer which would not open the coffers of the public
treasury to the importunities of two-thirds of the business men
of the city or town." ^
§ 1118. Validity of Statutes Authorizing Municipal Sub-
scriptions to Railway Corporations Most of the American
courts have held that enabling statutes^ which confer upon
municipal corporations the power to issue their bonds in
aid of railways and to exchange them for the stock of rail-
way companies upon the consent of the municipality being had
in a prescribed manner, are constitutional and valid. The
opinion of Mr. Justice Valentine of Kansas in the leading case
in that State ^ is a treatise on this subject. The great in-
dustry of the learned judge collected the decisions of the
various Stutes upon the subject, from which it appears that
the question has been settled in favor of the power of the
legislature to authorize such aid in Virginia; ^ in Con-
necticut;* in Pennsylvania;^ in Tennessee;^ in Kentucky;^
1 Loan Association v. Topeka, 20 Commissioners, 32 Id. 218; Com. v.
Wall. (U. S.) GG2-6G5. Pittsburgh, 41 Id. 278; Com. v. Per-
2 Coramissiouers v. Miller, 7 Kan. kins, 43 Id. 400.
479; s. c. 12 Am. Eep. 425. ^ Nichol v. Nashville, 9 Humph.
3 Goodiuu. Crumps, 8 Leigh (Va), (Teun.) 252, 271 ; Louisville &c. R.
120; Harrison Justices v. Ilollaiul, 3 Co. v. Davidson Cuuuty, 1 Sueed
Gratt. CVa.) 247; Langhorne u. Robin- (Tenn.), C37 ; s. c. 62 Am. Dec. 424;
son, 20 Id. 661; s. c. 5 Call (Va.), Ilord v. Eogersville &c. R. Co., 3
139. Head (Tenn.), 208; Byrd v. Ralston,
4 Bridgeport v. Ilousatonic R. Co., Id. 477; Campbell County v. Kuox-
15 Conn. 475; see also Society for ville &c. R. Co., 6 Coldw. (Teun),
Savings v. New London, 29 Id. 174. 598.
5 Harvey v. Lloyd, 3 Pa. St. 331; ' Talbot v. Dent, 9 B. Monr. (Ky.)
Com. V. McWilliams, 11 Id. 62 (a turn- 526; Justices v. Turnpike Co., 11 Id.
pike case) ; Sharpless v. Philadelphia, 143; Slack v. Maysville &c. R. Co., 13
21 Id. 147; s. c. 59 Am. Dec. 159; Id. 1; Maddox v. Graham, 2 Mete.
Moers v. Reading, Id. 188; Com. v. (Ky.) 56.
88G
MUNICIPAL CORPORATIONS. [1 Thomp. Coip. § 1118.
in Illinois ; ^ in Florida ; '^ in Ohio ; ^ in Louisiana ; * in Iowa ; ^
in Alabama;^ in Mississippi;' in North Carolina;^ in Mis-
souri ;^ in New York; ^^ in South Carolina ; " in Georgia ; ^^ in
Indiana; ^^ in Wisconsin ;" in California ; ^^ in Maine; ^® and in
the Supreme Court of the United States. ^'
1 Ryder v. Railroad Co., 13 111.
616; see also Prettyman v. Tazewell
County, 19 Id. 406; s. c. 71 Am.
Dec. 230; Robertson v. Rockford, 21
Id. 451; Johnson v. Stark County, 24
Id. 75; Perkins v. Lewis, Id. 208;
Butler ». Dunham, 27 Id. Hi; Clarke
V. Hancock County, Id. 305; Piatt v.
People, 29 Id. 54 ; Keithsburg v. Frick,
34 Id. 405.
2 Cotton w. County Commissioners ,
6 Fla. 610.
3 Railroad Co. v. Clinton County,
1 Oh. St. 77; Steuben &c. R. Co. v.
Treasurer N. Township, Id. 105;
Cass V. Dillon, 2 Id. 607; Thomp-
son V. Kelly, Id. 647; State v. Van
Home, 7 Id. 327; State v. Union
Township, 8 Id. 394; State v. Hancock
County, \2 Id. 59C; Knox v. Nichols,
14 Id. 260; Fosdick v. Perrysburg, Id.
472; Shoemaker y. Goshen Township,
Id. 569.
^ Police Jury v. Succession of
McDonough, 8 La. An. 341; New
Orleans v. Graible, 9 Id. 5G1 ; Parker v.
Scogin, 11 Id. 629; Railroad Co. v.
Parish of Ouachita, Id. 049.
5 Dubuque &c. R. Co. v. Dubuque,
4 G. Greene (la.), 1; State v. Bissell,
4 Id. 328; Clapp v. Cedar County, 5
la. 15; s. c. 68 Am. Dec. 078; Ring v.
Johnson County, 6 la. 265; McMillan
V. Boyles, Id. 304; McMillan v. Lee
County, Id. 391 ; Whittaker v. Johnson
County, 10 Id. 101.
6 Stein V. Mobile, 24 Ala. 591;
Wetumpka v. Winter, 29 Id. 051
(plank road case) ; Gibbons v. Mobile
&c., 36 /d. 410; Ex parte Sclma &c. R.
Co., 45 Ala. 696; s. c. 6 Am. Rep. 722.
' Strickland v. Mississippi Central
R. Co., referred to in Williams v.
Cammack, 27 Miss. 224; s. c. 61 Am.
Dec. 508.
® Taylor v. Newberne, 2 Jones, Eq.
(N. C.) 141; s. c. 64 Am. Dec. 560, a
navigation case; Caldwell v. Justices
of Burke, 4 Id. 323.
3 St. Louis V. Alexander, 23 Mo.
483; Flagg V. Palmyra, 33 Id. 440; St.
Joseph &c. R. Co. v. Buchanan
County, 39 Id. 485.
10 Grant v. Courter, 24 Barb. (N. Y.)
232; Benson u. Albany, Z(Z. 248; Clarke
V. City of Rochester, Id. 440; Bank of
Rome?;. Rome, 18 N. Y. 38; Gould??.
Town of Venice, 29 Barb. 442; Staring.
Genoa, 23 N. Y. 439; Clarke v. Roches-
ter, 28 Id. 605; People v. Mitchell, 45
Barb. 208; People v. Mitchell, 35 N.
Y. 551.
" Copes V. Charleston, 10 Rich. Law
(S. C.) 491.
12 Winn V. Macon, 21 Ga. 275;
Powers V. Inf. Court of Dougherty
County, 23 Id. 65.
1^ Aurora v. West, 9 Ind. 74; Evans-
ville &c. R. Co. V. Evansville, 15 Id.
395; Bartholomew v. Bright, 18 Id. 93;
Aurora v. West, 22 Id. 88; s. c. 85 Am.
Dec. 413.
1* Clark V. Janesville, 10 Wis. 136 ;
Bushnell v. Beloit, Id. 195.
15 Pattison v. Yuba County, 13 Cal.
175; Ilobart v. Butte County 17 Id.
23; Robinson v. Bidwell, 22 Id. 379;
French v. Teschemaker, 24 Id. 618;
People V. Coon, 25 Id. 685; People v.
San Francisco, 27 Id. 655.
"^ Augusta Bank v. Augusta, 49 Me.
507.
'' Knox County v. Aspinwall, 21
IIow. (U. S.) 539; Knox County v.
887
1 Thomp. Corp. § 1119.] who may become shareholders.
§ 1119. Power to Grant such Aid by Way of Subscription
Settled. — 111 the leading case in Kansas, referred to in the
preceding paragraph,^ Mr. Justice Valentine showed that only
one State, by its court of last resort, had ever pronounced against
the power of the legislature to enable counties and municipal
corporations to subscribe for stock in railroad companies and to
issue their bonds in payment therefor, as distinguished from
the mere power to make donations to railroad companies ; and
that was the State of lowa.^ He regarded all these decisions as
being overruled by decisions of the Supreme Court of the United
States.^ He regarded later cases in Iowa as impugning the
principle that such statutes are unconstitutional.* He pointed
out that these earlier decisions in Iowa had been finally over-
thrown in that State. ^ " Hence," he concluded, " no court of
last resort can now be found, that holds that county and munic-
ipal aid to railway companies, by way of subscription to the
capital stock thereof, is not a legitimate subject of legis-
lation."^
Wallace, Id. 547; Zabriskie v. Cleve-
laud &c. R. Co., 23 Id. 381; Bissell w.
Jefferson, 24 Id. 287; Amey v. Alle-
gheny County, Id. 365 : Knox County
V. Aspinwall, Id. 37C; Woods v. Law-
rence County, 1 Black (U. S-), 386;
Moran v. Miami Co., 2 Black (U.S.),
722; Mercer Co. v. Hackett, 1 Wall.
(U. S.) 83; Gelpcke u. Dubuque, Id.
175; Seybert v. Pittsburg, Id. 273;
Van Hostrup v. Madison City, Id. 291 ;
Meyer v. Muscatine, Id. 384 ; Slieboy-
gan Co. V. Parker, 3 Wall. (U. S.) 93;
Havemeyer v. Iowa Co., Id. 294;
Thomsons. Lee Co., Id. 327; Rogers
V. Burlington, Id. 654; Mitchell v.
Burlington, 4 Wall. (U. S.) 270;
Larned v. Burlington, Id. 275; Von
Hoffman v. Quincy, Id. 535; Riggs v.
Johnson Co., 6 Wall. (U. S.) 166;
Weber v. Lee Co., Id. 210; United
States V. Keokuk, Id. 614; Same v.
Same, Id. 518; Lee County v. Rogers,
7 Wall. (U. S.) 181; City v. Lamson,
9 Wall. (U. S.) 477.
1 Commissioners v. Miller, 7 Kan.
479; s. c. 12 Am. Rep. 425.
2 State V. Wapello County, 13 la.
388; Chamberlain v. Burlington, 19
la. 395; McClure v. Owen, 26 la.
243.
3 Gelpcke v. Dubuque, 1 Wall. (U.
S.) 175; Meyers v. Muscatine, 1 Wall.
(U. S.) 384; Thomson v. Lee County,
3 Wall. (U. S.) 327; Rogers v. Bur-
lington, 3 Wall. (.U. S.) 364; Riggs v.
Johnson County, 6 Wall. (U. S.) 166;
Weber v. Lee County, 6 Wall. (U. S.)
210; United States v. Council of Keo-
kuk, 6 Wall. (U. S.) 514, 518; Benbow
V. Iowa City, 7 Wall. (U. S.) 313; Lee
County V. Rodgers, 7 Wall. (U. S.)
181.
4 Hansen v. Vernon, 27 la. 28; s. c.
1 Am. Rep. 215; Stewart v. Super-
visors, 30 la. 10; s. c. 1 Am. Rep. 328.
c By the case of Stewart v. Super-
visors, 30 la. 10; s. c. 1 Am. Rep. 238,
6 Commissioners v. Miller, 7 Kan.
479; s. c. 12 Am. Rep. 425, 443.
MUNICIPAL CORPORATIONS. [1 Thomp. Corp. § 1120.
§ 1120. Whether Power Exists to Make Donations to such
Companies. — The power of the legislature to authorize couDties
and municipal corporations to make donations to railway com-
panies and to levy taxes for such purposes, has been distinguished
in several cases from the power to aid the public objects of such
companies by subscribing for their stock and issuing bonds in
payment therefor and laying taxes to pay the interest and
principal of the bonds. Several States have denied the power
of the legislature to authorize counties and municipalties to make
such donations.^ In some of the States where there are decisions
against the validity of donations, there are decisions in favor of
the validity of subscriptions? In some of the decisions which
have been pronounced against the validity of donations, a labored
effort is made to take a distinction between subscriptions and
donations.^ But it is too plain for much discussion that there is
no foundation for such a distinction. If the legislature has the
power to authorize municipal taxation in aid of a railway com-
pany, it is because the establishment of a railway is a public
object. On the other hand, if the establishment of a railway is
a mere private object, it is undeniably certain that the legislature
has not the power to authorize municipal taxation for the purpose
of purchasmg shares in corporations created for such a private
object. If the legislature can authorize such a use of the taxing
power, it can authorize municipalities to go into any sort of
private business and to tax their inhabitants for the money
1 Sweet r. Hulbert, 51 Barb. (N. Y.) N. Y. G05; People v. Mitchell, 35 N.
312; Whiting v. Sheboygan &c. R. Y. 551. So, the Supreme Court of
Co., 25 Wis. 107; s. c. 3 Am. Rep. 30; Wisconsin, while, as above shown,
People ex rel. v. Salem, 20 Mich. 452; deciding against the validity of dona-
s. c. 4 Am. Rep. 400. The case of tions, had previously decided in favor
Hanson v. Vernon, 27 la. 28, s. c. 1 of the validity of subscriptions. Clark
Am. Rep. 215, was subsequently over- v. Janesville, 10 Wis. 136; Bushnell
ruled in the same State by Stewart v. v. Beloit, 10 Wis. 195.
Supervisors, 30 la. 10; s. c. 1 Am. 3 Whiting v. Sheboygan &c. R.
Rep. 238. Co., 28 Wis. 1G7, 186, 209; Sweet u.
2 Thus, the Court of Appeals of Hulbert, 51 Barb. (N, Y.) 312. See
New York has decided in favor of the also note of Mr. Chief Justice Dillon
validity of subscriptions in the follow- who wrote the opinion of the court in
ing cases: Bank of Rome v. Rome, Hanson v. Vernon (27 la. 35; s. c. T
18 N. Y. 38; Starin v. Genoa, 23 Am. Rep. 215), published in 9 Am. L.
N. Y. 439; Carke v. Rochester, 28 Reg. (n. s.) 172. 175.
889
1 Thomp. Corp. § 1122.] who may become shareholders.
necessary to bo raised for the purpose. Besides, the history of
American railway management shows that the town reully gets as
much in the fir^t case as in the sc^cond case. It is he Id by the
Supreme Court of Illinois, that a railway company being a public
object in behalf of which the power of taxation may be exercised,
an act of the legislature authorizing towns to appropriate money
as a donation to aid in the construction of a railway is constitu-
tional.^
§ 1121. Right to Municipal Aid not Created by General
Words. — But general words in a statute, regulating the opening
of subscription books of a railroad company, reciting that " it
shall be lawful for * * * the agent of any corporate body "
to subscribe, will not be construed as enabling municipal cor-
porations to make subscription. The meaning should be re-
stricted to private and business corporations.^
§ 1122. Right to Municipal Aid Passes to New Company on
Consolidation. — As already seen,^ the doctrine of the Federal
courts, and of many of the State courts, is that if one of two
original companies enjoys, under its charter or an act of the legis-
lature, the right to have municipal aid voted in its favor, this
right, being in the nature of a privilege to the company, will
pass upon a consolidation to the new company.* An attempt
has been made by the Supreme Court of Missouri to limit this
principle, by holding that if a county subscription thus author-
ized has been made to and accei:)ted by a railway company prior
to consolidation with another company, the right to receive the
bonds in compliance with the subscription will accrue to the new
company ; otherwise not.'' The Missouri court accordingly hold
that if, before a subscription has been thus made and accepted,
a constitutional ordinance is established or a general statute
enacted, changing the terms upon which the subscription might
1 Chicago &c. R. Co. v. Smith, G2 ^ Robertsons. Rockford, 21 111. 451.
111. 2G8; s. c. U Am. Rep. 99. ^ Wagner v. Meety, G9 Mo. 150;
2 Township of East Oakland v. Harshraan v. Bates County, 92 U, S.
Skinner, 94 U. S. 255; Campbell v. 5Gt); State ex rel. v. Garroutte, 67
Paris &c. R. Co., 71 III. CU, Mo. 44G; overruling State ex rel. v.
3 Ante, § 3GG. Greene County Gourt, 54 Mo. 540.
800
MUNICIPAL CORPORATIONS. [1 Thomp. Corp. § 1121.
otherwise have been made to the railway company, e. g., by pro-
viding that it can only be made when sanctioned by a vote of the
people of the county, — the consolidated company will not have
the right to have the subscription made under the provisions of
the charter of the old company, and tax-payers will be entitled
to an injunction against such a subscription.^
§ 1123. Statute Repealed before Right Vested It is a
principle of constitutional law that it is competent for the legis-
lature to repeal a statute granting a right, at any time before the
right has become vested. As just seen, the privilege conferred
upon a railway company by a special charter granted by the
legislature, of having subscriptions made to it by the county
courts without the sanction of a popular vote, is not a vested
right, unless such a subscription is made to or accepted by the
company, and until that time it can be withdrawn. ^
§ 1124. An Illustration of this Principle. — In the leading case
on the subject in the Supreme Court of the United States, it appeared
that the charter of the Ohio and Mississippi Railroad Company, passed
by the legislature of the State of Indiana in 1848, and a supplement
thereto passed in 1849, authorized the county commissioners of the
counties through which the road should pass, to subscribe for its stock
and issue bonds in payment of the subscription, provided that a
majority of the qualified voters of the county should vote, at an election
held on the 1st of March, 1849, that this should be done. The election
was held on the appointed day, and a majority of the quahfled voters
voted that the subscription should be made. But before the subscription
was made the State adopted a new constitution, which went into effect
the first day of November, 1851. One of the articles of this constitution
prohibited such subscriptions unless paid for in cash, and also pro-
hibited counties from loaning their credit or borrowing money to pay
such subscriptions. Nevertheless, in 1852, the county commissioners
of the particular county subscribed for stock in the railroad company,
in pursuance of the vote at the election in 1849, and issued the bonds
of the county in payment therefor. It was held that the bonds, having
1 Wagner v. Meety, C9 Mo. 150; St. Joseph «SiC. II. Co. v. Buchanan
State ex rel. v. Garroutle, G7 Mo. County Court, 39 Mo. 485; Aspinwall
445. V. Commissioners, 22 How. (U. S.)
2 Wagner v. Mcety, G9 Mo. 150; 364. Compare Nugent v. Supervisors,
State ex rcl. v. GarrouUe, G7 Mo. 445; 19 Wall. (U. S.) 241.
891
1 Thomp. Corp. § 1127.] who may become shareholders.
been issued in A-iolation of the constitution of Indiana, were void ; and
that the raih'oad company had acquired no right to have them issued to
it, which was protected by the constitution of the United States.^
§ 1125. iViiothei' Illustration of the Same Principle. —
Another illustration of the same principle is found in a case where the
legislature of Kentucky had authorized a county to subscribe to the
stock of a railway company, upon a vote of the electors of the county
approving the subscription. A vote resulted in favor of making the
subscription ; but the county court refused to subscribe and to levy the
tax. The company applied for a mandarmis against the judges of the
county court, which was refused. From this judgment an appeal was
taken. Pending the appeal, the legislature repealed the law authorizing
the county to make the subscription. It was held that while, on the
condition of facts before the inferior court, the mandamxis ought to have
been granted, yet, inasmuch as the county court had not made the
subscription and levied the tax, no right to the subscription had become
vested in the railway company prior to the repeal of the law ; and the
judgment was therefore affirmed. -
§ 1126. Invalidity of State Statutes Attempting to Take
away the Remedy on such Subscriptions. — Where such sub-
scriptions have been made by municipal corporations and accepted
by the railroad company, subsequent State statutes repealing or
substantially impairing the remedy on the same, which existed
at the time of the acceptance, are unconstitutional.^ The case
below cited and other cases hold that when a municipal cor-
poration, having a general power to levy taxes to pay its debts,
enters into a contract, the legislature cannot take away or sub-
stantially impair the right to compel the corporation, by man^
damns, to exert its taxing power.*
§ 1127. Validity of Statutes Transferring Benefit of Sub-
scription from the County*to the Tax-payers. — But the inhibi-
tion against impairing the obligation of contracts and against
1 Aspiawcall v. Commissioners, 22 County, 5 Dillon (U. S.) 414; United
How. (U. S.) 364. States v. Lincoln County, Id. 184;
2 Covington &c. R. Co. v. Kenton United States v. Johnson County, Id.
County, 12 B. Monr. (Ky.) 148. Com- 207.
pare Mclndoe v. Jones, 6 Wis. 334. ^ Rahway Tax Assessors v. State,
3 Western Ark. Bank v. Sebastian 44 N. J. L. 395.
892
MUNICIPAL CORPORATIONS. [1 Thomp. Coi'p. § 1130.
impairing vested rights does not exist in favor of municipal cor-
porations ; and therefore where the county has, under an act of the
legislature, subscribed to the stock in a railroad company, and
issued its bonds and received the share certificates, it is competent
for the legislature, by a subsequent act, to provide that the shares
shall be turned over to the tax-payers in proportion to the amount
of taxes they respectively paid under the particular subscription.^
§ 1128. Instances of Such Statutes Impairing the Obliga-
tion of Contracts. — lu New Jersey a contract was made by com-
missioners of public roads ; but their charter was held to be unconstitu-
tional; whereupon it was repealed, but the contract was, by the
repeahng act, validated and made obhgatory on the defendants, and they
were authorized to issue bonds and borrow money to pay the sums due
thereunder. Afterwards an act was passed that bonds should only be
issued upon petition and resolution of the tax-payers. It was held that
the latter act impaired the obligation of the contract, and was therefore
unconstitutional. 2 - - - - In 1858 an amendment to the constitution
of Minnesota was adopted providing for the issue of certain bonds called
"Minnesota State Railroad Bonds." In 1860 another amendment to
the same constitution was adopted, providing that ' ' no law levying a
tax or making other provisions for the payment" of the bonds should
take effect until submitted to the people and voted for by a majority of
them. It was held that the latter amendment impaired the obHgation
of the contract created by the issue of bonds under the former
amendment, and was void.>^
§ 1129. Invalidity of Statute Compelling Town to Subscribe
to a Railway. — A distinction is taken, in respect of the powers
and duties of a municipal corporation, between those which are
J Lucas V. Commissioners of Tippe- charging the city of Yonkers from
canoe County, H Ind. 524. liability on its negotiable bonds
2 State V. Union, 44 N. J. L. 259. stok-n from the Manhattan Savings
3 State V. Young, 29 Minn. 474. It Bank, upon delivery of duplicate
has been held that a statute which, in bonds to the bank, is uncoustitu-
effect, only provides a mode of tional, as impairing the obligation of
determining which of bonds purport- the contract, and therefore the pro-
ing to have been issued by it are vision requiring the city to issue such
valid, and which invalid, impairs the duplicate bonds is unconstitutional
obligation of no contract. Whaley v. also, it being a part of the invalid
Gaillard, 21 S. C. 560. The provision scheme. People v. Otis, 90 N. Y.
of N. Y. Acts 1880, ch. 59, § 4, dis- 48.
893
1 Thomp. Corp. § 1129.] avho may become shareholders.
of a j^iibHc or governmental character, and those which are of a
private nature. The distinction is referred to by the courts
chiefly for the purpose of determining the liability of the munic-
ipal corporation for torts, — the general view being that, in
respect of public or governmental acts, it is not liable for the
torts of its agents, whereas, in respect of an act done in its
private character, — that is, where it acts, so to speak, as a private
corporation, — it is liable for the torts and neglects of its agents.*
One of the grounds on which the distinction is sometimes placed
is that the performance of duties of a public or governmental
character, such as maintaining a board of police, or a board of
health, or a fire department, may be made in a sense compulsory
by the legislature. Pursuing the same idea, it has been held that
an act of the legislature requiring a town, without its consent, to
issue bonds for raising money which is to be expended in the con-
struction of highways in the town, in a manner prescribed by the
act, is constitutional. The theory of the decisions in general is
that the making and improving of public highways and providing
the means therefor, are appropriate subjects of legislation ; that
towns possess such powers as are conferred by the legislature;
that they are a part of the machinery of the State government
and perform certain important functions, subject to the regula-
tion and control of the legislature; and that such a statute is
merely the exercise of the unquestioned power of the legislature
to determine what highways shall be constructed, and how tho
taxing power shall be exercised in providing the means to defray
theexpenses thereof .^ But, a railway company being organizedfor
an object partly private, that is, to operate a railway for the profit
of its stockholders, the mere fact that the railway is, in a sense,
a public object and a public benefit, does not, it has been held,
place it within the constitutional power of the legislature to pass
a mandatory statute, requiring a town to become a stockholder
in a railroad, by exchanging its bonds for the stock of the railway
company upon the terms prescribed by the statute, without its
consent.^ The constitutional power of the legislature to force a
municipal corporation to engage in a private business was denied
1 2 Thomp. Neg. 734. 3 p^^ople ex rel. &c. v. Batchellor,
2 People V. Flagg, 4G N. Y. 401. o3 N. Y. 128; s. c. 13 Am. Rep. 480.
894
MUNICIPAL COEPORATIOKS. [1 Tliomp. Coip. § 1131.
by the legislature of Vermont, in a case where it was held that a
statute providing for the appointment of an agent of a town by
the county commissioners, which agent should have power to
purchase intoxicating liquors on the credit of the town, and to
sell the same for certain specified purposes, and account for and
pay over the proceeds to the town in a manner prescribed ; and
that the town, not having consented to the appointment of the
agent, or ratified his contracts, was not liable for the liquors
purchased upon its credit by him pursuant to the act.^
§ 1130. Injunction to Prevent Issue of Bonds where
Terms of Subscription not Complied with. — If a railway
company fails to comply with the conditions upon which a
county has made a subscription to its stock, an injunction will
lie to prevent the company from receiving the bonds agreed to
be issued in payment of its shares and to compel the surrender
and cancellation of any already issued, and this remedy may be
invoked by any one who is a citizen and tax-payer of the county.
" Otherwise it would prove but a vain and useless formality for
the county court to impose any conditions precedent to the
issuance of bonds ; they might subscribe for a road in one
direction and have to put up with one in another, built in total
defiance of the terms of subscription." ^
§ 1131. Release of Subscription by Abandonment of the
Work. — As a general rule, the mere fact that a corporation
abandons its work is no defense to an action to collect what is
due from its stockholders ; since the very means which they are
withholding from it may prevent it from resuming its work.^
But there may be a just exception to this principle where the
corporation has totally abandoned the purpose which induced a
municipal subscription to its stock, and substituted in its stead
some other purpose of no benefit to the municipality; since, in
such a case, the collection of the municipal subscription would
result in the diversion of money raised by public taxation to an
1 Atkins V. Randolph, 31 Vt. 22G. ^ Wngncr v. Mecty, G9 Mo. 160.
Compare Olcott v. Supervisors, 10 ^ post, § 1272.
Wall. (U. S) C78.
895
1 Thomp. Corp. § 1132.] who may become shareholders.
object never intended by the subscription. Thus, in a case in
Kentucky, a company was authorized by its charter to improve
the navigation of a certain river by " building additional locks
and dams." ^ A county, which would have been benefited by
such improvements, was a subscriber to stock in the company.
The company abandoned the building of the new locks and
dams, and commenced the work of repairing old ones, which
work did not benefit the county. It was held, on the company
becoming insolvent, that, as the inducement for the subscription
was the building of additional locks and dams, the county was
not liable, on the abandonment of the work, to pay its sub-
scription, at the suit of creditors of the company holding claims
originating subsequent to such abandonment.^ A well recog-
nized exception to this rule obtains in cases where the municipal
corporation has issued its negotiable bonds in payment of its
subscription, and such bonds have passed into the hands of bona
fide purchasers for value without notice of equities; ^ but this
opens up a subject which is foreign to the purpose of this
treatise.
§ 1132. Petition ** Representing a Majority of the Tax-pay-
ers," etc. — A statute of New York^ relating to the issue of railway aid
bonds by municipal corporations, provided that " whenever a majority
of the tax-payers of any municipal corporation," etc., " shall apply to
the county judge by petition, setting forth that they are such majority
of tax-payers, and represent such a majority of tax-paying property,"
further proceedings may be taken, etc. A petition was presented to
the county judge, the petitioners apparently acting as principals, stating
that " the undersigned, representing a majority of the tax-payers of the
town of ' ' etc. , — upon which petition the court ordered the issue of the
bonds. In an action to cancel the bonds, it was held that, although the
petition did not follow the statute, by stating that the petitioners are a
majority of the tax-payers, yet that was probably what it meant, and,
although such proceedings, being in derogation of the common law, are
to be strictly pursued,'^ yet the bonds would not, by reason of the
1 3 Ky. Acts 1865, Sec. 2. ^ N. Y. Laws of 1869, chap. 907.
2 Jessamine v. Swigert, 3 S. W. « Citing People w. Spencer, 55 N. Y.
Rep. 13. 1; People v. Smith, Id. 135; Wells-
3 See 1 Dill. Mun. Corp. ith ecL, § borough v. Railroad Co., 76 Id. 182;
518, et seq. Craig v. Andes, 93 Id. 405.
8!)0
MUNICIPAL CORPORATIONS. [1 Tbomp. Corp. § 1133.
defectiveness of the petition, be held invalid. i The decision cannot be
sustained under the rule conceded in the opinion. Such a petition could
be corruptly or evasively drawn in the language of this petition,
and verified by affidavit, and presented to a county judge, and yet the
petitioners would not be a majority of the tax-paying citizens of the
municipality, and no one would be guilty of perjury.
§ 1133. Subscriptions by a Sovereign State. — It is, of
course, competent for a sovereign State to descend from its plane
of sovereignty to enter into a contract of subscription to the
capital stock of a private corporation ; and this has been done
by members of the American Union in many cases. ^ The
obligation is of the same one-sided character as that of a
subscription of an emlbassador, already spoken of .^ The State
can, without doubt, demand and enforce its rights as a share-
holder to the fullest extent; but no rights can be enforced
against it by the corporation, unless it gives its consent to be
sued, and then only in the forum and mode embraced in that
consent. Accordingly, it has been held that a bill against the
Stale of Ohio, to compel payment of suI»scriptions for stock,
cannot be maintained.* Another conrt held that a statute by
which a State subscribed a million dollars to the stock of a bank,
placed the State in the attitude of giving a bonus to the bank,
and did not nmke it liable for contributions as ordinary stock-
holders were.^ The extent to which a State, by becoming a
stockholder in a private corporation, throws off its sovereio-ntv,
pro hac vice, has been a theme of nice disquisition; but it was
not necessary to resort to this theory in order to vindicate the
conclusion that, although the State owns all the stock in an incor-
porated bank, a debt due to the bank is not a debt due to the
State;*' since this would be the rule in the case of a i)rivate
stockholder owninsr all the shares.^
Solon V. Williamsburg Saving ^ Myers v. Zainesville &c. Turnp.
Bank, lU N. Y. ]22; s. c. 39 Alb. L. Co., II Ohio, 273.
J. 471; 21 N. E. Rep. 108. 5 Consolidated Bank v. State, 5 La.
2 Baltimore &c. R. Co. u, Mary- An. 44.
land, 36 Md. 519; Attorney- General « Bank of Tennessee v. Dibrell, 3
V. Cape Fear Nav. Co., 2 Irud. Eq. Sneed (Tcnu), 379.
(N. C.)444. ' ^/Ue, § 1071.
3 Ante., § 1093.
57 897
1 Thomp. Corp.] the contract of subscription.
CHAPTER XXI.
THE CONTRACT OF SUBSCRIPTION.
AUT. I.
II.
III.
IV.
V.
Theokies as to the Nature and Formation of the Con-
tract, §§ 1136-1195.
Theories as to the Consideration, §§ 1200-1213.
Theories as to the Necessity of Paying the Statutory
Deposit, §§ 1216-1232.
Theohy that the Full Amount of the Capital must be
SuB'^CRiBKb, §§ 1235-] 242.
Other Theories and Holdings, §§ 1245-1262.
Article I. Theories as to the Nature and Formation of the
Contract.
Section
1136. Relation of stockholflers to the
corpo aiioii rests iu contract.
1137. Governing stitute forms part
of tliii contract.
1138. Geueril views as to wliat con-
stitut s one a stockholder.
1139. Subscriptiou coustitutes one a
member.
1140. Ceriiflcate not necessary.
1141. Circumstances under which nec-
essary;
1142. Contract of subscription when
not necessary.
1143. If no ceriiflcate issued, written
agreement necess rv.
1144. View that a contract of subscrip-
tion necessary in some form.
1145. Such contract not created by
I tcitals in a bond.
1146. View that a contract of sub-
scription must be in writing.
1147. A writing not in strictness
neces-ary.
898
Section
1148. Oral promise to subscribe for
shares and note aiven therefor.
1149. Subscription not varied by parol
evidence.
1150. When explainable by parol.
1151. Form of tho subscr.ption.
1152. In wliat kind of a book — on
what kind of paper.
Signing in blank.
Effect of erasures.
Explanatory memorandum an-
nexed.
1156. Receipt on margin of subscrip-
tion book.
Rule which requires a sub-
scription to the articles of
as ociatiou.
Reasons which support this
rule.
Consequence of this role; no
contract if subscriber dies
before corporation formed.
1160. Other consequences of this rule.
1153
1154
1155
1157.
1158.
1159.
[1 Thomp. Corp. § 1136.
Section
1161. Doct-rtne that subscriptions not
binding uulessregulurlymade.
1162. View that a subscription to the
shares of a corporation not
formed creates no liability.
1163. Further of this view: reasoning
of Chief Justice Blacli.
1164:. Distinction between a subscrip-
tion aud an agreement to sub-
scribe.
1166. The infirmity of this distinction.
1166. Unsoundness of the v.ew that
the proposal is bad unless
made in strict compliance
with the statute.
1167. Difficulty avoided by subsequent
ratification,
lies. Subscription and payment of
deposit.
Another road out of this difll-
culty.
Euld that subscriptions made
before organization are
good.
1171. Reasons in support of this
rule.
1172. Nature of .';uch an offer before
acceptance.
1173. Instances under this rule.
1174. Rights and liabilities of sub-
scribers to a common fund
for a commoji purpose.
1175. Subscription must be accepted
or acted upon.
1176. Action against one member of
building committee by the
other members.
1169.
1170.
Section
1177. Acceptance necessary if cor-
poration in existence.
1178. Maun, r in which acceptance
manifested.
1179. Distinctiou between cases where
the proposition com s from
the company and wiere it is
in;ide to the company.
1180. Revocation of offer before ac-
ceptance.
1181. Whether presumable in the case
of a subscription to a future
corporation.
1182. A case in illustration.
1183. Locus peulti ntiae where sub-
scription illegal.
1184. Other instances of sufficient sub-
scriptions.
1185. Subscriptions enforcible by
action without an express
promise to pay.
1186. Illustrations of the foregoing.
1187. Doctrine tliatau express promise
to pay is necessary.
1188. The absurdity and immorality
of this doctrine.
1189. Illustration of the foregoing
d ictrine.
1190. When contract to take shnres
complete under the English
statute.
1191. What facts amount to a con-
tract to take shares.
1192. Continued.
1193. Continued.
1194. Continued.
1195. Continued.
§ 1136. Kelation of Stockholders to the Corporation Rests
in Contract. — "The relation of stockholders to the cori)ora-
tion wlK)8e stock they hold is that of coiiti act ; and the rights
and duties of both parties grow out of contract, implied in a
subscription for stock, construed by the provisions of the charter
or articles of incorporation." ^
• Supply Ditch Co. v. Elliott, 10 Colo. 827; s. c. 3 Am. St. Rep. 586, 631,
©pinion by Macon, C.
890
1 Thomp. Corp. § 1138.] tiik contract of subscription.
§ 1137. Governing Statute Forms Part of the Contract. —
Whether the corporation is organized under a special charter
or under a general statute, the statute which authorizes its or-
ganization is deemed to enter into and form a part of it, and to
furnish the rule for determining the effect of every subscription
to its capital stock, as fully as though it were embodied in express
terms in the sub>ciiption paper. ^ The rule is thus laid down
by Seldeu, J., after reviewing the authorities: '* Whatever may
be the form or language of a subscription to the stock of an in-
corporated com[)any, every person who in any manner becomes
a subscriber for, or engages to take, any portion of the stock
of such company, thereby assumes to pay for the same according
to the conditions of the charter. * * * Whenever the
subscription papers refer to the charter of the company, the
provisions of such charter are virtually incorporated in the sub-
scription and are to be referred to for the purposes of explana-
tion."^ *' The subscription," said Gardner, J., in another case,
** must be construed as if all the provisions of the statute affect-
ing the liability of the subscriber, or his title to the stock pur-
chased by him, were incorporated in his agreement. This has
never been questioned." ^
§ 1138. General Views as to what Constitutes One a Stock-
holder. — Recurring to the subject with the aid of later de-
cisions, longer study and wiiler experience, the author sees no
reason essentially to modify the general views advanced by him
in his work on stockholders, as to what is necessary to consti-
tute a binding contract to take shares in a joint-stock corporation.
It was there stated^ as a general rule,^ applicable to all the char-
ters and statutory schemes of incorporation in vogue in this
country, that whoever subscribes to an unconditional agreement
to take a given number of shares becomes thereby a stockholder,
1 IToaffland v. Cincinnati &c. R. Y. Laws, 1850, ch. 140, § 4. Buffalo
Co., 18 Iiid. 452. &c. R. Co. v. Gifford, 87 N. Y. 294.
