A A ^-^^=o sou =s ^ =-^ — s 8 1 GIONAL 8 6 LIBRARY 6 _:^ 3 R. H. F. V ARIEL ATTORNEY AT LAW LOS ANQCLB8. CAL. N f 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 E. Z. Save for the two years during which the final preparation of the manuscript of this ivork has withdrawn me from your society, you have been the companion of this and of my other literary labors.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. 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 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 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■ 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 - _ - 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 ussocia- ^ 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. 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 venitting 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/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. 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 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. 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 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/ace 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 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-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«, 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- 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 , 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/ 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?«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 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., 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. 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. 1008 n UC SOUTHERN REGIONAL LIBRARY FACILITY AA 000 818 660 3