2 Rensselaer &c. Co. v. Barton, 16 ^ Thomp. Stockh., § 105.
N.Y. 457, 460, note. ^ That in some States vm express
3 Small V. He kimer Man. Co., 2 promise to pay is necessary, sea post^
N. Y. 330. A. subscription good at § 1187.
common law is not invalidated by N.
900
FORMATION OF THE CONTRACT. [1 Thomp. Corp. § 1138.
)
subject to the conditions named in the subscription paper and
to those imposed by the charter or by the general law.^ The
constating instrument, by which, persons associate themselves
together as members of a corporation or joint-stock company, is
usually termed in this country the articles of as^^ociation, and in
England tiie deed of settlement. It is, therefore, but another
way of expressing the foregoing rule to say that, in the absence
of fraud,^ every person who signs the articles of associa-
tion or the deed of settlement, agreeing at the same time to
take a certain number of shares, thereby acquires the ad-
vantages, and subjeeta himself to the liabilities, of a share-
holder; ^ and this is more clear where the governing stat-
ute declares that those signing such articles shall be deemed
a body corporate.* The act of subscribing for shares fixes the
subscriber's liability to creditors as a shareholder, nlthough he
has not paid in any part of his subscription, or done any act
whatever as such.^ If a person orders goods to be delivered to
liim, a promise is implied that he will pay for them. So, if a
person subscribes for shares of stock in a corporation or joint-
stock company, a promise is implied that he will pay for Ihem ;^
and the same effect is given to the acceptance and holding of a
1 Hartford & New Haven R. Co. v. v. Mason, 16 N. Y. 451; Hartford &c.
Kennedy, 12 Conn. 499; Sagory v. R. Co. v. Croswell, 5 Hill (N. Y.),
Dubois, 3 Sandf. Ch. (N. Y.) 4GG; 383; Northern R. Co. v. Miller, 10
Union Turnpike Co. v. Jenkins, 1 Barb. (N. Y.) 2G0; Kennebec &c. R.
Caines, (N.Y.),380; Goshen Turnpike Co. ■«. Palmer, 34 Me. 306; Connecti-
Co. V. Hurton, 9 Johns. (N. Y.) 217; cut &c. R. Co. v. Bailey, 24 Vt. 465.
Dutche-s Cotton Man. Co. v. Davis, 2 p^sf, Ch. XXIV.
14 Jolins. (N. Y ), 237; Spearu. Craw- ^ Strong v. Wheaton, 38 Barb. (N.
ford, 14 Weu'l. (N. Y.),20;.s. c. 28 Am. Y.) 616; Cole v. Ryan, 52 Barb. (N.
Dec. 513; Highland Turnpike Co. v. Y.) 168; Sagory v Dubois, 3 Sandf .
McKean, 11 Johns. (N. Y.) 98; Strong Ch. (N. Y.) 466.
V. Wheaton, 38 Barb. (N. Y.) 616; * Strong v. Wheaton, 38 Barb. (N.
Burr V. Wilcox, 22 N. Y. 551 ; Picker- Y.) 616.
ing V. Templeton, 2 Mo. App. 424; & Spear v. Crawford, 14 Wend. (N.
Beenev. Cahawba &c. R. Co., 3 Ala. Y.) 20.
<560; Upton w. Tribilcock, 91 U. S. 47; « Spear v. Crawford, 14 Wend. (N.
Brighara v. Mead, 10 Allen (Mass.), Y.) 20; s. c. 28 Am. Dec. 513; Hart-
215; Buffalo &c. R. Co. v. Dudley, 14 ford & New Haven R. Co. v. Kennedy,
N. Y. 336; Seymour v. Sturgess, 26 12 Conn. 499; Fry v. Lexington R.
N. Y. 134; Dayton v. Borst, 31 N. Y. Co., 2 Mete. (Ky ) 314; Klein v. Alton
435; Rensselaer &c. Co. v. Barton, &c. R. Co., 13 111. 514; Banet t?. Alton
16 N. Y. 457; Lake Ontario &c. Co. &c. R. Co., 13 111. 504.
901
1 Thomp. Corp. § 1138.] thk contract of subscription.
certificate of stock,^ although, in order to constitute one a share-
holder, it is not necessary that a certificate should have been
issued. 2 This promise may bc.enforced by the corporation by
assu77ipsit, or other suitable action ; ^ and iu case of the insol-
vency of the corporation, it will be enforced by a court of equity
or of bankruptcy for the benefit of its creditors.* From the
privileges and advantages flowing to the subscriber in conse-
quence of his subscription, and from its acceptance by the other
associates or by the corporation, the law implies a consideration
suflScient to support the contract.^
1 Upton V. Tribilcock, 91 U. S. 48;
Palmer v. Lawrence, 3 Saudf. (N.
Y.) IGl; Brigliam v. Mead, 10 A'len
(Mass.), 245. And this is so although
the certificate contains a promise on
the part of the corpoiation to pay in-
terest thereon until the happening of
a certain specifiLcl event. McLaugh-
lin V. Detroit &c. R. Co., 8 Mich. 100.
Malting and mailing a certificate is re-
garded as the issuing of it. Jones v.
Terre Haute &c. R. Co., 17 How. Pr.
(N. Y.) 529.
- Post, § 1140; Chaffinu. Cummings,
37 Me. 76; Chase «. Merriraac Bank, 19
Pick. (Mass.) 5G4; Beckett v. Hous-
ton, 32 Ind. 393; Burr v. Wilcox, 22
N. Y. 551 ; Schaeffcr v. Missouri Ins.
Co., 4G Mo. 248. One who sells shares
bef oi e the issue of the certificate, agree-
ing to give tlie buyer a certificate whf n
he gets it, has been held not bound,
as between the biixerimd himself, to
pay an a-sessmentl;iid upon tlie shares
subsequently to the sale, and before the
issuing of the certificate. Brigham
V. Mead, 10 Allen (Mass.), 245. Some
courts have, however, held that an ex-
press promise to pay is necessary, —
a subject hereafter considered. Post,
§ 1187, ci seq. Interpretation and ef-
fect of peculiar contracts of subscrip-
tion, prescribing unusual modes of
i.ssuing St )ck, terms of payment, etc.:
Bailey v. Railroad Co., 17 Wall. (U.
902
S.) 9(1; Van Ah u v. III. &c. R. Co., 4
Abb. App. Dec. (N„ Y.) 443; New York
&c. R. Co. V. Van Horn, 57 N. Y.
473.
3 Selma &c. R. Co. v. Tipton, 5
Ala. 787; Beene v. Cahawba &c. R.
Co., 3 Ala. 660; Union Turnpike Co.
V. Jenkius, 1 Caines (N. Y.),38^ ; s. c.
1 Caiues's Cas. 95; Goshen Turnpike
Co. V. Hurtin, 9 Johns. (N. Y.) 217;
Dutchess Cotton Man. C'l.v. Davis, 14
Johns. (N. Y.) 238; Highland Turn-
pike Co. V. Mclvean, 11 Johns. (N. Y.)
95; Spear u. Crawford, 14 Wend. (N.
Y.) 20; s. c. 28 Am. Doc. 513; Harlem
Canal Co. v. Seixas, 2 Hall (N. Y.),
504; Worcester Turnpike Co v. Wil-
lard, 5 Mass. 80; Delaware &c. Canal
Co. V. Sansom, 1 Biun. (Pa.) 70; In-
stone V. Bridize Co., 2 Bibb (Ky.),
576; Tar Rivtr Navigation Co. v. Ncal,
3 Hawks (N. C ), 520; Sanger v. Up-
ton, 91 U. S. 56; Webster v. Upton^
91 U. S. 65; Chubb v. Upton, 95 U. S^
665.
4 Ante, §§ 12-17; post, § 258 e
seq.
5 Union Turnpike Co. v. Jenkins, I
Caines (N. Y), 381; Goshen Turnpike
Co. V. Hurtin, 9 Johns. (N. Y.) 217;
Dutchess Cotton Man. Co. v. Davis, 14
Johns. (N. Y.) 238; Kennebec &c. R.
Co. V. Palmer, 34 Me. 366. See posty
§ 1200, et seq.
FORMATION OF THE CONTRACT. [1 Thomp. Corp. § 1140.
§ 1139. Subscription Constitutes One a Member. — It has
been said ill a case in Mirylaiul that " none of the cases decide tliat
the more fact of subscribing to the stock of an incorporated com-
pany constitutes the subscriber a stociiholder, but that such sub-
scription puts it in his power to become a stockholder by com-
pelling the corporation to give him the legal evidence of his
being a stockholder, upon his complying with the terms of the
6ubscii[)tion." ^ The case cited in support of this doctrine^
does not decide this proposition, but decides the reverse, namely,
tliat a valid sul)scription to the stock of a corporation makes
one a stockholder within the meaning of a provision of the
cliarter making stockholders indivichially liable to creditors of
the company in proportion to the amount of stock held, and
such beyond all question is the law.^ Asi we shall presently see,
the courts merely divide on the question whether an express prom-
ise to iKiy in the subscription is necessary to give it this effect.*
§ 1140. Certificate not Necessary. — "It is not essential that
a certificate should have issued, in order to create the relation of
stockholder, provided a contract to take stock had been duly
made, or provided the rights, privileges and emoluments of a
stockholder had been enjoyed with the consent of the corpora-
ticm." ^ An owner of shares may vote at corporate elections,® hold
office, and in the character of its principal officer assent to a, mort-
gaire of its property,^ without a certificate being issued to him.
Nor is it necessary that the corporation should have issued, or
even tendered to him a certificate, in order to enable it to maia-
1 Busey v. Hooper, 35 Md. 15; s. 114 Ind. 381; s. c. 5 Am. St. Rep. 627;
c. 6 Am. Kip. 350, 359. Farrar v. Wallier, 3 Dill. (U. S.) 506;
2 S|)car V. Crawford, 14 Wend. (N. Chaffin v. Cummings, 37 Me. 76; Angell
Y.) 24; s. c. 28 Am. Dec. 513. & Ames on Corp., § 565; Chase v. Mer-
3 Strong V. Wheaton, 38 Barb. (N. riraac Bank, 19 Pick. (Ma<s.) 56t. It
Y.) 616; Cole v. Ryan, 52 Barb. (N. follows that it is not necessary that
Y.) 108; Sagory v. Dubois, 3 Saiidf. the facts! lould appear on the books of
Ch. (N. Y.) 4:6; Chaffin v. Curamii'gs, the c )rporation. It may be proved by
37 Me. 70; Chase v. Merrimac Bank, parol. Chaffin ?;. Cummings, s?(pra.
19 Pi'k. (Mass.) 664; Beckett v. ^ Beckett v. Houston, 32 Ind. 393.
Houston, 82 Ind. 393; Burr u. Wilcox, ^ McComb u. Barcelona Apartment
22 N. Y. 551; Schaeffer v. Missouri Asso., 31 N. Y. St. Rep. 325; McCorab
Ins. Co., 46 Mo. 24H. v. Cordova Apartment Asso. (Sup.
* Post, § 1187, et seq. Ct.) Id. 334.
5 Butler University v. Scoonover,
903
1 Thomp. Corp. § 1141.] tiiio contract of subscription.
tain an actiou against him for assessments upon his shares.^
And for equal reasons a certificate is not necessary to make him
liable to crer7iYo?'s for debts of the cor[)oration.2 The theory is
that it is the act of subscribing, or the registry of the share-
holder's name upon the stock book of the company opposite
the number of shares for which he has subscribed, which
ogives him his title thereto, and that tlie certificate neither
constitutes his title nor is necessary to it, but is only a mem-
orial or evidence of it, which he is entitled to demand from the
corporation whenever he may desire it.^ It is further reasoned
that a subscription for stock does not stand on the same footing
as a contract of sa/e, so that the company, like the vendor,
must offer to deliver before demanding the price. Whenever
the subscriber pa/ys, he is the owner of stock in the company.
It is the 'payment that makes him stockholder, with all the
risfhts of one, if the certificate were not issued at all.*
§ 1141. Circumstances under which IS'ecessary. — The rule
of the preceding section may, of course, be dispensed with by
1 Chester Glass Co. v. Dewey, 16
Mass. 94; h. c. 8 Am, Dec. 128;
Shelbyville v. Shelbyville & Co., I
Mete. (Ky.) 54; Vavvter ■;;. Ohio &c. R.
Co., 14 lud. 174; Haidy v. Merri-
weather, 14 Ind. 203; Fulgam v. Macon
&c. R. Co., 44 Ga. 597; South Georgia
&c. R. Co. V. Ayres, 56 Ga. 230; New
Albauy &c. R. Co. v. McCormick, 10
Ind. 499; s. c. 71 Am. Dec. 337;
Heaston v. Cincinnati &c. R. Co , 16
Ind. 275; s. c. 79 Am. Dec. 430. See
also Mitchell v. Beckman, 64 Cal. 117;
Schaeffer v. Missouri Ins. Co., 46 Mo.
248, 250 ; Burr v. Wilcox, 22 N . Y. 551 ;
Miller v. Wild Cat Gravel Road Co.,
52 Ind. 58. Slipher v. Earhart, 83
Ind. 179.
2 Spear v. Crawford, 14 Wend. (N.
Y.) 20; s. c. 28 Am. Dec. 513; Haynes
V. Brown, 36 N. H. 545, 563 ; Chesley
V. Pierce, 32 N. H. 402; Chaffiii v.
Curamings, 37 Me. 76, 83; Chester
Glass Co. V. Dewey, 16 Mass. 94; s. c.
904
8 Am. Dec. 128; Chase v. Merrimac
Bank, 19 Pick. (Mass.) 574; Burr v.
Wilcox, 22 N. Y. 521; s. c. affd. 6
Bosw. (N. Y.) 198; Schieffer v. Mis-
souri Ins. C'>., 46 Mo. 218; Uawley v.
Upton, 102 U. S. 314; Upton u.Tribil-
cock, 91 U. S. 45; Webster v. Upton,
Id 65.
3 Cincinnati &c. R. Co. v. Pearce,
28 Ind. 508 ; Lincoln v. State, 36 Ind.
163; Beaver v. Hartsville University,
34 Ind. 248; New Albany &c. R. Co. v.
McCormick, 10 Ind. 499; s. c. 71 Am.
Dec. 337. And see Chandler v. North-
ern Cross R. Co., 18 111. 190. For the
same reason the failure of the cor-
poration to issue to the defendant,
who is a stockholder therein, certifi-
cates for his shares, is no defense by
him when sued by the corporation for
money loaned. Ilazelettu. Butler Uni-
versity, 84 Ind. 230.
* Fulgam V. Macon &c. R. Co., 44
Ga. 697.
FORMATION OF THE COXTRACT, [1 Thoilip. Corp. § 1144.
the terms of the contract. Thus, a tender of a certificate is nec-
essary before the corporation can sue on the contract of sub-
scription, where the payment is made, by the terms of the
contract, conditional upon the delivery of the certificate.* So,
preferred stock, being something more than a mere evidence of a
stocliholdcr's right to participate in the management of the affairs
of the company and to receive dividends, but being in the nature
of an interest-bearing security,^ it has been held that the implied
promise of the company to issue such stock and of the subscriber
to pay for it, where the subscription is to stock of this kind, are
concurrent and dependent, and that an action by the company
upon such a sul)scription can not be maintained until it has
issued or tendered the stock.^ On the other hand, except in the
case of preferred stock, the company can maintain an action
without a delivery or tender of the stock, where it seeks merely
to recover an installment or assessment, and not the whole price.*
§ 1142. Contract of Subscription when not Necessary. — It
is not necessary, in order to fix a, person with the full liability of
a stockholder to creditors of the corporation, that he should have
signed a contract of subscription to the corporate stock. The
mere acceptance of shares of the stock by him will have this
effect. 5
§ 1143. If no Certificate Issued, Written Agreement Neces-
sary. — On the other hand, if no certificate of stock has been
issued to and accepted by the person sought to be charged, a
written contract of subscription is ordinarily necessary to bind
him as a shareholder.*
§ 1144. View that Contract of Subscription Necessary in
Some Form. — In an action upon a bond for $200 given to a corpora-
1 Courtright r;. Deeds, 37 la. 503. s. c. 28 Am. Dec. 513; Hariford &c
2 Pos<, §2262. R. Co. v. Kennedy, 12 Couu. 4'Jit;
3 St. Paul &c. R. Co. V. Robbins, 23 Rensselaer &c. R. Co. v. Barton k;
Minn. 439. N. Y. 457; Dayton v. Borst, 31 N. Y.
■* Minneapolis Harvester Works v. 435; Jackson v. Traer, 64 la. 469; s. c.
Libby, 24 Minn. 327. 62 Am. Rep. 449.
^ Nultonu. Clayton, 54 la. 425; Spear « Pittsburgh &c. R. Co. v. Clarke,
V. Crawford, 14 Wend. (N. Y.) 20; 20 Pa. St. 146.
905
1 Thomp. Corp. § 11-45.] the contiiact of subscription.
tion, it was alleged that it was given as security for $200 of the stock
of the corporation, which the defendant had subscribed for and which
had been retained by him as a loan under the charter. The jury re-
turned a special finding that the defendant " at no time before or after
the execution of said bond subscribed for any stock," etc. It was
held, in substance, that the conclusioii of law upon this finding was
that the defendant was not liable on tlie bond. Mitchell, C. J., said:
" Never having subscribed for any stock, tliere was, of course, no con-
sideration for the bond, unless in some way he received stock, or acted
or was recognized as a stockholder. The jury expressly negitive each
and all of these propositions. They return that the defendant never
has subscribed for nor received, owned, or in any manner controlled
any stock, and that he received no consideration whatever for the
bond. * * * It (Joes not appear, in the case before us, that there
was even an oral agreement to subscribe for stock. The recitals in the
bond, and the whole case, assume that Scoonover had subscribed for
stock, and that the subscription price was the consideration of his con-
tract to pay. When, therefore, it appeared that he never had sub-
scribed for stock, nor in any other manner acquired any right to be
recognized as a stockholder, in the event of payment of the bond, it
became entirely clear that his contract was without consideration.
Although it may be true that a binding contract of subscription to the
stock of a cori)oration, unless the statute or articles of association pro-
vide to the contrary, may be made, without actually signing a formal
subscription paper or stock book, in any manner that the subscriber
and corporation clearly manifest their purpose to enter into a contract
whereby the relation of stockholder of the corporate stock is to result, —
j^et there must, in every case, be some sort of subscription or contract,
whereby the subscriber obtains the right, upon some condition, to de-
demand stock, and to exercise the rights of a stockholder." ^
§ 1145. Such Contract not Created by Recitals in a Bond. —
In the bond \vhich was sued on in this case it was recited that the prin-
cipal obligor " has retained of his subscription for two shares of capital
stock * * * the sum of two hundred dollars, being the amount of
his subscription, as a loan." It was held that this recital did not estop
him from siiQwing that, in point of fact, he had never subscribed to the
siiares of the corporation. The court said : " While this recital might
well have been regarded, in the absence of countervailing evidence, as
sufficient proof that a subscription of some kind had been made, it was
1 Butler University v>. Scoonover, lU Ind. 381; s. c. 6 Am. St. Rep. 627.
90()
FORMATION OF THE CONTRACT. [1 TllOmp. Corp. § 1146.
not, "without more, conclusive, either upon the corporation or Scoon-
over, that he was a stockholder. The recital was in no sense contract-
ual, but was a mere statement of the consideration of the bond, and
was in no sense differc nt in effect than would be a recital in a promis-
sory note or other contract for the pa3'ment of money, concerning the
consideration upon which it was executed. "Whether one who sub-
scribes for stock in a corporation becomes, by the mere fact of mak-
ing the subscription, a stockholder therein, depends upon the terras
of his contract and the charter of the corporation, and whether the
subscription was made as a preliminary to the organization, or after it
was under way, for stock thereafter to be issued," ^
§ 1146. View that a Contract of Subscription must be in
Writing. — The word '* subscription " by its etymology imports
a writing; and most of the courts take the view that accontract
to become a shareholder in a corporation must be m writing and
cannot be established by parol evidence,^ In conformity to the
same view, it has been held that the title of a transferee of stock
c;Mi only be established by evidence of the same dignity.^ This
view no doubt h:id its origin in the fact that nearly all special
charteis and general statutes establishing schemes of corporate
organization provide for the receiving of subscriptions to the
ca[)ital stock, either in books open for that purpose, or upon the
articles of association by which the corporation is established, or
©therwise.* The conce[)tion seems, therefore, to have been of
statutory creation ; but as it conforms to the common under-
standing and to the habits of business, it seems to have been
adopted as a general rule without reference to the terms of the
particular charter or statute.
1 Butler University v. Scoonover, 29 Pa. St. 146, 152; Brouwer t>. Ap-
lU lud. SSI; s. c, 5 Am. St. Rep. G27; pelby. 1 Sandf. S. C. CN. Y.) 170.
opinion by iMitcliell, C. J. "* Thus, under a statute of Orogou
2 Pittsburuh &c. R. Co. v. Gazzara, COr. St. 525, Si cs. 4-7), defining the
32 Pa St. 340; Vreelandu. New Jersey duties of directors and the rights of
Stone Co., 20 N. J. Eq. 188, 191; stockholders, it is held th:it ail original
Thames Tunnel Co. v. Sheldon, G Birn. stocl^holders are only made liable on
& C. 341; Pittsburgh &c. R. Co. v. their subscriptions for stock by a
Clarke, 29 Pa. St. 140, 152; Fanning v. writing, and are all equal before the
Insurance Co., 39 Oh, St. 339; s. c. 41 law, and there is no estoppel between
Am. Rep. 517. tliem. Coyote Gold&c. Co. ». Ruble,
3 Pittsburgh &c. R. Co. v. Clarke, 8 Or. 284.
907
1 Thorn}). Coi'}). § 1148,] tiik (x)ntkact of subscription.
§ 1147. A Writing not in Strictness Necessary. — But we
have ah-eady seen that shares of corporate stock are not goods,
wares and merchandise, within the meaning of the seventeenth
section of the English statute of frauds. ^ A contract to take and
pay for shares in a corporation is hence not a contract for the
ptircliase of goods, wares and merchandise within the meaning
of that statute. And it woukl seem to follow that, in strictness
of law, it is neither necessaiy that there should be a contract in
writing to take and pay for shares, nor an actual receipt of them —
or what is tantamount, a receipt of their symbol, the stock
certificate — in order to constitute one a shareholder. It has
accordingly been held that a person may become a shareholder
without signing the stock book or any written agreement to take
shares;''^ and that a parol agreement made with tlie directors
of a corporation to take stock may be enforced, when neither the
governing statute nor the charter requires such contracts to be in
writing.^ Again, it has been observed in a case in Canada, by
Osier, J. : "A person may make himself liable to be treated as
a shareholder in many other ways than by subscribing for shares
and obtaining a formal allotment ; and one who caused his name
to be entered on the company's books as a shareholder in
respect of shares taken for the purpose of making up the statu-
tory amount would, on princifde, clearly be estopped from
afterwards saying that he was not the holder of such shares." *
§ 1148. Oral Promise to Subscribe for Shares and Note
Given Tlierefor. — One American court has gone so far in this
direction as to hold that an oral promise, pending the organiza-
tion of a corporation, to take shares of the stock, does not con-
stitute the promisor a stockholder or member, and will not
furnish a consideration to support a note given by him to pay
for such shares. The court say: " The note was a promise to
pay for stock which the maker had verbally agreed to take.
Had Mrs. Fanning been a subscriber to the stock she would
have been entitled to be treated as a stockholder. This would
1 Ante, § 1068. ^ Colfax Hotel Co. v. Lyon, 69 Iowa,
2 Be Central Bank of Canada, 23 683; s. c. 29 N. W. Rep. 780.
Can. L. J. 238; Castoa's case, 12 App. * Union Fire Ins. Co. v. O'Gara, 4
(Can.) 486. Ont. (Can.) 369.
908
FORMATION OF THE CONTRACT. [1 Thomp. Corp. § 1149.
have been a sufficient consideration to have supported a promise,
either express or hnplied,, to pay for the stock. The agreement
must be mutual and binding upon both parties. If the corpora-
tion are not bound to treat her as a stockliolder, her promise to
pay is a nudum pactum, for want of a mutual promise by the
corporation to awiird her the stock. In the absence of prool'
that she had received the stock, or of any other consideration
to support her promise, or of any acts by her, creating an
e8to|)pel, her promise to pay for stock for which she has not sub-
scribed, and which the corporation is not bound to deliver at the
proper time, is without sufficient consideration to support it." ^
Another American court has held that where A gives his promis-
sory note to a corporation and receives a receipt for the same,
which also states that the note when paid will be in full for a
certain number of shares of the capital stock, A does not
become a stockholder until the note matures and is paid, and a
stock certificate is issued.^ We may take leave to doubt the
soundness of both of the>e decisions. A promissory note given
upon parol agreement to deliver goods, wares and merchandise
(invalid under the statute of frauds) is undoubtedly supported by
a gooil consideration; and the receipt mentioned in the second
case would take the transaction, if it related to the sale ofgoods,
out of the statute, for both the note and the receipt would be
read together as one paper.
§ 1149. Subscription Not Varied by Parol Evidence. — The
general rule which excludes parol evidence to vary writings,
applies to subscriptions to the capital stock of corporations.
Such a subscription cannot, therefore, be varied by parol evidence
of a special agreement made prior to or concurrently with it,^ —
1 FanniDS v. Insurance Co., 37 Oh. EvansvilUe &c. R. Co. v Posey, 12 Id.
St. 3.39; 6. c. 41 Am. Rep. 517, 518. 3G3; Thigpen v. Mississippi &c. R.
2 Tracy u. Yates, 13 Barb. (N. Y.) Co., 32 Miss. 347; Piscataqua Fjrry
152. Co. V. Jones, 39 N. H. 491 ; McClure v.
3 Smith V. Tal'assec &c. Planlt People's Freight R. Co., 90 Pa. St.
Road Co., 30 Ala. G50; Ridgefield &c. 2G9; Cunningham v. Edgefield R. Co.,
R. Co. V. Brush, 43 Conn. 86; Martin 2 Hoail (Tcnn.), 23; East Tennessee
V. I'ensacola &c. R. Co., 8 Fla. 370; &c. R. Co. v. Gammon, 5 Sneed
«. c. 73 Am. Dec. 713; New Albany (Tenn.), 567.
&c. R. Co. V. Fields, 10 Ind. 187;
909
1 Thomp. Corp. § 1151.] thk contract of subscription.
as to show that the subscriptioQ was made upon a condition
not expressed in the instrument.^
§ 1150. Wben Explainable by Parol. — No reason is per-
ceived why the rule which lets in parol evidence to explain
ambiguities in written contracts should not apply to contracts
of this kind; and there are decisions whith support this
view. 2 It has been held that the acts of corporations may be
proved in the same manner as acts of individuals; and that, if
there be no record evidence of their acts, they may he proved
by paiol. Accordintzly, it has been held tliat, in a suit on a
subscription to the s'ock of an incorporated company, it was
competent for the defendant to show by oral testimony, in the
absence of record evidence, that the subscription list, upon
which the defendant's name appeared, was annulled and aban-
dowd, and that another subscription was subsequently opened
and made the basis of the organization by the stockholders.^
§ 1151. Form of the Subscription. — It seems tliat the form
of the subscription is immaterial t-o that the intention of the
parties can be collected from the writing,* unless the charter
or governing statute requires it to bo made in a i)articular form
or manner, in which case, according toone vi<'W, the requirement
of the statute must be pursued or the subscription will not be
l)inding.^ Unsubstantial variances from the lorm prescribed by
the statute will not, however, prevent the subscription from being
1 Fairfield County Turnp. Co. v. ^ Southern Hotel Co. v. Newman,
Thorp, 13 Conn. 173; Wi-ht v. Shelby 80 Mo. 118.
R. Co., 16 B. Monr. (Ky.) 4; s. c. G3 * 1 Mor. Priv. Corp., 2d ed., § (59;
Am. Dec. 522; Kennebec &c. R. Nulton u. Clayton, 51 la. 425; s. c. 37
Co. V. Wat rs, 34 Me. 369; North Am. Rep. 213; Monterey &c. R. Co. ■».
Ca;olina R. Co. v. Leach, 4 Jones L. Hildreth, 53 Cal. 123; Phoenix AVare-
(N. C) 34C; Miller r. Han ver &c. honing Co. w. Badger, 67 N. Y,
R. Co., 87 Pa. St. 95; s. c 30 Am. Rep. 294.
349. As t') subsciiptious made upon ^ Shurtz ■?;. Schoolcraft &c. R. Co.,
parol co«dt«it»ns, see pos«, § 1311, 1401, 9 Mich. 2G'.»; Carlisle u. Saginaw &c.
etseq. R. Co., 27 Mich. 315; Parker v. North-
2 Johnson v. "Wabash &c. Plank ern Central &c. R. Co, 33 Mich. 23;
Road Co., 16 Ind. 389; Sodus Bay Nor' hern Central &c. R. Co. ». Eslow,
&c. R. Co. V. Hamlin, 24 Hun (N. Y.), 40 Mich. 422.
390.
910
FORMATION OF THE COXTKACT. [1 TllOmp. Coi'p. § 1153.
operative. Thus where the legislature provided that the form of
the subscriptioa should be payable to the " i)resi(lent, managers,
and company," the contract was held valid although the word
*' president " was omitted and it was made payable to the man-
agers and company. The court found enough in the other
expressions of the instrument to describe the corporation
intended and to effectuate the contract.^
§ 1152. In what Kind of Book — on what Kind of Pa-
per. — Unless the charter or governing statute so provides, it is
not necessary to the validity of the subscription that it should
be originally made in a book prepared for that purpose. And
although the statute requires books to be opened, the use of
subscription papers in the first instance instead of a book does
not make the subscription void.^ Subscriptions made on a loose
sheet of paper, which was afterwards put in a bound book used
as a record of the company, were held sufficient, where the con-
tents of this paper, with the names of the subscribers and the
amounts subscribed, were entered in the book by the commis-
sioners who were appointed to open books of subscription.'
Where the subscription was made in a small blank book before
the regular stock book for subscriptions was opened, and was
afterwards accepted by the coiporation, it was regardt^d as un-
necessary, in order to a right of action for assessments, that it
should be transferred to the stock book of the company.*
§ 1153. Si'^ning in Blank. — A signature to an incomplete
paper, naming in any substantial particular, will not be binding
upon the signer without further assent on his part to the com-
p.letion of the instrument.^ When, therefore, a person sub-
scribed to articles of association for the purpose of organizing a
railroad corporation under the General Railroad Act of New York
1 Hagerstown Turnp. Co. v. Cree- Co., 18 Ind. C8; Mobile & Ohio R. Co.
ger, 5 Harr. & J. (Md.) 122; s. c. 9 v. Yaiidal, 5 Sneed (Tenn), 294.
Am. Dec. 405. ^ Woodruff v. McDonald, 33 Ark.
2 IIamilti>n &c. Planli Road Co. v. 97.
Rice, 7 Barb. (N. Y.) 157; Ashtabula * Brownlee r. Ohio &c R. Co., 18
&c. R. Co. V Smith, 15 Oh. St. 328; Ind. C8.
Stuart V. Valley R. Co., 32 Gratt. ^ See, however, note, 13 Am. Dec.
(Va.) 146; Brownlee v. Ohio &c 11. 6G9.
911
1 Thomp. Corp. § 1157.] the contract of subscription.
of 1850,* and, at the time of so signinj^, the names of the direct-
ors were left in blank, — it was hehl that the instrument was
incomplete and inoperative as against him ; that there was no im-
plied consent on his part to the insertion of the names of any
persons as directors ; and that, by the insertion of such names
without his consent, the instrument was not made binding upon
him. 2 But where certain persons signed the subscription book
of a corporation, leaving the amounts in blank, intending that
they should be represented as subscribers for the purpose of in-
fluencing others to subscribe, — it was held, in an action by the
creditors of the corporation, seeking to compel payment of un-
paid subscriptions, — that the signers impliedly authorized the
filling up of the blanks by thus taking subscriptions.^
§ 1154. Effect of Erasures. — The erasure of a 8ubscri[)tion
for stock does not per sp prevent suit upon it, but explanatory
parol evidence is admissible.*
§ 1155. Explanatory Memorandum Annexed. — Where an
explanatory memorandum is annexed to the subscription paper,
the legal presumption is that it was there when the subscription
was made, in the absence of evidence to the contrary.^
§ 1156. Receipt on Margin of Subscription Book. — A mere
receipt for a certificate of stock written in the margin of the sub-
scription book has been held a suiEcient subscription for stock. ^
§ 1157. Rule which Requires a Subscription to the Articles
of Association. — Where corjoorations are organized under gen-
eral laws, by preparing and tiling in the general office of the
secretary of state, or some other public ofHce, articles of as-
sociation signed by the co-adventurers, there is more reason
for holding that a valid subscription can only be made beneath
1 N. Y. Laws, 1850, ch. 140. ■^ Robinson v. Pittsburgh &c. R. Co.
2 Dutchess &c. R. Co. v. Mabbett, 32 Pa. St. ?,U\ s. c. 72 Am. Doc. 792.
58 N. Y. 397. * Lohmaa v. N. Y. and Erie R. Co.,
3 Jewell V. Rock River Paper Co., 2 Saiidf. (N. Y.) 39. See also Car-
101 111. 57. rick's case, 1 Sim. (n. s.) 505; Clem-
* Bordentown &c. v. Imlay, 44 N. ents v. Todd, 1 Exch. 268.
J. L. 285.
f)12
FORMATION OF THE CONTRACT. [1 TllOmp. Coip. § 1158.
)
such articles of association. Under such schemes of corporate
organization, several courts have held that signing a provisional
subscription paper, before or without a formal execution and
signing of the articles of association, does not make the signer a
stockholder and as such liable to assessments. ^ Under this
theory the liability of stockholders at the date of filing articles
is limited to those named therein, and the amounts therein men-
tioned. ^ It is said that, to perfect such a subscription so as to
render the subscriber liable, he must subsequently sign the arti-
cles of association, or subscribe, in the books of the company, to
the capital stock.^ This rule seems to have especial force where
the preliminary paper binds the subscribers to take the number
of shares set opposite their respective names, on conditions. The
annexing of the conditions is regarded as placing the instrument
in the category of mere tentative or provisional undertakings.*
§ 1158. Reasons which Support this Rule. — The theory
upon which the Supreme Court of Missouri proceeds in reaching
this conclusion is that the statute furnishes the rule of decision
to the exclusion of the rules of the common law, and that the
statute decides the question by providing, after certain prelim-
inary matters, that " thereupon the persons who have so sub-
scribed such articles of association, and all persons who shall
become stockholders in said company, shall be a corporation,"
etc. 2 In reaching the above conclusion, Mr. Commissioner Mar-
tin, writing the opinion of the court, said: " I am unable to per-
ceive how any persons of the requisite number, desirous of
forming a railway company under the provisions of this statute,
1 Coppage V. Hutton 124 Ind. Warren, Id. 310; Chase v. Sycamore
410; s. c. 7 L. R. A. 591; 24 N. &c. R. Co., 38 III. 215; Thrasher v.
E. Rep. 112 (under Rev. Stat. Ind., Tike, 25 111.393. Where three existiuj;
§ 3851). railroad companies were consolidated,
2 Monterey &c. R. Co. v. Ilildreth, and a subscription was made after the
53 Cal, 123; Sedalia &c. R, Co. v. agreement for consolidation, but
Wilkerson, 83 Mo. 235; Troy &c. R. before it was filed in the office of the
Co. v. Tibbitts, 18 Barb. (N. Y.) 298; secretory of tlie' commonwealth, it
Troy &c R. Co. v. Warren, Id. 310. was held that the filing of the agree-
' Troy &c. R. Co. v. Tibbitts, supra; ment in the office of the secretary was
Troy &c. R. Co. v. Warren, snpra; not necessary to validate the subscrip-
Sedalia &c. R. Co. u. Wilkerson, s?/;jra, tiou. McClure v. People's Freight
< Trov &c. R. Co. v. Tibbitts, 18 Ry. Co., 90 Pa. St. 269.
Barb. (N. Y.) 298; Troy &c. R. Co. v. ^ R. S. Mo. 1879, § 7fi4.
58 913
1 Thomp. Corp. § 1159.] the contract of subscription.
can do so in any other mode than the one pointed out in it. In no
other mode can the relation of stockholder and corporation, under
this statute, be established. The statute neither contemplates nor
alludes to any preliminary paper of subscription such as the one
giv^en ill evidence. The fact that informal papers and circular
letters are commonly signed and published as a part of the enter-
prise and zeal which give birth to such corporations, can make
no difference, as long as the statute fails to recognize them as
among the necessary and prescribed legal steps to be taken by
the incorporators to create the body corporate. The allusion in
the statute to ' all persons who shall become stockholders in said
company,' evidently refers to such as become stockholders by,
subscribing for stock after the corporation is established, in
suhscri'ption books opened by the directors, according to the
provisions of Section 711, Revised Statutes."^
§ 1159. Consequence of this Rule: No Contract if Sub-
scriber dies before Corporation Formed. — One of the conse-
quences of the foregoing doctrine is that if the subscriber dies
before signing the formal articles of association, the liability of a
shareholder cannot be enforced against his personal representa-
tive. ^ On still plainer grounds it has been held that an engage-
ment to subscribe for the benefit of an association, which is not
a joint-stock company, but which needs money to carry out its
objects, as for instance, a religious society, for the building of
1 Sedalia &c. R. Co. v. Wilkerson, a person might acquire the rights and
83 Mo. 235, 242; citing and following be subject to the responsibilities of a
Troy&c. R. Co. v. Tibbitts, 18 Barb, stockholder:" Tonica &c. R. Co. v.
(N. Y.) 297; Poughkeepsie &c. Plank McNeely, 21 111. 71; Johnson v. Ew.
Road Co. r. Griffin, 24 N.Y. 150; and ing, Female University, 35 111. 518;
distinguishing Peninsular R. Co. v. Buffalo &c. R. Co. v. Dudley, 14 N. Y.
Duncan, 28 Mich. 130; — also distin- 336; Hartford &c. R. Co. v. Kennedy,
guisliing the following cases as being 12 Conn. 500; Taggart v. Western
cases '* in which the act of incorpora- Maryland R. Co., 24 Md. 603; Penob-
tion, either general or special, had scot R. Co. v. Dummer, 40 Me. 172;
been passed, and the defendants were s. c. 63 Am. Dec. 654; Kennebec &c.
held liable as stockholders by reason R. Co. v. Palmer, 34 Me. 3G6; Cross v.
of subscriptions within the peculiar Pinckneyville Mill Co., 17 HI. 64;
meaning and terms of the acts; or Athol Music Hall Co. v. Gary, 115
because the acts, unlike the one be- Mass. 471.
fore us, failed to prescribe any partic- ^ Sedalia &c. R. Co. v. Wilkerson,
ular method of subscription by which 83 Mo. 235.
9U
FORMATION OF THE CONTRACT. [1 Thomp. Coip. § 1161.
a church, — is necessarily a mere proposal, and is therefore
revocable until the association is formed. Until then, there is
no one to accept the proposal, and consequently if the sub-
scriber dies before organization, the proposal is necessarily
withdrawn by his death, and does not ripen into a contract ; since
there can be no contract without the correlative parties, and
there must be something to support a promise.^ But it is said
that, if the association is formed and the object for which the
money was subscribed is entered upon during the life-time of
the subscriber, e.g.^ if the building of the church is begun, —
and with his express or implied consent, he, and of course his
legal representatives, will be bound to pay the subscription.^
§ 1160. Other Consequences of this Kule. — Another con-
sequence of this rule, and one which results in conformity with
a principle stated in a preccGling section,^ is that a subscriber to
the provisional paper is not bound by it where it is annexed to
the articles of association without his consent.* In the same
line of thought it has been held that agreements made by per-
sons who contemplate becoming stockholders in a corporation
thereafter to be organized, which agreements are not intended
as subscriptions to its stock, although they relate to its future
management, do not give the secretary of the corporation, when
formed, authority to place the names of such subscribers on the
list of stockholders in the stock book.^ Another consequence
of the same rule is that, where there is no statute requiring or
authorizing such a provisional subscription to be made, distinct
from the articles of association which are required to be executed
and filed with the secretary of state, — a copy of such provis-
ional subscription paper, certified by the secretary of state, will
not be admissible in evidence.®
§ 1161. Doctrine that Subscriptions not Binding unless
Regularly Made. — It seems to be merely another way of stat-
1 Phipps V. Jones, 20 Pa. St. 260. » Coyote Gold &c. Co. v. Ruble, 8
But see post, § 1170. Or. 284.
2 Ibid. « Troy &c. R. Co. v. Kerr, 17 Barb.
3 Ante, § 1153. (N. Y.) 681.
■• Bucher v. Dillsburg &c. R. Co.,
76 Pa. St. 30G.
915
1 Thomp. Corp. § 11()2.J tmk contract of subscription.
ing the theory of the foregoing cases to say, as some of the
courts do, that a stock subscription is not binding unless regu-
larly made in the statutory mode. The subscribers are bound
to take notice of the terms of the charter, where there is one in
existence, and of the governing statute where the corporation is
organized under a general law.* The charter or governing stat-
ute is deemed to enter into and to form a part of the contract of
subscription; but, on this theory, only when the subscription is
made in conformity with its terms. Such subscriptions, it is
reasoned, are only binding on the subscribers when they are so
made as to bind the company; and as the statute creates no ob-
ligation on the corporation, except upon subscriptions regularly
made, no others can be enforced, unless they were made upon
some actual consideration or agreement binding the company.^
In conformity with this theory, it has been ruled, under a statute
of incorporation which declares that the persons subscribing the
original articles, and those who subscribe to the stock in the
manner to be provided by the by-laws, shall be a body corpo-
rate; ^ that there can be no operative subscription to the stock,
outside of subscriptions to the articles, until by-laws directing
the mode of subscribing have been framed ; and that a subscrip-
tion before the adoption of by-laws, does not create either the
rights or liabilities of membership.* In like manner it has been
held that there can be no recovery upon a subscription to the
capital stock of a street railroad company, made before its organ-
ization, where it is not shown that the defendant, after the sub-
scription of the requisite amount of stock, subscribed articles
of association which set forth, besides other requisites, the num-
ber of directors and their na mes, as required by the applicatory
statute, and where it does not appear that he ever assented to the
number or names of the directors. *
§ 1162, View that a Subscription to the Shares of a Cor-
poration not Formed Creates no Liability. — The rule which
requires a strict compliance with the statute in the mode of
1 Ante, § 1137. ^ Carlisle v. Saginaw Valley &c.
2 Parker v. Northern Cent. Mich. R. Co., 27 Mich. 315.
K. Co., 33 Mich. 23. ^ Eeed v. Richmond Street R. Co.,
» Mich. Comp. L., 1871, § 2405. 60 Ind. 342.
916
FORMATION OF THE CONTRACT. [1 Thomp. Coip. § 1162.
making the subscription is entirely compatible with the rule
hereafter stated ^ that a subscription is valid although it be an
agreement to take shares of the capital stock of a corporation
to be thereafter created. It has been already seen that where
corporations are organized under general laws, the existence of
the corporation generally dates from the filing of the articles of
association, certificate of incorporation, or other statutory
paper, by whatever name called, in the office of the secretary
of state, or in some other public office, for record.^ Now, if it
were the rule that the subscription does not become obligatory,
unless the other contracting party —2 namely, the corporation, —
is in existence at the time the subscription is made, the subscrip-
tion of none of the original corporators would be binding, but
any of them could retreat from their obligation even after the
corporation should come into existence in part by his voluntary
act. We should then have the anomalous condition of a corpo-
ration being created by the engagements of a number of co-
adventurers, not one of which is binding. We should have the
still more anomalous spectacle of a joint-stock company having
no capital except such as depended on the mere moral obliga-
tion of its creators, — unless such part payment^ as they may
have been required to make under the governing statute
should render their subscriptions binding. But, as will be
subsequently shown,* these part payments are often either not
made at all, or else made by giving promissory notes or bank
checks, which are not paid, the articles or certificate falsely
stating that they have been made. So that, if the view on which
we are commenting is a sound one, we should have in many
cases the solecism of joint-stock corporations without any
stockholders and without any capital stock, other than a poten-
tial stock depending on the future voluntary action of the
co-adventurers or of others who might conclude to come into
the venture. Of course, the legislatures enacting these schemes
of corporate organization did not contemj)late results so absurd
and so obviously opposed to public policy. Any view which
ascribes such a meaning to such a statute is scarcely worthy of
1 Ante, ^ 1158. » As to which see post, § 1168.
2 Ante, § 217, et seq. * Post, § 1218, et seq.
917
1 Thomp. Corp. § 1163.] the contract of subscription.
discussion; and yet, as will now be shown, such a view has
been taken by an authoritative court in an opinion delivered
by an eminent judge.
§ 1163. Further of this View: Reasoning of Chief Justice
Black. — The view just stated has been taken in Pennsylvania.
It is seemingly limited to that State, and is doubted and departed
from in other decisions in that State. Briefly stated, it is, that
one who signs a subscription paper, but nothing more, whereby
he agrees to take a certain numl)er of shares in a corporation
thereafter to be formed, does not become liable as a shareholder,
in an action for assessments by the corporation after it is formed.^
The reasoning of the court in the leading case where this doc-
trine was started is more impulsive than sound. The opinion
was given by Jeremiah Black, C. J., who said: " A contract
cannot be made by one person alone. It takes two to make a
bargain. Before a promise becomes a binding obligation, it
must not only be made to, but must be expressly or impliedly
accepted by, the party for whose benefit it was meant. The
paper before us is no more than a naked expression of the sub-
scriber's intention to purchase certain shares in the capital stock
of a company which it was expected would be incorporated by
the legislature. Besides, it is without any sufficient consideration.
It is not pretended, and cannot be made out from the paper, that
the ao;reement of the defendant was the motive of the others for
taking stock. It is well settled, that procuring legislation of any
1 Strasburg R. Co. ?;. Echternacht, object is binding. This case followed
21 Pa. St. 220; s. c. 60 Am. Dec. 49; the decision in Ediuboro Academy v.
Hedge v. Horn's Appeal, G3 Pa. St. Robinson, 37 Pa. St. 210; s. c. 78 Am.
279; McClure v. People's Freight Co., Dec. 421, where an action at law for
90 Pa. St. 271. The same view was an assessment was sustained after the
taken by Mr. Justice Campbell in his incorporation of the company on a
dissenting opinion in Peninsular R. subscription made before its incor-
Co. V. Duncan, 28 Mich. 152. The poration. In Steamship Co. v. Mur-
tendency of the courts in Pennsylvania phy, 6 Phila. (Pa.) 224, Sharswood, P.
to depart from this holding is illus- J., regarded the case of Strasburg R,
trated by Shober v. Lancaster Park Co. v. Echternacht, supra, where this
Asso., 68 Pa. St. 431, where it was doctrine was sprung, as being over-
held that a subscription which posi- ruled in Edinboro Academy v. Robin-
tively promises to pay a certain sura son, supra, except in so far as it denied
of money to accomplish a specified relief in equity.
918
>
FORMATION OF THE CONTRACT. [1 Thomp. Corp. § 1165.
kind is not a consideration which will support even a direct
promise to pay a fair compensation for the hxbor of the promisee
about such a business. Ag^ain : if there was a bindino: engage-
ment, it was not made with the railroad company, which did not
exist at the time." ^
§ 1164. Distinction between a Subscription and an Agree-
ment to Subscribe. — This discussion conducts us to a distinction,
taken in some of the cases, between a contract of subscription and
an agreement to subscril)e. The theory of these cases seems to be
thiit if a number of co-adventurers mutually agree to subscribe for
shares in a corporation thereafter to be formed, this does not
amount to an irrevocable contract to become shareholders when
the corporation is formed; but they must perform the additional
act of executing the statutory contract of membership by signing
and acknowledging the articles of association where the corpora-
tion is unformed, or by entering their names on its stock book
where it is formed. This theory is much like that already con-
sidered, ^ that until this additional act is performed there is no
offer which the corporation, when formed, or even if alreadj^
formed, can accept, and that the subscribers do not therefore
become shareholders and liable to be charged as such, unless
they choose to carry out their agreement by subscribing for the
shares. "^
§ 1165. Infirmity of this Distinction. — While this view is
not inherently absurd, as is another view hereafter considered,*
yet it carries with it an infirmity which in conscience and morals is
scarcely less serious. It permits any one of the co-adventurers
to retreat from his solemn obligation after the others have acted
upon the faith of it by organizing the corporation. The same
1 Strasburg R. Co. v. Echternacht, 3 See Mor.Priv. Corp. 2nd ed., § 49;
21 Pa. St. 220; s. c. CO Am. Dec. 49. Lake Ontario Shore R, Co. v. Curtiss,
This case is referred to in Talcott v. 80 N. Y. 219; Thrasher v. Pike Couuiy
Pine Grove, 1 Flippiu (U. S.), 49, on R. Co., 25 III. 393. Compare Quicic v.
the propo.sition that tiie promoters and Lemon, 105 111. 578, 585 ; Mt. Sleriing
launchers of a corporation cannot Ijind Coal Road Co. v. Little, 14 Bush (Ky.),
it io any way, although all are share- 429.
holders. < Post, § 1188.
2 Anu, § 1157.
919
1 Thomp. Corp. § 11G6.] the contuact of suiisciiiPTiON.
view, applied to the analogy of a contract of sale, would deprive
the vendee of any remedy in the case of an executory contract
to sell, or to manufacture and sell. It presents a striking
instance of the manner in which lawyers and judges frequently
reason, stumbling upon technical refinements and sinking justice
entirely out of view. The true view is : 1. That the co-adven-
turers who sign such a contract obligate themselves to each other,
and that the promise of each is a consideration for the promise
of the others.^ 2. That the subscription is in the nature of a
standing and continuing proposal to the corporation which is
contemplated b\' the parties, and tliat when the corporation is
called into existence and accepts the proposal, the minds of the
contracting parties meet and the contract is obligatory. It is
mere casuistry to say that the contract can never become oblig-
atory because there are not at the time it is made two contract-
ing parties.
§ 1166. Unsoundness of the View that the Proposal is Bad
Unless Made in Strict Compliance with the Statute. — Equally
unsound is the view that the proposal of the subscriber is bad
unless made in strict compliance with the governing statute. It
in no sense resembles the case of a defective execution of a statu-
tory power, which will not be aided even in equity.^ It is in no
sense like the case where a statute creates a right and gives a
remedy for the assertion of the right, — in which case it is well
known the statutory remedy is exclusive.^ It is not even re-
motely analogous to the case where a court of justice proceeds
under a statute which is in derogation of the common law, in
which case it must not only proceed strictly, but must show
affirmatively by its record that it has kept within its jurisdiction.*
It is the naked case of a man capable of making and taking con-
tracts, making a proposal for a contract which is not only not
1 Post, § 1205. upon the subscription contract. Ag-
2 For instance, that equity will not ricultural &c. R. Co. v. Winchester,
aid defective conveyances by married 13 Allen (Mass.), 29.
women, see 19 Am. Dec. 230. ^ Galpin v. Page, 18 Wall. (U. S.)
^ Uncertainty, in relation to an 350,371; Pulaski v, Stuart, 28 Gratt.
immaterial matter, in the terms of sub- (Va.) 872, 879: Werz v. Werz, 11 Mo.
scription to the stock of a railroad App. 30.
company, "will not avoid an action
920
FORMATION OF THE CONTRACT. [1 TllOlUp. Corp. § 1167.
opposed to the policy of the law, but which the law favors.
That such an engagement is voidable because not made in a par-
ticular way prescribed by a statute seems to find support in no
principle of public policy and in no legal analogy; but it seems
to be opposed to whatever analogy can be discovered. Take,
for instance, the contract of suretyship. The liability of a
surety is strictissimi juris; and yet where a principal, with
sureties, undertakes to execute a statutory bond, but fails by
reason of not complying with the statute, it is the constant
practice of the courts, for the sake of justice, to hold the bond
good as a common law obligation.^ But in the particular under
consideration, many of the courts, careless of justice, have )ier-
mitted men to retreat from their solemn obligations after others
have incurred obligations or changed their position on the faith
of the same, — and this, on the refined ground that a contract
such as will bind the intending obligors must be tendered to the
other contracting party, — an artificial being not yet in esse^ in
the precise statutory mode, or not at all.
§ 1167. Difficulty Avoided by Subsequent Ratification. —
Other courts stumbling upon these refinements and endeavoring
to be severely logical, have sometimes avoided the difficulty by
discovering a subsequent ralification, taken place after the or-
ganization of the corporation, — as where the corporation issues
and the subscriber accepts certificates representing the number of
shares for which he subscribed. In such a case the contract is
complete, and the corporation may maintain an action against
him for assessments.^ Such a ratification has been held to take
place where, after the organization of the corporation, the sub-
scriber recognizes the obligation of his subscription by making a
part iwyment upon it. This, it is reasoned, is a sufiicient re-
newal of his promise to the corporation, to enable them to main-
tain assumpsit for the balance, and the partial execution of the
purpose designed by the charter, forms a suflScient consideration
* Murfree Off. Bonds, § 67; United 2 Taunton Tump. Corp. ^7. Whiting,
States V. Maurice, 2 Brock. (U. S.) 10 Mass. 327; s. c. 6 Am. Dec. 124;
96; Goodrum v. Carroll, 2 Humph. Inter- Mountain Pub. Co. v. Jack, 6
(Tenn.) 490; s. c. 37 Am. Dec. 564; Mont. 668; Compare Gilmore u. Polk,
Cleason v. Shaw, 5 Watts (Pa.) 468; 6 Mass. 491.
s. c. 30 Am. Dec. 391.
921
1 Thomp. Coi[). § 1170.] the contract of subscription.
for such promise.^ The same consequences were held to follow
where the subscriber hud paid for one of his shares in full and
transferred the others. ^
§ 1168. Subscription and Payment of Deposit. — Possibly
another statement auiouiits to the same thing, namely, that a sub-
scription for a given immber ot' shares of the stock of a corpora-
tion, accompanied by a payment of the de[)osit required of
subscribers, makes the subscriber a stockholder in respect of the
shares subscribed for.^ But this woulil seem lo proceed upon the
aJ-sun)i)tion that the corporation is in existence at the time. For
the mere acceptance of the dei)osit on behalf of a non-existent
corporation could not possibly make the depositor a shareholder
in the corporation when it should come into existence, where
his subscription does flot have that effect, unless some theory of
ratification or adoption is resorted to.
§ 1169. Another Road out of this Difficulty. — Another road
has been found out of this difficulty by reasoning that, although
the underwriting of a subscription paper may have preceded in
point of time the day of the meeting at which the corporation
was organized, 3^et if it were actually delivered to the corpora-
tion on that day, the difficulty is obviated and the logical sym-
metry of the law preserved, — and this without reference to the
inquiry whether its delivery actually antedated, in point of time,
the organization of the corporation ; since the law will so arrange
the acts performed in one day, and relating to the same subject-
matter, as to render them conformable to the intentions of the
parties, without regarding which was in fact first produced or
executed.* A fiction is thus resorted to in order to preserve the
logic of the law.
§ 1170. Rule that Subscriptions Made before Organization
are Good. — A great majority of the courts, disregarding such
1 Kennebec &c. R. Co. u. Palmer, 34 M. (Miss.) 515; Payne v. Ballard, 23
Me. 336. Miss. 88; s, c. 55 Am. Dec. 74; Post,
2 Bell's Appeal, 115 Pa. St. 88; s. c. §
2 Am. St. Rep. 532. ^ Taunton Turnpike Corp. v. Wbit-
2 Hayne v. Beauchamp, 5 Smed. & ing, 10 Mass. 327; s.c.6 Am. Dec. 124.
922
FOUMATION OF THE CONTRACT. [1 TllOmp. Corp. § 1170.
subtleties and cutting through such refinements, hold that a sub-
scription to the capitid stock of an intended corporation, made
before it comes into existence, becomes a binding contract when
the corporation, on coming into existence, accepts it, either
expressly by issuing to the subscriber his certificate, or impliedly
by otherwise recognizing him as a shareholder and extending ta
him the rights which pertain to that relation. This is the general
result of the doctrine of many cases, although in the opinions
delivered it has been stated in various ways.^ Under this rule
it is not necessary, in order to become liable to the corpora-
tion for assessments as a shareholder, that the pitrty should
have affixed his signature to the articles of incorporation. He
may acquire this liability by affixing it to any subscription paper
which distinctly imports that he subscribes for a given number
of shares of a certain value. *' It matters not how informal
the writing may be, if the intent of the parties can be collected
from it." Accordingly, a writing, reciting the formation of an
association for the purpose of organizing a bank, and stating,
among other things "the names and residence of the share-
holders, with the number of shares held by each," and sub-
scribed by the corporators, has been held to constitute a sub-
scription to the capital stock, on the part of the signers, and
binds them to pay for the number of shares set opposite their
names ; and the corporation can maintain an action on such an
instrument against any of the signers.^
1 Hamilton &c. Plank Road Co. v. Co. v. McCormick, 10 Ind. 499; s. c.
Rice, 7 Barb. (N. Y.) 157; Cleaves^. 71 Am. Dec. 337; Mich. Midland &c.
Turnpike Co., 1 Sneed (Tenn.), 491; R. Co. v. Bacon, 33 Mich. 466; Cross
Tonica &c. R. Co. v. McNealy, 21 111. v. Pinckneyville Mill Co., 17 111. 64;
71; Johnston v. Ewing &c. Univer- Red "Wing Hotel Co. v. Friederich, 26
sity, 35 111. 618; Lake Ontario R. Co. Minn. 112; Mahon v. "Wood, 44 Cal.
V. Mason, 16 N. Y. 451; Penobscot R. 462; Belton Compass Co. v. Saunders,
Co. V. Duramer, 40 Me. 172; s. c 63 70 Tex. 699; s. c. 19 Am. & Eng. Corp.
Am. Dec. 654; Penobscot R. Co. v. Cas. 284; 6 S. W. Rep. 134; Johnston
White, 41 Me. 512; s. c. 66 Am. v. Ewing &c. University, 35 111. 518;
Dec. 257; Kennebec &c. R. Co. v. Glenn v. Busey, 5 Mackey (D. C),
Palmer,34Me. 360; Thompson t;. Page, 233; s. c. 4 Cent. Rep. 609; Ashuelot
1 Mete. (Ma.ss.) 565; Bell's Appeal, Boot &c. Co. v. Hoit, 56 N. H. 548.
115 Pa. St. 88; s. c. 2 Am. St. Rep. 532; 2 Nulton v. Clayton, 64 la. 425; s. c.
Nulton V. Clayton, 54 Iowa, 425; s. c. 37 Am. Rep. 213.
37 Am. Rep. 213; New Albany &c. R.
923
1 Thomp. C(»rp. § 1172.] the contract of subscription.
§ 1171. Reasons in Support of this Rule. — One court has
reasoned that a subscription by a number of persons to the
stock of a corporation, to be thereafter formed by them, con-
stitutes a contract among the subscribers to become stockholders
when the corporation is formed, upon the conditions expressed
in the agreement, and is irrevocable from the date of the sub-
scription ; and is in the nature of a continuing offer to the pro-
posed corporation, which, upon acceptance by it, becomes as
to each subscriber a contract between him and the corporation.^
The same court, struggling with the difficulties of this question
has reasoned that a promoter of a proposed corporation, who
solicits and procures stock subscriptions, is the agent of the
body of subscribers to hold the subscriptions until the cor-
poration is formed, and then to turn them over to it without
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 amonsr the subscribers.^ Another court has reasoned that,
where, by the provisions of the contract of subscription, until
the organization of the company, the subscription was subject
to the acceptance or rejection of the commissioners appointed
under the charter, and it did not appear that it was ever
rejected by the commissioners or disaffirmed by the company
after it became organized, it became binding on the company,
and the subscriber became entitled to his certificates of shares
and the corporation to the assessments made against the sub-
scription.^
§ 1172. Nature of Such an Offer before Acceptance. — The
effect of an agreement to take shares in a corporation not yet
organized has been thus stated in a recent case in Alabama by
Mr. Chief Justice Stone: " An agreement to take shares in a
corporation to be afterwards formed, while it may be and often
is, a binding contract, for the breach of which an action may be
1 Minneapolis Threshing-Machine ^ /^j^^.
Co. V. Davis, 40 Minn. 110; s, c. 12 ^ Connecticut &c. R. Co. v. Bailey,
Am. St. Eep. 701; 41 N. W. Rep. 102G; 24 Vt. 465; s. c. 58 Am. Dec. 181, 190.
3 L. R. A. 796; 26 Am. & Eng. Corp. See also Townsend v. Alexander, 2
Cas. 61. Oh. 19.
9M
) FORMATION OF THE CONTRACT. [1 TllOmp. Coi'p. § 1173.
maintained, is, by force of the mere agreement, in no sense a
subscription of stock. Sometliing more must be done before it
can be affirmed that the subscription is a completed contract.
Till a charter is obtained or incorporation otherwise perfected,
such agreement is a mere oifer; or it is an option, revocable or
not as the nature of the agreement may determine. The terms
of the offer, and the consideration it rests on, may render it
bindino- and irrevocable ; or a failure to withdraw such offer,
even when in its nature it is revocable, until it has been
accepted by actual incorporation, may so bind the offerer that he
cannot afterwards withdraw it. When it rests on a valuable
consideration, such as a promise for a promise, then as a rule, it
becomes an irrevocable option, provided incorporation accord-
inor to the terms of the offer is perfected within a reasonable
time. This would constitute the offerer in substance a stock-
holder. So, if an offer, which has no valuable consideration to
rest on, be permitted to stand until it is accepted by incor-
poration according to its terms, this, it seems, would be an
irrevocable subscription of stock." ^
§ 1173. Instances under tliis Rule. — Under this rule it has
been held that a stock subscription made in contemplation of a special
charter being granted by the legislature, creating a company to build a
railroad is valid and enforceable by the raih-oad company when it comes
into existence. 2 _ _ _ - One of the original associates for the for-
mation of a railway company, who signed a subscription, agreeing to take
a certain number of shares of the capital stock of the proposed com-
pany, and to pay therefor "at such times and in such sums as the
same shall be assessed, demanded, and required to be paid by the
directors of said company," but who afterwards failed to sign the
articles of incorporation, or to subscribe for stock on the commis-
sioner's books, was held liable on his preUmiuary subscription, after
the company had been formed, and assessments made and payment
1 Knox V. Childersburg Land Co. (Mass.), 303; 2 Wat. Corp., § 184; 1
86 Ala. 180; s. c. 5 South. Rep, 578; Mor. Priv. Corp.,§ 128.
citing: 1 Mor. Priv. Corp. §47; 2 Tonica &c. R. Co. v. McNealy, 21
etseq.; Music Hall Co. v. Carey, 116 111. 71. See also Belton Cotton Cora-
Mass. 471; Road Co. v. Lancaster, 79 press Co. v. Saunders, 70 Tex. 699;
Ky. 552; Land Co. v. Aldricii, 86 111. s. c. 19 Am. & Eng. Corp. Cas. 284;
504; Publislilng Co. v. Jack, 6 Pac. 6 S. W. Rep. 134.
Rep. 20; Ferry Co. v. Balcli, 8 Gray
925
1 Thomp. Corp. § 1174:.] the contract of subscription.
demanded.! _ - - - An action may be maintained in the name
of a corporation after it is organized, against a subscriber upon the
allotment to him of the shares subscribed for, on a contract wherein the
subscribers "agree to and with each other," to associate themselves
into a corporation to purchase a certain site for a town-hall, and to
"pay to the treasurer of said corporation," the amount set against
their respective names. ^ - - - - A promissory note executed for
the purchase of a certain number of shares of a homestead association
about to be formed, under a name and with a number of shares agreed
upon when the note is given, does not fail for want of consideration,
because the association when formed has a name or number of shares of
stock different from that agreed on, provided the land is the same and
the lots are of the same value as the promisor had reason to expect.
But the giver of the note in such case is at liberty to stand on the terms
of his contract, and if it was understood that the shares of stock he is
to receive should not cost, in the aggregate, more than a certain sum
per share, he is at liberty to refuse the stock if it will cost more than
that sum, and the note is then void for want of consideration.^
§ 1174. Rights and Liabilities of Subscribers to a Common
Fund for a Common Purpose. — In respect of the rights and
liabilities of subscribers to a common fund for a common pur-
pose, — as for instance, to a fund for the erection of an
academy, — it has been observed that as soon as the subscription
paper becomes complete by the subscription of the stipulated
amount of money, the subscribers to it become an association
of persons united for contributing to a common fund for a
common purpose, to be carried out by themselves. Then the
subscription of each (at least if not withdrawn before the actual
organization of the associates) becomes a contract by each
associate with his fellows, in consideration of similar contracts
by them, to contribute to a common fund the amount subscribed
by him. Such an act of association involves an agreement to
organize the associates when the subscription shall become com-
plete, and generally this is expressly provided for. The duties
created by the act of subscription are duties to the association,
and the first of them that is to be performed is the duty of
1 Peninsular R. Co. v. Duncan, 28 ^ Athol Music Hall Co. v. Carey,
Mich. 130. See also Buffalo &c. R. 116 Mass. 471.
Co. V. Clark, 22 Hun (N. Y.), 359. ^ Mahon v. Wood, 44 Cal. 4C2.
92()
'' FOUMATIOX OF THE CONTKACT. [1 TllOmp. CoUp. § 1175.
organization; and when this is completed, the duty of paying
the sum subscribed is a duty to the organized association. In
a legal aspect, the most perfect form of organization is by legal
incorporation; and therefore this, when regularly obtained by a
common consent of the associates, must be regarded as the true
oro-anization of the association, and the corporation becomes
the proper legal body to which the subscriptions are to be
paid, and which is to sue for them. There can be but one true
organization.^
§ 1175. Subscription Must be Accepted or Acted Upon. —
It has been held, speaking of a subscription for the building of
a church, that " to make such a subscription binding, it must be
acceded to, as any other promise or offer, and the party apprised
that his offer is accepted ; and this must be done in a reasonable
time? Another court has held that a railroad company cannot
recover on a subscription to the road without proof that the
same has been accepted and acted upon f and that demand of
payment and suit for its recovery are not evidence of acceptance
where a subscription is otherwise invalid.^ In a case in another
State, it appeared that before a railroad company was incor-
porated, the defendant and others signed a paper agreeing that
if it should be incorporated with certain privileges, they would
subscribe the number of shares set opposite to their respective
names. The charter was obtained, but the defendant refused to
take the stock; and the company brought a bill to enforce
specific performance of the contract. It was held that the bill
should be dismissed, there being no binding contract; that if
there were, it was not made with the plaintiflfs, and that if the
1 The text, with some slight vari- Lancaster &c. Assn., 68 Pa. St. 431),
ance, is drawn from the opinion of and a subscriber is liable, though the
the Supreme Court of Pennsylvania mode of organization was witliout his
by Lowrie, C. J., in Ediuboro Acad- direct and express assent. Robinson
erayw. Robinson, 87 Pa. St. 210; s. c. w. Edinboro Academy, 3 Grant Cas.
78 Am. Dec. 421. As soon as the (Pa.) 108; Hedges' Appeal, 63 Pa.
associates who have subscribed or- St. 279.
ganize, the subscription is binding, ^ Gait u. Swain, 9 Gratt. (Va) 633;
and, if they incorporate in regular s. c. GO Am. Dec. 311.
form, the corporation is authorized to ^ Northern &c. R. Co. v. Eslow, 40
collect tlie subscriptions (Shober v. Mich. 222.
927
1 Thomp. Corp. § 1176.] the contract of subscription.
contract had been binding, and the plaintiffs were parties thereto,
their remedy was at law.^ So, in another State, sundry persons
having subscribed an agreement to pay certain sums respectively
for erecting an academy, and the legislature having afterwards
Incorporated certain trustees of such academy, and, in the act
of incorporation, having provided that all moneys subscribed
should be received and held by said trustees in trust foi the
academy, it was held that the corporation could not maintain an
action on this agreement against a subscriber thereto, for the
money by him subscribed.^ In the same line of thought it has
been held in New York that, where several parties subscribe for
shares of stock in a seminary of learning, signing for such nuni-
ber of shares as each proposes to take and pay for, no implied
authority can be inferred warranting any of the parties in con-
tracting debts or advancing moneys on the credit of the other
parties. The court reason that the agreement so signed is
simply an agreement to take and pay for stock in an association
to be incorporated, and does not contemplate the conduct of any
enterprise as copartners, nor as members of an unincorporiited
joint-stock association. Such articles of association do not es-
tablish such relations between the subscribers as would authorize
the trustee to contract debts or make advances on the credit of
the association.^
§ 1176. Action against one Member of Building Committee
by the other Members. — But a promise to pay to a building
committee a certain amount of money to build a church, made by
one of the committee, may, in Pennsylvania, be enforced by the
other members of the committee or their survivors, by an action
at law against the promisor. The court refused in such a case to
higgle about the question whether the promisor were properly
joined as plaintiff, reasoning that his name as plaintiff would be at
most surplusage ; but that, as no one could be legally bound
by a promise to himself, the contract in the case was void in part
only, but good for the residue, and the name of the promisor was
properly dropped as that of plaintiff — at least it lessened the
1 Strasburg H. Co. v. Etchternact, 2 Phillips Academy v. Davis, 11
21 Pa. St. 220; s. c. (JO Am. Dec. 49. Mass. 113; s. c. 6 Am. Dec. 162.
3 Shibley v. Angle, 37 N. Y. 626.
928
; FORMATION OF THE CONTRACT. [1 Thomp. Corp. § 1177.
appearance of irregularity.^ la such case it was regarded as of
no consequence that the building committee had finished the
edifice and heen discharged. *' T\M\xgh. functus officio as to that,
they were still trustees for the recovery of this debt." Nor was
it of any importance that another committee had been raised to
wait on the delinquent subscriber iu reference to his obligation.
«< Even had the congregation desired to transfer this chose in ac-
tion to another committee, so as to enable them to sue in their own
names, it could not have done so ; and the only course was to sue in
the names of the surviving members of the original committee." ^
§ 1177. Acceptance Necessary if Corporation in Exist-
ence. — If the corporation is iu existence at the time when the
subscription is made, then, unless the subscription takes the
form of a proposal by the corporation and an acceptance by the
subscriber, it must necessarily be regarded as a proposal by
the subscriber to become a shareholder, so that in order to
make a binding contract, the proposal must be accepted by the
corporation ; and some of the decisions proceed upon this
view.^ Thus, it has been held that a mere subscription to p-e-
ferred capital stock, made after the organization of the corpo-
ration, while it will obligate the company to issue the stock upon
the subscriber paying for it and will obligate him to pay for it,
it yet does not give him an interest in the company, nor vest in
him a title to the stock, until the contract has been executed.^
Another court has reasoned, but upon grounds which the writer
has ventured to criticise,^ that the mere fact of subscribing to
the stock of an incorporated company does not constitute the
subscriber a stockholder ; though it puts it in his power to be-
come a stockholder, if the stock is not all filled up at the time
of his subscription, by compelling the corporation to give him the
lethal evidence of his being a stockholder, namely, the usual stock
certificate i upon his complying with the terms of his subscription.''
1 Chambers v. Calhoun, 18 Pa. St. Northern Central &c. R. Co. v. Eslow,
13; s. c. 55 Am. Dec. 583. 40 Mich. 222.
2 ma. ■* St. Paul &c. R. Co. V. Robbius,
3 Carlisle v. Saginaw Valley &c. 23 Minn. 439.
R. Co., 27 Mich. 318; Parker v. ' Post, § 1188.
Northern Central R. Co., 33 Mich. 23; « Bu.sey v. Hooper, 35 Md. 15; a. c.
59
C Am. Rep. 351.
929
1 Thomp. Corp. § 1180.] the contract of subscriffion.
§ 1178. Manner in which Acceptance Manifested. — It is
said by a lato writer that '* although no particular form of ac-
ceptance is essential, in order to constitute this proposition to
become a shareholder a binding contract, there must be some
unequivocal act o\\ the part of the agents having the authority
to accept the offer, so that there can be no doubt as to the obli-
gation of the corporation as well as of the subscriber." ^ Very
often there will be no formal writing, speech or act of accept-
ance. This will often happen where the corporation is one
not having a joint stock, — as for instance a religious, educa-
tional or other charitable corporation. Here the usual form of
acceptance will be the incurring of expense on the faith of the
subscription; and this may be shown by parol evidence. ^
§ 1179. Distinction between Cases where the Proposition
Comes from the Company and where it is Made to the Com-
pany. — In respect of the time when the contract of subscription
is deemed to be complete, a distinction exists between cases
where the proposition for the subscription comes from the
company to the subscriber, and where it comes from the sub-
scriber to the company. In the former case, a proposition by
or on behalf of the company, and an assent thereto by the sub-
scriber, render the contract complete.^ But where the proposi-
tion comes from the subscriber, there must obviously be an assent
on the part of the company ; otherwise it remains merely unilat-
eral.* But in either case it is not doubted that until there is a
meeting of the minds of both parties no binding contract exists.^
§ 1180. Revocation of Offer before Acceptance. — Where
the corporation is in existence at the time of the subscription,
the matter seems to stand on the mere footing of a contract
1 1 Mor. Priv. Corp. 2iid ed., § 48. R. 6 Esch. 108; "Wilkinson v. Anglo-
See Parker v. Northern Central, &c., California Co., 17 Jur. 231; Pellatt's
R. Co., 33 Mich. 23; Northern Central Case, L. R. 2 Ch. 527; Gunn's Case,
&c., R. Co. V. Eslow, 40 Mich. 222. L. R. 3 Ch. 40; European &c., R. Co.
2 Jones w. Florence, &c. University, v. McLeod, 3 Pugsley, N. B. 331, 340.
46 Ala. 626. See post, I 1206. ^ Cook v. Oxley, 3 T. R. 653; Payne
3 European, &c., R. Co. V. McLeod, v. Cave, 3 T. R. 148; Routlcdge v.
3 Pugsley, N. B., 331, 310. Grant, 4 Bing. 660.
* British &c. Tcl. Co. v. Colson, L.
{VM)
' FORMATION OF THE COXTRACT. [1 Thomp. Corp. § 1181.
between two parties, and obviously the proposal may be with-
drawn before acceptance. The same conclusion would logically
follow where the subscription is made with a view to the forma-
tion of a future corporation, if such an undertaking can be re-
garded merely as a proposal by the subscriber to the future
corporation, which becomes a contract on the acceptance of it by
the corporation when it comes into existence, ^ Proceeding on
this view it has been held, in the case of a corporation formed
under the general railroad act of New York, that, since such a
corporation is not formed until the articles have been filed in
the office of the secretary of state, a subscriber having the ar-
ticles in his possession may, at any time before such filing, alter
and reduce his subscription to any extent he pleases. ^
§ 1181. Whether Presumable in the Case of a Subscription
to a Future Corporation. — But caution should be exercised in
accepting this doctrine in its application to a subscription to the
stock of a projected corporation. In such a case, the subscrip-
tion, in the view of an authoritative court, takes effect upon the
filing of the certificate. ^ But the filing of the certificate cannot
in any sense be regarded as an act of the corporation accepting
the subscription. In fact, it is not the act of the corpora-
tion at all. It is the act of the promoters, or co-adventur-
ers. The corporation does not, and cannot, act until its
directors and principal officers have been elected ; for it can,
from its very nature, only act through them. This conveys to
the mind the obvious suggestion that we must look beyond the
theories of a mere contract for the principles which are to solve
this question. The element of estoppel evidently enters into the
engagement of the subscriber to the stock of an inchoate cor-
poration, to an essential degree. His promise is something
more than a proposal to a possible future company ; it is a
promise to his co-adventurcrs ; and while it is not such a promise
1 See Mor. Priv. Corp. 2nd ed. § 50: 2 Burt v. Farrar, 24 Barb. (N. Y.)
Stuart V. Valley R. Co.,32Gratt. (Va.) 518.
147; Goff V. Winchester Colles^e, 6 ^ riioenix Warehousing Co. u. Bad
Bush (Ky.), 443; Greer v. Chartier's ger, 07 N. Y. 294.
R. Co., 96 Pa. St. 391 s. c. 42; Am.
Rep. 548, per Truukey, .T.
931
1 Thomp. Corp. § 1183.] the contract of subscription.
to them as they can accept so as to enforce it by an action
against him in their individual names — for the promise is not
made to them as obh'gees, — yet, after they became liable on the
faith of it, is it not si fraud on them for him to withdraw from
it? This, it seems, must be the conclusion, unless we suppose
that all the co-adventurers signed with a general understanding
that it is a mere proposal until the corporation is in fact formed.
But this theory, while undeniably logical, like much of the
severe logic of the law, opens the door to unlimited frauds.
Wealthy and influential men may head the subscription list with
large amounts, thus influencing others to subscribe, and th^n,
the very moment before the articles are filed, cancel or reduce
their subscriptions, unknown to the others, — thus leaving the
victims of their fraud bound while they are free. That the law
does not allow this to be done we shall hereafter see.^ We then
take the true view to be that the engagement created by a sub-
scription to the stock of a projected corporation is binding, in
the absence of fraud inducing it, provided the corporation is
formed according to the scheme within a reasonable time; and
that the subscriber cannot in the interim, any more than after
the corporation is formed, retreat from it without unanimous
consent.
§ 1182. A Case in Illustration. — Even where the corporation
is iu existence at the time, a state of circumstances may exist in which
a subscriber wiU not be allowed to withdraw his name even before his
subscription has been delivered to the company, — as where others have
presumably subscribed on the faith and in pursuance of his subscrip-
tion. Thus, where the subscriber was himself the agent of a corpora-
tion then in existence, to procure subscriptions to its capital stock, and
he entered his own name in the subscription book furnished him for that
purpose, as a subscriber to a certain number of its shares, and there-
after persuaded others to subscribe, and kept the book for about six
months, and then cut his name out before he returned the book to the
company, because of a difference respecting the payment for his serv-
ices, — it was held that he was bound as a subscril)er. The court
reasoned thus: "The Chartiers Railway Company made a continuing
offer which became an agreement with each acceptant for the number
of shares for which he subscribed. At the time a person signed his
1 Post, §§ 1311, 1151, etseg.
932
> FORMATION OF THE CONTRACT. [1 Thoilip. Corp. § 1184r.
name, as a continuance of his act he might have erased it, as one who
had written an acceptance of an offer by letter, before mailing the
same might destroy it. But if the subscriber returned the book to the
company's agent he could not aftei'wards withdraw his subscription, for
he had completed the agreement. Greer was acting as agent in soUcit-
ing subscriptions, no matter whether for pay or not ; and, by procuring
subscriptions under his own name, he declared his acceptance and ad-
mitted his agreement for the stipulated number of shares. The book
was not his — he had no right to its possession but for a specific use.
In that use he exhibited the evidence of his agreement with the com-
pany to every subsequent contracting party. Had the book been acci-
dentally destroyed, there was ample evidence of the contents of the
written contract, upon which he could have held the company to per-
formance ; or if it refused, to payment of damages. Clearly the com-
pany was bound to him the same as to any other subscriber, and so
was he to the company. While he retained the book the written
contract was in his hands — its validity did not depend on the conduct
of the depositary — and its unauthorized mutilation did not annul it." ^
§ 1183. Locus Poenitentise where Subscription Illegal. —
The principle that where an illegal contract or transaction is only
partially performed, there is a locus pmnitentioe, and either party
may rescind the contract, applies to the case of a subscription
to the stock of a corporation.^
§ 1184. Other Instances of Sufficient Subscriptions. — A
subscription of stock '• subject always to the by-laws, rules and articles
of incorporation," one of which was that the stock should be paid for
after five hundred shares had been subscribed, and that ten per cent,
should be payable on the fifteenth of each month, has been held to
render the subscriber a shareholder, and to make the installments
become due even if no assessments were made.-* - - - - The
defendant, with others, signed a paper promising to pay to A. B., $100
for every share set opposite his name, for the purpose of building a
plank road, etc., and authorized A. B. to transfer his subscription to
a company hereafter to be formed for that purpose. The company was
formed, and the subscription duly transferred. It was held that the
defendant was bound by his subscription so transferred.'* - - - -
» Greer v. Chartiera R. Co , 96 Pa. ' Waukon &c. R. Co. v. Dwyer 49
St. 391; s. c. 42 Am. Rep. 648. Iowa, 121.
2 Knowlton v. Conj;;ress Spriug ^ Eastern Plank Road Co. v.
Co., 14 Blatchf. (U. S.) 364. Vaughan, 20 Barb. (N. Y.) 155. -
933
1 Thomp. Corp. § 1185.] tiik contract of subscription.
A certificate in all respects according to the requirements of a statute,^
authorizing the business of banking, and concluding with the words
"we have hereunto respectively subscribed and set our hands and
seals, etc., and the number of shares of the capital stock of the corpo-
ration aforesaid taken and held by each of us respectively," is suffi-
cient to render the signers stockholders, and liable to pay for the
number of shares set against their names. ^
§ 1185. Subscriptions Enforcible by Action Witbout an Ex-
press Promise to Pay. — The prevailing American doctrine,
denied in some jurisdictions as hereafter seen, is that a subscrip-
tion to a certain number of the shares of the capital stock of a
projected or existing corporation, implies that the subscriber will
pay for the shares, and imposes upon him an obligation to pay
the assessments which are made thereon in pursuauce of the
charier or by-laws, without any express promise in the subscrip-
tion paper to do so ; and this although the charter or governing
statute also gives to the corporation a remedy by a forfeiture or
sale of the shares, — the theory of the courts being that this
remedy is cumulative merely: ^ in other words, that the ob-
i N. Y. Act of 1838, ch. 260.
2 Coal V. Ryan, 62 Barb. (N. Y.)
168.
3 Beene v. Cahawba&c. R. Co.3 Ala.
660; Selma &c. R. Co. v. Tipton, 5 Id.
787; s. c. 39 Am. Dec. 344; Hartford
&c. R. Co. V. Kennedy, 12 Conn. 499;
Danbury &c. R. Co. w. Wilson, 22 Id.
435; Hightower v. Thornton, 8 Ga.
486; s. c. 52 Am. Dec. 638; Instone v.
Frankfort Bridge Co., 2 Bibb (Ky.),
576; s. c. 5 Am. Dec. 638; Fry v. Lex-
ington &c. R. Co., 2 Mete. (Ky.) 322;
Hughes V. Antietam Man. Co., 34 Md.
316; Busey v. Hooper, 35 Id. 15; s. c.
6 Am. Rep. 350; Kennebec &c. R. Co.
V. Jarvis, 34 Me. 360; Penobscot &c.
R. Co. V. Dunn, 39 Id. 587; Buffalo
&c. R. Co. V. Dudley, 14 N. Y, 336;
Lake Ontario &c. R. Co. v. Mason, 16
Id. 451; Rensselaer &c. Plank Road
Co. V. Barton, Id. 457, 460 ; Northern
R. Co. V. Miller, 10 Barb. (N. Y.) 2G0;
Ogdensburgh &,c. R. Co. v. Frost, 21 Id.
9U
541; Frost V. Frostburg Coal Co., 24
How. (U. S.) 278; Upton v. Tribil-
cock, 91 U. S. 45; Webster w. Upton,
Id. 65; Hawley v. Upton, 102 Id. 314;
Dexter &c. Plank Road Co. v. Millerd,
3 Mich. 91; Carson v. Arctic Mining
Co., 5 Mich. 288; Merrimac Mining
Co. V. Bagley, 14 Mich. 601; Spear u.
Crawford, 14 Wend. (N. Y.) 20; s. c
28 Am. Dec. 513; Small v. Herkimer
&c. Co., 2 N. Y. 330, 335; Hartford^
&c. R. Co. V. Croswell, 5 Hill (N. Y.)'
383; s. c. 40 Am. Dec. 354; Waukon
&c. R. Co. V. Dwyer, 49 la. 121; Goshen
Turnpike Co. v. Hurtin, 9 Johns. (N.
Y.) 217; s. c. 6 Am. Dec 273; Dutch-
ess Cotton Man. Co. v. Davis, 14
Johns. (N. Y.) 238; s. c. 7 Am. Dec.
459; Troy &c. R. Co. v. Kerr, 17 Barb.
(N. Y.) 581; Troy Turnpike Co. v.
McChesney, 21 Wend. (N. Y.) 296;
East Tenn. &c. R. Co. ■;;. Gammon, S
Sneed (Tenn.) 570; Herkimer Man.
Co. V. Small, 21 Wend. (N. Y.>
FORMATION OF THE CONTRACT. [1 Thomp. Corp. § 1187.
ligation of actual payment is created in all cases by a subscrip-
tion, unless the terms of subscription are such as plainly to
exclude it.* It has been reasoned that, by the act of subscrib-
ing, each associate undertakes to raise his proportion of the
capital, as it may be called for by the directors. And if the
directors are authorized by the act of the legislature to make
the call, the subscriber must pay. A right to call ordinarily
implies a corresponding duty to pay.^ *' It is not at all essential
that, at the time there is an original subscription, there shall be
an express promise to pay the subscription price. Oftener than
otherwise there is none, the subscription being a simple agree-
ment to take so many shares of stock. By necessary implication
there arises from such a subscription a promise to pay the par
value of such stock, upon which an action of assumpsit lies."^
§ 1186. Illustration of the Foregoing. — Thus, a subscription
running in the words, "We do hereby subscribe to the stock of the said
railroad the number of shares annexed to our names respectively, on
the terms, conditions and limitations mentioned" in the resolutions of
the General Assembly incorporating the company, — was held to amount
to an assumption to pay instalments as called ; and this although the
resolutions of the General Assembly did not declare that there should
be any personal liability, but provided that the stock might be sold for
unpaid requisitions.*
§ 1187. Doctrine that an Express Promise to Pay is
Necessary. — Some of the New England courts have fallen into
273; Mann v. Cooke, 20 Conn. 178; App. 55. Compare Robertson u. Sib-
Freeman V. Winchester, 10 Smed. & ley, 10 Minn. 823.
M. (Miss.) 577; Stokes v. Lebanon i Spear «. Crawford, 14 Wend. (N.
&c. T. Co., 6 Humph. (Tenn.) 241; Y.) 20; s. c. 28 Am. Dec. 513; Palmer
Buckfield Branch R. Co. v. Irish, 39 v. Lawrence, 3 Sandf. (N. Y.) IGl ;
Me. 44; City Hotel v. Dickinson, 6 Elysville u. Okiske Co., 5 Md. 152,
Gray (Mass.) 580; Dayton v. Borst, 2 Merriraac Mining Co. «. Levy, 54
31 N. Y. 435; Fort Edwards &c. Plank Pa. St. 227; s. c. 97 Am. Dec. 697.
Road Co. V. Payne, 17 Barb. (N. Y.) 3 west Nashville Planing Mill Co.
567 ; Troy &c. R. Co. v. Tibbitts, 18 v. Nashville Savings Bank, 80 Tenn.
Barb. (N. Y.) 298; Merrimac Mining 252; «. c. 6 Am. St. Rep. 835, per Lur-
Co. V. Levy, 54 Pa. St. 237; Plank ton, J.
Road Co. V. Wetsel, 27 Barb. (N. Y.) * Hartford &c. R. Co. v. Kennedy,
5G; Miller V. WildCatGravel Road Co., 12 Conn. 499. See also Ward v. Gris-
52 Ind. 61; Joy v. Manion, 28 Mo. woldville Man. Co., 16 Conn. 693.
935
1 Thomp. Corp. § 1187.] the contract of subscription.
the unsound doctrine that unless an express promise is made by
the subscriber to pay the subscription the corporation cannot
maintain an action against him thereon, but its only remedy is
to proceed to forfeit his shares in the mode prescribed by the
charter.^ Such courts had, of course, no difficulty in holding that
such a subscriber could not be rendered liable, by a by-law or vole
of the corporation, to do what all men of sense would say that he
had agreed by his contract to do — pay for the shares.^ The
theory of these holdings is that the only remedy that the corpo-
ration has, in the absence of an express promise by the sub-
scriber to pay, is to forfeit the shares, and, if possible sell them
to some one else. One of them has gone so far as to hold that
the fact that the corporation has, by statute, authority " to make
and collect such assessments on the shares " as may be deemed
expedient, in such manner as should be prescribed jn tiieir by-
laws, does not enable it to maintain an action against the sub-
scriber on his promise.^ The same court, in a later case, hold
that in the absence of an express promise by the subscriber to
pay, a provision of the charter to the effect that the subscriber
shall be liable for the balance remaining due after the sale of
his shares, in case they are forfeited for non-payment of assess-
ments, does not operate to make him personally liable on his
subscription.* The Supreme Court of New Hampshire, after an
examination of the authorities, concluded the true rule to be this :
" Where a party makes an express promise to pay the assess-
1 Andover Tump. Corp. v. Gould, Moore, 60 Me. 561 ; Kennebec &c. R.
6 Mass. 40; s. c. 4 Am. Dec. 80; New Co. v. Kendall, 13 Me. 470; West v.
Bedford Turup. Co. v. Adams, 8 Mass. Crawford, 80 Cal. 19; s. c. 21 Pac. Eep.
38; s. c. 5 Am. Dec. 81; Franklin 1123; Same u.Belding,/d. 1 136; Same ■??.
Glass Co. V. White, 14 Mass. 286; Es- Hitchcock. Id.; Arkansas River Land
sex Bridge Co. v. Tuttle, 2 Vt. 393; T. & C. Co. v. Farmers Loan & Trust
Connecticut &c. R. Co. w. Bailey, 24 Co., 13 Colo. 587; s. e. 22 Pac. Rep.
Vt. 465; s. c. 58 Am. Dec. 181, 184; 954; Odd Fellows Hall Co. 17. Glazier,
Franklin Glass Co. w. Alexander, 2 N. 5 Harr. (Del.) 172; New Hampshire
H. 380; s. c. 9 Am. Dec. 92; per &c. R. Co. u. Johnson, 30 N. H. 390;
Woodbury, J. ; Worcester Turnpike s. c. 64 Am. Dec. 300.
Co. ■!;. Willard, 5 Mass. 80; s. c. 4 Am. - Kennebec &c. R. Co. v. Kendall,
Dec. 39 1 Chester Glass Co. v. Dewey, 13 Me. 470.
16 Mass. 94; s. c. 8 Am. Dec. 128; ^ Kennebec &c. R. Co. v. Kendall,
Katama Land Co. v. Jernegan, 126 13 Me, 470.
Mass. 155; Mechanics' Foundry Co. u. * Belfast &c. R. Co., v. Moore, 60
Hall, 121 Id. 272 ; Belfast &c. R. Co. v. Me. 561.
936
FORMATION OF THE CONTRACT. [1 Thomp. Corp. § 1188.
ments, he is answerable to the corporation upon such promise
for all legal assessments, and may be compelled to its performance
by action at law, before resorting to a sale of the shares. It is
a personal undertaking, beyond the terms of the charter.
Where, on the other hand, he only agrees to take a specified
number of shares, without promising expressly to pay assess-
ments, then resort must first be had to a sale of the shares to pay
the assessments, before an action at law can be maintained.
His agreement simply to take the shares is an agreement upon
the faith of the charter, and by it alone is he to be governed, so
far as his shares are to be affected. He takes them upon the
conditions and law of the charter. They exist only by virtue of
the charter, and are to be governed by the provisions therein
contained." ^ But where the contract of subscription does con-
tain an express promise to pay the assessments, and the conditions
of the subscription have been performed, then by all the authori-
ties an action of assumpsit^ or other like action, can be main-
tained in the first instance, without a proceeding to forfeit the
shares, or a declaration of forfeiture, sale of them, or other
equivalent act.^
§ 1188. The Absurdity and Immorality of this Doctrine. —
This line of decisions is not at all creditable to American juris-
prudence. 1. In the first place, there is a striking want of
sense in a doctrine which makes a subscription, which does
not contain an express promise to pay, tantamount to a prom-
ise to take the shares without paying for them, — or at
best, to a promise to take them provided the promisor shall
not conclude to change his mind. It is as though the courts
should construe a written agreement to A. B. to buy of C. D. a
horse of the value of $100, to create only a privilege in A. B.
to get the horse, but not to create any obligation in him to do
1 New Hampshire &c. R. Co. v. Goewey, 19 Wend. (N. Y.) 424; s. c. 32
Johnson, 30 N. II. 390; s. c. 64 Am. Am. Dec. 614; Dutchess Cotton Man.
Dec. 300. Co. v. Davis, 14 Johns. (N. Y.) 238; s.
2 South Bay Meadow Dam Co. v. c. 7 Am. Dec. 459; Worcester Turn-
Gray, 30 Me. 647; Smith v. Natchez pike Co, v. Willard,5 Mass. 80; s. c. 4
Steamboat Co., 1 How. (Miss.) 479; Am. Dec. 39; Andover, &c. T. Co. v.
Sulcm Mill-Dam Corp. v. Ropes, 6 Gould, 6 Mass. 40; s. c. 4 Am. Dec.
Picli. (Mass.) 23; Townseud v. 80.
937
1 Thomp. Corp. § 1189.] the contract of subscription.
so, but merely to leave the vendor the remedy of putting an
end to the option and selling the horse (if he can) to some one
else. It is as though a man were to sign an agreement to take
1,000 bushels of wheat, deliverable at a certain time, at $1,00 a
bushel, and then when the wheat should be tendered, be allowed
to say to the intending vendor, "Although I agreed to take
the wheat, I did not agree to pay for it," and thereupon the law
should allow the vendor the remedy of keeping the wheat. It
is a well understood rule in the interpretation of writings, that
every part of a writing is, if possible, to be interpreted so as to
mean something. But here is an interpretation which makes the
subscription mean nothing, or even worse than nothing^ for it
may mean that, while it creates no obligation on the part of the
subscriber, yet it does create an obligation on the part of the
other party, the corporation. The subscription binds the corpo-
ration to issue to him the shares unless the subscriber shall sub-
sequently elect to back out, — that is to say, he binds the other
party and leaves himself free. 2. But this doctrine is no less
nonsensical than immoral. It encourages men to break their
written obligations, and this after others have acted on the faith
of them to their disadvantage. We have seen that, in the view
of some of the courts, such a subscription is a contract sup-
ported by the consideration that others have concurred in it and
subscribed on the faith of it, and that to allow the subscriber to
rescind will operate as a fraud on them. The courts which have
set up the extraordinary doctrine on which we are commenting
do not stumble at such difficulties, or at any others.
§ 1189. Illustration of the foregoing Doctrine. — It has
been stated in illustration of the foregoing doctrine, that the instrument
should contain something more than a promise to become a stockholder
or proprietor of a given number of shares. " But if it contains in its
language an acknowledgment of a personal liability thereon, and gives
the right to enforce that obligation by the usual means of enforcing
contracts at law, it would be equivalent to an express promise, and no
court would hesitate to say that the party intended to create such
liabihty for the purpose of giving to the corporation a cumulative
remedy to that charter." Looking at the subscription before the court,
it was therefore found that it first recited the existence of the charter
and the names of the commissioners appointed by the legislature to oiDen
1138
FORMATION OF THE CONTRACT. [1 Thomp. Coip. § 1190.
the books and receive subscriptions to tlie capital stock of the company,
and then recited, "And the subscribers agree to take the number of
shares respectively placed against their names." The court said: " If
the agreement rested there, the assessments could be enforced only by
the forfeiture of their stock," — thus planting itself on the absurd
conclusion that, although the subscriber agreed to take the number of
shares set opposite his name, he did not agree thereby to pay for them.
But, as the charter contained the further provision, " that the subscrib-
ers are held to pay to the amount which shall be assessed, and the
companj' may enforce their claim thereto, with expense of collection, by
sale of the shares, or by suit, or by either of those means," — it was
held that, an action might be maintained for assessments against the
subscriber.^
§ 1190. When Contract to Take Shares Complete Under
the English Statute. — The EngUsh courts have settled upon the rule
that, in order to make a contract to take shares complete, there must
be an application for the shares, an allotment of the shares to the
applicant, and a communication to him of notice of the allotment. ^ By
the 23d section of the Companies Act, 1862, these formaUties are dis-
pensed with where a person signs the memorandum of association.
This section provides that " the subscribers of the memorandum of
association of any company under this act shall be deemed to have
agreed to become members of the company whose memorandum they
have subscribed, and upon the registration of the company shall
be entered as members on the register of members hereinafter men-
tioned ; and every other person who has agreed to become a member of
a company under this act, and whose name is entered on the register of
members, shall be deemed to be a member of the company." Under
this statute the uniform ruling appears to have been that signing the
memorandum of association makes a person a shareholder, and conse-
quently a contributory, although no shares are in fact allotted to him.^
It was so held in one case, although a year and a half had elapsed be-
tween the signing of the memorandum and the winding up, during which
time no shares had been allotted to the signer.* But this rule does
not. of course, apply where there are no shares available for allotment.
1 Connecticut &c. Co. v, Bailey, 24 ^ jjg London & Provincial Consoli-
Vt. 465; s. c. 58 Am. Dec. 181, 185. dated Coal Co., 5 Cli. Div. 525;
2 Rogers Case, L. R. 3 Ch. 637; Evan's Case, L. R. 2 Ch. 427; Sidney's
Pellot'8 Case, L. R. 2 Ch. 527, per Case, L. R. 13 Eq. 228; Levick's Case,
Lord Cairns, L. J.; distinguishing 40 L. J. CCh.) 180; Hall's Case, L.
Bl.xam'8 Case, 33 Beav. 529; s. c. 12 R. 5 Ch. 707.
W R. 995. " Levick's Case, 40 L. J. (Ch.) 180.
939
1 Thomp. Corp. § 1191.] the contract of subscription.
Thus, where a person subscribed the memorandum of association, but
took no part in its management, was never treated as a shareholder, his
name was never entered on the register of shareholders, and the entire
shares of capital were allotted to other persons, he was held not liable
as a contributory.! But nevertheless in a similar case, where all the
shares in the first instance had been allotted to other persons, j'et some
of the allotments had never been confirmed in the manner required by
the memorandum of association, and there were, consequently, shares
subject to allotment, the signer of the memorandum was put on the list
of contributories.- Facts which show that the subscriber had knowledge
that his application for shares had been accepted are held equivalent to
the sending of a letter of allottment. Thus, L. applied for 1,000 shares
in a company, as trustee for M. No letter of allotment was sent to L.,
but his name was put on the register in respect of those shares, and he
was advertised as a director. He attended meetings of the directors,
and for two years took no steps to have his name removed from the
register. He was held a contributory in respect of 1,000 shares. ^
§ 1191. Wliat Facts Amount to a Contract to Take Shares. —
What facts amount to a contract to take shares may be further illus-
trated by a variety of cases. A person desirous of being appointed
local secretary of a company formally applied for a certain number of
shares, which were allotted to him, with his knowledge, and he was duly
registered as holder thereof. No particular shares were appropriated
to him, but only the amount which he had agreed to take. No deposit
was ever paid by the applicant upon the shares for which he applied,
but, by agreement between himself and the company, the payments, on
application and allotment, were to be set off against his salary and com-
missions. These facts were held by the court to constitute an agreement
on the part of the applicant that he would, and on the part of the com-
pany that he should, become a member of the company, as the holder
of the number of shares applied for.* In another case it was provided
by the deed of settlement of the corporation that no transfer of stock
should be valid without the approbation of the directors, to be " mani-
fested by entries or memorandums to that effect in the share-register
book, under the signatures of two of the directors for the time being,
and by like memorandums, so signed, added to or endorsed upon the
copies or certificates of the former entries respecting the shares in
question in the share-register book ; or, instead of such last-mentioned
1 Mackley's Case, 1 Ch. Div. 247. s Levita's Case, L. R. 3 Ch. 36.
2 Evan's Case, L. R. 2 Ch. 427. * Thomson's Case, 4 De G. J. & S.
749.
940
FORMATION OF THE CONTRACT. [1 TllOlUp. Corp. § 1192.
memorandums, by such copies or certificates being delivered to the
pai-ties entitled thereto, of the new or altered entries respecting the same
in the share-register book. Shares were transferred to G. by two share-
holders respectively. G's. name was entered by the secretary at the
head of a page in the company's ledger, as also the number of shares
transferred, both entries being made in pencil. This transfer took place
November loth, 1842. The company ceased to do business on Decem-
ber 31st, 1844, and was dissolved by a resolution of a general meeting
on May 5th, 1847. The entry in the ledger remained as stated until
the month of August, 1847, following the dissolution, when the secre-
tary perfected the entry so made, with ink, and also added thereto the
names of the transferors of said shares. G. was twice recognized as a
shareholder, the only dividend which the company ever paid being i^aid
to one D. according to his direction, and he was also summoned by the
secretarjs by letter, to a meeting of shareholders in July, 1845, to devise
means for discharging the remaining liabilities of the company ; to which
letter G. responded, advising for this purpose the sale of certain premises
owned by the company, which letter of G. was recorded in the minutes
of the meeting. The vice-chancellor, while stating that the formalities
of transfer, as required by the deed of settlement of the company, had
not been comphed with, yet said it depended upon the circumstances of
each particular case as to what acts would dispense with these formali-
ties, and held that in this case G. had been accepted as a shareholder by
those who had the management of the affairs of the company, and who
were for this purpose competent to act as they did act.^
§ 1192. Continued. — And where the promoters of an intended
company issued their prospectus headed " The Amazon Life Assur-
ance and Loan Company and Sick Benefit Society," and the company
was thereafter registered as "The Amazon Life Assurance and Loan
Company," a person ai)plied for shares (after such registration), ad-
dressing his application to the directors of the company as stj'^led in the
prospectus. Shares were allotted to him in the company as registered,
and notice was sent to him on paper headed with the registered name
of the company, to which he paid no attention ; and on a further
request by letter bearing the same heading he paid the deposit thereon.
The following year the company was ordered to be wound up, and the
applicant was made a contributory notwithstanding the change in the
name ; for he had ample notice of that in the notices sent to him of
allotment, and in fact the company had a sick benefit department,
although its registered name did not indicate it. Neither was it a de-
1 Gordon's Case, 3 De G, & S. 249.
941
1 Thomp. Corp. § 111)3.] the contract of subscription.
fense that be bad been informed at the time of his application for
shares that it was a company of limited liability. This was entirely a
question of law.^
§ 1193. Continued. — A promise in writing to take and fill a cer-
tain number of shares in a chartered company becomes, by a subsequent
organization of the company and an acceptance of the subscription, a
binding contract. Where the terms of the subscription require that
seventy-five per centum of the estimated cost of any section of the
railroad shall be subscribed for by responsible persons before com-
mencing its construction, if the subscription is obtained in good faith,
assessments will be valid, though some of the subscriptions to make
up that amount may turn out to be worthless. ^ In 1837 a body of
o-entlemen, of whom the defendant was one, associated themselves
together for the purpose of estabhshing a steamship line. The defend-
ant attended meetings of the company from November, 1837, to March,
1838, as a director of the company, and his name appeared as a director
in the prospectus issued in that period; but from March, 1838, he
ceased to act as a director. On the following July 31st an act of Par-
liament was passed forming the company in question, in which act the
defendant was named as a director. In July, 1839, a memorial was
enrolled, but it did not contain the defendant's name, nor did he execute
the company's deed, although a space was left therein for his name and
seal, which was filled up in lead-pencil. The defendant did not take
any shares, the necessary number for a director's qualification being
fifty. A judgment was obtained against the company in November,
1843, in an action begun on April 15, 1840. The court, upon these
facts, stated that the only question was whether the defendant was a
member of the company in November, 1843. It was certain that he
had been a member at one period ; but the act of Parliament did not
make him a member in that sense that it required an instrument of as
high a nature to release him from membership. He had signed no
deed, and it was competent for him to dissolve such partnership by
parol; therefore the fact that the company's deed was never presented
to him for execution and he in no manner co-operated with the direct-
ors subsequent to March, 1838, was evidence suflaciently conclusive to
show that he had withdrawn from the company so effectually as to
escape liability upon this judgment, ^
1 Blackburn's Case, 8 De G. M. &
G. 177.
2 Penobscot R. Co. v. Duramer, 40
Me. 172; s. c. 63 Am. Dec. 654.
942
3
Scott V.
Berkeley,
3
C.
B.
925;
S. C,
. 5 Rail.
C. 51; 16
L.
J.
(C.
P)
107.
FORBIATION OF THE CONTRACT. [1 Thomp. Corp, § 1195.
§ 1194. Continued. — After the formation of a company, and before
its shares had been fully offered to the public, H. & Co., by letter,
agreed with an agent of the company to " underwrite " a specified por-
tion of the shares "at 15 per cent, discount," and " to pay the appli-
cation money upon any balance of shares required to makeup" the
amount specified. In pursuance of this agreement, and without any
further application by them, a certain smaller number of shares was
allotted to them, which they declined to take. It was held, upon evi-
dence as to the meaning of the term " underwrite " as applied to shares,
that the agreement was not merely a guaranty, but was to be regarded
as an application for such part of the shares specified as should not be
applied for by the public, and authorized an allottment thereof to H. &
Co. ; that the word " discount " in the agreement was to be construed
as " commission," so that the agreement was not one to issue shares at
a discount ; and that H. & Co. were liable as contributories in respect to
the shares so allotted to them in the liquidation of the company. ^
§ 1195. Continued. — The defendant, in an action for assessments,
had signed, as indicated below, the following printed agreement: " We
the undersigned, hereby authorize J. J. Imbrie, secretary of the Grang-
ers' Market Companj^ to affix our names to the capital stock of the said
company for the number of shares of said stock set opposite to our
respective names.
Names.
No. Shares.
Amount.
Name of Grange.
Post oflSce.
J. S.Vinson.
5.
$100.
Lena.
Umatilla Co.,
Or."
Printed upon the same sheet, and above this agreement, were the
articles of Incorporation of the plaintiff company. This document was
held suflficient to authorize the secretary to subscribe for defendant for
five shares of the capital stock of the corporation ; but an execution of
this power was not sufficiently demonstrated, so as to constitute the de-
fendant a stockholder, by the secretary writing the name of defendant in
a list headed " Stockholders," in the stock-book of the corporation, and
opposite the name so entered, the words "Lena," "Umatilla Co.,
Oregon," "5," "$100." 2
^ Be Licensed Victuallers &c. Ao-
soc, 42 Cli. Div. 1.
2 Grangers' Market Co., v. Vinson,
6 Oreg. 1 72. This decision is given out
of a desire not to overlook applicatory
cases ; but it is thought to be clearly
unsound.
943
1 Thomp. Corp. § 1201.] the contract of subscription.
Article II. Theories as to the Consideration.
Section Section
1200. Theories as to the consideration 1208. Contrary view that money not
of the contract. deemed expended on the faith
1201. Rights and interest acquired by of the subscription: formation
the subscriber. of corporation not authorized
1202. Obligation of the company to thereby.
if-sue the shares. 1209. Consideration where the cor-
1203. Franchises granted by the char- poration is in existence.
ter. 1210. Effect of the words " value re-
1204. Failures of the commissioners ceived."
to reject the subscrip- 1211. Subscription a good considera-
tion, tion for other undertakings.
1205. Mutuality of promise as among 1212. Subsequent failure of considera-
subscribers. tion.
1206. Labor or money expended on 1213. No consideration where the
the faith of the promise. company, and not the sub-
1207. Illustrations of this principle. scriber, gets the shares.
§ 1200. Theories as to the Consideration of the Con-
tract. — Where both parties to a contract are in esse at the tiaie
when the proposal is made, mutuality of promise constitutes a
good consideration. But where the very proposal is a part of
the thing required to be done in order to bring the other party
to the contract into existence, a wide field is open for theorizing
as to the nature of the consideration. The courts, in their
search for the consideration for such a contract, have indulged
in a variety of speculations more curious than useful. Never-
theless, it is proposed to follow them briefly.
§ 1201. Rights and Interest Acqtiired by the Subscriber. —
Some courts have found the consideration of the contract in the
interest in the corporation thereby acquired by the subscriber,^ —
in the right which he thereby acquires to participate in the pe-
cuniary dividends ; and it has been reasoned that where the
agreement secures that to the subscribers, on the organization of
the company, the objection of a want of consideration cannot be
made with success. ^ But the same must be equally true where
1 East Tennesee &c. R. Co. v. Gam- ^ Hamilton &c. Plank Road Co. v.
mon, 5 Sneed (Tenn.), 5G7; Kennebec Rice, 7 Barb. (N. Y.) 157.
&c. R. Co. V. Jarvis, 34 Me. 360.
944
THEORIES AS TO coxsiDERATiox. [1 Thomp. Corp. § 1205.
the subscription paper is silent on the subject, for all this is
implied.
§ 1202. Obligation of the Company to Issue the Shares. —
It is merely another way of expressini^ the same idea to say that
the obligation of the corporation to .issue the shares to the sub-
scriber 1 — that is, to admit him to a share in its management and
in its profits, — constitutes a good consideration for such a
promise.^
§ 1203. Franchises Granted by the Charter. — A vague ex-
pression of the Siim^ idea is found in another case, that the con-
sideration of such a contract consists in the franchises srrauted
by the charter,^ — implying that those franchises inure to the
benefit of the subscriber.
§ 1204. Failure of the Commissioners to Reject the Sub-
scription. — Where the subscriptions are taken by commit^sion-
ers, as was generally the case in the days of special charters,'
they were deemed public officers or agents for the purpose. They
occupied a position somewhat analogous to that of a promoter
under the English theory ,5 except that they generally acted in
the execution of a statutory power. Where they had power to
reject the subscription, a species of mutuality was created by
their acceptance of it ; and this has been regarded as furnishing
a sufficient consideration.^
§ 1205. Mutuality of Promise as among the Subscribers. —
Other courts have found in the act of the particular subscriber
in subscribing with others^ a mutuality of promise which obliges
him to make good his promise to the corporation after it comes
into its existence.^ Decisions are not wanting which either deny
^ As to which see post, § 1249. « Connecticut &c. R. Co. v. Bailey,
2 Kichmondville Seminary v. Mc- 24 Vt. 4(55; s. c. 68 Am. Dec. 181.
Donald, 34 N. Y. 379; St. Paul &c. K. ' Bolton Compress v. Saunders, 70
Co. V. Robbins, 23 Minn. 439. Tex. 099; s.c. 19 Am. &Eng. Corp. Cas.
3 Thigpcn V. Mississippi &c. R. Co., 284 ; G S. W. Rep. 134 ; West v. Craw-
32 Miss. 347. ford, SO Cal. 19; s. c. 21 Pac. Rep.
* Ante,^U. 1123; 26 Am. & Eng. Corp. Cas. 85;
s Ante, § 4Ig. Trustees v. Stetson, 5 Pick. (Mass.)
60 945
1 Thomp. Corp. § 1205.] the contract of subscription.
this principle or hold it to be inapplicable ; but they seem, on
oxamination, to be cases where no payee is named or designated,
or where the one designated is either incapable of acting, or does
not assume and is not bound to act.^ With reference to this
'juestioti it has been observed: •' So far as the question of con-
sideration goes, the general. rule is that mere promises of gifts,
even to public uses, made without consideration, cannot be en-
forced as contracts. But it is also a rule in cases of simple con-
tract that, if one person makes a promise to another, for the
benefit of a third, the third may maintain an action upon it,
though the consideration does not move from him. The mutual
promises of the several subscribers in this case constitute a
sufficient consideration, and, that the promise is to pay a third
party, is not a tenable objection ; and the promise is binding,
though the corporation to which the payment is to be made is
not then in esse^ but to be formed thereafter." ^ The governing
principle has been brought out with great clearness by a decision
of the House of Lords, where it is held that if a number of per-
sons, meaning to join in a common undertaking, raise a common
fund, eventually to be increased, but commencing by a deposit,
and they put these deposits for a common object into the hands
of a committee, with directions to them to do certain acts, it is
not competent for any one or more of the subscribers, against
the will of the others, to withdraw and say, " I think, or we think,
you ought not to go any further." Any one subscriber who is
not of that opinion has a right to say, *' I gave my money upon
the faith that we all embarked in one common undertaking, and
till that has been done, which we agreed should be done, none
have a right to withdraw and say you shall not go any further." '
506; Watkina v. Eames, 9 Gush. Farmington Academy v. Allen, 14
(Mass.) 537; George v. Harris, 4 N. Mass. 172.
H. 533; Congrtgational Society v. 2 ^ew Lindell Hotel Co. v. Smith,
Perry, 6 N. H. 164; Troy Academy «. 13 Mo. App. 7, 14; opinion by Bake-
Nelson, 24 Vt. 189; Amherst Academy well, J.
V. Cowls, 6 Pick. (Mass.) 427. Com- ^ Baird v. Ross, 2 Macqueen, 61.
pare New York &c. Co. v. Martin, 13 See also Burnes v. Pennell, 2 H. L. C.
Minn. 417. 497. Compare Kent v. Jackson, 14
1 Boutell V. Cowdin, 9 Mass. 254; Beav. 367; s. c. 2 De G. Mac. & G. 49.
Phillips Academy V. Davis, 11 Muss. As to the right of scrip holders to have
113; s. c. 6 Am. Dec. 162. Compare the money subscribed by them applied
94(5
THEORIES AS TO CONSIDERATION. [1 Thomp. Corp. § 1206.
"It follows from this," says Sir N. Lindley, "that no sub-
scriber to a projected company can recover back his money on the
ground that the consideration for his subscription has failed, until
the formation of the company, upon the terms assented to by
him,i has been abandoned, or has become impracticable." ^
§ 1206. Liabor or Money Expended on the Faith of the
Promise. — If a subscription contains screquestf express or im-
plied, for the expenditure of labor or money to carry out the
object for which it is made, and such labor or money are ex-
pended, it will constitute a good consideration for the promise.^
Speaking with reference to this question it has been said: ** At
first view it would seem that, when a person signs his name to a
promise to pay money or to convey property to an institution
of learning, the public advantage and the fact that otiiers have
been induced by their reliance upon his co-operation to give
their money and property to the same object, ought to be a suffi-
cient consideration; but the courts, acting upon the principle
that every promise, to be enforced, must have a good or valuable
consideration to uphold it, have held that something more than
the naked promise to give is necessary, and that the public ad-
vantage is not of itself a sufficient consideration, to support a
promise. ■* Yet, while the courts, rather than violate an old and
to the purposes for which they sub- 60 Am. Dec. 311. Where work is done
scribed it, see Bagshaw v. The East- or expense incurred under a promise,
ern Rail. Co., 7 Hare, 114 ; s. c. 2 Mac. the liability is not disputed by any
& G. 389. authority. Underwood v. Waldron,
1 Citing Johnson v, Goslett, 18 C. 12 Mich. 73, 89, opinion by Camp-
B. (N. 8.) 5G9, and see also Wilson v. bell, J. Labor performed and money
Church, 13 Ch. Div. 1, and s. c. under spent to secure the location of a rail-
the name of National Bolivian Nav. road d pot are suflBcient consideration
Co. V. Wilson, 5 App. Cas. 176. to support a promise contained in a
2 Lind. Comp. L.,5thed., pp. 29, 30. subscription to pay money for that
3 " A subscription, like any other object. Workman v. Campbell, 46
promise or offer, requires a consider- Mo. 305. See also Koch v. Lay, 38
ation to support it, either of profit to Mo. 147; Farmington Academy v.
the party promising or of loss to the Allen, 14 Mass. 172; s. c. 7 Am. Dec.
other party. If a subscription be ac- 201; Cook v. McNaughton, 128 Ind.
ceeded to on the terms in which it is 410; s. c. 24 N. E. Rep. 361.
made, and labor or money is expended < Citing Trustees v. Stewart, 1 N.
on the faith thereof, the party making Y. 681; Howard v. Williams, 2 Pick.
the subscription is bound thereby." (Mass.) 80.
Gait V. Swain, 9 Gratt. (Va.) 033; s. c.
947
1 Thomp. Corp. § 1*208.] thk contract of subscription.
established rule of law, hold that a naked promise to pay money
for a public object can not be enforced for the want of a con-
sideration, they have also decided with great unanimity, that if
the promise itself, or any other promise, upon which it is founded,
contains a request, or that which by any fair construction can be
construed as a request to the trustees, or others representing the
institution for whose benefit the promise is made, to do any act,
or incur any expense, or to undergo any inconvenience, and such
institution does the act, or incurs the expense, or submits to the
inconvenience, this request and performance on the behalf of the
institution is a sufficient consideration to support the promise.'* ^
§ 1207. Illustrations of this Principle. — Applying this princi-
ple, where the subscriber gave his note for his subscription to endow a
college, and the payee, upon the faith of it, had incurred expense, it was
held that it was enforcible.^ - - - - It has been held that a sub-
scription by citizens in pursuance of an act of the legislature, to a fund
for the building of a state house, is not void for want of consideration,
but may be supported on the theory that the State, through the act
of the legislature, has undertaken to apply the funds for that pur-
pose.^ _ - - _ The defendant subscribed toward the payment of a
debt due for the building of a church edifice. The trustees of the
chui'ch, in their corporate capacity, but on the faith of the subscription
list, borrowed money with which to pay the church debt. It was held
that tlie subscriber was bound ; since ' ' the lender of the money may
have relied for his payment, not merely on the credit of the trustees in
their corporate capacity, but on the subscription list in their hands." *
§ 1208. Contrai-y View that Money not Deemed Expended
on the Faith of the Subscription: Formation of Corporation
not Authorized Thereby. — It has been reasoned upon this subject
that the consideration which is necessary to support a subscription, and
indeed any other contract, with the exception of negotiable paper, must
be a consideration derived by one party from another party to the
1 Philomath College v. Hartless, 6 2 philomath College v. Hartless, 6
Ore. 158; s. c. 25 Am. Kep. 510, 511; Ore. 158; s. c. 25 Am. Rep. 510.
opinion by "Watson, J. ; citing Barnes ^ state Treasurer v. Cross, 9 Vt.
V. Ferine, 12 N. Y. 18; Trustees v. 289; s. c. 31 Am. Dec. 626. Compare
Garvey, 53 111. 401; s. c. 5 Am. Rep. University v. Buell, 2 Vt. 48, and
51; McAuley v. Billenger, 20 Johns. Carpenter v. Mason, 3 Scam. (111.) 376.
(N. Y.) 89; Thompson v. Mercer Co., ^ Trustees v. Garvey, 53 111. 401;
40 111.379. s. c. 5 Am. Rep. 51.
MS
THEORIES AS TO CONSIDERATION. [1 Thomp. Corp. § 1209.
action. When, therefore, a subscription is made, but the subscription
paper does not authorize the formation of a corporation to carry out its
purposes, and nevertheless some of the subscribers thereafter undertake
to form a corporation for that purpose, the corporation cannot maintain,
on the contract of subscription, an action against a subscriber who
does not assent to its formation. Nor can such an action be maintained
on the theory that the corporation, by expending money on the faith of
the subscription, has raised a consideration such as makes it binding.
*' There is no proof," said Shepley C. J., spealdng of such a case, " of
an expenditure of money by the corporation at the request of the
defendant, exjjress or impUed, or for a purpose from which he could
derive any benefit. The corporation does not appear to have expended
money except for property or purposes of its own, in which the defend-
ant had no interest. ' ' ^
§ 1209. Consideration where the Corporation is in Exist-
ence. — Where the corporation is in existence at the time when
the subscription is made, no room is left for these speculations ;
since there is a mutuality of promise on the part of each of
the parties that mast be performed. ^ But even here the courts
have frequently discovered the consideration in additional cir-
cumstances. Thus, where the corporation had been chartered,
and a subscription to its stock was in the following terms, which
were the terms prescribed by its charter, it was held to embody
a good contract: "We, whose names are hereunto subscribed,
do, for ourselves and our legal representatives, promise to pay to
the president, directors and company of the Union Turnpike
Road, the sum of $25, for every share of stock in such company,
set opposite to our respective names, in such manner and pro-
portion, and at such time and place, as shall be determined by
the said president, directors and company." ** That form," said
the court, " contains an absolute promise to pay the money to
the president, directors and company. On the one side the in-
terest of the company selling the shares, and the public advan-
tage to be derived from the success of the institution, and on
the other, the expected profits to accrue from the stock, were
suflBcient consideration to uphold the promise." ^
1 Machias Hotel Co. v. Coyle, 35 ^ Union Turnpike Co. v. Jenkins, 1
Me. 405; s. c. 58 Am. Dec. 712. Caines (N. Y.) 381, 390.
2 Selma &c. R. Co. ■». Tipton, 5 Ala.
787; s. c. 39 Am. Dec. 344, 852.
949
1 Thomp. Corp. § 1213.] the contract of subscription.
§1210. Effect of the Words "Value Received." — The
words " value received " in a subscription paper have been held
to import prima facie a consideration, and to render the sub-
scriber liable, irrespective of the question whether he actually
became a member of the corporation. This will appear from a
case where the defendant subscribed an instrument, promising,
for value received, to pay the amount of certain shares to two
persons, for the purpose of building a plank road designated, and
authorizing those persons to transfer the subscriptions to a com-
pany to be formed ; and the company was organized for this
purpose. It was held, in an action by the comp-iny to enforce
the contract, that, though the defendant never signed articles of
association, nor accopted stock, and could not be considered a
member of the company, he was liable on his promise for the
amount of his subscription; that the words "value received"
were prima facie evidence of consideration for his promise; and
that no consideration need be shown for the transfer by said per-
sons to the company, other than that arising on the facts stated.^
§ 1211. Subscription a Good Consideration for Other Un-
dertakings. — A subscription for stock of a company, being a
legal obligation, which can be enforced by action, and by for-
feiture for non-payment, is therefore a good consideration for a
mortgage to secure the payment of the amount subscribed.^ On
a principle already considered,^ such a subscription is a good
consideration for a promise on the part of other persons to pay
money towards the undertaking.*
§ 1212. Subsequent Failure of Consideration. — Where
payment for the shares has been secured by a mortgage, as
stated in the preceding section, the neglect or omission of the
company to issue to the mortgagor scrip for his shares before
payment, will not amount to a failure of the consideration, —
especially where it appears that, by so doing, they will make
1 Eastern Plank Road Co. v. Vau- 3 ^nte, § 1206.
ghan, 14 N. Y. 546; affirming s. c. 20 * Ashuelot Boot &c. Co. v. Hoit, 50
Barb. (N. Y.) 155. N. H. 648.
2 Buttershall v. Davis, 31 Barb. (N.
Y.) 323.
950
THEORIES AS TO CONSIDERATION. [1 TllOmp. Coip. § 1213.
themselves personally liable to the creditors of the company.*
Moreover, as we shall hereafter see more fully ,2 such a consider-
ation does not fail in the theory of the law, because of the fail-
ure of the corporation, at the time when the action is brought,
to enforce the contract to construct their works in accordance
with the declarations of the promoters of the corporation, on
the faith of which the promise of the subscriber was made;
since the very object of the subscription is to assist in affording
the means to construct their works. The agreement to construct
remains a sufficient consideration for the subscription.^
§ 1213. No Consideration where the Company, and not the
Subscriber, Gets the Shares. — One court has rendered a de-
cision which is tantamount to holding that where a subscriber
gets no direct personal benefit from his subscription — more
briefly where he does not get the shares, — there is no considera-
tion for the promise, — as where the subscription contract, not
under seal, of a mining company, was conditioned that two
thousand of the capital shares should be paid to trustees, to be
by them held for the benefit of and subject to the direction of
the company. Here it was held that, the trustees being, 7J?-o
hac vice, the servants of the company, and their possession, its
possession, the consideration was too shadowy to support a con-
tract.^ But it has already been sufficiently shown that a direct
benefit to the promisor is not at all necessary to support the
contract. It may consist in detriment to others, or in the fact
of others acting on the faith of it.^
1 Buttershallv. Davis, 31 Barb. (N. < New York &c. Co. v. Martin, 13
Y.) 323. Minn. 417.
2 Post, § 1975. fi Ante, § 1205.
3 First Nat. Bank v. Hurford, 29
Iowa, 579.
951
1 Thomp. Corp. § 1316.] the contract of subscription.
Article III. Theories as to the Necessity op Paying the Stat-
utory Deposit.
Section
1216. View that payment of cash
deposit is necessary to the
validity of the subscrip-
tion.
1217. Reasons given in support of
this view.
1218. Rule that payment of deposit
must be made in specie or its
equivalent.
1219. Statute not complied with by
giving a note.
1220. A contrary view.
1221. Whether payment by bank check
sufficient.
1222. Simulated payments by giving
checks which are not col-
lected.
1223. Further as to the manner of
-payment.
Section
1224. View that the payment of such
a deposit is not necessary.
1225. A similar view in England.
1226. Subscription valid though pay-
ment at a subsequent time.
1227. Invalidity of secret agreement
that the check shall not be paid.
1228. Subscription void for non-pay-
ment of deposit made good
by estoppel.
1229. Where subscription made after
the organization.
1230. What if the question arises un-
der a by-law merely.
1231. Illustration in case of surrender
and re-i&sue of shares.
1232. Effect of statutes requiring a
certain amount to be paid in
before commencing business.
§ 1216. View that Payment of Cash Deposit is Necessary
to the Validity of the Subscription. — Where the charter or
governing statute requires the payment in cash of a certain per-
centage of the amount subscribed, at the time of making the
subscription, there is a division of judicial opinion upon the
question whether this payment is necessary to give binding
force to the contract. Many of the courts hold that it is neces-
sary where the subscription is made before organization.^
1 Fiser v. Mississippi &c. R. Co.,
32 Miss. 359; State lus. Co. u. Red-
mond, 1 McCrary (U. S.), 308; Perry
V. Hoadley, 19 Abb. N. Cas. (N. Y.)
76; People v. Chambers, 42 Cal. 201;
Charlotte &c. R. Co. v. Blakely, 3
Strobh. (S. C.) 245; Wood v. Coosa
&c. R. Co. 32 Ga. 273; Jenkins v.
Union Turnp. Co., 1 Caines Cas. (N.
Y.) 86, 94 (recognized in Goshen
Turnp. Co. v. Ilurtin, 9 Johns. (N^. Y.)
217; s. c. 6 Am. Dec. 273) ; Highland
952
Turnp. Co. v. McKean, 11 Johns. (N.
Y.) 98; Dutchess Cotton Manufactory
V. Davis, 14 Johns. (N. Y.) 238; s. c.
7 Am. Dec. 459. These three last
decisions state that this was the
ground on which the case of Jenkins
V. Union Turnp. Co., SMj)ra, was fin-
ally determined in the Court of Er-
rors. But as hereafter seen, they no
longer express the law of New York
on the subject, Post, §1224. The same
view was taken of the necessity of
PAYING THE STATUTORY DEPOSIT. [1 Thomp. Corp. § 1217.
§ 1217. Reasons in Support of this View. — These decis-
ions proceed upon the rule that the provisions of the charter of
the corporation are to be strictly pursued^ and that, the charter
having provided that subscriptions to the capital stock shall be
taken in a certain way, they cannot be taken in any other way.
They reason that the payment of the deposit required by the
statute is a condition precedent io the \aMi\\ty of the contract;
that the subscription stands as a mere proposal until the deposit
is paid ; and that it is neither competent for the commissioners
nor for the corporation to accept this proposal until the condi-
tion prescribed by the statute has been complied with. Until
then, there is, under this theory, no contract which binds either
party, or through which either party can derive any rights against
the subscriber.^ The subscriber cannot demand any rights in the
corporation ; the corporation cannot maintain an action against
him to enforce his subscription ; ^ nor can the creditors of the
corporation enforce their demands against him.^ " A corpora-
tion," said one court, "being the creature of the law, can
act in no other manner than the law prescribes, and cannot be
permitted to enter into a contest in the legislature concerning
the policy or expediency of the terms which have been dic-
tated." ^ In the leading case in Pennsylvania, Chief Justice
complying with the charter provision M'Kean, 11 Johns. (N. Y.) 100;
requiring the payment of a deposit, in Goshen Turnp. Co. v. Hurtin, 9 Johns.
Hibernia Turnp. Corp. v. Henderson, (N. Y.) 218; s. c. 6 Am. Dec, 273; Hi-
8 Serg. & R. (Pa.) 219; s. c. 11 Am. hernia Turnp. Co. v. Henderson, 8
Dec. 593. And this decision was re- Serg. & R. (Pa.) 219; s. c. 11 Am.
affirmed in Leighty v. President &c., Dec. 593.
14 Serg. & R. (Pa.) 434. The same 3 Perry y. Hoadley, 19 Abb. N. Cas.
view was taken in Taggart v. Western (N. Y.) 76.
Maryland R. Co., 24 Md. 563; s. c. 89 * Hibernia Turnp. Corp. v. Hender-
Am. Dec. 760. Compare Hanover son, 8 Serg. & 11. 219; s. c. 11 Am.
Junction &c. R. Co. v. Grubb, 82 Pa. Dec. 593 ; opinion by Tilghman, C. J.
St. 36; Erie &c. Plank Rd. Co. v. The learned judge referred to Mitch-
Brown, 25 Pa. St. 156. ell w. Smith, 1 Binn. (Pa.) 110 (s. c. 2
1 Reasoning in Perry u. Hoadley, Am. Dec. 417) and Maybini;. Conlon,4
19 Abb. N. Cas. (N. T.) 76, and cases Dall. (U. S.) 298, as settling the point
cited below. that a contract made in violation of
2 Boyd V. Peach Bottom R. Co., 90 an act of the legislature cannot be en-
Pa. St. 169 ; Excelsior Grain Binder forced in a court of justice. The
Co. V. Stayner, 68 How. Pr. (N. Y.) legislatures have sometimes been
273; Wood v. Coosa &c. R. Co., 32 obliged to pass curative acts to vali-
Ga. 273; Highland Turnp. Co. v. date subscriptions thus made and
953
1 Thorap. Corp. § 1219.] the contract of subscription.
Gibson,* whose opinions have always been held in high respect
by the profession, expressed the view that the design of this
provision of the statute was to prevent the subscription list be-
ing filled hj fictitious subscribers, who should be favorites of the
commissioners, or the creatures of other interested persons.
He reasoned that it would be a fraud on the law and on the fair
subscriber, to admit to equal participation in the administration
of the corporate affairs, men who had not paid the required
deposit, with men who had.^
§ 1218. Rule that Payment of Deposit must be Made in
Specie or its Equivalent. — Under this strict rule, the theory
of several courts was that specie or its equivalent, current bills
of specie paying banks, could only be received in payment of
the sum required to be paid at the time of subscribing the stock.^
§ 1219. Statute not Complied with by Giving a Note. —
The courts which take this view hold that the giving of a prom-
issory note for the amount required to be paid, is not a payment,
nor a sufficient compliance with a statute which requires payment
in cash ; and where such a payment was attempted the subscrip-
tion was void and imposed no obligation on the subscriber.^
Where the charter of a railroad company required that "its
treasurer and president should, before receiving an installment
from the State, satisfactorily assure the board of internal im-
provements, by a certificate under the seal of the company, that
prevent the subscribers from taking subject are reviewed at considerable
advantage of their own wrong. See length.
Clark V. Navigation Co., 10 Watts ^ Crocker v. Crane, 21 Wend. (N.
(Pa.), 364. Y.)211; Peoples. Troy House Co. 44
1 He was not chief justice at the Barb. (N. Y.) .625; Neuse River &c.
time of this decision. Co, v. Newburn, 7 Jones L. (N. C),
2 See his opinion in Hibernia 275; Henry v. Vermillion &c. R. Co.,
Turnp. Corp. V. Henderson, 8 Serg. & 17 Ohio, 187; McRae v. Russell, 12
R. (Pa.) 219; s. c. II Am. Dec. 593, Ired. (N. C) L. 224.
597. These views were quoted with * Leighty v. Susquehanna &c. Co.,
approval by the Court of Appeals of 14 Serg. & R. (Pa.) 434; Boyd v.
Maryland inTaggartw. Western Mary- Peach Bottom R. Co., 90 Pa. St. 1G9;
land R. Co., 24 Md. 5G3; s. c. 89 Am. McRae v, Russell, 12 Ired. L. (N. C.)
Dec. 760, where the authorities ou the 224 ; Hayne v. Beauchamp, 5 Smed.
& M. (Miss.) 515.
954
PAYING THE STATUTORY DEPOSIT. [1 Thomp. Corp. § 1220.
an amount of the private subscription had been paid, in equal
proportion to the payment required by the State," it was held
that, for the railroad company to take, as cash, the notes of indi-
viduals made for the occasion to enable the officers to make the
certificate, under a promise that such notes were not to be
enforced, was immoral and against public policy^ and such indi-
viduals being in pari delicto, had no equity to be relieved against
such notes. ^
§ 1220. A Contrary View. — Other courts take the view that
it may be paid by a promissory note of the subscriber, if the cor-
poration is willing to receive it as money, and to give a receipt
for it as money. ^ Where, as stated in a subsequent section, the
1 McRae v. Atlantic &c. E. Co., 5
Jones Eq. (N. C.) 395.
2 Greenville &c. R. Co. v. Wood-
sides, 5 Rich. L. (S. C) 145; s. c. 55
Am. Dec. 708. Compare Clark v. Far-
rington, 11 Wis. 330, where this case
is cited. As to when the giving and
accepting of a promissory note for an
indebtedness will be presumed to be
due payment and when not, see Mil-
ledge V. Boston Iron Co., 5 Cush.
(Mass.) 158; s. c. 51 Am. Dec. 59;
Arnold v. Delano, 4 Cush. (Mass.) 33;
s. c. 50 Am. Dec. 754; Wolf v. Fink,
1 Pa. St. 435; s. c. 44 Am. Dec. 141;
Steamship Charlotte v. Hammond, 9
Mo. 59; .". c. 43 Am. Dec. 53G; Brooks
V. Mastyn, 69 Mo. 63: Bertiaux v. Dil-
lon, 20 Mo. App. C05; McMurray •;;.
Taylor, 30 Mo. 263; s. c. 77 Am. Dec.
611; Howard v. Jones, 33 Mo. 583;
Powell V. Blow, 34 Mo. 485; Block v.
Dorman, 51 Mo. 31 ; Leabo v. Goode,
67 Mo. 126; Appleton v. Kinnon, 19
Mo. 637; Steamboat v. Lumm, 9 Mo.
64; Lee v. Fontaine, 10 Ala. 755; s. c.
44 Am. Dec. 505; Judge v. Fiske, 2
Spears L. (S. C) 436; s. c. 42 Am.
Dec. 380; Jones v. Johnson, 3 Watts
&S. (Pa.) 276; s. c. 38 Am. Dec. 760.
The prevailing view is that the giviug
and accepting of a promissory noe
does not extinguish a debt, unless
the parties so intend, but that if the
note is not paid the creditor may sue
on the original cause of action. This
is held in many of the cases above
cited, and also in the following: Pate-
shall V. Apthorp, Quincy (Mass.), 179;
s. c. 1 Am. Dec. 3; Murray v. Gouver-
neuret. al. 2 Johns. Cas. (N. Y.) 438;
s. c. 1 Am. Dec. 177; Tobey v. Barber,
5 Johns. (N. Y.) 58; s. c. 4 Am. Dec.
326; Johnson v. Weed, 9 Johns. (N.
Y.) 310; s. c. 6 Am. Dec. 279; Barelli
V. Brown, 1 McCord (S. C.) 449; s. c.
10 Am. Dec. 683; Muldon v. Whitlock.
1 Cow. (N. Y.) 290; s. c. 13 Am. Dec.
533; Patapsco Ins. Co. v. Smith, 6
Harr. & J. (Md.) 166; s. c. 14 Am. Dec.
268; Hart v. Boiler, 15 Serg. & R.
(Pa.) 162; s. c. 16 Am. Dec. 536; Cos-
telo V. Cave, 2 Hill (N. Y.), 528; s. c.
27 Am. Dec. 404; Estate of Davis et
al.,5Whart. (Pa.) 530; s. c. 34 Am.
Dec. 574. But, contra, see Newell v.
Hussey, 18 Me. 249; s. c. 36 Am. Dec.
717; Wright v. Crockery Ware Co., 1
N. 11. 281; 8. c. 8 Am. Dec. 68; Var-
ner v. Noblcborough, 2 Greenl. (Mc.)
121; s. c. 11 Am. Dec. 48; Hutchins v.
Olcutt, 4 Vt. 519; s. c. 24 Am. Dec.
634; Homes v. Smyth, 16 Me. 177;
s. c. 33 Am. Dec. 650. If the creditor
955
1 Thomp. Corp. § 1231.] the contract of subscription.
commissioners are held to have a discretion to allow a reasonable
time to the subscriber for the payment of this deposit, a sub-
scription will not be deemed void for the reason that payment
of the deposit was made in a draft maturing in tJdrtij days.^
Such a subscription is good, even as against those who subse-
quently apply for shares, and whose applications are rejected
for the reason that the shares are all subscribed for, although
they actually tender the deposit in cash within the thirty days.^
But, in the theory of these courts wliich do not regard the pay-
ment of the deposit as a condition precedent to the validity of
the subscription, it will not be held void merely because pay-
ment was made in a note maturing at a future time; and it has
been so held even where the charter required the payment of
the deposit to be made in cash at the time of the subscription,
and declared that the subscription should be void if the deposit
were not so paid.^ Such a note, according to these holdings,
is given upon a sufficient consideration, and is enforceable.*
§ 1221. Whether Payment by Bank Check Sufficient. —
Analyzing further the cases which take this view, we find that
one of them has gone to the extreme length of holding that,
under a statute requiring payment of the required deposit to be
made in cash, the payment by many subscribers of their deposits
in check, drawn upon banks, is void as contrary to the policy of
the statute, in such a sense as to prevent the corporation from
going into existence for the want of proper payments as a condi-
Hon precedent.^ But the soundness of a conception which
ignores the well known and ordinary habits of business life may
well be questioned, though the particular case, upon its peculiar
facts, may have been well decided. It is obvious that a provis-
ion in the statute under which a corporation is organized, requir-
ing, as a condition precedent to incorporation, that a certain
sues on the original contract, he must ^ j^id.
produce the note at trial, or prove its ^ McRea v. Russell, 12 Ired. L.
loss. Holmes v. DeCarap, 1 Johns. (N. C.) 224.
(N. Y) 34; s. c. 3 Am. Dec. 293; * Ihid; Vermont Central R. Co. v.
Homes V. Smyth.' Many other cases Clayes, 21 Vt. 30.
are collected on this subject in various ^ Crocker v. Crane, 21 Wend. (N.
notes in the American Decisions. Y.) 211; s. c. 34 Am. Dec. 228, 234.
1 Napier ». Poe, 12 Ga. 170.
956
PAYING THE STATUTORY DEPOSIT. [1 TilOmp. Coip. § 1223.
amount of stock should be subscribed for and that ten percent.
in cash thereof should be paid in good faith, — is complied with
by the payment of the ten per cent, in good faith by a check
drawn against sufficient funds in the hands of a banker, which
check would be paid by the banker on presentation. ^ It is
equally obvious that it maybe made in a check drawn on a solv-
ent banker and certified by the banker as good, where the prac-
tice prevails of regarding cer^/^etZ checks 0.3 equivalent to money .^
§ 1222. Simulated Payments by Giving Checks which are
not Collected: — But a payment by a subscriber by a check
drawn upon a banker with whom he has no funds to his credit,
wliere the check is never presented for payment, but is long
afterwards surrendered to the drawer on a settlement of accounts
between him and the corporation, has been held to be not a pay-
ment in cash, within the meaning of this statute.^ And where
the cheek is in fact not paid, and is countermanded by the sub-
scriber before being presented for payment, there is, in the
view we are now considering, no binding subscription.* It may
also be conceded that where the giving of the check is simidated,
and it is held up in pursuance of an understanding that it will
not be presented, it is no payment such as complies with this
theory of the law ; for it has been justly reasoned that the sub-
scriptions must be real, actual and honest, as distinguished from
fictitious, pretended and deceptive ; and the payments must be
actual payments in cash, not merely parting with the temporary
control over the money. Nothing short of actual subscription
and actual payment in cash is a compliance with the law ; and
any attempt to acquire corporate functions by a pretentious or
evasive compliance is a fraud. ^ Accordingly, where the charter
required the paj'ment often per cent, at the time of the subscrip-
tion, it was held that such payment was not made by the
subscriber handing the amount to the treasurer of the corpora-
1 People V. Stockton &c. R. Co., 45 payment treated of in Croker v. Crane,
Cal. 306; s. c. 13 Am. Rep. 178. ante § 1221.
2 Re Staten Island &c. R. Co., 37 ^ Excelsior Grain Binding Co. v.
Hun(N. Y.), 422; Compare Thorp v. Stayner, CI How. Pr. (N. Y.) 450;
Woodliull, 1 Sandf. Ch. (N. Y.) 411. s. c. 25 Ilim (N. Y.), 91.
3 Peoples. Ciiambers, 42 Cal. 201. « Jersey City Gas Co. v. Dwight, 29
This was substantially the kind of N. J. Eq. 242.
957
1 Thomp. Corp. § 1224.] the contract of subscription.
tion and immediately receiving it back, on the treasurer giving
the subscriber a receipt for so much on account of work to be
done by the subscriber for the corporation ; and this, although
the charter provided that subscriptions might be paid for in
work. The State was also a subscriber, and the transaction was
challenged by the State as sufficient to release it from its obliga-
tion under its subscription ; but it was held that, if done without
actual fraud and affirmed by the State directors, the State would
be bound by its subscription.^
§ 1223. Further as to the Manner of Payment. — As in
any other case of payment, the payment of the deposit that is
required may be made for the subscriber by a third person^ even
though acting officiously, if his act is ratified by the subscriber. ''
It may be made in services, such as the corporation under its
charter has power to receive and at a fair valuation.^
§ 1224. View that the Payment of Such a Deposit is not
Necessary. — Other courts take the view that, although the char-
ter or governing statute provides that a certain percentage of the
sura subscribed, or a certain round sum shall be paid by the sub-
scriber at the time of tho subscription, the non-payment of this
installment or deposit does not render the subscription void ; * but
1 State V. Jefferson Turnpike Co., 3 was indebted to him in an amonn
Humph, (Tenn ) S05. greater than the cash payment re-
2 Mississippi &c. R. Co. v. Harris, quired, in which account he applied
37 Mi<s. 13. Compare Ogdensburg and credited $50 for 10 per cent, upon
&c. R. Co. V. Frost, 21 Barb. (N. Y.) his subscription, and $50 for the first
541. call made thereon. The account was
s Beach v. Smith, 30 N. Y. 116; allowed by the company, and the bal-
affg. s. c. 28 Barb. (N. Y) 254. In ance paid to S. It was held that this
this case S. subscribed for $500 of was a sufficient compliance with the
stock in a railroad company, upon statute in respect to the payment of
the understanding that the first 10 the first 10 per cent, and made the
per cent, required by law to be paid subscription obligatory upon S. As
in cash on subscribing, should be to payment of shares in property or
paid by his services in procuring services, see po.s^, §1604, et seg.
subscriptions and right of way. He * Union Turnpike Co. v. Jenkins, 1
subsequently presented an account Caines (N. Y), 381, 390; Abbott v.
against the company for services, Aspinwall, 26 Barb. (N. Y.) 202;
from which it appeared that, at the Chaffin v. Cummings, 37 Mc. 76, 83;
date of the subscription, the company Cheslcy v. Pierce, 32 N. IT. 402;
958
PAYING THE STATUTORY DEPOSIT. [1 Thomp. Corp. § 1224:.
that subsequent payment -^iW. operate as a waiver of the condition,
and the party making it will be considered as recognizing his
orjo-inal liability.^ In the view of these courts, the failure of the
subscriber to pay upon his subscribing the sum required as a
deposit by the terms of the governing statute and contract of sub-
scription cannot be set up by him as a defense to an action for
calls, since he can not be allowed thus to take advantage of his
own wron"". "Even if the commissioners might have refused
to receive the stock unless the payment had been made, yet,
as they did not do it, the contract was, after the stock had been
received without the payment, binding upon both sides." ^ ^g
Haynes w. Brown, 36 N. H. 545, 563;
McEuen v. West London «&c. Co., L.R.
6 Ch. 655; East Gloucestershire R .Co.
u.Bartholomew,L.R.3Ex. 15; Purdcy's
case, 16 W. R. 660; Beach v. Smith,
28 Barb. (N. Y.) 254; Black River &c.
R. Co. V. Clark, 25 N. Y. 208 ; Hay-
wood Plank-road Co. v. Bryan, 6
Jones L. (N. C.) 82; Hall u. Selma
&c. R. Co., 6 Ala. 741; Thorp v.
Woodhull, 1 Sandf. Ch. (N. Y.) 411;
Vicksburg &c. R. Co. v. McKtan, 12
La. An. 638; Piscitaqua F rry Co. v.
Jones, 39 N. H. 491; Smith v. Plank-
road Co., 30 Ala. 650; Lake Ontario
&c, Co. V. Mason, 16 N. Y. 451;
Rensselaer &c. Co. v. Barton, 16 N.
Y. 457, note; Spear v. Crawford, 14
Wend. (N. Y.) 20; s. c. 28 Am. Dec.
513; Minneapolis &c. R. Co. v. Bassett,
20 Minn. 635; s. c. 18 Am. Rep. 376;
Henry v. Vermillion &c. R. Co., 17 Oh.
1 87 ; Vermont Central R. Co. v. Clayes,
21 Vt. 35; Mitchell u. Rome &c. R.
Co., 17 Ga. 575, 591; Chamberlains.
Plainsville &c. R. Co., 15 Oh. St. 225;
Ashtabula &c. R. Co. v. Smith, 15 Oh.
St. 328; niinois River R. Co. v. Zim-
mer, 20 111. 654.
» Beach v. Smith, 28 Barb. (N. Y.)
254; Black River &c. R. Co. v. Clarke,
25 (N. Y.) 208; affg. s. c. 31 Barb.
(N. Y.) 258; Haywood Plank Rd. Co.
V. Bryan, 6 Jones L. (N. C.) 82; Hall
V. Selma&c. R. Co., 6 Ala. (n. s.) 741;
Eastern Piank Rd. Co. v. Vaughn, 20
Barb. (N. Y.) 155; Ryder v. Alton
&c. Co., 13 111. 516; Pittsburg &c. R.
Co. V. Applegate, 21 W. Va. 172; Blair
V. Rutherford, 31 Tex. 465; Mitchell
V. Rome R. Co., 17 Ga. 574. Compare
Magee v. Badger, 30 Barb. (N. Y.),
246; Fiser v. Miss. .&c. R. Co., 32
Miss. 359; Barrington u. Miss. &c. R.
Co., 32 Miss. 763; Kiein v. Alton &c.
R. R. Co., 13 111. 514. It has been
held that if the subscriber is also
one of the persons to whom the sub-
scription is to be paid, its non-pay-
ment does not render it void. Ryder
V. Alton &c. R. Co., 13 111. 521. It has
been so held, although the charter
recited that the commissioners should
"receive no subscriptions to said
stock, unless five per cent, thereof in
cash shall be paid to them at the time
of subscribing, and should they receive
subscriptions to said stock without
payment, they shall be personalty
liable to pay the same to said corpora-
tion when organized." This clause
was held not a condition precedent to
the organization of the company, but
a mere personal liability imposed on
the commissioners. Blair v. Ruther-
ford, 31 Tex. 465.
2 Wight V. Shelby R. Co., 16 B.
Monr. (Ky.) 4; s. c. 63 Am. Dec. 523.
959
1 Thonip. Corp. § 1226.] the contract of subscription.
already seen,^ reasons of j^ublic policy have been invoked in
support of the conchision that the payment of such installment or
deposit is a condition precedent. But there are reasons of public
policy which operate quite as strongly the otlier way. A sub-
scription will operate just as effectively to deceive the public
into subscribing for other shares, or giving credit to the corpora-
tion, whether the statutory earnest-money is paid or not.
§ 1225. A Similar View in England. — The English courts
have proceeded on a similar view. Thus, where the act of
Parliament creating a company provided that the company
should not issue any share under the authority of that act, nor
should any share vest in the person accepting the same, until
one-fifth of the amount of the share was paid up, it was held
that the word issue referred to the issuing of certificates of
shares, and the word vest to the vesting of shares, so as to be
property and capable of transfer; but that the section did not
make the payment of one-fifth a condition precedent to the
liability, as a shareholder, of the person accepting the share.'^
§ 1226. Subscription Valid though Payment Made at a Sub-
sequent Time. — Where this theory prevails the payment need
not be contemporaneous with the subscription ; but if the sub-
scriber pay the deposit before the subscription books are closed
he will be held to the payment of the residue, though he did not
pay the deposit at the time of subscribing.^ It has been rea-
soned that the commissioners appointed under an act of the
legislature to take subscriptions for the purpose of organizing a
corporation are^jw6?ic agents; * that the statute is in the nature
of a power of attorney to them ; and that the authority thereby
conferred includes the right to exercise the usual and appropriate
means to accomplish the purpose of the agency. When, there-
fore, the statute in terms recited that the subscription should be
bona fide, and required the commissioners to receive ten per
1 Ante, § 1217. ^ Klein v. Alton &c. R. Co., 13 111.
2 East Gloucestershire R. Co. . 514.
Bartholomew, L. R. 3 Ex. 15; Purdey's ^ See ante, § 44.
case, 16 W. R. GGO; McEuen v. West
London &c. Co., L. R. 6 Ch. 665.
960
PAYING THE STATUTORY DEPOSIT. [1 Thomp. Corp. § l'^28.
cent, thereon in gold or silver, but designated no time for the
payment of such deposit, — it was held that the commissioners
had discretion to allow a reasonable time.^ Where the charter
of an incorporated^company required the payment at the time of
subscribing of a certain sum on each share by the subscriber, it
was held that a payment subsequent to that time, made before
the calls for installment, was an affirmance of the previous act of
subscription and a sufficient compliance with the requirements
of the charter. '"^ Where, under a similar charter, the subscriber
failed to pay the deposit at the time of subscribing, but adjudg-
ment was afterwards rendered against him therefor, which he
satisfied, it was held that he could not object to a suit brought
for other assessments, that he did not pay the five per cent, in
cash when he subscribed." ^
§ 1227. Invalidity of Secret Agreement that the Check
Shall not be Paid. — On grounds which we shall more fully
consider hereafter,* where a subscription is merely colorable,
made to induce others to subscribe, and with a secret under-
standing between the subscriber and the agent or promoter who
receives the subscription, that it shall not be enforced, the law,
on grounds of public policy and to prevent fraud, holds the
subscriber to his ostensible agreement and discharges the secret
condition. When, therefore, the subscriber gave his check to
the agent of the corporation for the sum of $1,000, being the
amount of the deposit of ten percentum of his subscription
required by the statute to be paid in cash, but with a secret
understanding with the agent that he should neither be required
to pay the check nor to pay for the shares, which agreement the
agent had no authority to make, it was held that the company
could maintain an action upon the check. ^
§ 1228. Subscription Void for Non-Payment of Deposit Made
Good by Estoppel. — The injustice and inconvenience of a rule
1 Napier v. Poe, 12 Ga. 170. ^ Syracuse &c. K. Co. v. Gere, 6
2 Barrington v. Mississippi &c. R. Thomp. & C. (N. Y.) 63G; s. c. 4 Hun
Co., 32 Miss. 370. (N. Y.), 392. Compare Crocker v.
3 Hal V. Selma &c. Railroad, 6 Ala. Crane, 21 Wend. (N. Y.) 211; «. c. 34
741. Am. Dec. 228; an«e, § 1221.
* Post, §§1311, 1400.
61 961
1 Thomp. Corp. § 1228.] the contract of subscription.
which allowed the subscriber to set up his own delinquency for the
purpose of escaping the liability which he had assumed by his
subscription, was such as drove some of the courts to a way out
of the difficulty by another road, — a thing which often happens
in judicial proceedings. They h:ive held that, although the sub-
scription was originally void because of the failure to pay, at the
tiuie of making the subscription, the deposit required by the
governing statute, yet the subscriber, who subsequently acted as a
corporator, became thereby estopped from denying his liability
to pay for his stock and from controverting the validity of his
subscription, after thus exercising the rights and privileges con-
ferred by it.i Again, although the subscriber may not have
paid at the time of his subscription the deposit of ten per cent,
required by the governing statute to be paid at that time, yet
where he subsequently paid that much and more, — e. ^., forty
per cent, of his subscription, it was held that it was thereby
made valid .^ So also if the subscriber gives a note for his sub-
scription, maturing at a future day, and the company disposes of
the wo^e before maturity to an innocent taker without notice, and
he collects it from the maker after a litigation, this will validate
the subscription under tiie same statute.^ The Supreme Court
of Pennsylvania, which was one of the first courts to hold that
the payment at the time of the subscription of the deposit re-
quired by the statute was a condition precedent to its validity,* has
finally fallen into line with the prevailing doctrine,^ so far as to
hold that, while a subscription without the payment of the re-
quired deposit is provisional only and not binding before the
articles of association are filed, so that the subscriber may with-
draw before that time, — yet if he suffers his name to remain
subscribed to the articles until the articles are filed, his subscrip-
tion becomes final, and he cannot afterwards withdraw nor set
up his omission to pay the required deposit against his associates.^
1 Clark V. Monongahela Nav. Co., ^ Ogdensburgh &c. R. Co. v.
10 Watts (Pa.), 304; Erie &c. R. Co. Wooley, 3 Abb. App. Dec. (N. Y.) 398;
V. Brown, 25 Pa. St. 156; Selma post, §
&c. R. Co. V. Tipton, 5 Ala. 787; s, c. * Ante, § 1217.
39 Am. Dec. 344, 356. ^ Ante, § 1224.
2 Black River &c. R. Co. v. Clarke, ^ Garrett u. Dillsburg &c. R. Co.,
25 N. Y. 208. 78 Pa. St. 465.
962
PAYING THE STATUTORY DEPOSIT. [1 Thomp. Corp. § 1231.
Ill Canada it has been held that although a statutory provision,
requiring payment of ten per cent, by the shareholder within
thirty days after his subscription, is a part of his contract to take
the shares, it is competent for the parties to waive it; and that,
■where the rooney has been paid to and accepted by the corpora-
tion, and stock certificates have issued recognizing the party as
a shareholder, and dividends on the shares have been paid to
hira, both parties (the corporation and the shareholder) are
thereby estopped from denying that he is a shareholder in the
corporation.^
§ 1239. Where Siibscriptiou Made after the Organiza-
tion. — The rule which requires the payment of the deposit in
order to the validity of the subscription, has been held not to
apply where the subscription is made after the organization of
the corporation, because in such a case the requirement, being
for the benefit of the corporation, is one which it may waive. "^
§ 1230. What if the Question Arises under a By-law
merely. — Accordingly, where the obligation to pay a deposit at
the time of making the subscription is not declared in the charter
or governing statute, but in a hy-law of the corporation merely,
the failure to pay the deposit will not avoid the subscription, but
will render it voidable only, at the election of the corporation.
The corporation may waive this by-law, and elect to treat the
subscription as valid, and upon its doing so the subscriber will
be bound.'
§ 1231. Illustration in Case of Surrender and Re-issue of
Shares. — A good illustration of this is found in a case where the act
1 Be, Central Bank of Canada, 25 This was conceded by the Court of
Can. L. J. 238, opinion by Hodj^ins, Appeals of Maryland iu Taggart v.
Master-iu-Ordinary; citing and fol- Western Mary hiud R. Co., 24 Md. 6G3;
lowing Day's case, decided by the s. c. 8'J Am. Dec. 760. So held in the
same judicial ofTicer and afterwards Canadian cases cited in the preceding
affirmed on appeal. Compare Union section.
Fire Ins. Co. v. Shoolbred, 4 Out. ^ pjscataqua &c. Co. v. Jones, 39
(Pan.) 359; Porli Whitby &c. II. Co. N. 11.481; Smith r. Plank Road Co.,
•y. Jones, 31 Up. Can. Q. B. 170. 30 Ala. G.50; McRea v. Russell, 12
2 Miimcapolis&c. R.Co. w. Bassett, Irod. L. (N. C.) 224; Blair v. Ruther-
20 Minn. 535; s. c. 18- Am. Rep. 37G. ford, .'31 Tex. 4C5.
963
1 Thomp. Corp. § 1232.] the contract of subscription.
of incorporation of a banking company required that ten per cent,
should be paid to the commissioners on each share of the capital stock
at the time of subscribing. As soon as all the capital stock was taken,
and ten per cent, thereon paid in, the trustees were to be elected and
the company fully organized. Subsequently, an amendment of the
charter authorized the company, in its disccetion, to allow any stock-
holder to surrender his certificate of capital stock, and take a certificate
of full paid stock equal to the amount of payment on the stock surren-
dered, and the company were to hold or re-issue such overplus stock.
It was held that the company were not bound to require of the purchasers
of tliis surrendered stock a payment of ten per cent, on each share of
their purchase. The terms of the original charter had exclusive refer-
ence to subscribers before the corporation was organized, and before it
had existence ; and the amendatory act gave the company, and not the
commissioners, the right of re-issuing its surrendered stock. ^
§ 1232. Effect of Statutes Requiring a Certain Amount to
be Paid in before Commencing Business. — Statutes requiring
a certain amount of the capital stock of a corporation to be paid
in before it shall commence business, stand on a similar footing
to those requiring the payment by subscribers of a certain per-
centage of their subscriptions at the time when their subscriptions
are made. The non-compliance with such a charter or statutory
provision cannot be set up either by the corporation nor by the
stockholders, to avoid a liability resting upon them.'^
1 Social Life Ins. &c. Co. v. Lanier, Bank, 3 Strobh. (S. C.) Eq. 263.
5 Fla. 110; s. c. 58 Am. Dec. 448. Compare Patterson v. Wyomissing &c.
* Johnston v. Southwestern &c. Co., 40 Pa. St. 117.
964
FULL AMOUNT MUST BE SUBSCRIBED. [1 Thomp. Corp. § 1335.
Article IV. Theory that the Full Amount of the Capital must be
Subscribed.
Section
1235. Shareholder not liable until full
amount subscribed.
1236. Illustration: subscription on
condition that " sufficient is
subscribed for the purpose."
1237. Instance of a faulty instruction
submitting this question to
the jury.
1238. Subscriptions by insolvents,
persons not sui juris, etc.
Section
1239. Subsequent declaration of sub-
scriber inadmissible.
1240. View that the judgment of the
commissioners is conclu-
sive.
1241. Taking subscription in property
at excessive valuation.
1242. Waiver of right to object on this
ground.
§ 1235. Shareholder not Liiahle Until Full Amount Sub-
scribed. — Where the act of incorporation,^ or the articles of
association,^ or certificate of incorporation,^ or subscription
agreement,* or in England the prospectus which is published to
induce subscriptions to the stock of the projected company,*
fixes its capital at a certain sum, divided into shares of a speci-
fied amount, a subscriber cannot be required to pay assessments
until the amount so fixed has been fully and bo7ia fide subscribed,
unless, by taking part in the organization of the corporation or
otherwise, he has waived his rights in the premises or estopped
1 Contoocook Valley R. Co. v. Bar-
ker, 32 N. H. 303; People v. National
Savings Bank, 129 111. 618; s. c. 22 N.
E. Rep. 288; Masonic Temple Asso.
V. Channell 43 Minn. 353; s. c. 45 N.
W. Rep. 71G.
2 Rockland &c. Steamboat Co. v.
Sewall, 78 Me. 167; s. c. 3 Atl. Rep.
181; 1 New Eng. Rep. 791; 4 East.
Rep. G21; Bray v. Farwell, 81 N. Y.
600 (overruling, it seems, Plank Road
Co. V. Wetzell, 21 Barb. (N. Y.) 156) ;
Allman v. Havana &c. R. Co., 88 111.
521.
3 Haskell v. Worthington, 94 Mo.
660.
* People's Ferry Co. v. Balch, 8
Gray (Mass), 303; Rockland &c.
Steamboat Co. v. Sewall, 78 Me. 167;
Santa Cruz R. Co. v. Schwartz, 53 Cal.
106. It has been held no defense in
an action for calls that the full amount
of capital stock contemplated in the
agreement of subscription has not been
subscribed, provided the amount re-
quired by the governing statute has
been yo subscribed. Hamilton &c.
Plauk Road Co. v. Rice, 7 Barb. (N.
Y.) 157.
^ Pitchford v. Davis, 5 Mees. & W.
2; Galvanized Iron Co. v. Westoby,
16 Jurist, 892; Martin B., in How-
beach Coal Co. V. Teagler, 6 Jurist
(N. s.),275; 8. c. 6 Hurl. & N. 151; Eu-
ropean &c. R. Co. V. McLeod, 1 Pugs-
ley (N. B.), 314, per Weldon, J.
965
1 Thomp. Corp. § 1237.] the contuact of subscription.
himself from setting up this defense. ^ Until then his subscrip-
tion is deemed to be conditional merely. The reason of the rule
is plain. He is invited to become a subscriber to" a venture to
be commenced and carried on by means of a certain capital,
divided into a certain number of shares, and he cannot be com-
pelled against his will to be a contributor to a venture com-
menced and carried on with a smaller capital or a smaller number
of shares. The rule has been held otherwise where the question
arose collaterally, and under a charter couched in such, terms
as not to disclose a clear legislative intention to make the sub-
scription of the whole capital stock a condition to the corporate
existence.''^
§ 1236. Illustration : Subscription on Condition that ** Suf-
ficient is Subscribed for the Purpose." — Upon a contract iu
wi'iting, by which subscribers ' ' agree to pay the sums set against their
respective names, to such persons as shall be authorized to receive the
same, for the establishment and support of a new feriy from East
Boston to Boston, the location of which shall be determined by the
committee recently appointed at a meeting of the citizens, provided
sufficient is subscribed for the purpose, the same to be represented by
the certificates of stock to be created by the company hereafter to be or-
ganized," — a corporation established after the date of the agreement
can not maintain an action, against one who subscribes it after such
organization, for the amount of his subscription ; at least until a suffi-
cient sum has been subscribed to pay for all lands, structures, and
boats of the ferry, free of incumbrances. ^
§ 1237. Instance of a Faulty Instruction Submitting this
Question to the Jury. — In an action by a corporation against a
subscriber for an assessment the court instructed the jury to the effect
that, ' ' where an act of incorporation fixes the amount of the capital
stock, and the number of shares into which it shall be divided, the cor-
poration can make no assessment, nor call upon the stockholders, until
1 Hale V. Sanborn, 16 Neb. 1; rule. Masonic Temple Asso. v. Ch.-ui-
Temple v. Lemon, 112 111. 51. Com- nell, 43 Minn. 353; s. c. 45 N. W. Kep.
pare Penobscot R. Co. v. White, 41 716.
Me. 572; «. c. 66 Am. Dec. 257, and 2 Minor u. Mechanics' Bank, 1 Pet.
Boston &c. R. Co. v. Midland R. Co., (U. S.) 46, 65.
1 Gray (Mass.), 368. The general 3 peoples Ferry Co. v. Batch, 8
statutes of Minnesota abrogate this Gray (Mass.), 303.
9 no
FULL AMOUNT MUST BE SUBSCRIBED. [1 Thomp. Corp, § 1238.
the stock has been subscribed, unless either expressly or by implication
a different intent appears in the charter or in the subscription. And if
they believe that the act incorporating plaintiff's company required the
sum of $300,000 to be paid in before any call could be made upon the
subscribers, and plaintiff had failed to show that this had been done,
they must find for defendant." It was held that this instruction was
faulty, in submitting to the jury the legal construction of the plaintiff's
charter, the legal effect of written instruments being a question for the
court, and not for the jury; and in raising the question whether the
company was duly organized, which could only be done b}'^ a plea under
oath, denying the character assumed.^
§ 1238. Subscriptions by Insolvents, Persons not Sui
Juris, etc. — The principle of the foregoing section will
obviously apply where the commissioners, promoters, or others
having control of the subscription list accept in bad faith, idiots,
lunatics, married women (where the common law disabilities of
married women prevail), or persons who are notoriously insolv-
ent. But, in view of the policy and necessity of holding solvent
subscribers to their eno^ao-ements, the courts have admitted
defenses of this kind sparingly and with great caution. It has
been held no defense to an action by creditors that some of
those who were accepted as subscribers, were notoriously insolv-
ent at the time. 2 Another court has held that it is not a good
defense to such an action that the corporation had accepted sub-
scriptions from persons who were not pecuniarily responsible, and
who were reputed to be not responsible for the amount for which
they subscribed, — subject, however, to the qualification that the
defendant might offer any evidence tending to show that these
subscriptions were not made in good faith. The court sanctioned
the principle that the subscriber cannot be held to his contract
of subscription, until the least sum required by the charter
should be subscribed.^ This was in accordance with what the
same court hud ruled in a previous case, that *' if the com-
pany obtains subscriptions to the amount required, in good
faith, from persons apparently able to pay or to procure
^ Selma &c. R. Co. v. Anderson, 51 ' Penobscot &c. R. Co. v. White, 41
Miss. 829. Me. 512; s. c. G6 Am. Dec, 257.
2 Jewell V. Rock River Paper Co.,
101 111. 57.
967
1 Thomp. Corp. § 1339.] the contract of subscription.
others to pay for the shares, it could not have been the
intention to render its proceedings illegal and void, if those
subscriptions should finally prove to be of little value. ^ The
court added to this the observation that " if the corporation
should, for the purpose of making up the amount of stock
required before an organization, accept a list of subscribers and
shareholders which was composed in part oS idiots or town pau-
pers, as suggested by the counsel for the defense, such a sub-
scription would not be a compliance with the provisions of the
charter; but if, on the other hand, the list appeared to the com-
pany to consist of names which might be relied on for the fulfill-
ment of the subscription, they would be justified in proceeding
to organize, and their proceedings would be valid, even though
it might subsequently be made to appear, that some of the sub-
scribers, at the time, were not of sufficient pecuniary responsibil-
ity to pay for their stock, and were not reputed to be so, pro-
vided the corporation acted in good faith on their part in the
acceptance of such list. From the very nature of the contract
of subscription, it must have been within the contemplation of
the parties that the shareholders or corporators should deter-
mine who were apparently responsible as subscribers ; and when
they had done so in good faith, the subscribers to the stock
must be regarded as bound by such decision. The reputation or
fact of pecuniary inability could, at most, only be evidence upon
the question of good faith, and for that purpose the defendant
was permitted to prove them if he desired." ^ Another
court regarded it as not a good defense to such an action
that certain small subscriptions were void because made by
married women, the defendant having subscribed after these
married women and with a knowledge of their subscriptions.^
§ 1239. Subsequent Declaration of Subscriber Inadmissi-
ble. — On the soundest principles, the subsequent declaration of
a subscriber to the effect that his subscription was coloi'able and
not made in good faith, will not be admitted, in an action ngainst
1 Penobscot &c. R. Co. v. Dummer, ^ Comell's Appeal, 114 Pa. St.
40 Me. 172 ; s. c. 63 Am. Dec. 654. 153. See ante, § 1096 et seq.
2 Penobscot E. Co. v. White, 41
Me. 512; s. c. 66 Am. Dec. 257, 262.
968
FULL AMOUNT MUST BE SUBSCRIBED. [1 TllOmp. Corp. § 1241.
another subscriber for calls, for the purpose of showing that such
was the fact, in order to create a defense within the rule stated
in the preceding paragraph.^
§ 1240. View that the Judgment of the Commissioners is
Conclusive. — Where the commissioners appointed to receive the
subscriptions are vested with the power of deciding when the
requisite amount has been 6ona^tZe subscribed, and of certifying
that fact to the secretary of state, who is thereupon required to
issue a certificate that the corporation has been organized, the
decision of the commissioners upon the point named is deemed
conclusive, and consequently the certificate issued by the secre-
tary of state is deemed conclusive evidence of the fact that the
corporation has been duly organized. ^ The theory of this hold-
ing is that found in the following observation of Lord Tenterden ;
" If a matter is left to the discretion of any individual, or body
of men, who are to decide according to their own conscience and
judgment, it would be absurd to say that any other tribunal is to
inquire into the grounds and reasons on which they have decided,
and whether or not they have exercised their discretion properly
or not. If such a power is given to any one, it is sufficient in
common sense for him to say that he has exercised that power to
the best of his judgment." ^
§ 1241. Taking Subscription in Property at Excessive
Valuation. — A just principle would seem to avoid the bona fide
subscriptions taken where those in charge of the subscription list
fraudulently accept subscriptions in specific property at grossly
excessive valuations; * though in the era of early railroad build-
ing when some of the western courts seem to have been strangely
affected in favor of the railroad companies, even this was held
to be no defense.^
1 Penobscot R. Co. v. White, 41 Justices of Norfolk, 1 Nev. & M. 67;
Me. 512; s. c. 66 Am. Dec. 257. Clarke v. Brooklyn Bank, 1 Edw. Ch.
2 Connecticut &c. E. Co. v. Bailey, (N. Y.) 361, 371.
24 Vt. 405; s. c. 58 Am. Dec. 181, 186. * Post, § 1608.
2 Rex V. Mayor &c. of London, 3 ^ Maccoun v. Indiana &c. E. Co., 9
Bam. & Adolph. 271. See in support Ind. 262; Ilornaday v. Lane, 9 Ind.
of the same doctrine. Walker j>. Dev- 263. No opinion was written in either
ereux, 4 Paige (N. Y.),229; Rex v. of these cases.
969
1 Thomp. Corp. § 1245.] the contract of subscription.
§ 1242. Waiver of Right to Object on this Ground But,
as already suggested,^ the subscriber may waive his right to de-
fend against the action on his subscription on this ground ; and
here, as in other cases," he may estop himself from showing tliat
the corporation has been illegally organized, by his conduct in
participating in its organization, or otherwise. Any acts done
by him, either as a corporator, or as a director, which evince a
willingness on his part that the corporation should enter upon its
business with no more stock than that already subscribed, will
amount to a waiver of the condition that payment of his subscrip-
tion cannot be required until the whole capital stock is subscribed.^
So, if a corporation has already commenced business at the time
wh^n the subscription is made, and the subscriber knows this
fact, and also knows that its whole capital stock has not been
taken, a like waiver on his part may be inferred.*
Article V. Other Theories and Holdings.
Section Section
1245. What agents can receive sub- 1254. Distinction between subscrip-
scriptious. tions and purchases of shares.
1246. Nature of the authority of com- 1255. Promise to take and pay for
missioners. stock in unincorporated coin-
1247. Apportionment of stock by the pany actionable.
commissioners. 1256. Each subscription several, not
1248. Proportion allowed to the com- joint.
missioners themselves. 1257. Subscription by a partnership
1249. Remedy of the subscriber for name.
refusal to issue shares. 1258. Subscriptions construed by the
1250. Apportionment upon incorpo- court.
rating a mining property. 1259. Construed according to what
1251. Subscription void after all stock law-
taken. 1260. Taking shares to qualify as di-
1252. Instances of insufficient sub- rector.
scriptions. 1261. Continued.
1253. Subscriptions delivered as an 1262. Limit of option to take shares
escrow. on reorganization.
§ 1245. What Agents can Receive Subscriptions. — Where
commissioners have been appointed under the charter to take
^ Ante, § 1235. •* Musgraveu. Morrison, 54 Md. 161.
2 Post, § . See also Go££ v. Hawkeye Pump &
3 Masonic Temple Asso. v. Channell Windmill Co., 62 Iowa, 691.
43 Minn. 353 ; s, c. 45 N. W. Rep. 716.
970
' OTHER THEORIES ABD HOLDINGS. [1 Thoilip. Corp. § 1245.
subscriptions, after the corporation is organized and a board of
directors elected the functions of the commissioners cease, and
the directors alone have the power to receive further subscrip-
tions to the stock of the company. But, of course, they may
appoint an agent to receive subscriptions, and subscriptions
so received will be binding.^ This, of course, assumes that its
stock is not all filled up. The theory here invoked is that
receiving subscriptions to the capital stock of a corporation is
a ministerial act, under a statute authorizing commission-
ers to take such subscriptions and subsequently to dis-
tribute the stock, and that such act may therefore be
performed by an agent or deputy, or by any one without author-
ity whose act is afterwards ratified by the commissioners. 2 But
where the governing statute provides for the organization of
a corporation and nominates a particular agent, official, or board
of commissioners to receive subscriptions to its stock, subscrip-
tions can only be received by such agent, official or board of com-
missioners, or they will not be binding. The reason is that the
statutory direction must be pursued. Thus, if the power of allot-
ting shares to applicants is conferred by the governing statute
upon the board of directors, they cannot delegate it to a committee
of their number, and no valid allotment can be made by such a
committee.^ So, if a statute providing for the organization of
railroad companies provides that certain commissioners, to be
named in the articles of association, shall, after the corporation
is organized, open books for subscriptions, and keep the same
open until the capital has been subscribed, and, in case of an
excess of subscriptions, make a distribution among the sub-
scribers, — subscriptions received by an «^en^ appointed by the
directors will not be binding.* The theory is that the commis-
sioners, under such a statute,^ act as a statutory board, and
derive their powers from the law, and not from the corporation ;
1 Lohman v. New York &c. R. Co. 23; Northern Central &c. R. Co. v.
2Sandf. (N. Y.) 39. Eslow, 40 Mich. 222; Essex Turnp.
2 Crocker v. Crane, 21 Wend. (N. Co. v. Collins, 8 Mass. 292. Contra,
Y.) 211 ; s. c. 34 Am. Dec. 228. Railroad Co. v. Rodriguez, 10 Rich. L.
3 Howard's case, L. R. 1 Ch. 561. (S. C.) 278. See also cases cited in
4 Schurtz V. Schoolcraft &c. R. Co., Mor. Corp., 3d cd., § 65.
9 Mich. 269, 272. See also Parker u. ^ Here, the general railroad law of
Northern Central &c. R. Co., S3 Mich. Michigan.
971
1 Thomp. Corp. § 1247.] the contract of subscription.
and since it is the intent of the law, to enable all persons to
subscribe equally, any subscription not made through them, act-
ing regularly in the discharge of their duty, is void for want of
mutualit3^l Therefore, subscriptions taken by an agent ap-
pointed by the directors, not being binding, did not operate to
prevent other parties from taking the entire amount not sub-
scribed by the original articles, whenever the commissioners
should see fit to proceed and perform their duty.^ But here, as
in other cases, although the subscription may not be binding,
because procured by an agent having no authority, yet the in-
firmity of the contract may be cured by a subsequent ratification.^
§ 1246. Nature of the Authority of Commissioners. — A
commissioner appointed by or under a statute to receive subscrip-
tions to the capital stock of a corporation is said to be an agent
appointed by the law with a special power of attorney, which
power is found in the statute. It follows that, as in the case of
other public agents and officers, all who deal with him must look
to the source of his authority.*
§ 1247. Apportionment of Stock by the Commissioners. —
In the days when corporations could only be organized under
special charters granted by the legislature, corporate franchises
were of great value, and shares in corporate ventures were in
many cases subscribed for with great eagerness. This was
especially so in the State of New York in the case of banking
corporations, which in many cases enjoyed a monopoly of the
banking business, which mistaken notions of public policy were
interested in protecting ; so that informations in the nature of
quo loarranto were frequently exhibited against insurance and
1 Schurtz V. Schoolcraft &c. R. Co., that he might forfeit his stock at
9 Mich. 269. pleasure. Railroad Co. v. Rodriguez,
2 Ibid. It has been held, contrary 10 Rich. L. (S. C.) 278.
to the principle on which this case ^ Walker v. Mobile &c. R. Co., 84
proceeds, that a subscription to tlie Miss. 245; Mobile &c. R. Co. v. Yan-
capital stock of a railroad company is dal, 5 Sneed (Tenu.), 294.
valid, though made to one who was ■* Nippenose Manuf . Co. v. Sladon,
not a commissioner to receive sub- 68 Pa. St. 256. See also Schurtz v.
scriptions, and though made by the Schoolcraft &c. R. Co., 9 Mich. 269;
subscriber under a mistaken belief Napier v. Poe, 12 Ga. 170.
972
OTHER THEORIES AND HOLDINGS. [1 Thomp. Corp. § 1247.
other non-banking corporations which assumed to do a banking
business. 1 In the eagerness to subscribe for shares in a pro-
jected corporation, it often happened that more shares were
subscribed for than the aggregate capital stock which the
charter allowed the corporation to have. In this state of things
disputes naturally arose as to the apportionment of the shares,
and the courts were frequently appealed to to settle these disputes.
The holdings of the courts in settling these disputes were in most
cases influenced by the language of particular charters;^ but
these charters were generally very similar to each other in re-
spect of the steps pointed out for organizing the company. In
one case, where the act of incorporation made no provision for
the case of an excess of subscriptions over the prescribed capital
stock, it was held that the commissioners were impliedly author-
ized to make an equitable apjportionment of the stock among all
the subscribers ; but that they had no power entirely to exclude
any of the subscribers, or to take an inordinate proportion of
the stock themselves ; and where they made an apportionment
which the court regarded as unjust, a re-apportionment was
directed, and the choice of directors in the mean time was
restrained by injunction.^ In another case the act incorporating
a bank directed the commissioners, in case of an excess of sub-
scriptions, to apportion the stock among the subscribers, as
might seem, to a majority of the commissioners, to be most for
the interest of the institution ; but each subscriber for twenty
shares or upwards was to receive at least twenty shares, unless
the subscriptions for smaller quantities should exceed the capital
stock. The subscriptions for twenty shares and under did
exceed the capital stock. It was held that the apportionment of
the stock rested in the uncontrolled discretion of the commis-
sioners; and that an apportionment made in good faith was
valid, though some subscribers received more than twenty
shares, to the entire exclusion of others.* It was an essential
1 Post, Ch. 152. ' Meads v. Walker, Hopk. (N. Y.)
2 That the right of the public to 587.
participate in the stock of an incor- ^ Clark v. Brooklyn Bank, 1 Edw.
porated bank depends entirely upon (N. Y.) 361.
its charter, see State v. Bank of
Charleston, Dudley (S. C), 187.
973
1 Thomp. Corp. § 1218.] the contract of subscription.
premise to the foregoing conclusion that an apportionment
of the shares by the commissioners among the subscribers was
necessary to each sharehokler's title, — in other words, that the
contract was not complete for want of mutuality, but remained
a proposal merely, until the commissioners made the apportion-
ment. Under this theory no subscriber acquired any interest in
the stock of the company as owner, so as to authorize him to
transfer, or vote upon it, until the commissioners had apportioned
the stock, and designated the stockholders, and the amount each
was to receive. 1 It followed from the same theory that a dis-
tribution of the stock by a number of commissioners, not suflS-
cient to constitute a quorum or a legal board, was void; and it
was therefore held that in such a case an obligation given for the
payment of the first installment was void for want of considera-
tion.2 But, under a statute of South Carolina chartering certain
banks, it was held that the commissioners appointed to take
subscriptions, had no power, in. case of over-subscription to the
stock, to apportion it among the subscribers. It belonged to
the corporation to reduce the subscriptions joro rata} There is
a curious holding to the effect that if a person, for the purpose
of deceiving the commissioners, under an act of incorporation,
procures stock to be subscribed for in the name of another person,
for his benefit, it will be a fraud upon the commissioners, and
upon the law, and the legal title to the stock will vest in the
person subscribing, for the benefit of the corjmration.^
§ 1248. Proportion Allowed to the Commissioners Them-
selves. The commissioners appointed by the act of incorpora-
tion to take subscriptions were, as already suggested, entitled to
reserve a reasonable quantity to themselves ;5 but where the act
of incorporation piovided that no one of the commissioners for
taking subscriptions should be allowed more than a certain
quantity, — it was held that they were entitled to that quantity,
1 Walker v. Devereaux, 4 Paige * Walker v. Devereaux, 4 Paige
fN. Y.), 229. CN.Y.),229.
2 Crocker v. Crane, 21 Wend. ^ Meads v. Walker, Hopk. (N. Y.)
(N. Y.) 211; s. c, 34 Am. Dec. 228. 587; Walker v. Devereaux, 4 Paige
8 State V. Lehre, 7 Rich. (S. C.) (N. Y.), 229.
234.
974
OTHER THEORIES AND HOLDINGS. [1 TllOmp. Corp. § 1249.
though the subscriptions greatly exceeded the authorized capital
stock. ^
§ 1249. Remedy of the Subscriber for Refusal to Issue
Shares. — In the case of the unjust apportionment of the shares,
or of a refusal to issue the shares for which a party has sub-
scribed, his remedy, if he has any, is in equity; and we have
already referred to a case where a re-apportionment was directed
and the election of directors was in the meantime restrained by
injunction. 2 It has been held that where a corporation issues
new stock, to be distributed among its existing stockholders in
prop®rtion to their respective holdings, — which is the case with
what is termed a *' stock dividend," ^ if the directors refuse to
issue to a particular shareholder his due portion of the new stock,
he may maintain an action in equity to compel its issue, so long as
unissued stock remains which may be applied to the purpose, and
that he may also maintain an action for damages for the refusal;
and further, that such an action should be brought by each indi-
vidual stockholder who is thus injured, since the rights and obli-
gations of stockholders are several and not joint;* that it should
not be brought in behalf of the plaintiff and all other stockhold-
ers who may come in; and that it should be brought against the
corporation, and not against the directors as individuals.^ It
has been held, in such a case, that the stockholder cannot main-
tain an action against the corporation for refusing to permit him
to subscribe for the new stock, without first proving that he de-
manded and offered to subscribe for such stock. ^ Subscribers
who have not paid the deposit required by the charter or govern-
ing statute, in the case of subscribers to the stock of a projected
corporation, have, in the view of one court, no standing in
equity to undo an illegal organization of the corporation by their
co-subscribers.' If their co-adventurers illegally organize the
1 Clark V. Brooklyn Bank, 1 Edw. " Wilson v. Bank of Montgomery
(N. Y.) 361. County, 29 Pa. St. 537; see further
2 Meads v. Walker, Hopk. (N. Y.) Smith v. Chicago &c. R. Co., 18 Wis.
587. 17; Miller v. Illinois &c. R. Co., 24
3 Tost, § 1079. Barb. (N. Y.) 312.
* Ante, § 1079. ' Ante § 1235, et seq.
s Dousman v. Wisconsin &c. Min-
ing Co., 40 Wis. 418.
975
1 Tliomp. Corp, § 1251.] the contract of subscription.
corporation and illegally elect a treasurer, they cannot have any
relief against them in equity, because they have not paid the first
installment to the treasurer so illegally elected. If a minority of
the sul)scribers, a number not sufficient under the terms of the
charter to organize the corporation, meet by themselves and as-
sume to organize it, the objecting subscribers have no standing in
equity to have the wrong undone, because they are estopped to
deny the validity of the corporate organization, in a case where
they have never admitted it, where they are not proceeding
against the supposed corporation, and where the very foundation
of their proceeding involves a denial of it.^
§ 1250. Apportionment on Incorporating a Mining Prop-
erty. — Upon the incorporation of a mining or other property,
owned by several persons in common, each of the co-adventurers
will be entitled to a proportion of the stock corresponding to his
interest in the property, unless the constating instrument clearly
excludes that conclusion and establishes a different rule of ap-
portionment. Thus, upon the organization of a mining corpora-
tion by the owners of undivided third interests in mining property
which they conveyed to the corporation in payment of all its
stock, the certificate of incorporation, providing that the stock
was to be " divided half and half between the parties," was
construed to mean that each owner and incorporator was entitled
to one-third of the stock. ^
§ 1251. Subscription Void after All Stock Taken. — This
leads us to inquire what will be the efi'ect of a subscription made
after all the stock has been subscribed for. A corporation can-
not increase its stock at will, in any manner or to any extent,
unless it is authorized to do so by its charter or by the governing
statute, and then only in the manner prescribed.^ When a cor-
poration has issued valid shares to the full extent of all the shares
which by its constitution or by the general law it is empowered
to issue, no court can order it to issue others, because in that
1 Busey w. Hooper, 35 Md. 15; s. c. ^ Lathrop xi. Kneeland, 46 Barb.
6 Am. Rep. 350, 359. (N. Y.) 432; ^osi, § 2079.
2 Bates V. Wilson, 14 Colo. 140; s,
c. 24 Pac. Rep. 99.
OTHER THEORIES AND HOLDINGS. [1 Thomp. Corp. § 1252.
respect its powers have been exhausted. ^ When all the stock of
a corporation is once subscribed for and taken, the corporation
cannot issue any more unless it shall get back a portion of that
which has been taken, by forfeiture or otherwise;^ and no person
can then become a shareholder and as such liable to creditors of the
corporation, except by purchase from the original subscriber, or
his assignee, and by having the stock transferred to him.^ It was
hence held, where all the stock of a corporation was subscribed for
and taken at the time the articles of incorporation were tiled, and
the certificate of incorporation, made and filed as required by law,
si^ecified the names of all the stockholders, and there was no
evidence that the corporation had come into possession of any of
its stock by forfeiture or otherwise, — that no subsequent sub-
scribers, by merely writing their names in the corporation book
and affixing a number of shares to their respective names, could
acquire a right to any share of its stock, or become by such act
stockholders of the corporation, and, as such, liable for its debts.
Nor does such a subscription for stock, where there is none to
issue, estop the subscriber, when proceeded against by creditors
of the corporation, from denying the relation of stockholder.*
The foregoing observations have no reference to the case men-
tioned in the preceding section, where the commissioners ap-
pointed by and under an act of incorporation are empowered to
apportion the shares among the subscribers; though it will
manifestly apply after the apportionment has been made and the
stock has thus been filled up with valid subscriptions which have
been accepted by the commissioners.^
§ 1252. Instances of Insufficient Subscriptions. — A subscrip-
tion by one of several heirs, as follows, — " Estate of A., 100 shares
^ Smith V. North American Mining insurance company, the paper sub-
Co., 1 Nev. 428; Mechanics' Bank v. scribed referring to a previous sub-
New York &c. R. Co., 13 N. Y. 599. scription of $40,000, not then paid in,
2 See Evans's Case, L. R. 2 Ch. 427; as being part of the full sura of
post, § 2080. $300,000, to be subscribed, thereby
* Lathrop v. Kneeland, 40 Barb. has notice of such fact, and also of
(N. Y.) 4 32. the fact tliat such sum of $40,000, is
* Lathrop v. Kneeland, 4G Barb. (N. to be taken as part of the full sub-
Y.) 432. To the same effect is Mack- scription. New York &c. R. Co. v,
ley's Case, L. R. 1 Ch. 247. l)e Wolf, 5 Bosw. (N. Y.) 693.
5 A subscriber to the stock of an
V.-2 977
1 Thonip. Corp. § 1253.] the contract of subscription.
$10,000," — binds neither him nor his co-heirs, as the statute provides
that the associates shall severally subscribe. i - - - - In connec-
tion with a conditional contract with Y. to continue him as employe, a
corporation drew up a certificate of stock to Y. , which it retained in the
stock-book, and indorsed thereon a receipt by it for him. It was held
that there was no delivery of the certificate, and that Y. acquired
no I'ights thereby ; although owning no other stock, he had been al-
lowed to vote in meetings of the stockholders. ^ _ . . _ Several
persons signed a paper purporting to be an agreement to take stock in
a corporation, which, as the paper recited, was about to be formed.
Afterwards the paper was signed by the president and secretary, and
the corporate seal was aflfixed, and an action was brought to recover
from one of the subscribers the price named in the paper. The com-
plaint did not state when the company was incorporated, and it was not
shown that any of the subscribers joined in its formation or membership,
or was authorized to sell any of the stock. It was held that the action
could not be maintained, for want of mutuality under the civil code of
California. 2
§ 1253. Subscription Delivered as an Escrow. — A sub-
scription cannot be delivered as an escrow to commissioners
appointed to receive subscriptions for the corporation, to take
effect only on a specified condition ; but the subscription
becomes absolute when delivered to such persons, and the non-
performance of the condition is no defense in an action for
calls. " The well settled doctrine is that, to make a writing
an escrow merely, it must be placed in the hands of a third
person by the party making it, to be delivered to the other
party on the happening of a specified contingency. Here the
subscribers were the parties on the one side, and the com-
missioners on the other."* But it has been held that a
1 Troy &c. E. Co. v. Warren, 18 tion that it shall operate as an escrow
Barb. (N. Y.) 310. merely, and take effect upon a sub-
2 York V. Passaic Rolling Mill Co., sequent condition, but that the deed
30 Fed. Rep. 471. takes effect absolutely upon such de-
3 California Sugar Manuf. Co. v. livery, see the following authorities:
Schafer, 57 Cal. 396; Cal. Civ. Code, Fairbanks v. Metcalf, 8 Mass. 238;
§§ 343, 344. Gilbert v. Insxu-anceCo., 23 Wend. (N.
< Wright V. Shelby Railroad Co., Y.)45; s. c. 35 Am. Dec. 543; Clarku.
16 B.Monr. (Ky.) 4; s. c. 63 Am. Dec. Gifford, 10 Wend. (N. Y.) 313; Wor-
522. That a deed cannot be delivered rail v. Munn, 5 N. Y. 229; s. c. 55 Am.
to the grantee or kis agent on condi- Dec. 330; Foley v. Cow gill, 5 Blackf.
978
OTHER THEORIES AXD HOLDINGS. [1 Thouip. Coip. § 1253.
delivery may be made to a director of the corporation in escrow,
to become binding only on the happening of a certain condition ;
so that if the director delivers it to the corporation without the
happening of such condition, it will not be binding. ^ In another
case a committee was appointed by the inhabitants of a town,
to obtain subscriptions to the stock of a railroad company,
which were to be delivered to the company only upon certain
parol conditions. It was held that a member of the committee,
acting as such, was not an agent of the railroad company in
(Ind.) 18; s. c. 32 Am. Dec. 49; Hicks
V. Goode, 12 Leigh CVa.), 479; Ward
V. Lewis, 4 Pick. (Mass.) 520; Lawton
V. Sager, 11 Barb. (N. Y.) 351 ; Cocks v.
Barker, 49 N. Y. 110; Braman v. Biug-
liam, 26 N. Y. 491 ; Berry v. Anderson,
•22 Ind. 39 ; Seymour v. Cowing, 1
Keyes (N. Y.), 535; s. c 4 Abb. App.
(N. Y.) 204; Brackett v. Barney, 28 N.
Y. 341; Beers V. Beers, 22 Micii. 44,
Madison &c. Co. v. Stevens, 10 Ind. 2;
DeardorfE v. Foresman, 24 Ind. 485;
Co. Litt. 3fia: Shep. Touch. 58, 59.
The practical meaning of the rule is
tliat parol evidence qualifying a deliv-
ery of the deed to the grantee or to
his authorized agent is inadmissible.
Stephens v. Buffalo &c. R. Co., 20
Barb. (N. Y.) 339 ; Cocks v. Barker, 49
N. Y. 110. But, on the contrary, if it
is intended that the deed shall take
effect upon conditions, those condi-
tions must be written in or upon the
deed. Berry v. Anderson, 22 Ind. 39.
But it has been held that leaving a
deed in the hands of a grantee, to be
by him transmitted to a third person,
to hold in escrow until the happening
of a certain event, is not a delivery to
the grantee, so as to vest title in him.
Gilbert v. Insurance Co., 23 Wend. 43;
.s. c. 35 Am. Dec. 543. It is only where
the deed is delivered to the grantee or
to his authorized agent, with intent
to part with it as a deed and that it
shall ultimately take effect as a deed,
that thi.s rule applie«. If the deed is
delivered without this purpose the
law will not disappoint the intention
of the parties and hold the delivery
absolute. Dietz v. Farish, 12 Jones &
S. (N. Y.) 252; s. c. 53 How. Pr. (N.
Y.) 223; Brackett v. Barney, 28 N. Y.
341. Another distinction suggested is
that the rule applies only to those
forms of deeds whichconvey an es^7ie,
and not to those, such as bonds, which
convey merely a right of action.
Campbell, J., obiter, in People v.
Bostwick, 32 N. Y. 447. But this dis-
tinction seems not to be souud, and
the contrary was decided in Cocks v.
Barker, 49 N. Y. 110, and in Foley v.
Cowgill, 5 Blackf. (Ind.) 18; s. c.
32 Am. Dec. 49.
1 Ottawa &c. R. Co. v. Hall, 1
Bradw. (111.) 612. In this case a per-
son subscribed to the capital stock of
a railroad company, and delivered the
subscription to a director in escrow,
not to be de ivcred to the corporation
unless a certain county failed to vote
therefor. It was held: 1. That, with-
out proof of such failure, there could
be no valid delivery to the corpora-
tion, and no recoveiy on the subscrip-
tion. 2. That a vote regularly
adjudged void was not such failure.
3. That the delivery to the director
was not a delivery to the corporation,
he not being an agent to receive the
agreement. 4. That the condition of
the delivery could be shown by parol
i vidence.
079
1 Thomp. Corp. § 1255.] the contract of subscription.
such a sense as to prevent his receiving the subscription list as
an escrow; and if he delivered it to the company without the
consent of the subscribers, and without a fulfillment of the
conditions, such delivery was not binding.*
§ 1254. Distinction between Subscriptions and Purchases of
Shares. — A distinction has been taken between a subscrii)tion
to the capital stock of a corporation and a purchase of its
shares from the corporation. ^ Thus, where a contractor agreed
to build a railroad, and to accept in payment a certain amount
of its capital stock, the agreement was a purchase, and not a
subscription.^ A contract to take shares of a company is not
discharged by purchasing the same number of paid-up shares of
another member ; for this is taking shares from another member,
and not from the company. Thus, where M. subscribed the
memorandum of a company for five shares, and, eight months
afterwards, five fully paid-up shares, which the company had
agreed to allot to C. as part of the purchase-money of property
sold by them to C, were, by C.'s direction, allotted to M., and
the company was wound up, it was held that M. was a contrib-
utory in respect of five shares on which nothing had been paid.*
§ 1255. Promise to Take and Pay for Stock in Unincor-
porated Company Actionable. — A promise to take and pay
for stock in an unincorporated joint-stock association may be
enforced by an action at law by the trustees to whom the prom-
ise is made, although the plaintiffs and defendants, being mem-
bers of the same association, are in a legal sense partners.^
The principle is that one partner may sue another upon a con-
tract to make specific advances for the purpose of launching the
partnership.^ But it is only an express promise to contribute to
the common stock or to make advances thereto that can be
1 Beloit &c. R. Co. v. Palmer, 19 facts in Forbes and Judd's Case, L.
Wis. 574. R. 5C]i, 270.
2 1 Mor. Priv. Corp., 2d ed., § 61. ^ Towusend v. Goewey, 19 Wend.
3 New York &c. R. Co. v. Hunt, 39 (N. Y.) 424; s. c. 32 Am. Dec. 514.
Conn. 75. Compare Ridgfleld &c. R. ^ Glover v. Tuck, 24 Wend. (N. Y.)
Co. V. Brush, 43 Conn. 86. 158; Paine v. Thacher, 25 Wend. (N.
4 Migottl's Case, L. R. 4 Eq. 238. Y.) 452; Robinson v. Mcintosh, 3 E.
The same ruling was made on similar D. Sm. (N. Y.) 231.
980
OTHER THEORIES AND HOLDINGS. [1 Thomp. Corp. § 1257.
enforced in an action at law ; ^ the law will not imply a promise
from one partner to another in respect of their common
concerns. 2
§ 1256. Each Subscription Several, not Joint. — Each sub-
scription to tiie capital stock of a corporation is an independent
undertaking, and is in no way affected by the terms of other sub-
scriptions ; ^ and the obligation of each of several subscribers to
the same agreement of subscription is several and not joint,* and
each subscriber is liable only for the amount set opposite his own
name.^ Thus, A. subscribed for fifty shares in a railroad com-
pany in his own name, and for fifty others, adding the abbrevia-
tion " Exr." to his signature, saying that he would take fifty
shares for an estate of which he was executor. These were
separate contracts, and the pendency of a suit to enforce the
former could not be pleaded in abatement of a suit to enforce
the latter.^
§ 1257. Subscription by a Partnership Name. — A subscrip-
tion by a partnership name is a sufficient compliance with a
statute which requires that a subscriber to the articles of incor-
poration shall subscribe thereto " his name, place of residence,
and amount by him subscribed." ^
§ 1258. Subscriptions Construed by the Court. — As in the
case of all other written instruments,^ the subscription is inter-
1 Townsend w. Goewey, swpra. 1 Anstr. 50; Coffey w. Brian, 10
2 Crater v. Bininger, 45 N. Y. 548; Moore, 341; s. c. 3 Bing. 54.
Townsend v. Goewey, snpra. That ^ Connecticut &c. R. Co. v. Bailey,
one partner may sue another at law 24 Vt. 465; s. c. 58 Am. Dec. 181; Erie
upon a breach of a covenant, see &c. R. Co. w. Patrick, 2 Keyes (N. Y.),
Duncan v. Lyon, 3 Johns Ch. (N. Y.) 266.
351; 3. c. 8 Am. Dec. 514 (learned * Price u. Grand Rapids R. Co., 18
opinion by Chancellor Kent); Ron- Ind. 137; Herron r. Vance, 17 Ind. 595.
deau V. Pedesclaux, 3 La. 510; s. c. * Price v. Grand Rapids R. Co.,
23 Am, Dec. 4G3. That actions at law supra,
may lie by one partner against another *' Erie &c. R, Co. v. Patrick, 2
on an express covenant touching the Keyes (N. Y.), 256. As to joinder in
partnership affairs is recognized in Equity, see Ilerronp.Vance, 17 Ind. 596.
the following Englisli cases: Venning ' Ogdensburg &c. R. Co. v. Frost,
V. Leckie, 13 East, 7; Neale v. Tur- 21 Barb. (N. Y.) 541.
ton, 4 Bing. 140; Preston t?. Strutton, « 1 Thomp. Tr., § 1065 et seq.
981
1 Thomp. Corp. § 1260.] the contract of subscription.
preted by the court, and not by the jury, unless in cases where
parol evidence is admitted to explain latent ambiguities therein.^
§ 1259. Construed Accordingr to what Law. — The prevail-
ing and only sound view is that tlie contract of subscription is to
be construed according to the law of the domicil of the corpora-
tion; for it is by that law that the corporation is called into
existence and governed, and the reasonable assumption is that
both parties contract with reference to that law. ^ One court has
reached the same conclusion, by applying the familiar rule
that, where a contract, either expressly or by implication, is to
be performed in a place other than that where it was executed,
then, according to the presumed intent of the parties, its valid-
ity, effect and interpretation, are to be governed by the law of
the place of performance ; so that, where the subscription is to
the capital stock of a railroad company chartered by another
State and having its place of business there, it is equivalent to an
agreement to pay the sum subscribed to the treasurer of the cor-
poration or other duly authorized agent ; and where no place of
payment is specified, it is presumed to have been the intention
of the parties to pay the assessments in the State where the cor-
poration is established and carries on its business.^
§ 1260. Taking Shares to Qualify as Director. — Where it
is necessary to hold a certain number of shares in order to be
qualified to act as a director, it has been held that the mere fact
that a person accepts the office of a director does not make him
a shareholder in respect of the number of shares necessary to
qualify him so to act; it merely implies an agreement that he
will qualify himself within a reasonable time; and he may so
qualify himself by purchasing shares from other members as
well as from the company.^ But the English courts have several
1 Monadnock &Co. V. Felt,52N. H. parte Van Riper, 20 Wend. (N. Y.)
379. ' 614; ante, § 1137.
2 Payson v. Withers, 5 Biss. (U. ^ Penobscot &c. R. Co. v. Bartlett,
S.) 207,278; Seymour v. Stuigess, 26 12 Gray (Mass.), 244; s. c. 71 Am.
N.Y. 134; Merrick V. Van Santvoord, Dec. 753.
34 N. Y. 208, 210; McDonough v. * Brown's Case, L. R. 9 Ch. 102;
Phelps, 15 How. Pr. (N. Y.) 372; Ex. Karuth's Case, L. R. 20 Eq. 506; Mar-
982
OTHER THEORIES AND HOLDINGS. [1 Thomp. Corp. § 1260.
times held that where a person accepts the office of director,
and is advertised and acts as such for a considerable length of
time, he will be held as a contributory in respect of the number
of shares necessary to qualify him to act as such.^ In his de-
cision in Harward's case,^ Vice-Chancellor Malins proceeded on
the broad ground that if a man knows that, by the constitution
quis of Abercorn's Case, 4 De G. F.
&J. 78; Hamley's Case, 5 Ch. T>iv.
705; Barber's Case, 5 Ch. Div. 963.
See also Forbe's Case, L. R. 8 Ch. 768 ;
Chapman's Case, L. R. 2 Eq. 667;
Lord Claud Hamilton's Case, L. R. 8
Ch. 548; Maitland's Case, 3 Gif. 28.
See Lind. Comp. L. 794, where other
authorities are reviewed. In Tot-
hill's Case, L. R. 1 Ch. 85, a di-
rector of a company, in which fifty
shares was the necessary qualifica-
tion of a director, signed the articles
of association as a holder of twenty-
five shares, but applied for and paid
the deposit on fifty shares. A resolu-
tion was passed at a meeting of the
directors, which incidentally recited
the list of shareholders, and among
them this director as the holder of
fifty shares. No allotment of the
shares was made. The director was
not present at the meeting at which
the resolution was passed, and denied
all knowledge of the resolution, al-
though he was present at the next
subsequent meeting. In the absence
of proof that the minutes of the pre-
vious meeting were duly read and
confirmed at the subsequent meeting
(which, it appears, was not always
done), the lords justices held that the
director should be a contributory only
in respect of the twenty-five shares
for which he had executed the memo-
randum of association. In Austin's
Case, L. R. 2 Eq. 435, the promoter of
a bank invited Austin to become one
of the board of directors, and a pros-
pectus (marked " preliminary and
private," in which his, Austin's name,
appeared as a director) was shown to
him. To this proposition Austin as-
sented, provided he should be satisfied
that a certain proportion of the capi-
tal had been subscribed, and that cer-
tain persons named in the prospectus
as directors would actually join the
board. With a view of ascertaining
the correctness of statements con-
tained in the prospectus, Austin at-
tended a board meeting, and so far
identified himself with the board as
to sign a check for £500 with another
director. Stock was taken by others
(in at least one instance) on the faith
of statements contained in the pros-
pectus to which his name was attached
as a director. On receiving, a few
days after the meeting, a letter of
allotment of the shares necessary to
qualify him as a director, Austin at
once returned it, declining, at the
same time, to act as director, as he
was not satisfied upon the two points
stipulated for by him. The secretary
wrote back, stating that his " resigna-
tion " had been accepted. Austin had
nothing more to do with the bank. In
considering these facts, the vice-
chancellor pronounced this a very
doubtful case; but, in view of the fact
that the letter of allotment was prop-
erly returned, thought that it must be
taken that the whole matter was not
finally concluded, and that his name,
therefore, must be removed from the
list of contributories.
1 Harward's Case, L. R. 13 Eq. 30;
Stephenson's Case, 45 L. J. (Ch.) 488;
Fowler's Ca-c, L. R. 14 Eq. 316.
■' L. R. 13 Eq. 30.
983
1 Tliomp. Corp. § 1260. J the contract of subscription.
of the company, the qualification of a director is a certain num-
ber of shares, it is an implied contract with the shareholders that
if he acts as director he must take at least that number of shares.^
*' I cannot," said he, " part with this case, without expressing
my strong opinion, which ought to be universally known by gen-
tlemen, whether they are commercial men or otherwise, that
they will not be permitted by the law of this country to sit at a
board of directors upon the understanding that they are to receive
their remuneration as directors, and if the affair is profitable
take the profit, but if losses occur they are not to be liable."
The decision of Vice-Chancellor Malins in which this language
was employed was reversed by the lords justices, upon a con-
struction of a resolution passed by the company relating to the
qualification of directors ;2 but the wholesome doctrine thus
expressed was not denied. Language, if possible more strong,
was used, in an earlier case, by Vice-Chancellor Bacon. " In
my opinion," said he, *' the case is as plain as anything can be.
Being named as a director, he became liable to take twenty-five
shares. By acting as a director he recognized his liability in
that respect. That is indelible." '
1 See his language in Lord Claud shares, applied, March 1, 1867, for
Hamilton's Case, L. R. 8 Ch. 548, note, twenty shares, which were allotted to
where he thus explains Harward's him. He attended meetings and acted
Case. as director until just before Novem-
2 Lord Claud Hamilton's Case, L. ber, 1867, at which date the company
R. 8 Ch. 548. was ordered to be wound up. His
3 Fowler's Case, L. R. 14 Eq. 316. name having been placed upon the
In this case the articles of association list of contributories for forty-five
provided that no person should be shares, he made application to be re-
eligible as director unless at the time lieved as to twenty shares. It ap-
of his appointment he should hold peared that he was present at the next
twenty five shares. On February 14, meeting subsequent to the allotment
1867, the directors of the company of the twenty-five shares, but believed
were appointed, and at the same time he was not present during the reading
it was resolved to allot twenty five of the minutes of the previous meet-
shares to each of the persons named ing. He stated that he did not become
as directors. One of these directors aware of the allotment of the twenty-
who had consented to act as such, but five shares until June, 1867. The
in ignorance, as he stated, that any vice-chancellor considered that the
shares had been allotted to him, and circumstances of the allotment of the
under the mistaken impression that twenty-five shares were such that he
the necessary qualiflcation was twen- ought to have known they were
ty £25 shares and not twenty-five £20 allotted; and, as he had applied for
984
OTHER THEORIES AND HOLDINGS. [1 Thomp. Corp. § 1261.
§ 1261, Continued. — Where, prior to the formation of a
company, the provisional directors had agreed to take 100 shares
each, to execute the articles and memorandum of association
when ready, and to act as directors of the company, and the
articles provided that the subscribers of the memorandum
should be deemed to be directors until others were appointed,
and that each director should hold at least 100 shares, it was
held that they were contributories to the extent of their respect-
ive qualification shares. The decision was placed on the ground
that, it having been the duty of the provisional directors them-
selves to appoint directors, and default having been made by
them in so appointing, they were to be deemed in equity as hav-
ing appointed themselves, and were chargeable accordingly.^
Nor is it to be inferred that if a person consents to become a
director, and has allotted to him the number of shares necessary
for his qualification, and in fact acts as a director, an agreement
will not be implied to accept the shares.^ The true result to be
drawn from the English authorities, as stated by Lord Selborne,
is, " that the fact of a man accepting the place of director, for
which the possession of a certain number of shares is a neces-
sary qualification, is most material in determining whether he
shall or shall not be permitted to repudiate, as unauthorized by
himself, the registration of shares which, in the ordinary
course of the business of the company, have actually been
placed in his name, and which were needful for his qualifica-
cation. " ^ A mere colorable device, the effect of which is that
the company itself furnishes the money necessary to purchase
and pay for the qualifying shares of a board of directors, will be
set aside in equity ; such shares will be deemed not to have been
paid for, and the directors will be put upon the list of contrib-
utories accordingly.*
twenty other shares, he must remain •* Re Disderi & Co., L. R. 11 Eq.
upon the contributory list for the 242. In this case a company was
whole forty-five. formed to purchase and carry on the
1 Currie's Case, 3 De G. J. & S. business of D. The shares were £10
367; s. c. 32 L. J. (Ch.) 424. each, and were to be paid up In fuU
2 Brown's Case, L. R. 9 Ch. 110, on acceptance. The qualification of
per Mellish, L. J.; Leeke's Case, L. the directors was twenty-five shares
R. 6Ch. 4C9. each, and by the articles of associa-
3 L. R. 9 Ch. 107. tion £170,000 in paid up shares of
1)85
1 Thomp. Corp. § r263.] the contract of subscription.
§ 1262. Limit of Option to take Shares on Reorganiza-
tion. — On the reorganization of an English company by a
scheme for a sale of its property to a new company and an ex-
chano-e of shares at the option of the old shareholders, where a
the company -was the limit in price
beyond which the directors were not
to go in the purchase. Great diffi-
culty was experienced in finding the
eight necessary directors who were
willing to qualify as such by taking
twenty-five shares. Finally, eight
persons agreed to act as directors on
having their qualification found. The
first meeting of the company took
place on June 22d, at which these
gentlemen acted as directors, and
their names were entered on the list
for the twenty-five shares required
for the qualification of each of them.
On June 25th they signed the contract
for the purchase of the business of D.
The consideration was £108,000 in
fully-paid shares of the company and
£2,000 in cash. At this time the
directors paid for their i^hares, and the
company paid the £2,000 in cash to D.
by the following arrangement: The
directors having agreed to serve only
on condition that their shares were
found by D., his agent drew eight
checks in the name of D. for £250
each, one of which he handed to each
of the directors, who passed over the
same by indorsement to the secretary
of the company in payment of their
shares. The directors' shares were
then entered as fully paid up. The
secretary of the company then handed
the eight checks to D.'s agent, who
drew up and signed a receipt for
£2,000 paid by the company on their
purchase, according to the contract.
The company was subsequently or-
dered to be wound up, and the direct-
ors having been placed upon the list
of contributories, on the ground that
nothing had ever been paid upon their
shares, the directors applied to have
0S6
their names struck off. The vice-
chancellor (Malins) was unable to see
that the transfer of checks constituted
a payment for the shares of the direct-
ors. He does not appear to have
brought his mind down to a conidera-
tion of the details of the transaction,
but he denounced it in heated language
as "unworthy of a school-boy," "a
ridiculous farce," and the direct-
ors as "creatures, dummies, and
nominees " of D., the vendor. He
considered that these eight persons
were bound to take shares before
acting as directors, and that, at least,
they were now to be treated as per-
sons who, having agreed to take
shares, had not paid them up, and
that they must pay them up in full.
It is not clear to the author that
the transaction merited the epithets of
the learned vice-chancellor. Ou the
contrary it seems bona fide through-
out. In fact D. foregoes £2,000 of
the price agreed upon in order that
the purchase of his business may be
consummated. If the price paid for
D.'s business had been exhorbitant,
and the directors had willfully violated
their trust in contracting to pay the
same, and as a consideration for
such breach of trust the directors'
qualification of shares had been sup-
plied as above, It is obvious the
transaction could not stand. But
such was not the case; the price
paid was within the limit pre-
scribed by the articles of associa-
tion, and nobody could be found who
would consent to ferve as director
unless his qualification of shares was
found. The vice-chancellor, in this
case, based his decision on the author-
ity of Gray v. Lewis, L. R. 8 Eq. 526.
OTHER THEORIES AND HOLDINGS. [1 Thomp. Coip. § 1262.
trustee is given full discretionary power to dispose of sliares not
taken by them, the scheme is not vitiated by the insertion of a
limited time within which the shareholders must exercise their
option, provided the time is reasonable. ^
In this case the Lafitte Company was
formed, to purchase the business of
the Paris Bank of Lafitte. The Paris
Bank declined to transfer its business
to the company until 40,000 shares
should have been subscribed for. To
effect this object, the International
Contract Company guaranteed a sub-
scription of the requisite number of
shares. The latter company then
applied to the National Bank to dis-
count their bills for £230,000, which
they agreed to do on the guarantee of
the Lafitte Company that they would
leave in their hands whatever money
should be paid in for shares, to the
amount of the advance. The money
was thereupon transferred to the credit
of the Contract Company, who pro-
vided shareholders and paid the de-
posits out of the advances by the
bank. In order to procure a settling-
day on the stock exchange, the bank
certified that the £230,000 had been
deposited with them in payment of
shares. The Lafitte Company, by their
articles of association, were prohibited
from purchasing their own shares.
The Lafitte Company was ordered to
be wound up, having never acquired
the business of the Paris Bank. A
shareholder of the Lafitte Company
filed a bill against the directors of
that company, and against the National
Bank, praying for the restoration of
the £230,000 to the Lafitte Company by
its directors and the National Bank.
The vice-chancellor (Malins) held that
the directors of the Lafitte Company
had acted ultra vires, and committed a
breach of trust in applying the funds
of the company in repaying the money
so advanced by the bank; and that the
bank, having been participators in the
breach of trust, must refund the
amount. As to the meaning of the
expression in English articles of asso-
ciation, applied to the qualification
shares of directors, "shall hold the
shares in his own right," see Pul-
brook V. Richmond Consolidated Min-
ing Co., 9 Ch. Div. 610; with which
compare Bainbridge v. Smith, 41 Ch.
Div. 462; s. c. 60 L. T. (n, s.) 879. As
to the qualification of directors, see
po>t, §
1 Postlethwaite v. Port Phillip &c.
Gold Min. Co., 43 Ch. Div. 452. See
ante, § 274. Legality of stock issued
pursuant to N. Y. Laws, 1874, Chap.
430, authorizing the reorganization of
railroad corporations sold in fore-
closure &c. : Re Brooklyn Elev. R. Co.
(Sup. Ct.) 32 N. Y. St. Rep. 1065; II
N. Y. Supp. 161.
987
1 Thomp. Corp. § 1367.] the contract of subscription.
CHAPTER XXII.
ALTERATION OF THE CONTRACT.
1269.
1270.
Section
1267. Preliminary.
1268. Breach by tlie corporation of its
contract with the subscriber.
Alteration of the subscription
paper.
Making radical changes in the
purposes of the corporation.
1271. Directors departing from the
charter.
1272. Abandonment of the enterprise.
1273. Discharged by legislative alter-
ation of the contract.
Change must be material, fund-
amental or radical.
Increasing capital stock.
Reducing capital stock.
Increasing the number of shares .
Enlarging powers and privileges
and adding new responsibili-
ties.
Illustrations: authorizing ex-
tension of road — building of
branch.
Illustrations continued : empow-
ering a slack water company
to extend its dams and incur
additional expense.
1281. Changing the nature of the en-
terprise.
1282. View that change sanctioned by
majority binds minority.
1274.
1275.
1276.
1277.
1278.
1279.
1280.
Section
1283. Changing the name.
1284. Changing the termini of a rail-
road.
1285. Material change of location or
route will release subscriber.
1286. Reasons of the rule.
1287. What changes of route or loca-
tion do not release subscriber.
1288. What change of route by di-
rectors will release the sub-
scriber.
1289. How the defendant must plead
the change.
1290. Consolidation with another cor-
poration.
1291. Changes authorized by existing
statutes.
1292. Alteration material to the par-
ticular subscriber.
1293. Changes affecting the payment
of stock subscriptions.
1294. Other changes in the internal
arrangements of the corpora-
tion.
1295. Selling out.
1296. Extending time for completing
the enterprise.
1297. Elements of estoppel.
1298. Burden of showing dissent.
1299. When validity of amendment
submitted to jury.
§ 1267. Preliminary. — The question what amendments of
the charter of a corporation, not assented to by a stockholder,
will release him from the obligation of his contract, has been
considered in a former chapter. ^ The question presents itself in
988
1 Ante, § G6 et seq.
ALTERATION OF THE CONTRACT. [1 Thomp. Corp. § 1269.
new relations where the change has taken the form of the alter-
ation of the articles of association, of the subscription paper or
of the prospectus, by the act of the directors or the majority of
the corporators without legislative action ; and this seems to
require some additional treatment of the subject, though at the
risk of repetition.
§ 1268. Breach by the Corporation of its Contract with
the Subscriber. — Where the contract of subscription contains
interdependent covenants, a substantial breach of its conditions
by the corporation will, where the rights of third persons are
not concerned, release the subscriber.^ The usual application of
this rule obtains iu'England where the prospectus of a joint-
stock company holds out certain promises to subscribers, on the
faith of which they put down their names, and the memorandum,
when drawn up, so far departs from the prospectus as to make
substantially a diflerent contract. ^ It obtains in America where
the charter is radically or fundamentally altered by the legislature,
or the articles of association by the corporators, or the contract
of subscription by the directors, without the authorization of an
existing statute, and without the consent of the particular sub-
scriber, subsequently to his subscription. The rule has refer-
ence only to material alterations. The liability of a stock-
holder, for instance, is not affected by immaterial changes in the
articles of incorporation.^
§ 1269. Alteration of the Subscription Paper. — A mere
mechanical alteration of the subscription paper, which does not
have the effect of altering the contract of the subscriber, and
which is not so intended, will not, of course, release him: as
where printed fonns oi the contract of subscription, which had
been circulated and signed separately were cut from the rest of
the pnpers, and all the written parts were attached to one of
these printed forms, which was then filed in the office of the
Secretary of State for the purpose of organizing the corpora-
1 Hartford &c. R. Co. i;. Croswell, 5 2 Lind. Comp., 5th ed., p. 19.
Hill (N. Y.), 383; s. c. 40 Am. Dec. ^ Union Agricultural &c. Associa-
364. tion v. Neill, 31 Iowa, 95.
989
1 TJiomp. Corp. § 1370.] the contract of subscription.
tion.^ But if the certificate of incorporation, prescribed by the
governing statute, which was originally executed, is abandoned
by the co-adventurers, and a new and different certificate exe-
cuted, and the organization takes place under the latter, the
association cannot hold the subscriber under the provisions of
the former; ^ lor this is a contract to which he has not agreed.
§ 1270. Making Kadical Changes in the Purposes of the
Corporation. — But if, as hereafter seen,^the legishiture cannot
change the contract of the subscriber without his consent, for
stronger reasons the directors, or the executive committee, or
the other stockholders, will not be permitted to make a radical
change in the business of the corporation which shall bind a dis-
senting subscriber, — as by selling its entire property ;* or by
exchanging its assets upon dissolution for stock in another com-
pany ;^ or by consolidating the corporation with another to form
a new corporation,^ or, in case of a railroad company, by
departing substantially from the route marked out in its charter ; ^
or, in case of a plank road company, by extending the road and
increasing the capital stock without complying with the provis-
ions of the charter on that point.^ And one court has gone so
far as to say that any material departure from the points desig-
nated in the charter for the location of the road, is a violation of
the charter, for which the franchise of the corporation may be
seized upon quo warranto, unless the legislature has waived the
right of the State to seize the franchise, by acts legalizing the
violations of the charter.^
1 Sodus Bay &c. R. Co. v. Hamlin, • Blatchford v. Ross, 5 Abb. Pr.
24 Hun (N. Y.), 390. See, as to the (n. s.) (N. Y.), 437; s. c. 37 How. Pr.
effect upou the liability of a subscrib- (N. Y.) 113; 54 Barb. (N. Y.) 46;
er of altering the articles of associa- Clearwater v. Meredith, 1 Wall. (U.
tion, note in 19 Am. & Eng. Corp. S.) 40; ante, § 75.
Cas. 258. ^ Buffalo &c. R, Co. v. Pottle, 23
2 Burrows v. Smith, 10 N. Y. 550. Barb. (N. Y.) 23.
3 Post, § 1273. ^ Macedoa &c. Plank Road Co. v.
* Abbot V. American Hard Rubber Lapham, 18 Barb. (N. Y.) 315.
Co., 21 How. Pr. (N. Y.) 200; s. c. 20 ^ Dictum in Mississippi &c. R. Co.
How. Pr. (N. Y.) 204; 11 Abb. Pr. u. Cross, 20 Ark. 443; citing People
(N. Y.) 208; 33 Barb. (N. Y.) 584. v. Manhattan Co., 9 Wend. (N. Y.)
'' Frothingham v. Barney, 6 Hun 351.
(N. Y.), 366.
990
ALTERATION OF THE CONTRACT. [1 Thomp. Corp. § 1271.
§ 1271. Directors Departing from the Charter. — The
directors of a corporation are trustees for its shareholders,
and if they depart from the charter, or attempt, or threaten to
do acts which are ultra vires in respect of their granted powers
or the powers of the corporation, and injurious to the share-
holders, — the latter have a remedy in equity to restrain them
from so doing. ^ But there is no known principle on which the
fact that the directors are exercising their powers wrongfully can
absolve a subscriber from the' performance of his contract.
How can he, as against other subscribers, suffering in common
with him, claim to be released, upon the mere ground that the
officers whom a majority have placed in power are exercising
their power unlawfully? It has accordingly been held that a
corporation cannot be enjoined from enforcing a judgment for
a stock subscription on the ground of a departure from its char-
ter in respect of matters not connected with the suit ; ^ or on the
o-round that the work of building a railroad which the corpora-
tion was chartered to build was not progressing in the manner
prescribed in the charter, or that the company contemplated a
departure from the route, or a change in the termini designated
therein.' Nor will such stockholders of a corporation created
" to build and maintain 'a flouring tnill " be so relieved because
the corporation is expending its money in building a dam by
means of which to obtain power to run its mill.* And it may
easily be concluded that it is not every unimportant change in
the project, as marked out, which will dissolve the contract cf
subscription.^ Accordingly, a mere cessation of work on a road
within a very short distance of the terminus designated in the
articles of incorporation, where the articles are not changed,
and there is no resolution of the directors providing for a ter-
mination of the road at the point where the work is stopped, is
not such a change as will work a release of the contract of a non-
assenting stockholder.® But it has been observed that the
power of a corporation over the rights of a stockholder, how-
ever to be exercised, is limited to his rights in the corporate
1 Post, Ch. 90. ^ Clearwater v. Meredith, 1 Wall.
2 Ex parte Booker, 18 Ark. 338. (U. S.) 40.
3 jfjid. ^ Buffalo &c. R. Co. v. Clark, 22
-•Ginrich v. Patrons' Mill Co., 21 Ilun (N. Y.), 359.
Kan. 61.
991
1 Thomp. Corp. § 1273.] the contkact of subscription.
property and corporate concerns, and does not extend to his
private and individual 'property^ over wliich the corporation has
no control beyond the amount of his subscription. The power
of a majority of the members to accept an amendment to the
charter so as to bind the minority, is confined to such modifica-
tions thereof as are reasonably within the original objects of the
incorporation, and as regard the corporate property. In all
other cases, the stockholders can be bound only by their individ-
ual assent and acquiescence.^
§ 1272. Abandoument of the Enterprise for which the cor-
poration was organized, — as, by failing to commence the under-
taking within the time prescribed by its charter,^ and refunding
some of the subscriptions ;^ or, in case of a railroad company,
locating the road on an entirely different route,* — will discharge
the stockholder. But the mere fact that the work on the cor-
porate undertaking has been suspended is not such evidence of an
abandonment of the enterprise as will discharge a subscriber
from his obligation of payment; since the refusal of the sub-
scribers to pay according to their contracts may be the very
cause of the suspension, and the very object of the attempt to
enforce their contracts may be to get money to revive or con-
tinue the prosecution of the work.*
§ 1273. Discharged by Legislative Alteration of the Con-
tract. — The general rule is that the relation between a corpora-
tion and a stockholder being one of contract, any legislative
enactment which, without his assent, authorizes a material or
fundamental change in the powers or purposes of the corporation,
not in aid of the original object, if acted upon by the corpora-
tion, is not binding upon him.^
1 Ireland v. Palestine &c. Turnp. phis &c. R. Co., 35 Miss. 692. Post.
Co., 19 Ohio St. 369. §
2 McCully W.Pittsburgh &c. R. Co., ^ See, in illustration of this, Buffalo
32 Pa. St. 25. &c. R. Co. v. Clark, 22 Hun (N. Y.),
3 Ibid, 359; Buffalo &c. R. Co. v. Gifford, 87
4 Hester v. Memphis &c. R. Co., N. Y. 294. Compare Four Mile Valley
.32 Miss. 378; Winters. Muscogee Ry., R. Co. v. Bailey, 18 Oh. St. 208.
11 Ga. 438; Kenosha &c. R. Co. v. e McGray ■;;. Junction R. Co., 9 Ind,
Marsh, 17 Wis. 13; Champion u. Mem- 359; First National Bank v. Charlotte ,
85 N. C. 433. Ante, § 67 e« seg.
092
ALTERATION OF THE CONTRACT. [1 Thomp. Corp. § 1276.
§ 1274. Change Must be Material, Fundamental or Radi-
cal. — The legislative change in the character of the enterprise
which will thus release a subscriber, has been often described as
material, fundamental or radical; ^ but it is more frequently
described by the use of the word " fundamental." ^ If it vitally
and radically affects rights established and fixed by charter, it
cannot be forced upon an unwilling stockholder.'
§ 1275. Increasing Capital Stock. — Of this nature, as already
seen,"* according to the general course of decisions, are amend-
ments increasing the capital stock.^ But where, in addition to
an amendment authorizing an increase of its capital stock, the
legislature authorizes another fundamental change, such as
changing the termini of a railroad,-^ this may release the sub-
scriber.^
§ 1276. Reducing Capital Stock. — And it should seem that
the same must be affirmed of an amendment reducing the cap-
ital stock of a corporation, and thereby rendering the success of
the enterprise more doubtful.' Accordingly, it was held that a
dissenting stockholder was released by an amendment of the
charter of an insurance association, providing that the stock
notes should be reduced by a credit of certain net profits.^ An-
other court has taken a middle ground by holding that such an
amendment will operate to discharge the existing subscribers
pro tanto from the obligation of payment in accordance with the
* Ante, § 72; Snook v. Georgia the original charter, the latter is re-
Imp. Co., 83 Ga. 61; s. c. 9 S. E. Rep. leased from his subscription, though
1104. at the time thereof the general law,
2 Nugent V. Supervisors, 19 Wall, under which the first charter was
(U. S ) 241. obtained, authorized amendments in-
2 Hoey V. Henderson, 32 La. An. creasing the capital stock, and chang-
1069. ing the route, as such law did not
< Ante, § 78. Compare post, § 2088. authorize a change in the termini.
* Buffalo &c. 11. Co. 17. Dudley, U Youngblood v. Georgia Imp. Co., 83
N. Y. 336. Ga. 797; s.c. 10 S. E. Rep., 124; Snook
« Ante, § 74; post, § 1284. Where v. Georgia Imp. Co. 83 Ga. 61; s. c.
a railroad company obtains author- 9 8. E. Rep. 1104.
ity from the legislature to change ' Oldtown &c. R. Co. v. Veazie, 39
one of its termini and to increase Me. 571.
its capital stock without the con- « Hoey v. Henderson, 32 La. An.
sent of a subscriber to stock under 1069.
63 993
I Thomp. Corp. § 1378.] the contract of subscription.
terms of their subscriplious. If, therefore, the amendment re-
duces the capital one-half, and, before the passage of such an
amendment, they have paid one-half, they will have nothing
further to pay.^
§ 1277. Increasing the Number of Shares. — But an altera-
tion of the contract of subscription, increasing the number of
shares, has been regarded as material, in the sense of what we
are considering. ^ A strong illustration of this is found in a case
where A., with others, signed a paper, which recited that a cer-
tain company had been incorporated, the capital stock of which
was fixed at $50,000, and by the terms of which the subscribers
iio-rced with each other and with the corporation to take the
number of shares affixed to their respective names, and to pay
therefor $100 a share. Opposite A.'s name was a certain num-
ber of shares. The whole number of shares subscribed for
exceeded $50,000. At a meeting called for the purpose of
organization, a committee was appointed to report the names of
the subscribers to the original capital stock of $50,000. The
committee reported a list of names not including A.'s. The
meeting then voted to increase the stock to $100,000, and that
all the subscribers be admitted to the company wiih the lights
and privileges of stockholders under the agreement. A. subse-
quently paid three assessments on his stock. It was held that
an action against him on the original paper, for a subsequent
assessment, could not be maintained, even if he knew of these
votes before paying his assessments.^
§ 1278. Enlarging Powers and Privileges and Adding New
Responsibilities. — On principle, any amendment which enlarges
the undertaking so as to entail new responsibilities or new haz-
ards upon the corporation will release dissenting shareholders.*
1 Woodhouse v. Commonwealth by adding to the powers of a railroad
Ins. Co., 54 Pa. St. 307. company the power to purchase
2 Bery v. Marietta &c. R. Co., 26 steamboats: Hartford R. Co. v.
Ohio St, 673. Compare i^o.vt, § 2088. Croswell, 5 Hill (N. Y.), 383; s. c.
" Katama Land Co. v. Jernegan, 40 Am. Dec. 354. Compare Chesa-
126 Mass. 155. peake &c. Co. v. Robertson, 4 Cranch
* Union Locks and Canal t>. Towne, C. C. (U. S.) 291.
IN. H. 44; s. c. 8 Am. Dec. 32. As
994
ALTERATION OF THE CONTRACT. [1 Thomp. Corp. § 1279.
But this effect cannot be ascribed to an amendment of a charter
or act of incorporation which merely enlarges the powers or
privileges ^ of the corporation, without materially changing its
original purposes,^ or authorizing a material departure from its
original design,^ — as by conferring upon it the power of declar-
ing /br/e^7w>•es of its stock.* One court has asserted the doctrine
that an enlargement by the legislature of the powers originally
granted to a corporation, although such enlargement may embark
the corporation in more expensive schemes which will require a
greater capital, does not have the effect of discharging one who
had subscribed to its capital stock before such enlargemento Such
a grant of additional privileges to a corporation did not impair
the obligation of previous contracts of subscription, within the
meaning of the constitutional inhibition against the passage of
laws impairing the obligation of contracts. That inhibition, the
court reasoned, has reference to direct, and not to merely con-
sequential invasions of contracts.^ Upon this principle State
laws have been upheld as valid which abolish imprisonment
for debt;^ which confirm titles imperfect under the recording
laws;' which levy a tax upon the property of a corporation
previously created;^ or which incorporate a rival bridge com-
pany, with power to construct a bridge so near to one already
existing as materially to diminish the profits of the existing
company.^
§ 1279. Illustrations: Authorizing Extension of Goad —
Building of Branch. — Such a consequence is not to be ascribed
to an amendment to a charter of a railroad company, which authorizes
1 Poughkeepsie &c. Plank Road Co. &c. R. Co. v. Biggar, 34 Pa. St. 455;
V. GrifBn, 21 Barb. (N. Y.) 454. Pittsburgh &c. R. Co. v. Woodrow, 3
2 Peoria &c. Co. ». Preston, 35 Pliila. (Pa.) 271.
Iowa, 115. 6 Mason ». Halle, 12 Wheat. (U. S.)
^ Pacific Railroad v. Hughes, 22 Mo. 370.
291 ; s. c. 64 Am. Dec. 2fi5. ' Watson v. Mercer, 8 Pet. (U. S.)
* Peoria &c. R. Co. v. Elting, 17 88.
111. 429. 8 Providence Bank v. Billings, 4
* Gray v. Monongahela Nav. Co., 2 Pet. (U. S.) 614.
Watts& S. (Pa ) 15G; s. c. 37 Am. Dec. » Charles River Bridge v. Warren
500. See also Everhartu. Philadelphia Bridge, 11 Pet. (U. S.) 420.
&c. R. Co., 28 Pa. St. 353; Pittsburgh
995
1 Thomp. Corp. § 1280.] the contract of subscription.
it to extend it3 road,i or to build a branch road where the company has
not undertaken to build it,^ or even where it has.3
§ 1280. Illustrations Continued: Empowering a Slack Wa-
ter Company to Extend its Dams and Incur Additional Ex-
pense. In an action by a navigation company against a subscriber to
its capital stock, to recover certain assessments made thereon by the
board of directors, it was pleaded, as a defense, that since his contract of
subscription, the legislature had passed an act authorizing the corpora-
tion to extend its dams, thereby increasing the amount of its indebted-
ness beyond what its charter permitted when the defendant became a
stocldiolder. It was held that this was not a good defense to the
action. In so holding Gibson, C. J., speaking for the court, reasoned
as follows: " An act to incorporate a company for purposes of slack
water navigation is as essentially of a public nature as is an act to incor-
porate a company for the purpose of making a turnpike road. In this
instance, then, what has the legislature of Pennsylvania done? It has
not pretended to take away any corporate franchise, or to impinge upon
any right before granted. That is not pretended. On the contrary,
it has enlarged a corporate pri\ilege. But the exercise of it, it is
alleged, may plunge the company into an expense not originally con-
templated. What of that? The defendant is not bound to contribute
to it beyond the amount of his original subscription, and as to that his
contract remains the same. But it is said that by taking off the limita-
tion of the company's expenditure, the legislature has altered its power
to incur responsibility for greater damages than it otherwise could
have done. In that hes the fallacy. The legislature has not made it
incumbent on the company to use the additional privilege granted to it,
but has left the use of it to its discretion. It may in fact never use it ;
and whether it shall do so will depend on the volition of the defend-
ant's corporate agents, the president and managers, by whose acts he
is necessarily to be bound as his own, even in the. acceptance of a mod-
ification of the charter for the pubhc good, provided it do not extend
to a change of the structure of the association. * * * Such im-
provements or alterations are frequently made, and subscriptions to
the stock are consequently in subordination to the practice. At all
events it is suflficient for the argument that the constitutional re-
1 Rice V. Rock Island &c. R. Co., 2 Hawkins v. Mississippi &c. II.
21 111. 93; Cross v. Peach Bottom R. Co., 35 Miss. 688.
Co., 90 Pa. St. 392; Buffalo &c. R. Co. ^ Greenville &c. R. Co. v. Coleman,
V. Dudley, 14 N. Y. 336. 5 Rich. (S. C.) 118. Contra, Stevens
V. Rutland &c. R. Co., 29 Vt. 545.
996
ALTERATION OF THE CONTRACT. [1 Thomp. Corp. § 1282.
striction has been restrained by the ultimate tribunal, to interference
directly with the terms of the contract, and not merely with its
incidents." ^
§ 1281. Changing the Nature of the Enterprise. — An
amendment to the charter of a railway company ^ adopted with-
out the consent of one who has previously become a subscriber
to its capital stock, which superadds to the original object of the
corporation an authority to establish a line of water communica-
tion in connection with the railroad, which will involve Luee ad-
ditional expense, which amendment provides for an increase of
the capital stock for that purpose, releases such stockholder from
his subscription, although the amendment is accepted by the
board of directors and also by a majority of the stockholders.'
The same is true of an amendment to a life and accident insurance
company, changing it to a life^ accident, fire, marine and inland
insurance company.^
§ 1282. View that Change Sanctioned by Majority Binds
Minority. — The limitation on the rule of the majority aoreed
on by most American courts has already been pointed out.* An
early case in Virginia seems to have asserted a broader doctrine.
A member of an incorporated insurance company was held to be
bound by a statute which varied the terms of the original act of
incorporation, such act being passed at the instance of a legal
meeting of the company, though he was not present at the meet-
ing. The reasoning of the judges in that case is tantamount to
a broad declaration that the charter of a corporation may be
surrendered and a new charter accepted by the act of a majority
of the corporators, if done at a regular meeting duly notified,
and that there is no distinction in this respect between the pas-
sage by an incorporated society of an ordinary regulation and a
surrender which destroys a fundamental one, — Judge Eoane
1 Gray v. Monongahela Nav. Co., 2 2 Penn. 184; McCullough v. Moss, 6
Watts & S. (Pa.) 15G (1841; ; s. c. 37 Denio (N. Y.), 680; Troy&c. R. Co. v.
Am. Dec. 500, 603. Kerr, 17 Barb. (N. Y.) 606.
2 Hartford &c. R. Co. v. Croswell, » Ashton v. Burbank, 2 Dill. (U. S.)
6 Hill (N. Y.), 383 (1843); a. c. 40 435.
Am. Dec. 354. To the same effect see ♦ Ante, § 72.
Indiana &c. Turnpike Co. v. Phillips,
997
1 Thomp. Corp. § 1384:.] thk contract of subscription.
saying: " The effect as to the question before us is precisely the
same." Judge Fleming answered the objection to the power of
the majority to bind the minority by the acceptance of the
charter by saying: " It would be misspending time to refute this
argument, as in all institutions of this kind the acts of a majority
are binding on the whole : by the civil law that majority must
consist of two-thirds of the members." ^
§ 1283. Changing the Name. — Changing the name of the
corporation, as already seen, ^ is not such a material alteration as
releases dissenting subscribers.^ Where the name of the cor-
poration was given in the preliminary subscription paper, but
when the company was organized the words " Saint Louis " were
added to the name, — it was held that this was no defense to an
action on the subscription.*
§ 1284. Changing the Termini of a Railroad. — We have
already seen that there is a conflict among the decisions, growing
out of opposing theories as to the governing principle, on the
question whether an amendment of a charter changing the
terminuSy or the termini of a railroad, will release a dissenting
subscriber.^ Several cases not there cited exhibit the same
opposing theories, or else opposing views as to the proper appli-
cation of the same theory, — some reaching the conclusion that
a material change in one of the termini of a railroad, authorized
by the legislature, will release a dissenting stockholder;^ and
others holding that it will not.' Under the theory of the former
cases, where the route is not expressly stated in the contract of
subscription, the charter of the company, as it exists at the time,
is the law of the contract^ and any subsequent change of termini
from those therein prescribed, discharges the obligation of the
1 Carrie v. Mutual Assurance So- ' That it will have this effect, see
ciety, 4 Henn. & M. (Va.) 315; s. c. ante, § 74; that it will not, see ante,
4 Am. Dec. 617, anno 1809. § 77.
« Ante, § 82. « Kenosha &c. R. Co. v. Marsh, 17
' Racine &c. Bank V. Ayers, 12 Wis. Wis. 13; Delaware &c. R. Co. v.
512. Iriclj, 23N. J. L. 321.
* Haskell v. Worthington, 94 Mo. ^ Terre Haute &c. R. Co. v. Earp,
560. 21 111. 291.
998
J
ALTERATION OF THE CONTRACT. [1 Thoilip. Coi'p. § 1285.
subscriber, unless with his consent.^ The difficulty of holding
that a change of the terminus of a railroad which the company-
is chartered to build releases the dissenting subscriber, is of
course lessened where, in addition to changing the terminus, the
amendment of the charter otherwise enlarges the project, — as
by authorizing it to run a line of steamers beyond the terminus, ^
or to increase its capital stock. ^ On the other hand, the Supreme
Court of Illinois, ignoring all sound principle, have held that a
subscriber to stock in a railroad company cannot avoid payment
because the charter of the road has been so changed as to
authorize the company to which the subscription was made to
purchase stock in other railroad companies, even though the
terminus of the road in which the stock was first subscribed is
thereby changed.* It is needless to suggest that a stockholder
in a railroad company, who seeks to avoid the payment of his
subscription, on the ground that one of the termini was materially
chansed from that designated in the charter, must show that
the alteration was made without his concurrence or consent.^
§ 1285. Material Change of Ijocation or Route will Re-
lease Subscriber. — There is also a division of opinion among
, the courts upon the question what substantial or material change
in the route of a railroad, or other road which the corporation is
created to build, will operate to release a dissenting subscriber.^
In some cases the difference of opinion is more apparent than
real, involving rather the question of the nature and extent of
the change, than affirming or disaffirming the principle that a
material change releases the subscriber. The rule established by
the weight of authority, and supported by reason and justice, is
that a material change in the proposed route of a railroad in-
validates the obligations of non-assenting subscribers to stock. ^
1 Witter V. Mississippi &c. R. Co., increasing the capital stock and chang-
20 Ark. 463. ing the route, but without authorizing
2 Marietta &c. R. Co. v. Elliott, 10 changes of termini. Ibid.
Oh. St. 57. ■» Terre Haute &c. R. Co. v. Earp,
8 Snook V. Georgia Imp. Co., 83 21 111. 291.
Ga. 61 ; s. c. 9 S. E. Rep. 1104. Thus, ^ North Carolina R. Co. v. Leach, 4
although at the time of the amend- Jones L. (N. C.) 340.
ment, the general law, under which " Ante, §§ 74, 77.
the first so-called charter was obtained ' Noesen v. Town of Port Wash-
authorized amendments to charters ington, 37 Wis. 168; Champion ».
999
1 Thomp. Corp. § 1280.] the contract of subscription.
But uot so iu an immaterial change. ^ While some of the courts
have, as elsewhere seen,^ taken a distinction, so refined as to be
almost dishonest, in respect of an agreement to hicate a road
on a certain route, holding that a promise is kept if they locate
the road on that route though they do not build it there, thus
*' kee})ing the word of promise to the ear and breaking it to the
hope," — one court, at leaist, has gone honestly to the substance
of such a contract, by holding that a stock subscription made
on the condition that the road should be " located " on a certain
route is not complied with by locating it on that route by a reso-
lution of the board of directors, and then building it on another
route; but that the word " locate " means to co7istruct, and that
the subscription is avoided by the abandonment of the route
agreed upon therein.^ An early case in Massachusetts goes so
far as to hold that a stockholder is released by such a change,
although he had acted in several offices of the corporation, sub-
sequently to the change, and had, as one of the directors,
petitioned the legislature for such alteration.* The court reached
this anomalous conclusion by reasoning that the contract of sub-
scription between the shareholder and the corporation is collateral
to his contract as a director and officer. Under this rule, if all
the stockholders were to join in a petition to the legislature to
make such an amendment to the charter, and the legislature
should accede to the request, the fact would enable all the stock-
holders to retreat from their obligations and dissolve the com-
pany. This decision ignores the well-known maxim volenti non
fit injuria. It is a sorry illustration of the primitive ideas, which
sometimes take hold of judges of general high character and
learning.
§ 1286. Reasons of the Rule. — Three reasons have been
given by the courts for the conclusion that a material change of
route releases a non-assenting subscriber. The first is applicable
Memphis &c. R. Co., 35 Miss. 692; 3 Nashville &c. K. Co. v. Jones, 2
Buffalo &c. R. Co. v. Pottle, 23 Barb. Coldw. (Tenn.) 674.
(N. Y.) 21; Hester u. Memphis &c. R. < Middlesex Turnpike Corp. v.
Co., 32 Miss. 378. Swan, 10 Mass. 384; s. c. 6 Am. Dec.
1 Cayuga &c. R. Co. v. Kyle, 5 139. See also Middlesex Turnpike
Thomp. & C. (N. Y.) 659. Corp. v. Locke, 8 Mass. 268.
« Post, § 1345.
1000
ALTERATION OF THE CONTRACT. [1 Thomp. Corp. § 1287.
only in particular cases, depending on the situation of the sub-
scriber, and applies in the case where the subscriber lives on the
route of the road as first located. Here it is supposed that the
benefit which will accrue to him from building the road near his
residence and property may fairly be presumed to have been a
strong inducement for his giving his subscription.^ The second
is that he may well consider the location of the road on a new
route as an abandonment of the project to which he subscribed.*
The third is even more substantial. It is that he subscribed to
one venture, and, no matter what his motives for dissenting are,
it is not competent for his co-adventurers, even with the aid of
the legislature, to compel him to become a subscriber to a differ-
ent venture. He has made one contract; they cannot force him
into another.^
§ 1287. What Changes of Route or Liocation do not Re-
lease Subscriber. — On the other hand, it has been held that a
slight change or deflection adopted by the company, from the
route of a railroad first selected, does not absolve a stock-
holder who had not designated the route he desired to be
selected,* — as where the road is made to pass through a county
not named in the original articles of incorporation.^ Again, it
has been held that the fact that directors of a railroad compuny
have procured an alteration of the charter, authorizing a change
in the location of the road, and have changed the route accord-
ingly, if the actual change of it is consistent with the original
design and object of the enterprise, not materially varying the
route, nor abandoning a terminus actually established at the time
of subscription, will not release a stockholder from his subscrip-
1 Hester v. Memphis &c. R. Co., 32 Hall &c. R. Co. v. Myers, 16 Abb. Pr.
Miss. 378. (N. s.) (N. Y.) 34.
^ Ibid. That a material change ^ Jewett y. Valley R. Co., 34 Oh.
from the route and termini named in St. 601; Armstrong v. Karshner, 46
the contract of subscription is evi- Ohio State, 270; s. c. 24 N. E. Rep.
dence of an abandonment^ see Caley v. 897. Compare Buffalo &c. R. Co.
Philadelphia &c. R. Co., 80 Pa. St- e. Pottle, 23 Barb. (N. Y ) 21 (where
363. the road abandoned two counties
8 Ibid.; ante, § 71. through which it was to have been
* Greenville &c. R. R. Co. v. Cole- constructed, and it was held that the
man, 5 Rich. (S. C.) 118. See White subscriber was released).
1001
I Thomp. Corp. § 1288.] the contract of subscription.
tion, though made without his consest.^ An early case in the
Supreme Court of Illinois, relaxing sound principles still further,
held that a subscriber to railroad stock will be liable to the pay-
ment of his subscription, although the legislature may have
authorized, and the directors of the company may have adopted,
a change of route from that first fixed by law, provided the
change does not make an improvement of a different char-
acter, and his interest is not materially affected by the altera-
tion. ^ Still more severe and indefensible on any conception of
reason or justice are holdings in Pennsylvania to the effect that
an amendment of the charter of a railroad, changing the loca-
tion of its line, cannot be set up at all as a defense to an action
for a previous subscription to its capital stock, nor can the fact
that the subscriber became such upon the condition that the
road should be located as originally projected.^ A restored
sense of justice led the court, at a more recent period, to hold,
with some of the other American courts, that such a change may
be treated by a non-concurring subscriber as an abandonment by
the corporation of the contract into which he entered with
them.*
§ 1288. What Change of Koute by Directors will Release
the Subscriber. — On principle, there can be no difference be-
tween the case where a material change of route has been
authorized by the legislature, or made by the directors without
the consent of the subscriber ; for the legislature has no more
power to impair the obligation of his contract than the directors
have. When, therefore, a party has given a subscription on
condition that the road is to be located on a certain route, a vote
by the directors materially changing the route discharges his
contract and enables him to recover from the corporation what
he has paid thereon J" But it has been held that where the charter
gives to directors power to determine the location of the road,
1 Wilson r. Wills Valley R. Co., 33 34 Pa. St. 455; Pittsburgh &c. R. Co.
Ga. 466. V. Woodron, 3 Phila. (Pa.), 271.
2 Banet v. Alton &c. R. Co., 13 111. * Caley v. Philadelphia &c. R. Co.,
604. 80 Pa. St. 363; ante, § 1272.
» Pittsburgh &c. R. Co., v. Biggar, ^ Nashville «S:c. R. Co. v. Jones, 2
Coldw. (Tenn.) 574.
1002
ALTERATION OF THE CONTRACT. [I Thomp. Coi'p. § 1289,
it gives them, by necessary implication, power to change the
location; and hence, where a representation has been made to
induce a subscription, that a certain location has been adopted,
a subsequent change of the location by the directors does not
discharge the contract, though the first location was well known
to be the inducement for the subscription.^ But this decision
must be ascribed to the influences which affected judicial decis-
ions in this country in the era of railroad building, when the
courts were so afiected towards railroad enterprises as to be in
many cases, when appealed to by scattered individuals against
railroad companies, insensible to justice and careless of the law.
The Kentucky Court of Appeals, in a case where a similar result
was reached, were able to support their conclusion on more
plausible grounds, though it may be doubted whether the same
court would render the same decision now, if it were an original
question. The court held that where the directors of a railroad
were authorized by the charter to vary the route and change the
location of the road whenever a cheaper or better route could be
had, a change of location which placed the road upon a cheaper
route, and procured a large additional subscription of stock, and
also furnished a reasonable probability that the business and
profits of the road, when finished, would be thereby considerably
augmented, would not "exonerate the subscribers from payment
for their shares. 2 Under a statute ^ permitting a change of loca-
tion by a railroad company on consent of the stockholders^
provided that "any subscription of stock made on the faith of
the location of such railroad, * « * upon any line aban-
doned by such change, shall be cancelled at the written request of
the subscriber not having assented," — it has been held, that a
subscriber who expressly stipulates against a change does not
waive his right to enforce that condition by failing to make such.
a request.*
§ 1289. How the Defendant must Plead the Change. — As
an immaterial change will not release the subscriber, he must, ia
1 Ellison V. Mobile &c. R. Co., 36 » 73 Laws Ohio, 115.
Miss. 572. * Railway Co. v. Fisher, 89 Oh. St.
2 Fry r. Lexington &c. R. Co., 2 330.
Mete. (Ky.) 314.
1003
1 Thomp. Corp. § 1291.] the contract of subscription.
defending against an action on his subscription on this ground,
state facts with sufficient particularity that the judge can see
whether or not it was material. Therefore, a plea *' that said
road was not constructed in accordance with the charter," is
bad.^ A plea averring that a part of the stockholders had pro-
cured the passage of an act of the legislature, changing the
provision of the charter as to the location of the road, and that
the board of directors had adopted the same, but failing lo show
that it was so accepted as to make it binding upon the corporation,
was held bad on demurrer. ^
§ 1290. Consolidation with Another Corporation. — We
have twice had occasion to observe already ,3 that the consolida-
tion of the corporation to whose shares one has subscribed, with
another corporation, is a change of such a. fundamental cha.Y3>GtQV
as to discharge his contract of subscription, provided he does not
assent thereto, unless, at the time of the subscription there is a
statute authorizing it,* or providing for the purchase of the
shares of the dissenting stockholder.^
§ 1291. Changes Authorized by Existing Statutes. — From
what has already been said,*^ if the change which the subscriber
sets up as releasing him from the obligation of his subscription is
authorized by a statute existing at the time of the subscription,
which may fairly be deemed to enter into the contract, to affect
it and to form a part of it, — it will not be deemed such a change
as discharges his contract. He is deemed to have contracted
with a view to the possibility of such a change being made by
the will of the majority, and to have impliedly assented to it in
advance.' If, therefore, a statute in force at the time a subscrip-
tion to the capital stock of a railroad company is made, authorizes
1 Champion v. Memphis R. Co., 35 Co., 20 Ind. 30. Compare Hayworth
Miss. G92. V. Junction R. Co., 13 Ind. 348.
2 Mississippi &-c. R. Co. v. Gaster, ^ That it makes him a stoclsholder
24 Ark. 96. of the new company, see Ridgway
3 AntCy §§ 75, 343. Township v. Griswold, 1 McCrary
4 Bish V. Johnson, 21 Ind. 299; (U. S), 151.
Sparrow v. Evansville &c. R. Co., 7 « Ante, §§ 75, 343.
lud. 3G9; Hanna v. Cincinnati &c. R. ' Mowrey v. Indianapolis &c. R.
Co., 4 Biss. (U. S.) 78.
1004
ALTERATION OF THE CONTRACT. [1 Thomp. Coip. § 1293.
an extension of the line of the road,i or the sale of the whole or
a part of its road,^ or a consolidation with another company ,3 —
the exercise of this power will not affect the subscription.* But
the principle which makes an existing upplicatory statute a part
of the contract of subscription operates both ways: and a
material departure from what it prescribes discharges the
contract.^ It has been also held that the fact that such a change
is made under an amendment to the charter, in a State where the
legislature is empowered to alter or repeal acts of incorporation
at pleasure, does not affect the application of the rule that a
fundamental change in the character of an enterprise will release
a subscriber thereto.^
§ 1292. Alteration Material to the Particular Sub-
scriber. — Qualifying its earlier holdings,^ the Supreme Court
of Pennsylvania hold that an alteration departing from the
terms of the contract, may operate to discharge a particular
subscriber, on the ground that it is, as to him and his interest, a
material variation, — as where the contract of subscription pro-
vided that the railroad should be built on a route which would
bring it within five hundred feet of the subscriber's mill, and
this was varied so as to adopt a route twelve hundred feet dis-
tant therefrom.^ This is a pleasant contrast with the obvious
injustice of the earlier holdings of the same court.
§ 1293. Changes Affecting the Payment of Stock Sub-
scriptions. — It has been held that a subscriber to the capital
stock of a railroad company, who agrees to be subject to the rules
and regulations which may from time to time be adopted by the
directors, cannot avoid payment because the charter has been
amended, reducing the number of days of notice to be given, if
the amendment of the charter has been accepted.* So, where
1 Jewett V. Valley R. Co., 34 Ohio « Kenosha &c. R. Co. v. Marsh, 17
St. 601. Wis. 13.
2 Armstrong v. Karsner, 47 Oh. St- ^ Ante, § 1278.
276; s. c. 24 N. E. Rep. 897. ^ Moore v. Hanover Junction &c.
8 Ante, §§ 75, 343. R. Co., 94 Pa. St. 324.
* Nugent V. Supervisors, 19 Wall. » Illinois River R. Co. v. Beers, 27
(U. S. ) 241. 111. 185.
5 Witter V. Mississippi &c. R. Co.,
20 Ark. 463.
1005
1 Thomp. Corp. § 1296.] the contract of subscription.
the articles of incorporation of a railroad company restricted
the installments of stock that might be called for in any one
year by the board of directors, to a certain percentage of the
whole amount, and also provided for a change in the articles by
the votes of the directors, a change in the amount and time of
payment of the installments so made, which change was made in
compliance with the governing statute, was held binding upon
stockholders who subscribed previous to such alteration of the
articles.^
§ 1294. Other Changes in the Internal Arrangements of
the Corporation. — After a railroad company had been char-
tered, and, under the charter, subscriptions had been made to
the stock, the legislature passed several amendatory acts, as fol-
lows : 1. To allow the stockholders to elect three additional
managers. 2, That each share of stock should give the holder
one vote to all elections of officers and other stock votes, pro-
vided he had held it for more than thirty days prior to such vote.
3. Authorizing an issue of preferred stock, which last amend-
ment was accepted by a majority of the stockholders, and the
stock was issued. It was held, that these acts created no snch
changes in the objects or organization or liabilities of the cor-
poration, as to discharge one who had subscribed under the
original charter, from liability on his subscription.^
§ 1295. Selling Out. — We have already seen, 'that selling
the entire corporate property to another corporation, or what is
in practical effect the same thing, leasing it for 999 years, is
such a fundamental change as releases a dissenting subscriber.
If this cannot be done with the authority of the legislature so as
to bind a dissenting stockholder, for stronger reasons it cannot
be done without authority of law.*
§ 1296. Extending Time for Completing the Enterprise. —
Additional holdings are found which support the proposition
Burlington &c. E. Co. v. White, ^ j^nte, § 76.
5 Iowa, 409. ■* South Georgia &c. R. Co. v.
2 Everhart v. West Chester &c. R. Ayres, 56 Ga. 230. See also ante, §
Co., 28 Pa. St. 339. 1272. ^
100(5
ALTERATION OF TflE CONTRACT. [I Thomp. Corp. § 1298.
already stated,^ that an extension by the legislature of the time
allowed by the corporation to the railroad company in which to
build its road, will not release the subscribers to its stock,^
although the obliofation to construct it within the time first
limited may have been, on the part of the subscriber, an essen-
tial inducement to the making of the contract. ^
§ 1297. Elements of Estoppel. — On grounds heretofore
and hereafter considered,* although a change may have been
made of such a fundamental character as would release a dissent-
ing subscriber, — yet unless he seasonably dissents and attempts
a rescission of his contract, he may become bound on the theory
of waiver, acquiescence or estoppel. Thus, a subscriber to a
public work, who permitted it to be carried on without objection,
could not, it was held, be relieved from the payment of his sub-
scription on the ground that the plan was changed and that the
work became of no benefit.^ And where, in Tennessee, a corpo-
ration, organized by the permission of the chancery court, sued
a subscriber to its stock upon his subscription, the latter, who
h;id dealt with it as a corporation, could not deny the validity of
the proceeding by which the name of the corporation was
changed; although the subscription recognized the old name of
the corporation.^
§ 1298. Burden of Showing Dissent. — If a subscriber is
sued by the corporation on his contract of subscription, and
defends on the ground of a material alteration of the con-
tract, by the act of the directors, the corporation, or the legis-
lature, it is, on principle, a necessary part of his defense that he
did not assent to it, and the burden is on him to show that such
was the fact.^ But in Ohio it has been reasoned that the bur-
den of showing such assent rests with the party seeking to hold
the stockholder liable.^ It is supposed that the form of the
1 Ante, § 82, *' Greenville &c. R. Co. v. Johnson,
2 Jacks V. Helena, 41 Ark, 213. 8 Baxt. (Tenn.), 332.
3 Henderson v. Railroad Co., 17 ^ North Carolina &c. R. Co. v.
Tex. 560, s. c. G7 Am. Dec. 675. Leach, 4 Jones L. (N. C.) 340.
4 Ante, § 101 etseq.;post, 21877.e« ^ Ireland v. Palestine &c. Tump.
scq. Co., 19 Oh. St. 369.
fi Doane v. Treasurer of Pickaway,
Wrij;ht (Oliio), 7.')2.
1007
jrl=
1 Thomp. Corp. § 1299.] the contract of subscription.
pleadings may be such in a particular case as to justify this con-
clusion, — as where the corporation counts on the contract, and
the subscriber admits the contract, but pleads the alteration, and
the corporation replies, alleging his assent thereto. But where
an alteration of the subscription paper is proved by the sub-
scriber, in an action against him for calls, it has been held that
the corporation must then prove that the alteration was made
without its knowledge or consent ; otherwise it cannot recover.^
§ 1299. When Validity of Amendment Submitted to Jury. —
We have already seen that the question of the materiality of the
alteration, in cases such as we are considering, is, like the question
of the materiality of the alteration of any other written instru-
ment, a question of law for the court, and is not to be submitted
to a jury. 2 One case is found where, in seeming violation of
this principle, the question was regarded as proper to be sub-
mitted to the jury. By a supplement to an act incorporating an
iron and railroad company, the name of the company was changed ,
authority was given to purchase and cancel the original stock,
and the main purpose of the new company was to be that of a
general transportation company. The court held that it was a
fair question for the jury, whether a combination to change the
fundamental purpose of the original act by the supplement, and
divert the stock of an original subscriber to this new end, was
not a fraud upon him; and if they so found, an action for the
amount of this original subscription could not be sustained.^
1 Bery v. Marietta &c. K. Co., 26 3 Southern Pa. Iron &c. Co. ». Stev-
Oh. St. 673. ens, 87 Pa. St. 190.
■^ Ante, § 85.
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